Aircastle LTD (Form: 10-Q, Received: 05/04/2017 16:09:52)

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, 2017



¨	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, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	þ	Accelerated filer	¨
Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller reporting company	¨
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO þ

As of April 28, 2017 , there were 78,713,705 outstanding shares of the registrant’s common shares, par value $0.01 per share.

Aircastle Limited and Subsidiaries

Form 10-Q

Table of Contents



		Page No.
	PART I. – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016	3
	Consolidated Statements of Income for the three months ended March 31, 2017 and 2016	4
	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2017 and 2016	5
	Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016	6
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39
Item 4.	Controls and Procedures	39
	PART II. – OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	42
SIGNATURE		43

PART I. — FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

Aircastle Limited and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, except share data)



	March 31, 2017			December 31, 2016
	(Unaudited)
ASSETS
Cash and cash equivalents	$	871,858		$	455,579
Restricted cash and cash equivalents	50,754			53,238
Accounts receivable	7,442			6,035
Flight equipment held for lease, net of accumulated depreciation of $1,284,855 and $1,224,899, respectively	6,295,690			6,247,585
Net investment in finance and sales-type leases	299,969			260,853
Unconsolidated equity method investments	74,653			72,977
Other assets	140,544			148,398
Total assets	$	7,740,910		$	7,244,665

LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Borrowings from secured financings, net of debt issuance costs	$	1,189,423		$	1,219,034
Borrowings from unsecured financings, net of debt issuance costs	3,781,761			3,287,211
Accounts payable, accrued expenses and other liabilities	144,384			127,527
Lease rentals received in advance	60,302			62,225
Security deposits	123,673			122,597
Maintenance payments	585,283			591,757
Total liabilities	5,884,826			5,410,351

Commitments and Contingencies

SHAREHOLDERS’ EQUITY
Preference shares, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding	—			—
Common shares, $0.01 par value, 250,000,000 shares authorized, 78,717,916 shares issued and outstanding at March 31, 2017; and 78,593,133 shares issued and outstanding at December 31, 2016	787			786
Additional paid-in capital	1,520,405			1,521,190
Retained earnings	337,863			315,890
Accumulated other comprehensive loss	(2,971		)	(3,552		)
Total shareholders’ equity	1,856,084			1,834,314
Total liabilities and shareholders’ equity	$	7,740,910		$	7,244,665

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

Aircastle Limited and Subsidiaries

Consolidated Statements of Income

(Dollars in thousands, except per share amounts)

(Unaudited)



	Three Months Ended March 31,
	2017			2016
Revenues:
Lease rental revenue	$	190,586		$	179,570
Finance and sales-type lease revenue	4,073			3,498
Amortization of lease premiums, discounts and incentives	(3,112		)	(1,070		)
Maintenance revenue	12,287			1,260
Total lease revenue	203,834			183,258
Other revenue	439			407
Total revenues	204,273			183,665

Operating expenses:
Depreciation	79,174			76,647
Interest, net	63,068			64,241
Selling, general and administrative (including non-cash share-based payment expense of $2,102 and $1,643 for the three months ended March 31, 2017 and 2016, respectively)	16,167			15,492
Impairment of flight equipment	500			—
Maintenance and other costs	2,931			1,403
Total expenses	161,840			157,783

Other income (expense):
Gain on sale of flight equipment	759			12,833
Other	(1,149		)	(73		)
Total other income (expense)	(390		)	12,760

Income from continuing operations before income taxes and earnings of unconsolidated equity method investments	42,043			38,642
Income tax provision	1,846			3,939
Earnings of unconsolidated equity method investments, net of tax	2,242			1,559
Net income	$	42,439		$	36,262

Earnings per common share — Basic:
Net income per share	$	0.54		$	0.46

Earnings per common share — Diluted:
Net income per share	$	0.54		$	0.46

Dividends declared per share	$	0.26		$	0.24

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

Aircastle Limited and Subsidiaries

Consolidated Statements of Comprehensive Income

(Dollars in thousands)

(Unaudited)



	Three Months Ended March 31,
	2017		2016

Net income	$	42,439	$	36,262
Other comprehensive income, net of tax:
Net change in fair value of derivatives, net of tax expense of $0 and $0 for the three months ended March 31, 2017 and 2016, respectively	—		(1		)
Net derivative loss reclassified into earnings	581		5,372
Other comprehensive income	581		5,371
Total comprehensive income	$	43,020	$	41,633

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

Aircastle Limited and Subsidiaries

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)



	Three Months Ended March 31,
	2017			2016
Cash flows from operating activities:
Net income	$	42,439		$	36,262
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	79,174			76,647
Amortization of deferred financing costs	4,155			5,607
Amortization of lease premiums, discounts and incentives	3,112			1,070
Deferred income taxes	1,309			(392		)
Non-cash share-based payment expense	2,102			1,643
Cash flow hedges reclassified into earnings	581			5,372
Security deposits and maintenance payments included in earnings	(10,524		)	(1,648		)
Gain on sale of flight equipment	(759		)	(12,833		)
Impairment of flight equipment	500			—
Other	112			(1,558		)
Changes in certain assets and liabilities:
Accounts receivable	(1,407		)	992
Other assets	(1,000		)	(1,137		)
Accounts payable, accrued expenses and other liabilities	14,334			15,066
Lease rentals received in advance	(2,552		)	(3,827		)
Net cash and restricted cash provided by operating activities	131,576			121,264
Cash flows from investing activities:
Acquisition and improvement of flight equipment	(142,053		)	(96,524		)
Proceeds from sale of flight equipment	16,819			306,029
Aircraft purchase deposits and progress payments, net of returned deposits and aircraft sales deposits	(1,935		)	(7,162		)
Net investment in finance and sales-type leases	(35,785		)	—
Collections on finance and sales-type leases	5,614			3,663
Unconsolidated equity method investments and associated costs	—			(7,731		)
Other	88			(176		)
Net cash and restricted cash provided by (used in) investing activities	(157,252		)	198,099
Cash flows from financing activities:
Repurchase of shares	(2,513		)	(33,250		)
Proceeds from secured and unsecured debt financings	500,000			500,000
Repayments of secured and unsecured debt financings	(31,178		)	(352,928		)
Deferred financing costs	(8,038		)	(9,454		)
Security deposits and maintenance payments received	41,049			33,147
Security deposits and maintenance payments returned	(39,383		)	(20,936		)
Dividends paid	(20,466		)	(18,915		)
Net cash and restricted cash provided by financing activities	439,471			97,664
Net increase in cash and restricted cash	413,795			417,027
Cash and restricted cash at beginning of period	508,817			254,041
Cash and restricted cash at end of period	$	922,612		$	671,068

Aircastle Limited and Subsidiaries

Consolidated Statements of Cash Flows (Continued)

(Dollars in thousands)

(Unaudited)



	Three Months Ended March 31,
	2017		2016
Supplemental disclosures of cash flow information:
Cash paid for interest, net of capitalized interest	$	37,778	$	39,539
Cash paid for income taxes	$	872	$	1,604
Supplemental disclosures of non-cash investing activities:
Advance lease rentals, security deposits and maintenance payments assumed in asset acquisitions	$	65	$	1,564
Advance lease rentals, security deposits, and maintenance payments settled in sale of flight equipment	$	3,373	$	25,559

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

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

March 31, 2017

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 acquiring, leasing, managing and selling commercial jet aircraft.

Aircastle is a holding company that conducts its business through subsidiaries. Aircastle directly or indirectly owns all of the outstanding common shares of its subsidiaries. The consolidated financial statements presented are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The Company manages, analyzes and reports on its business and results of operations on the basis of one operating segment: leasing, financing, selling and managing commercial flight equipment. Our chief executive officer is the chief operating decision maker.

The accompanying consolidated financial statements are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting and, in our opinion, reflect all adjustments, including normal recurring items, which are necessary to present fairly the results for interim periods. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the entire year. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the SEC; however, we believe that the disclosures are adequate to make 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, 2016 .

Effective January 1, 2017, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash . For the three months ended March 31, 2017 , the Company revised the presentation in our Consolidated Statements of Cash Flows to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. For the three months ended March 31, 2016 , our Consolidated Statement of Cash Flows reflected: (1) changes in restricted cash related to the sale of flight equipment within investing activities; and (2) changes in restricted cash and restricted cash equivalents related to rents, maintenance payments and security deposits within financing activities. Therefore, the amounts included for the three months ended March 31, 2016 have been reclassified to conform to the current period presentation.

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, 2017 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 five 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.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

March 31, 2017

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. While Aircastle believes that the estimates and related assumptions used in the preparation of the consolidated financial statements are appropriate, actual results could differ from those estimates.

Recent Accounting Pronouncements

On February 25, 2016, the FASB issued Accounting Standards Codification (“ASC”) 842 (“ASC 842”), “ Leases ,” which replaced the existing guidance in ASC 840, Leases . The accounting for leases by lessors basically remained unchanged from the concepts that existed in ASC 840 accounting. The FASB decided that lessors would be precluded from recognizing selling profit and revenue at lease commencement for any sales-type or direct finance lease that does not transfer control of the underlying asset to the lessee. This requirement aligns the notion of what constitutes a sale in the lessor accounting guidance with that in the forthcoming revenue recognition standard, which evaluates whether a sale has occurred from the customer’s perspective. The standard will be effective for public entities beginning after December 15, 2018. The standard is applied on a modified retrospective approach. We plan to adopt the standard on its required effective date of January 1, 2019. We are evaluating the impact that ASC 842 will have on our consolidated financial statements and related disclosures. We do not believe that the adoption of the standard will significantly impact our existing or potential lessees' economic decisions to lease aircraft.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments . The standard affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The update is applied on a modified retrospective approach. The standard is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as early as the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are in the process of determining the impact the standard will have on our consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments . The standard clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The update should be applied using a retrospective transition method to each period presented. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. We are in the process of determining the impact the standard will have on our consolidated financial statements and related disclosures.

On May 28, 2014, the FASB and the International Accounting Standards Board (the “IASB”) (collectively, “the Boards”), jointly issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) and related updates. Lease contracts within the scope of ASC 840, Leases , are specifically excluded from ASU No. 2014-09. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. The standard is effective for 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 plan to adopt the standard on its required effective date of January 1, 2018, using the modified retrospective approach. We do not expect the impact of this standard to be material to our consolidated financial statements and related disclosures.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

March 31, 2017

Note 2. Fair Value Measurements

Fair value measurements and disclosures require the use of valuation techniques to measure fair value that maximize the use of observable inputs and minimize use of unobservable inputs. These inputs are prioritized as follows:


•	Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.


•	Level 2: Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities or market corroborated inputs.


•	Level 3: Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants price the asset or liability.

The valuation techniques that may be used to measure fair value are as follows:


•	The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.


•	The income approach uses valuation techniques to convert future amounts to a single present amount based on current market expectation about those future amounts.


•	The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).

The following tables set forth our financial assets as of March 31, 2017 and December 31, 2016 that we measured at fair value on a recurring basis by level within the fair value hierarchy. Assets measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.



			Fair Value Measurements at March 31, 2017 Using Fair Value Hierarchy
	Fair Value as of March 31, 2017		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	$	871,858	$	871,858	$	—	$	—	Market
Restricted cash and cash equivalents	50,754		50,754		—		—		Market
Derivative assets	4,585		—		4,585		—		Market
Total	$	927,197	$	922,612	$	4,585	$	—



			Fair Value Measurements at December 31, 2016 Using Fair Value Hierarchy
	Fair Value as of December 31, 2016		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	$	455,579	$	455,579	$	—	$	—	Market
Restricted cash and cash equivalents	53,238		53,238		—		—		Market
Derivative assets	5,735		—		5,735		—		Market
Total	$	514,552	$	508,817	$	5,735	$	—

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

March 31, 2017

Our cash and cash equivalents, along with our restricted cash and cash equivalents balances, consist largely of money market securities that are considered to be highly liquid and easily tradable. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within our fair value hierarchy. Our interest rate derivative included in Level 2 consists of United States dollar-denominated interest rate cap, and the fair value is based on market comparisons for similar instruments. We also considered the credit rating and risk of the counterparty providing the interest rate cap based on quantitative and qualitative factors.

For the three months ended March 31, 2017 and the year ended December 31, 2016 , we had no transfers into or out of Level 3.

We measure the fair value of certain assets and liabilities on a non-recurring basis, when U.S. GAAP requires the application of fair value, including events or changes in circumstances that indicate that the carrying amounts of assets may not be recoverable. Assets subject to these measurements include our investments in unconsolidated joint ventures and aircraft. We account for our investments in unconsolidated joint ventures under the equity method of accounting and record impairment when its fair value is less than its carrying value. We record aircraft at fair value when we determine the carrying value may not be recoverable. Fair value measurements for aircraft in impairment tests are based on an income approach which uses Level 3 inputs, which include the Company’s assumptions and appraisal data as to future cash proceeds from leasing and selling aircraft.

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 senior notes is estimated using quoted market prices. The fair values of all our other financings are estimated using a discounted cash flow analysis, based on our current incremental borrowing rates for similar types of borrowing arrangements.

The carrying amounts and fair values of our financial instruments at March 31, 2017 and December 31, 2016 are as follows:



	March 31, 2017				December 31, 2016
	Carrying Amount of Liability		Fair Value of Liability		Carrying Amount of Liability		Fair Value of Liability
Unsecured Term Loan	$	120,000	$	120,000	$	120,000	$	120,000
ECA Financings	294,759		303,965		305,276		316,285
Bank Financings	913,219		905,921		933,541		925,783
Senior Notes	3,700,000		3,881,290		3,200,000		3,387,125

All of our financial instruments are classified as Level 2 with the exception of our Senior Notes, which are classified as Level 1.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

March 31, 2017

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, 2017 were as follows:



Year Ending December 31,	Amount
Remainder of 2017	$	540,380
2018	671,875
2019	575,721
2020	474,723
2021	393,078
Thereafter	905,983
Total	$	3,561,760

Geographic concentration of lease rental revenue earned from flight equipment held for lease was as follows:



	Three Months Ended March 31,
Region	2017		2016
Asia and Pacific	40	%	41	%
Europe	22	%	25	%
Middle East and Africa	12	%	10	%
North America	7	%	5	%
South America	19	%	19	%
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.

The following table shows the number of lessees with lease rental revenue of at least 5% and their combined total percentage of lease rental revenue for the years indicated:



	Three Months Ended March 31,
	2017		2016
	Number of Lessees	Combined % of Lease Rental Revenue	Number of Lessees	Combined % of Lease Rental Revenue
Largest lessees by lease rental revenue	3	19%	5	30%

The following table sets forth revenue attributable to individual countries representing at least 10% of total revenue (including maintenance revenue) in any year based on each lessee’s principal place of business for the years indicated:



	Three Months Ended March 31,
	2017			2016
Country	Revenue		% of Total Revenue	Revenue		% of Total Revenue
Indonesia ⁽¹⁾	$	—	—%	$	19,543	11%

_______________


(1)	Total revenue attributable to Indonesia was less than 10% for the three months ended March 31, 2017.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

March 31, 2017

Geographic concentration of net book value of flight equipment (including flight equipment held for lease and net investment in finance and sales-type leases, or "net book value") was as follows:



	March 31, 2017				December 31, 2016
Region	Number of Aircraft		Net Book Value %		Number of Aircraft		Net Book Value %
Asia and Pacific	64		39	%	61		38	%
Europe	67		23	%	66		23	%
Middle East and Africa	14		10	%	14		11	%
North America	27		8	%	26		8	%
South America	26		19	%	23		18	%
Off-lease	2	⁽¹⁾	1	%	3	⁽²⁾	2	%
Total	200		100	%	193		100	%

_______________


(1)	Consisted of two Airbus A321-200 aircraft scheduled to be delivered to a customer in Europe in the second quarter of 2017.


(2)	Consisted of one Airbus A330-200 aircraft, which was delivered on lease to a customer in February 2017, and two Airbus A321-200 aircraft, which were subject to a commitment to lease.

At March 31, 2017 and December 31, 2016 , no country represented at least 10% of net book value of flight equipment based on each lessee’s principal place of business.

At March 31, 2017 and December 31, 2016 , the amounts of lease incentive liabilities recorded in maintenance payments on our Consolidated Balance Sheets were $15,153 and $14,931 , respectively.

Note 4. Net Investment in Finance and Sales-Type Leases

At March 31, 2017 , our net investment in finance and sales-type leases consisted of fifteen aircraft . The following table lists the components of our net investment in finance and sales-type leases at March 31, 2017 :



	Amount
Total lease payments to be received	$	207,894
Less: Unearned income	(92,960		)
Estimated residual values of leased flight equipment (unguaranteed)	185,035
Net investment in finance and sales-type leases	$	299,969

At March 31, 2017 , minimum future lease payments on finance and sales-type leases are as follows:



Year Ending December 31,	Amount
Remainder of 2017	$	28,731
2018	33,119
2019	32,784
2020	32,363
2021	26,007
Thereafter	54,890
Total lease payments to be received	$	207,894

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

March 31, 2017

Note 5. Unconsolidated Equity Method Investments

We have joint ventures with an affiliate of Ontario Teachers’ Pension Plan (“Teachers’”) and with the leasing arm of the Industrial Bank of Japan, Limited (“IBJL”).

At March 31, 2017 , the net book value of both joint ventures’ thirteen aircraft was approximately $ 682,000 .



	Amount
Investment in joint ventures at December 31, 2016	$	72,977
Investment in joint ventures	634
Earnings from joint ventures, net of tax	2,242
Distributions	(1,200		)
Investment in joint ventures at March 31, 2017	$	74,653

The Company has recorded in its Consolidated Balance Sheet a $10,483 guarantee liability in Maintenance payments and a $5,100 guarantee liability in Security deposits representing its share of the respective exposures.

Note 6. Variable Interest Entities

Aircastle consolidates five 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 seven aircraft discussed below.

ECA Financings

Aircastle, through various subsidiaries, each of which is owned by a charitable trust (such entities, collectively the “Air Knight VIEs”), has entered into seven different twelve -year term loans, which are supported by guarantees from Compagnie Française d'Assurance pour le Commerce Extérieur, (“COFACE”), the French government sponsored export credit agency (“ECA”). We refer to these COFACE-supported financings as “ECA Financings.”

Aircastle is the primary beneficiary of the Air Knight VIEs, as we have the power to direct the activities of the VIEs that most significantly impact the economic performance of such VIEs and we bear the significant risk of loss and participate in gains through a finance lease. The activity that most significantly impacts the economic performance is the leasing of aircraft of which our wholly owned subsidiary is the servicer and is responsible for managing the relevant aircraft. There is a cross collateralization guarantee between the Air Knight VIEs. In addition, Aircastle guarantees the debt of the Air Knight VIEs.

The only assets that the Air Knight VIEs have on their books are financing leases that are eliminated in the consolidated financial statements. The related aircraft, with a net book value as of March 31, 2017 of $510,335 , were included in our flight equipment held for lease. The consolidated debt outstanding, net of debt issuance costs, of the Air Knight VIEs as of March 31, 2017 is $286,500 .

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

March 31, 2017

Note 7. Secured and Unsecured Debt Financings

The outstanding amounts of our secured and unsecured term debt financings are as follows:



	At March 31, 2017						At December 31, 2016
Debt Obligation	Outstanding Borrowings			Number of Aircraft	Interest Rate	Final Stated Maturity	Outstanding Borrowings
Secured Debt Financings:
ECA Financings ⁽¹⁾	$	294,759		7	3.02% to 3.96%	12/03/21 to 11/30/24	$	305,276
Bank Financings ⁽²⁾	913,219			30	1.88% to 4.45%	10/26/17 to 01/19/26	933,541
Less: Debt Issuance Costs	(18,555		)	—			(19,783		)
Total secured debt financings, net of debt issuance costs	1,189,423			37			1,219,034

Unsecured Debt Financings:
Senior Notes due 2017	500,000				6.75%	04/15/17	500,000
Senior Notes due 2018	400,000				4.625%	12/15/18	400,000
Senior Notes due 2019	500,000				6.250%	12/01/19	500,000
Senior Notes due 2020	300,000				7.625%	04/15/20	300,000
Senior Notes due 2021	500,000				5.125%	03/15/21	500,000
Senior Notes due 2022	500,000				5.50%	02/15/22	500,000
Senior Notes due 2023	500,000				5.00%	04/01/23	500,000
Senior Notes due 2024	500,000				4.125%	05/01/24	—
Unsecured Term Loan	120,000				3.131%	04/28/19	120,000
Revolving Credit Facilities	—				N/A	11/21/19 to 05/13/20	—
Less: Debt Issuance Costs	(38,239		)				(32,789		)
Total unsecured debt financings, net of debt issuance costs	3,781,761						3,287,211

Total secured and unsecured debt financings, net of debt issuance costs	$	4,971,184					$	4,506,245


(1)	The borrowings under these financings at March 31, 2017 have a weighted-average rate of interest of 3.52% .


(2)	The borrowings under these financings at March 31, 2017 have a weighted-average fixed rate of interest of 3.34% .

Unsecured Debt Financings:

Senior Notes due 2024

On March 6, 2017, Aircastle issued $500,000 aggregate principal amount of Senior Notes due 2024 (the "Senior Notes due 2024") at par. The Senior Notes due 2024 will mature on May 1, 2024 and bear interest at the rate of 4.125% per annum, payable semi-annually on May 1 and November 1 of each year, commencing on November 1, 2017. Interest accrues on the Senior Notes due 2024 from March 20, 2017.

Prior to February 1, 2024, we may redeem the Senior Notes due 2024 at any time at a redemption price equal to (a) 100% of the principal amount of the notes redeemed, plus accrued and unpaid interest thereon to, but not including, the redemption date and (b) the sum of the present values of the remaining scheduled payments of principal and interest on the notes from the redemption date through the maturity date of the notes (computed using a discount rate equal to the Treasury Rate (as defined in the indenture governing the notes) as of such redemption date plus 0.5% ). In addition, prior to May 1, 2020, we may redeem up to 40% of the aggregate principal amount of the notes issued under the indenture at a redemption

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

March 31, 2017

price equal to 104.125% plus accrued and unpaid interest thereon to, but not including, the redemption date, with the net proceeds of certain equity offerings. If the Company undergoes a change of control, it must offer to repurchase the Senior Notes due 2024 at 101% of the principal amount, plus accrued and unpaid interest. The Senior Notes due 2024 are not guaranteed by any of the Company's subsidiaries or any third-party.

On April 17, 2017, we paid off our Senior Notes due 2017.

Revolving Credit Facilities

At March 31, 2017 , we had no amounts outstanding under these facilities.

As of March 31, 2017 , we were in compliance with all applicable covenants in our financings.

Note 8. Shareholders' Equity and Share-Based Payment

During the three months ended March 31, 2017 , the Company issued 315,588 restricted common shares and issued 152,933 performance share units (“PSUs”). These awards were made under the Aircastle Limited 2014 Omnibus Incentive Plan.

During the three months ended March 31, 2017 , the Company incurred share-based compensation expense of $1,575 related to restricted common shares and share-based compensation expense of $527 related to PSUs. As of March 31, 2017 , there was $11,237 of unrecognized compensation cost related to unvested restricted common share-based payments and $6,280 of unrecognized compensation cost related to unvested PSU share-based payments that are expected to be recognized over a weighted-average remaining period of 2.5 years .

Note 9. 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 9, 2017	$	0.26	$	20,466	February 28, 2017	March 15, 2017
October 28, 2016	$	0.26	$	20,434	November 29, 2016	December 15, 2016
August 2, 2016	$	0.24	$	18,872	August 26, 2016	September 15, 2016
May 2, 2016	$	0.24	$	18,915	May 31, 2016	June 15, 2016
February 9, 2016	$	0.24	$	18,915	February 29, 2016	March 15, 2016

Note 10. Earnings Per Share

We include all common shares granted under our incentive compensation plan which remain unvested (“restricted common shares”) and contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid (“participating securities”), in the number of shares outstanding in our basic earnings per share calculations using the two-class method. All of our restricted common shares are currently participating securities. Our PSUs are contingently issuable shares which are included in our diluted earnings per share calculations which do not include voting or dividend rights.

Under the two-class method, earnings per common share 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

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

March 31, 2017

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,
	2017		2016
Weighted-average shares:
Common shares outstanding	78,176,705		78,543,457
Restricted common shares	503,802		572,356
Total weighted-average shares	78,680,507		79,115,813

Percentage of weighted-average shares:
Common shares outstanding	99.36	%	99.28	%
Restricted common shares	0.64	%	0.72	%
Total percentage of weighted-average shares	100.00	%	100.00	%

The calculations of both basic and diluted earnings per share are as follows:



	Three Months Ended March 31,
	2017			2016
Earnings per share – Basic:
Net income	$	42,439		$	36,262
Less: Distributed and undistributed earnings allocated to restricted common shares ⁽¹⁾	(272		)	(262		)
Earnings available to common shareholders – Basic	$	42,167		$	36,000

Weighted-average common shares outstanding – Basic	78,176,705			78,543,457

Earnings per common share – Basic	$	0.54		$	0.46

Earnings per share – Diluted:
Net income	$	42,439		$	36,262
Less: Distributed and undistributed earnings allocated to restricted common shares ⁽¹⁾	(272		)	(262		)
Earnings available to common shareholders – Diluted	$	42,167		$	36,000

Weighted-average common shares outstanding – Basic	78,176,705			78,543,457
Effect of dilutive shares ⁽²⁾	194,848			—
Weighted-average common shares outstanding – Diluted	78,371,553			78,543,457

Earnings per common share – Diluted	$	0.54		$	0.46


(1)	For the three months ended March 31, 2017 and 2016 , distributed and undistributed earnings to restricted shares are 0.64% and 0.72% of net income, respectively. The amount of restricted share forfeitures for all periods present is immaterial to the allocation of distributed and undistributed earnings.


(2)	For the three months ended March 31, 2017 , dilutive shares represented contingently issuable shares related to the Company’s PSUs. For the three months ended March 31, 2016 , we had no dilutive shares.

Note 11. Income Taxes

Income taxes have been provided for based upon the tax laws and rates in countries in which our operations are conducted and income is earned. The Company received an assurance from the Bermuda Minister of Finance that it would be exempted from local income, withholding and capital gains taxes until March 2035. Consequently, the provision for income taxes relates to income earned by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose income taxes, primarily Ireland, Singapore and the United States.

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

March 31, 2017

The sources of income from continuing operations before income taxes and earnings of our unconsolidated equity method investments for the three months ended March 31, 2017 and 2016 were as follows:



	Three Months Ended March 31,
	2017		2016
U.S. operations	$	596	$	586
Non-U.S. operations	41,447		38,056
Income from continuing operations before income taxes and earnings of unconsolidated equity method investments	$	42,043	$	38,642

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, 2017 and 2016 was determined based upon estimates of the Company’s consolidated effective income tax rates for the years ending December 31, 2017 and 2016, respectively.

The Company’s effective tax rate for the three months ended March 31, 2017 was 4.4% , compared to 10.2% for the three months ended March 31, 2016 . 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 from continuing operations consisted of the following:



	Three Months Ended March 31,
	2017			2016
Notional U.S. federal income tax expense at the statutory rate	$	14,715		$	13,525
U.S. state and local income tax, net	41			47
Non-U.S. operations:
Bermuda	(8,828		)	(9,092		)
Ireland	542			1,879
Singapore	(2,927		)	(1,335		)
Other low tax jurisdictions	(1,440		)	(1,211		)
Non-deductible expenses in the U.S.	(249		)	135
Other	(8		)	(9		)
Provision for income taxes	$	1,846		$	3,939

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

March 31, 2017

Note 12. Interest, Net

The following table shows the components of interest, net:



	Three Months Ended March 31,
	2017			2016
Interest on borrowings and other liabilities ⁽¹⁾	$	58,839		$	53,324
Amortization of deferred losses related to interest rate derivatives	581			5,372
Amortization of deferred financing fees and debt discount ⁽²⁾	4,155			5,607
Interest expense	63,575			64,303
Less: Interest income	(414		)	(62		)
Less: Capitalized interest	(93		)	—
Interest, net	$	63,068		$	64,241


(1)	Includes $1,509 in loan termination fees related to the sale of one aircraft during the three months ended March 31, 2016 .


(2)	Includes $1,972 in deferred financing fees written off related to the sale of one aircraft during the three months ended March 31, 2016 .

Note 13. Commitments and Contingencies

At March 31, 2017 , we had commitments to acquire 35 aircraft for $1,164,088 , including 25 Embraer E-Jet E2 aircraft.

Commitments, including $133,308 of progress payments, contractual price escalations and other adjustments for these aircraft, at March 31, 2017 , net of amounts already paid, are as follows:



Year Ending December 31,	Amount
Remainder of 2017	$	242,390
2018	143,855
2019	361,746
2020	277,819
2021	138,278
Thereafter	—
Total	$	1,164,088

Note 14. Other Assets

The following table describes the principal components of other assets on our Consolidated Balance Sheets as of:



	March 31, 2017		December 31, 2016
Deferred income tax asset	$	1,584	$	1,902
Lease incentives and lease premiums, net of amortization of $43,026 and $39,638, respectively	95,170		96,587
Flight equipment held for sale	3,820		3,834
Aircraft purchase deposits and progress payments	15,207		12,923
Fair value of interest rate cap	4,585		5,735
Other assets	20,178		27,417
Total other assets	$	140,544	$	148,398

Aircastle Limited and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

March 31, 2017

Note 15. Accounts Payable, Accrued Expenses and Other Liabilities

The following table describes the principal components of accounts payable, accrued expenses and other liabilities recorded on our Consolidated Balance Sheets as of:



	March 31, 2017		December 31, 2016
Accounts payable and accrued expenses	$	18,473	$	24,337
Deferred income tax liability	45,232		44,241
Accrued interest payable	64,048		43,107
Lease discounts, net of amortization of $31,540 and $29,016, respectively	16,631		15,842
Total accounts payable, accrued expenses and other liabilities	$	144,384	$	127,527

Note 16. Accumulated Other Comprehensive Loss

The following table describes the principal components of accumulated other comprehensive loss recorded on our Consolidated Balance Sheets:



Changes in accumulated other comprehensive loss by component ⁽¹⁾	Three Months Ended March 31,
	2017			2016
Beginning balance	$	(3,552	)	$	(13,213	)
Amounts recognized in other comprehensive loss on derivatives, net of tax expense of $0 and $0 for the three months ended March 31, 2017 and 2016, respectively	—			(502		)
Amounts reclassified from accumulated other comprehensive loss into income, net of tax expense of $0 and $0 for the three months ended March 31, 2017 and 2016, respectively	581			5,873
Net current period other comprehensive income	581			5,371
Ending balance	$	(2,971	)	$	(7,842	)

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



Reclassifications from accumulated other comprehensive loss ⁽¹⁾	Three Months Ended March 31,
	2017		2016
Amount of effective amortization of net deferred interest rate derivative losses ⁽²⁾	$	581	$	5,372
Effective amount of net settlements of interest rate derivatives, net of tax expense of $0 and $0 for the three months ended March 31, 2017 and 2016, respectively	—		501
Amount of loss reclassified from accumulated other comprehensive loss into income	$	581	$	5,873

(1) All amounts are net of tax.

(2) Included in interest expense.

At March 31, 2017 , the amount of deferred net loss expected to be reclassified from OCI into interest expense over the next twelve months related to our terminated interest rate derivatives is $1,922 .

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, 2016 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 U.S. GAAP, and, unless otherwise indicated, the other financial information contained in this report has also been prepared in accordance with U.S. GAAP. Unless otherwise indicated, all references to “dollars” and “$” in this report are to, and all monetary amounts in this report are presented in, U.S. dollars.

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 Part I - Item 1A of Aircastle’s 2016 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 THE 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 — Tax Information (PFIC).”

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 Internet website is not part of, or incorporated by reference, into this report, or any other report we file with, or furnish to, the SEC.

OVERVIEW

Aircastle acquires, leases, and sells commercial jet aircraft to airlines throughout the world. As of March 31, 2017 , we owned and managed on behalf of our joint ventures 213 aircraft leased to 72 lessees located in 37 countries. Our aircraft are managed by an experienced team based in the United States, Ireland and Singapore. Our aircraft are subject to net leases whereby the lessee is generally responsible for maintaining the aircraft and paying operational, maintenance and insurance costs. In many cases, however, we are obligated to pay a portion of specified maintenance or modification costs. As of March 31, 2017 , the net book value (including flight equipment held for lease and net investment in finance and sales-type leases, or "net book value") was $6.60 billion compared to $6.51 billion at December 31, 2016. Our revenues and net income for the three months ended March 31, 2017 were $204.3 million and $42.4 million , respectively.

Growth in commercial air traffic is broadly correlated with world economic activity. In recent years, it has been expanding at a rate one and a half to two times that of global GDP growth. The expansion of air travel has driven a rise in the world aircraft fleet. There are currently approximately 20,000 commercial mainline passenger and freighter aircraft in operation worldwide. This fleet is expected to continue expanding at three to four percent average annual rate over the next twenty years. In addition, aircraft leasing companies own an increasing share of the world’s commercial jet aircraft and now account for approximately 41% of this fleet.

Notwithstanding the sector’s long-term growth, the aviation markets have been, and are expected to remain, subject to economic variability, as well as to changes in macroeconomic variables such as fuel price levels and foreign exchange rates. The aviation industry is susceptible to external shocks, such as regional conflicts and terrorist events. Mitigating this risk is the portability of the assets, allowing aircraft to be redeployed to locations where demand is higher.

Air traffic data for the past several years has shown strong passenger market growth. According to the International Air Transport Association, during the first three months of 2017, global passenger traffic increased 7.0% compared to the same period in 2016. This strong growth was, in part, stimulated by lower air fare prices resulting from the significant drop in fuel prices. Air cargo demand, which is more sensitive to economic conditions, appears to have stabilized. During the first three months of 2017, air cargo traffic increased 9.7% compared to the same period in 2016, and capacity increased 2.6% , resulting in an increase in load factors to 47.4%. While a positive development, the air cargo market continues to be hampered by oversupply arising from the continued growth in belly cargo capacity in passenger aircraft as well as the production of dedicated freighter aircraft.

Demand for air travel varies considerably by region. Emerging market economies have generally been experiencing significant increases in air traffic, driven by rising levels of per capita income. Air traffic growth in some regions is being driven by the proliferation of low cost carriers, which have stimulated demand through lower prices. Mature markets, such as North America and Western Europe, are likely to grow more slowly in tandem with their economies. Persian Gulf-based Emirates, Qatar Airways and Etihad Airways are also showing signs of reaching maturity and their growth rates are slowing. Airlines operating in areas with political instability or weakening economies are under pressure, and their near-term outlook is more uncertain. On balance, we believe air travel will increase over time, and as a result, we expect demand for modern aircraft will continue to remain strong over the long-term.

Low fuel prices and interest rates have had a substantial effect on our industry. The price of oil dropped by $67 to $36 per barrel in the four years prior to December 2015. This allowed airlines to reduce ticket prices and stimulate aircraft traffic while retaining enough of this benefit to achieve record profit levels. A low interest rate environment and the strong overall performance of the aircraft financing sector attracted significant new capital, increasing competition for new investments. The downward trend in fuel prices and interest rates appears to have ended as fuel prices started rising in 2016. In 2017, the price of fuel has averaged approximately $52 per barrel. Likewise, interest rates have started to rise in the U.S., with Federal Reserve guidance suggesting multiple future rate hikes subsequent to the December 2016 increase in the Federal Funds rate.

Capital availability for aircraft has varied over time, and we consider this variability to be a basic characteristic of our business. If pursued properly, this represents an important source of opportunity. Both debt and equity markets have improved globally over the past several years with the recovery from the global financial crisis. Strong U.S. debt capital market conditions benefited borrowers by permitting access to financing at historic lows while higher fees have driven down ECA demand. Recently, ECA availability has been curtailed, both in the U.S. and in Europe, due to political issues and an investigation into possible irregularities, respectively. Commercial bank debt continues to play a critical role for aircraft finance, although we believe regulatory pressures may limit its role over time.

While financial markets conditions are currently attractive, heightened volatility stemming from global growth concerns and various geopolitical issues may increase capital costs and limit availability going forward. We believe these market forces should generate attractive new investment and trading opportunities for which we are well placed to capitalize given our access to different financing sources, our limited capital commitments and our reputation as a reliable trading partner. Over the longer term, our strategy is to achieve an investment grade credit rating, which we believe will reduce our borrowing costs and enable more reliable access to debt capital throughout the business cycle.

We believe our business approach is differentiated from those of other large leasing companies. Our investment strategy is to seek out the best risk-adjusted return opportunities across the commercial jet market, so our acquisition targets and growth rates will vary with market conditions. We prefer to have capital resources available to capture investment opportunities that arise in the context of changing market circumstances. As such, we limit large, long-term capital commitments and are therefore much less reliant on orders for new aircraft from aircraft manufacturers as a source of new investments. In general, we focus on discerning investment value in situations that are often more bespoke and generally less competitive.

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. We carefully evaluate investments across different aircraft models, ages, lessees and acquisition sources and re-evaluate these choices as market conditions and relative investment values change. We believe the financing flexibility offered through unsecured debt and our team’s experience with a wide range of asset types enables our value oriented strategy and provides us with a competitive advantage. We view orders from equipment manufacturers to be part of our investment opportunity set, but choose to limit long term capital commitments unless we believe there is an adequate return premium to compensate for risks and opportunity costs. This approach sets us apart from most other large aircraft leasing companies.

•

Originating investments from many different sources across the globe. Our strategy is to seek out worthwhile investments by leveraging our team’s wide range of contacts 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 85 different sellers.

•

Selling assets when attractive opportunities arise and for portfolio management purposes. We sell assets with the aim of realizing profits and reinvesting proceeds when more accretive investments are available. We also use asset sales for portfolio management purposes, such as reducing lessee specific concentrations and lowering residual value exposures to certain aircraft types, and as an exit from investments when a sale generates the greatest expected cash flow.

•

Maintaining efficient access to capital from a wide set of sources while targeting an investment grade credit rating. We believe the aircraft investment market is influenced by the business cycle. Our strategy is to increase our purchase activity when prices are low and to emphasize asset sales when competition for assets is high. To implement this approach, we believe it is important to maintain access to a wide variety of financing sources. Our strategy is to improve our corporate credit ratings to an investment grade level by maintaining strong portfolio and capital structure metrics while achieving a critical size through accretive growth. We believe improving our credit rating will not only reduce our borrowing costs but also facilitate more reliable access to both secured and unsecured debt capital throughout the business cycle.

•

Leveraging our strategic relationships. We intend to capture the benefits provided through the extensive global contacts and relationships maintained by Marubeni, which is our biggest shareholder and one of the largest Japanese trading companies. Marubeni has already enabled greater access to Japanese-based financing and helped source and develop our joint venture (“IBJ Air”) with IBJL. IBJ Air is targeted at newer narrow-body aircraft leased to premier airlines, providing Aircastle with increased access to this market sector and to these customers. Our joint venture (“Lancaster”) with Teachers’ provides us with an opportunity to pursue larger transactions, manage portfolio concentrations and improve our return on deployed capital.


•	Capturing the value of our efficient operating platform and strong operating track record. We believe our team’s capabilities in the global aircraft leasing market places us in a favorable position to source and manage

new income-generating activities. We intend to continue to focus our efforts in areas where we believe we have competitive advantages, including new direct investments as well as ventures with strategic business partners.

•

Intending to pay quarterly dividends to our shareholders based on the Company’s sustainable earnings levels. Aircastle has paid dividends each quarter since our initial public offering in 2006. On February 9, 2017 , our Board of Directors declared a regular quarterly dividend of $0.26 per common share, or an aggregate of $20.5 million for the three months ended March 31, 2017 , which was paid on March 15, 2017 to holders of record on February 28, 2017 . These dividends may not be indicative of the amount of any future dividends. Our ability to pay quarterly dividends will depend upon many factors, including those as described in Item 1A. “Risk Factors” and elsewhere in our 2016 Annual Report on Form 10-K.

Revenues

Our revenues are comprised primarily of operating lease rentals on flight equipment held for lease, revenue from retained maintenance payments related to lease expirations, lease termination payments, lease incentive amortization and interest recognized from finance and sales-type leases.

Typically, our aircraft are subject to net leases whereby the lessee pays lease rentals and is generally responsible for maintaining the aircraft and paying operational, maintenance and insurance costs arising during the term of the lease. Our aircraft lease agreements generally provide for the periodic payment of a fixed amount of rent over the life of the lease and the amount of the contracted rent will depend upon the type, age, specification and condition of the aircraft and market conditions at the time the lease is committed. The amount of rent we receive will depend on a number of factors, including the creditworthiness of our lessees and the occurrence of restructurings and defaults. Our lease rental revenues are also affected by the extent to which aircraft are off-lease and our ability to remarket aircraft that are nearing the end of their leases in order to minimize their off-lease time. Our success in re-leasing aircraft is affected by market conditions relating to our aircraft and by general industry conditions and trends. An increase in the percentage of off-lease aircraft or a reduction in lease rates upon remarketing would negatively impact our revenues.

Under an operating lease, the lessee will be responsible for performing maintenance on the relevant aircraft and will typically be required to make payments to us for heavy maintenance, overhaul or replacement of certain high-value components of the aircraft. These maintenance payments are based on hours or cycles of utilization or on calendar time, depending upon the component, and would be made either monthly in arrears or at the end of the lease term. For maintenance payments made monthly in arrears during a lease term, we will typically be required to reimburse all or a portion of these payments to the lessee upon their completion of the relevant heavy maintenance, overhaul or parts replacement. We record maintenance payments paid by the lessee during a lease as accrued maintenance liabilities in recognition of our obligation in the lease to refund such payments, and therefore we do not recognize maintenance revenue during the lease. Maintenance revenue recognition would occur at the end of a lease, when we are able to determine the amount, if any, by which reserve payments received exceed the amount we are required under the lease to reimburse to the lessee for heavy maintenance, overhaul or parts replacement. The amount of maintenance revenue we recognize in any reporting period is inherently 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.

2017 Lease Expirations and Lease Placements

At March 31, 2017 , we had four aircraft accounting for 2.8% of our net book value which are scheduled to come off lease during 2017 for which we have not yet secured lease or sales commitments. We plan to sell two of these aircraft and are marketing the remaining two aircraft for lease or sale.

2018-2021 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 2018-2021, representing the percentage of our net book value of flight equipment (including flight equipment held for lease and net investment in finance and sales-type leases) at March 31, 2017 , specified below:


•	2018: 14 aircraft, representing 10%;


•	2019: 28 aircraft, representing 16%;


•	2020: 27 aircraft, representing 9%; and


•	2021: 27 aircraft, representing 12%.

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 obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until March 2035, be applicable to us or to any of our operations or to our shares, debentures or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or to any taxes payable by us in respect of real property owned or leased by us in Bermuda. Consequently, the provision for income taxes recorded relates to income earned by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose income taxes, primarily Ireland, Singapore and the United States.

All of our aircraft-owning subsidiaries that are recognized as corporations for U.S. tax purposes are non-U.S. corporations. These non-U.S. subsidiaries generally earn income from sources outside the United States and typically are not subject to U.S. federal, state or local income taxes, unless they operate within the U.S., in which case they may be subject to federal, state and local income taxes. The aircraft owning subsidiaries resident in Ireland, Mauritius and Singapore are subject to tax in those respective jurisdictions.

We have a U.S.-based subsidiary which provides management services to our non-U.S. subsidiaries and is subject to U.S. federal, state and local income taxes. We also have Ireland and Singapore based subsidiaries which provide management services to our non-U.S. subsidiaries and are subject to tax in those respective jurisdictions.

Acquisitions and Sales

During the first three months of 2017, we acquired eight aircraft for $189.6 million . At March 31, 2017 , we had commitments to acquire 35 additional aircraft for $1.16 billion , including the acquisition of 25 new E-Jet E2 aircraft from Embraer, which are scheduled to deliver in 2018 to 2021. As of April 28, 2017, we have commitments to acquire 30 aircraft for $ 1.11 billion .

During the first three months of 2017, we sold one aircraft for $16.8 million, which resulted in a net gain of $0.8 million.

The following table sets forth certain information with respect to the aircraft owned by us as of March 31, 2017 :

AIRCASTLE AIRCRAFT INFORMATION (dollars in millions)



Owned Aircraft	As of March 31, 2017 ⁽¹⁾			As of March 31, 2016 ⁽¹⁾
Net Book Value of Flight Equipment	$	6,596		$	5,771
Net Book Value of Unencumbered Flight Equipment	$	4,725		$	3,752
Number of Aircraft	200			153
Number of Unencumbered Aircraft	163			111
Number of Lessees	72			53
Number of Countries	37			33
Weighted Average Age (years) ⁽²⁾	8.2			7.6
Weighted Average Remaining Lease Term (years) ⁽²⁾	4.8			5.6
Weighted Average Fleet Utilization during the three months ended March 31, 2017 and 2016 ⁽³⁾	98.3		%	99.6		%
Portfolio Yield for the three months ended March 31, 2017 and 2016 ⁽⁴⁾	12.3		%	12.5		%

Managed Aircraft on behalf of Joint Ventures
Net Book Value of Flight Equipment	$	682		$	590
Number of Aircraft	13			9


(1)	Calculated using net book value at period end.


(2)	Weighted by net book value.


(3)	Aircraft on-lease days as a percent of total days in period weighted by net book value.


(4)	Lease rental revenue, interest income and cash collections on our net investment in finance and sales-type leases for the period as a percent of the average net book value for the period; quarterly information is annualized.

Our owned aircraft portfolio as of March 31, 2017 is listed in Exhibit 99.1 to this report.

PORTFOLIO DIVERSIFICATION



	Owned Aircraft as of March 31, 2017				Owned Aircraft as of March 31, 2016
	Number of Aircraft		% of Net Book Value ⁽¹⁾		Number of Aircraft		% of Net Book Value ⁽¹⁾
Aircraft Type
Passenger:
Narrow-body	161		56	%	111		45	%
Wide-body	31		36	%	31		44	%
Total Passenger	192		92	%	142		89	%
Freighter	8		8	%	11		11	%
Total	200		100	%	153		100	%

Manufacturer
Airbus	109		52	%	77		51	%
Boeing	84		45	%	71		47	%
Embraer	7		3	%	5		2	%
Total	200		100	%	153		100	%

Regional Diversification
Asia and Pacific	64		39	%	45		38	%
Europe	67		23	%	56		25	%
Middle East and Africa	14		10	%	10		10	%
North America	27		8	%	19		7	%
South America	26		19	%	22		19	%
Off-lease	2	⁽²⁾	1	%	1	⁽³⁾	1	%
Total	200		100	%	153		100	%


(1)	Calculated using net book value at period end.


(2)	Consisted of two Airbus A321-200 aircraft scheduled to be delivered to a customer in Europe in the second quarter of 2017.


(3)	Consisted of one Boeing 737-800 aircraft that was leased to a customer in Asia in the third quarter of 2016.

Our largest two customers each represent 6% of the net book value at March 31, 2017 . Our top fifteen customers for aircraft we owned at March 31, 2017 , representing 84 aircraft and 58% of the net book value, are as follows:



Percent of Net Book Value	Customer	Country	Number of Aircraft
Greater than 6% per customer	Avianca Brazil	Brazil	10
	Lion Air	Indonesia	12

3% to 6% per customer	LATAM	Chile	3
	South African Airways	South Africa	4
	Thai Airways	Thailand	2
	Singapore Airlines	Singapore	4
	AirAsia X	Malaysia	3
	Air Berlin	Germany	11
	Emirates	United Arab Emirates	2
	AirBridgeCargo ⁽¹⁾	Russia	2
	Iberia	Spain	11

Less than 3% per customer	Jet Airways	India	8
	Garuda	Indonesia	3
	Azul	Brazil	7
	Avianca	Colombia	2
	Total top fifteen customers		84
	All other customers		116
	Total all customers		200


(1)	Guaranteed by Volga-Dnepr Airlines. We have one additional aircraft on lease with an affiliate.

Finance

We intend to fund new investments through cash on hand, funds generated from operations, maintenance payments received from lessees, secured borrowings for aircraft, draws on our revolving credit facilities and proceeds from any future aircraft sales. We may repay all or a portion of such borrowings from time to time with the net proceeds from subsequent long-term debt financings, additional equity offerings or cash generated from operations and asset sales. Therefore, our ability to execute our business strategy, particularly the acquisition of additional commercial jet aircraft or other aviation assets, depends to a significant degree on our ability to obtain additional debt and equity capital on terms we deem attractive.

See “Liquidity and Capital Resources” below.

RESULTS OF OPERATIONS

Comparison of the three months ended March 31, 2017 to the three months ended March 31, 2016 :



	Three Months Ended March 31,
	2017			2016
	(Dollars in thousands)
Revenues:
Lease rental revenue	$	190,586		$	179,570
Finance and sales-type lease revenue	4,073			3,498
Amortization of lease premiums, discounts and incentives	(3,112		)	(1,070		)
Maintenance revenue	12,287			1,260
Total lease revenue	203,834			183,258
Other revenue	439			407
Total revenues	204,273			183,665
Operating expenses:
Depreciation	79,174			76,647
Interest, net	63,068			64,241
Selling, general and administrative	16,167			15,492
Impairment of flight equipment	500			—
Maintenance and other costs	2,931			1,403
Total operating expenses	161,840			157,783
Other income (expense):
Gain on sale of flight equipment	759			12,833
Other	(1,149		)	(73		)
Total other income (expense)	(390		)	12,760
Income from continuing operations before income taxes and earnings of unconsolidated equity method investments	42,043			38,642
Income tax provision	1,846			3,939
Earnings of unconsolidated equity method investments, net of tax	2,242			1,559
Net income	$	42,439		$	36,262

Revenues

Total revenues increased by $20.6 million for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016 .

Lease rental revenue . The increase in lease rental revenue of $11.0 million for the three months ended March 31, 2017 as compared to the same period in 2016 was primarily the result of increases in revenue of $38.1 million due to the acquisition of 59 aircraft since March 31, 2016. This increase was partially offset by decreases of:


•	$22.5 million due to the sale of 24 aircraft since March 31, 2016; and


•	$4.5 million due to lease extensions, amendments, transitions and other changes.

Finance and sales-type lease revenue. For the three months ended March 31, 2017 , $4.1 million of interest income from finance and sales-type leases was recognized as compared to $3.5 million of interest income from finance and sales-type leases recorded for the same period in 2016 due to the addition of four aircraft, partially offset by the sale of one aircraft, over the last twelve months.

Amortization of net lease premiums, discounts and lease incentives.



	Three Months Ended March 31,
	2017			2016
	(Dollars in thousands)
Amortization of lease incentives	$	(2,707	)	$	(856	)
Amortization of lease premiums	(2,928		)	(2,777		)
Amortization of lease discounts	2,523			2,563
Amortization of lease premiums, discounts and incentives	$	(3,112	)	$	(1,070	)

As more fully described above under “Revenues,” lease incentives represent our estimated portion of the lessee’s cost for heavy maintenance, overhaul or replacement of certain high-value components which is amortized over the life of the related lease. As we enter into new leases, the amortization of lease incentives generally increases and, conversely, if a related lease terminates, the related unused lease incentive liability will reduce the amortization of lease incentives. The increase in amortization of lease incentives of $1.9 million for the three months ended March 31, 2017 as compared to the same period in 2016 was primarily attributable to changes in estimate related to engines for one freighter aircraft of $2.3 million, partially offset by $0.5 million related to aircraft transitions, extensions and other activity.

Maintenance revenue. For the three months ended March 31, 2017 , we recorded $12.3 million of maintenance revenue due to the transition of two narrow-body and one wide-body aircraft for $10.3 million and maintenance reserves taken into income for two freighter aircraft and two narrow-body aircraft totaling $1.9 million. For the same period in 2016 , we recorded $1.3 million of maintenance revenue from six scheduled lease terminations.

Operating expenses

Total operating expenses increased by $4.1 million for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016 .

Depreciation expense increased by $2.5 million for the three months ended March 31, 2017 as compared to the same period in 2016 . The net increase is primarily the result of higher depreciation of $14.7 million due to aircraft acquisitions.

This increase was partially offset by a $12.1 million decrease due to aircraft sold.

Interest, net consisted of the following:



	Three Months Ended March 31,
	2017			2016
	(Dollars in thousands)
Interest on borrowings and other liabilities ⁽¹⁾	$	58,839		$	53,324
Amortization of interest rate derivatives related to deferred losses	581			5,372
Amortization of deferred financing fees and debt discount ⁽²⁾	4,155			5,607
Interest expense	63,575			64,303
Less: Interest income	(414		)	(62		)
Less: Capitalized interest	(93		)	—
Interest, net	$	63,068		$	64,241


(1)	Includes $1,509 in loan termination fees related to the sale of one aircraft during the three months ended March 31, 2016 .


(2)	Includes $1,972 in deferred financing fees written off related to the sale of one aircraft during the three months ended March 31, 2016 .

Interest, net decreased by $1.2 million as compared to the three months ended March 31, 2016 . The net decrease is primarily a result of lower amortization of deferred losses on terminated interest rate derivatives of $4.8 million and lower amortization of deferred financing fees of $1.5 million, partially offset by higher interest on borrowings of $5.5 million, primarily due to higher weighted average debt outstanding during the three months ended March 31, 2017 as compared to a year ago.

Selling, general and administrative expenses for the three months ended March 31, 2017 increased $0.7 million over the same period in 2016 primarily as a result of higher non-cash share-based payment expense.

Maintenance and other costs were $2.9 million for the three months ended March 31, 2017 , an increase of $1.5 million over the same period in 2016 . The net increase is primarily related to higher maintenance costs of $1.0 million related to scheduled terminations and transitions for the three months ended March 31, 2017 versus the same period in 2016 .

Other income (expense)

Gain on sale of flight equipment decreased by $12.1 million, to $0.8 million for the three months ended March 31, 2017 , as compared to gains of $12.8 million for the same period in 2016 , as we sold fewer aircraft in 2017 as compared to 2016 .

Income tax provision

Our provision for income taxes for the three months ended March 31, 2017 and 2016 was $1.8 million and $3.9 million , respectively. Income taxes have been provided based on the applicable tax laws and rates of those countries in which operations are conducted and income is earned, primarily Ireland, Singapore and the United States. The decrease in our income tax provision of approximately $2.1 million for the three months ended March 31, 2017 as compared to the same period in 2016 was primarily attributable to changes in operating income subject to tax in Ireland, Singapore, the United States and other 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,
	2017		2016
	(Dollars in thousands)
Net income	$	42,439	$	36,262
Net change in fair value of derivatives, net of tax expense of $0 and $0, respectively	—		(1		)
Derivative loss reclassified into earnings	581		5,372
Total comprehensive income	$	43,020	$	41,633

Other comprehensive income increased by $1.4 million for the three months ended March 31, 2017 , as a result of a $6.2 million increase in net income, partially offset by a decrease of $4.8 million in amortization of deferred net losses reclassified into earnings related to terminated interest rate derivatives.

Aircraft Monitoring List

At March 31, 2017 , we considered six freighter aircraft and eight passenger aircraft with a total net book value of $614.9 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.

The majority of the aircraft on the Monitoring List by net book value are freighters. Three of the freighters are Boeing 747-400 models that were converted from passenger to cargo configuration and are in excess of 22 years old. It is assumed they will be sold for scrap as their leases expire over the next two years.

The other three freighter aircraft on the Monitoring List are Boeing 747-400 “production” freighter models that are approximately ten years old. Our useful life assumptions for these aircraft were reduced during our Fleet Review in 2014. We expect rental levels will drop from current levels over the next two years once the current leases expire or rentals are reset.

The eight passenger aircraft on the Monitoring List consist of three 22 year old Boeing 757 aircraft, which we anticipate selling as they come off lease; the other five aircraft are older Airbus A330s that are either on lease or subject to a lease commitment. Future rental assumptions for these Airbus A330 aircraft were reduced as part of the Fleet Review completed during the second quarter of 2016.



Aircraft Type	Number of Aircraft	Percent of Net Book Value
Passenger aircraft	8	4.0%
Freighter aircraft	6	5.3%

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

See Note 1 - “Summary of Significant Accounting Policies – Organization and Basis of Presentation” in the Notes to Unaudited Consolidated Financial Statements above.

RECENTLY UNADOPTED ACCOUNTING PRONOUNCEMENTS

See Note 1 - “Summary of Significant Accounting Policies – Recent Accounting Pronouncements” in the Notes to Unaudited Consolidated Financial Statements above.

LIQUIDITY AND CAPITAL RESOURCES

Our business is very capital intensive, requiring significant investments in order to expand our fleet and to maintain and improve our existing portfolio. Our operations generate a significant amount of cash, primarily from lease rentals and maintenance collections. We have also met our liquidity and capital resource needs by utilizing several sources over time, including:


•	various forms of borrowing secured by our aircraft, including bank term facilities, limited recourse securitization financings, and ECA-backed financings for new aircraft acquisitions;


•	unsecured indebtedness, including our current unsecured revolving credit facilities, term loan and senior notes;


•	sales of common shares; and


•	asset sales.

Going forward, we expect to continue to seek liquidity from these sources and other sources, subject to pricing and conditions we consider satisfactory.

During the first three months of 2017, we met our liquidity and capital resource needs with $131.6 million of cash flow from operations, $500.0 million in gross proceeds from the issuance of our Senior Notes due 2024 and $16.8 million of cash from aircraft sales.

As of March 31, 2017 , the weighted-average maturity of our secured and unsecured debt financings was 3.8 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 facilities and other borrowings and proceeds from future aircraft sales will be sufficient to satisfy our liquidity and capital resource needs over the next twelve months. Our liquidity and capital resource needs include payments due under our aircraft purchase obligations, required principal and interest payments under our long-term debt facilities, expected capital expenditures, lessee maintenance payment reimbursements and lease incentive payments over the next twelve months.

Cash Flows



	Three Months Ended March 31,
	2017			2016
	(Dollars in thousands)
Net cash flow provided by operating activities	$	131,576		$	121,264
Net cash flow provided by (used in) investing activities	(157,252		)	198,099
Net cash flow provided by financing activities	439,471			97,664

Operating Activities:

Cash flow provided by operations was $131.6 million and $121.3 million for the three months ended March 31, 2017 and 2016 , respectively. The increase in cash flow provided by operations of approximately $10.3 million for the three months ended March 31, 2017 versus the same period in 2016 was primarily a result of:


•	a $12.9 million increase in cash from lease rentals, net of finance and sales-type leases;


•	a $2.0 million increase in cash received from maintenance revenue; and


•	a $0.7 million decrease in cash paid for taxes.

These inflows were partially offset by:

• a $3.0 million decrease in cash from working capital; and

• a $1.5 million increase in cash paid for maintenance.

Investing Activities:

Cash flow used in investing activities was $157.3 million for the three months ended March 31, 2017 as compared to cash flow provided by investing activities of $198.1 million for the three months ended March 31, 2016 . The net increase in cash flow used in investing activities of $355.4 million for the three months ended March 31, 2017 versus the same period in 2016 was primarily a result of:

• a $289.2 million decrease in proceeds from the sale of flight equipment;

• a $45.5 million increase in the acquisition and improvement of flight equipment; and

• a $33.8 million increase in net investments in finance and sales-type leases.

These outflows were offset by:


•	a $7.7 million decrease in unconsolidated equity method investments compared to the same period in 2016; and


•	a $5.2 million net decrease in aircraft purchase deposits received.

Financing Activities:

Cash flow provided by financing activities was $439.5 million and $97.7 million for the three months ended March 31, 2017 and 2016 , respectively. The increase in cash flow provided by financing activities of $341.8 million for the three months ended March 31, 2017 versus the same period in 2016 was a result of:


•	a $321.8 million decrease in Revolver and ECA Financing repayments;


•	a $30.7 million decrease in shares repurchased; and


•	a $1.4 million decrease in deferred financing costs.

These outflows were offset by:


•	a $10.5 million increase in maintenance and security deposits returned, net of deposits received; and


•	a $1.6 million increase in dividends paid.

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 debt, payments on interest rate derivatives, other aircraft acquisition agreements and rent payments pursuant to our office leases. Total contractual obligations increased to $7.20 billion at March 31, 2017 from $6.50 billion at December 31, 2016 due primarily to an increase in borrowings and interest payments as a result of the closing of our Senior Notes due 2024 in March 2017 and an increase in purchase obligations for aircraft to be acquired, partially offset by the amortization of our other financings.

The following table presents our actual contractual obligations and their payment due dates as of March 31, 2017 :



	Payments Due by Period as of March 31, 2017
Contractual Obligations	Total		1 year or less		2-3 years		4-5 years		More than 5 years
	(Dollars in thousands)
Principal payments:
Senior Notes due 2017 - 2024	$	3,700,000	$	500,000	$	900,000	$	1,300,000	$	1,000,000
Unsecured Term Loan	120,000		—		120,000		—		—
Revolving Credit Facilities	—		—		—		—		—
ECA Financings	294,759		42,951		90,535		95,196		66,077
Bank Financings	915,531		139,598		198,511		153,609		423,813
Total principal payments	5,030,290		682,549		1,309,046		1,548,805		1,489,890
Interest payments on debt obligations ⁽¹⁾	990,247		225,384		399,291		228,096		137,476
Office leases ⁽²⁾	17,928		1,033		2,927		3,230		10,738
Purchase obligations ⁽³⁾	1,164,088		251,020		669,800		243,268		—
Total	$	7,202,553	$	1,159,986	$	2,381,064	$	2,023,399	$	1,638,104


(1)	Future interest payments on variable rate, LIBOR-based debt obligations are estimated using the interest rate in effect at March 31, 2017 .


(2)	Represents contractual payment obligations for our office leases in Stamford, Connecticut; Dublin, Ireland and Singapore.


(3)	At March 31, 2017 , we had commitments to acquire 35 aircraft for $1.16 billion , including 25 new E-Jet E2 aircraft from Embraer S.A. These amounts include estimates for pre-delivery deposits, contractual price escalation and other adjustments. As of April 28, 2017, we have commitments to acquire 30 aircraft for $1.11 billion .

Capital Expenditures

From time to time, we make capital expenditures to maintain or improve our aircraft. These expenditures include the cost of major overhauls necessary to place an aircraft in service and modifications made at the request of lessees. For the three months ended March 31, 2017 and 2016 , we incurred a total of $10.8 million and $10.6 million, respectively, of capital expenditures (including lease incentives) related to the acquisition and improvement of aircraft.

As of March 31, 2017 , the weighted average age by net book value of our aircraft was approximately 8.2 years. In general, the costs of operating an aircraft, including maintenance expenditures, increase with the age of the aircraft. Our lease agreements call for the lessee to be primarily responsible for maintaining the aircraft. We may incur additional maintenance and modification costs in the future in the event we are required to remarket an aircraft or a lessee fails to meet its maintenance obligations under the lease agreement. These maintenance reserves are paid by the lessee to provide for future maintenance events. Provided a lessee performs scheduled maintenance of the aircraft, we are required to reimburse the lessee for scheduled maintenance payments. In certain cases, we are also required to make lessor contributions, in excess of amounts a lessee may have paid, towards the costs of maintenance events performed by or on behalf of the lessee.

Actual maintenance payments to us by lessees in the future may be less than projected as a result of a number of factors, including defaults by the lessees. Maintenance reserves may not cover the entire amount of actual maintenance expenses

incurred and, where these expenses are not otherwise covered by the lessees, there can be no assurance that our operational cash flow and maintenance reserves will be sufficient to fund maintenance requirements, particularly as our aircraft age. See Item 1A. “Risk Factors - Risks Related to Our Business - Risks related to our leases - If lessees are unable to fund their maintenance obligations on our aircraft, we may incur increased costs at the conclusion of the applicable lease” in our 2016 Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

We entered into two joint venture arrangements in order to help expand our base of new business opportunities. None of these joint ventures qualifies for consolidated accounting treatment. The assets and liabilities of these entities are not included in our Consolidated Balance Sheets and we record our net investment under the equity method of accounting. See Note 5 - “Unconsolidated Equity Method Investments” in the Notes to Unaudited Consolidated Financial Statements above.

We hold a 30% equity interest in our Lancaster joint venture and a 25% equity interest in our IBJ Air joint venture. At March 31, 2017 , the net book value of our two joint ventures’ thirteen aircraft was approximately $682 million.

Foreign Currency Risk and Foreign Operations

At March 31, 2017 , all of our leases are payable to us in U.S. dollars. However, we incur Euro and Singapore dollar-denominated expenses in connection with our subsidiaries in Ireland and Singapore. For the three months ended March 31, 2017 , expenses, such as payroll and office costs, denominated in currencies other than the U.S. dollar aggregated approximately $5.0 million in U.S. dollar equivalents and represented approximately 31% 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, 2017 and 2016 , we incurred insignificant net gains and losses on foreign currency transactions.

Hedging

For complete information on our derivative instruments, please refer to Note 16 - “Accumulated Other Comprehensive Loss” in the Notes to Unaudited Consolidated Financial Statements above.

Management’s Use of EBITDA and Adjusted EBITDA

We define EBITDA as income (loss) from continuing operations before income taxes, interest expense, and depreciation and amortization. We use EBITDA to assess our consolidated financial and operating performance, and we believe this non-U.S. GAAP measure is helpful in identifying trends in our performance.

This measure provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial goals, as well as achieving optimal financial performance. It provides an indicator for management to determine if adjustments to current spending decisions are needed.

EBITDA provides us with a measure of operating performance because it assists us in comparing our operating performance on a consistent basis as it removes the impact of our capital structure (primarily interest charges on our outstanding debt) and asset base (primarily depreciation and amortization) from our operating results. Accordingly, this metric measures our financial performance based on operational factors that management can impact in the short-term, namely the cost structure, or expenses, of the organization. EBITDA is one of the metrics used by senior management and the Board of Directors to review the consolidated financial performance of our business.

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, 2017 and 2016 :



	Three Months Ended March 31,
	2017		2016

Net income	$	42,439	$	36,262
Depreciation	79,174		76,647
Amortization of lease premiums, discounts and incentives	3,112		1,070
Interest, net	63,068		64,241
Income tax provision	1,846		3,939
EBITDA	189,639		182,159
Adjustments:
Impairment of flight equipment	500		—
Non-cash share-based payment expense	2,102		1,643
Loss on mark-to-market of interest rate derivative contracts	1,150		77
Adjusted EBITDA	$	193,391	$	183,879

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

Management believes that ANI, when viewed in conjunction with the Company’s results under U.S. GAAP and the below reconciliation, provides useful information about operating and period-over-period performance and 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, 2017 and 2016 :



	Three Months Ended March 31,
	2017		2016

Net income	$	42,439	$	36,262
Loan termination fee ⁽¹⁾	—		1,509
Loss on mark-to-market of interest rate derivative contracts ⁽²⁾	1,150		77
Write-off of deferred financing fees ⁽¹⁾	—		1,972
Non-cash share-based payment expense ⁽³⁾	2,102		1,643
Securitization No. 1 hedge loss amortization charges ⁽¹⁾	—		2,628
Adjusted net income	$	45,691	$	44,091

(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:	2017	2016
Common shares outstanding	78,176,705	78,543,457
Restricted common shares	503,802	572,356
Total weighted-average shares	78,680,507	79,115,813



	Three Months Ended March 31,
Percentage of weighted-average shares:	2017		2016
Common shares outstanding	99.36	%	99.28	%
Restricted common shares ⁽¹⁾	0.64	%	0.72	%
Total percentage of weighted-average shares	100.00	%	100.00	%



	Three Months Ended March 31,
	2017	2016
Weighted-average common shares outstanding – Basic	78,176,705	78,543,457
Effect of dilutive shares ⁽²⁾	194,848	—
Weighted average common shares outstanding – Diluted	78,371,553	78,543,457



	Three Months Ended March 31,
	2017			2016

Adjusted net income allocation:
Adjusted net income	$	45,691		$	44,091
Less: Distributed and undistributed earnings allocated to restricted common shares ⁽¹⁾	(293		)	(319		)
Adjusted net income allocable to common shares – Basic and Diluted	$	45,398		$	43,772

Adjusted net income per common share – Basic and Diluted	$	0.58		$	0.56


(1)	For the three months ended March 31, 2017 and 2016 , distributed and undistributed earnings to restricted shares are 0.64% and 0.72% , respectively, of net income. The amount of restricted share forfeitures for all periods present is immaterial to the allocation of distributed and undistributed earnings.


(2)	For the three months ended March 31, 2017 , dilutive shares represented contingently issuable shares related to the Company’s PSUs. For the three months ended March 31, 2016 , we had no dilutive shares.

Limitations of EBITDA, Adjusted EBITDA and ANI

An investor or potential investor may find EBITDA, Adjusted EBITDA and ANI important measures in evaluating our performance, results of operations and financial position. We use these non-U.S. GAAP measures to supplement our U.S. GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.

EBITDA, Adjusted EBITDA and ANI have limitations as analytical tools and should not be viewed in isolation or as substitutes for U.S. GAAP measures of earnings (loss). Material limitations in making the adjustments to our earnings (loss) to calculate EBITDA, Adjusted EBITDA and ANI, and using these non-U.S. GAAP measures as compared to U.S. GAAP net income (loss), income (loss) from continuing operations and cash flows provided by or used in operations, include:


•	depreciation and amortization, though not directly affecting our current cash position, represent the wear and tear and/or reduction in value of our aircraft, which affects the aircraft’s availability for use and may be indicative of future needs for capital expenditures;


•	the cash portion of income tax (benefit) provision generally represents charges (gains), which may significantly affect our financial results;


•	elements of our interest rate derivative accounting may be used to evaluate the effectiveness of our hedging policy;


•	hedge loss amortization charges related to Term Financing No. 1 and Securitization No. 1; and


•	adjustments required in calculating covenant ratios and compliance as that term is defined in the indenture governing our senior unsecured notes.

EBITDA, Adjusted EBITDA and ANI are not alternatives to net income (loss), income (loss) from operations or cash flows provided by or used in operations as calculated and presented in accordance with U.S. GAAP. You should not rely on these non-U.S. GAAP measures as a substitute for any such U.S. GAAP financial measure. We strongly urge you to review the reconciliations to U.S. GAAP net income (loss), along with our consolidated financial statements included

elsewhere in this report. We also strongly urge you to not rely on any single financial measure to evaluate our business. In addition, because EBITDA, Adjusted EBITDA and ANI are not measures of financial performance under U.S. GAAP and are susceptible to varying calculations, EBITDA, Adjusted EBITDA and ANI as presented in this 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 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, 2017 by $3.5 million and $3.5 million , respectively, over the next twelve months. As of March 31, 2017 , a hypothetical 100-basis point increase/decrease in our variable interest rate on our borrowings would result in an interest expense increase/decrease of $5.9 million and $6.5 million , respectively, net of amounts received from our interest rate derivatives, over the next twelve months. In September 2016, we purchased an interest rate cap for $2.3 million to hedge approximately 70% of our floating rate interest exposure. The interest rate cap is set at 2% and has a current notional balance of $420.0 million and reduces over time to $215.0 million. The cap matures in September 2021.


ITEM 4.	CONTROLS AND PROCEDURES

Management’s Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures” is defined in Exchange Act Rules 13a-15(e) and 15d-15(e). 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, 2017 . Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2017 .

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f), that occurred during the quarter ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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, 2016 .


ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

In February 2016, our Board of Directors authorized the repurchase of $100.0 million of the Company’s common shares. During the first quarter of 2017 , 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 ⁽¹⁾	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs ⁽¹⁾
	(Dollars in thousands, except per share amounts)
January 1 through January 31	120,378	$	20.85	—	$	95,888
February 1 through February 28	—	—		—	95,888
March1 through March 31	—	—		—	95,888
Total	120,378	$	20.85	—	$	95,888


(1)	Under our current repurchase program, we have repurchased an aggregate of 217,574 common shares at an aggregate cost of $4.1 million, including commissions.


ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5.	OTHER INFORMATION

None.


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 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		Amended and Restated Shareholder Agreement, dated as of February 18, 2015, by and between Aircastle Limited and Marubeni Corporation (incorporated by reference to Exhibit 4.8 to the Company’s Quarterly Report on Form 10-Q filed on May 6, 2015).

4.5		Amendment No. 1 to the Amended and Restated Shareholder Agreement, dated as of September 23, 2016, by and among Aircastle Limited, Marubeni Corporation, and Marubeni Aviation Holding Coöperatief U.A. (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 26, 2016).

4.6		Indenture, dated as of December 5, 2013, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee Citigroup Global Markets, Inc., Goldman, Sachs & Co., J.P. Morgan Securities LLC and RBC Capital Markets, LLC (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 6, 2013).

4.7		First Supplemental Indenture, dated as of December 5, 2013, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on December 6, 2013).

4.8		Second Supplemental Indenture, dated as of March 26, 2014, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 26, 2014).

4.9		Third Supplemental Indenture, dated as of January 15, 2015, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 15, 2015).

4.10		Fourth Supplemental Indenture, dated as of March 24, 2016, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 24, 2016).

4.11		Fifth Supplemental Indenture, dated as of March 20, 2017, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 20, 2017).

10.1		Letter Agreement, dated as of October 4, 2016, by and between Aircastle Advisor LLC and Aaron Dahlke (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 7, 2016).

10.2		Form of Restricted Share Unit Agreement under the Aircastle Limited 2014 Omnibus Incentive Plan. *

31.1		Certification by the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002. *

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

99.1		Owned Aircraft Portfolio at March 31, 2017. *

101		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016; (ii) Consolidated Statements of Income for the three months ended March 31, 2017 and 2016; (iii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2017 and 2016; (iv) Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016; and (v) Notes to Unaudited Consolidated Financial Statements. *

*Filed herewith.

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 4, 2017



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

Exhibit 10.2

FORM OF

RESTRICTED SHARE UNIT AGREEMENT

UNDER THE AIRCASTLE LIMITED

2014 OMNIBUS INCENTIVE PLAN

This Award Agreement (this “ Restricted Share Unit Agreement ”), dated as of [__________] (the “ Date of Grant ”), is made by and between Aircastle Limited, a Bermuda exempted company (the “ Company ”) and [___________] (the “ Participant ”). Capitalized terms not defined herein shall have the meaning ascribed to them in the Aircastle Limited 2014 Omnibus Incentive Plan (as amended from time to time, the “ Plan ”). Where the context permits, references to the Company shall include any successor to the Company.

1. - Grant .

(a) Restricted Share Units . The Company hereby grants to the Participant the number of units set forth on Schedule 1 hereto in the column labeled “Restricted Share Unit Grant” (such units, the “ Restricted Share Units ”). Each Restricted Share Unit represents the right to receive one Share, subject to all of the terms and conditions of this Restricted Share Unit Agreement and the Plan.

(b) Other Share-Based Awards . The Company hereby grants to the Participant dividend equivalent rights on a notional number of Shares equal to the number of Restricted Share Units set forth on Schedule 1 hereto in the column labeled “Restricted Share Unit Grant” (such rights, the “ DERs ” and such number of Shares being the “ number of DERs ”), subject to all of the terms and Conditions of this Restricted Share Unit Agreement and the Plan.

2. Restricted Share Unit Vesting and Issuance of Shares; Restrictions .

(a) Vesting of Restricted Share Units and Issuance of Shares . The Restricted Share Units shall vest in installments on each vesting date set forth on Schedule 1 hereto (each, a “ Vesting Date ”), subject in each case (except as otherwise provided on Schedule 1 hereto) to the continued employment of the Participant by the Company or one of its Subsidiaries or Affiliates, and provided that the Participant has not given or received notice of resignation or termination, as of each applicable Vesting Date. Shares relating to vested Restricted Share Units shall be issued to the Participant on or as soon as practicable following the applicable Vesting Date (subject to any requirement to execute a release of claims), but in no event later than December 31 of the year in which such Vesting Date occurs.

(b) Restrictions .

(i) Restricted Share Units . Until Shares are issued to the Participant in respect of the Restricted Share Units as provided in Section 2(a) hereof, no Transfer (as defined in Section 7 hereof) of the Restricted Share Units or any of the Participant’s rights with respect to the Restricted Share Units, whether voluntary or involuntary, by operation of law or otherwise, shall be permitted. Unless the Administrator determines otherwise, any attempt to Transfer the Restricted Share Units or any rights in respect of the Restricted Share Units shall result in such Restricted Share Units and all of the rights related thereto being immediately forfeited by the Participant without any consideration of any kind being paid to the Participant in respect thereof, and neither the Participant nor any of the Participant’s successors, heirs, assigns, or personal representatives shall thereafter have any further rights or interests in such Restricted Share Units or any of the rights related thereto.

(ii) DERs . No Transfer of the DERs or any of the Participant’s rights with respect to the DERs, whether voluntary or involuntary, by operation of law or otherwise, shall be permitted. Unless the Administrator determines otherwise, any attempt to Transfer the DERs or any rights in respect of the DERs shall result in such DERs and all of the rights related thereto being immediately forfeited by the Participant without any consideration of any kind being paid to the Participant in respect thereof, and neither the Participant nor any of the Participant’s successors, heirs, assigns, or personal representatives shall thereafter have any further rights or interests in such DERs or any of the rights related thereto.

3. DER Vesting and Payment Terms .

(a) Vesting . All of the Participant’s rights to the DERs are fully vested on the Date of Grant and the Participant shall be entitled to receive a cash payment equal to any ordinary dividends paid to holders of Shares on the date that such dividend is paid to the holders of Shares.

(b) Forfeiture . Upon the issuance to the Participant of Shares in respect of any Restricted Share Units as provided in Section 2(a) hereof, the Participant shall forfeit to the Company the DERs with respect to an equivalent number of Shares, without any consideration of any kind being paid to the Participant in respect thereof, and neither the Participant nor any of the Participant’s successors, heirs, assigns, or personal representatives shall thereafter have any further rights or interests in such DERs or the notional Shares on which they were granted. For DERs in respect of any Shares, the period from the Date of Grant to the date of forfeiture pursuant to the preceding sentence is referred to herein as the “ DER Vested Period .”

(c) Payment . If, during the DER Vested Period for any DERs, the record date for any dividends payable in respect of the Shares occurs, then promptly following the payment of such dividends to holders of such Shares, the Company shall pay a bonus to the Participant in an amount equal to (x) the per-share dividend so paid to such holders, multiplied by (y) the number of DERs held by the Participant on such record date.

4. - Adjustments . Pursuant to Section 5 of the Plan, in the event of a Change in Capitalization, the Administrator shall make such equitable changes or adjustments as it deems neces-sary or appropriate to the number and kind of securities or other property (including cash) issued or issuable in respect of out-standing Restricted Share Units and DERs.

5. Notices . All notices and other communications under this Restricted Share Unit Agreement shall be in writing and shall be given by facsimile or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given three days after mailing or 24 hours after transmission by facsimile to the respective parties, as follows: (i) if to the Company, c/o Aircastle Advisor LLC, 300 First Stamford Place, 5 ^th Floor, Stamford CT 06902, Attn: General Counsel and (ii) if to the Participant, using the contact information on file with the Company. Either party hereto may change such party’s address for notices by notice duly given pursuant hereto.

6. - No Obligation to Register . The Company shall be under no obligation to register the Shares relating to the Restricted Share Units pursuant to the Securities Act or any other federal or state securities laws.

7. -- Protections Against Violations of Agreement . No purported sale, assignment, mortgage, hypothecation, transfer, charge, pledge, encumbrance, gift, transfer in trust (voting or other) or other disposition of, or creation of a security interest in or lien on, any of the Restricted Share Units or

DERs or any agreement or commitment to do any of the foregoing (each, a “ Transfer ”) by any holder thereof in violation of the provisions of this Restricted Share Unit Agreement will be valid, and the Company will not transfer any of said Restricted Share Units on its books, except with the prior written consent of the Board of Directors of the Company (such consent shall be granted or withheld in the sole discretion of the Board of Directors).

8. Taxes .

(a) The Participant understands that he or she (and not the Company) shall be responsible for any tax liability that may arise as a result of the transactions contem-plated by this Restricted Share Unit Agreement. The Participant shall pay to the Company promptly upon request, and in any event at the time the Participant recognizes taxable income in respect of the grants hereunder, or the Company or an affiliate may at its option deduct from the Participant’s next normal payroll, an amount equal to all applicable taxes the Company determines it is required (or permitted) to withhold at the lowest applicable rate determined by the Company under applicable tax laws with respect to the grants hereunder. The Participant may satisfy the foregoing requirement by making a payment to the Company in cash or, in his or her sole discretion, by either (i) electing to have the Company withhold from the issuance of Shares relating to the Restricted Share Units or (ii) by delivering to the Company Shares that the Participant already owns, in each case having a value equal to the amount of tax required (or permitted) to be withheld. Such Shares shall be valued at their Fair Market Value on the date as of which the amount of tax to be withheld is determined. Any fractional amounts shall be settled in cash.

(b) The Participant acknowledges that the tax laws and regulations applicable to the Restricted Share Units and DERs and the disposition of the Shares the Participant may receive following vesting of the Restricted Share Units are complex and subject to change, and it is the sole responsibility of the Participant to obtain his or her own advice as to the tax treatment of the terms of this Restricted Share Unit Agreement.

BY SIGNING THIS RESTRICTED SHARE UNIT AGREEMENT, THE PARTICIPANT REPRESENTS THAT HE OR SHE HAS REVIEWED WITH HIS OR HER OWN TAX ADVISORS THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE TRANSACTIONS CONTEMPLATED BY THIS RESTRICTED SHARE UNIT AGREEMENT AND THAT HE OR SHE IS RELYING SOLELY ON SUCH ADVISORS AND NOT ON ANY STATEMENTS OR REPRESENTATIONS OF THE COMPANY OR ANY OF ITS AGENTS. THE PARTICIPANT UNDERSTANDS AND AGREES THAT HE OR SHE (AND NOT THE COMPANY) SHALL BE RESPONSIBLE FOR ANY TAX LIABILITY THAT MAY ARISE AS A RESULT OF THE TRANSACTIONS CONTEMPLATED BY THIS RESTRICTED SHARE UNIT AGREEMENT.

9. Section 409A Compliance . The intent of the parties is that the payments and benefits under this Restricted Share Unit Agreement comply with Section 409A of the Code to the extent subject thereto, and, accordingly, to the maximum extent permitted, this Restricted Share Unit Agreement shall be interpreted and administered to be in compliance therewith. Notwithstanding anything contained herein to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, the Participant shall not be considered to have terminated employment with the Company and its Affiliates for purposes of this Restricted Share Unit Agreement until the Participant would be considered to have incurred a “separation from service” within the meaning of Section 409A of the Code. Any payments described in this Restricted Share Unit Agreement that are due within the “short-term deferral period” as defined in Section 409A of the Code shall not be treated as

deferred compensation unless applicable law requires otherwise. Notwithstanding anything to the contrary in this Restricted Share Unit Agreement, to the extent that any payment (including Share delivery) is to be made upon a separation from service and such payment would result in the imposition of any individual penalty tax and late interest charges imposed under Section 409A of the Code, such payment shall instead be made on the first business day after the date that is six (6) months following such separation from service (or upon the Participant’s death, if earlier). The Company makes no representation that any or all of the payments and benefits under this Restricted Share Unit Agreement comply with Section 409A of the Code and makes no undertaking to preclude Section 409A of the Code from applying to any such payments or benefits. The Participant shall be solely responsible for the payment of any taxes and penalties incurred under Section 409A of the Code.

10. - Failure to Enforce Not a Waiver . The failure of the Company to enforce at any time any provision of this Restricted Share Unit Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof.

11. Confidentiality .

(a) The Participant acknowledges that during the period of his service with the Company he shall have access to the Company’s Confidential Information (as defined below). All books of account, records, systems, correspondence, documents, and any and all other data, in whatever form, concerning or containing any reference to the works and business of the Company or its affiliated companies shall belong to the Company and shall be given up to the Company whenever the Company requires the Participant to do so. The Participant agrees that the Participant shall not at any time during the term of the Participant’s service or thereafter, without the Company’s prior written consent, disclose to any person (individual or entity) any information or any trade secrets, plans or other information or data, in whatever form, (including, without limitation, (a) any financing strategies and practices, pricing information and methods, training and operational procedures, advertising, marketing, and sales information or methodologies or financial information and (b) any Proprietary Information (as defined below)), concerning the Company’s or any of its affiliated companies’ or customers’ practices, businesses, procedures, systems, plans or policies (collectively, “ Confidential Information ”), nor shall the Participant utilize any such Confidential Information in any way or communicate with or contact any such customer other than in connection with the Participant’s service by the Company. The Participant hereby confirms that all Confidential Information constitutes the Company’s exclusive property, and that all of the restrictions on the Participant’s activities contained in this Restricted Share Unit Agreement and such other nondisclosure policies of the Company are required for the Company’s reasonable protection. Confidential Information shall not include any information that has otherwise been disclosed to the public not in violation of this Restricted Share Unit Agreement. This confidentiality provision shall survive the termination of this Restricted Share Unit Agreement and shall not be limited by any other confidentiality agreements entered into with the Company or any of its Affiliates.

(b) With respect to any Confidential Information that constitutes a “trade secret” pursuant to applicable law, the restrictions described above shall remain in force for so long as the particular information remains a trade secret or for the two year period immediately following termination of the Participant’s service for any reason, whichever is longer. With respect to any Confidential Information that does not constitute a “trade secret” pursuant to applicable law, the restrictions described above shall remain in force during the Participant’s service and for the two year period immediately following termination of Participant’s service for any reason.

(c) The Participant agrees that the Participant shall promptly disclose to the Company in writing all information and inventions generated, conceived or first reduced to practice by

him alone or in conjunction with others, during or after working hours, while in the employ of the Company (all of which is collectively referred to in this Restricted Share Unit Agreement as “ Proprietary Information ”); provided, however, that such Proprietary Information shall not include (a) any information that has otherwise been disclosed to the public not in violation of this Restricted Share Unit Agreement and (b) general business knowledge and work skills of the Participant, even if developed or improved by the Participant while in the employ of the Company. All such Proprietary Information shall be the exclusive property of the Company and is hereby assigned by the Participant to the Company. The Participant’s obligation relative to the disclosure to the Company of such Proprietary Information anticipated in this Section shall continue beyond the Participant’s termination of service and the Participant shall, at the Company’s expense, give the Company all assistance it reasonably requires to perfect, protect and use its right to the Proprietary Information.

(d) Pursuant to Section 7 of the Defend Trade Secrets Act of 2016 (which added 18 U.S.C. § 1833(b)), the Participant acknowledges that her or she shall not have criminal or civil liability under any federal or state trade secret law for the disclosure of a trade secret that (A) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Nothing in this Agreement, or any other Agreement that the Participant has with the Company or any of its Affiliates, is intended to conflict with 18 U.S.C. § 1833(b) or create liability for disclosures of trade secrets that are expressly allowed by such Section. Notwithstanding anything in this RSU Award Agreement, or any other Agreement that the Participant has with the Company or any of its Affiliates, to the contrary, the provisions of this RSU Award Agreement do not prohibit the Participant from voluntarily reporting violations of federal or state law or regulation to any governmental agency or from making other disclosures that are protected under the whistleblower provisions of federal or state law or regulation, nor do the confidentiality obligations require the Participant to notify the Company regarding any such reporting, disclosure or cooperation with the government.

-12. Governing Law . This Restricted Share Unit Agreement shall be governed by and construed according to the laws of Bermuda.

13. - Incorporation of Plan . The Plan is hereby incorporated by reference and made a part hereof, and the Restricted Share Units, the DERs, and this Restricted Share Unit Agreement shall be subject to all terms and conditions of the Plan and this Restricted Share Unit Agreement.

14. - Amendments; Construction . The Administrator may amend the terms of this Restricted Share Unit Agreement prospectively or retroactively at any time, but no such amendment shall impair the rights of the Participant hereunder without his or her consent. To the extent the terms of Section 11 above conflict with any prior agreement between the parties related to such subject matter, the terms of Section 11 shall supersede such conflicting terms and control. Headings to Sections of this Restricted Share Unit Agreement are intended for convenience of reference only, are not part of this Restricted Share Unit Agreement and shall have no effect on the interpretation hereof.

15. -Survival of Terms . This Restricted Share Unit Agreement shall apply to and bind the Participant and the Company and their respective permitted assignees and transferees, heirs, legatees, executors, administrators and legal successors.

16. - Rights as a Shareholder . Until Shares have been issued to the Participant in accordance with Section 2(a), the Participant shall not have any of the rights of a shareholder with respect to Restricted Share Units. Accordingly, the Participant shall not have the right to vote the Restricted

Share Units. The grant of DERs with respect to a notional number of Shares shall not confer on the Participant any rights whatsoever as a shareholder of any such Shares.

17. - Agreement Not a Contract for Services . Neither the Plan, the granting of the Restricted Share Units or the DERs, this Restricted Share Unit Agreement nor any other action taken pursuant to the Plan shall constitute or be evidence of any agree-ment or understanding, express or implied, that the Participant has a right to continue to provide services as an officer, director, employee, consultant or advisor of the Company or any Subsidiary or Affiliate for any period of time or at any specific rate of compensation.

18. - Authority of the Administrator; Disputes . The Administrator shall have full authority to interpret and construe the terms of the Plan and this Restricted Share Unit Agreement. The determination of the Administrator as to any such matter of interpretation or construction shall be final, binding and conclusive.

19. Severability . Should any provision of this Restricted Share Unit Agreement be held by a court of competent jurisdiction to be unenforceable, or enforceable only if modified, such holding shall not affect the validity of the remainder of this Restricted Share Unit Agreement, the balance of which shall continue to be binding upon the parties hereto with any such modification (if any) to become a part hereof and treated as though contained in this original Restricted Share Unit Agreement.

20. Acceptance . The Participant hereby acknowledges receipt of a copy of the Plan and this Restricted Share Unit Agreement. The Participant has read and understands the terms and provisions of the Plan and this Restricted Share Unit Agreement, and accepts the Restricted Share Units and DERs subject to all the terms and conditions of the Plan and this Restricted Share Unit Agreement. The Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under this Restricted Share Unit Agreement.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Restricted Share Unit Agreement on the day and year first above written.

AIRCASTLE LIMITED

Name

Title

[NAME OF PARTICIPANT]

___________________________________

Schedule 1

Vesting Schedule :



Aircastle Limited
Restricted Share Unit Grant Summary


	Restricted	Vesting Dates
Name	Share Unit Grant	2018	2019	2020
	[________]	[________]	[________]	[________]

Except as otherwise provided in this Schedule 1 , upon termination of the Participant’s employment with the Company and its Subsidiaries and Affiliates for any reason, any Restricted Share Units which have not already vested shall immediately expire without consideration of any kind and neither the Participant nor any of the Participant’s successors, heirs, assigns, or personal representatives shall thereafter have any further rights or interests in such Restricted Share Units, and any notice period following the date on which the Participant gave or received notice of termination of employment shall be disregarded for purposes of the vesting of the Restricted Share Units.

Notwithstanding the foregoing:

(w) upon termination of the Participant’s employment with the Company and its Subsidiaries and Affiliates for any reason (other than by the Company for Cause (as defined in the Participant’s employment agreement)) on or following _________2018, any unvested Restricted Share Units will continue to vest in installments on the Vesting Dates set forth above and Shares will be issued to the Participant, in each case as set forth in Section 2(a) hereof, subject to the Participant’s execution (and non-revocation) of a separation agreement prepared by the Company (or any Subsidiary or Affiliate)

within sixty (60) days following the date of such termination of employment, which includes, inter alia , a general release of claims;

(x) in the event that the Participant’s employment with the Company or a Subsidiary or Affiliate is terminated prior to _________ 2018, by the Company without Cause (as defined in the Participant’s employment agreement) or by the Participant with Good Reason (as defined in the Participant’s employment agreement), then any unvested Restricted Share Units will continue to vest in installments on the Vesting Dates set forth above and Shares will be issued to the Participant, in each case as set forth in Section 2(a) hereof, subject to the Participant’s execution (and non-revocation) of a separation agreement prepared by the Company (or any Subsidiary or Affiliate) within sixty (60) days following the date of such termination of employment, which includes, inter alia , a general release of claims;

(y) in the event that the Participant's employment is terminated (A) by the Company without Cause (as defined in the Participant’s employment agreements), (B) as a result of the Company’s non-renewal of the Participant’s term of employment or (C) by the Participant for Good Reason (as defined in the Participant’s employment agreement), in each case within 12 months following a Change of Control, then 100% of the Restricted Share Units that are not vested as of the date of such termination shall immediately vest and Shares shall be issued to the Participant on the date of such termination; and

(z) in the event that the Participant’s employment with the Company or a Subsidiary or Affiliate is terminated as a result of the death or Disability of the Participant, then 100% of the Restricted Share Units that are not vested as of the date of such termination shall immediately vest and Shares shall be issued to the Participant or his/her heirs, assigns or personal representatives, as the case may be, within 60 days following the date of such termination.

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND 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.	I am 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 my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me 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 my 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 my 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.	I have disclosed, based on my 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 4, 2017

/s/ Michael Inglese

Michael Inglese

Chief Financial Officer and Acting Chief Executive Officer

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Aircastle Limited (the “Company”) for the three months ended March 31, 2017 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Inglese, as Chief Financial Officer and Acting Chief Executive Officer, 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 and Acting Chief Executive Officer
Date:	May 4, 2017

Exhibit 99.1

Owned Aircraft Portfolio at March 31, 2017 is as follows:



Aircraft Group	Aircraft Type	Engine Type	Manufacturer Serial Number	Date of Manufacture	Financing
Narrow-body Aircraft	A319-100	CFM56-5B6/P	1136	Dec-99	Unencumbered
	A319-100	CFM56-5B6/P	1155	Jan-00	Unencumbered
	A319-100	CFM56-5B6/P	1673	Feb-02	Unencumbered
	A319-100	CFM56-5B6/P	1742	May-02	Unencumbered
	A319-100	V2524-A5	2098	Feb-04	Unencumbered
	A319-100	CFM56-5B5/P	2311	Feb-05	Unencumbered
	A319-100	CFM56-5B5/P	2495	May-05	Unencumbered
	A319-100	CFM56-5B5/P	2565	Sep-05	Unencumbered
	A319-100	CFM56-5B5/P	2578	Sep-05	Unencumbered
	A319-100	CFM56-5B5/P	2605	Nov-05	Unencumbered
	A319-100	CFM56-5B5/P	2636	Dec-05	Unencumbered
	A319-100	CFM56-5B5/P	2646	Jan-06	Unencumbered
	A319-100	CFM56-5B5/P	2677	Jan-06	Unencumbered
	A319-100	CFM56-5B5/P	2691	Feb-06	Unencumbered
	A319-100	CFM56-5B5/P	2715	Mar-06	Unencumbered
	A319-100	CFM56-5B5/P	2742	Apr-06	Unencumbered
	A319-100	V2524-A5	3421	Mar-08	Unencumbered
	A320-200	CFM56-5B4/P	967	Apr-99	Unencumbered
	A320-200	V2527-A5	990	May-99	Unencumbered
	A320-200	CFM56-5B4/P	1041	Jul-99	Unencumbered
	A320-200	CFM56-5B4/3	1054	Aug-99	Unencumbered
	A320-200	V2527-A5	1177	Feb-00	Unencumbered
	A320-200	CFM56-5B4/P	1370	Jan-01	Unencumbered
	A320-200	CFM56-5B4/P	1757	May-02	Unencumbered
	A320-200	CFM56-5B4/P	1780	May-02	Unencumbered
	A320-200	CFM56-5B4/P	1793	Mar-04	Unencumbered
	A320-200	CFM56-5B4/P	1809	Mar-04	Unencumbered
	A320-200	CFM56-5B4/P	2048	Jul-03	Unencumbered
	A320-200	CFM56-5B4/P	2104	Apr-05	Unencumbered
	A320-200	CFM56-5B4/P	2248	Apr-05	Unencumbered
	A320-200	V2527-A5	2254	Sep-04	Unencumbered
	A320-200	V2527-A5	2310	Nov-04	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	Unencumbered
	A320-200	V2527-A5	2564	Oct-05	Unencumbered
	A320-200	CFM56-5B4/P	2792	Jun-06	Unencumbered
	A320-200	CFM56-5B4/P	2822	Jul-06	Unencumbered
	A320-200	CFM56-5B6/P	2956	Nov-06	Unencumbered
	A320-200	V2527-A5	2982	Dec-06	Unencumbered
	A320-200	CFM56-5B6/P	3080	Apr-07	Unencumbered
	A320-200	CFM56-5B4/P	3093	Apr-07	Bank Financing
	A320-200	CFM56-5B4/P	3121	May-07	Bank Financing
	A320-200	CFM56-5B4/P	3157	Jun-07	Unencumbered
	A320-200	CFM56-5B6/P	3178	Jul-07	Unencumbered



Aircraft Group	Aircraft Type	Engine Type	Manufacturer Serial Number	Date of Manufacture	Financing
Narrow-body Aircraft (Continued)	A320-200	CFM56-5B6/3	3213	Sep-07	Unencumbered
	A320-200	CFM56-5B6/3	3277	Oct-07	Unencumbered
	A320-200	CFM56-5B6/3	3295	Nov-07	Unencumbered
	A320-200	CFM56-5B6/3	3338	Dec-07	Bank Financing
	A320-200	CFM56-5B4/3	3383	Jan-08	Unencumbered
	A320-200	CFM56-5B6/3	3464	Apr-08	Unencumbered
	A320-200	CFM56-5B6/3	3482	Apr-08	Unencumbered
	A320-200	CFM56-5B6/3	3502	Jun-08	Bank Financing
	A320-200	CFM56-5B6/3	3515	Jun-08	Bank Financing
	A320-200	V2527-A5	3524	Jun-08	Unencumbered
	A320-200	CFM56-5B6/3	3532	Jun-08	Bank Financing
	A320-200	V2527-A5	3543	Jul-08	Unencumbered
	A320-200	V2527-A5	4008	Aug-09	Unencumbered
	A320-200	CFM56-5B6/3	4070	Oct-09	Bank Financing
	A320-200	V2527-A5	4077	Nov-09	Bank Financing
	A320-200	CFM56-5B6/3	4088	Nov-09	Bank Financing
	A320-200	V2527-A5	4113	Nov-09	Unencumbered
	A320-200	V2527-A5	4156	Dec-09	Unencumbered
	A320-200	V2527-A5	4216	Feb-10	Unencumbered
	A320-200	V2527-A5	4312	May-10	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
	A320-200	CFM56-5B4/3	6561	Apr-15	Unencumbered
	A320-200	CFM56-5B4/3	6598	May-15	Unencumbered
	A320-200	CFM56-5B4/3	6634	Jun-15	Unencumbered
	A320-200	CFM56-5B4/3	6800	Oct-15	Bank Financing
	A320-200	CFM56-5B4/3	6806	Nov-15	Bank Financing
	A320-200	CFM56-5B4/3	6813	Nov-15	Bank Financing
	A320-200	CFM56-5B4/3	7050	Apr-16	Bank Financing
	A320-200	CFM56-5B4/3	7223	Jul-16	Bank Financing
	A321-200	CFM56-5B3/2P	1012	Apr-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	2488	Jun-05	Unencumbered
	A321-200	CFM56-5B3/P	2563	Oct-05	Bank Financing
	A321-200	V2533-A5	3458	Apr-08	Unencumbered
	A321-200	V2533-A5	7206	Jul-16	Unencumbered
	A321-200	V2533-A5	7375	Oct-16	Unencumbered
	737-700	CFM56-7B22	28008	Feb-99	Unencumbered
	737-700	CFM56-7B22	28009	Mar-99	Unencumbered
	737-700	CFM56-7B22	28010	Oct-99	Unencumbered
	737-700	CFM56-7B22	28013	Oct-00	Unencumbered
	737-700	CFM56-7B22	28015	Feb-01	Unencumbered
	737-700	CFM56-7B22	29356	Oct-04	Unencumbered
	737-700	CFM56-7B26	30687	Apr-07	Unencumbered



Aircraft Group	Aircraft Type	Engine Type	Manufacturer Serial Number	Date of Manufacture	Financing
Narrow-body Aircraft (Continued)	737-700	CFM56-7B26	30710	Feb-07	Bank Financing
	737-700	CFM56-7B24	32881	Jun-02	Unencumbered
	737-700	CFM56-7B24	33103	Jun-02	Unencumbered
	737-800	CFM56-7B27	28231	May-00	Unencumbered
	737-800	CFM56-7B26	28381	May-99	Unencumbered
	737-800	CFM56-7B26	28384	Nov-99	Unencumbered
	737-800	CFM56-7B26	28626	Jul-00	Unencumbered
	737-800	CFM56-7B26	29037	Jan-99	Unencumbered
	737-800	CFM56-7B27	29345	May-02	Unencumbered
	737-800	CFM56-7B26	29368	Mar-06	Unencumbered
	737-800	CFM56-7B26	29918	Jun-99	Unencumbered
	737-800	CFM56-7B26	29920	Sep-99	Unencumbered
	737-800	CFM56-7B27	29927	Dec-00	Unencumbered
	737-800	CFM56-7B24	29930	Jan-01	Unencumbered
	737-800	CFM56-7B27	30296	Feb-05	Unencumbered
	737-800	CFM56-7B24	30410	Oct-02	Unencumbered
	737-800	CFM56-7B27	30673	May-04	Unencumbered
	737-800	CFM56-7B26	30695	Mar-06	Unencumbered
	737-800	CFM56-7B27	30824	Mar-05	Bank Financing
	737-800	CFM56-7B27	30877	Mar-01	Unencumbered
	737-800	CFM56-7B27	32796	Feb-03	Unencumbered
	737-800	CFM56-7B26	33104	Jun-03	Unencumbered
	737-800	CFM56-7B26	33453	Jul-05	Bank Financing
	737-800	CFM56-7B24	33597	Sep-06	Unencumbered
	737-800	CFM56-7B26	34000	Aug-05	Bank Financing
	737-800	CFM56-7B26	34242	Mar-05	Unencumbered
	737-800	CFM56-7B26	34690	Feb-07	Unencumbered
	737-800	CFM56-7B26	34799	Sep-06	Unencumbered
	737-800	CFM56-7B26	34800	Oct-06	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	CFM56-7B26/3	35099	Nov-07	Unencumbered
	737-800	CFM56-7B27	35103	Nov-06	Bank Financing
	737-800	CFM56-7B26/3	35106	Mar-08	Unencumbered
	737-800	CFM56-7B27	35134	Jan-07	Unencumbered
	737-800	CFM56-7B26E	36826	Sep-11	Bank Financing
	737-800	CFM56-7B26E	36829	Oct-11	Bank Financing
	737-800	CFM56-7B24E	38686	Jan-13	Unencumbered
	737-800	CFM56-7B24E	39859	Jul-15	Unencumbered
	737-800	CFM56-7B24E	39864	Sep-15	Bank Financing
	737-800	CFM56-7B26/3	40713	Dec-10	Unencumbered
	737-800	CFM56-7B26E	40744	May-16	Unencumbered
	737-800	CFM56-7B26E	40745	Aug-16	Unencumbered
	737-800	CFM56-7B26E	40998	Nov-11	Unencumbered
	737-800	CFM56-7B24E	41179	Feb-16	Unencumbered



Aircraft Group	Aircraft Type	Engine Type	Manufacturer Serial Number	Date of Manufacture	Financing
Narrow-body Aircraft (Continued)	737-800	CFM56-7B24E	41398	May-14	Unencumbered
	737-900	CFM56-7B26	30412	May-03	Unencumbered
	737-900ER	CFM56-7B26/3	35679	Apr-07	Unencumbered
	737-900ER	CFM56-7B26/3	35680	May-07	Unencumbered
	737-900ER	CFM56-7B26/3	35720	Dec-08	Unencumbered
	737-900ER	CFM56-7B26/3	35721	Feb-09	Unencumbered
	737-900ER	CFM56-7B26E	37286	Oct-11	Unencumbered
	737-900ER	CFM56-7B26E	38302	Aug-11	Unencumbered
	737-900ER	CFM56-7B26E	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
	E195	CF34-10E7	609	Mar-13	Unencumbered
	E195	CF34-10E7	628	Jun-13	Unencumbered

Classic Narrow-body Aircraft	757-200	RB211-535E4	27201	Mar-94	Unencumbered
	757-200	RB211-535E4	27244	Mar-94	Unencumbered
	757-200	RB211-535E4	27245	Jul-94	Unencumbered
	757-200	RB211-535E4	27805	Jan-95	Unencumbered
	757-200	RB211-535E4	27806	Jan-95	Unencumbered
	757-200	RB211-535E4	27807	Feb-95	Unencumbered

Wide-body Aircraft	A330-200	Trent 772B-60	313	Jan-00	Unencumbered
	A330-200	PW4168A	324	May-00	Unencumbered
	A330-200	PW4168A	343	Jun-00	Unencumbered
	A330-200	Trent 772B-60	526	Apr-03	Unencumbered
	A330-200	CF6-80E1A3	587	Apr-04	Unencumbered
	A330-200	CF6-80E1A3	634	Nov-04	Unencumbered
	A330-200	CF6-80E1A3	811	Dec-06	Unencumbered
	A330-200	Trent 772B-60	1073	Dec-09	ECA Financing
	A330-200	Trent 772B-60	1191	Feb-11	ECA Financing
	A330-200	Trent 772B-60	1210	Mar-11	ECA Financing
	A330-200	Trent 772B-60	1223	May-11	ECA Financing
	A330-200	Trent 772B-60	1236	Jul-11	ECA Financing
	A330-200	Trent 772B-60	1364	Nov-12	ECA Financing
	A330-200	Trent 772B-60	1474	Dec-13	ECA Financing
	A330-200	Trent 772B-60	1492	Oct-14	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	Bank Financing
	A330-300	Trent 772B-60	1481	Jan-14	Bank Financing
	A330-300	Trent 772B-60	1596	Jan-15	Unencumbered



Aircraft Group	Aircraft Type	Engine Type	Manufacturer Serial Number	Date of Manufacture	Financing
Wide-body Aircraft (Continued)	777-200ER	GE90-94B	32705	Oct-04	Bank Financing
	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	GE90-115B	41521	Oct-12	Bank Financing
	777-300ER	GE90-115B	41522	Mar-13	Bank Financing

Freighter Aircraft	747-400BCF	PW4056-3	24066	Jun-90	Unencumbered
	747-400BDSF	PW4056-1C/3	25700	May-93	Unencumbered
	747-400BDSF	PW4056-3	27044	Sep-94	Unencumbered
	747-400F	CF6-80C2B1F	33749	Oct-04	Unencumbered
	747-400ERF	CF6-80C2B5F	35233	Jan-07	Unencumbered
	747-400ERF	CF6-80C2B5F	35235	Jul-07	Unencumbered
	747-400ERF	CF6-80C2B5F	35236	Feb-08	Unencumbered
	747-400ERF	CF6-80C2B5F	35237	Apr-08	Unencumbered