UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2019~~2020

☐

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 001-35121

AIR LEASE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		27-1840403
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2000 Avenue of the Stars, Suite 1000N Los Angeles, California		90067
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (310) 553-0555

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock	AL	New York Stock Exchange
6.150% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A	AL PRA	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See 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 ☒		Accelerated filer ☐
Non-accelerated filer ☐		Smaller reporting company ☐
Emerging growth company ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At August ~~7, 2019,~~5, 2020, there were ~~111,676,050~~113,778,906 shares of Air Lease Corporation’s Class A common stock outstanding.

~~Table of Contents~~

Air Lease Corporation and Subsidiaries

Form 10-Q

For the Quarterly Period Ended June 30, ~~2019~~2020

TABLE OF CONTENTS

		Page
Note About Forward-Looking Statements		3
PART I—FINANCIAL INFORMATION
Item 1	Financial Statements	4
	Consolidated Balance Sheets—June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (unaudited)	4
	Consolidated Statements of Income and Comprehensive Income—Three and Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019 (unaudited)	5
	Consolidated Statement of Shareholders’ Equity—Three and Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019 (unaudited)	6
	Consolidated Statements of Cash Flows—Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019 (unaudited)	8
	Notes to Consolidated Financial Statements (unaudited)	9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1718
Item 3	Quantitative and Qualitative Disclosures About Market Risk	3035
Item 4	Controls and Procedures	3135
PART II—OTHER INFORMATION
Item 1	Legal Proceedings	3236
Item 1A	Risk Factors	3236
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	3236
Item 3	Defaults Upon Senior Securities	3236
Item 4	Mine Safety Disclosures	3236
Item 5	Other Information	3236
Item 6	Exhibits	3337
	Signatures	3539

~~Table of Contents~~

NOTE ABOUT FORWARD-LOOKING STATEMENTS

Statements in this quarterly report on Form 10-Q that are not historical facts may constitute “forward-looking statements,” including any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. These statements are only predictions and involve estimates, known and unknown risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed in such statements, including as a result of the following factors, among others:

●

the extent to which the coronavirus (“COVID-19”) pandemic and measures taken to contain its spread ultimately impact our business, results of operation and financial condition;

●

our inability to obtain additional financing on favorable terms, if required, to complete the acquisition of sufficient aircraft as currently contemplated or to fund the operations and growth of our business;

●

our inability to obtain refinancing prior to the time our debt matures;

●

our inability to make acquisitions of, or lease, aircraft on favorable terms;

●

our inability to sell aircraft on favorable terms or to predict the timing of such sales;

●

impaired financial condition and liquidity of our lessees;

●

changes in overall demand for commercial aircraft leasing and aircraft management services;

●

deterioration of economic conditions in the commercial aviation industry generally;

●

potential natural disasters and terrorist attacks and the amount of our insurance coverage, if any, relating thereto;

●

increased maintenance, operating or other expenses or changes in the timing thereof;

●

changes in the regulatory environment, including tariffs and other restrictions on trade;

●

our inability to effectively oversee our managed fleet;

●

the failure of any manufacturer to meet its contractual aircraft delivery obligations to us, ~~resulting in our inability to deliver the aircraft to our lessees,~~ including or as a result of technical or other difficulties with aircraft before or after ~~delivery;~~delivery, resulting in our inability to deliver the aircraft to our lessees;

●

other factors affecting our business or the business of our lessees and aircraft manufacturers or their suppliers that are beyond our or their control, including natural disasters, pandemics (such as COVID-19) and measures taken to contain its spread, and governmental actions; and

●

the factors discussed under “Part I — Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, “Part II — Item 1A. Risk ~~Factors,”~~Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2019~~2020 and other SEC filings, including future SEC filings.

The factors noted above and the risks included in our other SEC filings may be increased or intensified as a result of the COVID-19 pandemic, including as a result of the recent resurgence of the COVID-19 virus in certain parts of the world, including the United States, and any future resurgences of the virus. The extent to which the COVID-19 pandemic ultimately impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted. See the risk factor in “Part II — Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, “

The coronavirus (COVID-19) pandemic and related efforts to mitigate the pandemic have impacted our business, and the extent to which the COVID-19 pandemic and measures taken to contain its spread ultimately impact our business will depend on future developments, which are highly uncertain and are difficult to predict.”All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations. You are therefore cautioned not to place undue reliance on such statements. Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

~~Table of Contents~~

PART I—FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Air Lease Corporation and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and par value amounts)


	June 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019

	(unaudited)				(unaudited)
Assets
Cash and cash equivalents	$	264,058	$	300,127	$	926,435	$	317,488
Restricted cash		24,044		22,871		15,555		20,573
Flight equipment subject to operating leases		20,306,921		17,985,324		22,067,957		21,286,154
Less accumulated depreciation		(2,554,720)		(2,278,214)		(2,959,884)		(2,581,817)
		17,752,201		15,707,110		19,108,073		18,704,337
Deposits on flight equipment purchases		1,694,765		1,809,260		1,790,935		1,564,188
Other assets		749,280		642,440		1,152,722		1,102,569
Total assets	$	20,484,348	$	18,481,808	$	22,993,720	$	21,709,155
Liabilities and Shareholders’ Equity
Accrued interest and other payables	$	453,536	$	382,132	$	497,709	$	516,497
Debt financing, net of discounts and issuance costs		12,859,244		11,538,905		14,639,045		13,578,866
Security deposits and maintenance reserves on flight equipment leases		1,035,754		990,578		1,037,233		1,097,061
Rentals received in advance		124,142		119,526		131,951		143,692
Deferred tax liability		711,788		643,767		817,981		749,495
Total liabilities	$	15,184,464	$	13,674,908	$	17,123,919	$	16,085,611
Shareholders’ Equity
Preferred stock, $0.01 par value; 50,000,000 shares authorized; 10,000,000 shares of 6.150% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A (aggregate liquidation preference of $250,000) issued and outstanding at June 30, 2019 and no shares issued or outstanding at December 31, 2018		100		—
Class A common stock, $0.01 par value; 500,000,000 shares authorized; 111,666,126 and 110,949,850 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively		1,117		1,110
Class B non-voting common stock, $0.01 par value; authorized 10,000,000 shares; no shares issued or outstanding		—		—
Preferred Stock, $0.01 par value; 50,000,000 shares authorized; 10,000,000 shares of 6.150% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A (aggregate liquidation preference of $250,000) issued and outstanding at June 30, 2020 and December 31, 2019, respectively						100		100
Class A common stock, $0.01 par value; 500,000,000 shares authorized; 113,777,723 and 113,350,267 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively						1,138		1,134
Class B non-voting common stock, $0.01 par value; authorized 10,000,000 shares; 0 shares issued or outstanding						—		—
Paid-in capital		2,733,948		2,474,238		2,781,832		2,777,601
Retained earnings		2,564,719		2,331,552		3,089,082		2,846,106
Accumulated other comprehensive loss						(2,351)		(1,397)
Total shareholders’ equity	$	5,299,884	$	4,806,900	$	5,869,801	$	5,623,544
Total liabilities and shareholders’ equity	$	20,484,348	$	18,481,808	$	22,993,720	$	21,709,155

(See Notes to Consolidated Financial Statements)

~~Table of Contents~~

Air Lease Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(In thousands, except share and per share amounts)

Three Months Ended

Six Months Ended

June 30,

June 30,


2019

2018

2019

2018

(unaudited)

Revenues

Rental of flight equipment

$
463,870

$
393,479

$
919,609

$
771,341

Aircraft sales, trading and other

7,525

4,335

17,837

7,682

Total revenues

471,395

397,814

937,446

779,023

Expenses

Interest

96,824

73,452

186,044

142,395

Amortization of debt discounts and issuance costs

8,712

8,010

17,252

16,032

Interest expense

105,536

81,462

203,296

158,427

Depreciation of flight equipment

171,689

142,600

331,160

278,734

Selling, general and administrative

27,771

21,458

57,473

44,817

Stock-based compensation

5,863

4,885

10,037

8,317

Total expenses

310,859

250,405

601,966

490,295

Income before taxes

160,536

147,409

335,480

288,728

Income tax expense

(32,231)

(32,198)

(69,081)

(62,866)

Net income

$
128,305

$
115,211

$
266,399

$
225,862

Preferred stock dividends

(4,271)

—

(4,271)

—

Net income available to common stockholders

$
124,034

$
115,211

$
262,128

$
225,862

Earnings per share of Class A and Class B common stock:

Basic

$
1.11

$
1.11

$
2.36

$
2.17

Diluted

$
1.10

$
1.04

$
2.33

$
2.04

Weighted-average shares outstanding

Basic

111,371,790

104,003,960

111,196,011

103,876,647

Diluted

112,807,023

112,424,582

112,598,623

112,326,506

Dividends declared per share of Class A common stock

$
0.13

$
0.10

$
0.26

$
0.20


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019

	(unaudited)
Revenues
Rental of flight equipment	$	497,869	$	463,870	$	994,556	$	919,609
Aircraft sales, trading and other		23,480		7,525		38,180		17,837
Total revenues		521,349		471,395		1,032,736		937,446
Expenses
Interest		102,693		96,824		210,234		186,044
Amortization of debt discounts and issuance costs		10,233		8,712		20,761		17,252
Interest expense		112,926		105,536		230,995		203,296
Depreciation of flight equipment		194,020		171,689		382,915		331,160
Selling, general and administrative		26,581		27,771		54,903		57,473
Stock-based compensation		3,892		5,863		8,321		10,037
Total expenses		337,419		310,859		677,134		601,966
Income before taxes		183,930		160,536		355,602		335,480
Income tax expense		(36,305)		(32,231)		(70,826)		(69,081)
Net income	$	147,625	$	128,305	$	284,776	$	266,399
Preferred stock dividends		(3,844)		(4,271)		(7,688)		(4,271)
Net income available to common stockholders	$	143,781	$	124,034	$	277,088	$	262,128

Other Comprehensive Income/(Loss):
Change in foreign currency translation adjustment		(10,239)		—		13,238		—
Change from current period hedged transaction		10,905		—		(14,481)		—
Total tax benefit/(expense) on other comprehensive income/loss		(142)		—		289		—
Other Comprehensive income/(loss) available for common stockholders, net of tax		524		—		(954)		—
Total comprehensive income available for common stockholders	$	144,305	$	124,034	$	276,134	$	262,128

Earnings per share of common stock:
Basic	$	1.26	$	1.11	$	2.44	$	2.36
Diluted	$	1.26	$	1.10	$	2.43	$	2.33
Weighted-average shares outstanding
Basic		113,690,839		111,371,790		113,581,392		111,196,011
Diluted		113,773,127		112,807,023		113,840,929		112,598,623

Dividends declared per share of common stock	$	0.15	$	0.13	$	0.30	$	0.26

(See Notes to Consolidated Financial Statements)

~~Table of Contents~~

Air Lease Corporation and Subsidiaries

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(In thousands, except share and per share amounts)

Class B Non-

Class A

Voting

Preferred Stock

Common Stock

Common Stock

Paid-in

Retained

(unaudited)

Shares

Amount

Shares

Amount

Shares

Amount

Capital

Earnings

Total

Balance at December 31, 2018

—

$
—

110,949,850

$
1,110

—

$
—

$
2,474,238

$
2,331,552

$
4,806,900

Issuance of common stock upon vesting of restricted stock units and upon exercise of options

—

—

263,218

2

—

—

439

—

441

Issuance of preferred stock

10,000,000

100

—

—

—

—

242,141

—

242,241

Stock-based compensation

—

—

—

—

—

—

4,174

—

4,174

Cash dividends (declared $0.13 per share of Class A common stock)

—

—

—

—

—

—

—

(14,445)

(14,445)

Tax withholding related to vesting of restricted stock units and exercise of stock options

—

—

(94,899)

(1)

—

—

(3,587)

—

(3,588)

Net income

—

—

—

—

—

—

—

138,094

138,094

Balance at March 31, 2019

10,000,000

$
100

111,118,169

$
1,111

—

$
—

$
2,717,405

$
2,455,201

$
5,173,817

Issuance of common stock upon vesting of restricted stock units and upon exercise of options

—

—

547,957

6

—

—

10,791

—

10,797

Issuance of preferred stock

—

—

—

—

—

—

(111)

—

(111)

Dividends declared on preferred stock

—

—

—

—

—

—

—

(4,271)

(4,271)

Stock-based compensation

—

—

—

—

—

—

5,863

—

5,863

Cash dividends (declared $0.13 per share of Class A common stock)

—

—

—

—

—

—

—

(14,516)

(14,516)

Net income

—

—

—

—

—

—

—

128,305

128,305

Balance at June 30, 2019

10,000,000

$
100

111,666,126

$
1,117

—

$
—

$
2,733,948

$
2,564,719

$
5,299,884


							Class B Non-							Accumulated
				Class A			Voting							Other
	Preferred Stock			Common Stock			Common Stock			Paid-in		Retained		Comprehensive
(unaudited)	Shares	Amount		Shares	Amount		Shares	Amount		Capital		Earnings		(Loss)/Income		Total
Balance at December 31, 2019	10,000,000	$	100	113,350,267	$	1,134	—	$	—	$	2,777,601	$	2,846,106	$	(1,397)	$	5,623,544
Issuance of common stock upon vesting of restricted stock units and upon exercise of options	—		—	480,978		4	—		—		2,021		—		—		2,025
Dividends declared on preferred stock	—		—	—		—	—		—		—		(3,844)		—		(3,844)
Stock-based compensation	—		—	—		—	—		—		4,429		—		—		4,429
Cash dividends (declared $0.15 per share of Class A common stock)	—		—	—		—	—		—		—		(17,045)		—		(17,045)
Change in foreign currency translation adjustment and from current period hedged transaction	—		—	—		—	—		—		—		—		(1,478)		(1,478)
Tax withholding related to vesting of restricted stock units and exercise of stock options	—		—	(191,334)		(2)	—		—		(8,411)		—		—		(8,413)
Net income	—		—	—		—	—		—		—		137,151		—		137,151
Balance at March 31, 2020	10,000,000	$	100	113,639,911	$	1,136	—	$	—	$	2,775,640	$	2,962,368	$	(2,875)	$	5,736,369
Issuance of common stock upon vesting of restricted stock units and upon exercise of options	—		—	144,417		2	—		—		2,500		—		—		2,502
Issuance of preferred stock	—		—	—		—	—		—		—		—		—		—
Dividends declared on preferred stock	—		—	—		—	—		—		—		(3,844)		—		(3,844)
Stock-based compensation	—		—	—		—	—		—		3,892		—		—		3,892
Cash dividends (declared $0.15 per share of Class A common stock)	—		—	—		—	—		—		—		(17,067)		—		(17,067)
Change in foreign currency translation adjustment and from current period hedged transaction	—		—	—		—	—		—		—		—		524		524
Tax withholding related to vesting of restricted stock units and exercise of stock options	—		—	(6,605)		—	—		—		(200)		—		—		(200)
Net income	—		—	—		—	—		—		—		147,625		—		147,625
Balance at June 30, 2020	10,000,000	$	100	113,777,723	$	1,138	—	$	—	$	2,781,832	$	3,089,082	$	(2,351)	$	5,869,801

~~(See Notes to Consolidated Financial Statements)~~

~~Table of Contents~~

Air Lease Corporation and Subsidiaries

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(In thousands, except share and per share amounts)

Class B Non-

Class A

Voting

Preferred Stock

Common Stock

Common Stock

Paid-in

Retained

(unaudited)

Shares

Amount

Shares

Amount

Shares

Amount

Capital

Earnings

Total
Balance at December 31, 2017

—

$
—

103,621,629

$
1,036

—

$
—

$
2,260,064

$
1,866,342

$
4,127,442
Issuance of common stock upon vesting of restricted stock units and upon exercise of options and convertible debt conversion

—

—

514,773

4

—

—

2,632

—

2,636
Stock-based compensation

—

—

—

—

—

—

3,432

—

3,432
Cash dividends (declared $0.10 per share of Class A common stock)

—

—

—

—

—

—

—

(10,397)

(10,397)
Tax withholding related to vesting of restricted stock units and exercise of stock options

—

—

(156,568)

—

—

—

(7,141)

—

(7,141)
Net income

—

—

—

—

—

—

—

110,651

110,651
Balance at March 31, 2018

—

$
—

103,979,834

$
1,040

—

$
—

$
2,258,987

$
1,966,596

$
4,226,623
Issuance of common stock upon vesting of restricted stock units and upon exercise of options and convertible debt conversion

—

—

85,211

1

—

—

1,521

—

1,522
Stock-based compensation

—

—

—

—

—

—

4,885

—

4,885
Cash dividends (declared $0.10 per share of Class A common stock)

—

—

—

—

—

—

—

(10,399)

(10,399)
Net income

—

—

—

—

—

—

—

115,211

115,211
Balance at June 30, 2018

—

$
—

104,065,045

$
1,041

—

$
—

$
2,265,393

$
2,071,408

$
4,337,842


							Class B Non-							Accumulated
				Class A			Voting							Other
	Preferred Stock			Common Stock			Common Stock			Paid-in		Retained		Comprehensive
(unaudited)	Shares	Amount		Shares	Amount		Shares	Amount		Capital		Earnings		Income		Total
Balance at December 31, 2018	—	$	—	110,949,850	$	1,110	—	$	—	$	2,474,238	$	2,331,552	$	—	$	4,806,900
Issuance of common stock upon vesting of restricted stock units and upon exercise of options	—		—	263,218		2	—		—		439		—		—		441
Issuance of preferred stock	10,000,000		100	—		—	—		—		242,141		—		—		242,241
Stock-based compensation	—		—	—		—	—		—		4,174		—		—		4,174
Cash dividends (declared $0.13 per share of Class A common stock)	—		—	—		—	—		—		—		(14,445)		—		(14,445)
Tax withholding related to vesting of restricted stock units and exercise of stock options	—		—	(94,899)		(1)	—		—		(3,587)		—		—		(3,588)
Net income	—		—	—		—	—		—		—		138,094		—		138,094
Balance at March 31, 2019	10,000,000	$	100	111,118,169	$	1,111	—	$	—	$	2,717,405	$	2,455,201	$	—	$	5,173,817
Issuance of common stock upon vesting of restricted stock units and upon exercise of options	—		—	547,957		6	—		—		10,791		—		—		10,797
Issuance of preferred stock	—		—	—		—	—		—		(111)		—		—		(111)
Dividends declared on preferred stock	—		—	—		—	—		—		—		(4,271)		—		(4,271)
Stock-based compensation	—		—	—		—	—		—		5,863		—		—		5,863
Cash dividends (declared $0.13 per share of Class A common stock)	—		—	—		—	—		—		—		(14,516)		—		(14,516)
Net income	—		—	—		—	—		—		—		128,305		—		128,305
Balance at June 30, 2019	10,000,000	$	100	111,666,126	$	1,117	—	$	—	$	2,733,948	$	2,564,719	$	—	$	5,299,884

(See Notes to Consolidated Financial Statements)

~~Table of Contents~~

Air Lease Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Six Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2020		2019

	(unaudited)				(unaudited)
Operating Activities
Net income	$	266,399	$	225,862	$	284,776	$	266,399
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of flight equipment		331,160		278,734		382,915		331,160
Stock-based compensation		10,037		8,317		8,321		10,037
Deferred taxes		69,081		62,866		68,773		69,081
Amortization of debt discounts and issuance costs		17,252		16,032		20,761		17,252
Amortization of prepaid lease costs		14,851		14,610		21,210		14,851
Gain on aircraft sales, trading and other activity		(14,924)		(2,185)		(24,642)		(14,924)
Changes in operating assets and liabilities:
Other assets		(127,442)		(47,313)		(265,775)		(127,442)
Accrued interest and other payables		85,218		23,737		(16,256)		85,218
Rentals received in advance		4,616		7,331		(11,741)		4,616
Net cash provided by operating activities		656,248		587,991		468,342		656,248
Investing Activities
Acquisition of flight equipment under operating lease		(1,962,211)		(1,402,374)		(550,034)		(1,962,211)
Payments for deposits on flight equipment purchases		(448,653)		(360,440)		(399,028)		(448,653)
Proceeds from aircraft sales, trading and other activity		249,764		250		134,609		249,764
Acquisition of aircraft furnishings, equipment and other assets		(175,926)		(141,125)		(88,110)		(175,926)
Net cash used in investing activities		(2,337,026)		(1,903,689)		(902,563)		(2,337,026)
Financing Activities
Issuance of common stock upon exercise of options		11,236		4,128		4,526		11,236
Cash dividends paid on Class A common stock		(28,866)		(20,757)		(34,049)		(28,866)
Preferred dividends paid		(4,271)		—		(7,687)		(4,271)
Tax withholdings on stock-based compensation		(3,587)		(7,141)		(8,611)		(3,587)
Net change in unsecured revolving facility		199,000		109,000		(20,000)		199,000
Proceeds from debt financings		2,032,137		1,738,665		2,386,061		2,032,137
Payments in reduction of debt financings		(920,723)		(594,706)		(1,295,549)		(920,723)
Net proceeds from preferred stock issuance		242,130		—		—		242,130
Debt issuance costs		(7,327)		(5,301)		(4,219)		(7,327)
Security deposits and maintenance reserve receipts		142,685		109,007		72,852		142,685
Security deposits and maintenance reserve disbursements		(16,532)		(44,421)		(55,174)		(16,532)
Net cash provided by financing activities		1,645,882		1,288,474		1,038,150		1,645,882
Net decrease in cash		(34,896)		(27,224)
Net increase/(decrease) in cash						603,929		(34,896)
Cash, cash equivalents and restricted cash at beginning of period		322,998		308,282		338,061		322,998
Cash, cash equivalents and restricted cash at end of period	$	288,102	$	281,058	$	941,990	$	288,102
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest, including capitalized interest of $31,602 and $25,692 at June 30, 2019 and 2018, respectively	$	210,808	$	149,077
Cash paid during the period for interest, including capitalized interest of $26,185 and $31,602 at June 30, 2020 and 2019, respectively					$	229,801	$	210,808
Cash paid for income taxes	$	3,291	$	555	$	2,372	$	3,291
Supplemental Disclosure of Noncash Activities
Buyer furnished equipment, capitalized interest and deposits on flight equipment purchases applied to acquisition of flight equipment	$	711,432	$	451,048	$	201,623	$	711,432
Cash dividends declared on Class A common stock, not yet paid	$	14,516	$	10,399
Cash dividends declared on common stock, not yet paid					$	17,066	$	14,516

(See Notes to Consolidated Financial Statements)

~~Table of Contents~~

Air Lease Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Company Background and Overview

Air Lease Corporation (the “Company”, “ALC”, “we”, “our” or “us”) is a leading aircraft leasing company that was founded by aircraft leasing industry pioneer, Steven F. Udvar-Házy. ~~We are~~The Company is principally engaged in purchasing new commercial jet transport aircraft directly from ~~aircraft~~ manufacturers, such as The Boeing Company (“Boeing”) and Airbus ~~S.A.S.~~S.A.S (“Airbus”)~~, and leasing those~~. The Company leases these aircraft to airlines throughout the world with the intention to generate attractive returns on equity. As of June 30, 2020, the Company owned a fleet of 301 aircraft in its operating lease portfolio, managed 81 aircraft and had 393 aircraft on order with aircraft manufacturers. In addition to ~~our~~its leasing activities, ~~we sell~~the Company sells aircraft from ~~our~~its operating lease portfolio to third parties, including other leasing companies, financial services companies, airlines and ~~through our asset-backed securities platform. We~~other investors. The Company also ~~provide~~provides fleet management services to investors and owners of aircraft portfolios for a management fee. ~~As of June 30, 2019, we owned a fleet of 297 aircraft, managed 64 aircraft and had 343 aircraft on order with aircraft manufacturers.~~

Note 2. Basis of Preparation and Critical Accounting Policies

The Company consolidates financial statements of all entities in which ~~we have~~the Company has a controlling financial interest, including the accounts of any Variable Interest Entity in which ~~we have~~the Company has a controlling financial interest and for which ~~we are~~it is the primary beneficiary. All material intercompany balances are eliminated in consolidation. The accompanying Consolidated Financial Statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

The accompanying unaudited Consolidated Financial Statements include all adjustments, consisting only of normal, recurring adjustments, which are in the opinion of management necessary to present fairly the Company’s financial position, results of operations and cash flows at June 30, ~~2019,~~2020, and for all periods presented. The results of operations for the three and six months ended June 30, ~~2019~~2020 are not necessarily indicative of the operating results expected for the year ending December 31, ~~2019.~~2020. These financial statements and related notes should be read in conjunction with the Consolidated Financial Statements and related notes included in ~~our~~the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

~~Recently adopted accounting standards~~

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02 (“ASU 2016-02”), “Leases (Topic 842).” The amendments in ASU 2016-02 set out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. Subsequently, the FASB issued additional ASUs that further clarified ASU 2016-02. The Company adopted the amendments to Accounting Standards Codification (“ASC”) 842 on January 1, 2019 using the Effective Date Method. As a result, the Company continues to disclose comparative reporting periods under the previous accounting guidance, ASC 840. Based on our evaluation of the guidance, the Company noted that lessor accounting is similar to the current model, but the guidance impacted us in scenarios where we are the lessee.

For scenarios where we are the lessee, the Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use (“ROU”) lease assets under Other assets, and long-term lease obligations under Accrued interest & other payables on the Company’s Consolidated Balance Sheets. ROU lease assets represent the Company’s right to use an underlying asset for the lease term and lease obligations represent the Company’s obligation to make lease payments arising from the lease. Operating ROU lease assets and obligations are recognized at the commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company elected to exclude recognition of leases with a term of 12 months or less (short-term leases) from the Consolidated Balance Sheets.

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As of January 1, 2019, the Company recognized operating ROU lease assets and obligations in the amounts of $44.6 million and $51.2 million, respectively, on its Consolidated Balance Sheets. The adoption of this standard did not have a material impact on the Company’s Consolidated Financial Statements.

Note 3. Debt Financing

The Company’s consolidated debt ~~financing was comprised~~as of ~~the following at~~ June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (dollars in thousands):


	June 30,		December 31,		June 30,		December 31,
	2019		2018		2020		2019
Unsecured
Senior notes	$	10,950,000	$	10,043,445	$	13,509,411	$	12,357,811
Revolving credit facilities		801,000		602,000
Term financings		800,250		607,340		972,625		883,050
Revolving credit facility						—		20,000
Total unsecured debt financing		12,551,250		11,252,785		14,482,036		13,260,861
Secured
Term financings		411,343		371,203		298,552		428,824
Export credit financing		34,938		38,265		28,283		31,610
Total secured debt financing		446,281		409,468		326,835		460,434

Total debt financing		12,997,531		11,662,253		14,808,871		13,721,295
Less: Debt discounts and issuance costs		(138,287)		(123,348)		(169,826)		(142,429)
Debt financing, net of discounts and issuance costs	$	12,859,244	$	11,538,905	$	14,639,045	$	13,578,866

The Company’s secured obligations as of June 30, ~~2019~~2020 and December 31, ~~2018~~2019 are summarized below (dollars in thousands):


	June 30,		December 31,		June 30,		December 31,
	2019		2018		2020		2019
Nonrecourse	$	149,628	$	167,245	$	—	$	128,460
Recourse		296,653		242,223		326,835		331,974
Total secured debt financing	$	446,281	$	409,468	$	326,835	$	460,434
Number of aircraft pledged as collateral		18		20		12		15
Net book value of aircraft pledged as collateral	$	961,104	$	1,132,111	$	644,458	$	890,693

Senior unsecured notes (including Medium-Term Note Program)

As of June 30, ~~2019,~~2020, the Company had ~~$11.0~~$13.5 billion in senior unsecured notes outstanding. As of December 31, ~~2018,~~2019, the Company had ~~$10.0~~$12.4 billion in senior unsecured notes outstanding.

During the six months ended June 30, ~~2019,~~2020, the Company issued approximately ~~$1.75~~$2.3 billion in aggregate principal amount of Medium-Term Notes comprised of (i) ~~$700.0~~$750.0 million due ~~2024~~2025 at a fixed rate of ~~4.25%~~2.30%, (ii) ~~$750.0~~$650.0 million due ~~2026~~2030 at a fixed rate of ~~3.75%~~3.00% and (iii) ~~$300.0~~$850.0 million due ~~2021 that bear interest~~2025 at a ~~floating~~fixed rate of ~~three-month LIBOR plus 0.67%~~3.375%.

During the quarter ended June 30, 2020, the Company repurchased $185.2 million in aggregate principal amount of Floating Rate Medium-Term Notes due 2021. The open market debt repurchases resulted in a gain of $13.6 million and is included in Aircraft sales, trading and other revenue in the Company’s Consolidated Income Statements.

Unsecured revolving credit ~~facilities~~facility

As of June 30, ~~2019,~~2020, the ~~total~~Company did not have any amounts outstanding ~~balance on the Company's~~under its unsecured revolving credit ~~facilities was approximately $801.0 million.~~facility. The total amount outstanding ~~balance~~ under the ~~Company's~~Company’s unsecured revolving credit ~~facilities~~facility was ~~approximately $602.0~~$20.0 million as of December 31, ~~2018.~~2019.

~~In May 2019, the~~The Company ~~amended and extended its committed~~has an unsecured revolving credit facility ~~whereby, among other things,~~with JPMorgan Chase Bank, N.A. as agent (the “Revolving Credit Facility”). During the ~~Company extended~~six months ended June 30, 2020, the final maturity date from May 5, 2022 to May 5, 2023 and, after giving effect to commitments that matured on May 5, 2019, increased the total revolving commitments to approximately $5.8 billion, representing an increase of 26.6% from December 31, 2018, with an interest rate of LIBOR plus 1.05% with a 0.20% facility fee. On July 31, 2019, the Company ~~executed a commitment increase to its unsecured revolving credit~~

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~~facility, which~~ increased the aggregate ~~facility~~ capacity of the Revolving Credit Facility by ~~an additional $58.0~~$250.0 million. AsOn May 5, 2020, commitments totaling $92.7 million of ~~July 31, 2019, lenders held~~the Revolving Credit Facility matured. Lenders hold revolving commitments totaling approximately $5.5 billion that mature on May 5, 2023, commitments totaling $245.0 million that mature on May 5, 2022 and commitments totaling ~~approximately~~ $5.0 million that mature on May 5, ~~2021,~~2021. As of June 30, 2020, the aggregate capacity of the Revolving Credit Facility was approximately $6.0 billion.

As of June 30, 2020, borrowings under the Revolving Credit Facility will generally bear interest at either (a) LIBOR plus a margin of 1.05% per year or (b) an alternative base rate plus a margin of 0.05% per year, subject, in each case, to increases or decreases based on declines in the credit ratings for the Company’s debt. The Company is required to pay a facility fee of 0.20% per year (also subject to increases or decreases based on declines in the credit ratings for the Company’s debt) in respect of total commitments under the Revolving Credit Facility. Borrowings under the Revolving Credit Facility are used to finance the Company’s working capital needs in the ordinary course of business and ~~commitments totaling $92.7~~for other general corporate purposes.

Secured debt financing

In June 2020, the Company entered into an amendment to its secured warehouse facility to extend the final maturity to June 2021. The facility will continue to bear a floating interest rate of LIBOR plus 2.00%. As part of the amendment, the credit facility was converted to full recourse against the Company and excess cash collateral was released. The outstanding balance on the Company’s secured warehouse facility was $103.1 million ~~that mature~~and $128.5 million as of June 30, 2020 and December 31, 2019, respectively.

As of June 30, 2020, the outstanding balance on ~~May 5, 2020.~~the Company’s secured debt financings, including its secured warehouse facility and its export credit financing, was $326.8 million and it had pledged 12 aircraft as collateral with a net book value of $644.5 million. As of December 31, 2019, the outstanding balance on the Company’s secured debt

financings, including its secured warehouse facility and its export credit financing, was $460.4 million and it had pledged 15 aircraft as collateral with a net book value of $890.7 million.

Maturities

Maturities of debt outstanding as of June 30, ~~2019~~2020 are as follows (in thousands):


Years ending December 31,
2019	$	59,892
2020		1,460,039	$	295,789
2021		1,991,039		1,948,697
2022		2,701,069		2,730,561
2023		2,537,846		2,502,123
2024				1,544,791
Thereafter		4,247,646		5,786,910
Total	$	12,997,531	$	14,808,871

Note 4. Commitments and Contingencies

As of June 30, ~~2019,~~2020, the Company had commitments to acquire a total of ~~343~~393 new aircraft for delivery through ~~2024~~2026 as follows:


								Estimated Delivery Years
Aircraft Type	2019	2020	2021	2022	2023	Thereafter	Total	2020	2021	2022	2023	2024	Thereafter	Total
Airbus A320/321neo⁽¹⁾	16	27	32	25	25	—	125
Airbus A220-300⁽¹⁾								—	—	3	14	11	22	50
Airbus A320/321neo⁽²⁾								14	22	23	25	32	37	153
Airbus A330-900neo	4	2	5	6	2	—	19	—	3	7	5	—	—	15
Airbus A350-900/1000	1	3	6	3	2	—	15	3	4	3	4	5	1	20
Boeing 737-7/8/9 MAX	—	41	48	31	25	5	150	2	24	23	42	30	—	121
Boeing 787-9/10	6	13	7	8	—	—	34	8	6	8	10	2	—	34
Total⁽²⁾⁽³⁾	27	86	98	73	54	5	343
Total								27	59	67	100	80	60	393

(1)	~~Our~~In addition to the Company’s commitments, as of June 30, 2020, the Company had options to acquire up to 25 Airbus A220 aircraft. If exercised, deliveries of these aircraft are scheduled to commence in 2023 and continue through 2028.

(2)	The Company’s Airbus A320/321neo aircraft orders include 5647 long-range ~~variants.~~

~~(2)~~

~~In addition to the aircraft from our orderbook, we have a commitment to purchase one used Airbus A330-300 aircraft from a third party, which is scheduled for delivery in 2019.~~

~~(3)~~

~~Excluded from the table above are memorandums of understanding (“MOU”) with Airbus, signed in June 2019, to launch the A321 XLR aircraft~~variants and to order the A220 aircraft. Through these MOUs, we have the right to purchase 27 A321 XLR aircraft, 23 A321neo aircraft and 50 A220 aircraft and we have options for an additional 25 A220 aircraft. Also excluded from the table above is an MOU with Boeing, signed in June 2019, to convert existing purchase orders of 15 737 MAX aircraft to five 787-9 aircraft.29 extra long-range variants.

Pursuant to the Company's purchase agreements with Boeing and Airbus for new aircraft, the Company and each manufacturer agree to contractual delivery dates for each aircraft ordered. These dates can change for a variety of reasons, and in the last several years manufacturing delays have significantly impacted the Company’s actual delivery dates. For several years, the Company has ~~informed us to expect several months of~~experienced delivery delays ~~relating~~for certain of its Airbus orderbook aircraft, primarily the A321neo aircraft and, to ~~certain~~a lesser extent, A330neo aircraft. The worldwide grounding of the Boeing 737 MAX aircraft ~~scheduled for delivery in~~(“737 MAX”) began on March 10, 2019, and ~~2020. In addition, global aviation authorities have~~remains in effect. As a result, Boeing temporarily halted ~~operations~~production and delivery of all 737 MAX aircraft. While production of the ~~global~~ 737 MAX ~~fleet~~has now resumed, deliveries remain on hold. The Federal Aviation Administration (“FAA”) has begun flight testing for recertification of the 737 MAX. Lifting of the grounding is subject to the approval of the FAA, as well as a number of other global regulatory authorities, and the Company is unable to speculate as to when this may occur. Even after the grounding is lifted, Boeing’s ability to deliver 737 MAX aircraft may be impacted as a result of the COVID-19 pandemic. The Company is currently in discussions with Boeing ~~has halted deliveries~~regarding the mitigation of ~~such aircraft. Accordingly, we are expecting that~~possible damages resulting from the grounding of, and the delivery delays associated with the 737 MAX aircraft ~~originally scheduled for delivery~~that the Company owns or has on order, which could result in changes to ~~us in 2019 will be delayed. These expected delays have been reflected in our~~the commitment ~~schedules above. Our leases contain lessee cancellation clauses related to aircraft~~table.

The ongoing COVID-19 pandemic has caused delivery delays ~~typically~~of aircraft in the Company’s orderbook and is expected to continue to cause delays of aircraft delivery. As discussed in further detail in Note 12, “Impact of COVID-19 Pandemic,” the COVID-19 pandemic has resulted in numerous travel restrictions and business shutdowns or other operating limitations, including the temporary closure of final aircraft assembly facilities for ~~aircraft delays greater than one year. Our purchase agreements contain similar clauses.~~each of Boeing and Airbus. In the second quarter of 2020, Boeing and Airbus resumed production at these facilities. As a result of ~~August 8, 2019, none~~the temporary closures of the Boeing and Airbus facilities, most of our ~~lease contracts or purchase agreements~~expected aircraft deliveries were ~~subject to cancellation related to these aircraft delivery delays.~~

delayed during the second quarter. Given the dynamic nature of the ongoing COVID-19 pandemic, the Company is in ongoing discussions with

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Boeing and Airbus to determine the impact and duration of delivery delays. However, the Company is not yet able to determine the impact of the delivery delays, and as such, the delivery dates listed above could materially change.

The aircraft purchase commitments discussed above also could be impacted by lease cancellation. The Company's leases typically provide that the Company and the airline customer each have a cancellation right related to certain aircraft delivery delays. The Company’s purchase agreements with Boeing and Airbus also generally provide that the Company and the manufacturer each have cancellation rights that typically are parallel with the Company’s cancellation rights in its leases. The Company’s leases and its purchase agreements with Boeing and Airbus typically provide for cancellation rights starting at one year after the original contractual delivery date, regardless of cause. During the quarter ended June 30, 2020, a small number of our customers canceled a total of 5 737 MAX leases with us and we have subsequently exercised our right to cancel our purchase of the related 737 MAX aircraft with Boeing.

Commitments for the acquisition of these aircraft, ~~and other equipment,~~ calculated at an estimated aggregate purchase price (including adjustments for anticipated inflation) ~~was~~of approximately ~~$24.1~~$26.2 billion at June 30, ~~2019, and~~2020, are due as follows (in thousands):


Years ending December 31,
2019	$	2,744,657
2020		6,469,820	$	2,025,283
2021		6,741,848		4,564,159
2022		5,034,063		5,712,095
2023		2,896,636		6,534,093
2024				4,508,101
Thereafter		221,130		2,840,517
Total	$	24,108,154	$	26,184,248

~~In addition to the Company's commitments, as of June 30, 2019, the~~The Company ~~had options to acquire up to five Airbus A350-1000 aircraft and 45 Boeing 737-8 MAX aircraft. If exercised, deliveries of these aircraft are scheduled to commence in 2023 and continue through 2024.~~

~~We have~~has made non-refundable deposits on the aircraft for which ~~we have~~the Company has commitments to purchase of ~~$1.7~~$1.8 billion and ~~$1.8~~$1.6 billion as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, which are subject to manufacturer performance commitments. If ~~we are~~the Company is unable to satisfy ~~our~~its purchase commitments, wethe Company may be forced to forfeit ~~our~~its deposits. Further, wethe Company would be exposed to breach of contract claims by ~~our~~its lessees and manufacturers.

Note 5. Rental Income

At June 30, ~~2019,~~2020, minimum future rentals on non-cancellable operating leases of flight equipment in ~~our~~the Company’s fleet ~~which have been delivered as of June 30, 2019,~~ are as follows (in thousands):


Years ending December 31,
2019 (excluding the six months ended June 30, 2019)	$	967,346
2020		1,899,538
2020 (excluding the six months ended June 30, 2020)			$	1,004,553
2021		1,803,660		1,967,330
2022		1,672,930		1,855,971
2023		1,480,260		1,658,402
2024				1,521,604
Thereafter		5,633,658		5,747,767
Total	$	13,457,392	$	13,755,627

Note 6. Earnings Per Share

Basic net earnings per share is computed by dividing net income ~~available to common stockholders~~ by the weighted-average number of common shares outstanding for the period. ~~Preferred stock dividends are subtracted from net income in determining net income available to common stockholders.~~ Diluted earnings per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock; however, potential common equivalent shares are excluded if the effect of including these shares would be anti-dilutive. The Company’s ~~two~~2 classes of common stock, Class A and Class B Non-Voting, have equal rights to dividends and income, and therefore, basic and diluted earnings per share are the same for each class of common stock. As of June 30, ~~2019, we~~2020, the Company did not have any Class B Non-Voting common stock outstanding.

Diluted net earnings per share takes into account the potential conversion of stock options, restricted stock units, and warrants using the treasury stock method and convertible notes using the if-converted method. For the three ~~and six~~ months ended June 30, 2019, the Company did not exclude any potentially dilutive securities, whose effect would have been anti-dilutive, from the computation of diluted earnings per share. The Company excluded 976,613 and 951,878 shares related to restricted stock units for which the performance metric had yet to be achieved as of June 30, 2019 and 2018, respectively.

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ended June 30, 2020, the Company excluded 120,000 potentially dilutive securities, whose effect would have been anti-dilutive from the computation of diluted earnings per share. For the six months ended June 30, 2020, the Company did not exclude any potentially dilutive securities, whose effect would have been anti-dilutive, from the computation of diluted earnings per share. The Company excluded 1,032,305 and 976,613 shares related to restricted stock units for which the performance metric had yet to be achieved as of June 30, 2020 and 2019, respectively.

The following table sets forth the reconciliation of basic and diluted net earnings per share (in thousands, except share and per share amounts):


	Three Months Ended				Six Months Ended
	June 30,				June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Basic earnings per share:
Numerator
Net income	$	128,305	$	115,211	$	266,399	$	225,862	$	147,625	$	128,305	$	284,776	$	266,399
Preferred stock dividends		(4,271)		—		(4,271)		—		(3,844)		(4,271)		(7,688)		(4,271)
Net income available to common stockholders	$	124,034	$	115,211	$	262,128	$	225,862	$	143,781	$	124,034	$	277,088	$	262,128
Denominator
Weighted-average common shares outstanding		111,371,790		104,003,960		111,196,011		103,876,647		113,690,839		111,371,790		113,581,392		111,196,011
Basic earnings per share	$	1.11	$	1.11	$	2.36	$	2.17	$	1.26	$	1.11	$	2.44	$	2.36
Diluted earnings per share:
Numerator
Net income	$	128,305	$	115,211	$	266,399	$	225,862	$	147,625	$	128,305	$	284,776	$	266,399
Preferred stock dividends		(4,271)		—		(4,271)		—		(3,844)		(4,271)		(7,688)		(4,271)
Assumed conversion of convertible senior notes		—		1,735		—		3,474
Net income available to common stockholders plus assumed conversions	$	124,034	$	116,946	$	262,128	$	229,336
Net income available to common stockholders									$	143,781	$	124,034	$	277,088	$	262,128
Denominator
Number of shares used in basic computation		111,371,790		104,003,960		111,196,011		103,876,647		113,690,839		111,371,790		113,581,392		111,196,011
Weighted-average effect of dilutive securities		1,435,233		8,420,622		1,402,612		8,449,859		82,288		1,435,233		259,537		1,402,612
Number of shares used in per share computation		112,807,023		112,424,582		112,598,623		112,326,506		113,773,127		112,807,023		113,840,929		112,598,623
Diluted earnings per share	$	1.10	$	1.04	$	2.33	$	2.04	$	1.26	$	1.10	$	2.43	$	2.33

Note 7. Fair Value Measurements

Assets and ~~liabilities measured~~Liabilities Measured at ~~fair value~~Fair Value on a ~~recurring~~Recurring and ~~non-recurring basis~~Non-recurring Basis

The Company ~~had no assets or liabilities~~has a cross-currency swap related to its Canadian dollar Medium-Term Notes which ~~are measured at~~was issued in December 2019. The fair value of the swap as a foreign currency exchange derivative is categorized as a Level 2 measurement in the fair value hierarchy and is measured on a recurring ~~or non-recurring basis as~~basis. As of June 30, ~~2019 or~~2020, the estimated fair value of the foreign currency exchange derivative liability was $9.0 million. As of December 31, ~~2018.~~2019, the estimated fair value of the foreign currency exchange derivative asset was $5.4 million.

Financial ~~instruments not measured~~Instruments Not Measured at ~~fair value~~Fair Values

The fair value of debt financing is estimated based on the quoted market prices for the same or similar issues, or on the current rates offered to the Company for debt of the same remaining maturities, which would be categorized as a Level 2 measurement in the fair value hierarchy. The estimated fair value and book value of debt financing as of June 30, ~~2019~~2020 was approximately ~~$13.3 billion compared to a book value of $13.0~~$14.8 billion. The estimated fair value of debt financing as of December 31, ~~2018~~2019 was ~~$11.4~~$14.1 billion compared to a book value of ~~$11.7~~$13.7 billion.

The following financial instruments are not measured at fair value on the Company’s Consolidated Balance Sheets at June 30, ~~2019,~~2020, but require disclosure of their fair values: cash and cash equivalents and restricted cash. The estimated fair value of such instruments at June 30, 2020~~2019~~ and December 31, ~~2018~~2019 approximates their carrying value as reported on the Consolidated Balance Sheets. The fair value of all these instruments would be categorized as Level 1 in the fair value hierarchy.

Note 8. Shareholders’ Equity

The Company was authorized to issue 500,000,000 shares of Class A common stock, $0.01 par value, at June 30, ~~2019~~2020 and December 31, ~~2018.~~2019. As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company had ~~111,666,126~~113,777,723 and ~~110,949,850~~113,350,267 Class A common shares issued and outstanding, respectively. The Company did not have any shares of Class B non-voting common stock, $0.01 par value, issued or outstanding as of June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

~~Table of Contents~~

The Company was authorized to issue 50,000,000 shares of preferred stock, $0.01 par value, at June 30, ~~2019~~2020 and December 31, ~~2018.~~2019. As of June 30, 2020 and December 31, 2019, the Company had 10,000,000 shares of preferred stock issued and outstanding with an aggregate liquidation preference of $250.0 million. ~~The Company did not have any shares of preferred stock issued or outstanding as of December 31, 2018.~~

On March 5, 2019, the Company issued 10,000,000 shares of 6.150% Fixed-to-Floating Non-Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”), $0.01 par value, with a liquidation preference of $25.00 per share. The Company will pay dividends on the preferred stock only when, as and if declared by the board of directors. Dividends will accrue, on a non-cumulative basis, on the stated amount of $25.00 per share at a rate per annum equal to: (i) 6.150% during the first five years and payable quarterly in arrears beginning on June 15, 2019, and (ii) three-month LIBOR plus a spread of 3.65% per annum from March 15, 2024, reset quarterly and payable quarterly in arrears beginning on June 15, 2024.

The Company may redeem shares of the Series A Preferred Stock at its option, in whole or in part, from time to time, on or after March 15, 2024, for cash at a redemption price equal to $25.00 per share, plus any declared and unpaid dividends to, but excluding, the redemption date, without accumulation of any undeclared dividends. The Company may also redeem shares of the Series A Preferred Stock at the Company’s option under certain other limited conditions.

Note 9. Stock-based Compensation

On May 7, 2014, the stockholders of the Company approved the Air Lease Corporation 2014 Equity Incentive Plan (the “2014 Plan”). Upon approval of the 2014 Plan, no0 new awards may be granted under the Amended and Restated 2010 Equity Incentive Plan (the “2010 Plan”). As of June 30, ~~2019~~,2020, the number of stock options (“Stock Options”) and restricted stock units (“RSUs”) ~~remaining~~authorized under the 2014 Plan ~~was~~is approximately ~~5,236,334, which includes 236,334 shares which were previously reserved for issuance under the 2010 Plan.~~4,860,701. Stock Options are generally granted for a term of 10 years and ~~generally~~ vest ratably over a three-year period. The Company has issued RSUs with ~~four~~4 different vesting criteria: those RSUs that vest based on the attainment of book value goals, those RSUs that vest based on the attainment of Total Shareholder Return (“TSR”) goals, time based RSUs that vest ratably over a time period of three years and RSUs that cliff-vest at the end of a ~~one-or two-year~~one or two year period. The Company has ~~two~~2 types of book value RSUs; those that vest ratably over a three-year period if the performance condition has been met, and those that ~~cliff-vest~~vest at the end of a three-year period if the performance condition has been met. For the book value RSUs that cliff-vest at the end of a three-year period, the number of shares that will ultimately vest will range from 0% to 200% of the RSUs initially granted depending on the percentage change in the ~~Company's~~Company’s book value per share at the end of the vesting period. At each reporting period, the Company reassesses the probability of the performance condition being achieved and a stock-based compensation expense is recognized based upon management’s assessment. Book value RSUs for which the performance metric has not been met are forfeited. The TSR RSUs ~~cliff-vest~~vest at the end of a three-year period. The number of TSR RSUs that will ultimately vest is based upon the percentile ranking of the Company’s TSR among a peer group. The number of shares that will ultimately vest will range from 0% to 200% of the RSUs initially granted depending on the extent to which the TSR metric is achieved.

The Company recorded ~~$5.9~~$3.9 million and ~~$4.9~~$5.9 million of stock-based compensation expense ~~related to RSUs~~ for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The Company recorded ~~$10.0~~$8.3 million and ~~$8.3~~$10.0 million of stock-based compensation expense ~~related to RSUs~~ for the six months ended June 30, 2020 and 2019, respectively.

Stock Options

A summary of stock option activity for the six months ended June 30, 2020 follows:


				Remaining	Aggregate
		Exercise		Contractual Term	Intrinsic Value
	Shares	Price		(in years)	(in thousands)⁽¹⁾
Balance at December 31, 2019	364,153	$	22.90	0.75	$	8,965
Granted	—	$	—	—	$	—
Exercised	(242,801)	$	20.00		$	3,069
Forfeited/canceled	—	$	—	—	$	—
Balance at June 30, 2020	121,352	$	28.70	0.81	$	71
Vested and exercisable as of June 30, 2020	121,352	$	28.70	0.81	$	71

(1)	The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of the Company’s Class A common stock as of the respective date.

All of the Company’s outstanding employee stock options had fully vested as of June 30, 2013. As of June 30, 2020 there were 0 unrecognized compensation costs related to outstanding stock options. For the three and ~~2018, respectively.~~six months ended June 30, 2020 and 2019 there were 0 stock-based compensation expenses related to Stock Options.

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~~Stock Options~~

~~A summary of stock option activity for the six months ended June 30, 2019 follows:~~

Remaining

Aggregate

Exercise

Contractual Term

Intrinsic Value


Shares

Price

(in years)

(in thousands)⁽¹⁾
Balance at December 31, 2018

2,620,295

$
20.40

1.49

$
25,697
Granted

—

$
—

—

$
—
Exercised

(573,806)

$
20.00

—

$
9,905
Forfeited/canceled

—

$
—

—

$
—
Balance at June 30, 2019

2,046,489

$
20.52

1.00

$
42,616
Vested and exercisable as of June 30, 2019

2,046,489

$
20.52

1.00

$
42,616

~~(1)~~

~~The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of our Class A common stock as of the respective date.~~

As of June 30, 2019, all of the Company’s outstanding employee stock options had fully vested and there were no unrecognized compensation costs related to outstanding stock options as of June 30, 2019. As a result, there was no stock-based compensation expense related to Stock Options for the three and six months ended June 30, 2019 and 2018.

The following table summarizes additional information regarding outstanding exercisable and vested stock options at June 30, ~~2019:~~2020:



	Stock Options Exercisable		Stock Options Exercisable
	and Vested		and Vested
		Weighted-		Weighted-
		Average		Average
	Number of	Remaining Life	Number of	Remaining Life
Range of exercise prices	Shares	(in years)	Shares	(in years)
$20.00	1,926,489	0.95	1,352	0.11
$28.80	120,000	1.82	120,000	0.82
$20.00 - $28.80	2,046,489	1.00	121,352	0.81

Restricted Stock Units

Compensation cost for stock awards is measured at the grant date based on fair value and recognized over the vesting period. The fair value of book value and time based ~~and book value~~ RSUs is determined based on the closing market price of the Company’s Class A common stock on the date of grant, while the fair value of TSR RSUs is determined at the grant date using a Monte Carlo simulation model. Included in the Monte Carlo simulation model were certain assumptions regarding a number of highly complex and subjective variables, such as expected volatility, risk-free interest rate and expected dividends. To appropriately value the award, the risk-free interest rate is estimated for the time period from the valuation date until the vesting date and the historical volatilities were estimated based on a historical timeframe equal to the time from the valuation date until the end date of the performance period.

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During the six months ended June 30, ~~2019,~~2020, the Company granted ~~670,279~~670,621 RSUs of which ~~139,895~~133,699 are TSR RSUs. The following table summarizes the activities for ~~our~~the Company’s unvested RSUs for the six months ended June 30, ~~2019:~~2020:


	Unvested Restricted Stock Units			Unvested Restricted Stock Units
		Weighted-Average			Weighted-Average
	Number of	Grant-Date		Number of	Grant-Date
	Shares	Fair Value		Shares	Fair Value
Unvested at December 31, 2018	1,055,325	$	41.66
Unvested at December 31, 2019				1,254,904	$	43.62
Granted	670,279	$	39.64	670,621	$	42.20
Vested	(252,674)	$	35.11	(406,067)	$	46.96
Forfeited/canceled	(168,579)	$	29.67	(49,407)	$	43.97
Unvested at June 30, 2019	1,304,351	$	43.44
Expected to vest after June 30, 2019	1,395,739	$	43.29
Unvested at June 30, 2020				1,470,051	$	42.04
Expected to vest after June 30, 2020				1,505,285	$	42.01

As of June 30, ~~2019,~~2020, there was ~~$35.7~~$37.2 million of unrecognized compensation cost related to unvested stock-based payments granted to employees. Total unrecognized compensation cost will be recognized over a weighted-average remaining period of ~~2.04~~2.0 years.

Note 10. ~~Investments~~Aircraft Under Management

As of June 30, 2020, the Company managed 81 aircraft across 3 aircraft management platforms. The Company managed 51 aircraft through its Thunderbolt platform, 26 aircraft through the Blackbird investment funds and 4 on behalf of a financial institution.

The Company ~~entered into an agreement with a co-investment vehicle arranged by Napier Park Global Capital (US) LP to participate in two joint ventures and formed~~managed 26 aircraft on behalf of third-party investors, through 2 investment funds, Blackbird ~~Capital~~ I ~~LLC~~ and Blackbird ~~Capital II, LLC for the purpose of investing~~II. These funds invest in commercial aircraft and ~~leasing~~lease them to airlines ~~around~~throughout the ~~globe. We also provide~~world. The Company provides management services to these ~~joint ventures~~funds for a ~~fee based upon aircraft assets under management. The Company’s~~fee. As of June 30, 2020, the Company's non-controlling interests in each ~~joint venture~~fund is ~~9.5~~%9.5% and are accounted for ~~as investments~~ under the equity method of accounting. The Company’s investment in these ~~joint ventures was $45.0~~funds aggregated $49.8 million and ~~$40.6~~$46.5 million as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, and is ~~recorded~~included in ~~other~~Other assets on the Consolidated Balance Sheets. The Company continues to source aircraft investment opportunities for Blackbird II. As of June 30, ~~2019,~~2020, Blackbird II has remaining equity capital commitments to acquire up to approximately $1.0 billion in aircraft assets, for which the ~~Company’s total unfunded commitment~~Company has committed to ~~Blackbird Capital II, LLC was $30.5 million.~~fund up to $29.1 million related to these potential investments.

~~On August 1, 2018, we entered into an agreement~~Additionally, the Company continues to ~~sell 18~~manage aircraft tothat it sells through its Thunderbolt ~~Aircraft Lease Limited II (“~~platform. As of June 30, 2020, the Company managed 51 aircraft through its Thunderbolt ~~II”)~~platform sold across 3 separate transactions. The Company has non-controlling interests in 2 of these entities of approximately 5.0%, ~~an asset-backed securities platform~~ which ~~will facilitate the sale and continued management of aircraft assets to investors. The Company’s non-controlling interest in Thunderbolt II is 5.1% and it is~~are accounted for ~~as an investment~~ under the cost method of accounting. ~~All of the aircraft in Thunderbolt II's portfolio will be managed by the Company.~~ During the ~~six~~three months ended June 30, ~~2019, we~~2020, the Company completed the sale of ~~three~~3 aircraft from ~~our~~its operating lease portfolio tothrough its Thunderbolt ~~II. We expect the sale of the remaining three aircraft to be completed in 2019.~~platform. The ~~Company's~~Company’s total investment in aircraft sold through its Thunderbolt IIplatform was ~~$5.4~~$9.3 million and $9.9 million as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively and is ~~recorded~~included in ~~other~~Other assets on the Consolidated Balance Sheets.

Note 11. Flight Equipment Held for Sale

As of June 30, ~~2019, we~~2020, the Company had ~~three~~1 aircraft, with a carrying value of ~~$106.0~~$29.7 million, which ~~were~~was classified as held for sale and included in ~~Flight equipment subject to operating leases~~Other assets on the Consolidated Balance Sheets. ~~We expect~~This aircraft was subsequently sold through the ~~sale of all three~~ ~~aircraft to be completed~~Company’s Thunderbolt platform in ~~2019. We cease recognition of depreciation expense once an aircraft is classified as held for sale.~~July 2020. As of December 31, ~~2018, we~~2019, the Company had ~~six~~8 aircraft classified as held for sale, with a carrying value of ~~$241.6~~$249.6 million.

Note 12. Impact of COVID-19 Pandemic

On January 30, 2020, the spread of the COVID-19 outbreak was declared a Public Health Emergency of International Concern by the World Health Organization (the “WHO”). On March 11, 2020, WHO characterized the COVID-19 outbreak as a pandemic. The COVID-19 pandemic has resulted in governmental authorities around the world implementing numerous measures to try to contain the virus, such as travel bans and restrictions, border closures, quarantines, shelter-in-place or total lock-down orders and business limitations and shutdowns (subject to exceptions for certain essential operations and businesses). Although some of these measures have since been lifted or scaled back, a recent resurgence of COVID-19 in certain parts of the world, including the United States, has resulted in the re-imposition of certain restrictions and may lead to other restrictions being implemented again in response to efforts to reduce the spread of COVID-19. These measures, coupled with a decrease in consumer spending on travel as a result of COVID-19, have materially impacted airline traffic and operations throughout the world, including the Company’s airline customers. It is unclear how long these restrictions will remain in place and they may remain in place in some form for an extended period of time. Aircraft manufacturers and suppliers also have been impacted, including causing the temporary closure of Boeing and Airbus’ final assembly facilities and also closures of various facilities across their supply chain. In the second quarter of 2020, Boeing and Airbus resumed production at these facilities. As the virus spread globally during the second quarter of 2020, its impact on the global economy increased significantly, resulting in a rapid decline in global air travel that accelerated through the second quarter of 2020. While domestic and regional airline traffic have improved over the last several months, international and business air travel demand remain challenged.

The impact of COVID-19 on airlines, including the Company’s airline customers, accelerated in the second quarter of 2020. Since the pandemic began in the first quarter of 2020, the Company has received requests from most of its customers for accommodations such as deferral of lease payments or other lease concessions. The Company evaluates such requests on a case-by-case basis and has worked out accommodation arrangements with approximately 59% of its lessees, generally in the form of partial lease deferrals for payments due in the first and second quarter of 2020, typically with a short-term repayment period, with the majority of the deferrals repaid over the next 12 months. In many cases, lease extensions were also negotiated as part of the deferral accommodations. The Company remains in active discussions with its airline customers and may continue to provide accommodation arrangements on a case-by-case basis.

While lease deferrals may delay the Company’s receipt of cash, the Company generally recognizes the lease revenue during the period even if a deferral is provided to the lessee, unless it determines collection is not reasonably assured. The Company monitors all lessees with past due lease payments and discusses relevant operational and financial issues facing those lessees in order to determine an appropriate course of action. In addition, if collection is not reasonably assured, the Company will not recognize rental income for amounts due under our lease contracts and will recognize revenue for such lessees on a cash basis.

Given the dynamic nature of this situation, the Company cannot reasonably estimate the impacts of COVID-19 on its business, results of operations and financial condition for the foreseeable future.

Note ~~12.~~13. Subsequent Events

On August ~~8, 2019, our~~5, 2020, the Company’s board of directors approved a quarterly cash dividend of ~~$0.13~~$0.15 per share on ~~our~~its outstanding Class A common stock. The dividend will be paid on October ~~4, 2019~~9, 2020 to holders of record of ~~our~~the Company’s Class A common stock as of September ~~13, 2019. Our~~11, 2020. The Company’s board of directors also approved a cash dividend of $0.384375 per share on ~~our~~its outstanding Series A Preferred Stock, which will be paid on September 15, ~~2019~~2020 to holders of record of ~~our~~the Company’s Series A Preferred Stock as of August 31, ~~2019.~~2020.

1617

~~Table of Contents~~

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our Consolidated Financial Statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Overview

Air Lease Corporation (the “Company”, “ALC”, “we”, “our” or “us”) is a leading aircraft leasing company that was founded by aircraft leasing industry pioneer, Steven F. Udvar-Házy. We are principally engaged in purchasing new commercial jet transport aircraft directly from aircraft manufacturers, such as The Boeing Company (“Boeing”) and Airbus S.A.S. (“Airbus”), and leasing those aircraft to airlines throughout the world with the intention to generate attractive returns on equity. In addition to our leasing activities, we sell aircraft from our operating lease portfolio to third-parties, including other leasing companies, financial services companies, airlines and ~~through our asset-backed securities platform.~~other investors. We also provide fleet management services to investors and owners of aircraft portfolios for a management fee. Our operating performance is driven by the growth of our owned fleet, the terms of our leases, the interest rates on our debt, and the aggregate amount of our indebtedness, supplemented by the gains from our aircraft sales, trading and other activities and our management fees.

Impact of COVID-19 Pandemic

On January 30, 2020, the spread of the COVID-19 outbreak was declared a Public Health Emergency of International Concern by the World Health Organization (“WHO”). On March 11, 2020, WHO characterized the COVID-19 outbreak as a pandemic. The COVID-19 pandemic has resulted in governmental authorities around the world implementing numerous measures to try to contain the virus, such as travel bans and restrictions, border closures, quarantines, shelter-in-place or total lock-down orders and business limitations and shutdowns (subject to exceptions for certain essential operations and businesses). Although some of these measures have since been lifted or scaled back, a recent resurgence of COVID-19 in certain parts of the world, including the United States, has resulted in the re-imposition of certain restrictions and may lead to other restrictions being implemented again in response to efforts to reduce the spread of COVID-19. It is unclear how long these restrictions will remain in place and they may remain in place in some form for an extended period of time. These measures, coupled with a decrease in consumer spending on travel as a result of COVID-19, have materially impacted airline traffic and operations throughout the world, including for our airline customers. Aircraft manufacturers and suppliers also have been impacted, including causing the temporary closure of Boeing and Airbus’ final assembly facilities and also closures of various facilities across their supply chain. In the second quarter of 2020, Boeing and Airbus resumed production in these facilities.

As the virus spread globally during the second quarter of 2020, its impact on the global economy increased significantly, resulting in a rapid decline in global air travel that accelerated through the second quarter of 2020. While domestic and regional airline traffic have improved over the last several months, international and business air travel demand remain challenged.

The impact of COVID-19 on airlines, including our airline customers, accelerated in the second quarter of 2020. Since the pandemic began in the first quarter of 2020, we have received requests from our customers for accommodations such as deferral of lease payments or other lease concessions. As of August 6, 2020, most of our lessees have requested some form of rental relief. We evaluate such requests on a case-by-case basis and have worked out accommodation arrangements with approximately 59% of our lessees, generally in the form of partial lease deferrals for payments due in the first and second quarter of 2020, typically with a short-term repayment period, with the majority of the deferrals repaid over the next 12 months. In many cases, lease extensions were also negotiated as part of the deferral accommodations. Through August 6, 2020, we have agreed to defer approximately $189.9 million in lease payments, which represents approximately 3% of our total available liquidity, as of June 30, 2020. These lease deferrals resulted in a decrease in our cash flow provided by operating activities for the second quarter. We remain in active discussions with our airline customers and expect to continue to provide accommodation arrangements on a case-by-case basis.

Our collection rate during the second quarter of 2020 and the month of July 2020 was 91% and 89%, respectively, compared to 90% during the first quarter of 2020. Collection rate is defined as the sum of cash collected from lease

rentals and maintenance reserves, and includes cash recovered from outstanding receivables from previous periods, as a percentage of the total contracted receivables due for the period. The collection rate is calculated after giving effect to lease deferral arrangements made as of August 6, 2020. Our lease utilization rate for the second quarter of 2020 and for the month of July 2020 was 99.6% compared to 99.7% for the first quarter of 2020. The lease utilization rate is calculated based on the number of days each aircraft was subject to a lease or letter of intent during the period, weighted by the net book value of the aircraft. It is possible that our collection rate or lease utilization rate could further decline in the near future as a result of accommodation arrangements we have made or could make in the future, including providing additional lease concessions to airline customers already receiving a concession or if our airline customers do not make their lease payments even absent lease concessions.

Depending on the severity and longevity of the COVID-19 pandemic and the related efforts taken to reduce its spread, some of our lessees have, and may in the future continue to, return aircraft to us before the return date in their lease agreement or experience insolvency or initiate bankruptcy or similar proceedings that result in aircraft being returned to us. If this occurs, we may not be able to reposition the aircraft with other airlines as quickly as we have historically been able to do or we may incur increased costs in repositioning such aircraft. As a result, our revenues and collection rates would decline.

In addition, as of June 30, 2020, we had commitments to purchase 393 aircraft from Airbus and Boeing for delivery through 2026, and we had placed approximately 90% of our committed order book on long-term leases for aircraft delivering through 2022. The impact of the COVID-19 pandemic on airlines could result in the cancellation of leases that we have in place for our committed orderbook or a decline in the number of aircraft in our order book that we can place into leases prior to their delivery. If we are not able to place aircraft from our orderbook into leases prior to delivery, it may cause downward pressure on our lease rates or require us to sell aircraft in our fleet sooner than anticipated.

During the ~~six~~second quarter, our employees continue to work remotely, and due to travel restrictions and business limitations and shutdowns, some transitions of our aircraft from one lessee to another lessee have been delayed. As a result of travel restrictions, we expect some challenges when transitioning, acquiring or selling aircraft. Some planned aircraft sales have also been delayed or terminated as a result of business limitations and shutdowns. We expect these disruptions to continue and they could worsen. We also expect that demand for used aircraft will decline in the near-term and that we will sell fewer used aircraft in 2020 than we initially planned to sell, and it is unclear what demand for used aircraft will be in 2021. The decline in demand for used aircraft may also result in impairment charges to the aircraft in our fleet.

We have also experienced aircraft delivery delays related to COVID-19. While the commitment table in Note 4, “Commitments and Contingencies” above and the discussion of “Our Fleet” below reflects our current delivery expectations, we are in ongoing discussions with Boeing and Airbus to determine the extent and duration of delivery delays. The delays could result in a cancellation of leases for those aircraft. Pursuant to contractual provisions, a small number of our customers canceled a total of five 737 MAX leases with us and we have subsequently exercised our right to cancel our purchase of such aircraft with Boeing. Given the dynamic nature of the ongoing COVID-19 pandemic, we are not yet able to determine the full impact of the delivery delays, and we expect such delivery dates could materially change, and as a result, our future growth will be negatively impacted.

COVID-19 has also continued to cause disruption in the financial markets and has caused volatility and uncertainty in the bond market. We finance the purchase of aircraft and our business with available cash balances, internally generated funds, including through aircraft sales and trading activity, and debt financings. As of June 30, 2020, we had an undrawn balance of $6.0 billion under our Revolving Credit Facility (as defined below). We have continued to have access to the unsecured debt capital markets issuing $850.0 million in aggregate principal amount of Medium-Term Notes in June 2020 and we believe we will continue to have access to such markets. We could also seek to enter into more secured debt financings, including financings supported through the Export-Import Bank of the United States or other export credit agencies (“ECAs”) to fund future aircraft deliveries from our orderbook. Our liquidity is discussed below in more detail under “Liquidity and Capital Resources.”

While we cannot currently reasonably estimate the extent to which the COVID-19 pandemic and measures taken to contain its spread will ultimately impact our business, we believe the airline industry will eventually recover and aircraft travel will return to historical levels over the long term. We believe we are well positioned to offer solutions for airlines,

because we can offer the ability to lease younger, more fuel-efficient aircraft at a time when airlines will be focused on managing costs.

As the COVID-19 pandemic and efforts to mitigate its spread continue, we expect our business, results of operations and financial condition will continue to be negatively impacted, and could have a larger impact on our results of operations for the third quarter and remainder of this year than has been reflected in our first and second quarter results for 2020. Depending on the severity and longevity of the COVID-19 pandemic, the related efforts taken to reduce its spread, including the recent resurgence of COVID-19 in certain parts of the world, including the United States, and any future resurgences of the virus, the COVID-19 pandemic could have a material, adverse impact on our future revenue growth, liquidity and cash flow. Given the dynamic nature of this situation, we cannot reasonably estimate the impacts of the COVID-19 pandemic on our business, results of operations and financial condition for the foreseeable future.

Second Quarter Overview

During the three months ended June 30, ~~2019,~~2020, we purchased and took delivery of 27one aircraft from our new order pipeline ~~purchased one aircraft in the secondary market~~ and sold ~~six~~four aircraft ending the period with a total of ~~297~~301 aircraft with a net book value of ~~$17.8~~$19.1 billion. The weighted average lease term remaining on our operating lease portfolio was ~~7.2~~7.0 years and the weighted average age of our ~~owned~~ fleet was ~~3.7~~3.9 years as of June 30, ~~2019.~~2020. Our fleet grew by ~~13.0%~~2.2% based on net book value of ~~$17.8~~$19.1 billion as of June 30, ~~2019~~2020, compared to ~~$15.7~~$18.7 billion as of December 31, ~~2018.~~2019. In addition, we had a managed fleet of 6481 aircraft as of June 30, ~~2019,~~2020, compared to a managed fleet of 6183 aircraft as of December 31, ~~2018.~~2019. We ~~have~~had a globally diversified customer base comprised of ~~100~~106 airlines in 5761 countries. As of August ~~8, 2019,~~6, 2020, all aircraft, except for two aircraft, in our operating lease portfolio, ~~except for one aircraft,~~ were subject to letters of intent or lease agreements.

In June 2019, we entered into memorandums of understanding (“MOU”) with Airbus to launch the A321 XLR aircraft and to order the A220 aircraft. Through these MOUs, we have the right to purchase 27 A321 XLR aircraft, 23 A321neo aircraft and 50 A220 aircraft, and we have options for an additional 25 A220 aircraft. In addition, we entered into an MOU with Boeing to convert existing purchase orders of 15 737 MAX aircraft to five 787-9 aircraft. As of June 30, ~~2019,~~2020, we had commitments to purchase ~~343~~393 aircraft from Airbus and Boeing for delivery through ~~2024,~~2026, with an estimated aggregate commitment of ~~$24.1~~$26.2 billion. We ended the second quarter of ~~2019~~2020 with ~~$28.7~~$28.2 billion in committed minimum future rental payments and placed ~~77%~~approximately 90% of our committed order book on long-term leases for aircraft delivering through ~~2021.~~2022. This includes ~~$13.5~~$13.8 billion in contracted minimum rental payments on the aircraft in our existing fleet and ~~$15.2~~$14.4 billion in minimum future rental payments related to aircraft which will be delivered during the remainder of ~~2019~~2020 through ~~2023.~~2024.

~~In 2019, we raised $3.4 billion in debt to finance the growth of our fleet and refinance existing debt maturities, increasing our liquidity position to $5.3 billion.~~ During the ~~first six~~three months ended June 30, 2020, we sold a total of ~~2019,~~four aircraft resulting in proceeds of approximately $87.0 million. As of June 30, 2020, we ~~have~~had one remaining aircraft classified as held for sale and subsequently completed the sale of this aircraft in July 2020. As of June 30, 2020 the aircraft was classified as held for sale and included in Other assets on our Consolidated Balance Sheets.

During the three months ended June 30, 2020, we issued ~~$1.75 billion~~$850.0 million in Medium-Term Notes ~~with maturities ranging between 2021 and 2026 and that bear~~due 2025 bearing interest at a fixed ~~rates between 3.75%~~rate of 3.375% and ~~4.25%,~~repurchased $185.2 million in aggregate principal amount of Floating Rate Medium-Term Notes due 2021. The open market debt repurchases resulted in a gain of $13.6 million and ~~floating rate notes that bear interest at three-month LIBOR plus 0.67%.~~is included in aircraft sales, trading and other revenue in our Consolidated Income Statements. In ~~May 2019,~~addition, we ~~amended and extended our unsecured revolving credit facility and, including commitment increases executed through August 8, 2019, we increased our unsecured revolving credit facility by~~ended the second quarter of 2020 with an aggregate borrowing capacity under the Revolving Credit Facility of ~~$1.3 billion to $5.9~~$6.0 billion and ~~extended the final maturity date to 2023 while maintaining our pricing with an interest rate~~total liquidity of ~~LIBOR plus 1.05% and a facility fee of 0.20%.~~$6.9 billion. We ended the second quarter of ~~2019~~2020 with total debt outstanding ~~net~~ of ~~discounts and issuance costs, of $12.9~~$14.8 billion, of which ~~82.1%~~90.8% was at a fixed rate and ~~96.6%~~97.8% of which was unsecured. Our composite cost of funds ~~was 3.49%~~decreased to 3.15% as of June 30, 2020 as compared to 3.34% as of December 31, 2019.

Our total revenues for the quarter ended June 30, ~~2019~~2020 increased by ~~18.5%~~10.6% to ~~$471.4~~$521.3 million, compared to the quarter ended June 30, ~~2018.~~2019. This increase was principally driven by the continued growth of our fleet. Our net income available to common stockholders for the quarter ended June 30, ~~2019~~2020 was ~~$124.0~~$143.8 million compared to ~~$115.2~~$124.0 million for the quarter ended June 30, ~~2018.~~2019. Our diluted earnings per share for the quarter ended June 30, ~~2019~~2020 was ~~$1.10~~$1.26 compared to ~~$1.04~~$1.10 for the quarter ended June 30, ~~2018.~~2019. The increase in net income available to common stockholders in the second quarter of ~~2019~~2020 as compared to ~~2018~~2019 was primarily due to the continued growth of our ~~fleet.~~fleet and an increase in our aircraft sales, trading and other activity.

~~Table of Contents~~

Our adjusted net income before income taxes excludes the effects of certain non-cash items, one-time or non-recurring items, that are not expected to continue in the future and certain other items. Our adjusted net income before income taxes for the three months ended June 30, ~~2019~~2020 was ~~$170.8~~$194.2 million or ~~$1.51~~$1.71 per diluted share, compared to ~~$160.3~~$170.8 million or ~~$1.44~~$1.51 per diluted share for the three months ended June 30, ~~2018.~~2019. The increase in our adjusted net income before income taxes iswas primarily ~~driven by~~due to the continued growth of our ~~fleet.~~fleet and an increase in our aircraft sales,

trading and other activity. Our adjusted pre-tax profit margin for the three months ended June 30, ~~2019~~2020 was ~~36.2%~~37.3% compared to ~~40.3%~~36.2% for the three months ended June 30, ~~2018.~~2019. Adjusted net income before income taxes, adjusted pre-tax profit margin and adjusted diluted earnings per share before income taxes are measures of financial and operational performance that are not defined by U.S. ~~generally accepted accounting principles~~Generally Accepted Accounting Principles (“GAAP”). See Note 1 under the “Results of Operations” table for a discussion of adjusted net income before income taxes, adjusted pre-tax profit margin and adjusted diluted earnings per share before income taxes as non-GAAP measures and reconciliation of these measures to net income available to common stockholders.

Our Fleet

Portfolio metrics of our fleet as of June 30, ~~2019~~2020 and December 31, ~~2018~~2019 are as follows:


	June 30, 2019		December 31, 2018
					June 30, 2020		December 31, 2019
Aggregate fleet net book value	$	17.8 billion	$	15.7 billion	$	19.1 billion	$	18.7 billion
Weighted-average fleet age⁽¹⁾		3.7 years		3.8 years		3.9 years		3.5 years
Weighted-average remaining lease term⁽¹⁾		7.2 years		6.8 years		7.0 years		7.2 years

Owned fleet		297		275
Managed fleet		64		61
Aircraft on order⁽²⁾		343		372
Owned fleet⁽²⁾						301		292
Managed fleet⁽²⁾						81		83
Aircraft on order						393		413
Aircraft purchase options⁽³⁾		50		50		25		70
Total		754		758		800		858

Current fleet contracted rentals	$	13.4 billion	$	11.8 billion	$	13.8 billion	$	14.1 billion
Committed fleet rentals	$	15.2 billion	$	13.9 billion	$	14.4 billion	$	15.0 billion
Total committed rentals	$	28.6 billion	$	25.7 billion	$	28.2 billion	$	29.1 billion

(1)	Weighted-average fleet age and remaining lease term calculated based on net book value.

(2)

~~Excluded from~~As of June 30, 2020 and December 31, 2019, we had one and eight aircraft, respectively, classified as flight equipment held for sale which are included in Other assets on the ~~table above~~Consolidated Balance Sheet. All of these aircraft are MOUs with Airbus, signed in June 2019, to launch the A321 XLR aircraft and to order the A220 aircraft. Through these MOUs, we have the right to purchase 27 A321 XLR aircraft, 23 A321neo aircraft and 50 A220 aircraft and we have options for an additional 25 A220 aircraft. Also excluded from the ~~table above is an MOU with Boeing, signed~~owned fleet count and included in ~~June 2019, to convert existing purchase orders of 15 737 MAX aircraft to five 787-9 aircraft.~~our managed fleet count.

(3)

As of June 30, 2020, we had options to acquire up to 25 Airbus A220 aircraft. As of December 31, 2019, we had options to acquire up to ~~five Airbus A350-1000 aircraft and~~ 45 Boeing 737-8 MAX aircraft, ~~which does not include options~~that have since expired without being exercised, and up to ~~purchase an additional~~ 25 Airbus ~~A220-300 aircraft pursuant to an MOU executed in June 2019. As of December 31, 2018, we had options to acquire up to five Airbus A350-1000 aircraft and 45 Boeing 737-8 MAX~~A220 aircraft.

~~Table of Contents~~

The following table sets forth the net book value and percentage of the net book value of our flight equipment subject to operating lease in the indicated regions based on each airline’s principal place of business as of June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands, except percentages):


	June 30, 2019				December 31, 2018				June 30, 2020				December 31, 2019
	Net Book				Net Book				Net Book				Net Book
Region	Value		% of Total		Value		% of Total		Value		% of Total		Value		% of Total
Europe	$	5,106,432	28.7	%	$	4,692,341	29.9	%	$	5,748,878	30.1	%	$	5,438,775	29.0	%
Asia (excluding China)		4,288,426	24.2	%		3,846,785	24.5	%		5,242,239	27.4	%		4,985,525	26.7	%
China		3,076,195	17.3	%		2,663,903	17.0	%		2,824,687	14.8	%		2,930,752	15.7	%
The Middle East and Africa		2,216,317	12.5	%		1,952,900	12.4	%		2,285,462	12.0	%		2,242,215	12.0	%
Central America, South America and Mexico		1,275,240	7.2	%		1,078,900	6.9	%		1,095,786	5.7	%		1,116,814	6.0	%
Pacific, Australia and New Zealand		960,922	5.4	%		714,397	4.5	%		975,190	5.1	%		993,858	5.3	%
U.S. and Canada		833,441	4.7	%		757,884	4.8	%		935,831	4.9	%		996,398	5.3	%
Total	$	17,756,973	100.0	%	$	15,707,110	100.0	%	$	19,108,073	100.0	%	$	18,704,337	100.0	%

The following table sets forth the number of aircraft we owned by aircraft type as of June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

June 30, 2019

December 31, 2018

Number of

Number of

Aircraft type

Aircraft

% of Total

Aircraft

% of Total

Airbus A319-100

1

0.3
%
1

0.4
%
Airbus A320-200

33

11.1
%
35

12.7
%
Airbus A320-200neo

9

3.0
%
6

2.2
%
Airbus A321-200

34

11.6
%
34

12.4
%
Airbus A321-200neo

23

7.7
%
14

5.1
%
Airbus A330-200

14

4.7
%
15

5.4
%
Airbus A330-300

6

2.0
%
5

1.8
%
Airbus A330-900neo

5

1.7
%
1

0.4
%
Airbus A350-900

9

3.0
%
6

2.2
%
Boeing 737-700

4

1.4
%
4

1.4
%
Boeing 737-800

96

32.3
%
98

35.6
%
Boeing 737-8 MAX

15

5.1
%
14

5.1
%
Boeing 767-300ER

1

0.3
%
1

0.4
%
Boeing 777-200ER

1

0.3
%
1

0.4
%
Boeing 777-300ER

24

8.1
%
24

8.7
%
Boeing 787-9

21

7.1
%
15

5.4
%
Embraer E190

1

0.3
%
1

0.4
%
Total⁽¹⁾

297

100.0
%
275

100.0
%

~~(1)~~

~~As of June 30, 2019 and December 31, 2018, we had three aircraft held for sale and six aircraft held for sale, respectively.~~


	June 30, 2020			December 31, 2019
	Number of			Number of
Aircraft type	Aircraft	% of Total		Aircraft	% of Total
Airbus A319-100	1	0.3	%	1	0.3	%
Airbus A320-200	21	7.0	%	21	7.2	%
Airbus A320-200neo	16	5.3	%	13	4.5	%
Airbus A321-200	28	9.3	%	28	9.6	%
Airbus A321-200neo	39	13.0	%	35	12.0	%
Airbus A330-200	13	4.3	%	12	4.1	%
Airbus A330-300	8	2.7	%	7	2.4	%
Airbus A330-900neo	7	2.3	%	7	2.4	%
Airbus A350-900	10	3.3	%	10	3.4	%
Boeing 737-700	4	1.3	%	4	1.4	%
Boeing 737-800	84	28.0	%	85	29.1	%
Boeing 737-8 MAX	15	5.0	%	15	5.1	%
Boeing 767-300ER	—	—	%	1	0.3	%
Boeing 777-200ER	1	0.3	%	1	0.3	%
Boeing 777-300ER	24	8.0	%	24	8.2	%
Boeing 787-9	23	7.6	%	23	8.0	%
Boeing 787-10	6	2.0	%	4	1.4	%
Embraer E190	1	0.3	%	1	0.3	%
Total	301	100.0	%	292	100.0	%

~~Table of Contents~~

As of June 30, ~~2019,~~2020, we had commitments to acquire a total of ~~343~~393 new aircraft for delivery through 2026 as follows:


								Estimated Delivery Years
Aircraft Type	2019	2020	2021	2022	2023	Thereafter	Total	2020	2021	2022	2023	2024	Thereafter	Total
Airbus A320/321neo⁽¹⁾	16	27	32	25	25	—	125
Airbus A220-300⁽¹⁾								—	—	3	14	11	22	50
Airbus A320/321neo⁽²⁾								14	22	23	25	32	37	153
Airbus A330-900neo	4	2	5	6	2	—	19	—	3	7	5	—	—	15
Airbus A350-900/1000	1	3	6	3	2	—	15	3	4	3	4	5	1	20
Boeing 737-7/8/9 MAX	—	41	48	31	25	5	150	2	24	23	42	30	—	121
Boeing 787-9/10	6	13	7	8	—	—	34	8	6	8	10	2	—	34
Total⁽²⁾⁽³⁾	27	86	98	73	54	5	343
Total								27	59	67	100	80	60	393

(1)	In addition to our commitments, as of June 30, 2020, we had options to acquire up to 25 Airbus A220 aircraft. If exercised, deliveries of these aircraft are scheduled to commence in 2023 and continue through 2028.

(2)	Our Airbus A320/321neo aircraft orders include 5647 long-range ~~variants.~~

~~(2)~~

~~In addition to the aircraft from our orderbook, we have a commitment to purchase one used Airbus A330-300 aircraft from a third party, which is scheduled for delivery in 2019.~~

~~(3)~~

~~Excluded from the table above are MOUs with Airbus, signed in June 2019, to launch the A321 XLR aircraft~~variants and to order the A220 aircraft. Through these MOUs, we have the right to purchase 27 A321 XLR aircraft, 23 A321neo aircraft and 50 A220 aircraft and we have options for an additional 25 A220 aircraft. Also excluded from the table above is an MOU with Boeing, signed in June 2019, to convert existing purchase orders of 15 737 MAX aircraft to five 787-9 aircraft.29 extra long-range variants.

Aircraft Delivery Delays

Pursuant to our purchase agreements with Boeing and Airbus ~~has informed us~~for new aircraft, we and each manufacturer agree to ~~expect~~contractual delivery dates for each aircraft ordered. These dates can change for a variety of reasons, and in the last several ~~months of~~years manufacturing delays have significantly impacted our actual delivery dates. For several years, we have experienced delivery delays ~~relating~~for certain of our Airbus orderbook aircraft, primarily the A321neo aircraft and, to ~~certain~~a lesser extent, A330neo aircraft. The worldwide grounding of the Boeing 737 MAX aircraft ~~scheduled for delivery in~~(“737 MAX”) began on March 10, 2019, and ~~2020. In addition, global aviation authorities have~~remains in effect. As a result, Boeing temporarily halted ~~operations~~production and delivery of all 737 MAX aircraft. While production of the ~~global~~ 737 MAX ~~fleet~~has now resumed in the second quarter, deliveries remain on hold. The Federal Aviation Administration (“FAA”) has begun flight testing for recertification of the 737 MAX. Lifting of the grounding is subject to the approval of the FAA, as well as a number of other global regulatory authorities, and ~~Boeing has halted deliveries of such aircraft. Accordingly,~~ we are ~~expecting that~~unable to speculate as to when this may occur. Even after the grounding is lifted, Boeing’s ability to deliver 737 MAX aircraft may be impacted as a result of the COVID-19 pandemic. We are currently in discussions with Boeing regarding the mitigation of possible damages resulting from the grounding of, and the delivery delays associated with the 737 MAX aircraft ~~originally scheduled for~~that we own or have on order, which could result in changes to the commitment table.

The ongoing COVID-19 pandemic has caused delivery ~~to us in 2019 will be delayed. These expected~~ delays ~~have been reflected~~of aircraft in our ~~commitment schedules above.~~orderbook and is expected to continue to cause delays of aircraft deliveries. As discussed in further detail above in “Impact of COVID-19 Pandemic,” the pandemic has resulted in numerous travel restrictions and business shutdowns or other operating limitations, including the temporary closure of final aircraft assembly facilities for each of Boeing and Airbus. In the second quarter of 2020, Boeing and Airbus resumed production in these facilities.

As a result of the temporary closures of the Boeing and Airbus facilities, most of our expected aircraft deliveries were delayed during the second quarter. Given the dynamic nature of the ongoing COVID-19 pandemic, we are in ongoing discussions with Boeing and Airbus to determine the impact and duration of delivery delays. However, we are not yet able to determine the impact of the delivery delays, and as such, the delivery dates listed above could materially change.

The aircraft purchase commitments discussed above also could be impacted by lease cancellation. Our leases ~~contain lessee~~typically provide that we and our airline customer each have a cancellation ~~clauses~~right related to certain aircraft delivery ~~delays, typically for aircraft delays greater than one year.~~delays. Our purchase agreements ~~contain similar clauses. As~~with Boeing and Airbus also generally provide that the Company and the manufacturer each have cancellation rights that typically are parallel with our cancellation rights in our leases. Our leases and our purchase agreements with Boeing and Airbus generally provide for cancellation rights starting at one year after the original contractual delivery date, regardless of ~~August 8, 2019, none~~cause. Pursuant to contractual provisions, a small number of our ~~lease contracts or~~customers canceled a total of five 737 MAX leases with us and we have subsequently exercised our right to cancel our purchase ~~agreements were subject to cancellation~~of the related ~~to these~~737 MAX aircraft ~~delivery delays.~~with Boeing. We believe that the majority of our 737 MAX aircraft deliveries in our orderbook will be delayed more than 12 months.

In addition to our commitments, as of June 30, 2019, we had options to acquire up to five Airbus A350-1000 aircraft and 45 Boeing 737-8 MAX aircraft. Deliveries of these aircraft are scheduled to commence in 2023 and continue through 2024.

~~Our lease placements are progressing in line with expectations.~~ The following table, which is subject to change based on Airbus and Boeing delivery delays, shows the number of new aircraft scheduled to be delivered as of June 30, ~~2019, along with~~2020. As noted above, we expect delivery delays for all aircraft deliveries in our orderbook, including Boeing 737 MAX delivery delays after the ~~lease placements~~grounding of such aircraft asis lifted. We remain in discussions with Boeing and Airbus to determine the extent and duration of ~~August 8, 2019:~~delivery delays, but given the dynamic nature of the ongoing COVID-19 pandemic, we are not yet able to determine the full impact of the delivery delays.


	Number of	Number			Number of	Number
Delivery Year	Aircraft	Leased	% Leased		Aircraft	Leased	% Leased
2019	27	27	100.0	%
2020	86	83	96.5	%	27	27	100.0	%
2021	98	52	53.1	%	59	57	96.6	%
2022	73	24	32.9	%	67	53	79.1	%
2023	54	4	7.4	%	100	33	33.0	%
2024					80	11	13.8	%
Thereafter	5	—	—	%	60	—	—	%
Total	343	190			393	181

Aircraft Industry and Sources of Revenues

Our revenues are principally derived from operating leases with scheduled and charter ~~airlines. In each~~airlines throughout the world. As of ~~the last four calendar years,~~June 30, 2020, we ~~derived more than~~have a globally diversified customer base comprised of 106 airlines in 61 different countries, with over 95% of our business revenues from airlines domiciled outside of the U.S., and we anticipate that most of our revenues in the future will be generated from foreign customers.

~~Demand for~~Performance of the commercial airline industry is linked to global economic health and development, which may be negatively impacted by economic disruption, macroeconomic conditions and geopolitical and policy risks, among other factors. COVID-19 has caused significant disruption to the commercial airline industry resulting in a meaningful decline in air travel ~~has consistently grown in terms of both passenger traffic~~demand and ~~number of~~subsequent flight cancellations, negatively impacting airlines, aircraft ~~in service.~~manufacturers, and other related businesses. The International Air Transport Association (“IATA”) reported that passenger traffic fell 58.4% year-over-year for the first six months of ~~2019 grew 4.7%~~2020 and 86.5% year-over-year for the month of June 2020, primarily due to COVID-19. As a result, IATA expects airline passenger volumes to fall 55% in 2020 as compared to 2019, before recovering an estimated 62% from the ~~same period~~predicted 2020 levels in ~~2018. The number of aircraft~~2021, albeit with 2021 passenger volumes still below peak levels achieved in ~~service has grown steadily~~2019. While domestic and regional airline traffic have improved over the ~~number of leased aircraft in the global fleet has increased. The long-term outlook for aircraft~~last several months, international and business air travel demand ~~remains robust due to increased passenger traffic and the need to replace aging aircraft.~~

remain challenged.

2023

~~Table~~

We expect a significant increase in financial difficulties for our airline customers through the remainder of ~~Contents~~

~~In March 2019, aviation authorities worldwide suspended~~2020 and potentially longer, including the ~~operations~~need for lease deferrals or other lease concessions, requests to return aircraft early or defaults. We expect increased airline reorganizations, liquidations, or other forms of bankruptcies, which may include our aircraft customers and result in the early return of aircraft or changes in our lease terms. As of the date of this filing, we had 11 aircraft across three airlines which were subject to various forms of insolvency proceedings.

Approximately 75% of the net book value of our fleet are leased to flag carriers or airlines that have some form of governmental ownership; however, this does not guarantee our ability to collect contractual rent payments. We believe that having a large portion of the net book value of our fleet on lease with flag carriers or airlines with some form of governmental ownership, coupled with the overall quality of our aircraft and security deposits and maintenance reserves under our leases will help mitigate our customer risk.

We expect the aviation industry to recover over time from the impact of COVID-19, and in the long-term we remain optimistic. While we believe some aircraft lessors may consolidate or cease operations as a result of the pandemic, we believe the aircraft leasing industry has remained resilient over time across a variety of global economic conditions and remain optimistic about the long-term fundamentals of our business. As a result of the COVID-19 pandemic, some airlines have accelerated their plans to retire older, less fuel-efficient aircraft that have higher maintenance costs in the current environment, and we anticipate that airlines will continue to accelerate the retirement of this type of aircraft, ultimately increasing demand for newer aircraft over time. We also anticipate that when airlines need to add new aircraft to their fleet, they will increasingly elect to lease aircraft instead of purchasing aircraft to reduce capital requirements and manage other operating expenses, and that we will benefit from that trend. A number of these trends have already begun during the last several months and we continue to closely monitor market impact from the pandemic.

We and airlines around the world have continued to experience delivery delays from Boeing and Airbus, from which we have 393 aircraft on order as of June 30, 2020, as discussed above in “Our Fleet.” The Airbus delays and the 737 MAX grounding have impacted the growth of our company as well as the growth of our airline customers, passenger growth and airline profitability and we expect this to continue. As a result of continued production delays and the impact of COVID-19, we expect aircraft deliveries to be lower than previously anticipated for 2020 and delivery delays could potentially extend well into 2021 and beyond.

The worldwide grounding of the 737 MAX began on March 10, 2019, and remains in effect. As a result, Boeing temporarily halted production and delivery of all 737 MAX aircraft. ~~Accordingly, Boeing~~While production of the 737 MAX has ~~temporarily halted~~now resumed, deliveries remain on hold. Since March of ~~all Boeing~~2019, airlines affected by this grounding have had to adjust flight schedules or cancel flights, back fill aircraft with other aircraft types or keep older aircraft in service longer. These operational changes and the uncertainty of when the 737 MAX aircraft will return to service and when Boeing will resume deliveries have impacted the profitability of certain airlines. The FAA has ~~informed us~~begun flight testing for recertification of the 737 MAX. Lifting of the grounding is subject to ~~expect several months~~the approval of ~~delivery delays until Boeing~~the FAA, as well as a number of other global regulatory authorities, and we are unable to speculate as to when this may occur. Even after the grounding is ~~able~~lifted, Boeing’s ability to ~~resolve this matter.~~ deliver 737 MAX aircraft may be impacted as a result of the COVID-19 pandemic.

As of June 30, ~~2019,~~2020, we owned and leased 15 ~~Boeing~~ 737 MAX aircraft and ~~all~~we had 121 737 MAX aircraft on order. Because of the uncertainty on the duration of the grounding, we have curtailed our leasing of our ~~leases contain Hell or High Water provisions, which require~~MAX orderbook aircraft. With respect to the 15 737 MAX aircraft we own and lease, our airline customers are obligated to continue to make payments under the lease, irrespective of any difficulties in which the lessees may ~~encounter. In addition,~~encounter, including an aircraft fleet grounding. Some of our airline customers for these 15 737 MAX aircraft lease payments are in arrears.

We expect that if the grounding continues for an extended time, or if there are significant 737 MAX delivery delays even after the grounding is lifted as a result of the impact of the COVID-19 pandemic, more of our customers may seek to cancel their lease contracts with us. As of June 30, 2020, a small number of our customers canceled a total of five 737 MAX leases with us and we have subsequently exercised our right to cancel our purchase of the related 737 MAX aircraft with Boeing. It is unclear at this point if we will cancel more of our 737 MAX delivery positions with Boeing or attempt to find replacement lessees. We are currently in discussions with Boeing regarding the mitigation of possible damages resulting from the grounding of and the delivery delays associated with ~~Boeing~~the 737 MAX aircraft that we own and have on order.

~~The success~~24

For several years, Airbus has also had delivery delays for certain of its aircraft, primarily the A321neo aircraft and, to a lesser extent, A330neo aircraft. Those delays are continuing and have worsened. Airbus has told us to continue to expect several months of delivery delays relating to such aircraft scheduled to deliver through 2022. These delays also have impacted airline operations and the profitably of certain airlines.

Further as it relates to Airbus aircraft, in October 2019, the Office of the ~~commercial airline industry~~U.S. Trade Representative announced a 10% tariff on new aircraft imported from Europe, including Airbus aircraft. The U.S. government has recently made statements and taken certain actions that have led to, and may lead to, further changes to U.S. and international trade policies, including recently imposed tariffs affecting certain products exported by a number of U.S. trading partners, such as Europe and China. In response, many U.S. trading partners, including Europe and China, have imposed or proposed new or higher tariffs on U.S. products. We are currently monitoring the impact of this announcement on our future Airbus deliveries to U.S. customers. We cannot predict what further actions may ultimately be taken with respect to tariffs or trade relations between the U.S. and U.S. trading partners. Accordingly, it is ~~linked~~difficult to predict exactly how, and to what extent, such actions may impact our business, or the ~~strength~~business of ~~global economic development, which~~our lessees or aircraft manufacturers. Any unfavorable government policies on international trade, such as capital controls or tariffs, may ~~be negatively impacted by macroeconomic conditions and geopolitical and policy risks. Nevertheless, across a variety of global economic conditions,~~affect the ~~leasing industry has remained resilient over time. We remain optimistic about the long-term growth prospects for air transportation. We see a growing~~ demand for aircraft, increase the cost of aircraft components, further delay production, impact the competitive position of certain aircraft manufacturers or prevent aircraft manufacturers from being able to sell aircraft in certain countries. Our leases are primarily structured as triple net leases, whereby the lessee is responsible for all operating costs including taxes, insurance, and aircraft maintenance.

Given the impact of COVID-19 on our industry, it is unclear at this time how competition within the aircraft leasing industry will evolve or change in the ~~broader industry~~coming months and what the corresponding impact on lease rates will be as a ~~role for us in helping airlines modernize their fleets to support the growth~~result of the ~~airline industry. However, with~~change in the ~~growth in~~competitive landscape, COVID-19, trade matters, the aircraft ~~leasing worldwide, we are witnessing an increase in competition among aircraft lessors resulting in more variation in lease rates.~~delays from Airbus and Boeing or other items.

Liquidity and Capital Resources

Overview

We finance the purchase of aircraft and our business with available cash balances, internally generated funds, including through aircraft sales and trading activity, and an array of debt ~~financings.~~financing products. We have structured ourselves with the goal to maintain investment-grade credit metrics and our debt financing strategy has focused on funding our business on an unsecured ~~basis.~~basis with primarily fixed-rate debt. Unsecured financing provides us with operational flexibility when selling or transitioning aircraft from one airline to ~~another. In addition, we may,~~another and also reduces structural subordination in our capital structure. We also have the ability to seek debt financing secured by our assets, as well as financings supported through the Export-Import Bank of the United States and other export credit agencies for future aircraft deliveries. Our access to a ~~limited extent, utilize export credit~~variety of financing ~~or other forms~~alternatives including unsecured public bonds, private capital, bank debt and secured markets serves as a key advantage in managing our liquidity. Additionally, we only have approximately $295.8 million in debt maturities for the remainder of ~~secured~~2020, which serves to limit our near-term financing ~~in support~~needs. Aircraft delivery delays as a product of the COVID-19 pandemic and the 737 MAX grounding are expected to further reduce our ~~new aircraft deliveries.~~debt financing needs this year and potentially beyond. We continue to monitor COVID-19 and its impact on our overall liquidity position and outlook.

We ended the second quarter of ~~2019~~2020 with total debt outstanding, net of discounts and issuance costs, of ~~$12.9~~$14.6 billion compared to ~~$11.5~~$13.6 billion as of December 31, ~~2018.~~2019. Our unsecured debt increased to ~~$12.6~~$14.5 billion as of June 30, ~~2019~~2020 from ~~$11.3~~$13.3 billion as of December 31, ~~2018.~~2019. Our unsecured debt as a percentage of total debt increased to ~~96.6%~~97.8% as of June 30, ~~2019~~2020 from ~~96.5%~~96.6% as of December 31, 2018. We also issued 10,000,000 shares of 6.150% Fixed-to-Floating Non-Cumulative Perpetual Preferred Stock, Series A (the "Series A Preferred Stock"), $0.01 par value, with a liquidation preference of $25.00 per share during the first half of 2019.

~~We increased our~~Our cash flows provided by operating activities decreased by ~~11.6%~~28.6% or ~~$68.3~~$187.9 million, to $468.3 million for the six months ended June 30, 2020 as compared to $656.2 million for the six months ended June 30, ~~2019 as compared to $588.0 million for the six months ended June~~ ~~30, 2018.~~2019. The ~~increase~~decrease in our cash flow provided by operating activities is primarily due to ~~the~~an increase in ~~our net income and growth~~deferred lease payments during the quarter as a result of ~~our fleet.~~the COVID-19 pandemic. Our cash flow used in investing activities was ~~$2.3 billion~~$902.6 million for the six months ended June 30, ~~2019,~~2020, which resulted primarily from the purchase of aircraft, partially offset by proceeds from our sales and trading activity. Our cash flow provided by financing activities was ~~$1.6~~$1.0 billion for the six months ended June 30, ~~2019,~~2020, which resulted primarily from the issuance of unsecured notes ~~and the issuance of preferred stock during the first six months of 2019,~~ partially offset by the repayment of outstanding debt. We expect the impact of COVID-19, including as a result of rent deferrals and other lease concessions made or that

we may make in the future to our customers, will continue to have negative impact on cash flow from operating activities.

We ended the second quarter of ~~2019~~2020 with available liquidity of ~~$5.3~~$6.9 billion which is comprised of unrestricted cash of ~~$264.1~~$926.4 million and an ~~undrawn balance~~available borrowing capacity under our ~~committed unsecured revolving credit facility~~Revolving Credit Facility of ~~$5.1~~$6.0 billion. Our Revolving Credit Facility does not condition our ability to borrow on the lack of a material adverse effect to us or the general economy. We believe that we have sufficient liquidity to satisfy the operating requirements of our business through at least next 12 months. A key component of the ~~next twelve months.~~ongoing liquidity available to us is our Revolving Credit Facility, for which the substantial majority of the commitments mature in 2023. Our Revolving Credit Facility is syndicated across 49 financial institutions from around various regions of the world, diversifying our reliance on any individual lending institution. We continue to utilize our Revolving Credit Facility in the normal course of business.

~~Our financing plan for~~The ultimate impact the COVID-19 pandemic may have on our business, results of operations and financial condition over the next ~~twelve~~12 months is ~~focused~~currently uncertain and will depend on ~~funding~~certain developments, including, among others, the ~~purchase~~impact of the COVID-19 pandemic on our airline customers and the magnitude and duration of the pandemic. We currently believe that our cash on hand, current debt arrangements and general ability to access the capital markets will be sufficient to finance our operations and fund our debt service requirements and capital expenditures, including aircraft ~~including~~acquisition over the increased aircraft deliveries we expect in 2019, and our business with available cash balances, internally generated funds, including through aircraft sales and trading activities, and debt financings. Ournext 12 months. We also have the ability to seek debt financing ~~plan continues to focus on raising unsecured debt in~~secured by our assets, as well as financings supported through the ~~global bank~~Export-Import Bank of the United States and ~~investment grade capital markets. In addition, we may utilize, to a limited extent,~~other export credit ~~financing in support of our new~~agencies, or ECAs for future aircraft deliveries.

~~Table~~As of ~~Contents~~

~~We are~~June 30, 2020, we were in compliance in all material respects with the covenants contained in our debt agreements. ~~While a~~A ratings downgrade ~~would~~will not result in a default under any of our debt agreements, but it could adversely affect our ability to issue debt and obtain new financings, or renew existing financings, and it would increase the costs of certain financings. Our liquidity plans are subject to a number of risks and uncertainties, including those described in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019, and in our Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2019.~~2020.

Debt

Our debt financing was comprised of the following at June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands, except percentages):


	June 30, 2019			December 31, 2018
							June 30, 2020			December 31, 2019
Unsecured
Senior notes	$	10,950,000		$	10,043,445		$	13,509,411		$	12,357,811
Revolving credit facilities		801,000			602,000
Term financings		800,250			607,340			972,625			883,050
Revolving credit facility								—			20,000
Total unsecured debt financing		12,551,250			11,252,785			14,482,036			13,260,861
Secured
Term financings		411,343			371,203			298,552			428,824
Export credit financing		34,938			38,265			28,283			31,610
Total secured debt financing		446,281			409,468			326,835			460,434

Total debt financing		12,997,531			11,662,253			14,808,871			13,721,295
Less: Debt discounts and issuance costs		(138,287)			(123,348)			(169,826)			(142,429)
Debt financing, net of discounts and issuance costs	$	12,859,244		$	11,538,905		$	14,639,045		$	13,578,866
Selected interest rates and ratios:
Composite interest rate⁽¹⁾		3.49	%		3.46	%		3.15	%		3.34	%
Composite interest rate on fixed-rate debt⁽¹⁾		3.49	%		3.42	%		3.31	%		3.39	%
Percentage of total debt at fixed-rate		82.07	%		86.41	%		90.84	%		88.40	%

(1)	This rate does not include the effect of upfront fees, facility fees, undrawn fees or amortization of debt discounts and issuance costs.

Senior unsecured notes (including Medium-Term Note Program)

As of June 30, ~~2019,~~2020, we had ~~$11.0~~$13.5 billion in senior unsecured notes outstanding. As of December 31, ~~2018,~~2019, we had ~~$10.0~~$12.4 billion in senior unsecured notes outstanding.

During the six months ended June 30, ~~2019,~~2020, we issued ~~approximately $1.75~~$2.3 billion in aggregate principal amount of Medium-Term Notes comprised of (i) ~~$700.0~~$750.0 million due ~~2024~~2025 at a fixed rate of ~~4.25%~~2.30%, (ii) ~~$750.0~~$650.0 million due ~~2026~~2030 at a fixed rate of ~~3.75%~~3.00% and (iii) ~~$300.0~~$850.0 million due ~~2021 that bear interest~~2025 at a ~~floating~~fixed rate of ~~three-month LIBOR plus 0.67%~~3.375%.

During the quarter ended June 30, 2020, we repurchased $185.2 million in aggregate principal amount of Floating Rate Medium-Term Notes due 2021. The open market debt repurchases resulted in a gain of $13.6 million and is included in Aircraft sales, trading and other revenue in our Consolidated Income Statements.

Unsecured revolving credit ~~facilities~~facility

As of June 30, ~~2019,~~2020, we did not have amounts outstanding under the ~~total outstanding balance on our unsecured revolving credit facilities was approximately $801.0 million.~~Revolving Credit Facility. The total amount outstanding ~~balance~~ under ~~our unsecured revolving credit facilities~~the Revolving Credit Facility was ~~approximately $602.0~~$20.0 million as of December 31, ~~2018.~~2019.

InWe have an unsecured revolving credit facility with JPMorgan Chase Bank, N.A., as agent (the “Revolving Credit Facility”). During the six months ended June 30, 2020, we increased the aggregate capacity of our unsecured revolving credit facility by $250.0 million. On May ~~2019, we amended and extended~~5, 2020, commitments totaling $92.7 million of our committed unsecured revolving credit facility ~~whereby, among other things, we extended~~matured. As of June 30, 2020, the ~~final maturity date from May 5, 2022 to May~~ ~~5, 2023 and, after giving effect to commitments that matured on May 5, 2019, increased the total revolving commitments to approximately $5.8 billion, representing an increase~~aggregate capacity of ~~26.6% from December 31, 2018, with an interest rate of LIBOR plus 1.05% with a 0.20% facility fee. On July 31, 2019, the Company executed a commitment increase to its~~our committed unsecured revolving credit facility ~~which increased the aggregate facility capacity by an additional $58.0 million. As of July 31, 2019, lenders held~~was approximately $6.0 billion. Lenders hold revolving commitments totaling approximately $5.5 billion that mature on May 5, 2023, commitments totaling $245.0 million that mature on

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May 5, 2022 and commitments totaling ~~approximately~~ $5.0 million that mature on May 5, ~~2021, and commitments totaling $92.7 million that mature on May 5, 2020.~~2021.

As of June 30, ~~2019,~~2020, borrowings under ~~the~~our committed unsecured revolving credit facility will generally bear interest at either (a) LIBOR plus a margin of 1.05% per year or (b) an alternative base rate plus a margin of 0.05% per year, subject, in each case, to increases or decreases based on declines in the credit ratings for our debt. We are required to pay a facility fee of 0.20% per year (also subject to increases or decreases based on declines in the credit ratings for our debt) in respect of total commitments under ~~the committed~~our unsecured revolving credit facility. Borrowings under ~~the~~our committed unsecured revolving credit facility are used to finance our working capital needs in the ordinary course of business and for other general corporate purposes.

Secured debt financing

In June 2020, we entered into an amendment to our secured warehouse facility to extend the final maturity to June 2021. The facility will continue to bear a floating interest rate of LIBOR plus 2.00%. As part of the amendment, the credit facility was converted to full recourse against us and excess cash collateral was released. The outstanding balance on our secured warehouse facility was $103.1 million and $128.5 million as of June 30, 2020 and December 31, 2019, respectively.

As of June 30, 2020, the outstanding balance on our secured debt financings, including our secured warehouse facility and our export credit financing, was $326.8 million and we had pledged 12 aircraft as collateral with a net book value of $644.5 million. As of December 31, 2019, the outstanding balance on our secured debt financings, including our secured warehouse facility and our export credit financing, was $460.4 million and we had pledged 15 aircraft as collateral with a net book value of $890.7 million.

Preferred equity

On March 5, 2019, we issued 10,000,000 shares of 6.150% Fixed-to-Floating Non-Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”), $0.01 par value, with a liquidation preference of $25.00 per share. We will pay dividends on the ~~preferred stock~~Series A Preferred Stock only when, as and if declared by the board of directors. Dividends will accrue, on a non-cumulative basis, on the stated amount of $25.00 per share at a rate per annum equal to: (i) ~~6.15%~~6.150% during the first five years and payable quarterly in arrears beginning on June 15, 2019, and (ii) three-month LIBOR plus a spread of ~~3.65%~~3.650% per annum from March 15, 2024, reset quarterly and payable quarterly in arrears beginning on June 15, 2024.

We may redeem shares of the Series A Preferred Stock at our option, in whole or in part, from time to time, on or after March 15, 2024, for cash at a redemption price equal to $25.00 per share, plus any declared and unpaid dividends to, but excluding, the redemption date, without accumulation of any undeclared dividends. We may also redeem shares of the Series A Preferred Stock at our option under certain other limited conditions.

On May ~~8, 2019,~~6, 2020, our board of directors also approved a ~~quarterly~~ cash dividend of ~~$0.427083~~$0.384375 per share on our outstanding Series A Preferred Stock, which was paid on June 15, ~~2019~~2020 to holders of record of our Series A Preferred Stock as of May 31, ~~2019.~~2020.

On August 5, 2020, our board of directors also approved a cash dividend of $0.384375 per share on our outstanding Series A Preferred Stock, which will be paid on September 15, 2020 to holders of record of our Series A Preferred Stock as of August 31, 2020.

Potential Impact of LIBOR Transition

As of June 30, 2020, we had approximately $1.4 billion of floating rate debt outstanding that used LIBOR as the applicable reference rate to calculate the interest on such debt. Additionally, our Series A Preferred Stock will in the future accrue dividends at a floating rate determined by reference to LIBOR, if available. The Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates LIBOR, has announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021. That announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. Moreover, it is possible that LIBOR will be discontinued or modified prior to 2021. The U.S. Federal Reserve and the Bank of England have begun publishing a Secured Overnight Funding Rate and a reformed Sterling Overnight Index Average, respectively, which are currently intended to serve as alternative reference rates to LIBOR. At this time, however, it is not possible to predict the establishment of any market-accepted alternative reference rates or any other reforms to LIBOR and the effect of any such changes.

Furthermore, due to the uncertainty surrounding the discontinuation of LIBOR and the effects resulting therefrom, financial market participants have yet to establish standard fallback provisions governing the calculation of floating rate interest and dividends in the event LIBOR is unavailable. The lack of a market practice and inconsistency in fallback provisions is reflected across our floating rate debt and Series A Preferred Stock and the discontinuation of LIBOR could lead to unexpected outcomes that may vary between our various debt and equity securities that reference LIBOR to determine the rate in which interest or dividends, as applicable, accrue. For example, if LIBOR is discontinued, the various fallback provisions contained in our floating rate debt agreements could lead to such debt bearing interest at, among other things, a rate of interest equal to the interest rate last in effect for which LIBOR was determinable, a floating rate determined in reference to a predetermined fallback reference rate or an alternative reference rate to be agreed upon by the parties to such agreement, and a rate of interest representative of the cost to applicable lenders of funding their participation in the debt.

If the rate used to calculate interest on our outstanding floating rate debt that currently uses LIBOR and our Series A Preferred Stock were to increase by 1.0% either as a result of an increase in LIBOR or the result of the use of an alternative reference rate determined under the fallback provisions in the applicable debt if LIBOR is discontinued, we would expect to incur additional interest expense on such indebtedness as of June 30, 2020 of approximately $13.6 million on an annualized basis. Further, if LIBOR is discontinued and there is no acceptable alternative reference rate, some of our floating rate debt, including certain senior unsecured notes issued under our Medium-Term Note Program, may effectively become fixed rate debt. As a result, the cost of this debt would increase to us if and as interest rates decreased.

While we do not expect the potential impact of any LIBOR transition to have a material effect on our financial results based on our currently outstanding debt, uncertainty as to the nature of potential changes to LIBOR, fallback provisions, alternative reference rates or other reforms could adversely impact our interest expense on our floating rate debt that currently uses LIBOR as the applicable reference rate and our Series A Preferred Stock. In addition, any alternative reference rates to LIBOR may result in interest or dividend payments that do not correlate over time with the payments that would have been made on our indebtedness or Series A Preferred Stock, respectively, if LIBOR was available in its current form. Further, the discontinuance or modification of LIBOR and uncertainty of an alternative reference rate may result in the increase in the cost of future indebtedness, which could have a material adverse effect on

our financial condition, cash flow and results of operations. We intend to closely monitor the financial markets and the use of fallback provisions and alternative reference rates in 2020 in anticipation of the discontinuance or modification of LIBOR by the end of 2021.

Credit ratings

Our investment-grade corporate and long-term debt credit ratings help us to lower our cost of funds and broaden our access to attractively priced capital. In July 2019, Fitch Ratings reaffirmed its issuer and senior unsecured debt ratings and outlook. The following table summarizes our current credit ratings:


Rating Agency	Long-term Debt	Corporate Rating	Outlook	Date of Last Ratings Action
Kroll Bond Ratings	A-	A-	~~Stable~~Negative	~~December 14, 2018~~ March 26, 2020
Standard and Poor's	BBB	BBB	~~Stable~~Negative	~~December 18, 2018~~April 10, 2020
Fitch Ratings	BBB	BBB	~~Stable~~Negative	July ~~15, 2019~~ 9, 2020

While a ratings downgrade would not result in a default under any of our debt agreements, it could adversely affect our ability to issue debt and obtain new financings, or renew existing financings, and it would increase the cost of our financings.

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Results of Operations

The following table presents our historical operating results for the three and six month periods ended June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands, except per share amounts and percentages):


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019

	(unaudited)												(unaudited)
Revenues
Rental of flight equipment	$	463,870		$	393,479		$	919,609		$	771,341		$	497,869		$	463,870		$	994,556		$	919,609
Aircraft sales, trading and other		7,525			4,335			17,837			7,682			23,480			7,525			38,180			17,837
Total revenues		471,395			397,814			937,446			779,023			521,349			471,395			1,032,736			937,446
Expenses
Interest		96,824			73,452			186,044			142,395			102,693			96,824			210,234			186,044
Amortization of debt discounts and issuance costs		8,712			8,010			17,252			16,032			10,233			8,712			20,761			17,252
Interest expense		105,536			81,462			203,296			158,427			112,926			105,536			230,995			203,296
Depreciation of flight equipment		171,689			142,600			331,160			278,734			194,020			171,689			382,915			331,160
Selling, general and administrative		27,771			21,458			57,473			44,817			26,581			27,771			54,903			57,473
Stock-based compensation		5,863			4,885			10,037			8,317			3,892			5,863			8,321			10,037
Total expenses		310,859			250,405			601,966			490,295			337,419			310,859			677,134			601,966
Income before taxes		160,536			147,409			335,480			288,728			183,930			160,536			355,602			335,480
Income tax expense		(32,231)			(32,198)			(69,081)			(62,866)			(36,305)			(32,231)			(70,826)			(69,081)
Net income	$	128,305		$	115,211		$	266,399		$	225,862		$	147,625		$	128,305		$	284,776		$	266,399
Preferred stock dividends		(4,271)			—			(4,271)			—			(3,844)			(4,271)			(7,688)			(4,271)
Net income available to common stockholders	$	124,034		$	115,211		$	262,128		$	225,862		$	143,781		$	124,034		$	277,088		$	262,128

Earnings per share of Class A and B common stock
Earnings per share of common stock
Basic	$	1.11		$	1.11		$	2.36		$	2.17		$	1.26		$	1.11		$	2.44		$	2.36
Diluted	$	1.10		$	1.04		$	2.33		$	2.04		$	1.26		$	1.10		$	2.43		$	2.33

Other financial data							��
Pre-tax profit margin		34.1	%		37.1	%		35.8	%		37.1	%		35.3	%		34.1	%		34.4	%		35.8	%
Adjusted net income before income taxes⁽¹⁾	$	170,840		$	160,304		$	358,498		$	313,077		$	194,211		$	170,840		$	376,996		$	358,498
Adjusted pre-tax profit margin⁽¹⁾		36.2	%		40.3	%		38.2	%		40.2	%		37.3	%		36.2	%		36.5	%		38.2	%
Adjusted diluted earnings per share before income taxes⁽¹⁾	$	1.51		$	1.44		$	3.18		$	2.82		$	1.71		$	1.51		$	3.31		$	3.18
Pre-tax return on common equity (trailing twelve months)		14.6	%		15.4	%		14.6	%		15.4	%		13.9	%		14.6	%		13.9	%		14.6	%
Adjusted pre-tax return on common equity (trailing twelve months)⁽¹⁾		15.7	%		16.7	%		15.7	%		16.7	%		15.0	%		15.7	%		15.0	%		15.7	%

(1)

Adjusted net income before income taxes (defined as net income available to common stockholders excluding the effects of certain non-cash items, one-time or non-recurring items, that are not expected to continue in the future and certain other items), adjusted pre-tax profit margin (defined as adjusted net income before income taxes divided by total revenues), adjusted diluted earnings per share before income taxes (defined as adjusted net income before income taxes ~~plus assumed conversions~~ divided by the weighted average diluted common shares outstanding) and adjusted pre-tax return on common equity (defined as adjusted net income before income taxes divided by average common shareholders’ equity) are measures of operating performance that are not defined by GAAP and should not be considered as an alternative to net income available to common stockholders, pre-tax profit margin, earnings per share, diluted earnings per share and pre-tax return on common equity, or any other performance measures derived in accordance with GAAP. Adjusted net income before income taxes, adjusted pre-tax profit margin, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity are presented as supplemental disclosure because management believes they provide useful information on our earnings from ongoing operations.

Management and our board of directors use adjusted net income before income taxes, adjusted pre-tax profit margin, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity to assess our consolidated financial and operating performance. Management believes these measures are helpful in evaluating the operating performance of our ongoing operations and identifying trends in our performance, because they

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remove the effects of certain non-cash items, one-time or non-recurring items that are not expected to continue in the future and certain other items from our operating results. Adjusted net income before income taxes, adjusted pre-tax profit margin, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity, however, should not be considered in isolation or as a substitute for analysis of our operating results or cash flows as reported under GAAP. Adjusted net income before income taxes, adjusted pre-tax profit margin, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity do not reflect our cash expenditures or changes in our cash requirements for our working capital needs. In addition, our calculation of adjusted net income before income taxes, adjusted pre-tax profit margin, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity may differ from the adjusted net income before income taxes, adjusted pre-tax profit margin, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity, or analogous calculations of other companies in our industry, limiting their usefulness as a comparative measure.

The following tables show the reconciliation of net income available to common stockholders to adjusted net income before income taxes and adjusted pre-tax profit margin (in thousands, except percentages):


	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	June 30,						June 30,						June 30,						June 30,
	2019			2018			2019			2018			2020			2019			2020			2019

	(unaudited)												(unaudited)
Reconciliation of net income available to common stockholders to adjusted net income before income taxes and adjusted pre-tax profit margin:
Net income available to common stockholders	$	124,034		$	115,211		$	262,128		$	225,862		$	143,781		$	124,034		$	277,088		$	262,128
Amortization of debt discounts and issuance costs		8,712			8,010			17,252			16,032			10,233			8,712			20,761			17,252
Stock-based compensation		5,863			4,885			10,037			8,317			3,892			5,863			8,321			10,037
Provision for income taxes		32,231			32,198			69,081			62,866			36,305			32,231			70,826			69,081
Adjusted net income before income taxes	$	170,840		$	160,304		$	358,498		$	313,077		$	194,211		$	170,840		$	376,996		$	358,498

Total revenues	$	471,395		$	397,814		$	937,446		$	779,023		$	521,349		$	471,395		$	1,032,736		$	937,446
Adjusted pre-tax profit margin⁽¹⁾		36.2	%		40.3	%		38.2	%		40.2	%		37.3	%		36.2	%		36.5	%		38.2	%

(1)	Adjusted pre-tax profit margin is adjusted net income before income taxes divided by total revenues

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The following table shows the reconciliation of net income available to common stockholders to adjusted diluted earnings per share before income taxes (in thousands, except share and per share amounts):


	Three Months Ended				Six Months Ended				Three Months Ended June 30,				Six Months Ended June 30,
	June 30,				June 30,				2020		2019		2020		2019
	2019		2018		2019		2018

	(unaudited)								(unaudited)

Reconciliation of net income available to common stockholders to adjusted diluted earnings per share before income taxes:
Net income available to common stockholders	$	124,034	$	115,211	$	262,128	$	225,862	$	143,781	$	124,034	$	277,088	$	262,128
Amortization of debt discounts and issuance costs		8,712		8,010		17,252		16,032		10,233		8,712		20,761		17,252
Stock-based compensation		5,863		4,885		10,037		8,317		3,892		5,863		8,321		10,037
Provision for income taxes		32,231		32,198		69,081		62,866		36,305		32,231		70,826		69,081
Adjusted net income before income taxes	$	170,840	$	160,304	$	358,498	$	313,077	$	194,211	$	170,840	$	376,996	$	358,498
Assumed conversion of convertible senior notes		—		1,735		—		3,474
Adjusted net income before income taxes plus assumed conversions	$	170,840	$	162,039	$	358,498	$	316,551
Weighted-average diluted common shares outstanding		112,807,023		112,424,582		112,598,623		112,326,506		113,773,127		112,807,023		113,840,929		112,598,623
Adjusted diluted earnings per share before income taxes	$	1.51	$	1.44	$	3.18	$	2.82	$	1.71	$	1.51	$	3.31	$	3.18

The following table shows the reconciliation of net income available to common stockholders to adjusted pre-tax return on common equity (in thousands, except percentages):


	Trailing Twelve Months						Trailing Twelve Months June 30,
	June 30,						2020			2019
	2019			2018

	(unaudited)						(unaudited)
Reconciliation of net income available to common stockholders to adjusted pre-tax return on common equity:
Net income available to common stockholders	$	547,101		$	796,152		$	590,123		$	547,101
Amortization of debt discounts and issuance costs		33,926			30,057			40,200			33,926
Stock-based compensation		19,198			19,044			19,029			19,198
Provision for income taxes		135,518			(187,641)			150,309			135,518
Adjusted net income before income taxes	$	735,743		$	657,612		$	799,661		$	735,743

Common shareholders' equity as of beginning of the period	$	4,337,842		$	3,558,204
Common shareholders' equity as of end of the period	$	5,049,884		$	4,337,842
Average common shareholders' equity	$	4,693,863		$	3,948,023
Common shareholders’ equity as of beginning of the period							$	5,049,884		$	4,337,842
Common shareholders’ equity as of end of the period							$	5,619,801		$	5,049,884
Average common shareholders’ equity							$	5,334,843		$	4,693,863

Adjusted pre-tax return on common equity		15.7	%		16.7	%		15.0	%		15.7	%

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Three months ended June 30, ~~2019,~~2020, compared to the three months ended June 30, ~~2018~~2019

Rental revenue

As of June 30, 2020, we owned 301 aircraft with a net book value of $19.1 billion and recorded $497.9 million in rental revenue for the quarter then ended, which included $8.1 million in amortization expense related to initial direct costs, which is net of overhaul revenue. In the prior year, as of June 30, 2019, we owned 297 aircraft with a net book value of $17.8 billion and recorded $463.9 million in rental revenue for the quarter ~~then~~ ended June 30, 2019, which included $2.1 million in amortization expense related to initial direct costs, which is net of overhaul revenue. InThis increase was principally driven by the prior year, as of June 30, 2018, we owned 271 aircraft with a net book value of $14.9 billion and recorded $393.5 million in rental revenue for the quarter ended June 30, 2018, which included $1.8 million in amortization expense related to initial direct costs, which is net of overhaul revenue. The increase in rental revenue was primarily due to the increase in net book valuecontinued growth of our ~~operating lease portfolio~~fleet as compared to ~~$17.8 billion as of June 30, 2019 from $14.9 billion as of June 30, 2018.~~prior year.

Aircraft sales, trading and other revenue

Aircraft sales, trading and other revenue totaled $23.5 million for the three months ended June 30, 2020 compared to $7.5 million for the three months ended June 30, ~~2019 compared to $4.3 million for~~2019. During the ~~three months~~quarter ended June 30, ~~2018. The increase was primarily attributable~~2020, we recorded $4.9 million in gains from the sale of four aircraft and $13.6 million in other revenue related to the ~~increase~~repurchase of $185.2 million in ~~revenue relating to other activities, as~~aggregate principal of our Floating Rate Medium-Term Notes due 2021. During the quarter ended June 30,

2019, we did not sell any aircraft from our operating lease ~~portfolio~~portfolio. As noted above, we expect the COVID-19 pandemic to have an adverse impact on demand for used aircraft and that we will sell fewer used aircraft in ~~either period.~~2020 than we initially planned to sell and it is unclear what demand for used aircraft will be in 2021.

Interest expense

Interest expense totaled $112.9 million for the three months ended June 30, 2020 compared to $105.5 million for the three months ended June 30, ~~2019 compared to $81.5 million for the three months ended June~~ ~~30, 2018.~~2019. The increase was primarily due to an increase in our aggregate debt ~~balance.~~balance partially offset by a decrease in our composite interest rate. We expect that our interest expense will increase as our average debt balance outstanding continues to increase. Interest expense will also be impacted by changes in our composite cost of funds.

Depreciation expense

We recorded ~~$171.7~~$194.0 million in depreciation expense of flight equipment for the three months ended June 30, ~~2019~~2020 compared to ~~$142.6~~$171.7 million for the three months ended June 30, ~~2018.~~2019. The increase in depreciation expense for the three months ended June 30, ~~2019,~~2020, compared to the three months ended June 30, ~~2018,~~2019, is primarily attributable to the acquisition of additional aircraft in our operating fleet during the last twelve months.

Selling, general and administrative expenses

We recorded selling, general and administrative expenses of $26.6 million for the three months ended June 30, 2020 compared to $27.8 million for the three months ended June 30, ~~2019 compared to $21.5 million for the three months ended June 30, 2018.~~2019. Selling, general and administrative expense as a percentage of total revenue ~~increased~~decreased to 5.1% for the three months ended June 30, 2020 compared to 5.9% for the three months ended June 30, ~~2019 compared to 5.4% for the three months ended June 30, 2018. Selling, general and administrative expenses increased due in part to increased transactional expenses incurred during the period.~~2019. As we continue to add new aircraft to our portfolio, we expect over the long-term, selling, general and administrative expense to decrease as a percentage of our revenue.

Taxes

The effective tax rate was ~~20.1%~~19.7% and ~~21.8%~~20.1% for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Changes in the tax rate were primarily driven by variances in permanent items.

Net income available to common stockholders

For the three months ended June 30, ~~2019,~~2020, we reported consolidated net income available to common stockholders of $143.8 million, or $1.26 per diluted share, compared to a consolidated net income available to common stockholders of $124.0 million, or $1.10 per diluted share, ~~compared to a consolidated net income available to common stockholders of $115.2 million, or $1.04 per diluted share,~~ for the three months ended June 30, ~~2018.~~2019. Net income available to common stockholders increased in the second quarter of ~~2019~~2020 as compared to ~~2018,~~2019, primarily due to the continued growth of our fleet ~~partially offset by increases~~and an increase in our ~~interest expense~~aircraft sales, trading and ~~selling, general and administrative expenses.~~other activity.

~~Table of Contents~~

Adjusted net income before income taxes

For the three months ended June 30, ~~2019,~~2020, we recorded adjusted net income before income taxes of $194.2 million, or $1.71 per diluted share, compared to an adjusted net income before income taxes of $170.8 million, or $1.51 per diluted share, ~~compared to an adjusted net income before income taxes of $160.3 million, or $1.44 per diluted share,~~ for the three months ended June 30, ~~2018.~~2019. Our adjusted net income before income taxes increased primarily due to the continued growth of our fleet ~~partially offset by increases~~and an increase in our ~~interest expense~~aircraft sales, trading and ~~selling, general and administrative expenses.~~other activity.

Adjusted net income before income taxes and adjusted diluted earnings per share before income taxes are measures of financial and operational performance that are not defined by GAAP. See Note 1 under the “Results of Operations” table above for a discussion of adjusted net income before income taxes and adjusted diluted earnings per share before income taxes as non-GAAP measures and reconciliation of these measures to net income available to common stockholders.

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Six months ended June 30, ~~2019,~~2020, compared to the six months ended June 30, ~~2018~~2019

Rental revenue

As of June 30, 2020, we owned 301 aircraft with a net book value of $19.1 billion and recorded $994.6 million in rental revenue for the six months then ended, $13.7 million in amortization expense related to initial direct costs, which is net of overhaul revenue. In the prior year, as of June 30, 2019, we owned 297 aircraft with a net book value of $17.8 billion and recorded $919.6 million in rental revenue for the six months then ended, which included overhaul revenue, net of amortization expense related to initial direct costs, of $15.9 million. InThis increase was principally driven by the prior year, as of June 30, 2018, we owned 271 aircraft with a net book value of $14.9 billion and recorded $771.3 million in rental revenue for the six months ended June 30, 2018, which included overhaul revenue, net of amortization of initial direct costs, of $2.7 million. The increase in rental revenue was primarily due to the increase in net book valuecontinued growth of our ~~operating lease portfolio~~fleet as compared to ~~$17.8 billion as of June 30, 2019 from $14.9 billion as of June 30, 2018.~~prior year.

Aircraft sales, trading and other revenue

Aircraft sales, trading and other revenue totaled $38.2 million for the six months ended June 30, 2020 compared to $17.8 million for the six months ended June 30, ~~2019 compared to $7.7 million for~~2019. During the six months ended June 30, ~~2018.~~2020, we recorded $6.5 million in gains from the sale of seven aircraft from our operating lease portfolio, $6.5 million in other revenue from the forfeiture of security deposits and $13.6 million in other revenue related to the repurchase of $185.2 million in aggregate principal of our Floating Rate Medium-Term Notes due 2021. During the six months ended June 30, 2019, we recorded $1.6 million in gains from the sale of six aircraft from our operating lease portfolio. ~~During the six months ended June 30, 2018, we did not sell any aircraft from our operating lease portfolio.~~

Interest expense

Interest expense totaled $231.0 million for the six months ended June 30, 2020 compared to $203.3 million for the six months ended June 30, ~~2019 compared to $158.4 million for the six months ended June~~ ~~30, 2018.~~2019. The increase was primarily due to an increase in our aggregate debt ~~balance.~~balance, partially offset by the decrease in our composite interest rate. We expect that our interest expense will increase as our average debt balance outstanding continues to increase. Interest expense will also be impacted by changes in our composite cost of funds.

Depreciation expense

We recorded ~~$331.2~~$382.9 million in depreciation expense of flight equipment for the six months ended June 30, ~~2019~~2020 compared to ~~$278.7~~$331.2 million for the six months ended June 30, ~~2018.~~2019. The increase in depreciation expense for the six months ended June 30, ~~2019,~~2020, compared to the six months ended June 30, ~~2018,~~2019, is primarily attributable to the acquisition of additional aircraft during the last twelve months.

Selling, general and administrative expenses

We recorded selling, general and administrative expenses of $54.9 million for the six months ended June 30, 2020 compared to $57.5 million for the six months ended June 30, ~~2019 compared to $44.8 million for the six months ended June 30, 2018.~~2019. Selling, general and administrative expense as a percentage of total revenue ~~increased~~decreased to 5.3% for the six months ended June 30, 2020 compared to 6.1% for the six months ended June 30, ~~2019 compared to 5.8% for the six months ended June 30, 2018. Selling, general and administrative expenses increased due in part to increased transactional expenses incurred during the period.~~2019. As we continue to add new aircraft to our portfolio, we expect over the long-term, selling, general and administrative expense to decrease as a percentage of our revenue.

Taxes

The effective tax rate was ~~20.6%~~19.9% and ~~21.8%~~20.6% for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Changes in the tax rate were primarily driven by variances in permanent items.

Net income available to common stockholders

For the six months ended June 30, ~~2019,~~2020, we reported consolidated net income available to common stockholders of $277.1 million, or $2.43 diluted share, compared to a consolidated net income available to common stockholders of $262.1 million, or $2.33 per diluted share, ~~compared to a consolidated net income available to common stockholders of $225.9 million, or $2.04 per diluted share,~~ for the six months ended June 30, ~~2018.~~2019. Net income available to common stockholders increased infor the ~~second quarter of 2019~~six months ended June 30, 2020 as compared to ~~2018,~~2019, primarily due to the continued growth of our fleet and an increase in our aircraft sales, trading and other ~~activity, partially offset by increases in our interest expense and selling, general and administrative expenses.~~activity.

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Adjusted net income before income taxes

For the six months ended June 30, ~~2019,~~2020, we recorded adjusted net income before income taxes of $377.0 million, or $3.31 per diluted share, compared to an adjusted net income before income taxes of $358.5 million, or $3.18 per diluted share, ~~compared to an adjusted net income before income taxes of $313.1 million, or $2.82 per diluted share,~~ for the six months ended June 30, ~~2018.~~2019. Our adjusted net income before income taxes increased for the six months ended June 30, 2020 as compared to 2019, primarily due to the continued growth of our fleet and an increase in our aircraft sales, trading and other ~~activity, partially offset by increases in our interest expense and selling, general and administrative expenses.~~activity.

Contractual Obligations

Our contractual obligations as of June 30, ~~2019,~~2020, are as follows (in thousands):


	2019		2020		2021		2022		2023		Thereafter		Total		2020		2021		2022		2023		2024		Thereafter		Total
Long-term debt obligations	$	59,892	$	1,460,039	$	1,991,039	$	2,701,069	$	2,537,846	$	4,247,646	$	12,997,531	$	295,789	$	1,948,697	$	2,730,561	$	2,502,123	$	1,544,791	$	5,786,910	$	14,808,871
Interest payments on debt outstanding⁽¹⁾		234,546		437,462		382,222		318,434		227,101		397,865		1,997,630		226,015		444,082		387,406		315,782		238,608		475,014		2,086,907
Purchase commitments(2)		2,744,657		6,469,820		6,741,848		5,034,063		2,896,636		221,130		24,108,154		2,025,283		4,564,159		5,712,095		6,534,093		4,508,101		2,840,517		26,184,248
Operating leases		2,484		6,881		7,052		6,509		6,393		37,617		66,936		3,461		7,062		6,509		6,391		4,548		33,058		61,029
Total	$	3,041,579	$	8,374,202	$	9,122,161	$	8,060,075	$	5,667,976	$	4,904,258	$	39,170,251	$	2,550,548	$	6,694,000	$	8,836,571	$	9,358,389	$	6,296,048	$	9,135,499	$	43,141,055

(1)Future interest payments on floating rate debt are estimated using floating rates in effect at June 30, ~~2019.~~2020.

(2)Purchase commitments reflect our estimate of future Boeing and Airbus aircraft deliveries based on information currently available to us. The actual delivery dates of such aircraft and expected time for payment of such aircraft may differ from our estimates and could be further impacted by ongoing COVID-19 pandemic and the length of the 737 MAX grounding and the pace at which Boeing can deliver aircraft following the lifting of the 737 MAX grounding, among other factors. Purchase commitments include only the costs of aircraft in our committed order book and do not include costs of aircraft that we have the option to purchase or have the right to purchase through memorandums of understanding or letters of intent.

The above table does not include any dividends we may pay on our Series A Preferred Stock or common stock.

Off-Balance Sheet Arrangements

We have not established any unconsolidated entities for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. We have, however, from time to time established subsidiaries and created partnership arrangements or trusts for the purpose of leasing aircraft or facilitating borrowing arrangements, all of which are consolidated.

We have ~~investments~~non-controlling interests in two ~~joint ventures~~investment funds in which we own 9.5% of the equity of each ~~joint venture.~~fund. We account for our ~~investment~~interest in these ~~joint ventures using~~funds under the equity method of accounting due to our level of influence and involvement in the ~~joint ventures. We also~~funds. Also, we manage aircraft that we have asold through our Thunderbolt platform. In connection with the sale of these aircraft portfolios through our Thunderbolt platform, we hold non-controlling ~~interest~~interests of approximately 5.0% in ~~Thunderbolt Aircraft Lease Limited II of 5.1% and it is~~two entities. These investments are accounted for ~~as an investment~~ under the cost method of accounting.

Critical Accounting Policies

Our critical accounting policies reflecting management’s estimates and judgments are described in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. We have reviewed recently adopted accounting pronouncements and determined that the adoption of such pronouncements is not expected to have a material impact, if

any, on our Consolidated Financial Statements. Accordingly, there have been no material changes to critical accounting policies in the six months ended June 30, ~~2019.~~2020.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of changes in value of a financial instrument, caused by fluctuations in interest rates and foreign exchange rates. Changes in these factors could cause fluctuations in our results of operations and cash flows. We are exposed to the market risks described below.

~~Table of Contents~~

Interest Rate Risk

The nature of our business exposes us to market risk arising from changes in interest rates. Changes, both increases and decreases, in our cost of borrowing, as reflected in our composite interest rate, directly impact our net income. Our lease rental stream is generally fixed over the life of our leases, whereas we have used floating-rate debt to finance a significant portion of our aircraft acquisitions. As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, we had ~~$2.3~~$1.4 billion and $1.6 billion in floating-rate debt outstanding, respectively. If interest rates increase, we would be obligated to make higher interest payments to our lenders. If we incur significant fixed-rate debt in the future, increased interest rates prevailing in the market at the time of the incurrence of such debt would also increase our interest expense. If our composite interest rate were to increase by 1.0%, we would expect to incur additional interest expense on our existing indebtedness of approximately ~~$23.3~~$13.6 million and $15.9 million as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, each on an annualized basis, which would put downward pressure on our operating margins. Further, as of June 30, ~~2019, 82.1%~~2020, 90.8% of our total debt incurred interest at a fixed rate.

We also have interest rate risk on our forward lease placements. This is caused by us setting a fixed lease rate in advance of the delivery date of an aircraft. The delivery date is when a majority of the financing for an aircraft is arranged. We partially mitigate the risk of an increasing interest rate environment between the lease signing date and the delivery date of the aircraft by having interest rate adjusters in a majority of our forward lease contracts which would adjust the final lease rate upward if certain benchmark interest rates are higher at the time of delivery of the aircraft than at the lease signing date.

Foreign Exchange Rate Risk

We attempt to minimize currency and exchange risks by entering into aircraft purchase agreements and a majority of lease agreements and debt agreements with U.S. dollars as the designated payment currency. Thus, most of our revenue and expenses are denominated in U.S. dollars. ~~As of June 30, 2019~~Approximately 0.8% and ~~December 31, 2018, approximately~~ 0.7% of our lease revenues were denominated in foreign ~~currency.~~currency as of June 30, 2020 and December 31, 2019, respectively. As our principal currency is the U.S. dollar, fluctuations in the U.S. dollar as compared to other major currencies should not have a significant impact on our future operating results.

In December 2019, we issued C$400.0 million in aggregate principal amount of 2.625% notes due 2024. We effectively hedged our foreign currency exposure on this transaction through a cross-currency swap that converts the borrowing rate to a fixed 2.535% U.S. dollar denominated rate. See Note 7 of Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details on the fair value of the swap.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”), and such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer (collectively, the “Certifying Officers”), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the

desired control objectives as the Company’s controls are designed to do, and management necessarily was required to apply its judgment in evaluating the risk related to controls and procedures.

We have evaluated, under the supervision and with the participation of management, including the Certifying Officers, the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, as of June 30, ~~2019.~~2020. Based on that evaluation, our Certifying Officers have concluded that our disclosure controls and procedures were effective at June 30, ~~2019.~~2020.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, ~~2019~~2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may be involved in litigation and claims incidental to the conduct of our business in the ordinary course. Our industry is also subject to scrutiny by government regulators, which could result in enforcement proceedings or litigation related to regulatory compliance matters. We are not presently a party to any enforcement proceedings or litigation related to regulatory compliance matters or material legal proceedings. We maintain insurance policies in amounts and with the coverage and deductibles we believe are adequate, based on the nature and risks of our business, historical experience and industry standards.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from those discussed under “Part I—Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 and in “Part II—Item 1A. Risk Factors,” in our Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2019.~~

2020.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

Incorporated by Reference
Exhibit
Number

Exhibit Description

Form

File No.

Exhibit

Filing Date
3.1

Restated Certificate of Incorporation of Air Lease Corporation.

S-1

333-171734

3.1

January 14, 2011

3.2

Fourth Amended and Restated Bylaws of Air Lease Corporation.

8-K

001-35121

3.1

March 27, 2018

3.3

Certificate of Designations with respect to the 6.150% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A, of Air Lease Corporation, dated March 4, 2019, filed with the Secretary of State of Delaware and effective on March 4, 2019.

8-A

001-35121

3.2

March 4, 2019

4.1

Form of Stock Certificate representing the 6.150% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A.

8-A

001-35121

4.2

March 4, 2019

10.1

Fifth Amendment and Extension Agreement, dated May 3, 2019, to the Second Amended and Restated Credit Agreement, dated as of May 5, 2014 among Air Lease Corporation, as Borrower, the several lenders from time to time party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent.

8-K

001-35121

10.1

May 9, 2019

10.2

New Lender Supplement, dated April 5, 2019, to the Second Amended and Restated Credit Agreement, dated as of May 5, 2014, among Air Lease Corporation, as Borrower, the several lenders from time to time parties thereto, and JP Morgan Chase Bank, N.A., as Administrative Agent.

10-Q

001-35121

10.5

May 9, 2019

10.3

Commitment Increase Supplement, dated July 31, 2019, to the Second Amended and Restated Credit Agreement, among Air Lease Corporation, as Borrower, the several lenders from time to time parties thereto, and JP Morgan Chase Bank, N.A., as Administrative Agent.

Filed herewith

10.4†

Amendment No. 11 to the Airbus A350 XWB Family Purchase Agreement, dated May 15, 2019, by and between Air Lease Corporation and Airbus S.A.S.

Filed herewith

10.5†

Amendment and Restatement Agreement of Letter Agreement No. 1 to Amendment No. 10 to the Airbus A350 Family Purchase Agreement, dated April 26, 2019, by and between Air Lease Corporation and Airbus S.A.S.

Filed herewith

10.6†

Supplemental Agreement No. 23 to Purchase Agreement No. PA-03791, dated June 26, 2019, by and between Air Lease Corporation and The Boeing Company.

Filed herewith

10.7†

Supplemental Agreement No. 12 to Purchase Agreement No. PA-03659, dated April 26, 2019, by and between Air Lease Corporation and The Boeing Company.

Filed herewith


		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date

3.1	Restated Certificate of Incorporation of Air Lease Corporation	S-1	333-171734	3.1	January 14, 2011

3.2	Fourth Amended and Restated Bylaws of Air Lease Corporation.	8-K	001-35121	3.1	March 27, 2018

3.3	Certificate of Designations with respect to the 6.150% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A, of Air Lease Corporation, dated March 4, 2019, filed with the Secretary of State of Delaware and effective on March 4, 2019.	8-A	001-35121	3.2	March 4, 2019

4.1	Description of Capital Stock	10-K	001-35121	4.1	February 14, 2020

10.1	Seventh Amendment to Amended and Restated Warehouse Loan Agreement, dated as of June 19, 2020, among ALC Warehouse Borrower, LLC, as Borrower, the Lenders from time to time party hereto, and Commonwealth Bank of Australia, New York Branch, as Agent				Filed herewith

10.2†	Amendment No. 14 to the A350XWB Family Purchase Agreement, dated June 30, 2020, by and between Air Lease Corporation and Airbus S.A.S.				Filed herewith

10.3†	Amendment No. 1 to Agreement, dated June 14, 2020, between Airbus S.A.S. and Air Lease Corporation				Filed herewith

10.4†	Amendment No. 10 to the A330-900 NEO Purchase Agreement, dated June 14, 2020, between Air Lease Corporation and Airbus S.A.S.				Filed herewith

10.5†	Amendment No. 26 to A320 NEO Family Purchase Agreement, dated April 7, 2020, by and between Air Lease Corporation and Airbus S.A.S.				Filed herewith

31.1	Certification of the Chief Executive Officer and President Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				Filed herewith

31.2	Certification of the Executive Vice President and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				Filed herewith

32.1	Certification of the Chief Executive Officer and President Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).				Furnished herewith

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Exhibit Number	Exhibit Description		Form	File No.	Exhibit	Filing Date

					Incorporated by Reference

~~10.8†~~		~~Supplemental Agreement No. 13 to Purchase Agreement No. PA-03659, dated June 26, 2019, by and between Air Lease Corporation and The Boeing Company.~~					~~Filed herewith~~

~~10.9§~~	~~Employment Agreement between Air Lease Corporation Hong Kong Limited and Jie Chen, effective June 6, 2019.~~		~~8-K~~	~~001-35121~~	~~10.1~~	~~June 7, 2019~~

~~10.10§~~	~~Letter Agreement between Air Lease Corporation and Jie Chen, dated June 5, 2019.~~		~~8-K~~	~~001-35121~~	~~10.2~~	~~June 7, 2019~~

~~10.11§~~	~~Tax Equalization Understanding between Air Lease Corporation and Jie Chen, dated June 5, 2019.~~		~~8-K~~	~~001-35121~~	~~10.3~~	~~June 7, 2019~~

~~10.12§~~	~~Air Lease Corporation Non-Employee Director Compensation (as amended May 8, 2019).~~					~~Filed herewith~~

~~31.1~~	~~Certification of the Chief Executive Officer and President Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~					~~Filed herewith~~

~~31.2~~	~~Certification of the Executive Vice President and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~					~~Filed herewith~~

~~32.1~~	~~Certification of the Chief Executive Officer and President Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).~~					~~Furnished herewith~~

32.2	Certification of the Executive Vice President 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 (furnished herewith).					Furnished herewith

101.INS	XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101.SCH	XBRL Taxonomy Extension Schema

101.CAL	XBRL Taxonomy Extension Calculation Linkbase

101.DEF	XBRL Taxonomy Extension Definition Linkbase

101.LAB	XBRL Taxonomy Extension Label Linkbase

101.PRE	XBRL Taxonomy Extension Presentation Linkbase

104	The cover page from Air Lease Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2019,~~2020, formatted in Inline XBRL


†	†Portions of the referenced exhibit have been omitted pursuant to Item 601(b) of Regulation S-K because it (i) is not material and (ii) would be competitively harmful if publicly disclosed.
§	~~Management contract or compensatory plan or arrangement.~~

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~~Table of Contents~~

SIGNATURES

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.

	AIR LEASE CORPORATION

August ~~8, 2019~~6, 2020	/s/ John L. Plueger
	John L. Plueger
	Chief Executive Officer and President
	(Principal Executive Officer)

August ~~8, 2019~~6, 2020	/s/ Gregory B. Willis
	Gregory B. Willis
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

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