UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
  _______________________________________________________________
FORM 10-Q
  _______________________________________________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015

or

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            

Commission File number 001-32959
_______________________________________________________________
  AIRCASTLE LIMITED
(Exact name of registrant as specified in its charter)
  _______________________________________________________________
Bermuda
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   ¨
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   þ     NO   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
þ
Accelerated filer
¨
Non-accelerated filer
o   (Do not check if a smaller reporting company)
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   ¨     NO   þ
As of April 30, 2015 , there were 81,181,133 outstanding shares of the registrant’s common shares, par value $0.01 per share.


Aircastle Limited and Subsidiaries
Form 10-Q
Table of Contents
 
 
 
Page
No.
 
 
Item 1.
 
 
Consolidated Balance Sheets as of December 31, 2014 and March 31, 2015
 
Consolidated Statements of Income for the three months ended March 31, 2014 and 2015
 
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2014 and 2015
 
Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2015
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Item 4.
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

2

PART I. — FINANCIAL INFORMATION
Item 1.        Financial Statements
Aircastle Limited and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share data)
 
 
December 31,
2014
 
March 31,
2015
 
 
 
(Unaudited)
ASSETS
 
 
 
Cash and cash equivalents
$
169,656

 
$
329,992

Accounts receivable
3,334

 
2,386

Restricted cash and cash equivalents
98,884

 
86,961

Restricted liquidity facility collateral
65,000

 
65,000

Flight equipment held for lease, net of accumulated depreciation of $1,294,063 and $1,362,647
5,579,718

 
5,712,950

Net investment in finance leases
106,651

 
104,377

Unconsolidated equity method investment
46,453

 
47,842

Other assets
157,317

 
174,858

Total assets
$
6,227,013

 
$
6,524,366

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
LIABILITIES
 
 
 
Borrowings from secured financings
$
1,396,454

 
$
1,343,237

Borrowings from unsecured financings
2,400,000

 
2,700,000

Accounts payable, accrued expenses and other liabilities
140,863

 
157,175

Lease rentals received in advance
53,216

 
53,300

Liquidity facility
65,000

 
65,000

Security deposits
117,689

 
107,016

Maintenance payments
333,456

 
345,086

Total liabilities
4,506,678

 
4,770,814

 
 
 
 
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, 80,983,249 shares issued and outstanding at December 31, 2014; and 81,181,133 shares issued and outstanding at March 31, 2015
810

 
812

Additional paid-in capital
1,565,180

 
1,564,881

Retained earnings
192,805

 
218,214

Accumulated other comprehensive loss
(38,460
)
 
(30,355
)
Total shareholders’ equity
1,720,335

 
1,753,552

Total liabilities and shareholders’ equity
$
6,227,013

 
$
6,524,366


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 March 31,
 
2014
 
2015
Revenues:
 
 
 
Lease rental revenue
$
174,335

 
$
177,146

Finance lease revenue
3,987

 
1,607

Amortization of lease premiums, discounts and lease incentives
(6,591
)
 
(3,824
)
Maintenance revenue
3,042

 
18,073

Total lease revenue
174,773

 
193,002

Other revenue
1,830

 
1,294

Total revenues
176,603

 
194,296

 
 
 
 
Operating expenses:
 
 
 
Depreciation
73,927

 
74,846

Interest, net
64,263

 
62,131

Selling, general and administrative (including non-cash share based payment expense of $990 and $1,170 for the three months ended March 31, 2014 and 2015, respectively)
13,944

 
13,932

Impairment of Aircraft
18,263

 
—

Maintenance and other costs
1,863

 
2,943

Total expenses
172,260

 
153,852

 
 
 
 
Other income (expense):
 
 
 
Gain on sale of flight equipment
1,110

 
6,253

Other
757

 
(6
)
Total other income (expense)
1,867

 
6,247

 
 
 
 
Income from continuing operations before income taxes
6,210

 
46,691

Income tax provision
883

 
4,863

Earnings of unconsolidated equity method investment, net of tax
450

 
1,441

Net income
$
5,777

 
$
43,269

 
 
 
 
Earnings per common share — Basic:
 
 
 
Net income per share
$
0.07

 
$
0.53

 
 
 
 
Earnings per common share — Diluted:
 
 
 
Net income per share
$
0.07

 
$
0.53

 
 
 
 
Dividends declared per share
$
0.200

 
$
0.220


The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

Aircastle Limited and Subsidiaries
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
(Unaudited)
 
 
Three Months Ended March 31,
 
2014
 
2015
 
 
 
 
Net income
$
5,777

 
$
43,269

Other comprehensive income, net of tax:
 
 
 
Net change in fair value of derivatives, net of tax expense of $804 and tax benefit of $3 for the three months ended March 31, 2014 and 2015, respectively
370

 
(128
)
Net derivative loss reclassified into earnings
9,327

 
8,233

Other comprehensive income
9,697

 
8,105

Total comprehensive income
$
15,474

 
$
51,374



The accompanying notes are an integral part of these unaudited consolidated financial statements.

5

Aircastle Limited and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
 
Three Months Ended March 31,
 
2014
 
2015
Cash flows from operating activities:
 
 
 
Net income (loss)
$
5,777

 
$
43,269

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
73,927

 
74,846

Amortization of deferred financing costs
3,420

 
3,699

Amortization of net lease discounts and lease incentives
6,591

 
3,824

Deferred income taxes
1,347

 
2,110

Non-cash share based payment expense
990

 
1,170

Cash flow hedges reclassified into earnings
9,327

 
8,233

Security deposits and maintenance payments included in earnings
(14,786
)
 
(4,481
)
Gain on sale of flight equipment
(1,110
)
 
(6,253
)
Impairment of aircraft
18,263

 
—

Other
(2,162
)
 
209

Changes in certain assets and liabilities:
 
 
 
Accounts receivable
(1,496
)
 
948

Other assets
(1,171
)
 
(7,176
)
Accounts payable, accrued expenses and other liabilities
2,907

 
12,874

Lease rentals received in advance
1,167

 
(344
)
Net cash provided by operating activities
102,991

 
132,928

Cash flows from investing activities:
 
 
 
Acquisition and improvement of flight equipment and lease incentives
(663,038
)
 
(264,271
)
Proceeds from sale of flight equipment
28,018

 
50,525

Aircraft purchase deposits and progress payments
3,280

 
(1,250
)
Collections on finance leases
2,773

 
2,274

Other
(19
)
 
(372
)
Net cash used in investing activities
(628,986
)
 
(213,094
)
Cash flows from financing activities:
 
 
 
Issuance of shares net of repurchases
(2,091
)
 
(1,960
)
Proceeds from notes and term debt financings
803,200

 
500,000

Securitization and term debt financing repayments
(287,778
)
 
(253,681
)
Deferred financing costs
(14,755
)
 
(8,971
)
Restricted liquidity facility collateral
42,000

 
—

Liquidity facility
(42,000
)
 
—

Restricted cash and cash equivalents related to financing activities
20,310

 
11,923

Security deposits and maintenance payments received
41,901

 
33,365

Security deposits and maintenance payments returned
(25,681
)
 
(22,314
)
Payments for terminated cash flow hedges
(33,427
)
 
—

Dividends paid
(16,201
)
 
(17,860
)
Net cash provided by financing activities
485,478

 
240,502

Net increase (decrease) in cash and cash equivalents
(40,517
)
 
160,336

Cash and cash equivalents at beginning of period
654,613

 
169,656

Cash and cash equivalents at end of period
$
614,096

 
$
329,992

Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest, net of capitalized interest
$
36,089

 
$
23,858

Cash paid for income taxes
$
1,467

 
$
2,662

Supplemental disclosures of non-cash investing activities:
 
 
 
Purchase deposits, advance lease rentals, security deposits and maintenance payments assumed in asset acquisitions
$
1,522

 
$
3,050

Term debt financings assumed in asset acquisitions
$
39,061

 
$
—

Advance lease rentals, security deposits, and maintenance payments settled in sale of flight equipment
$
3,655

 
$
11,162



The accompanying notes are an integral part of these unaudited consolidated financial statements.

6


Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2015



Note 1. Summary of Significant Accounting Policies
Organization and Basis of Presentation
Aircastle Limited (“Aircastle,” the “Company,” “we,” “us” or “our”) is a Bermuda exempted company that was incorporated on October 29, 2004 under the provisions of Section 14 of the Companies Act of 1981 of Bermuda. Aircastle’s business is investing in aviation assets, including acquiring, leasing, managing and selling high utility commercial jet aircraft.
Aircastle is a holding company that conducts its business through subsidiaries. Aircastle directly or indirectly owns all of the outstanding common shares of its subsidiaries. The consolidated financial statements presented are prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”). We operate in one 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, 2014 .
The Company’s management has reviewed and evaluated all events or transactions for potential recognition and/or disclosure since the balance sheet date of March 31, 2015 through the date on which the consolidated financial statements included in this Form 10-Q were issued.
Principles of Consolidation
The consolidated financial statements include the accounts of Aircastle and all of its subsidiaries. Aircastle consolidates seven Variable Interest Entities (“VIEs”) of which Aircastle is the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.
We consolidate VIEs in which we have determined that we are the primary beneficiary. We use judgment when deciding (a) whether an entity is subject to consolidation as a VIE, (b) who the variable interest holders are, (c) the potential expected losses and residual returns of the variable interest holders, and (d) which variable interest holder is the primary beneficiary. When determining which enterprise is the primary beneficiary, we consider (1) the entity’s purpose and design, (2) which variable interest holder has the power to direct the activities that most significantly impact the entity’s economic performance, and (3) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. When certain events occur, we reconsider whether we are the primary beneficiary of VIEs. We do not reconsider whether we are a primary beneficiary solely because of operating losses incurred by an entity.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. While Aircastle believes that the estimates and related assumptions used in the preparation of the consolidated financial statements are appropriate, actual results could differ from those estimates.
Proposed Accounting Pronouncements
In May 2013, the FASB issued re-exposure draft, “Leases” (the “Lease Re-ED”), which would replace the existing guidance in the Accounting Standards Codification (“ASC”) 840 (“ASC 840”), Leases . In March 2014, the FASB decided that the accounting for leases by lessors would basically remain unchanged from the concepts existing in current ASC 840 accounting. In addition, the FASB decided that a lessor should be precluded from recognizing selling profit and revenue at lease commencement for any sales-type or direct finance lease that does not transfer control of the underlying asset to the lessee. This requirement aligns the notion of what constitutes a sale in the lessor accounting guidance with that in the forthcoming revenue recognition standard, which evaluates whether a sale has occurred from the customer’s perspective.

7


Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2015


We anticipate that the final standard may have an effective date no earlier than 2018. We believe that when and if the proposed guidance becomes effective, it will not have a material impact on the Company’s consolidated financial statements.
On May 28, 2014, the FASB and the International Accounting Standards Board (the “IASB”) (collectively, the Boards), jointly issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). Lease contracts within the scope of ASC 840, Leases , are specifically excluded from ASU No. 2014-09. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. The standard is effective for public entities beginning after December 15, 2017. The standard allows for either “full retrospective” adoption, meaning the standard is applied to all of the periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosu res. The Company is currently evaluating the impacts of adoption and the implementation approach to be used.
On August 27, 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40). The standard requires management of public companies to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern and, if so, disclose that fact. Management should evaluate whether there are conditions or events, considered in the aggregate, that raises substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued, when applicable). The standard is effective for annual periods ending after December 15, 2016 and interim periods thereafter, and early adoption is permitted. We are currently evaluating the effect of the ASU on our consolidated financial statements and related disclosures.
On April 7, 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs , which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. The guidance in the new standard is limited to the presentation of debt issuance costs and does not affect the recognition and measurement of debt issuance costs. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. The new guidance will be applied on a retrospective basis. We are currently evaluating the effect of the ASU on our consolidated financial statements and related disclosures.

Note 2. Fair Value Measurements
Fair value measurements and disclosures require the use of valuation techniques to measure fair value that maximize the use of observable inputs and minimize use of unobservable inputs. These inputs are prioritized as follows:
•
Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.
•
Level 2: Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities or market corroborated inputs.
•
Level 3: Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants price the asset or liability.
The valuation techniques that may be used to measure fair value are as follows:
•
The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
•
The income approach uses valuation techniques to convert future amounts to a single present amount based on current market expectation about those future amounts.
•
The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).

8


Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2015


The following tables set forth our financial assets and liabilities as of December 31, 2014 and March 31, 2015 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 Measurements at December 31, 2014 Using Fair Value Hierarchy
 
Fair Value as of December 31, 2014
 
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Valuation
Technique
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
169,656

 
$
169,656

 
$
—

 
$
—

 
Market
Restricted cash and cash equivalents
98,884

 
98,884

 
—

 
—

 
Market
Total
$
268,540

 
$
268,540

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Derivative liabilities
$
2,879

 
$
—

 
$
2,879

 
$
—

 
Income

 
 
 
Fair Value Measurements at March 31, 2015 Using Fair Value Hierarchy
 
Fair Value as of March 31, 2015
 
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Valuation
Technique
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
329,992

 
$
329,992

 
$
—

 
$
—

 
Market
Restricted cash and cash equivalents
86,961

 
86,961

 
—

 
—

 
Market
Total
$
416,953

 
$
416,953

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Derivative liabilities
$
3,121

 
$
—

 
$
3,121

 
$
—

 
Income

Our cash and cash equivalents, along with our restricted cash and cash equivalents balances, consist largely of money market securities that are considered to be highly liquid and easily tradable. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within our fair value hierarchy. Our interest rate derivatives included in Level 2 consist of United States dollar-denominated interest rate derivatives, and their fair values are determined by applying standard modeling techniques under the income approach to relevant market interest rates (cash rates, futures rates, swap rates) in effect at the period close to determine appropriate reset and discount rates and incorporates an assessment of the risk of non-performance by the interest rate derivative counterparty in valuing derivative assets and an evaluation of the Company’s credit risk in valuing derivative liabilities.
For the three months ended March 31, 2014 and 2015 , we had no transfers into or out of Level 3.
We measure the fair value of certain assets and liabilities on a non-recurring basis, when 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 our investment in an unconsolidated joint venture and aircraft. We account for our investment in an unconsolidated joint venture under the equity method of accounting and record impairment when its fair value is less than its carrying value. We record aircraft at fair value when we determine the carrying value may not be recoverable. Fair value measurements for aircraft in impairment tests are based on an income approach

9


Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2015


which uses Level 3 inputs, which include the Company’s assumptions and appraisal data as to future cash proceeds from leasing and selling aircraft.

Aircraft Valuation
During the first quarter of 2014, we impaired two aircraft, one Boeing 737-400, which was returned to us as scheduled by the lessee, and one Boeing 747-400 converted freighter, for which we agreed to an early lease termination with our customer which we refer to as “Transactional Impairments.” For these two aircraft, we recorded impairment charges totaling $18,263 and recorded maintenance revenue of $17,176 during the three months ended March 31, 2014.
During the first quarter of 2015, we did not incur any impairment charges.
        
Financial Instruments
Our financial instruments, other than cash, consist principally of cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable, amounts borrowed under financings and interest rate derivatives. The fair value of cash, cash equivalents, restricted cash and cash equivalents, accounts receivable and accounts payable approximates the carrying value of these financial instruments because of their short-term nature.
The fair value of our Securitization, which contains a third party credit enhancement, is estimated using a discounted cash flow analysis, based on our current incremental borrowing rates of borrowing arrangements that do not contain third party credit enhancements. The fair values of our ECA term financings and bank financings are estimated using a discounted cash flow analysis, based on our current incremental borrowing rates for similar types of borrowing arrangements. The fair value of our Senior Notes is estimated using quoted market prices.
 The carrying amounts and fair values of our financial instruments at December 31, 2014 and March 31, 2015 are as follows:
 
December 31, 2014
 
March 31, 2015
 
Carrying  Amount
of Asset
(Liability)
 
Fair Value
of Asset
(Liability)
 
Carrying  Amount
of Asset
(Liability)
 
Fair Value
of Asset
(Liability)
Securitization
$
(391,680
)
 
$
(376,752
)
 
$
(361,011
)
 
$
(347,596
)
Credit Facilities
(200,000
)
 
(200,000
)
 
—

 
—

ECA term financings
(449,886
)
 
(471,918
)
 
(438,673
)
 
(463,800
)
Bank financings
(554,888
)
 
(560,285
)
 
(543,553
)
 
(551,017
)
Senior Notes
(2,200,000
)
 
(2,300,615
)
 
(2,700,000
)
 
(2,913,534
)
All of our financial instruments are classified as Level 2 with the exception of our Senior Notes, which are classified as Level 1.

Note 3. Lease Rental Revenues and Flight Equipment Held for Lease
Minimum future annual lease rentals contracted to be received under our existing operating leases of flight equipment at March 31, 2015 were as follows:

10


Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2015


Year Ending December 31,
Amount
Remainder of 2015
$
527,280

2016
644,305

2017
543,005

2018
446,092

2019
378,953

Thereafter
1,139,065

Total
$
3,678,700


Geographic concentration of lease rental revenue earned from flight equipment held for lease was as follows:
 
Three Months Ended March 31,
Region
2014
 
2015
Asia and Pacific
42
%
 
42
%
Europe
29
%
 
29
%
South America
9
%
 
14
%
Middle East and Africa
10
%
 
9
%
North America
10
%
 
6
%
Total
100
%
 
100
%

The classification of regions in the tables above and in the table and discussion below is determined based on the principal location of the lessee of each aircraft.
For the three months ended March 31, 2014 , one customer accounted for 6% of lease rental revenue. No other customer accounted for more than 5% of lease rental revenue.
For the three months ended March 31, 2015 , one customer accounted for 7% of lease rental revenue. No other customer accounted for more than 5% of lease rental revenue.
The following table sets forth revenue attributable to individual countries representing at least 10% of total revenue based on each lessee’s principal place of business:
 
Three Months Ended March 31,
 
2014
 
2015
Country
Revenue
 
Percent of
Total
Revenue
 
Number
of
Lessees
 
Revenue
 
Percent of
Total
Revenue
 
Number
of
Lessees
Netherlands (1)
$
—

 
—
%
 
—

 
$
22,947

 
12
%
 
1

China (2)
21,601

 
12
%
 
4

 
—

 
—
%
 
—

            
(1) Total revenue was less than 10% for the three months ended March 31, 2014. Total revenue for the three months ended March 31, 2015 includes $13,186 of maintenance revenue related to a lease termination.
(2) Total revenue for the three months ended March 31, 2014 includes $11,264 of maintenance revenue related to a lease termination. Total revenue was less than 10% for the three months ended March 31, 2015.

Geographic concentration of net book value of flight equipment (includes net book value of flight equipment held for lease and net investment in finance leases) was as follows:

11


Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2015


 
December 31, 2014
 
March 31, 2015
Region
Number
of
Aircraft
 
Net Book
Value %
 
Number
of
Aircraft
 
Net Book
Value %
Asia and Pacific
46

 
40
%
 
44

 
39
%
Europe
65

 
29
%
 
65

 
28
%
South America
13

 
14
%
 
15

 
15
%
Middle East and Africa
6

 
10
%
 
6

 
9
%
North America
17

 
7
%
 
17

 
7
%
Off-lease
1

(1)  
—
%
 
5

(2)  
2
%
Total
148

 
100
%
 
152

 
100
%
 
_______________

(1)
Consisted of one Airbus A320-200 aircraft which was subject to a commitment to lease and was delivered to our customer in February 2015.
(2)
Consisted of five 737-800 aircraft, all of which are all subject to lease commitments and are expected to be delivered to customers during the second quarter of 2015.

At December 31, 2014 and March 31, 2015 , no country represented at least 10% of net book value of flight equipment based on each lessee’s principal place of business.
  At December 31, 2014 and March 31, 2015 , the amounts of lease incentive liabilities recorded in maintenance payments on the consolidated balance sheets were $22,833 and $24,944 , respectively.

Note 4. Net Investment in Finance Leases
At March 31, 2015 , our net investment in finance leases represents six aircraft leased to three customers in the United States, one aircraft leased to a customer in Canada and one aircraft leased to a customer in Croatia. The following table lists the components of our net investment in finance leases at March 31, 2015 :
 
 
Amount
Total lease payments to be received
 
$
72,212

Less: Unearned income
 
(19,124
)
Estimated residual values of leased flight equipment (unguaranteed)
 
51,289

    Net investment in finance leases
 
$
104,377


At March 31, 2015 , minimum future lease payments on finance leases are as follows:
Year Ending December 31,
 
Amount
Remainder of 2015
 
$
12,128

2016
 
16,009

2017
 
15,024

2018
 
6,980

2019
 
6,900

Thereafter
 
15,171

    Total
 
$
72,212





12


Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2015


Note 5. Unconsolidated Equity Method Investment
On December 19, 2013, the Company and an affiliate of Ontario Teachers’ Pension Plan (“Teachers’”) formed a joint venture (the “JV”), in which we hold a 30% equity interest, to invest in leased aircraft. Teachers’ holds more than 9.7% of our outstanding common shares.
The Company has recorded a $4,613 guarantee liability, which is reflected in Maintenance payments on the balance sheet and a $5,400 guarantee liability, which is reflected in Security deposits on the balance sheet.
Investment in joint venture at December 31, 2014
 
$
46,453

Investment in joint venture
 
1,337

Earnings from joint venture, net of tax
 
1,441

Distributions
 
(1,389
)
Investment in joint venture at March 31, 2015
 
$
47,842

 
 
 

Note 6. Variable Interest Entities
Aircastle consolidates seven VIEs of which it is the primary beneficiary. The operating activities of these VIEs are limited to acquiring, owning, leasing, maintaining, operating and, under certain circumstances, selling the 14 aircraft discussed below.
Securitization
Aircastle is the primary beneficiary of ACS Ireland 2, as we have both the power to direct the activities of the VIE that most significantly impacts the economic performance of such VIE and we bear the significant risk of loss and participate in gains through Class E-1 Securities. Although Aircastle has not guaranteed the ACS Ireland 2 debt, Aircastle wholly owns ACS Bermuda 2 which has fully and unconditionally guaranteed the ACS Ireland 2 VIE obligations. The activity that most significantly impacts the economic performance is the leasing of aircraft. Aircastle Advisor (Ireland) Limited (Aircastle’s wholly owned subsidiary) is the remarketing servicer and is responsible for the leasing of the aircraft. An Irish charitable trust owns 95% of the common shares of ACS Ireland 2. The Irish charitable trust’s risk is limited to its annual dividend of $2 . At March 31, 2015 , the assets of ACS Ireland 2 include six aircraft transferred into the VIE at historical cost basis in connection with Securitization No. 2.
The assets of the ACS Ireland 2 as of March 31, 2015 are $168,500 . The liabilities of the ACS Ireland 2, net of $40,351 Class E-1 Securities held by the Company, which is eliminated in consolidation, as of March 31, 2015 are $123,955 .

ECA Term Financings
Aircastle, through various subsidiaries, each of which is owned by a charitable trust (such entities, collectively the “Air Knight VIEs”), has entered into eight different twelve -year term loans, which are supported by guarantees from Compagnie Francaise d’ Assurance pour le Commerce Exterieur, (“COFACE”), the French government sponsored export credit agency (“ECA”). We refer to these COFACE-supported financings as “ECA Term Financings.”
Aircastle is the primary beneficiary of the Air Knight VIEs, as we have the power to direct the activities of the VIEs that most significantly impact the economic performance of such VIEs and we bear the significant risk of loss and participate in gains through a finance lease. The activity that most significantly impacts the economic performance is the leasing of aircraft of which our wholly owned subsidiary is the servicer and is responsible for managing the relevant aircraft. There is a cross collateralization guarantee between the Air Knight VIEs. In addition, Aircastle guarantees the debt of the Air Knight VIEs.
The only assets that the Air Knight VIEs have on their books are financing leases that are eliminated in the consolidated financial statements and deferred financing costs. The related aircraft, with a net book value as of March 31, 2015 of $637,982 were included in our flight equipment held for lease. The consolidated debt outstanding of the Air Knight VIEs as of March 31, 2015 is $438,673 .

13


Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2015



Note 7. Secured and Unsecured Debt Financings
The outstanding amounts of our secured and unsecured term debt financings are as follows:
 
At December 31, 2014
 
At March 31, 2015
Debt Obligation
Outstanding
Borrowings
 
Outstanding
Borrowings
 
Number of Aircraft
 
Interest Rate (1)
 
Final Stated
Maturity (2)
Secured Debt Financings:
 
 
 
 
 
 
 
 
 
Securitization No. 2
391,680

 
361,011

 
32
 
0.49%
 
06/14/37
ECA Term Financings
449,886

 
438,673

 
8
 
3.02% to 3.96%
 
12/3/21 to 11/30/24
Bank Financings
554,888

 
543,553

 
13
 
1.18% to 5.09%
 
09/15/15 to 04/19/25
Total secured debt financings
1,396,454

 
1,343,237

 
53
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unsecured Debt Financings:
 
 
 
 
 
 
 
 
 
Senior Notes due 2017
500,000

 
500,000

 
 
 
6.75%
 
04/15/17
Senior Notes due 2018
400,000

 
400,000

 
 
 
4.625%
 
12/05/18
Senior Notes due 2019
500,000

 
500,000

 
 
 
6.250%
 
12/01/19
Senior Notes due 2020
300,000

 
300,000

 
 
 
7.625%
 
04/15/20
Senior Notes due 2021
500,000

 
500,000

 
 
 
5.125%
 
03/15/21
Senior Notes due 2022
—

 
500,000

 
 
 
5.50%
 
02/15/22
Revolving Credit Facility
200,000

 
—

 
 
 
N/A
 
03/31/18
Total unsecured debt financings
2,400,000

 
2,700,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total secured and unsecured debt financings
$
3,796,454

 
$
4,043,237

 
 
 
 
 
 
 
        
(1)
Reflects the floating rate in effect at the applicable reset date plus the margin for Securitization No. 2, three of our Bank Financings, and our Revolving Credit Facility. All other financings have a fixed rate.
(2)
For Securitization No. 2, all cash flows available after expenses and interest are applied to debt amortization.


The following Securitization includes a liquidity facility commitment described in the table below: 
 
 
 
Available Liquidity
 
 
 
 
Facility
Liquidity Facility Provider
 
December 31,
2014
 
March 31,
2015
 
Unused
Fee
 
Interest Rate
on any Advances
Securitization No. 2
HSH Nordbank AG
 
$
65,000

 
$
65,000

 
0.50%
 
1M Libor + 0.75
 

Secured Debt Financings:

ECA Term Financings

As described in Note 6 - Variable Interest Entities, we refer to our COFACE-supported financings as “ECA Term Financings.” In addition, Aircastle Limited has guaranteed the repayment of the ECA Term Financings. The borrowings under these financings at March 31, 2015 have a weighted average rate of interest of 3.57% .





14


Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2015


Bank Financings

Our Bank Financings contain, among other customary provisions, a $500,000 minimum net worth covenant and, in some cases, a cross-default to other financings with the same lender. In addition, Aircastle Limited has guaranteed the repayment of the Bank Financings. The borrowings under these financings at March 31, 2015 have a weighted average fixed rate of interest of 3.44% .

Unsecured Debt Financings:

Senior Notes due 2022

On January 15, 2015, Aircastle Limited issued $500,000 aggregate principal amount of Senior Notes due 2022 (the "2022 Senior Notes") at par. The 2022 Senior Notes will mature on February 15, 2022 and bear interest at the rate of 5.50% per annum, payable semi-annually on February 15 and August 15 of each year, commencing on August 15, 2015. Interest accrues on the 2022 Senior Notes from January 15, 2015.

We may redeem the Senior Notes due 2022 at any time at a redemption price equal to (a) 100% of the principal amount of the notes redeemed, plus accrued and unpaid interest thereon to, but not including, the redemption date and (b) the sum of the present values of the remaining scheduled payments of principal and interest on the notes from the redemption date through the maturity date of the notes (computed using a discount rate equal to the Treasury Rate (as defined in the indenture governing the notes) as of such redemption date plus 50 basis points). In addition, on or before February 15, 2018, we may redeem up to 35% of the aggregate principal amount of the notes issued under the indenture at a redemption price equal to 105.50% plus accrued and unpaid interest thereon to, but not including, the redemption date, with the net proceeds of certain equity offerings. If the Company undergoes a change of control, it must offer to repurchase the Senior Notes due 2022 at 101% of the principal amount, plus accrued and unpaid interest. The Senior Notes due 2022 are not guaranteed by any of the Company's subsidiaries or any third party.

Revolving Credit Facility

On January 26, 2015, we increased the size of our Revolving Credit Facility from $450,000 to $600,000 . The facility was undrawn as of March 31, 2015 .

As of March 31, 2015 , we are in compliance with all applicable covenants in all of our financings.

Note 8. Dividends
The following table sets forth the quarterly dividends declared by our board of directors for the periods covered in this report: 
Declaration Date
Dividend
per Common
Share
 
Aggregate
Dividend
Amount
 
Record Date
 
Payment Date
February 21, 2014
$
0.200

 
$
16,201

 
March 7, 2014
 
March 14, 2014
May 5, 2014
$
0.200

 
$
16,202

 
May 30, 2014
 
June 13, 2014
July 28, 2014
$
0.200

 
$
16,201

 
August 29, 2014
 
September 12, 2014
October 31, 2014
$
0.220

 
$
17,817

 
November 28, 2014
 
December 15, 2014
February 17, 2015
$
0.220

 
$
17,860

 
March 6, 2015
 
March 13, 2015




15


Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2015



Note 9. Earnings Per Share
We include all common shares granted under our incentive compensation plan which remain unvested (“restricted common shares”) and contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid (“participating securities”), in the number of shares outstanding in our basic earnings per share 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 is 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:
 
Three Months Ended March 31,
 
2014
 
2015
Weighted-average shares:
 
 
 
Common shares outstanding
80,387,371

 
80,564,440

Restricted common shares
500,524

 
515,477

Total weighted-average shares
80,887,895

 
81,079,917

 
 
 
 
Percentage of weighted-average shares:
 
 
 
Common shares outstanding
99.38
%
 
99.36
%
Restricted common shares
0.62
%
 
0.64
%
Total
100.00
%
 
100.00
%

The calculations of both basic and diluted earnings per share are as follows: 
 
Three Months Ended March 31,
 
2014
 
2015
Earnings per share – Basic:
 
 
 
Net income
$
5,777

 
$
43,269

Less: Distributed and undistributed earnings allocated to restricted common shares (a)
(36
)
 
(275
)
Earnings available to common shareholders – Basic
$
5,741

 
$
42,994

 
 
 
 
Weighted-average common shares outstanding – Basic
80,387,371

 
80,564,440

 
 
 
 
Earnings per common share – Basic
$
0.07

 
$
0.53

 
 
 
 
Earnings per share – Diluted:
 
 
 
Net income
$
5,777

 
$
43,269

Less: Distributed and undistributed earnings allocated to restricted common shares (a)
(36
)
 
(275
)
Earnings available to common shareholders – Diluted
$
5,741

 
$
42,994

 
 
 
 
Weighted-average common shares outstanding – Basic
80,387,371

 
80,564,440

Effect of dilutive shares (b)
—

 
—

Weighted-average common shares outstanding – Diluted
80,387,371

 
80,564,440

 
 
 
 
Earnings per common share – Diluted
$
0.07

 
$
0.53

 

16


Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2015


        
(a)
For the three months ended March 31, 2014 and 2015, distributed and undistributed earnings to restricted shares is 0.62% and 0.64% of net income. The amount of restricted share forfeitures for all periods present is immaterial to the allocation of distributed and undistributed earnings.
(b)
For the three months ended March 31, 2014 and 2015 , we had no dilutive shares.


Note 10. Income Taxes
Income taxes have been provided for based upon the tax laws and rates in countries in which our operations are conducted and income is earned. The Company received an assurance from the Bermuda Minister of Finance that it would be exempted from local income, withholding and capital gains taxes until March 2035. Consequently, the provision for income taxes relates to income earned by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose income taxes, primarily Singapore, Ireland and the United States.
The sources of income from continuing operations before income taxes and earnings of unconsolidated equity method investment for the three months ended March 31, 2014 and 2015 were as follows: 
 
Three Months Ended March 31,
 
2014
 
2015
U.S. operations
$
765

 
$
380

Non-U.S. operations
5,445

 
46,311

Total
$
6,210

 
$
46,691


All of our aircraft-owning subsidiaries that are recognized as corporations for U.S. tax purposes are non-U.S. corporations. These non-U.S. subsidiaries generally earn income from sources outside the United States and typically are not subject to U.S. federal, state or local income taxes unless they operate within the U.S., in which case they may be subject to federal, state and local income taxes. The aircraft owning subsidiaries resident in Ireland, Mauritius and Singapore are subject to tax in those respective jurisdictions.
We have a U.S. based subsidiary which provides management services to our non-U.S. subsidiaries and is subject to U.S. federal, state and local income taxes. We also have Ireland and Singapore based subsidiaries which provide management services to our non-U.S. subsidiaries and are subject to tax in those respective jurisdictions.
The consolidated income tax expense for the three months ended March 31, 2014 and 2015 was determined based upon estimates of the Company’s consolidated effective income tax rates for the years ending December 31, 2014 and 2015, respectively.
The Company’s effective tax rate for the three months ended March 31, 2014 was 14.2% compared to 10.4% for the three months ended March 31, 2015 . Movements in the effective tax rates are generally caused by changes in the proportion of the Company’s pre-tax earnings in taxable and non-tax jurisdictions.
Differences between statutory income tax rates and our effective income tax rates applied to pre-tax income consisted of the following: 

17


Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2015


 
Three Months Ended March 31,
 
2014
 
2015
Notional U.S. federal income tax expense (benefit) at the statutory rate
$
2,173

 
$
16,342

U.S. state and local income tax, net
79

 
42

Non-U.S. operations:
 
 
 
Bermuda
3,429

 
(8,527
)
Ireland
(3,289
)
 
(1,122
)
Singapore
(1,195
)
 
(1,356
)
Other
(598
)
 
(678
)
Non-deductible expenses in the U.S.
299

 
170

Other
(15
)
 
(8
)
Income tax provision
$
883

 
$
4,863


Note 11. Interest, Net
The following table shows the components of interest, net: 
 
Three Months Ended March 31,
 
2014
 
2015
Interest on borrowings, net settlements on interest rate derivatives, and other liabilities
$
51,685

 
$
50,235

Hedge ineffectiveness losses
53

 
—

Amortization of interest rate derivatives related to deferred losses
9,327

 
8,233

Amortization of deferred financing fees
3,420

 
3,699

Interest Expense
64,485

 
62,167

Less interest income
(222
)
 
(36
)
Interest, net
$
64,263

 
$
62,131


Note 12. Commitments and Contingencies
At March 31, 2015 , we had commitments to acquire 11 aircraft for $321,925 . As of April 30, 2015, after taking into account additional commitments and aircraft acquisitions during April 2015, we have acquired or have commitments to acquire 25 aircraft for $ 769,225 that we expect to complete by September 30, 2015.

Note 13. Other Assets
The following table describes the principal components of other assets on our consolidated balance sheet as of:
 
December 31,
2014
 
March 31,
2015
Deferred debt issuance costs, net of amortization of $53,094 and $56,329, respectively
$
51,867

 
$
57,595

Deferred federal income tax asset
567

 
490

Lease incentives and lease premiums, net of amortization of $26,477 and $30,664, respectively
75,587

 
77,173

Flight equipment held for sale
7,455

 
5,180

Other assets
21,841

 
34,420

Total other assets
$
157,317

 
$
174,858

 


18


Aircastle Limited and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
March 31, 2015


Note 14. Accounts Payable, Accrued Expenses and Other Liabilities
The following table describes the principal components of accounts payable, accrued expenses and other liabilities recorded on our consolidated balance sheet as of:
 
December 31,
2014
 
March 31,
2015
Accounts payable and accrued expenses
$
40,765

 
$
30,708

Deferred federal income tax liability
37,340

 
39,370

Accrued interest payable
27,795

 
54,348

Lease discounts, net of amortization of $9,247 and $11,704 respectively
32,084

 
29,628

Fair value of derivative liabilities
2,879

 
3,121

Total accounts payable, accrued expenses and other liabilities
$
140,863

 
$
157,175


Note 15. Accumulated Other Comprehensive Loss
The following table describes the principal components of accumulated other comprehensive loss recorded on our consolidated balance sheet as of:
Changes in accumulated other comprehensive loss by component (a)
Three Months Ended March 31,
 
2014
 
2015
Beginning balance
$
(75,905
)
 
$
(38,460
)
Amount recognized in other comprehensive loss on derivatives, net of tax expense of $736 and tax benefit of $14, respectively
(2,380
)
 
(1,078
)
Amounts reclassified from accumulated other comprehensive loss into income, net of tax expense of $68 and $11, respectively
12,077

 
9,183

   Net current period other comprehensive income
9,697

 
8,105

Ending balance
$
(66,208
)
 
$
(30,355
)

(a) All amounts are net of tax. Amounts in parentheses indicate debits.


Reclassifications from accumulated other comprehensive loss (a)
Three Months Ended March 31,
 
2014
 
2015
Amount of effective amortization of net deferred interest rate derivative losses (b)
$
9,327

 
$
8,233

Effective amount of net settlements of interest rate derivatives, net of tax expense of $68 and $11, respectively (b)
2,750

 
950

   Amount of loss reclassified from accumulated other comprehensive loss into income (c)
$
12,077

 
$
9,183


(a) All amounts are net of tax.
(b) Included in interest expense.
(c) This represents the effective amounts of actual cash paid related to the net settlements of the interest rate derivatives plus any effective amortization of net deferred interest rate derivative losses.

The amount of deferred net loss expected to be reclassified from OCI into interest expense over the next 12 months related to our terminated interest rate derivatives is $19,749 , of which $2,441 relates to Term Financing No. 1 interest rate derivatives, $10,787 relates to Securitization No. l interest rate derivatives, $5,282 relates to ECA Term Financings for New A330 Aircraft, and $1,239 relates to other financings.
The amount of loss expected to be reclassified from OCI into interest expense over the next 12 months related to net interest settlements on active interest rate derivatives is $2,632 .


19

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, 2014 filed with the Securities and Exchange Commission (the “SEC”). Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, or US GAAP, and, unless otherwise indicated, the other financial information contained in this report has also been prepared in accordance with US GAAP. Unless otherwise indicated, all references to “dollars” and “$” in this report are to, and all monetary amounts in this report are presented in, U.S. dollars.
All statements included or incorporated by reference in this Quarterly Report on Form 10-Q (this “report”), other than characterizations of historical fact, are forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not necessarily limited to, statements relating to our ability to acquire, sell, lease or finance aircraft, raise capital, pay dividends, and increase revenues, earnings, EBITDA, Adjusted EBITDA and Adjusted Net Income and the global aviation industry and aircraft leasing sector. Words such as “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “may,” “will,” “would,” “could,” “should,” “seeks,” “estimates” and variations on these words and similar expressions are intended to identify such forward-looking statements. These statements are based on our historical performance and that of our subsidiaries and on our current plans, estimates and expectations and are subject to a number of factors that could lead to actual results materially different from those described in the forward-looking statements; Aircastle can give no assurance that its expectations will be attained. Accordingly, you should not place undue reliance on any such forward-looking statements which are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this report. These risks or uncertainties include, but are not limited to, those described from time to time in Aircastle’s filings with the SEC and previously disclosed under “Risk Factors” in Item 1 A of Aircastle’s 2014 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 expressly disclaims any obligation to revise or update publicly any forward-looking statement to reflect future events or circumstances.

WEBSITE AND ACCESS TO COMPANY’S REPORTS
The Company’s Internet website can be found at www.aircastle.com. Our annual reports on Forms 10-K, quarterly reports on Forms 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) are available free of charge through our website under “Investors — SEC Filings” as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC.
Statements and information concerning our status as a Passive Foreign Investment Company (“PFIC”) for U.S. taxpayers are also available free of charge through our website under “Investors — SEC Filings.”
Our Corporate Governance Guidelines, Code of Business Conduct and Ethics, and Board of Directors committee charters (including the charters of the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee) are available free of charge through our website under “Investors — Corporate Governance.” In addition, our Code of Ethics for the Chief Executive and Senior Financial Officers, which applies to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Treasurer and Controller, is available in print, free of charge, to any shareholder upon request to Investor Relations, Aircastle Limited, c/o Aircastle Advisor LLC, 300 First Stamford Place, 5th Floor, Stamford, Connecticut 06902.
The information on the Company’s website is not part of, or incorporated by reference, into this report, or any other report we file with, or furnish to, the SEC.



20

OVERVIEW
We acquire, lease, and sell commercial jet aircraft with large, global operator bases and long useful lives. As of March 31, 2015 , our portfolio consisted of 152 aircraft leased to 54 lessees located in 34 countries. Our aircraft fleet is managed by an experienced team based in the United States, Ireland and Singapore. Typically, our aircraft are subject to net leases whereby the lessee is generally responsible for maintaining the aircraft and paying operational, maintenance and insurance costs, although in a majority of cases, we are obligated to pay a portion of specified maintenance or modification costs. As of March 31, 2015 , the net book value of our flight equipment and finance lease aircraft was $5.82 billion compared to $5.69 billion at December 31, 2014. Our revenues and net income for the three months ended March 31, 2015 were $194.3  million and $43.3  million, respectively.
Growth in commercial air traffic is broadly correlated with world economic activity, and has been expanding at a rate one to two times the rate of global GDP growth. The expansion of air travel has driven a rise in the world aircraft fleet. There are currently more than 18,000 commercial mainline passenger and freighter aircraft in operation worldwide. This fleet is expected to continue expanding at an average annual rate of three to five percent per annum over the next 20 years. In addition, aircraft leasing companies own an increasing share of the world’s commercial jet aircraft and now account for approximately 40% of this fleet.
Notwithstanding the sector’s long-term growth, the aviation markets have been, and are expected to remain, subject to economic variability on a global basis and regional basis, as well as to changes in macroeconomic relations such as fuel price levels and exchange rates. The industry is susceptible to external shocks, such as regional conflicts, terrorist events, and to disruptions caused by severe weather events and other natural phenomena. Mitigating these risks is the portability of the assets, allowing aircraft to be redeployed in locations where demand is higher.
For the first three months of 2015, air traffic data showed a continued strong trend in passenger market growth, whereas air cargo traffic showed slow improvement as world trade and economic growth increased.  According to the International Air Transport Association, global passenger traffic increased by 6.1% and air cargo traffic increased by 5.3% during the first three months of 2015 as compared to the same period in 2014.  Passenger traffic growth was strong, driven by rising economic growth and business confidence.  The air cargo market, which is more sensitive than the passenger sector to economic conditions, appears to have stabilized but continues to be hampered by overcapacity.
There are significant regional variations in demand for both passenger and air cargo. Emerging market economies have been experiencing significant increases in air traffic, driven by rising levels of per capita air travel. Air traffic in other regions is being driven by long-term structural changes in global traffic flows, particularly the growth in long-haul "hub and spoke" traffic flowing through the Persian Gulf. In contrast, mature markets, such as North America and Western Europe, are likely to grow more slowly in tandem with their economies. Finally, airlines operating in areas with political instability or where there are geopolitical conflicts, such as Russia, have seen more modest growth and their outlook is more uncertain. Periodic health concerns, such as the recent Ebola virus outbreak, may also play a role in the near-term development of air traffic in certain regions. However, in aggregate, we believe that passenger and cargo traffic will likely increase over time, and as a result, we expect demand for modern, fuel efficient aircraft will continue to remain strong over the long-term.
Capital availability for aircraft has varied over time, and we consider this variability to be a basic characteristic of our business. However, both debt and equity markets improved globally over the past several years with the recovery from the recent global financial crisis. Strong U.S. debt capital markets conditions benefited certain borrowers by permitting access to financing at historic lows while higher fees have driven down export credit agency ("ECA") demand. Commercial bank debt continues to play a critical role in the air finance market with traditional aviation lenders, along with a number of new entrants, providing capacity to top tier airlines and lessors, although we believe regulatory pressures have limited the extent of the bank market's recovery. We believe these market forces should generate attractive new investment and trading opportunities upon which we are well placed to capitalize given our access to the U.S. capital markets. Over the longer term, our strategy is to achieve an investment grade credit rating, which we believe will reduce our borrowing costs and enable more reliable access to debt capital throughout the business cycle.
We believe our business approach is differentiated from those of other large leasing companies. Our investment strategy is to seek out the best risk-adjusted return opportunities across the commercial jet market, so our acquisition targets vary with market opportunities. We focus on discerning investment value in situations that are often more bespoke and generally less competitive.

21

We plan to grow our business and profits over the long-term while maintaining a countercyclical orientation, a bias towards limiting long-dated capital commitments and a conservative and flexible capital structure. Our business strategy entails the following elements:
•
Pursuing a disciplined and differentiated investment strategy. In our view, aircraft values change in different ways over time. As a consequence, we carefully evaluate investments across different aircraft models, ages, lessees and acquisition sources and re-evaluate these choices periodically as market conditions and relative investment values change. We believe the financing flexibility offered through unsecured debt and our team’s experience with a wide range of asset types enables our value oriented strategy and provides us with a competitive advantage for many investment opportunities.
•
Originating investments from many different sources across the globe. Our strategy is to seek out worthwhile investments broadly leveraging our team’s wide range of contacts around the world. We utilize a multi-channel approach to sourcing acquisitions and have purchased aircraft from a large number of airlines, lessors, original equipment manufacturers, lenders and other aircraft owners. Since our formation in 2004, we have acquired aircraft from more than 70 different sellers.
•
Leveraging our strategic relationships. We intend to capture the benefits provided through the extensive global contacts and relationships maintained by Marubeni Corporation, which is both our biggest shareholder and one of the largest Japanese trading companies. Our joint venture with Ontario Teachers’ Pension Plan provides us with an opportunity to pursue larger transactions and to manage portfolio concentrations.
•
Maintaining efficient access to capital from a wide range of sources while targeting an investment grade credit rating. We believe the aircraft investment market is subject to forces related to the business cycle and our strategy is to increase our purchase activity when prices are low and to emphasize asset sales when competition for assets is high. In order to implement this approach, we believe maintaining access to a wide variety of financing sources over the business cycle is very important. Our strategy is to improve our corporate credit ratings to an investment grade level by maintaining strong portfolio and capital structure metrics while achieving a critical size through accretive growth. We believe improving our credit rating will not only reduce our borrowing costs but also facilitate more reliable access to debt capital throughout the business cycle.
•
Selling assets when attractive opportunities arise and for portfolio management purposes.  We pursue asset sales, as opportunities arise over the course of the business cycle, with the aim of realizing profits and reinvesting proceeds where more accretive investments are available. We also use asset sales for portfolio management purposes, such as reducing lessee specific concentrations and lowering residual value exposures to certain aircraft types, and as an exit from investments when a sale or part-out would provide the greatest expected cash flow for us.
•
Capturing the value of our efficient operating platform and strong operating track record. We believe our team's capabilities in the global aircraft leasing market place us in a favorable position to source and manage new income-generating activities. We intend to continue to focus our efforts in areas where we believe we have competitive advantages, including new direct investments as well as ventures with strategic business partners.
•
Intending to pay quarterly dividends to our shareholders based on the Company’s sustainable earnings levels. However our ability to pay quarterly dividends will depend upon many factors, including those as described in Item 1A. “Risk Factors,” and elsewhere in our 2014 Annual Report on Form 10-K. On February 17, 2015 , our board of directors declared a regular quarterly dividend of $0.220 per common share, or an aggregate of $17.9 million for the three months ended March 31, 2015, which was paid on March 13, 2015 to holders of record on March 6, 2015 . These dividends may not be indicative of the amount of any future dividends.

We believe our team’s capabilities and our track record allow us to explore new income-generating activities as capital becomes available for such activities. We intend to continue to pursue investment opportunities where we believe we have competitive advantages and on transactions that offer attractive risk/return profiles after taking into consideration available financing options. However, there can be no assurance that we will be able to access capital on a cost-effective basis, and a failure to do so could have a material adverse effect on our business, financial condition or results of operations.





22

Revenues
Our revenues are comprised primarily of operating lease rentals on flight equipment held for lease, revenue from retained maintenance payments related to lease expirations, lease termination payments, lease incentive amortization and interest recognized from finance leases.
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 arising during the term of the lease. Our aircraft lease agreements generally provide for the periodic payment of a fixed amount of rent over the life of the lease and the amount of the contracted rent will depend upon the type, age, specification and condition of the aircraft and market conditions at the time the lease is committed. The amount of rent we receive will depend on a number of factors, including the credit-worthiness of our lessees and the occurrence of delinquencies, restructurings and defaults. Our lease rental revenues are also affected by the extent to which aircraft are off-lease and our ability to remarket aircraft that are nearing the end of their leases in order to minimize their off-lease time. Our success in re-leasing aircraft is affected by market conditions relating to our aircraft and by general industry conditions and trends. An increase in the percentage of off-lease aircraft or a reduction in lease rates upon remarketing would negatively impact our revenues.
Under an operating lease, the lessee will be responsible for performing maintenance on the relevant aircraft and will typically be required to make payments to us for heavy maintenance, overhaul or replacement of certain high-value components of the aircraft. These maintenance payments are based on hours or cycles of utilization or on calendar time, depending upon the component, and would be made either monthly in arrears or at the end of the lease term. For maintenance payments made monthly in arrears during a lease term, we will typically be required to reimburse all or a portion of these payments to the lessee upon their completion of the relevant heavy maintenance, overhaul or parts replacement. We record maintenance payments paid by the lessee during a lease as accrued maintenance liabilities in recognition of our obligation in the lease to refund such payments, and therefore we do not recognize maintenance revenue during the lease. Maintenance revenue recognition would occur at the end of a lease, when we are able to determine the amount, if any, by which reserve payments received exceed the amount we are required under the lease to reimburse to the lessee for heavy maintenance, overhaul or parts replacement. The amount of maintenance revenue we recognize in any reporting period is inherently volatile and is dependent upon a number of factors, including the timing of lease expiries, including scheduled and unscheduled expiries, the timing of maintenance events and the utilization of the aircraft by the lessee.
Many of our leases contain provisions which may require us to pay a portion of the lessee’s costs for heavy maintenance, overhaul or replacement of certain high-value components. We account for these expected payments as lease incentives, which are amortized as a reduction of revenue over the life of the lease. We estimate the amount of our portion for such costs, typically for the first major maintenance event for the airframe, engines, landing gear and auxiliary power units, expected to be paid to the lessee based on assumed utilization of the related aircraft by the lessee, the anticipated cost of the maintenance event and the estimated amounts the lessee is responsible to pay.
This estimated lease incentive is not recognized as a lease incentive liability at the inception of the lease. We recognize the lease incentive as a reduction of lease revenue on a straight-line basis over the life of the lease, with the offset being recorded as a lease incentive liability which is included in maintenance payments on the balance sheet. The payment to the lessee for the lease incentive liability is first recorded against the lease incentive liability and any excess above the lease incentive liability is recorded as a prepaid lease incentive asset which is included in other assets on the balance sheet and continues to amortize over the remaining life of the lease.

2015 Lease Expirations and Lease Placements
At March 31, 2015, we had five aircraft which are scheduled to come off lease during 2015 for which we have not yet secured lease or sales commitments. These aircraft account for 1.6% of our net book value of flight equipment (including flight equipment held for lease and net investment in finance leases). We currently expect to sell the majority of these aircraft.

2016-2019 Lease Expirations and Lease Placements
Taking into account lease and sale commitments, we currently have the following number of aircraft with lease expirations scheduled in the period 2016-2019 representing the percentage of our net book value of flight equipment (including flight equipment held for lease and net investment in finance leases) at March 31, 2015 specified below:
•
2016: 15 aircraft, representing 7%;

23

•
2017: 23 aircraft, representing 16%;
•
2018: 14 aircraft, representing 11%; and
•
2019: 13 aircraft, representing 10%.


Operating Expenses
Operating expenses are comprised of depreciation of flight equipment held for lease, interest expense, selling, general and administrative expenses, aircraft impairment charges and maintenance and other costs. Because our operating lease terms generally require the lessee to pay for operating, maintenance and insurance costs, our portion of maintenance and other costs relating to aircraft reflected in our statement of income primarily relates to expenses for unscheduled lease terminations.

Income Tax Provision
We have obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until March 2035, be applicable to us or to any of our operations or to our shares, debentures or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or to any taxes payable by us in respect of real property owned or leased by us in Bermuda. Consequently, the provision for income taxes recorded relates to income earned by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose income taxes, primarily Ireland, Singapore and the United States.
All of our aircraft-owning subsidiaries that are recognized as corporations for U.S. tax purposes are non-U.S. corporations. These non-U.S. subsidiaries generally earn income from sources outside the United States and typically are not subject to U.S. federal, state or local income taxes unless they operate within the U.S., in which case they may be subject to federal, state and local income taxes. The aircraft owning subsidiaries resident in Ireland, Mauritius and Singapore are subject to tax in those respective jurisdictions.
We have a U.S. based subsidiary which provides management services to our non-U.S. subsidiaries and is subject to U.S. federal, state and local income taxes. We also have Ireland and Singapore based subsidiaries which provide management services to our non-U.S. subsidiaries and are subject to tax in those respective jurisdictions.

Acquisitions and Sales
During the first three months of 2015, we acquired six aircraft for $254.0 million. At March 31, 2015 , we had commitments to acquire 11 additional aircraft for $321.9 million. As of April 30, 2015, after taking into account additional commitments and aircraft acquisitions during April 2015, we have acquired or have commitments to acquire 25 aircraft for $ 769.2 million that we expect to complete by September 30, 2015.
During the first three months of 2015, we sold two aircraft leased to an airline based in India and other flight equipment for $50.5 million which resulted in a net gain of $6.3 million.


24

The following table sets forth certain information with respect to the aircraft owned by us as of March 31, 2015 :

AIRCASTLE AIRCRAFT INFORMATION (dollars in millions)
 
Owned
Aircraft as of
March 31,  2014 (1)
 
Owned
Aircraft as of
March 31,  2015 (1)
Flight Equipment
$
5,822

 
$
5,817

Unencumbered Flight Equipment
$
3,280

 
$
3,497

Number of Aircraft
164

 
152

Number of Unencumbered Aircraft
104

 
99

Number of Lessees
65

 
54

Number of Countries
37

 
34

Weighted Average Age – Passenger (years) (2)
8.3

 
7.6

Weighted Average Age – Freighter (years) (2)
12.9

 
12.8

Weighted Average Age – Combined (years) (2)
9.1

 
8.3

Weighted Average Remaining Passenger Lease Term (years) (3)
5.0

 
5.9

Weighted Average Remaining Freighter Lease Term (years) (3)
3.8

 
4.2

Weighted Average Remaining Combined Lease Term (years) (3)
4.8

 
5.6

Weighted Average Fleet Utilization during the three months ended March 31, 2014 and 2015 (4)
98.9
%
 
98.7
%
Portfolio Yield for the three months ended March 31, 2014 and 2015 (5)
13.5
%
 
12.6
%
 
        
(1)
Calculated using net book value of flight equipment held for lease and net investment in finance leases at period end.
(2)
Weighted average age by net book value.
(3)
Weighted average remaining lease term by net book value.
(4)
Aircraft on-lease days as a percent of total days in period weighted by net book value.
(5)
Lease rental revenue for the period as a percent of the average net book value of flight equipment held for lease for the period; quarterly information is annualized.

Our owned aircraft portfolio as of March 31, 2015 is listed in Exhibit 99.1 to this report.



25


PORTFOLIO DIVERSIFICATION
 
 
Owned Aircraft as  of
March 31, 2015
 
Number of
Aircraft
 
% of Net
Book  Value (1)
Aircraft Type
 
 
 
Passenger:
 
 
 
Narrowbody
99

 
36
%
Midbody
30

 
33
%
Widebody
8

 
17
%
Total Passenger
137

 
86
%
Freighter
15

 
14
%
Total
152

 
100
%
 
 
 
 
Manufacturer
 
 
 
Boeing
74

 
49
%
Airbus
73

 
49
%
Embraer
5

 
2
%
Total
152

 
100
%
 
 
 
 
Regional Diversification
 
 
 
Asia and Pacific
44

 
39
%
Europe
65

 
28
%
South America
15

 
15
%
Middle East and Africa
6

 
9
%
North America
17

 
7
%
Off-lease (2)
5

 
2
%
Total
152

 
100
%
 
        
(1)
Calculated using net book value of flight equipment held for lease and net investment in finance leases at period end.
(2) Consisted of five 737-800 aircraft, all which are subject to lease commitments and are expected to be delivered to customers during the second quarter of 2015.






26

Our largest customer represents less than 7% of the net book value of flight equipment held for lease (includes net book value of flight equipment held for lease and net investment in finance leases) at March 31, 2015 . Our top 15 customers for aircraft we owned at March 31, 2015 , representing 68 aircraft and 62% of the net book value of flight equipment held for lease, are as follows:
Percent of Net Book Value
 
Customer
 
Country
 
Number of
Aircraft
Greater than 6% per customer
 
LATAM
 
Chile
 
3
 
 
Iberia
 
Spain
 
18
 
 
 
 
 
 
 
3% to 6% per customer
 
South African Airways
 
South Africa
 
4
 
 
Thai Airways
 
Thailand
 
2
 
 
Singapore Airlines
 
Singapore
 
4
 
 
AirBridge Cargo (1)
 
Russia
 
3
 
 
Air Asia X
 
Malaysia
 
3
 
 
Emirates
 
United Arab Emirates
 
2
 
 
Garuda
 
Indonesia
 
4
 
 
Virgin Australia
 
Australia
 
2
 
 
 
 
 
 
 
Less than 3% per customer
 
OceanAir (2)
 
Brazil
 
4
 
 
Avianca
 
Colombia
 
2
 
 
Lion Air
 
Indonesia
 
4
 
 
Azul
 
Brazil
 
5
 
 
U.S. Airways (3)
 
United States
 
8
 
        

(1) Guaranteed by Volga-Dnepr Airlines.
(2) OceanAir is doing business as Avianca Brazil.
(3) U.S. Airways has merged with American Airlines.


Finance
We intend to fund new investments through cash on hand, cash flows from operations and through medium-to longer-term financings on a secured or unsecured basis. We may repay all or a portion of such borrowings from time to time with the net proceeds from subsequent long-term debt financings, additional equity offerings, cash generated from operations and asset sales. Therefore, our ability to execute our business strategy, particularly the acquisition of additional commercial jet aircraft or other aviation assets, depends to a significant degree on our ability to obtain additional debt and equity capital on terms we deem attractive.
See “Liquidity and Capital Resources” below.


27

RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 2014 to the three months ended March 31, 2015 :
 
Three Months Ended March 31,
 
2014
 
2015
 
(Dollars in thousands)
Revenues:
 
 
 
Lease rental revenue
$
174,335

 
$
177,146

     Finance lease revenue
3,987

 
1,607

Amortization of net lease premiums, discounts and lease incentives
(6,591
)
 
(3,824
)
Maintenance revenue
3,042

 
18,073

Total lease revenue
174,773

 
193,002

Other revenue
1,830

 
1,294

Total revenues
176,603

 
194,296

Operating expenses:
 
 
 
Depreciation
73,927

 
74,846

Interest, net
64,263

 
62,131

Selling, general and administrative
13,944

 
13,932

Impairment of aircraft
18,263

 
—

Maintenance and other costs
1,863

 
2,943

Total operating expenses
172,260

 
153,852

Other income:
 
 
 
Gain on sale of flight equipment
1,110

 
6,253

Other
757

 
(6
)
Total other income
1,867

 
6,247

Income from continuing operations before income taxes
6,210

 
46,691

Income tax provision
883

 
4,863

Earnings of unconsolidated equity method investment, net of tax
450

 
1,441

Net income
$
5,777

 
$
43,269


Revenues:
Total revenues increased by 10.0%, or $17.7 million, for the three months ended March 31, 2015 as compared to the three months ended March 31, 2014 , primarily as a result of the following:
Lease rental revenue . The increase in lease rental revenue of $2.8 million for the three months ended March 31, 2015 as compared to the same period in 2014 was primarily the result of:
•
$40.6 million of revenue reflecting the full quarter impact of 6 aircraft purchased in 2015 and 31 aircraft purchased in 2014.
This increase was offset partially by a decrease in lease rental revenue of:
•
$26.0 million due to aircraft sales; and
•
$3.7 million from the effect of lease terminations and other changes and $8.1 million due to lease extensions and transitions.

Finance lease revenue: For the three months ended March 31, 2015 , $1.6 million of interest income from finance leases was recognized as compared to $4.0 million of interest income from finance leases recorded for the same period in 2014 due to the sale of six aircraft during the second quarter of 2014.

28

Amortization of net lease premiums, discounts and lease incentives.
 
Three Months Ended March 31,
 
2014
 
2015
 
(Dollars in thousands)
Amortization of lease incentives
$
(5,772
)
 
$
(3,685
)
Amortization of lease premiums
(2,330
)
 
(2,595
)
Amortization of lease discounts
1,511

 
2,456

Amortization of net lease premiums, discounts and lease incentives
$
(6,591
)
 
$
(3,824
)

As more fully described above under “Revenues,” lease incentives represent our estimated portion of the lessee’s cost for heavy maintenance, overhaul or replacement of certain high-value components which is amortized over the life of the related lease. As we enter into new leases, the amortization of lease incentives generally increases and, conversely, if a related lease terminates, the related unused lease incentive liability will reduce the amortization of lease incentives. The decrease in amortization of lease incentives of $2.1 million for the three months ended March 31, 2015 as compared to the same period in 2014 was primarily attributable to the sale of 13 aircraft during 2014.
As more fully described above under “Revenues,” lease discounts represent the present value of the amount below current lease rates for acquired aircraft with attached leases. The increase in amortization of lease discounts of $0.9 million for the three months ended March 31, 2015 as compared to the same period in 2014 primarily resulted from three aircraft purchased during the first quarter of 2014.

Maintenance revenue.
 
Three Months Ended March 31,
 
2014
 
2015
 
Dollars
(in  thousands)
 
Number of
Leases
 
Dollars
(in thousands)
 
Number of
Leases
Unscheduled lease terminations
$
180

 
1
 
$
—

 
—
Scheduled lease terminations
2,862

 
7
 
18,073

 
8
Maintenance revenue
$
3,042

 
8
 
$
18,073

 
8

Unscheduled lease terminations. For the three months ended March 31, 2014 , we recorded maintenance revenue from unscheduled lease terminations of $0.2 million primarily associated with one aircraft returned in the fourth quarter of 2013 resulting from an early termination agreement with the lessee. Comparatively, for the same period in 2015 , we did not record any revenue from unscheduled lease terminations.
Scheduled lease terminations. For the three months ended March 31, 2014 , we recorded $19.2 million of maintenance revenue from four scheduled lease terminations offset by $16.4 million of contra maintenance revenue related to three scheduled lease terminations. Comparatively, for the same period in 2015 , we recorded $18.1 million of maintenance revenue from eight scheduled lease terminations.
Other revenue. For the three months ended March 31, 2014 , other revenue was $1.8 million which primarily represents additional fees earned from one lessee in connection with the early termination of one lease. For the three months ended March 31, 2015 , other revenue was $1.3 million which primarily represents additional fees earned from two lessees in connection with the early termination of three leases.

Operating expenses:
Total operating expenses decreased by $18.4 million for the three months ended March 31, 2015 as compared to the three months ended March 31, 2014 , primarily as a result of the following:

29

Depreciation expense increased by 1.2%, or $0.9 million for the three months ended March 31, 2015 as compared to the same period in 2014 . The net increase is primarily the result of:
•
a $13.4 million increase in depreciation for aircraft acquired; and
•
a $2.3 million increase due to changes in asset lives and residual values; and
•
a $0.3 million increase due to capitalized aircraft improvements being fully depreciated.
This increase was offset by:
•
a $15.1 million decrease in depreciation for aircraft sales.

Interest, net consisted of the following:
 
Three Months Ended March 31,
 
2014
 
2015
 
(Dollars in thousands)
Interest on borrowings, net settlements on interest rate derivatives, and other liabilities
$
51,685

 
$
50,235

Hedge ineffectiveness losses
53

 
—

Amortization of interest rate derivatives related to deferred losses
9,327

 
8,233

Amortization of deferred financing fees and notes discount
3,420

 
3,699

Interest Expense
64,485

 
62,167

Less interest income
(222
)
 
(36
)
Interest, net
$
64,263

 
$
62,131

Interest, net decreased by $2.1 million, or 3.3%, over the three months ended March 31, 2014 . The net decrease is primarily a result of:
•
lower interest on borrowings of $1.5 million driven primarily by a lower weighted average interest rate of 5.04% for the three months ended March 31, 2015 as compared to 5.49% a year ago; and
•
a $1.1 million decrease in amortization of interest rate derivatives related to deferred losses.
Selling, general and administrative expenses for the three months ended March 31, 2015 decreased slightly over the same period in 2014. Non-cash share based expense was $1.0 million and $1.2  million for the three months ended March 31, 2014 and 2015 , respectively.
Impairment of Aircraft - S ee “Summary of Impairments and Recoverability Assessment” below for a detailed discussion of impairment charges related to certain aircraft.
Maintenance and other costs were $2.9 million for the three months ended March 31, 2015 , an increase of $1.1 million over the same period in 2014. The net increase is primarily related to higher maintenance costs of $0.7 million related to unscheduled terminations and $0.3 million related to scheduled terminations and transitions for the three months ended March 31, 2015 versus the same period in 2014. 

Other income (expense):
Total other income (expense) increased $4.4 million for the three months ended March 31, 2015 as compared to the same period in 2014 , primarily as a result of the following:

Gain on sale of flight equipment arose from the sale of two aircraft leased to an airline based in India and other flight equipment for $50.5 million which resulted in a net gain of $6.3 million. During the first three months of 2014, we recorded a net gain of $1.1 million on six aircraft nearing the end of their economic lives.

Other decreased by $0.8 million related to the mark to market value of an undesignated interest rate derivative.

Income tax provision
Our provision for income taxes for the three months ended March 31, 2014 and 2015 was $0.9 million and $4.9 million , respectively. Income taxes have been provided based on the applicable tax laws and rates of those countries in which operations are conducted and income is earned, primarily Ireland, Singapore and the United States. The increase in our income tax provision of approximately $4.0 million for the three months ended March 31, 2015 as compared to the same period in 2014 was primarily attributable to changes in operating income subject to tax in Ireland, Singapore, the United States and other jurisdictions.
All of our aircraft-owning subsidiaries that are recognized as corporations for U.S. tax purposes are non-U.S. corporations. These non-U.S. subsidiaries generally earn income from sources outside the United States and typically are not subject to U.S. federal, state or local income taxes unless they operate within the U.S., in which case they may be subject to federal, state and local income taxes. The aircraft owning subsidiaries resident in Ireland, Mauritius and Singapore are subject to tax in those respective jurisdictions.
We have a U.S. based subsidiary which provides management services to our non-U.S. subsidiaries and is subject to U.S. federal, state and local income taxes. We also have Ireland and Singapore based subsidiaries which provide management services to our non-U.S. subsidiaries and are subject to tax in those respective jurisdictions.
The Company received an assurance from the Bermuda Minister of Finance that it would be exempted from local income, withholding and capital gains taxes until March 2035. Consequently, the provision for income taxes recorded relates to income earned by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose income taxes, primarily the United States and Ireland.

Other comprehensive income:
 
Three Months Ended March 31,
 
2014
 
2015
 
(Dollars in thousands)
Net income
$
5,777

 
$
43,269

Net change in fair value of derivatives, net of tax expense of $804 and tax benefit of $3, respectively
370

 
(128
)
Derivative loss reclassified into earnings
9,327

 
8,233

Total comprehensive income
$
15,474

 
$
51,374


Other comprehensive income was $51.4 million for the three months ended March 31, 2015 , an increase of $35.9 million from the $15.5 million of other comprehensive income for the three months ended March 31, 2014 . Other comprehensive income for the three months ended March 31, 2015 primarily consisted of:
•
$43.3 million of net income; and
•
$8.2 million of amortization of deferred net losses reclassified into earnings related to terminated interest rate derivatives.
Other comprehensive income for the three months ended March 31, 2014 primarily consisted of:
•
$5.8 million of net income; and
•
$9.3 million of amortization of deferred net losses reclassified into earnings related to terminated interest rate derivatives.



30

Summary of Impairments and Recoverability Assessment
During the first quarter of 2014, we impaired two aircraft, one Boeing 737-400, which was returned to us as scheduled by the lessee, and one Boeing 747-400 converted freighter, for which we agreed to an early lease termination with our customer which we refer to as “Transactional Impairments.” For these two aircraft, we recorded impairment charges totaling $18.3 million and recorded maintenance revenue of $17.2 million during the three months ended March 31, 2014.
During the first quarter of 2015, we did not incur any impairment charges.

Aircraft Monitoring List
At March 31, 2015, we considered four freighter aircraft with a total net book value of $111.7 million to be more susceptible to failing our recoverability assessments due to their sensitivity to changes in contractual cash flows, future cash flow estimates and aircraft residual or scrap values.

RECENT UNADOPTED ACCOUNTING PRONOUNCEMENTS
See Note 1 - Summary of Significant Accounting Policies - Proposed Accounting Pronouncements in the Notes to Unaudited Consolidated Financial Statements above.

PROPOSED ACCOUNTING PRONOUNCEMENTS
See Note 1 - Summary of Significant Accounting Policies - Proposed Accounting Pronouncements in the Notes to Unaudited Consolidated Financial Statements above.

LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity currently are cash on hand, cash generated by our aircraft leasing operations, proceeds from aircraft sales, loans secured by additional aircraft we acquire and unsecured borrowings. Our business is very capital intensive, requiring significant investments in order to expand our fleet during periods of growth and investments in maintenance and improvements on our existing portfolio. Our business also generates a significant amount of cash from operations, primarily from lease rentals and maintenance collections. These sources have historically provided liquidity for these investments and for other uses, including the payment of dividends to our shareholders. In the past, we have also met our liquidity and capital resource needs by utilizing several sources, including:
•
lines of credit, our securitization, term financings, secured borrowings supported by export credit agencies for new aircraft acquisitions and bank financings secured by aircraft purchases;
•
unsecured indebtedness, including an unsecured revolving credit facility and unsecured senior notes;
•
sales of common shares; and
•
asset sales.
Going forward, we expect to continue to seek liquidity from these sources subject to pricing and conditions that we consider satisfactory.
During the first three months of 2015, we met our liquidity and capital resource needs with $132.9 million of cash from operations, $500.0 million in gross proceeds from the issuance of our Senior Notes due 2022, and $50.5 million of cash from aircraft sales.
In addition, we increased our revolving credit facility, which was undrawn at March 31, 2015, from $450.0 million to $600.0 million.
As of March 31, 2015, the weighted average maturity of our secured and unsecured debt financings was 4.4 years and we are in compliance with all applicable covenants.
We believe that cash on hand, payments received from lessees and other funds generated from operations, secured borrowings for aircraft, borrowings under our Revolving Credit Facility and other borrowings and proceeds from future aircraft sales will be sufficient to satisfy our liquidity and capital resource needs over the next twelve months. Our liquidity and capital resource needs include payments due under our aircraft purchase obligations, required principal and interest

31

payments under our long-term debt facilities, expected capital expenditures, lessee maintenance payment reimbursements and lease incentive payments over the next twelve months.




Cash Flows
 
Three Months Ended March 31,
 
2014
 
2015
 
(Dollars in thousands)
Net cash flow provided by operating activities
$
102,991

 
$
132,928

Net cash flow used in investing activities
(628,986
)
 
(213,094
)
Net cash flow provided by financing activities
485,478

 
240,502


Operating Activities:
Cash flow from operations was $103.0 million and $132.9 million for the three months ended March 31, 2014 and March 31, 2015 , respectively. The increase in cash flow from operations of approximately $29.9 million for the three months ended March 31, 2015 versus the same period in 2014 was primarily a result of:
•
a $24.8 million increase in maintenance revenues;
•
a $6.4 million increase in cash from working capital; and
•
a $1.3 million increase in cash from lease rentals.
These inflows were offset by:
• a $2.4 million decrease in cash interest from finance leases; and
• a $1.2 million increase in cash paid for taxes.

Investing Activities:
Cash used in investing activities was $629.0 million and $213.1 million , respectively, for the three months ended March 31, 2014 and March 31, 2015 , respectively. The decrease in cash flow used in investing activities of $415.9 million for the three months ended March 31, 2015 versus the same period in 2014 , was primarily a result of:
• a $398.8 million decrease in the acquisition and improvement of flight equipment; and
• a $22.5 million increase in net proceeds from the sale of flight equipment.
These inflows were offset by:
• a $4.5 million decrease in the aircraft purchase deposits.

Financing Activities:
Cash used in financing activities was $485.5 million for the three months ended March 31, 2014 as compared to $240.5 million for the three months ended March 31, 2015 . The net decrease in cash flow used in financing activities of $245.0 million for the three months ended March 31, 2015 versus the same period in 2014 was a result of:
•
a $303.2 million decrease in proceeds from our notes and term financing borrowings;
•
a $8.0 million decrease in security deposits received net of security deposits returned;

32

•
a $8.4 million decrease in restricted cash and cash equivalents related to security deposits and maintenance payments; and
•
a $1.7 million increase in dividends paid.
These decreases were offset partially by:
•
a $34.1 million decrease in securitization and term debt financing repayments;
•
a $33.4 million decrease in payments for terminated cash flow hedges;
•
a $5.8 million decrease in deferred financing costs; and
•
a $2.8 million increase in maintenance payments received net of maintenance payments returned.

Debt Obligations
For complete information on our debt obligations, please refer to Note 7 - Secured and Unsecured Debt Financings in the Notes to Unaudited Consolidated Financial Statements above.

Contractual Obligations
Our contractual obligations consist of principal and interest payments on variable and fixed rate liabilities, interest payments on interest rate derivatives, other aircraft acquisition and conversion agreements and rent payments pursuant to our office leases. Total contractual obligations increased from $5.30 billion at December 31, 2014 to approximately $5.35 billion at March 31, 2015 due primarily to:
•
an increase in borrowings and interest payments as a result of the closing of our Senior Notes due 2022 in January 2015.
These increases were offset by:
•
the repayment of our Revolving Credit Facility in January 2015; and
•
a decrease in aircraft purchase obligations.


33

The following table presents our actual contractual obligations and their payment due dates as of March 31, 2015 .  
 
Payments Due By Period as of March 31, 2015
Contractual Obligations
Total
 
Less than
1 year
 
1-3 years
 
3-5 years
 
More than
5 years
 
(Dollars in thousands)
Principal payments:

 
 
 
 
 
 
 
 
Senior Notes due 2017 - 2022
$
2,700,000

 
$
—

 
$
500,000

 
$
900,000

 
$
1,300,000

Securitization No. 2 (1)
361,011

 
172,550

 
188,461

 
—

 
—

ECA Term Financings (2)
438,673

 
45,785

 
96,582

 
103,645

 
192,661

Bank Financings (3)
549,025

 
61,664

 
149,258

 
119,130

 
218,973

Total principal payments
4,048,709

 
279,999

 
934,301

 
1,122,775

 
1,711,634

Interest payments on debt obligations and derivative instruments (4)
969,305

 
200,123

 
366,475

 
270,786

 
131,921

Office leases (5)
6,370

 
1,016

 
1,644

 
1,523

 
2,187

Purchase obligations (6)
321,925

 
321,925

 
—

 
—

 
—

Total
$
5,346,309

 
$
803,063

 
$
1,302,420

 
$
1,395,084

 
$
1,845,742

 

        

(1)
Estimated principal payments for these non-recourse financings are based on excess cash flows available from forecasted lease rentals, net maintenance funding and proceeds from asset dispositions after the payment of forecasted operating expenses and interest payments, including interest payments on existing interest rate derivative agreements and policy provider fees.
(2)
Includes scheduled principal payments based upon eight fixed rate, 12-year, fully amortizing loans.
(3)
Includes principal payments based upon individual loan amortization schedules.
(4)
Future interest payments on variable rate, LIBOR-based debt obligations and derivative instruments are estimated using the interest rate in effect at March 31, 2015.
(5) Represents contractual payment obligations for our office leases in Stamford, Connecticut; Dublin, Ireland and Singapore.
(6) At March 31, 2015 , we had commitments to acquire 11 aircraft for $321,925 . As of April 30, 2015, after taking into account additional commitments and aircraft acquisitions during April 2015, we have acquired or have commitments to acquire 25 aircraft for $ 769,225 that we expect to complete by September 30, 2015.



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 three months ended March 31, 2014 and 2015 , we incurred a total of $1.5 million and $12.8 million, respectively, of capital expenditures (including lease incentives) related to the acquisition and improvement of aircraft.
As of March 31, 2015 , the weighted average age (by net book value) of our aircraft was approximately 8.3  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 March 31, 2015 , we had a $ 345.1  million maintenance payment liability on our balance sheet, which is a $11.6 million increase from December 31, 2014 . The increase consisted of net maintenance cash inflows of $9.5 million and an increase in lease incentive liabilities of $2.1 million. 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.

34


Off-Balance Sheet Arrangements
We have entered into a joint venture with an affiliate of Ontario Teachers’ Pension Plan, in which we hold a 30% equity interest, which does not qualify for consolidated accounting treatment. The assets and liabilities of this joint venture are off our balance sheet and we only record our net investment under the equity method of accounting. See Note 5 - Unconsolidated Equity Method Investment in the Notes to Unaudited Consolidated Financial Statements above. At March 31, 2015, the net book value of the joint venture’s five aircraft was approximately $500 million.

Foreign Currency Risk and Foreign Operations
At March 31, 2015 , all of our leases are payable to us in U.S. dollars. However, we incur Euro- and Singapore dollar-denominated expenses in connection with our subsidiaries in Ireland and Singapore. For the three months ended March 31, 2015 , expenses, such as payroll and office costs, denominated in currencies other than the U.S. dollar aggregated approximately $3.5 million in U.S. dollar equivalents and represented approximately 25% 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, our international operations and our exposure to foreign currency risk will likely 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 three months ended March 31, 2014 and 2015 , we incurred insignificant net gains and losses on foreign currency transactions.

Hedging
The following table summarizes the deferred (gains) and losses and related amortization into interest expense for our terminated interest rate derivative contracts for the three months ended March 31, 2014 and 2015 : 
Hedged Item
 
Original
Maximum
Notional
Amount
 
Effective
Date
 
Maturity
Date
 
Fixed
Rate
%
 
Termination
Date
 
Deferred
(Gain) or
Loss Upon
Termination
 
Unamortized
Deferred
(Gain) or
Loss at
March 31,
2015
 
Amount of Deferred (Gain) or Loss Amortized (including Accelerated Amortization) into Interest Expense For the Three Months Ended March 31,
 
Amount of Deferred (Gain) or Loss Expected to be Amortized over the Next Twelve Months
2014
 
2015
 
 
 
(Dollars in Thousands)
Securitization No. 2
 
410,000

 
Feb-07
 
Apr-17
 
5.14

 
Jun-07
 
(3,119
)
 
(274
)
 
(68
)
 
(58
)
 
(204
)
Senior Notes due 2017 and 2020
 
150,000

 
Jul-07
 
Dec-17
 
5.14

 
Mar-08
 
15,281

 
2,928

 
328

 
292

 
1,166

Senior Notes due 2019
 
491,718

 
May-13
 
May-15
 
5.31

 
De-designated –
Mar-12
Terminated –
April-12
 
31,403

 
1,274

 
4,103

 
3,126

 
1,274

Senior Notes due 2018
 
360,000

 
Jan-08
 
Feb-19
 
5.16

 
Partial – Jun-08
Full – Oct-08
 
23,077

 
5,078

 
402

 
376

 
1,443

ECA Term Financing for New A330 Aircraft
 
231,000

 
Apr-10
 
Oct-15
 
5.17

 
Partial – Jun-08
Full – Dec-08
 
15,310

 
755

 
210

 
247

 
755

ECA Term Financing for New A330 Aircraft
 
238,000

 
Jan-11
 
Apr-16
 
5.23

 
Dec-08
 
19,430

 
2,786

 
821

 
745

 
2,786

ECA Term Financing for New A330 Aircraft
 
238,000

 
Jul-11
 
Sep-16
 
5.27

 
Dec-08
 
17,254

 
2,406

 
514

 
466

 
1,741

Senior Notes due 2018
 
451,911

 
Jun-06
 
Jun-16
 
5.78

 
Feb-14
 
20,762

 
10,058

 
1,908

 
2,150

 
8,338

Senior Notes due 2018
 
108,089

 
Jun-06
 
Jun-16
 
5.78

 
Feb-14
 
6,101

 
2,956

 
561

 
632

 
2,450

Total
 
 
 
 
 
 
 
 
 
 
 
$
145,499

 
$
27,967

 
$
8,779

 
$
7,976

 
$
19,749


On an ongoing basis, terminated interest rate derivative notionals are evaluated against debt forecasts. To the extent that interest payments are deemed remote to occur, deferred gains or losses are accelerated into interest expense as applicable.

35


Management’s Use of EBITDA and Adjusted EBITDA
We define EBITDA as income (loss) from continuing operations before income taxes, interest expense, and depreciation and amortization. We use EBITDA to assess our consolidated financial and operating performance, and we believe this non-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.
We define Adjusted EBITDA as EBITDA (as defined above) further adjusted to give effect to adjustments required in calculating covenant ratios and compliance as that term is defined in the indenture governing our senior unsecured notes. Adjusted EBITDA is a material component of these covenants.
The table below shows the reconciliation of net income to EBITDA and Adjusted EBITDA for the three months ended March 31, 2014 and 2015 , respectively. 
 
Three Months Ended March 31,
 
2014
 
2015
 
(Dollars in thousands)
Net income
$
5,777

 
$
43,269

Depreciation
73,927

 
74,846

Amortization of net lease discounts and lease incentives
6,591

 
3,824

Interest, net
64,263

 
62,131

Income tax provision
883

 
4,863

     EBITDA
$
151,441

 
$
188,933

Adjustments:
 
 
 
  Impairment of aircraft
18,263

 
—

  Non-cash share based payment expense
990

 
1,170

  (Gain) loss on mark to market of interest rate derivative contracts
(681
)
 
111

     Adjusted EBITDA
$
170,013

 
$
190,214


Management’s Use of Adjusted Net Income (“ANI”)

Management believes that ANI, when viewed in conjunction with the Company’s results under US GAAP and the below reconciliation, provides useful information about operating and period-over-period performance, and provides additional information that is useful for evaluating the underlying operating performance of our business without regard to periodic reporting elements related to interest rate derivative accounting, changes related to refinancing activity and non-cash share based payment expense.

The table below shows the reconciliation of net income to ANI for the three months ended March 31, 2014 and 2015 , respectively.

36

 
Three Months Ended March 31,
 
2014
 
2015
 
(Dollars in thousands)
Net income
$
5,777

 
$
43,269

Ineffective portion and termination of hedges (1)
53

 
—

(Gain) loss on mark to market of interest rate derivative contracts (2)
(681
)
 
111

         Non-cash share based payment expense (3)
990

 
1,170

         Term Financing No. 1 hedge loss amortization charges (1)
4,104

 
3,126

         Securitization No. 1 hedge loss amortization charges (1)
3,017

 
2,781

Adjusted net income
$
13,260

 
$
50,457

 
        
(1) Included in Interest, net.
(2) Included in Other income (expense).
(3) Included in Selling, general and administrative expenses.
 
Three Months Ended March 31,
Weighted-average shares:
2014
 
2015
Common shares outstanding
80,387,371

 
80,564,440

Restricted common shares
500,524

 
515,477

Total weighted-average shares
80,887,895

 
81,079,917

 
Three Months Ended March 31,
Percentage of weighted-average shares:
2014
 
2015
Common shares outstanding
99.38
%
 
99.36
%
Restricted common shares
0.62
%
 
0.64
%
Total
100.00
%
 
100.00
%
 
Three Months Ended March 31,
 
2014
 
2015
Weighted-average common shares outstanding – Basic
80,387,371

 
80,564,440

Effect of dilutive shares
—

 
—

Weighted-average common shares outstanding - Diluted (b)
80,387,371

 
80,564,440

 
Three Months Ended March 31,
 
2014
 
2015
 
(Dollars in thousands, except per share amounts)
Adjusted net income allocation:
 
 
 
Adjusted net income (loss)
$
13,260

 
$
50,457

Less: Distributed and undistributed earnings allocated to restricted common shares (a)
(82
)
 
(321
)
Adjusted net income allocable to common shares – Basic and Diluted
$
13,178

 
$
50,136

 
 
 
 
Adjusted net income per common share – Basic and Diluted
$
0.16

 
$
0.62

        
(a)
For the three months ended March 31, 2014 and 2015 , distributed and undistributed earnings to restricted shares is 0.62% and 0.64% of net income. The amount of restricted share forfeitures for all periods present is immaterial to the allocation of distributed and undistributed earnings.
(b)
For the three months ended March 31, 2014 and 2015 , we had no dilutive shares.


37

Limitations of EBITDA, Adjusted EBITDA and ANI
An investor or potential investor may find EBITDA, Adjusted EBITDA and ANI important measures in evaluating our performance, results of operations and financial position. We use these non-US GAAP measures to supplement our US GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.
EBITDA, Adjusted EBITDA and ANI have limitations as analytical tools and should not be viewed in isolation or as substitutes for US GAAP measures of earnings. Material limitations in making the adjustments to our earnings to calculate EBITDA, Adjusted EBITDA and ANI, and using these non-US GAAP measures as compared to US GAAP net income, income from continuing operations and cash flows provided by or used in operations, include:
•
depreciation and amortization, though not directly affecting our current cash position, represent the wear and tear and/or reduction in value of our aircraft, which affects the aircraft’s availability for use and may be indicative of future needs for capital expenditures;
•
the cash portion of income tax (benefit) provision generally represents charges (gains), which may significantly affect our financial results;
•
elements of our interest rate derivative accounting may be used to evaluate the effectiveness of our hedging policy;
•
hedge loss amortization charges related to Term Financing No. 1 and Securitization No. 1; and
•
adjustments required in calculating covenant ratios and compliance as that term is defined in the indenture governing our senior unsecured notes.
EBITDA, Adjusted EBITDA and ANI are not alternatives to net income, 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 these non-US GAAP measures as a substitute for any such US GAAP financial measure. We strongly urge you to review the reconciliations to US GAAP net income, along with our consolidated financial statements included elsewhere in this report. We also strongly urge you to not rely on any single financial measure to evaluate our business. In addition, because EBITDA, Adjusted EBITDA and ANI are not measures of financial performance under US GAAP and are susceptible to varying calculations, EBITDA, Adjusted EBITDA and ANI as presented in this report, may differ from and may not be comparable to, similarly titled measures used by other companies.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk is the exposure to loss resulting from changes in the level of interest rates and the spread between different interest rates. These risks are highly sensitive to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control. We are exposed to changes in the level of interest rates and to changes in the relationship or spread between interest rates. Our primary interest rate exposures relate to our lease agreements, floating rate debt obligations and interest rate derivatives. Rent payments under our aircraft lease agreements typically do not vary during the term of the lease according to changes in interest rates. However, our borrowing agreements generally require payments based on a variable interest rate index, such as LIBOR. Therefore, to the extent our borrowing costs are not fixed, increases in interest rates may reduce our net income by increasing the cost of our debt without any corresponding increase in rents or cash flow from our securities.
Changes in interest rates may also impact our net book value as our interest rate derivatives are periodically marked-to-market through shareholders’ equity. Generally, we are exposed to loss on our fixed pay interest rate derivatives to the extent interest rates decrease below their contractual fixed rate.
The relationship between spreads on derivative instruments may vary from time to time, resulting in a net aggregate book value increase or decrease. Changes in the general level of interest rates can also affect our ability to acquire new investments and our ability to realize gains from the settlement of such assets.
Sensitivity Analysis
The following discussion about the potential effects of changes in interest rates is based on a sensitivity analysis, which models the effects of hypothetical interest rate shifts on our financial condition and results of operations. Although we believe a sensitivity analysis provides the most meaningful analysis permitted by the rules and regulations of the SEC, it is constrained by several factors, including the necessity to conduct the analysis based on a single point in time and by the inability to

38

include the extraordinarily complex market reactions that normally would arise from the market shifts modeled. Although the following results of a sensitivity analysis for changes in interest rates may have some limited use as a benchmark, they should not be viewed as a forecast. This forward-looking disclosure also is selective in nature and addresses only the potential interest expense impacts on our financial instruments and, in particular, does not address the mark-to-market impact on our interest rate derivatives. It also does not include a variety of other potential factors that could affect our business as a result of changes in interest rates.
A hypothetical 100-basis point increase/decrease in our variable interest rates would increase/decrease the minimum contracted rentals on our portfolio as of March 31, 2015 by $3.9 million and $1.9 million, respectively, over the next twelve months. As of March 31, 2015 , a hypothetical 100-basis point increase/decrease in our variable interest rate on our borrowings would result in an interest expense increase/decrease of $1.6 million and $0.8 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 Exchange Act. This term refers to the controls and procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) as appropriate, to allow timely decisions regarding required disclosure. An evaluation was performed under the supervision and with the participation of the Company’s management, including the CEO and CFO, of the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2015 . Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2015 .

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 March 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

39

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, 2014 .

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
During the first quarter of 2015 , we purchased our common shares as follows: 
Period
Total
Number
of Shares
Purchased
 
Average
Price
Paid
per Share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (a)
 
Maximum
Number (or
Approximate
Dollar Value) of
Shares that May
Yet Be Purchased
Under the Plans or
Programs (a)
 
(Dollars in thousands, except per share amounts)
January
91,709

(b)  
$
21.37

 
—

 
$
100,000

February
—

 
—

 
—

 
100,000

March
—

 
—

 
—

 
100,000

Total
91,709

 
$
21.37

 
—

 
$
100,000

 
        
(a)
On October 31, 2014, our Board of Directors authorized the repurchase of $100.0 million of the Company’s common shares.
(b)
Our Compensation Committee approved the repurchase of common shares pursuant to an irrevocable election made under the Aircastle Limited 2014 Omnibus Incentive Plan, in satisfaction of minimum tax withholding obligations associated with the vesting of restricted common shares during the first quarter of 2015.

Item 3.    Defaults Upon Senior Securities
None.

Item 4.    Mine Safety Disclosures
Not applicable.

Item 5.    Other Information
None.

40

  Item 6.    Exhibits
Exhibit
No.
 
Description of Exhibit
3.1
 
Memorandum of Association (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (Amendment No. 2) (No. 333-134669) filed on July 25, 2006).
3.2
 
Amended Bye-laws (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-3 (No. 333-182242) filed on June 20, 2012).
4.1
 
Specimen Share Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (Amendment No. 2) (No. 333-134669) filed on July 25, 2006).
4.2
 
Indenture, dated as of April 4, 2012, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s current report on Form 8-K filed with the SEC on April 5, 2012).
4.3
 
Indenture, dated as of November 30, 2012, by and between Aircastle Limited and Wells Fargo Bank, National Association as trustee (incorporated by reference to Exhibit 4.1 to the Company’s current report on Form 8-K filed with the SEC on November 30, 2012).
4.4
 
Indenture, dated as of December 5, 2013, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s current report on Form 8-K filed with the SEC on December 6, 2013).
4.5
 
First Supplemental Indenture, dated as of December 5, 2013, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s current report on Form 8-K filed with the SEC on December 6, 2013).
4.6
 
Second Supplemental Indenture, dated as of March 26, 2014, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s current report on Form 8-K filed with the SEC on March 26, 2014).
4.7
 
Third Supplemental Indenture, dated as of January 15, 2015, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s current report on Form 8-K filed with the SEC on January 15, 2015).
4.8
 
Amended and Restated Shareholder Agreement, dated February 18, 2015 by and among Aircastle Limited, Marubeni Corporation and Marubeni Aviation Holding Coöperatief U.A. *
10.1
 
Amendment Agreement to the Credit Agreement, dated January 26, 2015, by and among Aircastle Limited, the several lenders from time to time parties thereto, and Citibank N.A., in its capacity as agent for the lenders. *
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 March 31, 2015. *
101
 
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2014 and March 31, 2015, (ii) Consolidated Statements of Income for the three months ended March 31, 2014 and 2015, (iii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2014 and 2015, (iv) Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2015, and (v) Notes to Unaudited Consolidated Financial Statements. *

*     Filed herewith.



41

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: May 6, 2015

 
AIRCASTLE LIMITED
 
(Registrant)
 
By:
/s/ Aaron Dahlke
 
 
Aaron Dahlke
 
 
Chief Accounting Officer and Authorized Officer

42

Exhibit 4.8

AMENDED AND RESTATED
SHAREHOLDER AGREEMENT
OF
AIRCASTLE LIMITED
THIS AMENDED AND RESTATED SHAREHOLDER AGREEMENT (this " Agreement ") is made as of February 18, 2015, by and among Aircastle Limited, a Bermuda exempted company limited by shares (the " Company "), Marubeni Corporation, a Japanese corporation (the " Investor "), and Marubeni Aviation Holding Coöperatief U.A, a Netherlands coöperatief and a wholly owned subsidiary of the Investor (“ MHC ” and, together with the Investor, the “ Shareholders ”), and shall become effective as of the date hereof. Certain capitalized terms used in this Agreement are defined in Section 1.1 . Unless otherwise indicated, references to articles and sections shall be to articles and sections of this Agreement.
WHEREAS, the Company and the Investor previously entered into a Shareholder Agreement, dated as of June 6, 2013 (the " Original Shareholder Agreement ");
WHEREAS, pursuant to a Joinder, dated as of July 12, 2013, executed and delivered to the Company, MHC became a party to the Original Shareholder Agreement; and
WHEREAS, the parties to the Original Shareholder Agreement desire to amend and restate the Original Shareholder Agreement in its entirety upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS

Section 1.1 Defined Terms . For purposes of this Agreement, the following terms shall have the following meanings:

(a) " Affiliate " shall have the meaning set forth in Rule 12b-2 promulgated under the Exchange Act; provided that (i) the Company shall not be deemed an Affiliate of any Shareholder and (ii) no Shareholder shall be deemed an Affiliate of the Company.

(b) " Amount " shall mean such number of Company Securities that would allow the Shareholders to Own the same percentage of the Voting Power of the Company as the Shareholders and their Affiliates Owned immediately prior to an issuance of Company Securities.

(c) A Person shall be deemed to " Beneficially Own " securities:
(i) which such Person or any of such Person's Affiliates, directly or indirectly, owns or has the right to acquire (whether such right is exercisable immediately or only after the passage of time or upon the satisfaction of one or more conditions (whether or not within the control of such Person), compliance with regulatory requirements or otherwise) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, other rights, warrants or options, or otherwise; or

(ii) which such Person or any of such Person's Affiliates, directly or indirectly, has the right to vote or dispose of or has "Beneficial Ownership" of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act), including pursuant to any agreement, arrangement or understanding, whether or not in writing; or

(iii) which are beneficially owned, directly or indirectly, by any other Person (or any Affiliate thereof) with which such Person (or any of such Person's Affiliates) has any agreement, arrangement or understanding (whether or not in writing), for the purpose of acquiring, holding, voting or disposing of any Company Securities.


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(d) " Board " shall mean the board of directors of the Company.

(e) " Broad Distribution " with respect to Company Securities, shall mean a distribution of Company Securities that, to the reasonable belief of the Person on whose behalf such distribution is being made, is not expected to result in the acquisition by any other Person of Ownership of any such Company Securities to the extent that, after giving effect to such acquisition, such acquiring Person (other than the Shareholders and other than any underwriter acting in such capacity in an underwritten public offering of Company Securities) would Own in excess of 5% of the Voting Power of the Company.

(f) " Business Day " shall mean any day other than (i) a Saturday or a Sunday or (ii) a day on which banking and savings and loan institutions are authorized or required by law to be closed in New York City or Tokyo, Japan.

(g) " Bye-laws " shall mean the bye-laws of the Company as amended May 24, 2012 and May 22, 2014, and as may be further amended and/or restated from time to time.

(h) " Change of Control " (i) shall mean a single transaction or a series of related transactions, whether by way of purchase, acquisition, tender, exchange or other similar offer or recapitalization, reclassification, consolidation, merger, amalgamation, share exchange or other business combination transaction, in which any Person or Group (other than the Company or its Affiliates) becomes the Owner of more than 30.0% of the combined voting power of the outstanding Voting Power of the Company and (ii) shall be deemed to have occurred if during any period of two consecutive years individuals who at the beginning of such period constituted the Board (together with any new directors whose election or nomination was approved by a vote of the majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board; provided , that, in the case of clause (i) and (ii) above none of the Shareholders or their respective Affiliates has directly or indirectly caused the occurrence of any of the foregoing events through action or inaction constituting a breach of Section 2.1 , 2.6 , 2.7 or 3.2(g) .

(i) " Closing " shall have the meaning set forth in the Transaction Agreement.

(j) " Closing Date " shall have the meaning set forth in the Transaction Agreement.

(k) " Commission " shall mean the United States Securities and Exchange Commission or any successor agency.

(l) " Common Shares " shall mean the Company's common shares, par value $0.01 per share, and any and all securities of any kind whatsoever of the Company that may be issued and outstanding on or after the Closing Date in respect of, in exchange for, or upon conversion of common shares pursuant to a merger, amalgamation, consolidation, share split, share dividend or recapitalization of the Company or otherwise.

(m) " Company Securities " shall mean (i) any Common Shares and (ii) any other securities of the Company entitled to vote generally in the election of directors of the Company.

(n) " Exchange Act " shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

(o) " Group " shall have the meaning set forth in Section 13(d) of the Exchange Act as in effect on the Closing Date.

(p) " Independent Director " shall mean a member of the Board who is not a Shareholder Director and who (i) is not and has never been an officer, employee or director of the Investor or its Affiliates and (ii) has no affiliation or compensation, consulting or contractual relationship with the Investor, any other Shareholder or any of their respective Affiliates, such that a reasonable person would regard such director as likely to be unduly


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influenced by any of such Persons or any of their Affiliates or associates (as defined in Rule 12b-2 under the Exchange Act).

(q) " Initial Primary Shares " shall have the meaning set forth in the Transaction Agreement.

(r) " NYSE " shall mean the New York Stock Exchange.

(s) " Offer Documents " shall mean any Tender Offer Statement on Schedule TO to be filed by the Investor with the SEC with respect to a Tender Offer, any offer to purchase contained or incorporated by reference therein, any related forms of letter of transmittal and any related summary advertisements (in each case, together with all supplements and amendments thereto).

(t) A Person shall be deemed to " Own " securities which such Person or any of such Person's Affiliates, directly or indirectly, owns or has the immediate right to acquire from a Person (other than from the Company pursuant to this Agreement) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, other rights, warrants or options, or otherwise.

(u) " Permitted Transferee " shall mean any solvent, wholly owned corporate subsidiary of the Investor, provided that such subsidiary does not directly engage as a primary part of its business in aircraft or aircraft engine leasing or financing.

(v) " Person " shall mean any individual, firm, corporation, partnership, limited liability company or other entity, and shall include any successor (by merger, amalgamation or otherwise) of such entity.

(w) " Piggyback Registrable Amount " shall mean, as of any measurement date, an amount of Common Shares equal to or greater than 1.0% of the Common Shares issued and outstanding on such measurement date.

(x) " Piggyback Shareholder " shall mean (i) the Investor and (ii) each Permitted Transferee who becomes a party to or bound by the provisions of this Agreement in accordance with the terms hereof or Permitted Transferee thereof who is entitled to enforce the provisions of this Agreement in accordance with the terms hereof, in the case of clauses (i) and (ii), to the extent that the Investor (irrespective of whether or not the Investor owns any Registrable Securities) or such Permitted Transferee, together with its respective Permitted Transferees (other than the Investor), holds at least a Piggyback Registrable Amount.

(y) " Public Offering " shall mean an offering of equity securities of the Company pursuant to an effective registration statement under the Securities Act, including an offering in which Shareholders are entitled to sell Common Shares pursuant to the terms of this Agreement.

(z) " Registrable Amount " shall mean, as of any measurement date, an amount of Common Shares equal to 3.0% of the Common Shares issued and outstanding on such measurement date.

(aa) " Registrable Securities " shall mean any Common Shares currently owned or hereafter acquired by any Shareholder. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (x) a registration statement registering such securities under the Securities Act has been declared effective and such securities have been sold or otherwise transferred by the holder thereof pursuant to such effective registration statement, (y) such securities are sold in accordance with Rule 144 (or any successor provision) promulgated under the Securities Act or (z) such securities may be sold in accordance with Rule 144 (or any successor provision) promulgated under the Securities Act without regard to the volume limitations contained therein.

(ab) " Securities Act " shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

(ac) " Schedule 14D-9 " shall mean any Solicitation/Recommendation Statement on Schedule 14D-9 to be filed by the Company with the SEC with respect to a Tender Offer (together with all supplements and amendments thereto).



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(ad) " Shareholder Directors " shall mean the Shareholder Nominees, if any, who are elected or appointed to serve as members of the Board in accordance with this Agreement.

(ae) " Shareholder Nominees " shall mean such Persons as are so designated by the Shareholders, as such designations may change from time to time in accordance with this Agreement, to serve as members of the Board pursuant to Section 3.2 .

(af) " Shareholders " shall mean (i) the Investor and (ii) each Permitted Transferee who becomes a party to or bound by the provisions of this Agreement in accordance with the terms hereof, in the case of clauses (i) and (ii), to the extent that the Investor (irrespective of whether or not the Investor owns any Registrable Securities) or such Permitted Transferee, together with its respective Permitted Transferees, hold at least a Registrable Amount.

(ag) " Standstill Period " shall mean the period commencing on the Closing Date and ending on the first to occur of (i) January 12, 2025, (ii) the date on which a Change of Control occurs and (iii) the date on which the Common Shares cease to be listed on any national securities exchange for a continuous period of one (1) year.

(ah) " Third Party Offer " shall mean a bona fide offer to enter into a transaction that results in a Change of Control by a Person, other than (x) the Shareholders or any of their Affiliates or (y) any other Person acting on behalf of or as part of a Group with the Shareholders.

(ai) " Transaction Agreement " the Transaction Agreement, by and between the Company and the Investor, executed concurrently with the Original Shareholder Agreement.

(aj) " Transfer " shall mean, with respect to any Company Securities, (i) when used as a verb, to sell, assign, dispose of, exchange, pledge, charge, encumber, hypothecate or otherwise transfer such Company Securities or any participation or interest therein, whether directly or indirectly (including by means of any hedging or derivative transactions that may have a similar effect to the foregoing), or agree or commit to do any of the foregoing and (ii) when used as a noun, a direct or indirect sale, assignment, disposition, exchange, pledge, charge, encumbrance, hypothecation, or other transfer of such Company Securities or any participation or interest therein (or any hedging or derivative transactions that may have a similar effect to the foregoing) or any agreement or commitment to do any of the foregoing.

(ak) " Underwritten Offering " shall mean a sale of securities of the Company to an underwriter or underwriters for reoffering to the public.

(al) " Voting Power of the Company " shall mean the total number of votes that may be cast in the election of directors of the company if all Company Securities were present and voted at a meeting held for such purpose.

Section 1.2 Construction . For the purposes of this Agreement (i) words (including capitalized terms defined herein) in the singular shall be held to include the plural and vice versa and words (including capitalized terms defined herein) of one gender shall be held to include the other gender as the context requires, (ii) the terms "hereof," "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement, and Article and Section references are to Articles and Sections of this Agreement, unless otherwise specified, (iii) the word "including" and words of similar import when used in this Agreement shall mean "including, without limitation," (iv) all references to any period of days shall be deemed to be to the relevant number of calendar days unless otherwise specified, and (v) all references herein to "$" or dollars shall refer to United States dollars, unless otherwise specified.

ARTICLE II
TRANSFER RESTRICTIONS; STANDSTILL

Section 2.1 Transfer Restrictions .

(a) None of the Shareholders or their Affiliates, directly or indirectly, may Transfer Company Securities to any other Person, other than to the Company, prior to July 12, 2016, or such earlier date on which:


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(i) (A) a Change of Control has occurred or (B) a tender offer or exchange offer has been commenced that, if consummated, will result in a Change of Control and the Board has approved the tender or exchange offer or recommended its acceptance; provided that in the case of clause (B), the restrictions on Transfers of Company Securities contained in this Section 2.1 shall only be released in order for the applicable Shareholders to tender or exchange Common Shares in such tender offer or exchange offer that has been approved or recommended for acceptance; or

(ii) the Shareholders and their Affiliates do not, at the time of such Transfer, Own at least 15.0% of the Voting Power of the Company (other than as a result of a Transfer in violation of this Section 2.1 ); or

(iii) at any time when the Shareholders and their Affiliates Own at least 15.0% of the Voting Power of the Company, for a period of 90 consecutive days or more the number of directors on the Board that were nominated by the Shareholders represents less than 20.0% of the total number of directors on the Board as a consequence of a breach by the Company of its obligations under Section 3.2(a) or (b) or as a consequence of the failure of the Company’s shareholders to elect any qualified Shareholder Nominee.
Any Transfer by the Shareholders or their Affiliates permitted under this Section 2.1 shall be made (1) pursuant to an effective registration statement under the Securities Act or in accordance with Rule 144 under the Securities Act (including the volume and manner-of-sale limitations of Rule 144, regardless of whether such limitations are applicable) and otherwise in compliance with the Securities Act and (2) in a manner that the transferor reasonably expects to result in a Broad Distribution.
(b) Notwithstanding Section 2.1(a), the Shareholders may Transfer Company Securities to a Permitted Transferee at any time, it being understood that a Permitted Transferee shall become a Shareholder hereunder, without any further action by the Company, following a Transfer by the Shareholders of Company Securities to such Permitted Transferee upon the execution by such Permitted Transferee of a joinder providing that such Person shall be bound by and shall fully comply with the terms of this Agreement

(c) Nothing in this Section 2.1 shall restrict Shareholders' ability to Transfer Company Securities as otherwise expressly permitted in Sections 2.6 or 2.7 of this Agreement.

Section 2.2 Standstill .

(a) During the Standstill Period, except as specifically approved by a majority of the Independent Directors (so long as such approval was not obtained by the Shareholders in violation of this Agreement) and except as otherwise provided in this Section 2.2 , none of the Shareholders or any of their Affiliates shall, directly or indirectly, (i) by purchase or otherwise, Beneficially Own, acquire, agree to acquire or offer to acquire any Company Securities or direct or indirect rights or options to acquire Company Securities (including any voting trust certificates representing such securities) (or any hedging or derivative transactions that may have a similar effect to the foregoing) other than the Common Shares acquired pursuant to the Transaction Agreement, (ii) enter, propose to enter into, solicit or support any merger, amalgamation or business combination or similar transaction involving the Company or any of its subsidiaries, or purchase, acquire, propose to purchase or acquire or solicit or support the purchase or acquisition of any portion of the business or assets of the Company or any of its subsidiaries, (iii) initiate or propose any shareholder proposal without the approval of the Board granted in accordance with this Agreement or make, or in any way participate in, any "solicitation" of "proxies" (as such terms are used in the proxy rules promulgated by the Commission under the Exchange Act) to vote, or seek to advise or influence any Person with respect to the voting of, any Company Securities or request or take any action to obtain any list of shareholders of the Company for such purposes with respect to any matter (or, as to such matters, solicit any Person in a manner that would require the filing of a proxy statement under Regulation 14A of the Exchange Act), (iv) form, join or in any way participate in a Group (other than a Group consisting solely of the Shareholders) formed for the purpose of acquiring, holding, voting or disposing of or taking any other action with respect to Company Securities that would be required under Section 13(d) of the Exchange Act to file a Statement on Schedule 13D with respect to such Company Securities, (v) deposit any Company Securities in a voting trust or enter into any voting agreement or arrangement with respect thereto (other than this Agreement),


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(vi) seek representation on the Board (other than as provided in this Agreement), the removal of any directors from the Board (other than any Shareholder Directors) or a change in the size or composition of the Board, (vii) make any request to amend or waive any provision of this Section 2.2 , except to the extent such request is made on a confidential basis solely to one or more of members of the Board or members of senior management of the Company, (viii) disclose any intent, purpose, plan, arrangement or proposal inconsistent with the foregoing (including any such intent, purpose, plan, arrangement or proposal that is conditioned on or would require the waiver, amendment, nullification or invalidation of any of the foregoing) or take any action that would require public disclosure of any such intent, purpose, plan, arrangement or proposal, (ix) take any action challenging the validity or enforceability of this Section 2.2 or (x) assist, advise, encourage or negotiate with any Person with respect to, or seek to do, any of the foregoing.

(b) The restrictions in Section 2.2(a) shall not (i) prevent the Shareholders from exercising their rights under Section 2.4 , (ii) (A) following the third anniversary of the Closing Date, prevent the Shareholders from purchasing Common Shares in the secondary market or in a tender offer or (B) following the receipt of approval from the competition authorities, or the expiration or termination of any applicable waiting periods under the competition laws, as applicable, of Germany or Ukraine, prevent the Shareholders from purchasing Common Shares in the secondary market pursuant to a Rule 10b5-1 plan, in each case, in an amount such that (after giving effect to any such purchases) the Shareholders and their Affiliates Beneficially Own no more than 27.5% of the Voting Power of the Company, (iii) to the extent that the Shareholders' Beneficial Ownership of Company Securities is diluted solely as a result of the issuance of Company Securities pursuant to employee or director stock option or incentive compensation or similar plans granted after the Closing Date, prevent the Shareholders from purchasing up to an Amount of Company Securities in the secondary market solely to enable the Shareholders to maintain such level of Beneficial Ownership as if the dilution resulting from such issuance had not occurred, or (iv) prevent the Shareholders from increasing their Beneficial Ownership of Company Securities following the occurrence of a Change of Control. For the avoidance of doubt any Transfer or acquisition of Company Securities by the Shareholders or any of their Affiliates shall be made in compliance with the provisions of Section 6.3 .

(c) Nothing in this Section 2.2 shall (i) prohibit or restrict the Shareholders from responding to any inquiries from any shareholders of the Company as to the Shareholders' intention with respect to the voting of any Company Securities Beneficially Owned by the Shareholders so long as such response is consistent with the terms of this Agreement or (ii) restrict the right of any Shareholder Director to vote on any matter as such individual believes appropriate in light of his or her duties as a director or committee member or the manner in which a Shareholder Director may participate in his capacity as a director in deliberations or discussions at meetings of the Board or as a member of any committee thereof.

(d) If the Board shall, at any time and in good faith, be of the opinion that the Shareholders and their Affiliates Own Voting Power of the Company in excess of the amounts permitted by this Section 2.2 (and such excess amount was not the result of any share repurchase or recapitalization or any other transaction approved by the Board) the Company shall so advise the Shareholders and request them to reduce the level of Ownership to an amount below the applicable level (and in connection therewith, shall waive any transfer restrictions otherwise applicable under this Article II); provided , that any transferee does not directly engage as a primary part of its business in aircraft or aircraft engine leasing or financing. If the Shareholders shall fail to effect such reduction within ten (10) Business Days of the date on which so advised by the Company, the Company shall have the power (i) by lot or other means deemed equitable by them to call for the purchase by the Company from any Shareholder a number of Common Shares sufficient, in the opinion of the Board, to bring such Ownership to no more than the amount permitted by this Section 2.2 , and (ii) to refuse to transfer or issue Company Securities to the Shareholders and their Affiliates. The purchase price per share for any such Common Shares shall be equal to the average closing sales price per share for the Common Shares as reported by the NYSE or other national securities exchange on which the Common Shares are then listed for the twenty (20) trading days preceding such purchase. Payment of the purchase price shall be made in cash by the Company at such time and in such manner as may be determined by the Company. From and after the date fixed for purchase by the Company, the holder of any Common Shares so called for purchase shall cease to be entitled to distributions, voting rights and other benefits with respect to such Common Shares, excepting only the right to payment of the purchase price fixed as aforesaid. If the Company fails to grant an exemption from the ownership restrictions set forth in this Section 2.2 , then any action described in clauses (i) through (x) of Section 2.2(a) that would result in the Shareholders and their Affiliates Owning Voting Power of the Company in excess of the amounts permitted by this Section 2.2 shall be deemed void ab initio and


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the applicable Shareholders shall be deemed never to have had an interest in the applicable Company Securities. If the foregoing provision is determined to be void or invalid by virtue of any legal decision, statute, rule or regulation, then the applicable Shareholders shall be deemed, at the option of the Company, to have acted as agent on behalf of the Company in acquiring such Company Securities and to hold such Company Securities on behalf of the Company.

Section 2.3 Investor Share Purchases .

(a) If, at any time after the Closing Date and for so long as (i) the Shareholders shall Own 15.0% or more of the Voting Power of the Company and (ii) the Shareholders are not otherwise prohibited from purchasing Common Shares in the secondary market pursuant to the provision of Section 2.2(b)(ii) or otherwise under this Agreement or applicable law, then the Investor may, subject to Section 2.3(b) , elect to effect such purchase by commencing a tender offer (" Tender Offer ") to purchase a number of Common Shares not in excess of the number of Common Shares permitted to be purchased under this Agreement. For the avoidance of doubt, in no event shall the provisions of this Section 2.3 permit any action otherwise prohibited under Section 2.2 .

(b) In the event that the Investor elects to commence a Tender Offer, the Investor shall deliver written notice thereof to the Company not less than twenty (20) Business Days prior to commencement. The Company shall be entitled to postpone (upon written notice to the Investor) for up to an aggregate of ninety (90) days during any period of twelve (12) consecutive months the commencement by the Investor of a Tender Offer if the Board determines in good faith and in its reasonable judgment that the filing of Offer Documents by the Investor or the filing of a Schedule 14D-9 by Company would cause the disclosure of material, non-public information that the Company has a bona fide business purpose for preserving as confidential.

(c) Each of the Investor and the Company shall reasonably cooperate and consult with each other in connection with any proposed purchase of Common Shares by the Investor that is permitted hereunder, including any purchases to be made pursuant to a Tender Offer and any purchases to be made pursuant to a Rule 10b5-1 plan; provided , that such cooperation shall not require the Board to make any recommendation as to whether the shareholders of the Company should tender their Common Shares in any such Tender Offer.

(d) Subject to the requirements of applicable Law, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Tender Offer, the Investor shall hold in confidence all information furnished to the Investor by the Company or its agents and shall use such information only in connection with the Tender Offer, and, if this Agreement shall be terminated in accordance with Section 7.14 , shall deliver to the Company all copies of such information then in its possession.

Section 2.4 Investor Right to Maintain Position . If, at any time after the Closing Date and for so long as the Shareholders and their Affiliates Own 15.0% or more of the Voting Power of the Company, the Company shall issue for cash any additional Company Securities (except for any issuances described in the immediately following sentence), then the Company shall notify the Shareholders of such issuance and the price and terms thereof, and the Shareholders shall have the option, for a period of fifteen (15) Business Days after delivery of such notice, to purchase from the Company an Amount of Company Securities for the same consideration per security and on the same terms as were applicable to such issuance by the Company. The foregoing option shall not apply to any issuance of Company Securities (i) pursuant to the Transaction Agreement or (ii) pursuant to employee or director stock option or incentive compensation or similar plans outstanding as of the Closing Date or, subsequent to the Closing Date, approved by the Board or a duly authorized committee of the Board.

Section 2.5 Company Repurchases . If, at any time that the Shareholders and their Affiliates Own more than 15.0% but not more than 27.5% of the Voting Power of the Company, the Company shall repurchase any Common Shares, then the Company shall notify the Shareholders of such repurchase and the price and terms thereof, and the Shareholders shall have the option, for a period of fifteen (15) Business Days after delivery of such notice, to sell Common Shares to the Company in an amount that would allow the Shareholders to maintain their Ownership at a level equal to or below 27.5% of the Voting Power of the Company for the same price and on the same terms; provided , that the foregoing shall not apply if a repurchase of Common Shares by the Company would not result in the Shareholders and their Affiliates Owning more than 27.5% of the Voting Power of the Company (it being understood for purposes of this Section 2.5 , in determining the Beneficial Ownership of the


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Shareholders the Company may rely on (x) information provided by the Shareholders and (y) in the absence of such information, on the information contained in the Shareholders’ most recent filings with the Commission relating to their Beneficial Ownership of Common Shares, including filings pursuant to Section 13(d) or Section 16(a) of the Exchange Act). If any such proposed repurchase is to be effected under a Section 10b5-1 plan or any similar mechanism, then the Company shall have fulfilled its obligations under this Section 2.5 if it notifies the Shareholders fifteen (15) Business Days in advance of implementing such a plan and provides the Shareholders with the option to participate pro rata , at market prices, in repurchases made under such plan.

Section 2.6 Third Party Offers . If and for so long as the Shareholders and their Affiliates Beneficially Own more than 21.0% of the Voting Power of the Company:

(a) In the event that the Company becomes the subject of a Third Party Offer that is approved by a majority of the Independent Directors, the Shareholders may act at their sole discretion (including voting their Company Securities for or against such Third Party Offer or tendering or selling, or not tendering or selling, their Company Securities to such Person making such Third Party Offer) with respect to such Third Party Offer.

(b) In the event that the Company becomes the subject of a Third Party Offer that is not approved by a majority of the Independent Directors, the Shareholders and their Affiliates shall not support such Third Party Offer, vote in favor of such Third Party Offer or tender or sell their Company Securities to the Person making such Third Party Offer.

(c) The voting limitations set forth in this Section 2.6 shall cease to apply following a Change of Control.

Section 2.7 Voting of Shares . If and for so long as the Shareholders Beneficially Own more than 21.0% of the Voting Power of the Company, at each meeting of shareholders of the Company occurring (or in connection with any action by written consent of shareholders of the Company) during the term of this Agreement, with respect to any shareholder proposal that is to be voted upon at such meeting (or acted upon in such written consent), the Shareholders shall not vote any of the Company Securities then Beneficially Owned by them in favor of the shareholder proposal if such shareholder proposal is not recommended by the Independent Directors. The voting limitations set forth in this Section 2.6 shall cease to apply following a Change of Control.

ARTICLE III
BOARD OF DIRECTORS

Section 3.1 Board Size . For so long as this Agreement is in effect, the Board shall not have more than twelve (12) directors unless otherwise agreed between the Company and the Shareholders.

Section 3.2 Shareholder Nominees.

(a) So long as the Shareholders have Ownership of:

(i) 25.0% or more of the Voting Power of the Company, the Shareholders shall be entitled to designate three (3) Shareholder Nominees;

(ii) less than 25.0% but at least 15.0% of the Voting Power of the Company, the Shareholders shall be entitled to designate two (2) Shareholder Nominees; provided , that for so long as the Shareholders own less than 25% but at least 15% of the Voting Power of the Company, the number of Shareholder Nominees that Shareholders have the right to designate pursuant to this Section 3.2(a)(ii) shall be at least 20% of the number of directors serving on the Board; and

(iii) less than 15.0% but at least 5.0% of the Voting Power of the Company, the Shareholders shall be entitled to designate one (1) Shareholder Nominee; and

(iv) less than 5.0% of the Voting Power of the Company, the Shareholders shall not be entitled to designate any Shareholder Nominees.


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Each of the Shareholders shall vote or cause to be voted all of the Company Securities held of record or Owned by such Shareholder and take all other reasonably necessary action so as to effect the purpose of this Section 3.2 .
(b) Any Shareholder Nominees that are included in a slate of directors pursuant to Section 3.2 shall be designated as provided in this Section 3.2(b) . The Company's Nominating and Governance Committee (or if there is no such committee, then any other duly authorized committee of the Board) shall recommend to the Board the nomination of each person so designated, if reasonably acceptable to such committee, and the Board shall nominate such person in such class specified herein, if the Board is then classified, or if not so specified as the Board may determine; it being understood that such committee and the Board shall take such actions as shall be reasonably requested by the Investor, subject to the Investor’s compliance with the provisions of the following sentence, in connection with each such nomination. The Shareholders shall provide notice to the Company (the " Shareholder Nominee Notice ") as required by this Section 3.2(b) for each Shareholder Nominee, which notice shall contain the following information: (i) the name of the Shareholder Nominee and (ii) all information required by Regulation 14A and Schedule 14A under the Exchange Act with respect to each such Shareholder Nominee.

(c) The Company shall use reasonable efforts to solicit from the holders of Company Securities eligible to vote proxies in favor of the election of the Shareholder Nominees selected in accordance with this Section 3.2 at each Annual General Meeting of the Company's shareholders held following the Closing Date for so long as the Shareholders have the right to designate one or more Shareholder Nominees pursuant to this Section 3.2 .

(d) If any Shareholder desires to remove, with or without cause, any Shareholder Director previously designated by the Shareholders, each Shareholder shall vote or cause to be voted all of the Company Securities held of record or Owned by such Shareholder and take all other necessary actions to cause the removal of any Shareholder Director designated pursuant to this Section 3.2 , subject to the Bye-laws.

(e) In the event that any Shareholder Director shall for any reason cease to serve as a member of the Board during his term of office, the resulting vacancy on the Board will be filled by an individual designated by the Shareholders in a Shareholder Nominee Notice that has been provided to the Company sufficiently in advance of the date of a regular meeting of the Board so that the Company's Nominating and Governance Committee (or if there is no such committee, then any other duly authorized committee of the Board) is able to perform its customary background and qualifications checks, interview and other evaluation procedures, and provided that such individual is reasonably acceptable to such committee, such committee shall recommend nomination of such individual as a director. Each of the Shareholders shall vote or cause to be voted all of the Company Securities held of record or Owned by such Shareholder and take all other reasonably necessary action so as to effect the purpose of this Section 3.2(e) .

(f) If at any time the number of Shareholder Nominees entitled to be designated by the Shareholders pursuant to this Section 3.2 would decrease, within twenty (20) days thereafter, the Shareholders shall cause a sufficient number of Shareholder Directors to resign from the Board so that the number of Shareholder Directors on the Board after such resignation(s) equals the number of Shareholder Directors the Shareholders would have been entitled to designate had an election of directors taken place at such time. Any vacancies created by a resignation required by this Section 3.2(f) may be filled in accordance with the Bye-laws.

(g) In any election of directors or at any meeting of the shareholders of the Company called expressly for the removal of directors, for so long as the Shareholders Own more than 21% of the Voting Power of the Company, the Shareholders shall be present for purposes of establishing a quorum and shall vote all their Company Securities entitled to vote (i) in favor of any nominee or director selected by the Company's Nominating and Governance Committee (or if there is no such committee, then any other duly authorized committee of the Board) and (ii) against the removal of any director designated by a majority of the Independent Directors; provided , that in the event that the directors designated by the Investor pursuant to its Board representation rights are not elected to the Board by the shareholders of the Company at a duly constituted Annual General Meeting of shareholders of the Company, then (x) the Company and the Board shall take such action as the Shareholders may reasonably request to restore the Shareholders' Board representation to the level required under Section 3.2 ( provided , that the neither the Company nor the Board shall be required to remove any existing


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directors or request that any existing directors not stand for re-election), and (y) the voting limitations in this Section 3.2(g) shall cease to apply until such time as directors designated by the Shareholders (or their replacements) in accordance with its Board representation rights have been appointed or elected to the Board; provided , further , that the voting limitations in this Section 3.2(g) shall cease to apply following the occurrence of a Change of Control.

(h) The Shareholder Directors shall be entitled to benefits under any director and officer insurance policy maintained by the Company and all rights to indemnification, advancement of expenses and exculpation, in each case to the same extent as any other Director of the Board.

ARTICLE IV
REPRESENTATIONS OF EACH SHAREHOLDER
Each Shareholder hereby represents and warrants to the Company and to each other Shareholder as follows:
Section 4.1 Due Organization, Authorization . Such Shareholder is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. The execution, delivery and performance by such Shareholder of this Agreement, and the consummation by such Shareholder of the transactions contemplated hereby, have been duly authorized by all necessary corporate and other action on its part.

Section 4.2 Enforceability, Etc . This Agreement has been duly executed and delivered by such Shareholder. This Agreement constitutes a legal, valid and binding obligation of such Shareholder, enforceable against such Shareholder in accordance with its terms, subject to any limitations imposed by bankruptcy, insolvency, or other laws of general application relating to enforcement of creditors' rights or general equity principles.

Section 4.3 No Conflicts . The execution, delivery and performance of this Agreement by such Shareholder and the consummation by such Shareholder of the transactions contemplated hereby will not (a) result in a violation of, be in conflict with or constitute a default (with or without notice or lapse of time or both) under (i) any law applicable to such Shareholder or any of its assets, (ii) any provision of its organizational documents, if such Shareholder is not a natural person, (iii) any order or judgment of any court or other agency of government applicable to such Shareholder or any of its assets or (iv) any contractual restriction binding on or affecting such Shareholder or any of its assets or (b) result in the creation or imposition of any lien, mortgage, pledge, claim, right, charge, security interest or other restriction or encumbrance upon any of such Shareholder's assets, including the Company Securities.

ARTICLE V
REGISTRATION RIGHTS

Section 5.1 Demand Registration .

(a) At any time after the expiration of the transfer restrictions contained in Section 2.1(a) , so long as the Shareholders, collectively, Own at least 5.0% of the Voting Power of the Company, any Shareholder (a " Requesting Shareholder ") shall be entitled to make a written request of the Company (a " Demand ") for registration under the Securities Act of an amount of Registrable Securities that, when taken together with the amounts of Registrable Securities requested to be registered under the Securities Act by such Requesting Shareholder's Affiliates, equals or is greater than the Registrable Amount (based on the number of Registrable Securities outstanding on the date such Demand is made) (a " Demand Registration ") and thereupon the Company will, subject to the terms of this Agreement, use its commercially reasonable efforts to effect the registration under the Securities Act of:

(i) the Registrable Securities that the Company has been so requested to register by the Requesting Shareholders for disposition in accordance with the intended method of disposition stated in such Demand;

(ii) all other Registrable Securities that the Company has been requested to register pursuant to Section 5.1(b) ; and


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(iii) all Common Shares that the Company may elect to register in connection with any offering of Registrable Securities pursuant to this Section 5.1 , but subject to Section 5.1(g) ;
all to the extent necessary to permit the disposition (in accordance with the intended methods thereof) of the Registrable Securities and the additional Common Shares, if any, to be so registered.
(b) A Demand shall specify: (i) the aggregate number of Registrable Securities requested to be registered in such Demand Registration, (ii) the intended method of disposition in connection with such Demand Registration, to the extent then known and (iii) the identity of the Requesting Shareholder (or Requesting Shareholders). Subject to Section 5.1(g) , the Company shall include in the Demand Registration covered by such Demand all Registrable Securities with respect to which the Company has received a written request for inclusion therein within ten (10) days after the initial Demand.

(c) The Shareholders, collectively, shall be entitled to an aggregate of six (6) Demand Registrations.

(d) A Demand Registration shall not be deemed to have been effected and shall not count as a Demand (i) unless a registration statement with respect thereto has become effective and has remained effective for a period of at least sixty (60) days (or such shorter period in which all Registrable Securities included in such Demand Registration have actually been sold thereunder), (ii) if, after it has become effective, such Demand Registration becomes subject to any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason, (iii) if the conditions to closing specified in the purchase agreement or underwriting agreement entered into in connection with such Demand Registration are not satisfied as a consequence of any act or omission by the Company or (iv) the number of Registrable Securities requested for inclusion is materially reduced pursuant to Section 5.1(g).

(e) Demand Registrations shall be on such appropriate registration form of the Commission as shall be selected by the Company.

(f) The Company shall be entitled to postpone (upon written notice to all Shareholders) for up to an aggregate of ninety (90) days during any period of twelve (12) consecutive months the filing or the effectiveness of a registration statement for any Demand Registration if the Board determines in good faith and in its reasonable judgment that the filing or effectiveness of the registration statement relating to such Demand Registration would cause the disclosure of material, non-public information that the Company has a bona fide business purpose for preserving as confidential. In the event of a postponement by the Company of the filing or effectiveness of a registration statement for a Demand Registration, the holders of a majority of Registrable Securities held by the Requesting Shareholder(s) shall have the right to withdraw such Demand in accordance with Section 5.3 .

(g) The Company shall not include any securities other than Registrable Securities in a Demand Registration, except with the written consent of Shareholders participating in such Demand Registration that hold a majority of the Registrable Securities included in such Demand Registration. If, in connection with a Demand Registration, any managing underwriter (or, if such Demand Registration is not an Underwritten Offering, a nationally recognized independent investment bank selected by the Company) advises the Company, in writing, that, in its opinion, the inclusion of all of the securities, including securities of the Company that are not Registrable Securities, sought to be registered in connection with such Demand Registration would adversely affect the marketability of the Registrable Securities sought to be sold pursuant thereto, then the Company shall include in such registration statement only such securities as the Company is advised by such underwriter can be sold without such adverse effect as follows and in the following order of priority: (i) first, up to the number of Registrable Securities requested to be included in such Demand Registration by the Shareholders, which, in the opinion of the underwriter can be sold without adversely affecting the marketability of the offering, pro rata among such Shareholders requesting such Demand Registration on the basis of the number of such securities requested to be included by such Shareholders and such Shareholders that are Piggyback Sellers; (ii) second, securities the Company proposes to sell; and (iii) third, all other securities of the Company duly requested to be included in such registration statement, pro rata on the basis of the amount of such other securities requested to be included or such other method determined by the Company.


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(h) Any time that a Demand Registration involves an Underwritten Offering, the Company shall select the investment banker or investment bankers and managers that will serve as lead and co-managing underwriters with respect to the offering of such Registrable Securities.

Section 5.2 Piggyback Registrations .

(a) Subject to the terms and conditions hereof, at any following the termination of the transfer restrictions described in Section 2.1(a) whenever the Company proposes to register any of its equity securities under the Securities Act (other than a registration by the Company on a registration statement on Form S-4 or Form S-8 or any successor forms thereto) (a " Piggyback Registration "), whether for its own account or for the account of others, the Company shall give the Piggyback Shareholders prompt written notice thereof (but not less than ten (10) Business Days prior to the filing by the Company with the Commission of any registration statement with respect thereto). Such notice (a " Piggyback Notice ") shall specify, at a minimum, the number of equity securities proposed to be registered, the proposed date of filing of such registration statement with the Commission, the proposed means of distribution, the proposed managing underwriter or underwriters (if any and if known) and a good faith estimate by the Company of the proposed minimum offering price of such equity securities. Upon the written request of any Persons that on the date of the Piggyback Notice constitute a Piggyback Shareholder (a " Piggyback Seller ") (which written request shall specify the number of Registrable Securities then presently intended to be disposed of by such Piggyback Seller) given within five (5) Business Days after such Piggyback Notice is received by such Piggyback Seller, the Company, subject to the terms and conditions of this Agreement, shall use its reasonable best efforts to cause all such Registrable Securities held by Piggyback Sellers with respect to which the Company has received such written requests for inclusion to be included in such Piggyback Registration on the same terms and conditions as the Company's equity securities being sold in such Piggyback Registration.

(b) If, in connection with a Piggyback Registration, any managing underwriter (or, if such Piggyback Registration is not an Underwritten Offering, a nationally recognized independent investment bank selected by the Company) advises the Company in writing that, in its opinion, the inclusion of all the equity securities sought to be included in such Piggyback Registration by (i) the Company, (ii) others who have sought to have equity securities of the Company registered in such Piggyback Registration pursuant to rights to demand (other than pursuant to so-called "piggyback" or other incidental or participation registration rights) such registration (such Persons being " Other Demanding Sellers "), (iii) the Piggyback Sellers and (iv) any other proposed sellers of equity securities of the Company (such Persons being " Other Proposed Sellers "), as the case may be, would adversely affect the marketability of the equity securities sought to be sold pursuant thereto, then the Company shall include in the registration statement applicable to such Piggyback Registration only such equity securities as the Company is so advised by such underwriter can be sold without such an effect, as follows and in the following order of priority:

(i) if the Piggyback Registration relates to an offering for the Company's own account, then (A) first, such number of equity securities to be sold by the Company as the Company, in its reasonable judgment and acting in good faith and in accordance with sound financial practice, shall have determined, (B) second, Registrable Securities of Piggyback Sellers, securities sought to be registered by Other Demanding Sellers (if any), pro rata on the basis of the number of Common Shares held by such Piggyback Sellers and (C) third, other equity securities held by any Other Proposed Sellers; or

(ii) if the Piggyback Registration relates to an offering other than for the Company's own account, then (A) first, such number of equity securities sought to be registered by each Other Demanding Seller, the Piggyback Sellers (if any), pro rata in proportion to the number of securities sought to be registered by all such Other Demanding Sellers, Piggyback Sellers and (B) second, other equity securities held by any Other Proposed Sellers or to be sold by the Company as determined by the Company.

(c) In connection with any Underwritten Offering under this Section 5.2 for the Company's account, the Company shall not be required to include a holder's Registrable Securities in the Underwritten Offering unless such holder accepts the terms of the underwriting as agreed upon between the Company and the


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underwriters selected by the Company; provided , that any such underwriting agreement includes only customary terms and conditions.

(d) If, at any time after giving written notice of its intention to register any of its equity securities as set forth in this Section 5.2 and prior to the time the registration statement filed in connection with such Piggyback Registration is declared effective, the Company shall determine for any reason not to register such equity securities, the Company may, at its election, give written notice of such determination to each Piggyback Shareholder and thereupon shall be relieved of its obligation to register any Registrable Securities in connection with such particular withdrawn or abandoned Piggyback Registration (but not from its obligation to pay the Registration Expenses in connection therewith as provided herein); provided , that Shareholders may continue the registration as a Demand Registration pursuant to the terms of Section 5.1 .

Section 5.3 Withdrawal Rights . Any Shareholder having notified or directed the Company to include any or all of its Registrable Securities in a registration statement under the Securities Act shall have the right to withdraw any such notice or direction with respect to any or all of the Registrable Securities designated by it for registration by giving written notice to such effect to the Company prior to the effective date of such registration statement. In the event of any such withdrawal, the Company shall not include such Registrable Securities in the applicable registration and such Registrable Securities shall continue to be Registrable Securities for all purposes of this Agreement. Other than as provided in Section 5.6 , no such withdrawal shall affect the obligations of the Company with respect to the Registrable Securities not so withdrawn; provided , however , that in the case of a Demand Registration, if such withdrawal shall reduce the number of Registrable Securities sought to be included in such registration below the Registrable Amount, then the Company shall as promptly as practicable give each holder of Registrable Securities sought to be registered notice to such effect and, within ten (10) days following the mailing of such notice, such holder of Registrable Securities still seeking registration shall, by written notice to the Company, elect to register additional Registrable Securities, when taken together with elections to register Registrable Securities by its Affiliates, to satisfy the Registrable Amount or elect that such registration statement not be filed or, if theretofore filed, be withdrawn. During such ten (10) day period, the Company shall not file such registration statement if not theretofore filed or, if such registration statement has been theretofore filed, the Company shall not seek, and shall use commercially reasonable efforts to prevent, the effectiveness thereof. Any registration statement withdrawn or not filed (a) in accordance with an election by the Company, (b) in accordance with an election by the Requesting Shareholders in the case of a Demand Registration, provided that the Requesting Shareholders agree to reimburse to the Company all out-of-pocket costs or expenses of the Company incurred in connection with such Demand Registration, or (c) in accordance with an election by the Company subsequent to the effectiveness of the applicable Demand Registration statement because any post-effective amendment or supplement to the applicable Demand Registration statement contains information regarding the Company that the Company deems adverse to the Company, shall not be counted as a Demand.

Section 5.4 Holdback Agreements . Each Shareholder agrees not to effect any public sale or distribution (including sales pursuant to Rule 144) of equity securities of the Company, or any securities convertible into or exchangeable or exercisable for such equity securities, during any time period reasonably requested by the Company (which shall not exceed ninety (90) days) with respect to any Public Offering, Demand Registration or Piggyback Registration (in each case, except as part of such registration), or, in each case, a later date required by any underwriting agreement with respect thereto.

Section 5.5 Registration Procedures .

(a) If and whenever the Company is required to use commercially reasonable efforts to effect the registration of any Registrable Securities under the Securities Act as provided in Sections 5.1 and 5.2 , the Company shall as expeditiously as reasonably possible:

(i) prepare and file with the Commission a registration statement to effect such registration and thereafter use reasonable best efforts to cause such registration statement to become and remain effective pursuant to the terms of this Agreement; provided , however , that the Company may discontinue any registration of its securities that are not Registrable Securities at any time prior to the effective date of the registration statement relating thereto; provided , further , that before filing such registration statement or any amendments thereto, the Company will furnish to the counsel selected by the holders of Registrable Securities which are to


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be included in such registration (" Selling Holders ") copies of all such documents proposed to be filed, which documents will be subject to the review of (and shall reasonably take into account the comments of) such counsel, and such review to be conducted with reasonable promptness;

(ii) prepare and file with the Commission such amendments, post-effective amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement until such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement;

(iii) furnish to each Selling Holder and each underwriter, if any, of the securities being sold by such Selling Holder such number of conformed copies of such registration statement and of each amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents as such Selling Holder and underwriter, if any, may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities owned by such seller;

(iv) use reasonable best efforts to register or qualify such Registrable Securities covered by such registration statement under such other securities laws or blue sky laws of such jurisdictions as any Selling Holder and any underwriter of the securities being sold by such Selling Holder shall reasonably request, and take any other action which may be reasonably necessary or advisable to enable such Selling Holder and underwriter to consummate the disposition in such jurisdictions of the Registrable Securities owned by such Selling Holder, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this Section 5.5(a)(iv) be obligated to be so qualified, to subject itself to taxation in any such jurisdiction or to file a general consent to service of process in any such jurisdiction;

(v) use reasonable best efforts to cause such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed and, if no such securities are so listed, use commercially reasonable efforts to cause such Registrable Securities to be listed on the NYSE, the NYSE MKT LLC or the NASDAQ Stock Market;

(vi) use commercially reasonable efforts to cause such Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the Selling Holder(s) thereof to consummate the disposition of such Registrable Securities;

(vii) in connection with an Underwritten Offering, obtain for each Selling Holder and underwriter:

(1) an opinion of counsel for the Company, covering the matters customarily covered in opinions requested in underwritten secondary offerings by selling shareholders, and

(2) a "comfort" letter (or, in the case of any such Person that does not satisfy the conditions for receipt of a "comfort" letter specified in AU Section 634 of the AICPA Professional Standards, an "agreed upon procedures" letter) signed by the independent registered public accountants who have certified the Company's financial statements included in such registration statement;

(viii) promptly make available for inspection by any Selling Holder, any underwriter participating in any disposition pursuant to any registration statement, and any attorney, accountant or other agent or representative retained by any such seller or underwriter (collectively, the " Inspectors "), all financial and other records and pertinent corporate documents of the Company (collectively, the " Records ") as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's


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officers, directors and employees to supply all information reasonably requested by any such Inspector in connection with such registration statement; provided , however , that, unless the disclosure of such Records is necessary to avoid or correct a misstatement or omission in the registration statement or the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, the Company shall not be required to provide any information under this Section 5.5(a)(viii) if (i) the Company believes, after consultation with counsel for the Company, that to do so would cause the Company to forfeit an attorney-client or other privilege, or violate a confidentiality obligation, that was applicable to such information or (ii) if either (A) the Company has requested and been granted from the Commission confidential treatment of such information contained in any filing with the Commission or documents provided supplementally or otherwise or (B) the Company reasonably determines in good faith that such Records are confidential and so notifies the Inspectors in writing unless prior to furnishing any such information with respect to (i) or (ii) such holder of Registrable Securities requesting such information agrees, and causes each of its Inspectors, to enter into a confidentiality agreement on terms reasonably acceptable to the Company; and provided , further , that each holder of Registrable Securities agrees that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at its expense, to undertake appropriate action and to prevent disclosure of the Records deemed confidential;

(ix) promptly notify in writing each Selling Holder and the underwriters, if any, of the following events:

(1) the effectiveness of any such registration statement;

(2) any request by the Commission for amendments or supplements to the registration statement or the prospectus or for additional information and when same has been filed and become effective;

(3) the issuance by the Commission of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings by any Person for that purpose; and

(4) the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the securities or blue sky laws of any jurisdiction or the initiation or threat of any proceeding for such purpose;

(x) notify each Selling Holder, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and, at the request of any Selling Holder, promptly prepare and furnish to such Selling Holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading;

(xi) use reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of such registration statement;

(xii) cooperate with the Selling Holders and the managing underwriter to facilitate the timely preparation and delivery of certificates (which shall not bear any restrictive legends unless required under applicable law), if necessary or appropriate, representing securities sold under any registration statement, and enable such securities to be in such denominations and registered in such names as the managing underwriter or such sellers may request and keep available and make available to the Company's transfer agent prior to the effectiveness of such registration statement a supply of such certificates as necessary or appropriate;



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(xiii) use its reasonable best efforts to take or cause to be taken all other actions, and do and cause to be done all other things, necessary or reasonably advisable in the opinion of Selling Holders' counsel to effect the registration of such Registrable Securities; and

(xiv) take such other actions as the Selling Holders or the underwriters reasonably request, upon reasonable prior notice, in order to facilitate the disposition of such Registrable Securities, including causing the management of the Company to prepare for and participate in due diligence and drafting sessions and in "road show" presentations and other customary selling efforts; provided that notwithstanding anything to the contrary herein, the Company shall not be obligated to participate in any "road show" pursuant to this Agreement within 18 (eighteen) months of any other "road show" in which the Company has participated or will be participating at the request of the Selling Holders or underwriters selected by the Selling Holders.
The Company may require each Selling Holder and each underwriter, if any, to furnish the Company in writing such information regarding each Selling Holder or underwriter and the distribution of such Registrable Securities as the Company may from time to time reasonably request to complete or amend the information required by such registration statement.
(b) Without limiting any of the foregoing, in the event that the offering of Registrable Securities is to be made by or through an underwriter, the Company shall enter into an underwriting agreement with a managing underwriter or underwriters containing representations, warranties, indemnities and agreements customarily included (but not inconsistent with the covenants and agreements of the Company contained herein) by an issuer of common shares in underwriting agreements with respect to secondary offerings of common shares for the account of, or on behalf of, selling shareholders. In connection with any offering of Registrable Securities registered pursuant to this Agreement, the Company shall (i) furnish to the underwriter, if any (or, if no underwriter, the sellers of such Registrable Securities), unlegended certificates representing ownership of the Registrable Securities being sold, in such denominations as requested and (ii) instruct any transfer agent and registrar of the Registrable Securities to release any stop transfer order with respect thereto.

(c) Each Selling Holder agrees that upon receipt of any notice from the Company of the happening of any event of the kind described in Section 5.5(a)(ix) , such Selling Holder shall forthwith discontinue such Selling Holder's disposition of Registrable Securities pursuant to the applicable registration statement and prospectus relating thereto until such Selling Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 5.5(a)(ix) and, if so directed by the Company, deliver to the Company, at the Company's expense, all copies, other than permanent file copies, then in such Selling Holder's possession of the prospectus current at the time of receipt of such notice relating to such Registrable Securities. In the event the Company shall give such notice, any applicable period during which such registration statement must remain effective pursuant to this Agreement shall be extended by the number of days during the period from the date of giving of a notice regarding the happening of an event of the kind described in Section 5.5(a)(ix) to the date when all such Selling Holders shall receive such a supplemented or amended prospectus and such prospectus shall have been filed with the Commission.



Section 5.6 Registration Expenses . All expenses incident to the Company's performance of, or compliance with, its obligations under this Agreement including all registration and filing fees, all fees and expenses of compliance with securities and "blue sky" laws, all fees and expenses associated with filings required to be made with the Financial Industry Regulatory Authority (" FINRA ") (including, if applicable, the fees and expenses of any "qualified independent underwriter" as such term is defined in FINRA Rule 5121 or the equivalent rule incorporated into the FINRA handbook), all fees and expenses of compliance with securities and "blue sky" laws, all printing (including expenses of printing certificates for the Registrable Securities in a form eligible for deposit with the Depository Trust Company and of printing prospectuses if the printing of prospectuses is requested by a holder of Registrable Securities) and copying expenses, all messenger and delivery expenses, all fees and expenses of the Company's independent certified public accountants and counsel to the Company (including with respect to "comfort" letters and opinions)(collectively, the " Registration Expenses ") shall be borne by the Company, regardless of whether a registration is effected. The Company will pay its internal expenses (including all salaries and expenses of its officers and employees performing legal or accounting


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duties, the expense of any annual audit and the expense of any liability insurance) and the expenses and fees for listing the securities to be registered on each securities exchange and included in each established over-the-counter market on which similar securities issued by the Company are then listed or traded. Notwithstanding the foregoing, the Selling Holders shall pay all underwriting discounts and commissions, the fees and expenses of counsel to the Selling Holders and transfer taxes, if any, relating to the sale of Registrable Securities pursuant to any registration.

Section 5.7 Indemnification .

(a) The Company agrees to indemnify and hold harmless, to the fullest extent permitted by law, each Selling Holder, its officers, directors, employees, managers, partners and agents and each Person who controls (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act) such Selling Holder or such other indemnified Person from and against all losses, claims, damages, liabilities and expenses (including reasonable expenses of investigation and reasonable attorneys' fees and expenses) (collectively, the " Losses ") caused by, resulting from or relating to any untrue statement of a material fact contained in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except insofar as the same are caused by any information furnished in writing to the Company by such Selling Holder expressly for use therein or by such Selling Holder's failure to deliver a copy of a current prospectus or any amendments or supplements thereto (which does not contain any such material misstatements or omissions) after the Company has furnished such holder with a sufficient number of copies of the same. In connection with an Underwritten Offering and without limiting any of the Company's other obligations under this Agreement, the Company shall also indemnify such underwriters, their officers, directors, employees and agents and each Person who controls (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act) such underwriters or such other indemnified Person to the same extent as provided above with respect to the indemnification (and exceptions thereto) of the holders of Registrable Securities being sold. Reimbursements payable pursuant to the indemnification contemplated by this Section 5.7(a) will be made by periodic payments during the course of any investigation or defense, as and when bills are received or expenses incurred.

(b) In connection with any registration statement in which a holder of Registrable Securities is participating, each such Selling Holder will furnish to the Company in writing information regarding such Selling Holder's ownership of Registrable Securities and its intended method of distribution thereof and, to the extent permitted by law, the Investor and each Shareholder shall, jointly and severally, indemnify the Company, its directors, officers, employees and agents and each Person who controls (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act) the Company or such other indemnified Person against all Losses caused by any untrue statement of material fact contained in the registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, but only to the extent that such untrue statement or omission is caused by and contained in such information so furnished in writing by any Selling Holder expressly for use therein.

(c) Any Person entitled to indemnification hereunder shall give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification; provided , however , the failure to give such notice shall not release the indemnifying party from its obligation, except to the extent that the indemnifying party has been materially prejudiced by such failure to provide such notice on a timely basis.
(d) In any case in which any such action is brought against any indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not (so long as it shall continue to have the right to defend, contest, litigate and settle the matter in question in accordance with this paragraph) be liable to such indemnified party hereunder for any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation, supervision and monitoring (unless (i) such indemnified party reasonably objects to such assumption on the grounds that there may be defenses available to it which are different from or


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in addition to the defenses available to such indemnifying party or (ii) the indemnifying party shall have failed within a reasonable period of time to assume such defense and the indemnified party is or is reasonably likely to be prejudiced by such delay, in either event the indemnified party shall be promptly reimbursed by the indemnifying party for the expenses incurred in connection with retaining separate legal counsel). An indemnifying party shall not be liable for any settlement of an action or claim effected without its consent. The indemnifying party shall lose its right to defend, contest, litigate and settle a matter if it shall fail to diligently contest such matter (except to the extent settled in accordance with the next following sentence). No matter shall be settled by an indemnifying party without the consent of the indemnified party (which consent shall not be unreasonably withheld, it being understood that the indemnified party shall not be deemed to be unreasonable in withholding its consent if the proposed settlement imposes any obligation on the indemnified party other than the payment of money).

(e) The indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified Person and will survive the transfer of the Registrable Securities and the termination of this Agreement.

(f) If recovery is not available under the foregoing indemnification provisions for any reason or reasons other than as specified therein, any Person who would otherwise be entitled to indemnification by the terms thereof shall nevertheless be entitled to contribution with respect to any Losses with respect to which such Person would be entitled to such indemnification but for such reason or reasons. In determining the amount of contribution to which the respective Persons are entitled, there shall be considered the Persons' relative knowledge and access to information concerning the matter with respect to which the claim was asserted, the opportunity to correct and prevent any statement or omission, and other equitable considerations appropriate under the circumstances. It is hereby agreed that it would not necessarily be equitable if the amount of such contribution were determined by pro rata or per capita allocation. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not found guilty of such fraudulent misrepresentation. Notwithstanding the foregoing, no Selling Holder or transferee thereof shall be required to make a contribution in excess of the net amount received by such holder from its sale of Registrable Securities in connection with the offering that gave rise to the contribution obligation.

(g) Prior to the expected filing date of each registration statement pursuant to this Agreement, the Company shall notify each Shareholder who has timely provided the requisite notice hereunder entitling the Shareholder to register Registrable Securities in such registration statement of the information, documents and instruments from such Shareholder that the Company or any underwriter reasonably requests in connection with such registration statement, including, but not limited to a questionnaire, custody agreement, power of attorney, lock-up letter and underwriting agreement (the " Requested Information "). If the Company has not received, on or before the second day before the expected filing date, the Requested Information from such Shareholder, the Company may file the Registration Statement without including Registrable Securities of such Shareholder. The failure to so include in any registration statement the Registrable Securities of a Shareholder (with regard to that registration statement) shall not in and of itself result in any liability on the part of the Company to such Shareholder.

ARTICLE VI
CERTAIN ADDITIONAL COVENANTS

Section 6.1 Investor's Access to Premises . The Company will permit the Shareholders and their respective representatives, at the Shareholders' sole cost and expense, reasonable access (at reasonable times and upon reasonable advance notice) to the books, records (including tax records), financial and operating data and information required by the Shareholders for tax and financial reporting purposes, provided , that except as upon the advice of counsel may be required by Law, the Shareholders and their representatives shall keep such information strictly confidential; provided , further , that the Company shall not be required to provide such access for information to the extent the Company concludes in good faith, after consultation with counsel to the Company, that to do so would cause the Company to forfeit an attorney-client or other privilege, or violate a confidentiality obligation, applicable to such information.

Section 6.2 Tax Matters .


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(a) The Company agrees that Bye-Law 3.2 of the Bye-Laws shall not apply with respect to the Common Shares held by the Investor.

(b) The Investor agrees to provide the Company such appropriate information, certifications and documentation relating to the Investor and any subsidiaries of the Investor that directly own Company Securities and its and their Owners as requested by the Company to establish, if applicable, for the Company and any of its subsidiaries, (i) exemption from tax under Section 883 of the Internal Revenue Code of 1986, as amended, and (ii) eligibility for benefits under any tax treaty.

Section 6.3 Insider Trading . The Shareholders, their Affiliates and the Shareholder Directors shall comply with the written policy and procedures regarding insider trading and conflicts of interests adopted by the Company in the Company's Code of Business Conduct and Ethics, dated July 13, 2011, as it may be amended from time to time with the approval of the Board; provided that such policy shall not be applied to prevent any Shareholder from exercising its rights under Article V .

Section 6.4 Investor Employees .
 
(a) So long as the Shareholders have Ownership of more than 15.0% of the Voting Power of the Company, the Company shall permit the Investor the right to place up to three (3) of its employees in office space designated by the Company at the Company's headquarters or, if necessary, through a branch office of the Investor. Such employees will be subject to the policies and procedures of the Company applicable to employees of the Company at the Company's headquarters, including non-disclosure of confidential information.

(b) The Company shall cooperate with requests made by the Investor with respect to obtaining U.S. work visas for the employees referred to in Section 6.4(a) , provided , that any compensation, benefits or other costs associated with such employees shall be the sole responsibility of the Investor (and shall be reimbursed by the Investor to the Company to the extent paid by the Company, except that the Company shall pay the salaries of such employees following the effective date of such work visas at rates to be mutually agreed based on comparable salary levels for employees in the Company’s headquarters).

ARTICLE VII
MISCELLANEOUS

Section 7.1 Headings . The headings in this Agreement are for convenience of reference only and shall not control or effect the meaning or construction of any provisions hereof.

Section 7.2 Entire Agreement . This Agreement constitutes the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein, and there are no promises, representations, warranties, covenants, conditions or undertakings with respect to the subject matter hereof, other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties hereto with respect to the subject matter hereof.

Section 7.3 Further Actions; Cooperation . Each of the Shareholders agrees to use its reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to give effect to the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, each of the Shareholders (i) acknowledges that the Shareholders will prepare and file with the Commission filings under the Exchange Act, including under Section 13(d) of the Exchange Act, relating to their Ownership of the Common Shares and (ii) agrees to use its reasonable efforts to assist and cooperate with the other parties in promptly preparing, reviewing and executing any such filings under the Exchange Act, including any amendments thereto.

Section 7.4 Notices . All notices, requests, consents and other communications hereunder to any party shall be deemed to be sufficient if contained in a written instrument delivered in person or sent by facsimile, nationally recognized overnight courier or first class registered or certified mail, return receipt requested, postage prepaid, addressed


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to such party at the address set forth below or such other address as may hereafter be designated on the signature pages of this Agreement or in writing by such party to the other parties:
If to any of the Shareholders, to:
Marubeni Corporation
4-2, Ohtemachi 1-chome
Chiyoda-ku, Tokyo 100-8088
Japan
Fax:    81-3-3282-4764
Attn:    General Manager
Aerospace & Defense Systems Dept.
with a copy (which shall not constitute notice) to:
Clifford Chance LLP
31 West 52nd Street
New York, NY 10019-6131
Fax:    (212) 878-8375
Attn:    John A. Healy
William J. Glaister
if to the Company, to:
Aircastle Limited
Clarendon House
2 Church Street
Hamilton HM 11
Bermuda
Fax:    (441) 292-4720
Attn:    Secretary
and

Aircastle Limited
300 First Stamford Place, 5th Floor
Stamford, CT 06902
Fax:    (917) 591-9106
Attn:    General Counsel

with a copy (which shall not constitute notice) to:
Skadden, Arps, Slate, Meagher & Flom LLP
4 Times Square
New York, NY 10036-6522
Fax:    (212) 735-2000
Attn:    Joseph A. Coco, Esq.
Thomas W. Greenberg, Esq.
All such notices, requests, consents and other communications shall be deemed to have been given or made if and when received (including by overnight courier) by the parties at the above addresses or sent by electronic transmission, with confirmation received, to the facsimile numbers specified above (or at such other address or telecopy number for a party as shall be specified by like notice). Any notice delivered by any party hereto to any other party hereto shall also be delivered to each other party hereto simultaneously with delivery to the first party receiving such notice.


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Section 7.5 Applicable Law . The laws of the State of New York shall govern the interpretation, validity and performance of the terms of this Agreement, without regard to conflicts of law doctrines (other than Sections 5-1401 and 5-1402 of the New York Business Corporation Law), except to the extent Bermudian law is mandatorily applicable.

Section 7.6 Severability . The invalidity, illegality or unenforceability of one or more of the provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement, including any such provisions, in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law.

Section 7.7 Successors and Assigns . Except as otherwise provided herein, all the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the respective successors and permitted assigns of the parties hereto. No Shareholder may assign any of its rights hereunder to any Person other than a Permitted Transferee to which Common Shares are transferred by a Shareholder and that has complied in all respects with the requirements of this Agreement (including Section 2.1 ). Each such Permitted Transferee of any Shareholder shall be subject to all of the terms of this Agreement, and by taking and holding such shares such Person shall be entitled to receive the benefits of and be conclusively deemed to have agreed to be bound by and to comply with all of the terms and provisions of this Agreement; provided , however , no transfer of rights permitted hereunder shall be binding upon or obligate the Company unless and until (i) the Company shall have received written notice of such transfer and the joinder of the transferee provided for in Section 2.1 , and (ii) such transferee can establish Ownership or ownership of record of a Registrable Amount (whether individually or together with its Affiliates that are Shareholders or transferees of Shareholders and, if applicable, its other Permitted Transferees that are Shareholders or transferees of Shareholders).

Section 7.8 Amendments . This Agreement may not be amended, modified or supplemented unless such amendment, modification or supplement is in writing and signed by each of the Shareholders and the Company.

Section 7.9 Waiver . The failure of a party hereto at any time or times to require performance of any provision hereof shall in no manner affect its right at a later time to enforce the same. No waiver by a party of any condition or of any breach of any term, covenant, representation or warranty contained in this Agreement shall be effective unless in a writing signed by the party against whom the waiver is to be effective, and no waiver in any one or more instances shall be deemed to be a further or continuing waiver of any such condition or breach in other instances or a waiver of any other condition or breach of any other term, covenant, representation or warranty.

Section 7.10 Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same Agreement.

Section 7.11 Injunctive Relief . Each party hereto acknowledges and agrees that a violation of any of the terms of this Agreement will cause the other parties irreparable injury for which an adequate remedy at law is not available. Therefore, each party shall be entitled to, an injunction, restraining order, specific performance or other equitable relief from any court of competent jurisdiction, restraining any party from committing any violations of the provisions of this Agreement.

Section 7.12 SUBMISSION TO JURISDICTION . ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND ANY ACTION FOR ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HERETO HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND THE APPELLATE COURTS THEREOF. EACH PARTY HERETO IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PARTY AT THE ADDRESS FOR NOTICES SET FORTH HEREIN. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION


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WITH THIS AGREEMENT BROUGHT IN THE COURTS REFERRED TO ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

Section 7.13 Recapitalizations, Exchanges, Etc. Affecting the Common Shares; New Issuances . The provisions of this Agreement shall apply, to the full extent set forth herein with respect to Company Securities and to any and all equity or debt securities of the Company or any successor or assign of the Company (whether by merger, amalgamation, consolidation, sale of assets, or otherwise) which may be issued in respect of, in exchange for, or in substitution of, such Company Securities and shall be appropriately adjusted for any share dividends, splits, reverse splits, combinations, reclassifications, recapitalizations, reorganizations and the like occurring after the Closing Date.

Section 7.14 Term . This Agreement will be effective as of the date hereof and, except as otherwise set forth herein, will continue in effect thereafter until (a) this Agreement has been terminated upon the mutual consent of all of the parties hereto or (b) with respect to each Shareholder, such earlier time after the Closing Date as such Shareholder and its Affiliates and Permitted Transferees ceases to Own an amount of Common Shares equal to 5.0% of the Common Shares issued and outstanding, at which time this Agreement shall terminate and be of no further force or effect; provided , however , that the following shall survive the termination of this Agreement: (i) the provisions of Sections 5.2 (which shall terminate, and be of no further force and effect, with respect to each Shareholder, at such time as such Shareholder and its Affiliates and Permitted Transferees ceases to Own a Registrable Amount), 5.6 , 5.7 , 7.5 , 7.11 , this Section 7.14 and Section 7.15 ; (ii) the rights with respect to the breach of any provision hereof by the Company and (iii) any registration rights vested or obligations accrued as of the date of termination of this Agreement to the extent, in the case of registration rights so vested, if such Shareholder ceases to meet the definition of a Shareholder under this Agreement subsequent to the vesting of such registration rights as a result of action taken by the Company. No termination pursuant to this Section 7.14 shall release any Shareholder from its indemnification and contribution rights and obligations, if any, pursuant to Section 5.7 herein.

Section 7.15 Rule 144 . The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the Commission thereunder (or, if it is not required to file such reports, it will, upon the request of any holder of Registrable Securities, make publicly available other information so long as necessary to permit sales in compliance with Rule 144 under the Securities Act), and it will take such further reasonable action, to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 under the Securities Act, as such Rule 144 may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission. Upon the reasonable request of any holder of Registrable Securities, the Company will deliver to such holder a written statement as to whether it has complied with such information and filing requirements.

Section 7.16 Bye-laws . In the case of any inconsistency between this Agreement and the Bye-laws, the Company and the Shareholders shall, to the extent possible, use their reasonable best efforts to cause the Bye-laws to be amended to reflect the terms of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their respective officers thereunto duly as of the date first above written.
AIRCASTLE LIMITED
By: /s/ Ron Wainshal     
Name: Ron Wainshal
Title: Chief Executive Officer

MARUBENI CORPORATION
By: /s/ Tadaaki Kurakake     
Name: Tadaaki Kurakake
Title: General Manager, Aerospace and


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Defense Systems Department

MARUBENI AVIATION HOLDING COÖPERATIEF U.A.
By: /s/ Tadaaki Kurakake     
Name: Tadaaki Kurakake
Title: Managing Director




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Exhibit 10.1

Amendment Agreement
This Amendment Agreement is dated as of January 26, 2015 (this “ Amendment Agreement ”) by and among each of the Lenders set forth on Schedule I annexed hereto (each an “ Increasing Lender ” and collectively the “ Increasing Lenders ”), AIRCASTLE LIMITED, an exempted company organized and existing under the laws of Bermuda (the “ Borrower ”) and CITIBANK, N.A., as agent for the Increasing Lenders (the “ Agent ”).
W I T N E S S E T H :
WHEREAS, reference is hereby made to that certain Second Amended and Restated Credit Agreement, dated as of December 19, 2012, as amended and restated as of August 2, 2013 and as further amended and restated as of March 31, 2014, (the “ Credit Agreement ”; capitalized terms used herein and not defined shall have the meanings set forth in the Credit Agreement), among the Borrower, the Agent and each of the financial institutions from time to time party thereto as lenders (the “ Lenders ”).
WHEREAS, pursuant to Section 12.6 of the Credit Agreement and subject to the terms and conditions of the Credit Agreement, the Borrower and the Required Lenders may amend certain terms of the Credit Agreement.
WHEREAS, pursuant to Section 2.7(b) of the Credit Agreement and subject to the terms and conditions of the Credit Agreement, the Borrower may increase the Total Revolving Credit Commitment by entering into one or more accession agreements with the Agent and Increasing Lenders.
WHEREAS, on January 26, 2015, the Borrower delivered an Increased Commitment Notice to the Agent with respect to an aggregate principal amount of $150,000,000 of Increased Commitments to be provided by the Increasing Lenders on the date hereof.
NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION ONE. Amendments to Credit Agreement .
Each Increasing Lender hereby consents to amend Section 2.7(b) of the Credit Agreement to replace “500,000,000” with “600,000,000”.
SECTION TWO. Agreements of Increasing Lenders .
Immediately after giving effect to the Amendments described in Section One, each Increasing Lender hereby commits to provide its respective Increased Commitment as set forth on Schedule I(a) annexed hereto and, after giving effect to such Increased Commitments, will have total Commitments as set forth on Schedule I(b) annexed hereto. Such Increased Commitment shall be subject to the provisions of the Credit Agreement and the other Loan Documents and shall constitute Total Revolving Commitments thereunder. It is acknowledged that no Revolving Credit Outstandings exist immediately prior to the effectiveness of this Amendment Agreement.
SECTION THREE. Conditions to Effectiveness . This Amendment Agreement shall become effective on January 26, 2015 (the “ Effective Date ”) when, and only when, the following conditions have been satisfied:
(i)    this Amendment Agreement shall have been executed and delivered by the Borrower, each Increasing Lender, Lenders constituting Required Lenders and the Agent; and
(ii)    the Agent shall have received (x) for the account of each Increasing Lender, an upfront fee equal to 0.35% of the aggregate principal amount of such Increasing Lender’s Increased Commitment and (y) all expenses


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for which reasonably detailed invoices have been presented (including the reasonable fees and expenses of a single legal counsel), on or before the Effective Date.
SECTION FOUR. Representations and Warranties . In order to induce each Increasing Lender and the Agent to enter into this Amendment Agreement, the Borrower represents and warrants to each Increasing Lender and the Agent that, as of the Effective Date, after giving effect to this Amendment Agreement and both before and after giving effect to the transactions contemplated by this Amendment Agreement:
(a)    no Default or Event of Default has occurred and is continuing;
(b)    the entry into this Amendment Agreement by the Borrower has been duly authorized by all necessary corporate or other action of each such entity; and
(c)    each of the representations and warranties made by the Borrower in or pursuant to the Loan Documents is true and correct in all material respects (except to the extent any such representation or warranty is qualified by “materially,” “Material Adverse Effect” or a similar term, in which case such representation and warranty shall be true and correct in all respects) on and as of the date hereof as if made on the date hereof (or, if any such representation or warranty is expressly stated to have been made as of a specific date, in all material respects as of such specific date).
SECTION FIVE. Reference to and Effect on the Loan Documents . On and after the Effective Date, each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof” or words of like import referring the Credit Agreement, and each reference in the Notes and each of the other Loan Documents to “the Credit Agreement,” “thereunder,” “thereof” or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended by this Amendment Agreement, and this Amendment Agreement shall constitute a “Loan Document” for all purposes under the Credit Agreement. The Credit Agreement, the Notes and each of the other Loan Documents, as specifically amended by this Amendment Agreement, are and shall continue to be in full force and effect. The execution, delivery and effectiveness of this Amendment Agreement shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents.
SECTION SIX. Costs, Expenses and Taxes . The Borrower agrees to pay all reasonable out-of-pocket expenses incurred by the Agent in connection with the preparation, execution and delivery of this Amendment Agreement and the other instruments and documents to be delivered hereunder, if any (including, without limitation, the reasonable fees, charges and disbursements of Cahill Gordon & Reindel llp, counsel to the Agent) in accordance with the terms of Section 12.5 of the Credit Agreement.
SECTION SEVEN. Execution in Counterparts . This Amendment Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page to this Amendment Agreement by telecopy or other electronic transmission shall be effective as delivery of a manually executed counterpart of this Amendment Agreement.
SECTION EIGHT. Governing Law . THIS AMENDMENT AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.

AIRCASTLE LIMITED,
as Borrower
By:     /s/ Christopher Beers     
Name: Christopher Beers    
Title: General Counsel    



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CITIBANK, N.A.,
as the Agent
By:     /s/ Maureen Maroney         Name: Maureen Maroney    
Title: Vice President

CITIBANK, N.A., as an Increasing Lender
By:     /s/ Maureen Maroney     
Name: Maureen Maroney
Title: Vice President
                                
GOLDMAN SACHS BANK USA, as an Increasing Lender
By:     /s/ Rebecca Kratz     
Name: Rebecca Kratz    
Title: Authorized Signatory

JPMORGAN CHASE BANK, N.A., as an Increasing Lender
By:     /s/ Matthew H. Massie     
Name: Matthew Massie
Title: Managing Director

ROYAL BANK OF CANADA, as an Increasing Lender
By:     /s/ Kevin Flynn     
Name: Kevin Flynn
Title: Authorized Signatory

CREDIT AGRICOLE CORPORATE & INVESTMENT BANK, as an Increasing Lender
By:     /s/ Brian Bolotin     
Name: Brian Bolotin    
Title: Managing Director

By:     /s/ Thomas Jean     
Name: Thomas Jean    
Title: Director

DBS BANK LTD., LOS ANGELES AGENCY, as an Increasing Lender
By:     /s/ Rose Park     
Name: Rose Park
Title: Portfolio Director

MUFG UNION BANK, N.A., as an Increasing Lender
By:     /s/ Robert Jones     
Name: Robert Jones
Title: Director





-3-

DEUTSCHE BANK AG NEW YORK BRANCH, as an Increasing Lender

By:     /s/ Michael Shannon     
Name: Michael Shannon    
Title: Vice President

By:     /s/ Anca Trifan     
Name: Anca Trifan    
Title: Managing Director


BNP PARIBAS, as an Increasing Lender
By:     /s/ Eric Chilton     
Name: Eric Chilton    
Title: Managing Director

By:     /s/ Stephanie Klein     
Name: Stephanie Klein
Title: Vice President


-4-


SCHEDULE I(a)
TO AMENDMENT AGREEMENT

Name of Lender
Increased Commitment
Citibank, N.A.
$ 16,666,666.66666667
Goldman Sachs Bank USA
$ 16,666,666.66666667
JPMorgan Chase Bank, N.A.
$ 16,666,666.66666667
Royal Bank of Canada
$ 16,666,666.66666667
Credit Agricole Corporate & Investment Bank
$ 16,666,666.66666667
DBS Bank Ltd., Los Angeles Agency
$ 16,666,666.66666667
Union Bank, N.A.
$ 16,666,666.66666667
Deutsche Bank AG New York Branch
$ 16,666,666.66666667
BNP Paribas
$ 16,666,666.66666667
Total
$ 150,000,000.00000000




-5-



SCHEDULE I(b)
TO AMENDMENT AGREEMENT

Name of Lender
Revolving Credit
Commitment
Applicable Commitment Percentage
Citibank, N.A.
$ 66,666,666.66666667
11.1111
%
Goldman Sachs Bank USA
  66,666,666.66666667
11.1111
%
JPMorgan Chase Bank, N.A.
  66,666,666.66666667
11.1111
%
Royal Bank of Canada
  66,666,666.66666667
11.1111
%
Credit Agricole Corporate & Investment Bank
  66,666,666.66666667
11.1111
%
DBS Bank Ltd., Los Angeles Agency
66,666,666.66666667
11.1111
%
Union Bank, N.A.
66,666,666.66666667
11.1111
%
Deutsche Bank AG New York Branch
  66,666,666.66666667
11.1111
%
BNP Paribas
    66,666,666.66666667
11.1111
%
Total
$600,000,000.00000000
100.0000
%




-6-


Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ron Wainshal, certify that:
1.
I have reviewed this quarterly report on Form 10-Q 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: May 6, 2015
 
/s/ Ron Wainshal
Ron Wainshal
Chief Executive Officer




Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael Inglese, certify that:
1.
I have reviewed this quarterly report on Form 10-Q 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: May 6, 2015
 
/s/ Michael Inglese
Michael Inglese
Chief Financial Officer




Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Aircastle Limited (the “Company”) for the three months ended March 31, 2015 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ron Wainshal, as Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by section 906 has been provided to Aircastle Limited and will be retained by Aircastle Limited and furnished to the Securities and Exchange Commission or its staff upon request.
 
/s/ Ron Wainshal
Name:
Ron Wainshal
Title:
Chief Executive Officer
Date:
May 6, 2015




Exhibit 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
In connection with the Quarterly Report on Form 10-Q of Aircastle Limited (the “Company”) for the three months ended March 31, 2015 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Inglese, as Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by section 906 has been provided to Aircastle Limited and will be retained by Aircastle Limited and furnished to the Securities and Exchange Commission or its staff upon request.
 
/s/ Michael Inglese
Name:
Michael Inglese
Title:
Chief Financial Officer
Date:
May 6, 2015




Exhibit 99.1
Owned Aircraft Portfolio at March 31, 2015 is as follows:
Aircraft Group
Aircraft Type
 
Engine Type
 
Manufacturer
Serial Number
 
Date of
Manufacture
 
Financing
Narrowbody Aircraft
A319-100
 
CFM56-5B5/P
 
2311
 
Feb-05
 
Unencumbered
 
A320-200
 
V2527-A5
 
739
 
Nov-97
 
Unencumbered
 
A320-200
 
V2527-A5
 
743
 
Nov-97
 
Unencumbered
 
A320-200
 
CFM56-5B4/P
 
967
 
Apr-99
 
Unencumbered
 
A320-200
 
V2527-A5
 
990
 
May-99
 
Securitization No. 2
 
A320-200
 
CFM56-5B4/P
 
1009
 
Jun-99
 
Unencumbered
 
A320-200
 
CFM56-5B4/P
 
1041
 
Jul-99
 
Securitization No. 2
 
A320-200
 
CFM56-5B4/P
 
1047
 
Aug-99
 
Unencumbered
 
A320-200
 
CFM56-5B4/3
 
1054
 
Aug-99
 
Securitization No. 2
 
A320-200
 
CFM56-5B4/P
 
1059
 
Aug-99
 
Unencumbered
 
A320-200
 
CFM56-5B4/P
 
1067
 
Sep-99
 
Unencumbered
 
A320-200
 
CFM56-5B4/2P
 
1081
 
Oct-99
 
Securitization No. 2
 
A320-200
 
CFM56-5B4/P
 
1099
 
Oct-99
 
Unencumbered
 
A320-200
 
CFM56-5B4/P
 
1101
 
Nov-99
 
Unencumbered
 
A320-200
 
CFM56-5B4/P
 
1119
 
Dec-99
 
Unencumbered
 
A320-200
 
CFM56-5B4/P
 
1316
 
Oct-00
 
Securitization No. 2
 
A320-200
 
CFM56-5B4/P
 
1345
 
Nov-00
 
Securitization No. 2
 
A320-200
 
CFM56-5B4/P
 
1370
 
Jan-01
 
Securitization No. 2
 
A320-200
 
CFM56-5B4/P
 
1793
 
Mar-04
 
Unencumbered
 
A320-200
 
CFM56-5B4/P
 
1809
 
Mar-04
 
Unencumbered
 
A320-200
 
CFM56-5B4/P
 
2104
 
Apr-05
 
Unencumbered
 
A320-200
 
CFM56-5B4/P
 
2248
 
Apr-05
 
Unencumbered
 
A320-200
 
CFM56-5B4/P
 
2391
 
Apr-05
 
Unencumbered
 
A320-200
 
V2527-A5
 
2401
 
Mar-05
 
Unencumbered
 
A320-200
 
V2527-A5
 
2524
 
Sep-05
 
Securitization No. 2
 
A320-200
 
V2527-A5
 
2564
 
Oct-05
 
Securitization No. 2
 
A320-200
 
CFM56-5B4/P
 
3093
 
Apr-07
 
Bank Financing
 
A320-200
 
CFM56-5B4/P
 
3121
 
May-07
 
Bank Financing
 
A320-200
 
CFM56-5B6/3
 
3502
 
Jun-08
 
Unencumbered
 
A320-200
 
CFM56-5B6/3
 
3515
 
Jun-08
 
Unencumbered
 
A320-200
 
CFM56-5B6/3
 
3532
 
Jun-08
 
Unencumbered
 
A320-200
 
CFM56-5B4/3
 
6139
 
Oct-14
 
Unencumbered
 
A320-200
 
CFM56-5B4/3
 
6173
 
Oct-14
 
Unencumbered
 
A320-200
 
CFM56-5B4/3
 
6528
 
Mar-15
 
Unencumbered
 
A320-200
 
CFM56-5B4/3
 
6536
 
Mar-15
 
Unencumbered
 
A321-200
 
V2533-A5
 
983
 
Mar-99
 
Unencumbered
 
A321-200
 
CFM56-5B3/P
 
1006
 
Apr-99
 
Securitization No. 2
 
A321-200
 
CFM56-5B3/2P
 
1012
 
Apr-99
 
Securitization No. 2
 
A321-200
 
V2533-A5
 
1015
 
May-99
 
Unencumbered
 
A321-200
 
CFM56-5B3/P
 
2220
 
May-04
 
Unencumbered
 
A321-200
 
CFM56-5B3/P
 
2357
 
Dec-04
 
Unencumbered
 
A321-200
 
CFM56-5B3/P
 
2381
 
Feb-05
 
Unencumbered
 
A321-200
 
CFM56-5B3/P
 
2472
 
May-05
 
Unencumbered
 
A321-200
 
CFM56-5B3/P
 
2488
 
Jun-05
 
Unencumbered
 
A321-200
 
CFM56-5B3/P
 
2563
 
Oct-05
 
Unencumbered
 
737-700
 
CFM56-7B22
 
28008
 
Feb-99
 
Securitization No. 2




Aircraft Group
Aircraft Type
 
Engine Type
 
Manufacturer Serial Number
 
Date of Manufacture
 
Financing
Narrowbody Aircraft (Continued)
737-700
 
CFM56-7B22
 
28009
 
Mar-99
 
Securitization No. 2
 
737-700
 
CFM56-7B22
 
28010
 
Oct-99
 
Securitization No. 2
 
737-700
 
CFM56-7B22
 
28013
 
Oct-00
 
Unencumbered
 
737-700
 
CFM56-7B22
 
28015
 
Feb-01
 
Securitization No. 2
 
737-800
 
CFM56-7B26
 
28056
 
Jun-99
 
Unencumbered
 
737-800
 
CFM56-7B26
 
28213
 
Jun-98
 
Securitization No. 2
 
737-800
 
CFM56-7B27
 
28231
 
May-00
 
Unencumbered
 
737-800
 
CFM56-7B26
 
28381
 
May-99
 
Unencumbered
 
737-800
 
CFM56-7B26
 
28383
 
May-99
 
Unencumbered
 
737-800
 
CFM56-7B26
 
28384
 
Nov-99
 
Unencumbered
 
737-800
 
CFM56-7B26
 
28386
 
Nov-99
 
Unencumbered
 
737-800
 
CFM56-7B26
 
28620
 
May-00
 
Unencumbered
 
737-800
 
CFM56-7B26
 
28626
 
Jul-00
 
Unencumbered
 
737-800
 
CFM56-7B26
 
29036
 
Dec-98
 
Securitization No. 2
 
737-800
 
CFM56-7B26
 
29037
 
Jan-99
 
Securitization No. 2
 
737-800
 
CFM56-7B26
 
29246
 
Apr-00
 
Unencumbered
 
737-800
 
CFM56-7B26
 
29247
 
Apr-00
 
Unencumbered
 
737-800
 
CFM56-7B26
 
29250
 
Mar-01
 
Unencumbered
 
737-800
 
CFM56-7B27
 
29345
 
May-02
 
Unencumbered
 
737-800
 
CFM56-7B26
 
29916
 
Mar-99
 
Unencumbered
 
737-800
 
CFM56-7B26
 
29917
 
Jun-99
 
Unencumbered
 
737-800
 
CFM56-7B26
 
29918
 
Jun-99
 
Unencumbered
 
737-800
 
CFM56-7B26
 
29919
 
Aug-99
 
Unencumbered
 
737-800
 
CFM56-7B26
 
29920
 
Sep-99
 
Unencumbered
 
737-800
 
CFM56-7B24
 
29927
 
Dec-00
 
Unencumbered
 
737-800
 
CFM56-7B24
 
29930
 
Jan-01
 
Unencumbered
 
737-800
 
CFM56-7B26
 
30295
 
Nov-04
 
Unencumbered
 
737-800
 
CFM56-7B27
 
30296
 
Feb-05
 
Unencumbered
 
737-800
 
CFM56-7B27
 
30824
 
Mar-05
 
Bank Financing
 
737-800
 
CFM56-7B27
 
30877
 
Mar-01
 
Unencumbered
 
737-800
 
CFM56-7B26
 
33453
 
Jul-05
 
Bank Financing
 
737-800
 
CFM56-7B26
 
34000
 
Aug-05
 
Bank Financing
 
737-800
 
CFM56-7B24
 
34803
 
Mar-07
 
Unencumbered
 
737-800
 
CFM56-7B24
 
34804
 
Jun-07
 
Unencumbered
 
737-800
 
CFM56-7B26/3
 
35082
 
Mar-08
 
Unencumbered
 
737-800
 
CFM56-7B26/3
 
35083
 
Mar-08
 
Unencumbered
 
737-800
 
CFM56-7B26
 
35093
 
Feb-07
 
Unencumbered
 
737-800
 
CFM56-7B27
 
35103
 
Nov-06
 
Bank Financing
 
737-800
 
CFM56-7B24
 
38686
 
Jan-13
 
Unencumbered
 
737-900ER
 
CFM56-7B26/3
 
35679
 
Apr-07
 
Unencumbered
 
737-900ER
 
CFM56-7B26/3
 
35680
 
May-07
 
Unencumbered
 
737-900ER
 
CFM56-7B26
 
38683
 
Nov-12
 
Unencumbered
 
E195
 
CF34-10E6
 
449
 
Jul-11
 
Unencumbered
 
E195
 
CF34-10E6
 
458
 
Jul-11
 
Unencumbered
 
E195
 
CF34-10E6
 
484
 
Oct-11
 
Unencumbered
 
E195
 
CF34-10E7
 
575
 
Sep-12
 
Unencumbered
 
E195
 
CF34-10E7
 
588
 
Dec-12
 
Unencumbered




Aircraft Group
Aircraft Type
 
Engine Type
 
Manufacturer Serial Number
 
Date of Manufacture
 
Financing
Classic Narrowbody Aircraft
757-200
 
RB211-535E4
 
27201
 
Mar-94
 
Securitization No. 2
 
757-200
 
RB211-535E4
 
27244
 
Mar-94
 
Securitization No. 2
 
757-200
 
RB211-535E4
 
27245
 
Jul-94
 
Securitization No. 2
 
757-200
 
RB211-535E4
 
27805
 
Jan-95
 
Unencumbered
 
757-200
 
RB211-535E4
 
27806
 
Jan-95
 
Unencumbered
 
757-200
 
RB211-535E4
 
27807
 
Feb-95
 
Unencumbered
 
 
 
 
 
 
 
 
 
 
Midbody Aircraft
A330-200
 
Trent 772B-60
 
311
 
Dec-99
 
Unencumbered
 
A330-200
 
Trent 772B-60
 
313
 
Jan-00
 
Securitization No. 2
 
A330-200
 
PW4168A
 
324
 
May-00
 
Unencumbered
 
A330-200
 
PW4168A
 
343
 
Jun-00
 
Unencumbered
 
A330-200
 
CF6-80E1A3
 
587
 
Apr-04
 
Unencumbered
 
A330-200
 
CF6-80E1A3
 
634
 
Nov-04
 
Unencumbered
 
A330-200
 
Trent 772B-60
 
1073
 
Dec-09
 
ECA Term Financing
 
A330-200
 
Trent 772B-60
 
1191
 
Feb-11
 
ECA Term Financing
 
A330-200
 
Trent 772B-60
 
1210
 
Mar-11
 
ECA Term Financing
 
A330-200
 
Trent 772B-60
 
1223
 
May-11
 
ECA Term Financing
 
A330-200
 
Trent 772B-60
 
1236
 
Jul-11
 
ECA Term Financing
 
A330-200
 
Trent 772B-60
 
1293
 
Apr-12
 
ECA Term Financing
 
A330-200
 
Trent 772B-60
 
1364
 
Nov-12
 
ECA Term Financing
 
A330-200
 
Trent 772B-60
 
1407
 
Apr-13
 
Bank Financing
 
A330-200
 
Trent 772B-60
 
1474
 
Dec-13
 
ECA Term Financing
 
A330-200
 
Trent 772B-60
 
1492
 
Oct-14
 
Unencumbered
 
A330-300
 
PW4168A
 
171
 
Apr-97
 
Securitization No. 2
 
A330-300
 
PW4168A
 
337
 
May-00
 
Securitization No. 2
 
A330-300
 
PW4168A
 
342
 
Jun-00
 
Securitization No. 2
 
A330-300
 
PW4168A
 
368
 
Nov-00
 
Unencumbered
 
A330-300
 
Trent 772B-60
 
997
 
Mar-09
 
Unencumbered
 
A330-300
 
Trent 772B-60
 
1006
 
Apr-09
 
Unencumbered
 
A330-300
 
Trent 772B-60
 
1012
 
May-09
 
Unencumbered
 
A330-300
 
Trent 772B-60
 
1015
 
May-09
 
Unencumbered
 
A330-300
 
PW4168A
 
1055
 
Oct-09
 
Unencumbered
 
A330-300
 
Trent 772B-60
 
1411
 
Apr-13
 
Unencumbered
 
A330-300
 
Trent 772B-60
 
1481
 
Jan-14
 
Unencumbered
 
A330-300
 
Trent 772B-60
 
1596
 
Jan-15
 
Unencumbered
 
767-300ER
 
PW4060-3
 
25587
 
Feb-96
 
Securitization No. 2
 
767-300ER
 
PW4060-3
 
25985
 
Apr-92
 
Unencumbered
 
 
 
 
 
 
 
 
 
 
Widebody Aircraft
777-200ER
 
Trent 892B-17
 
28414
 
May-98
 
Securitization No. 2
 
777-300ER
 
GE90-115B
 
35256
 
Mar-07
 
Bank Financing
 
777-300ER
 
GE90-115B
 
35299
 
Oct-07
 
Bank Financing
 
777-300ER
 
GE90-115B
 
38886
 
Aug-12
 
Unencumbered
 
777-300ER
 
GE90-115B
 
38888
 
Oct-12
 
Unencumbered
 
777-300ER
 
GE90-115B
 
38889
 
Nov-12
 
Unencumbered
 
777-300ER
 
GE90-115BL
 
41521
 
Oct-12
 
Bank Financing
 
777-300ER
 
GE90-115BL2
 
41522
 
Mar-13
 
Bank Financing
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Aircraft Group
Aircraft Type
 
Engine Type
 
Manufacturer Serial Number
 
Date of Manufacture
 
Financing
Freighter Aircraft
747-400BCF
 
PW4056-3
 
24061
 
Mar-89
 
Securitization No. 2
 
747-400BCF
 
PW4056-3
 
24066
 
Jun-90
 
Unencumbered
 
747-400BCF
 
PW4056-3
 
24226
 
Sep-90
 
Unencumbered
 
747-400BCF
 
PW4056-3
 
24975
 
Feb-91
 
Securitization No. 2
 
747-400BDSF
 
PW4056-1C
 
25700
 
May-93
 
Unencumbered
 
747-400BDSF
 
PW4056-3
 
27044
 
Sep-94
 
Unencumbered
 
747-400BDSF
 
CF6-80C2B1F
 
29375
 
Sep-99
 
Unencumbered
 
747-400F
 
CF6-80C2B1F
 
33749
 
Oct-04
 
Unencumbered
 
747-400ERF
 
CF6-80C2B5F
 
35233
 
Jan-07
 
Securitization No. 2
 
747-400ERF
 
CF6-80C2B5F
 
35235
 
Jul-07
 
Securitization No. 2
 
747-400ERF
 
CF6-80C2B5F
 
35236
 
Feb-08
 
Unencumbered
 
747-400ERF
 
CF6-80C2B5F
 
35237
 
Apr-08
 
Unencumbered
 
MD-11SF
 
PW4462-3
 
48445
 
Apr-91
 
Securitization No. 2
 
MD-11F
 
CF6-80C2D1F
 
48778
 
Nov-97
 
Bank Financing
 
MD-11F
 
CF6-80C2D1F
 
48779
 
Dec-97
 
Bank Financing