Table of Contents

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 March 31,September 30, 2020

OR

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

For the transition period from         to        

Commission file number 001-35121

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 MayNovember 6, 2020, there were 113,643,462113,778,906 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 March 31,September 30, 2020

TABLE OF CONTENTS

Page

Note About Forward-Looking Statements

3

PART I—FINANCIAL INFORMATION

Item 1

Financial Statements

4

Consolidated Balance Sheets—March 31,September 30, 2020 and December 31, 2019 (unaudited)

4

Consolidated Statements of Income and Comprehensive Income—Three and Nine Months Ended March 31,September 30, 2020 and 2019 (unaudited)

5

Consolidated Statement of Shareholders’ Equity—Three and Nine Months Ended March 31,September 30, 2020 and 2019 (unaudited)

6

Consolidated Statements of Cash Flows—ThreeNine Months Ended March 31,September 30, 2020 and 2019 (unaudited)

78

Notes to Consolidated Financial Statements (unaudited)

89

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3

Quantitative and Qualitative Disclosures About Market Risk

3235

Item 4

Controls and Procedures

3335

PART II—OTHER INFORMATION

Item 1

Legal Proceedings

3436

Item 1A

Risk Factors

3436

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

36

Item 3

Defaults Upon Senior Securities

36

Item 4

Mine Safety Disclosures

36

Item 5

Other Information

36

Item 6

Exhibits

37

Signatures

39

2

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, including or as a result of technical or other difficulties with aircraft before or after 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, 2019, “Part II — Item 1A. Risk Factors” in thisour Quarterly Report on Form 10-Q for the quarter ended March 31, 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 if there isas a result of the recent resurgence of the COVID-19 virus afterin certain parts of the initial outbreak subsides.world, including the United States and parts of Europe, 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 thisour 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.

3

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)

    

March 31, 2020

    

December 31, 2019

    

September 30, 2020

    

December 31, 2019

 

(unaudited)

 

(unaudited)

Assets

Cash and cash equivalents

$

732,719

$

317,488

$

1,238,569

$

317,488

Restricted cash

 

20,662

 

20,573

 

23,568

 

20,573

Flight equipment subject to operating leases

 

21,976,429

 

21,286,154

 

22,671,435

 

21,286,154

Less accumulated depreciation

 

(2,754,068)

 

(2,581,817)

 

(3,154,939)

 

(2,581,817)

 

19,222,361

 

18,704,337

 

19,516,496

 

18,704,337

Deposits on flight equipment purchases

 

1,576,508

 

1,564,188

 

1,634,152

 

1,564,188

Other assets

 

1,130,095

 

1,102,569

 

1,191,980

 

1,102,569

Total assets

$

22,682,345

$

21,709,155

$

23,604,765

$

21,709,155

Liabilities and Shareholders’ Equity

Accrued interest and other payables

$

491,251

$

516,497

$

401,443

$

516,497

Debt financing, net of discounts and issuance costs

 

14,414,621

 

13,578,866

 

15,180,145

 

13,578,866

Security deposits and maintenance reserves on flight equipment leases

 

1,122,957

 

1,097,061

 

1,054,757

 

1,097,061

Rentals received in advance

 

134,779

 

143,692

 

140,228

 

143,692

Deferred tax liability

 

782,368

 

749,495

 

850,869

 

749,495

Total liabilities

$

16,945,976

$

16,085,611

$

17,627,442

$

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 March 31, 2020 and December 31, 2019, respectively

 

100

 

100

Class A common stock, $0.01 par value; 500,000,000 shares authorized; 113,639,911 and 113,350,267 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

 

1,136

 

1,134

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 September 30, 2020 and December 31, 2019, respectively

 

100

 

100

Class A common stock, $0.01 par value; 500,000,000 shares authorized; 113,778,906 and 113,350,267 shares issued and outstanding at September 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

 

2,775,640

 

2,777,601

 

2,788,490

 

2,777,601

Retained earnings

 

2,962,368

 

2,846,106

 

3,188,566

 

2,846,106

Accumulated other comprehensive loss

(2,875)

(1,397)

(971)

(1,397)

Total shareholders’ equity

$

5,736,369

$

5,623,544

$

5,977,323

$

5,623,544

Total liabilities and shareholders’ equity

$

22,682,345

$

21,709,155

$

23,604,765

$

21,709,155

(See Notes to Consolidated Financial Statements)

4

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Air Lease Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(In thousands, except share and per share amounts)

Three Months Ended

March 31, 

    

2020

    

2019

(unaudited)

 

Revenues

Rental of flight equipment

$

496,687

$

455,739

Aircraft sales, trading and other

 

14,700

 

10,312

Total revenues

 

511,387

 

466,051

Expenses

Interest

 

107,541

 

89,220

Amortization of debt discounts and issuance costs

 

10,528

 

8,540

Interest expense

 

118,069

 

97,760

Depreciation of flight equipment

 

188,895

 

159,471

Selling, general and administrative

 

28,322

 

29,702

Stock-based compensation

 

4,429

 

4,174

Total expenses

 

339,715

 

291,107

Income before taxes

 

171,672

 

174,944

Income tax expense

 

(34,521)

 

(36,850)

Net income

$

137,151

$

138,094

Preferred stock dividends

(3,844)

Net income available to common stockholders

$

133,307

$

138,094

Other Comprehensive Loss:

Change in foreign currency translation adjustment

23,477

Change from current period hedged transaction

(25,386)

Total tax benefit on other comprehensive loss

431

Other Comprehensive (loss)/income available for common stockholders, net of tax

(1,478)

Total comprehensive income available for common stockholders

$

131,829

$

138,094

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

Basic

$

1.17

$

1.24

Diluted

$

1.17

$

1.23

Weighted-average shares outstanding

Basic

 

113,471,945

 

111,018,279

Diluted

 

113,785,028

 

112,380,856

Dividends declared per share of Class A common stock

$

0.15

$

0.13

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

(unaudited)

 

Revenues

Rental of flight equipment

$

468,443

$

492,869

$

1,462,999

$

1,412,478

Aircraft sales, trading and other

 

25,158

 

38,033

 

63,338

 

55,870

Total revenues

 

493,601

 

530,902

 

1,526,337

 

1,468,348

Expenses

Interest

 

107,519

 

104,637

 

317,753

 

290,681

Amortization of debt discounts and issuance costs

 

10,899

 

9,078

 

31,660

 

26,330

Interest expense

 

118,418

 

113,715

 

349,413

 

317,011

Depreciation of flight equipment

195,054

183,788

577,969

514,948

Selling, general and administrative

 

20,239

 

34,715

 

75,142

 

92,188

Stock-based compensation

6,635

4,897

14,956

14,934

Total expenses

 

340,346

 

337,115

 

1,017,480

 

939,081

Income before taxes

 

153,255

 

193,787

 

508,857

 

529,267

Income tax expense

 

(32,860)

 

(38,000)

 

(103,686)

 

(107,081)

Net income

$

120,395

$

155,787

$

405,171

$

422,186

Preferred stock dividends

 

(3,843)

 

(3,844)

 

(11,531)

 

(8,115)

Net income available to common stockholders

$

116,552

$

151,943

$

393,640

$

414,071

Other Comprehensive Income/(Loss):

Change in foreign currency translation adjustment

(5,637)

7,601

Change from current period hedged transaction

7,395

(7,086)

Total tax expense on other comprehensive income/loss

(378)

(89)

Other Comprehensive income available for common stockholders, net of tax

1,380

426

Total comprehensive income available for common stockholders

$

117,932

$

151,943

$

394,066

$

414,071

Earnings per share of common stock:

Basic

$

1.02

$

1.36

$

3.46

$

3.71

Diluted

$

1.02

$

1.34

$

3.46

$

3.67

Weighted-average shares outstanding

Basic

 

113,778,533

 

112,133,556

 

113,647,585

 

111,511,960

Diluted

 

113,951,102

 

113,263,396

 

113,928,775

 

112,837,526

Dividends declared per share of common stock

$

0.15

$

0.13

$

0.45

$

0.39

(See Notes to Consolidated Financial Statements)

5

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Air Lease Corporation and Subsidiaries

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(In thousands, except share and per share amounts)

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, 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 transactions

(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

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

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

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

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

1,352

1

27

28

Dividends declared on preferred stock

 

(3,843)

(3,843)

Stock-based compensation

6,635

6,635

Cash dividends (declared $0.15 per share of Class A common stock)

(17,068)

(17,068)

Change in foreign currency translation adjustment and from current period hedged transaction

1,380

1,380

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

(169)

(1)

(4)

(5)

Net income

120,395

120,395

Balance at September 30, 2020

 

10,000,000

$

100

113,778,906

$

1,138

$

$

2,788,490

$

3,188,566

$

(971)

$

5,977,323

6

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

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

1,047,695

11

20,584

20,595

Dividends declared on preferred stock

(3,844)

(3,844)

Stock-based compensation

4,897

4,897

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

 

(14,644)

(14,644)

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

(12,472)

(1)

 

(501)

(502)

Net income

155,787

155,787

Balance at September 30, 2019

10,000,000

$

100

112,701,349

$

1,127

$

$

2,758,928

$

2,702,018

$

5,462,173

(See Notes to Consolidated Financial Statements)

67

Table of Contents

Air Lease Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Three Months Ended

Nine Months Ended

March 31, 

September 30, 

    

2020

    

2019

    

2020

    

2019

 

(unaudited)

 

(unaudited)

Operating Activities

Net income

$

137,151

$

138,094

$

405,171

$

422,186

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation of flight equipment

 

188,895

 

159,471

 

577,969

 

514,948

Stock-based compensation

 

4,429

 

4,174

14,956

14,934

Deferred taxes

 

33,302

 

36,825

 

101,285

 

97,566

Amortization of debt discounts and issuance costs

 

10,528

 

8,540

 

31,660

 

26,330

Amortization of prepaid lease costs

10,454

7,180

32,142

 

24,190

Gain on aircraft sales, trading and other activity

 

(5,554)

 

(17,167)

 

(27,281)

 

(45,123)

Changes in operating assets and liabilities:

Other assets

 

(88,411)

 

(93,788)

(330,804)

(149,740)

Accrued interest and other payables

 

(47,858)

 

20,789

 

(84,045)

 

51,156

Rentals received in advance

 

(8,913)

 

(2,869)

(3,464)

15,109

Net cash provided by operating activities

 

234,023

 

261,249

 

717,589

 

971,556

Investing Activities

 

 

Acquisition of flight equipment under operating lease

 

(511,232)

 

(725,300)

 

(777,410)

 

(3,021,758)

Payments for deposits on flight equipment purchases

 

(174,589)

 

(305,284)

 

(581,054)

 

(727,982)

Proceeds from aircraft sales, trading and other activity

 

65,070

 

247,264

151,131

426,382

Acquisition of aircraft furnishings, equipment and other assets

 

(51,576)

 

(111,162)

 

(142,866)

 

(236,847)

Net cash used in investing activities

 

(672,327)

 

(894,482)

 

(1,350,199)

 

(3,560,205)

Financing Activities

 

 

Issuance of common stock upon exercise of options

 

2,025

 

440

 

4,556

 

31,823

Cash dividends paid on Class A common stock

 

(17,003)

 

(14,421)

 

(51,116)

 

(43,383)

Preferred dividends paid

(3,844)

(11,531)

(8,115)

Tax withholdings on stock-based compensation

 

(8,413)

 

(3,587)

 

(8,618)

 

(4,089)

Net change in unsecured revolving facility

 

495,000

 

225,000

(20,000)

8,000

Proceeds from debt financings

 

1,449,873

 

995,779

 

3,074,665

 

3,135,918

Payments in reduction of debt financings

 

(1,093,268)

 

(896,098)

(1,457,740)

(947,837)

Net proceeds from preferred stock issuance

-

242,241

 

 

242,139

Debt issuance costs

 

(2,902)

 

(2,455)

(5,692)

 

(9,443)

Security deposits and maintenance reserve receipts

 

50,083

 

73,145

 

91,337

 

230,966

Security deposits and maintenance reserve disbursements

 

(17,927)

 

(11,567)

 

(59,175)

 

(33,905)

Net cash provided by financing activities

 

853,624

 

608,477

 

1,556,686

 

2,602,074

Net increase/(decrease) in cash

 

415,320

 

(24,756)

Net increase in cash

924,076

13,425

Cash, cash equivalents and restricted cash at beginning of period

 

338,061

 

322,998

 

338,061

 

322,998

Cash, cash equivalents and restricted cash at end of period

$

753,381

$

298,242

$

1,262,137

$

336,423

Supplemental Disclosure of Cash Flow Information

 

 

Cash paid during the period for interest, including capitalized interest of $13,261 and $16,226 at March 31, 2020 and 2019, respectively

$

141,060

$

137,481

Cash paid during the period for interest, including capitalized interest of $39,960 and $46,314 at September 30, 2020 and 2019, respectively

$

371,947

$

358,237

Cash paid for income taxes

$

2,149

$

25

$

29,696

$

9,515

Supplemental Disclosure of Noncash Activities

 

 

Buyer furnished equipment, capitalized interest and deposits on flight equipment purchases applied to acquisition of flight equipment

$

191,318

$

298,962

$

575,958

$

1,161,573

Cash dividends declared on Class A common stock, not yet paid

$

17,046

$

14,445

Cash dividends declared on common stock, not yet paid

$

17,068

$

14,644

(See Notes to Consolidated Financial Statements)

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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. The Company is principally engaged in purchasing new commercial jet transport aircraft directly from manufacturers, such as The Boeing Company (“Boeing”) and Airbus S.A.S (“Airbus”). The Company leases these aircraft to airlines throughout the world with the intention to generate attractive returns on equity. As of March 31,September 30, 2020, the Company owned a fleet of 300308 aircraft in its operating lease portfolio, managed 8281 aircraft and had 399372 aircraft on order with aircraft manufacturers. In addition to its leasing activities, the Company sells aircraft from its operating lease portfolio to third parties, including other leasing companies, financial services companies, airlines and other investors. The Company also provides fleet management services to investors and owners of aircraft portfolios for a management fee.

Note 2.  Basis of Preparation and Critical Accounting Policies

The Company consolidates financial statements of all entities in which the Company has a controlling financial interest, including the accounts of any Variable Interest Entity in which the Company has a controlling financial interest and for which 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 March 31,September 30, 2020, and for all periods presented. The results of operations for the three and nine months ended March 31,September 30, 2020 are not necessarily indicative of the operating results expected for the year ending December 31, 2020. These financial statements and related notes should be read in conjunction with the Consolidated Financial Statements and related notes included in ourthe Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Note 3.  Recently Issued Accounting Standards

On April 10, 2020, the Financial Accounting Standards Board (“FASB”) issued a question-and-answer document regarding accounting for lease concessions and other effects of the coronavirus (“COVID-19”) pandemic. The document clarifies that entities may elect to not evaluate whether lease-related relief that lessors provide to mitigate the economic effects of COVID-19 on lessees is a lease modification under Leases ASC 842. The Company has chosen to continue accounting for lease concessions in accordance with lease modification accounting guidance in Topic 842.

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Note 4.3.  Debt Financing

The Company’s consolidated debt as of March 31,September 30, 2020 and December 31, 2019 (dollars in thousands):

    

March 31, 

    

December 31, 

    

September 30, 

    

December 31, 

    

2020

    

2019

    

2020

    

2019

Unsecured

Senior notes

$

12,834,333

$

12,357,811

$

14,069,115

$

12,357,811

Term financings

 

877,950

 

883,050

 

967,000

 

883,050

Revolving credit facility

 

515,000

 

20,000

 

 

20,000

Total unsecured debt financing

 

14,227,283

 

13,260,861

 

15,036,115

 

13,260,861

Secured

Term financings

 

322,320

 

428,824

 

289,207

 

428,824

Export credit financing

 

29,947

 

31,610

 

26,619

 

31,610

Total secured debt financing

 

352,267

 

460,434

 

315,826

 

460,434

Total debt financing

 

14,579,550

 

13,721,295

 

15,351,941

 

13,721,295

Less: Debt discounts and issuance costs

 

(164,929)

 

(142,429)

 

(171,796)

 

(142,429)

Debt financing, net of discounts and issuance costs

$

14,414,621

$

13,578,866

$

15,180,145

$

13,578,866

9

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

    

March 31, 

    

December 31, 

    

September 30, 

    

December 31, 

2020

2019

2020

2019

Nonrecourse

$

120,381

$

128,460

$

$

128,460

Recourse

 

231,886

 

331,974

 

315,826

 

331,974

Total secured debt financing

$

352,267

$

460,434

$

315,826

$

460,434

Number of aircraft pledged as collateral

 

12

 

15

 

12

 

15

Net book value of aircraft pledged as collateral

$

652,351

$

890,693

$

636,566

$

890,693

Senior unsecured notes (including Medium-Term Note Program)

As of March 31,September 30, 2020, the Company had $12.8$14.1 billion in senior unsecured notes outstanding. As of December 31, 2019, the Company had $12.4$12.4 billion in senior unsecured notes outstanding.

During the threenine months ended March 31,September 30, 2020, the Company issued $1.4approximately $3.0 billion in aggregate principal amount of Medium-Term Notes comprised of (i) $750.0 million due 2025 at a fixed rate of 2.30% and, (ii) $650.0 million due 2030 at a fixed rate of 3.00%, (iii) $850.0 million due 2025 at a fixed rate of 3.375% and (iv) $700.0 million due 2026 at a fixed rate of 2.875%.

During the nine months ended September 30, 2020, the Company repurchased $206.1 million in aggregate principal amount of Floating Rate Medium-Term Notes due 2021. The debt repurchases resulted in a gain of $14.0 million and is included in Aircraft sales, trading and other revenue in the Company’s Consolidated Statements of Income and Comprehensive Income.

Unsecured revolving credit facilitiesfacility

As of September 30, 2020, the Company did not have any amounts outstanding under its unsecured revolving credit facility. The total amount outstanding under the Company’s unsecured revolving credit facility was $20.0 million as of December 31, 2019.

The Company has an unsecured revolving credit facility with JPMorgan Chase Bank, N.A. as agent (the “Revolving Credit Facility”). During the quarternine months ended March 31,September 30, 2020, the Company increased the aggregate capacity of the Revolving Credit Facility by $250.0 million. On May 5, 2020, commitments totaling $92.7 million to $6.1 billion. The total amount outstanding underof 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 $5.0 million that mature on May 5, 2021. As of September 30, 2020, the aggregate capacity of the Revolving Credit Facility was $515.0 million and $20.0 million as of March 31, 2020 and December 31, 2019, respectively.approximately $6.0 billion.

As of March 31,September 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 ourthe 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 for other general corporate purposes.

Secured debt financing

On May 5,In June 2020, commitments totaling $92.7 millionthe 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 Revolving Credit Facility matured. Lenders hold revolving commitments totaling approximately $5.5 billion that matureamendment, the credit facility was converted to full recourse against the Company and excess cash collateral was released. The outstanding balance on May 5, 2023, commitments totaling $245.0the Company’s secured warehouse facility was $100.4 million and $128.5 million as of September 30, 2020 and December 31, 2019, respectively.

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million that mature on May 5, 2022 and commitments totaling $5.0 million that mature on May 5, 2021. As of May 7, 2020, after giving effect to the commitments that matured on May 5,September 30, 2020, the aggregate capacityoutstanding balance on the Company’s secured debt financings, including its secured warehouse facility and its export credit financing, was $315.8 million and it had pledged 12 aircraft as collateral with a net book value of $636.6 million. As of December 31, 2019, the Revolving Credit Facilityoutstanding balance on the Company’s secured debt financings, including its secured warehouse facility and its export credit financing, was approximately $6.0 billion.$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 March 31,September 30, 2020 are as follows (in thousands):

Years ending December 31,

    

    

2020

$

319,372

$

172,778

2021

 

2,049,294

 

1,934,141

2022

 

2,751,269

 

2,730,561

2023

 

2,988,154

 

2,502,123

2024

 

1,534,552

 

1,525,428

Thereafter

 

4,936,909

 

6,486,910

Total

$

14,579,550

$

15,351,941

Note 5.4.  Commitments and Contingencies

As of March 31, 2020, updated through May 7,September 30, 2020, the Company had commitments to acquire a total of 399372 new aircraft for delivery through 2026 as follows:

Estimated Delivery Years

Estimated Delivery Years

Aircraft Type

    

2020

    

2021

    

2022

    

2023

    

2024

    

Thereafter

    

Total

    

2020

    

2021

    

2022

    

2023

    

2024

    

Thereafter

    

Total

Airbus A220-300(1)

8

13

10

19

50

3

14

12

21

50

Airbus A320/321neo(2)

 

13

 

24

 

26

 

26

 

29

 

36

 

154

 

7

 

32

 

22

 

23

 

27

 

37

 

148

Airbus A330-900neo

 

 

3

 

7

 

5

 

 

 

15

 

1

 

3

 

7

 

4

 

 

 

15

Airbus A350-900/1000

 

3

 

3

 

6

 

2

 

6

 

 

20

 

1

 

4

 

3

 

4

 

5

 

1

 

18

Boeing 737-7/8/9 MAX

 

2

 

28

 

24

 

42

 

30

 

 

126

 

 

15

 

20

 

42

 

30

 

 

107

Boeing 787-9/10

 

8

 

6

 

8

 

10

 

2

 

 

34

 

5

 

9

 

8

 

10

 

2

 

 

34

Total

 

26

 

64

 

79

 

98

 

77

 

55

 

399

 

14

 

63

 

63

 

97

 

76

 

59

 

372

(1)In addition to the Company’s commitments, as of March 31,September 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)OurThe Company’s Airbus A320/321neo aircraft orders include 4745 long-range variants and 29 extra long-range variants.

Pursuant to the Company’sCompany'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 also experienced delivery delays for certain of its Airbus orderbook aircraft, primarily the A321neo aircraft and, to a lesser extent, A330neo aircraft. The worldwide grounding of the Boeing 737 MAX aircraft (“737 MAX”) began on March 10, 2019, and remains in effect. As a result, Boeing has temporarily halted production and delivery of all 737 MAX aircraft and our newaircraft. While production of the 737 MAX has now resumed, deliveries remain on hold. The Federal Aviation Administration (“FAA”) and the European Union Aviation Safety Agency (“EASA”) have both completed flight testing for recertification of the 737 MAX, though a number of key milestones remain before the aircraft have been significantly delayed.can return to service. Lifting of the grounding is subject to the approval of the FAA, EASA and 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 regarding the mitigation of possible damages resulting from the grounding of, and the delivery delays associated with the 737 MAX aircraft that the Company owns or has on order, which could result in changes to the commitment table.

11

The ongoing COVID-19 pandemic has caused delivery delays of aircraft in the Company’s orderbook and is expected to continue to cause delays of aircraft in the Company’s orderbook.delivery. As discussed in further detail in Note 13, “Subsequent Events,12, “Impact of COVID-19 Pandemic,” the COVID-19 pandemic has resulted in numerous travel restrictions and business shutdowns or other operating limitations, including athe temporary closure of final aircraft assembly facilities for each of Boeing and Airbus. In the second quarter of 2020, Boeing and Airbus resumed production at these facilities, but with reduced output. As a result of the temporary closures of the Boeing and Airbus facilities and the subsequently reduced production by these manufacturers, most of our expected aircraft deliveries were delayed during the second and third quarter. Given the dynamic nature of the ongoing COVID-19 pandemic, the Company is in ongoing discussions with 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.

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The aircraft purchase commitments discussed above also could be impacted by lease cancellation. The Company’sCompany's leases typically provide that the Company and the airline customer each have a cancellation right related to certain aircraft delivery delays. OurThe 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. OurThe Company’s leases and ourits purchase agreements with Boeing and Airbus typically provide for cancellation rights starting at one year after the original contractual delivery date, regardless of cause. As of September 30, 2020, the Company has canceled its orders for 19 737 MAX aircraft with Boeing.

CommitmentsThe Company has commitments for the acquisition of these372 aircraft for delivery through 2026, calculated at an estimated aggregate purchase price (including adjustments for anticipated inflation) of approximately $26.8$24.8 billion at March 31,September 30, 2020, updated through May 7, 2020,which are due as follows (in thousands):

Years ending December 31,

    

    

2020

$

2,206,538

$

1,213,581

2021

 

4,900,832

 

4,841,564

2022

 

6,519,111

 

5,604,050

2023

 

6,171,228

 

6,153,520

2024

 

4,456,237

 

4,211,633

Thereafter

 

2,542,133

 

2,789,136

Total

$

26,796,079

$

24,813,484

The Company has made non-refundable deposits on the aircraft for which the Company has commitments to purchase of approximately $1.6 billion as of March 31,September 30, 2020 and December 31, 2019, respectively, which are subject to manufacturer performance commitments. If the Company is unable to satisfy its purchase commitments, the Company may be forced to forfeit its deposits. Further, the Company would be exposed to breach of contract claims by ourits lessees and manufacturers.

Note 6.5.  Rental Income

At March 31,September 30, 2020, minimum future rentals on non-cancellable operating leases of flight equipment in the Company’s fleet which have been delivered as of March 31, 2020, are as follows (in thousands):

Years ending December 31,

    

    

2020 (excluding the three months ended March 31, 2020)

$

1,533,739

2020 (excluding the nine months ended September 30, 2020)

$

495,367

2021

 

1,987,225

 

1,942,269

2022

 

1,864,731

 

1,833,191

2023

 

1,666,500

 

1,636,744

2024

 

1,521,571

 

1,502,227

Thereafter

 

5,656,114

 

5,977,449

Total

$

14,229,880

$

13,387,247

12

Note 7.6.  Earnings Per Share

Basic net earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding for the period. 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 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 March 31,September 30, 2020, the Company did not have any Class B Non-Voting common stock outstanding.

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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 nine months ended March 31,September 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 990,1001,032,305 and 940,470946,406 shares related to restricted stock units for which the performance metric had yet to be achieved as of March 31,September 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 March 31,

    

    

2020

    

2019

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

    

2020

    

2019

    

2020

    

2019

Basic earnings per share:

Numerator

Net income

$

137,151

$

138,094

$

120,395

$

155,787

$

405,171

$

422,186

Preferred stock dividends

(3,844)

(3,843)

(3,844)

(11,531)

(8,115)

Net income available to common stockholders

$

133,307

$

138,094

$

116,552

$

151,943

$

393,640

$

414,071

Denominator

Weighted-average common shares outstanding

 

113,471,945

 

111,018,279

 

113,778,533

 

112,133,556

 

113,647,585

 

111,511,960

Basic earnings per share

$

1.17

$

1.24

$

1.02

$

1.36

$

3.46

$

3.71

Diluted earnings per share:

Numerator

Net income

$

137,151

$

138,094

$

120,395

$

155,787

$

405,171

$

422,186

Preferred stock dividends

(3,844)

(3,843)

(3,844)

(11,531)

(8,115)

Net income available to common stockholders

$

133,307

$

138,094

$

116,552

$

151,943

$

393,640

$

414,071

Denominator

Number of shares used in basic computation

 

113,471,945

 

111,018,279

 

113,778,533

 

112,133,556

 

113,647,585

 

111,511,960

Weighted-average effect of dilutive securities

 

313,083

 

1,362,577

 

172,569

 

1,129,840

 

281,190

 

1,325,566

Number of shares used in per share computation

 

113,785,028

 

112,380,856

 

113,951,102

 

113,263,396

 

113,928,775

 

112,837,526

Diluted earnings per share

$

1.17

$

1.23

$

1.02

$

1.34

$

3.46

$

3.67

Note 8.7.  Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring and Non-recurring Basis

The Company hadhas a cross-currency swap related to its Canadian dollar notesMedium-Term Notes which 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 basis. As of March 31,September 30, 2020, the estimated fair value of the foreign currency exchange derivative liability was $19.9$1.6 million. As of December 31, 2019, the estimated fair value of the foreign currency exchange derivative asset was $5.4 million.

13

Financial Instruments Not Measured at 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 of debt financing as of March 31,September 30, 2020 was approximately $13.1$15.5 billion compared to a book value of $14.6$15.4 billion. The estimated fair value of debt financing as of December 31, 2019 was $14.1 billion compared to a book value of $13.7 billion.

The following financial instruments are not measured at fair value on the Company’s Consolidated Balance Sheets at March 31,September 30, 2020, but require disclosure of their fair values: cash and cash equivalents and restricted cash. The estimated fair value of such instruments at March 31,September 30, 2020 and December 31, 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.

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Note 9.8.  Shareholders’ Equity

The Company was authorized to issue 500,000,000 shares of Class A common stock, $0.01 par value, at March 31,September 30, 2020 and December 31, 2019. As of March 31,September 30, 2020 and December 31, 2019, the Company had 113,639,911113,778,906 and 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 March 31,September 30, 2020 and December 31, 2019.

The Company was authorized to issue 50,000,000 shares of preferred stock, $0.01 par value, at March 31,September 30, 2020 and December 31, 2019. As of March 31,September 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.

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 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) 6.150% during the first five years and payable quarterly in arrears beginning on June 15, 2019, and (ii) three-month LIBOR plus a spread of 3.650% 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 10.9.  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, 0 new awards may be granted under the Amended and Restated 2010 Equity Incentive Plan (the “2010 Plan”). As of March 31,September 30, 2020, the number of stock options (“Stock Options”) and restricted stock units (“RSUs”) authorized under the 2014 Plan is approximately 4,948,064. Stock Options are generally granted for a term of 10 years and vest ratably over a three-year period. The Company has issued RSUs with 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 period. The Company has two types of book value RSUs; those that vest ratably over a three-year period if the performance condition has been met, and those that 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 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 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.4,860,870.

The Company recorded $4.4$6.6 million and $4.2$4.9 million of stock-based compensation expense related to RSUs for the three months ended March 31,September 30, 2020 and 2019, respectively. The Company recorded $15.0 million and $14.9 million of stock-based compensation expense for the nine months ended September 30, 2020 and 2019, respectively.

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Stock Options

A summary of stock option activity for the threenine months ended March 31,September 30, 2020 follows:

    

    

    

Remaining

    

Aggregate

    

    

    

Remaining

    

Aggregate

Exercise

Contractual Term

Intrinsic Value

Exercise

Contractual Term

Intrinsic Value

    

Shares

    

Price

    

(in years)

    

(in thousands)(1)

    

Shares

    

Price

    

(in years)

    

(in thousands)(1)

Balance at December 31, 2019

 

364,153

$

22.90

 

0.75

 

$

8,965

 

364,153

$

22.90

 

0.75

$

8,965

Granted

 

$

 

$

 

$

 

$

Exercised

 

(101,200)

$

20.00

 

 

$

1,460

 

(244,153)

$

20.00

 

$

3,078

Forfeited/canceled

 

$

 

 

$

 

$

 

$

Balance at March 31, 2020

 

262,953

$

24.02

 

0.62

 

$

306

Vested and exercisable as of March 31, 2020

 

262,953

$

24.02

 

0.62

 

$

306

Balance at September 30, 2020

 

120,000

$

28.80

 

0.57

$

74

Vested and exercisable as of September 30, 2020

 

120,000

$

28.80

 

0.57

$

74

(1)The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of ourthe 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 March 31,September 30, 2020 there were 0 unrecognized compensation costs related to outstanding stock options. For the three and nine months ended March 31,September 30, 2020 and 2019 there were 0 stock-based compensation expenses related to Stock Options.

The following table summarizes additional information regarding outstanding exercisable and vested stock options at March 31, 2020:14

Stock Options Exercisable

and Vested

    

    

Weighted-

Average

Number of

Remaining Life

Range of exercise prices

Shares

 

(in years)

$20.00

 

142,953

 

0.24

$28.80

 

120,000

 

1.07

$20.00 - $28.80

 

262,953

 

0.62

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 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 that vest based on the attainment of Total Shareholder Return (“TSR”) goals 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.

During the threenine months ended March 31,September 30, 2020, the Company granted 527,246670,621 RSUs of which 143,237133,699 are TSR RSUs. The following table summarizes the activities for ourthe Company’s unvested RSUs for the threenine months ended March 31,September 30, 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, 2019

 

1,254,904

$

43.62

 

1,254,904

$

43.62

Granted

 

527,246

$

45.85

 

670,621

$

42.20

Vested

 

(379,778)

$

47.54

 

(406,067)

$

46.96

Forfeited/canceled

 

$

 

(49,407)

$

43.97

Unvested at March 31, 2020

 

1,402,372

$

43.40

Expected to vest after March 31, 2020

 

1,499,715

$

43.26

Unvested at September 30, 2020

 

1,470,051

$

42.04

Expected to vest after September 30, 2020

 

1,470,051

$

42.04

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As of March 31,September 30, 2020, there was $41.7$29.1 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 2.141.79 years.

Note 11.10.  Aircraft Under Management

As of March 31,September 30, 2020, wethe Company managed 8281 aircraft across 3 aircraft management platforms. WeThe Company managed 5251 aircraft through ourits Thunderbolt platform, 26 aircraft through the Blackbird investment funds and 4 on behalf of a financial institution.

WeThe Company managed 26 aircraft on behalf of third-party investors, through 2 investment funds, Blackbird Capital I, LLC and Blackbird II.Capital II, LLC (“Blackbird II”). These funds invest in commercial aircraft and lease them to airlines throughout the world. We provideThe Company provides management services to these funds for a fee. As of March 31,September 30, 2020, the Company's non-controlling interests in each fund is 9.5%are 9.5% and are accounted for under the equity method of accounting. The Company’s investment in these funds aggregated $48.5$52.2 million and $46.5 million as of March 31,September 30, 2020 and December 31, 2019, respectively, and is included in Other assets on the Consolidated Balance Sheets. We continueThe Company continues to source aircraft investment opportunities for Blackbird II. As of March 31,September 30, 2020, Blackbird II has remaining equity capital commitments to acquire up to approximately $1.2$1.0 billion in aircraft assets, for which we havethe Company has committed to fund up to $29.1 million related to these potential investments.

Additionally, we continuethe Company continues to manage aircraft that we sellit sells through ourits Thunderbolt platform. As of March 31,September 30, 2020, wethe Company managed 5251 aircraft through its Thunderbolt platform sold across 3 separate transactions. We haveThe Company has non-controlling interests in 2 of these entities of approximately 5.0%, which are accounted for under the cost method of accounting. During the period ending March 31,three months ended September 30, 2020, wethe Company completed the sale of 31 aircraft from our operating leaseits held for sale portfolio through ourits Thunderbolt platform. The Company’s total investment in aircraft sold through ourits Thunderbolt platform was $9.9$9.3 million and $9.9 million as of March 31,September 30, 2020 and December 31, 2019, respectively and is included in Other assets on the Consolidated Balance Sheets.

15

Note 12.11.  Flight Equipment Held for Sale

As of MarchSeptember 30, 2020, the Company did 0t have any flight equipment classified as held for sale. As of December 31, 2020, we2019, the Company had 58 aircraft, with a carrying value of $175.1$249.6 million, which were classified as held for sale and included in Other assets on the Consolidated Balance Sheets.

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, the WHO characterized the COVID-19 outbreak as a pandemic. In response to the COVID-19 pandemic, governments around the world have implemented numerous measures to try to contain the virus, including travel restrictions. Although some of these measures have been lifted or scaled back, a recent resurgence of COVID-19 in certain parts of the world, including the United States and parts of Europe, has resulted in the re-imposition of certain restrictions and may lead to more restrictions to reduce the spread of COVID-19. These aircraftmeasures, 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 and to what extent these measures will be sold through our Thunderbolt platformremain in place and we expectthey may remain in place in some form for an extended period of time. Aircraft manufacturers and suppliers also have been impacted, including causing the saletemporary closure of all 5Boeing 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, but with reduced output.

aircraft

As the virus spread globally, its impact on the global economy increased significantly, resulting in a rapid decline in global air travel. While domestic and regional airline traffic improved over the last several months, demand for international and business air travel remains challenged. Since the pandemic began in the first quarter of 2020, the Company has received requests from most of its customers for accommodations such as deferrals of lease payments or other lease concessions. On a case-by-case basis, the Company has agreed to accommodations with approximately 58% of its lessees. Generally, these accommodations have been in the form of partial lease deferrals for payments due during the first three quarters of 2020, typically with a short repayment period. The majority of these deferrals are to be completedrepaid within 12 months from the date the deferrals were granted, and in 2020. We cease recognitionmany cases, include lease extensions. The Company remains in active discussions with its airline customers and may continue to provide accommodations on a case-by-case basis.

While lease deferrals may delay the Company’s receipt of depreciation expense oncecash, 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 aircraftappropriate course of action. In addition, if collection is classified as heldnot reasonably assured, the Company will not recognize rental income for sale. Asamounts due under the Company’s lease contracts and will recognize revenue for such lessees on a cash basis. For the quarter ended September 30, 2020, the Company did not recognize rental revenue of December 31, 2019, we had 8 aircraft classified as held$25.3 million because collection was not reasonably assured for sale,certain lessees. Aircraft on lease with a carrying valuethese lessees represented approximately 6.6% of $249.6 million.our fleet by net book value.

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 13. Subsequent Events

Dividend Distribution

On May 6,November 5, 2020, ourthe Company’s board of directors approved aan increase in the Company’s quarterly cash dividend offrom $0.15 per share to $0.16 per share on ourits outstanding Class A common stock. The dividend will be paid on July 9, 2020January 6, 2021 to holders of record of ourthe Company’s Class A common stock as of June 5,December 18, 2020. OurThe Company’s board of directors also approved a cash dividend of $0.384375 per share on ourits outstanding Series A Preferred Stock, which will be paid on JuneDecember 15, 2020 to holders of record of ourthe Company’s Series A Preferred Stock as of May 31,November 30, 2020.

COVID-19 Pandemic

On January 30, In addition, on November 5, 2020, the spreadCompany’s board of the COVID-19 outbreak was declareddirectors authorized a Public Health Emergencyshare repurchase program of International Concern by 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 measuresup 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). These measures, coupled with a decrease in consumer spending$100.0 million of Class A common stock that expires on travel as a result of COVID-19, have materially impacted airline traffic and operations throughout the world, including for our 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. As the virus has spread in March and April, the relatively limited impacts the Company saw in Asia in the early part of the year have accelerated and are now occurring throughout the rest of the world, with a rapid decline in global air travel.

June 15,

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Beginning in the first quarter of 2020 and continuing in the second quarter, the Company began receiving 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 46% 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 by the end of this year. In many cases, lease extensions were also negotiated as part of the deferral accommodations. The Company remains in active discussions with its other airline customers and may continue to provide accommodation arrangements on a case-by-case basis.

While lease deferrals may delay our receipt of cash, we generally recognize the lease revenue during the period even if a deferral is provided to the lessee, unless we determine collection is not reasonably assured. We monitor all lessees with past due lease payments and discuss 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, we 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.

2021.

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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 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”(the “WHO”). On March 11, 2020, the WHO characterized the COVID-19 outbreak as a pandemic. TheIn response to the COVID-19 pandemic, has resulted in governmental authoritiesgovernments around the world implementinghave implemented numerous measures to try to contain the virus, such asincluding travel bansrestrictions. Although some of these measures have been lifted or scaled back, a recent resurgence of COVID-19 in certain parts of the world, including the United States and parts of Europe, has resulted in the re-imposition of certain restrictions border closures, quarantines, shelter-in-place or total lock-down orders and business limitations and shutdowns (subjectmay lead to exceptions for certain essential operations and businesses). It is unclear how long thesemore restrictions will remain in place and they may remain in place in some form for an extended periodto reduce the spread of time.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 for our airline customers. It is unclear how long and to what extent these measures 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, but with reduced output.

In January and February of 2020, the primary impact of the virus was limited to Asia. As the virus has spread in March and April,globally, its impact on the relatively limited impacts we sawglobal economy increased significantly, resulting in Asia in the early part of the year have accelerated and are now occurring throughout the rest of the world, with a rapid decline in global air travel.

Beginning While domestic and regional airline traffic improved over the last several months, demand for international and business air travel remains challenged. Since the pandemic began in the first quarter of 2020, and continuing in the second quarter, we began receivinghave received requests from our customers for accommodations such as deferraldeferrals of lease payments or other lease concessions. As of May 7,November 9, 2020, most of our lessees have requested some form of rental relief. We evaluate such requests onaccommodation. On a case-by-case basis, andwe have worked out accommodation arrangementsagreed to accommodations with approximately 46%58% of our lessees, generallylessees. Generally, these accommodations have been in the form of partial lease deferrals for payments due induring the first and second quarterthree quarters of 2020, typically with a short-termshort repayment period, with theperiod. The majority of these deferrals are to be repaid within 12 months from the date the deferrals repaid by the end of this year. Inwere granted, and in many cases, include lease extensions were also negotiated as part of the deferral accommodations. As of May 7,extensions. Through November 9, 2020, the Company haswe have agreed to defer approximately $124.6$201.5 million in lease payments, of which represents$59.8 million or 30% of the total deferrals have been repaid. These lease deferrals have negatively impacted our cash flow provided by operating activities but only represented approximately 6%3% of our total revenue for fiscal year 2019.available liquidity as of September 30, 2020. We remain in active discussions with our other airline customers and expect tomay continue to provide accommodation arrangementsaccommodations on a case-by-case basis.

Our collection rate duringfor the first quarter of 2020three and the month of Aprilnine months ended September 30, 2020 was 90%86% and 86%89%, respectively. 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 May 7,November 9, 2020. In addition, we did not recognize rental revenue of $25.3 million for the quarter ended September 30, 2020 because collection was not reasonably assured for certain lessees. Aircraft on lease with these lessees represented approximately 6.6% of our fleet by net book value as of September 30, 2020. The severity and the length of the impact

17

of the COVID-19 pandemic on air travel continues to be uncertain. However, the adverse impact of the pandemic on our airline customers could intensify with the beginning of the winter season and the resurgence of COVID-19 in recent months in certain parts of the world. If this occurs, we expect we will experience increased requests for lease deferrals, a continuing decline in our collection rate and additional lease revenue that will not be recognized in future quarters because collection will not be reasonably assured for certain lessees.

Our lease utilization rate for the period ended March 31,third quarter of 2020 was 99.7%. For the month of April 2020, our lease utilization rate was 99.8%99.6%. 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 decline in the near future as a result of accommodation arrangements we

17

Table of Contents

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 theThe severity and longevity of the COVID-19 pandemic the efforts taken to reduce its spread and the possibility ofon our airline customers could result in a resurgence of COVID-19, some ofdecline in our lease utilization rate if our lessees maycontinue 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 orand we may incur increased costs in repositioning such aircraft. A decline in our lease utilization rate would adversely impact our financial results, including our revenue and profitability. As a result, our revenues and collection rates would decline. of the date of this filing, we had 19 aircraft across five airlines which were subject to various forms of insolvency proceedings.

In addition, as of March 31, 2020, we had commitments to purchase 399 aircraft from Airbus and Boeing for delivery through 2026, and we had placed approximately 84% of our committed order book on long-term leases for aircraft delivering through 2022. Thethe 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 bookorderbook that we can place into leases prior to their delivery.delivery, which would also result in a decline in our lease utilization rate. If we are not able to place aircraft from our orderbook into leases prior to delivery, it may cause a downward pressure on our lease rates or require usrates. As of September 30, 2020, we had commitments to sellpurchase 372 aircraft infrom Airbus and Boeing for delivery through 2026, and we had placed approximately 90% of our fleet sooner than anticipated.committed orderbook on long-term leases for aircraft delivering through 2022.

COVID-19 has disrupted some of our operations. WhileDuring the third quarter, our employees are workingcontinued 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 thatThe decline in demand for used aircraft will declinemay result in impairment charges to the near-term and that we will sell fewer used aircraft in 2020 and perhaps 2021 than we initially planned to sell.our fleet.

We have also experienced aircraft delivery delays related to COVID-19. While the commitment table in Note 5,4, “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 such contractual provisions,As of September 30, 2020, we are in discussions with lessees who are considering cancelling a small number ofhave canceled our orders for 19 737 MAX leasesaircraft with us. GivenBoeing. While we have planned our capital expenditures for the dynamic natureremainder of 2020 and beyond based on currently expected delivery schedules, given the ongoing COVID-19current industry circumstances, our aircraft delivery schedule could continue to be subject to material changes. In any case, our capital expenditures will be significantly less than what we planned prior to the pandemic, we are not yet able to determine the full impactwhich will slow our revenue growth, but will further improve our strong liquidity position. As a result of thethese delivery delays, and we expect such delivery dates could materially change, and as a result, our future growth will be negatively impacted.also anticipate reduced sales activity.

COVID-19 has causedalso continued to cause disruption in the financial markets and havehas 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 March 31,September 30, 2020, we had an undrawn balance of $5.6$6.0 billion under our committed unsecured revolving credit facility with JPMorgan Chase Bank, N.A. as agent, which reflects our recent increase in our facility size by $250.0 million in March 2020.Revolving Credit Facility (as defined below). We believe we continuehave continued to have access to the unsecured debt capital markets although we have not accessed this market since January 2020 when we issued $1.4 billionissuing (i) $850.0 million in aggregate principal amount of Medium-Term Notes.Notes due 2025 at a fixed rate of 3.375% and (ii) and $700.0 million in aggregate principal amount of Medium-Term Notes due 2026 at a fixed rate of 2.875% in the last two quarters 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 weWe cannot currently reasonably estimate the extent to which the COVID-19 pandemic and measures taken to contain its spread will ultimately impact our business, weand its impact on our business and financial results may worsen during the upcoming winter months if there is a resurgence of COVID-19 globally resulting in the re-imposition of certain restrictions or a decrease in consumer and business spending on travel. We expect our business, results of operations and financial condition will continue to be negatively impacted in the near term, and the pandemic could have a larger impact on our results of operations for the

18

remainder of this year and into 2021 than has been reflected in our year to date and second and third quarter results for 2020. We believe, however, that the airline industry will eventually recover and aircraft travel will return to historical levels over the long term. WeSee “Aircraft Industry and Sources of Revenues” below. Further, 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 reducing capital requirements and managing costs.

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

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FirstThird Quarter Overview

During the three months ended March 31,September 30, 2020, we purchased and took delivery of eightseven aircraft from our new order pipeline purchasedand sold one aircraft, in the secondary market and sold three aircraft from our held for sale portfolio ending the period with a total of 300308 aircraft with a net book value of $19.2$19.5 billion. The weighted average lease term remaining on our operating lease portfolio was 7.26.9 years and the weighted average age of our fleet was 3.74.0 years as of March 31,September 30, 2020. Our fleet grew by 2.8%4.3% based on net book value of $19.2$19.5 billion as of March 31,September 30, 2020, compared to $18.7 billion as of December 31, 2019. In addition, we had a managed fleet of 8281 aircraft as of March 31,September 30, 2020, compared to a managed fleet of 83 aircraft as of December 31, 2019. We had a globally diversified customer base comprised of 108107 airlines in 61 countries. As of May 7,November 9, 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.

During the first three months of 2020, we entered into supplemental agreements with Boeing to convert nine Boeing 737 MAX to three Boeing 787-9 aircraft. As of March 31,September 30, 2020, we had commitments to purchase 399372 aircraft from Airbus and Boeing for delivery through 2026, with an estimated aggregate commitment of $26.8$24.8 billion. We ended the firstthird quarter of 2020 with $28.8$27.2 billion in committed minimum future rental payments and placed approximately 84%90% of our committed order bookorderbook on long-term leases for aircraft delivering through 2022. This includes $14.2$13.4 billion in contracted minimum rental payments on the aircraft in our existing fleet and $14.6$13.8 billion in minimum future rental payments related to aircraft which will be delivered during the remainder of 2020 through 2024.

In November 2019, we entered into an agreement to sell 19 aircraft through our Thunderbolt platform to investors. Our Thunderbolt platform facilitates the sale of mid-life aircraft to investors while allowing to continue the management of these aircraft for a fee. Through this transaction, we retained a non-controlling interest of approximately 5.0% in the entity. During the three months ended March 31, 2020, we sold a total of three aircraft into our Thunderbolt platform for proceeds of approximately $65.2 million. As of March 31, 2020, we completed the sales of 14 of the 19 aircraft and expect to complete the sale of the remaining five aircraft in 2020. As of March 31, 2020 these five aircraft were classified as held for sale and included in Other assets on our Consolidated Balance Sheets

During the first three months ofSeptember 30, 2020, we issued $1.4 billion$700.0 million in Medium-Term Notes with maturities ranging between 2025 and 2030 and that beardue 2026 bearing interest at a fixed rates between 2.30% and 3.00%rate of 2.875%. In addition, we increasedended the third quarter of 2020 with an aggregate borrowing capacity under the Revolving Credit Facility of our committed unsecured revolving credit facility by $250.0 million to $6.1$6.0 billion ending the quarter withand total liquidity of $6.3$7.2 billion. We ended the firstthird quarter of 2020 with total debt outstanding net of discounts and issuance costs, of $14.4$15.4 billion, of which 86.4%91.4% was at a fixed rate and 97.6%97.9% of which was unsecured. Our composite cost of funds was 3.16%decreased to 3.13% as of MarchSeptember 30, 2020 as compared to 3.34% as of December 31, 2020.2019.

Our total revenues for the quarter ended March 31,September 30, 2020 increaseddecreased by 9.7%7.0% to $511.4$493.6 million, compared to the quarter ended March 31,September 30, 2019. This increasedecrease was principally driven by the continued growthprimarily due to a decrease of $25.3 million in rental revenue not recognized because collection was not reasonably assured for certain lessees and a decrease in our fleet, partially offset by a lower amount of end of lease revenue recognized as compared to the same period in 2019.aircraft sales, trading and other activity. Our net income available to common stockholders for the quarter ended March 31,September 30, 2020 was $133.3$116.6 million compared to $138.1$151.9 million for the quarter ended March 31,September 30, 2019. Our diluted earnings per share for the quarter ended March 31,September 30, 2020 was $1.17$1.02 compared to $1.23$1.34 for the quarter ended March 31,September 30, 2019. The decrease in net income available to common stockholders in the firstthird quarter of 2020 as compared to 2019 was primarily due to the decrease in the amount of end of lease revenue recognized.rental revenues and an increase in interest expense, partially offset by a decrease in selling, general and administrative expenses.

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 March 31,September 30, 2020 was $182.8$166.9 million or $1.61$1.47 per diluted share, compared to $187.7$203.9 million or $1.67$1.80 per diluted share for the three months ended March 31,September 30, 2019. The decrease in our adjusted net income before income taxes in the third quarter of 2020 as compared to 2019, was primarily due to the decrease in the amount of end of lease revenue recognized.rental revenues and an increase in interest expense, partially offset by a decrease in selling, general and administrative expenses. Our adjusted pre-tax profit margin for the three months ended March 31,September 30, 2020 was 35.7%33.8% compared to 40.3%38.4% for the three months ended March 31,September 30, 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 (“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.

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Our Fleet

Portfolio metrics of our fleet as of March 31,September 30, 2020 and December 31, 2019 are as follows:

    

March 31, 2020

    

December 31, 2019

    

September 30, 2020

    

December 31, 2019

Aggregate fleet net book value

 

$

19.2 billion

$

18.7 billion

 

$

19.5 billion

$

18.7 billion

Weighted-average fleet age(1)

 

3.7 years

3.5 years

 

4.0 years

3.5 years

Weighted-average remaining lease term(1)

 

7.2 years

7.2 years

 

6.9 years

7.2 years

Owned fleet(2)

 

300

292

 

308

292

Managed fleet(2)

 

82

83

 

81

83

Aircraft on order

399

413

372

413

Aircraft purchase options(3)

25

70

25

70

Total

806

858

786

858

Current fleet contracted rentals

$

14.2 billion

$

14.1 billion

$

13.4 billion

$

14.1 billion

Committed fleet rentals

$

14.6 billion

$

15.0 billion

$

13.8 billion

$

15.0 billion

Total committed rentals

$

28.8 billion

$

29.1 billion

$

27.2 billion

$

29.1 billion

(1)Weighted-average fleet age and remaining lease term calculated based on net book value.
(2)As of March 31,September 30, 2020 andwe did not have any aircraft classified as flight equipment held for sale. As of December 31, 2019 we had five and eight aircraft respectively, classified as flight equipment held for sale which are included in Other assets on the Consolidated Balance Sheet. All of these aircraft are excluded from the owned fleet count and included in our managed fleet count.
(3)As of March 31,September 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 45 Boeing 737-8 MAX aircraft, that have since expired without being exercised, and up to 25 Airbus A220 aircraft.

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 March 31,September 30, 2020 and December 31, 2019 (in thousands, except percentages):

March 31, 2020

December 31, 2019

 

September 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

$

5,624,068

 

29.2

%  

$

5,438,775

 

29.0

%

$

6,062,005

 

31.1

%  

$

5,438,775

 

29.0

%

Asia (excluding China)

 

5,316,199

 

27.7

%  

 

4,985,525

26.7

%

 

5,364,212

 

27.5

%  

 

4,985,525

26.7

%

China

2,878,482

15.0

%  

2,930,752

 

15.7

%

2,795,615

14.3

%  

2,930,752

 

15.7

%

The Middle East and Africa

 

2,326,758

 

12.1

%  

 

2,242,215

 

12.0

%

 

2,317,599

 

11.9

%  

 

2,242,215

 

12.0

%

Central America, South America and Mexico

 

1,106,317

 

5.8

%  

 

1,116,814

 

6.0

%

 

1,085,289

 

5.6

%  

 

1,116,814

 

6.0

%

Pacific, Australia and New Zealand

 

965,884

 

4.9

%  

 

993,858

 

5.3

%

U.S. and Canada

 

986,031

 

5.1

%  

 

996,398

 

5.3

%

 

925,892

 

4.7

%  

 

996,398

 

5.3

%

Pacific, Australia and New Zealand

 

984,506

 

5.1

%  

 

993,858

 

5.3

%

Total

$

19,222,361

 

100.0

%  

$

18,704,337

 

100.0

%

$

19,516,496

 

100.0

%  

$

18,704,337

 

100.0

%

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

March 31, 2020

December 31, 2019

 

September 30, 2020

December 31, 2019

 

Number of

Number of

 

Number of

Number of

 

Aircraft type

    

Aircraft

    

% of Total

    

Aircraft

    

% of Total

 

    

Aircraft

    

% of Total

    

Aircraft

    

% of Total

 

Airbus A319-100

1

0.3

%  

1

0.3

%

1

0.3

%  

1

0.3

%

Airbus A320-200

 

21

 

7.0

%  

21

 

7.2

%

 

21

 

6.8

%  

21

 

7.2

%

Airbus A320-200neo

15

5.0

%  

13

4.5

%

17

5.5

%  

13

4.5

%

Airbus A321-200

 

28

 

9.3

%  

28

 

9.6

%

 

28

 

9.1

%  

28

 

9.6

%

Airbus A321-200neo

39

13.1

%

35

12.0

%

43

14.0

%

35

12.0

%

Airbus A330-200

 

12

 

4.0

%  

12

 

4.1

%

 

13

 

4.2

%  

12

 

4.1

%

Airbus A330-300

 

8

 

2.7

%  

7

 

2.4

%

 

8

 

2.6

%  

7

 

2.4

%

Airbus A330-900neo

7

2.3

%  

7

2.4

%

7

2.3

%  

7

2.4

%

Airbus A350-900

10

3.3

%  

10

3.4

%  

11

3.6

%  

10

3.4

%  

Airbus A350-1000

 

1

 

0.3

%  

 

%

Boeing 737-700

 

4

 

1.3

%  

4

 

1.4

%

 

4

 

1.3

%  

4

 

1.4

%

Boeing 737-800

 

85

 

28.4

%  

85

 

29.1

%

84

27.3

%  

85

29.1

%

Boeing 737-8 MAX

15

5.0

%  

15

5.1

%

 

15

 

4.9

%  

15

 

5.1

%

Boeing 767-300ER

 

 

%  

1

 

0.3

%

%

1

0.3

%

Boeing 777-200ER

 

1

 

0.3

%  

1

 

0.3

%

1

0.3

%

1

0.3

%

Boeing 777-300ER

 

24

 

8.0

%  

24

 

8.2

%

 

24

 

7.8

%  

24

 

8.2

%

Boeing 787-9

23

7.7

%  

23

8.0

%

 

23

 

7.5

%  

23

 

8.0

%

Boeing 787-10

6

2.0

%  

4

1.4

%

6

1.9

%  

4

1.4

%

Embraer E190

 

1

 

0.3

%  

1

 

0.3

%

1

0.3

%  

1

0.3

%

Total

 

300

 

100.0

%  

292

 

100.0

%

 

308

 

100.0

%  

292

 

100.0

%

As of March 31,September 30, 2020, updated through May 7, 2020, the Companywe had commitments to acquire a total of 399372 new aircraft for delivery through 2026 as follows:

Estimated Delivery Years

Estimated Delivery Years

Aircraft Type

    

2020

    

2021

    

2022

    

2023

    

2024

    

Thereafter

    

Total

    

2020

    

2021

    

2022

    

2023

    

2024

    

Thereafter

    

Total

Airbus A220-300(1)

 

 

 

8

 

13

 

10

 

19

 

50

 

 

 

3

 

14

 

12

 

21

 

50

Airbus A320/321neo(2)

 

13

 

24

 

26

 

26

 

29

 

36

 

154

 

7

 

32

 

22

 

23

 

27

 

37

 

148

Airbus A330-900neo

 

 

3

 

7

 

5

 

0

 

 

15

 

1

 

3

 

7

 

4

 

 

 

15

Airbus A350-900/1000

 

3

 

3

 

6

 

2

 

6

 

 

20

 

1

 

4

 

3

 

4

 

5

 

1

 

18

Boeing 737-7/8/9 MAX

 

2

 

28

 

24

 

42

 

30

 

 

126

 

 

15

 

20

 

42

 

30

 

 

107

Boeing 787-9/10

 

8

 

6

 

8

 

10

 

2

 

 

34

 

5

 

9

 

8

 

10

 

2

 

 

34

Total

 

26

 

64

 

79

 

98

 

77

 

55

 

399

 

14

 

63

 

63

 

97

 

76

 

59

 

372

(1)In addition to the Company’sour commitments, as of March 31,September 30, 2020, the Companywe 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 4745 long-range variants and 29 extra long-range variants.

21

Aircraft Delivery Delays

Pursuant to our purchase agreements with Boeing and Airbus for new aircraft, we 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 our actual delivery dates. For several years, we have experienced delivery delays for certain of our Airbus orderbook aircraft, primarily the A321neo aircraft and, to a lesser extent, A330neo aircraft. The worldwide grounding of the Boeing 737 MAX aircraft (“737 MAX”) began on March 10, 2019, and remains in effect. As a result, Boeing has temporarily halted production and delivery of all 737 MAX aircraft and our newaircraft. While production of the 737 MAX resumed in the second quarter, deliveries remain on hold. The Federal Aviation Administration (“FAA”) and the European Union Aviation Safety Agency (“EASA”) have both completed flight testing for recertification of the 737 MAX , though a number of key milestones remain before the aircraft have been significantly delayed.can return to service. Lifting of the grounding is subject to the approval of the FAA, EASA and other global regulatory authorities, and we are 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 that we own or have on order, which could result in changes to the commitment table.

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Table of Contents

The ongoing COVID-19 pandemic has caused delivery delays of aircraft in our orderbook and is expected to continue to cause delays of aircraft.aircraft deliveries. As discussed in further detail above in “COVID-19“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 but with reduced output.

As a result of the temporary closures of the Boeing and Airbus facilities and the subsequently reduced production by these manufacturers, most of our expected aircraft deliveries were delayed during the second and third 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, theexpected delivery dates listed above could materially change.

The aircraft purchase commitments discussed above also could be impacted by lease cancellation. Our leases typically provide that we and our airline customer each have a cancellation right related to certain aircraft delivery delays. Our purchase agreements with Boeing and Airbus also generally provide that the Companywe 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 cause. Pursuant to such contractual provisions,As of September 30, 2020, we are in discussions with lessees who are considering cancelling a small number ofhave canceled our orders for 19 737 MAX leasesaircraft with us.Boeing. We believe that the majority of our 737 MAX aircraft deliveries in our orderbook will be delayed more than 12 months.

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 March 31,September 30, 2020. As noted above, we expect delivery delays for all aircraft deliveries in our orderbook, including Boeing 737 MAX delivery delays after the grounding of such aircraft is lifted. We are currentlyremain in discussions with Boeing and Airbus to determine the extent and duration of 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

 

2020

 

26

 

26

 

100.0

%

 

14

 

14

 

100.0

%

2021

 

64

 

62

 

96.9

%

 

63

 

62

 

98.4

%

2022

 

79

 

54

 

68.4

%

 

63

 

50

 

79.4

%

2023

 

98

 

34

 

34.7

%

 

97

 

36

 

37.1

%

2024

 

77

 

10

 

13.0

%

 

76

 

14

 

18.4

%

Thereafter

 

55

 

 

%

 

59

 

1

 

1.7

%

Total

 

399

 

186

 

372

 

177

22

Aircraft Industry and Sources of Revenues

Our revenues are principally derived from operating leases with scheduled and charter airlines throughout the world. As of March 31,September 30, 2020, we havehad a globally diversified customer base comprised of 108107 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.

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 demand and subsequent flight cancellations, negatively impacting airlines, aircraft manufacturers, and other related businesses. The International Air Transport Association (“IATA”) reported that primarily due to COVID-19, passenger traffic fell 22%65% year-over-year for the first threenine months of 2020 and 53%73% year-over-year for Marchthe month of September 2020, andprimarily due to COVID-19. As a result, IATA now expects airline passenger volumes to fall 48%68% in 2020 as compared to 2019.2019, with the path of recovery dependent upon the pandemic and the relaxation of enforced air travel restrictions in many countries globally. While domestic and regional airline traffic have improved since the industry low in April, international and business air travel demand remain challenged.

We expect a significant increase in financial difficulties for our airline customers through the remainder of 2020 and perhapsinto 2021 and potentially longer, including the needresulting in additional requests for lease deferrals or other lease concessions, requests to return aircraft early orand lease defaults. We also 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 six19 aircraft across threefive airlines which were subject to various forms of insolvency proceedings.

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Approximately 75%73% 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 default 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 overall 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 399372 aircraft on order as of March 31,September 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. TheAs a result of continued production delays and the impact of COVID-19, haswe expect aircraft deliveries to be lower than previously anticipated for 2020 and delivery delays could potentially extend well into 2021 and beyond. While we have planned our capital expenditures for the remainder of 2020 and beyond based on currently expected delivery schedules, given the current industry circumstances, our aircraft delivery schedule could continue to be subject to material changes. As a result of these delivery delays, we also resulted in temporary closures and lower production rates and deliveries for both Boeing and Airbus, which is expected to cause further delivery delays.anticipate reduced sales activity.

23

The worldwide grounding of the 737 MAX began on March 10, 2019, and remains in effect. As a result, Boeing has temporarily halted production and delivery of all 737 MAX aircraft. While production of the 737 MAX has since resumed, deliveries remain on hold. Since March of 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.

As The FAA and EASA have both completed flight testing for recertification of March 31, 2020, we owned and leased 15the 737 MAX, though a number of key milestones remain before the aircraft and we have 126 737 MAX aircraft on order.can return to service. Lifting of the grounding is subject to the approval of the FAA, EASA and other global regulatory authorities, and we are unable to speculate as to when this may occur. Because of this uncertainty, we have curtailed our leasing ofEven after the grounding is lifted, Boeing’s ability to deliver 737 MAX aircraft in our orderbookmay be impacted as a result of the COVID-19 pandemic.

As of September 30, 2020, we owned and leased 15 737 MAX aircraft since the grounding.and we had 107 737 MAX aircraft on order. 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, including an aircraft fleet grounding. SomeHowever, 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, somemore of our customers may seek to cancel their lease contracts with us. We are in discussions with lessees who are considering cancelling a small numberAs of September 30, 2020, we have canceled our orders for 19 737 MAX leasesaircraft with us.Boeing. It is unclear at this point if we will cancel somemore 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 the 737 MAX aircraft that we own and have on order.

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 U.S. Trade Representative announced a 10% tariff on new aircraft imported from Europe, including Airbus aircraft. In March 2020, the tariffs on aircraft were raised to 15%. 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. In October 2020, the World Trade Organization authorized the European Union (“E.U.”) to enact approximately $4.0 billion of tariffs on products manufactured in the U.S. On November 9, 2020, the E.U. announced a 15% tariff on new aircraft imported into the E.U. from the U.S., including Boeing aircraft, effective November 10, 2020. We are currently monitoring the impact of this announcementU.S. trade policies on our future Airbus deliveries to U.S. customers.customers, and are assessing the impact the new E.U. tariffs will have on our Boeing deliveries to customers in the E.U. We cannot predict what further actions may ultimately be taken with respect

23

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to tariffs or trade relations between the U.S. and U.S. trading partners. Accordingly, it is difficult to predict exactly how, and to what extent, such actions may impact our business, or the business of our lessees or aircraft manufacturers. Any unfavorable government policies on international trade, such as capital controls or tariffs, may affect the 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, aircraft maintenance and aircraft maintenance.the costs associated with the importation of the aircraft.

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 coming months and what the corresponding impact on lease rates will be as a result of the change in the competitive landscape, COVID-19, trade matters, the aircraft delays from Airbus and Boeing or other items.

24

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. We currently have an undrawn balance of $5.6 billion under our revolving credit facility, which does not condition our ability to borrow on the lack of a material adverse effect to us or the general economy.basis with primarily fixed-rate debt. Unsecured financing provides us with operational flexibility when selling or transitioning aircraft from one airline to another.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. Additionally, we only have approximately $319.4 millionOur access to a variety of financing alternatives including unsecured public bonds, private capital, bank debt and secured markets serves as a key advantage in debt maturities for the remainder of 2020, which serves to limitmanaging our near-term financing needs.liquidity. Aircraft delivery delays as a product of the COVID-19 pandemic and the 737 MAX grounding are expected to further reduce our debt financing needs this yearfor the next six to twelve months and potentially beyond. We continue to monitor COVID-19 and its impact on our overall liquidity position and outlook.

We ended the firstthird quarter of 2020 with total debt outstanding, net of discounts and issuance costs, of $14.4$15.2 billion compared to $13.6 billion as of December 31, 2019. Our unsecured debt increased to $14.2$15.0 billion as of March 31,September 30, 2020 from $13.3 billion as of December 31, 2019. Our unsecured debt as a percentage of total debt increased to 97.6%97.9% as of March 31,September 30, 2020 from 96.6% as of December 31, 2019.

Our cash flows provided by operating activities decreased by 10.4%26.1% or $27.2$254.0 million, to $234.0$717.6 million for the threenine months ended March 31,September 30, 2020 as compared to $261.2$971.6 million for the threenine months ended March 31,September 30, 2019. The decrease in our cash flow provided by operating activities is primarily due to an increase in deferred lease payments during the quarter as a result of the COVID-19 pandemic. Our cash flow used in investing activities was $672.3 million$1.4 billion for the threenine months ended March 31,September 30, 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 $853.6 million$1.6 billion for the threenine months ended March 31,September 30, 2020, which resulted primarily from the issuance of unsecured notes 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 firstthird quarter of 2020 with available liquidity of $6.3$7.2 billion which is comprised of unrestricted cash of $732.7 million$1.2 billion and an available borrowing capacity under our committed unsecured revolving credit facilityRevolving Credit Facility of $5.6$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 theat least next 12 months. A key component of the ongoing liquidity available to us is our committed unsecured revolving credit facility,Revolving Credit Facility, for which the substantial majority of the commitments mature in 2023. Our committed unsecured revolving credit facilityRevolving Credit Facility is syndicated across 5349 financial institutions from around various regions of the world, diversifying our reliance on any individual lending institution. We continue to utilize our committed unsecured revolving credit facilityRevolving Credit Facility in the normal course of business.

We have a balanced approach to capital allocation based on the following priorities, ranked in order of importance: first, investing in modern, in-demand aircraft to profitably grow our core aircraft leasing business while maintaining strong fleet metrics and creating sustainable long-term shareholder value; second, maintaining our investment grade balance sheet utilizing unsecured debt as our primary form of financing; and finally, in lockstep with the aforementioned priorities, returning excess cash to shareholders through our dividend policy as well as regular evaluation of share repurchases, as appropriate.

The ultimate impact the COVID-19 pandemic may have on our business, results of operations and financial condition over the next 12 months is currently uncertain and will depend on certain developments, including, among

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others, the 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 acquisition over the next 12 months. 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, or ECAs for future aircraft deliveries.deliveries, which will further enhance our liquidity position.

25

As of March 31,September 30, 2020, we were in compliance in all material respects with the covenants contained in our debt agreements. A ratings downgrade 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, 2019, and in thisour Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

Debt

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

    

March 31, 2020

    

December 31, 2019

 

    

September 30, 2020

    

December 31, 2019

 

Unsecured

Senior notes

$

12,834,333

$

12,357,811

$

14,069,115

$

12,357,811

Term financings

 

877,950

 

883,050

 

967,000

 

883,050

Revolving credit facility

515,000

20,000

20,000

Total unsecured debt financing

 

14,227,283

 

13,260,861

 

15,036,115

 

13,260,861

Secured

Term financings

 

322,320

 

428,824

 

289,207

 

428,824

Export credit financing

 

29,947

 

31,610

 

26,619

 

31,610

Total secured debt financing

 

352,267

 

460,434

 

315,826

 

460,434

Total debt financing

 

14,579,550

 

13,721,295

 

15,351,941

 

13,721,295

Less: Debt discounts and issuance costs

 

(164,929)

 

(142,429)

 

(171,796)

 

(142,429)

Debt financing, net of discounts and issuance costs

$

14,414,621

$

13,578,866

$

15,180,145

$

13,578,866

Selected interest rates and ratios:

Composite interest rate(1)

 

3.16

%  

3.34

%

 

3.13

%  

3.34

%

Composite interest rate on fixed-rate debt(1)

 

3.31

%  

3.39

%

 

3.29

%  

3.39

%

Percentage of total debt at fixed-rate

 

86.41

%  

88.40

%

 

91.35

%  

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 March 31,September 30, 2020, we had $12.8$14.1 billion in senior unsecured notes outstanding. As of December 31, 2019, we had $12.4 billion in senior unsecured notes outstanding.

During the threenine months ended March 31,September 30, 2020, we issued $1.40$3.0 billion in aggregate principal amount of Medium-Term Notes comprised of (i) $750.0 million due 2025 at a fixed rate of 2.30% and, (ii) $650.0 million due 2030 at a fixed rate of 3.00% (iii) $850.0 million due 2025 at a fixed rate of 3.375% and (iv) $700.0 million due 2026 at a fixed rate of 2.875%.

During the nine months ended September 30, 2020, we repurchased $206.1 million in aggregate principal amount of Floating Rate Medium-Term Notes due 2021. The debt repurchases resulted in a gain of $14.0 million and is included in Aircraft sales, trading and other revenue in our Consolidated Statements of Income and Comprehensive Income.

Unsecured revolving credit facility

As of September 30, 2020, we did not have amounts outstanding under the Revolving Credit Facility. The total amount outstanding under the Revolving Credit Facility was $20.0 million as of December 31, 2019.

We have an unsecured revolving credit facility with JPMorgan Chase Bank, N.A., as agent.agent (the “Revolving Credit Facility”). During the quarternine months ended March 31,2020,September 30, 2020, we increased the aggregate capacity of our unsecured revolving credit facility by $250.0 million to $6.1 billion. As of March 31, 2020, the total outstanding balance on our unsecured revolving credit facility was approximately $515.0 million. The total outstanding balance under our unsecured revolving credit facility was approximately $20.0 million as of December 31, 2019.

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On May 5, 2020, commitments totaling $92.7 million of our committed

26

unsecured revolving credit facility matured. As of September 30, 2020, the aggregate capacity of our committed unsecured revolving credit facility 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 May 5, 2022 and commitments totaling $5.0 million that mature on May 5, 2021. As of May 7, 2020, after giving effect to the commitments that matured on May 5, 2020, the aggregate capacity of our committed unsecured revolving credit facility was approximately $6.0 billion.

As of March 31,September 30, 2020, borrowings under 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 our unsecured revolving credit facility. Borrowings under 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 $100.4 million and $128.5 million as of September 30, 2020 and December 31, 2019, respectively.

As of September 30, 2020, the outstanding balance on our secured debt financings, including our secured warehouse facility and our export credit financing, was $315.8 million and we had pledged 12 aircraft as collateral with a net book value of $636.6 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 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) 6.150% during the first five years and payable quarterly in arrears beginning on June 15, 2019, and (ii) three-month LIBOR plus a spread of 3.650% 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 February 14,We paid a cash dividend of $0.384375 per share on our outstanding Series A Preferred Stock on each of March 15, 2020, June 15, 2020 and September 15, 2020, and our board of directors alsohas approved a cash dividend of $0.384375 per share on our outstanding Series A Preferred Stock which wasto be paid on MarchDecember 15, 2020 to holders of record of our Series A Preferred Stock as of February 29, 2020.

Potential Impact of LIBOR Transition

As of March 31,September 30, 2020, we had approximately $2.0$1.3 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

27

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

26

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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 March 31,September 30, 2020 of approximately $19.8$13.3 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

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-

 

Negative

 

March 26, 2020

Standard and Poor's

 

BBB

 

BBB

 

Negative

 

April 10, 2020

Fitch Ratings

BBB

BBB

Negative

March 23,July 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 nine month periods ended March 31,September 30, 2020 and 2019 (in thousands, except per share amounts and percentages):

    

Three Months Ended March 31, 

 

    

Three Months Ended

September 30, 

    

Nine Months Ended

September 30, 

    

2020

    

2019

 

2020

    

2019

    

2020

    

2019

    

(unaudited)

(unaudited)

Revenues

Rental of flight equipment

$

496,687

$

455,739

$

468,443

$

492,869

$

1,462,999

$

1,412,478

Aircraft sales, trading and other

 

14,700

 

10,312

 

25,158

 

38,033

 

63,338

 

55,870

Total revenues

 

511,387

 

466,051

 

493,601

 

530,902

 

1,526,337

 

1,468,348

Expenses

Interest

 

107,541

 

89,220

 

107,519

 

104,637

 

317,753

 

290,681

Amortization of debt discounts and issuance costs

 

10,528

 

8,540

 

10,899

 

9,078

 

31,660

 

26,330

Interest expense

 

118,069

 

97,760

 

118,418

 

113,715

 

349,413

 

317,011

Depreciation of flight equipment

 

188,895

 

159,471

 

195,054

 

183,788

 

577,969

 

514,948

Selling, general and administrative

 

28,322

 

29,702

 

20,239

 

34,715

 

75,142

 

92,188

Stock-based compensation

 

4,429

 

4,174

 

6,635

 

4,897

 

14,956

 

14,934

Total expenses

 

339,715

 

291,107

 

340,346

 

337,115

 

1,017,480

 

939,081

Income before taxes

 

171,672

 

174,944

 

153,255

 

193,787

 

508,857

 

529,267

Income tax expense

 

(34,521)

 

(36,850)

 

(32,860)

 

(38,000)

 

(103,686)

 

(107,081)

Net income

$

137,151

$

138,094

$

120,395

$

155,787

$

405,171

$

422,186

Preferred stock dividends

(3,844)

(3,843)

(3,844)

(11,531)

(8,115)

Net income available to common stockholders

$

133,307

$

138,094

$

116,552

$

151,943

$

393,640

$

414,071

Earnings per share of Class A and B common stock

Earnings per share of common stock

Basic

$

1.17

$

1.24

$

1.02

$

1.36

$

3.46

$

3.71

Diluted

$

1.17

$

1.23

$

1.02

$

1.34

$

3.46

$

3.67

Other financial data

Pre-tax profit margin

33.6

%  

37.5

%

31.0

%  

36.5

%  

33.3

%  

36.0

%

Adjusted net income before income taxes(1)

$

182,785

$

187,658

$

166,946

$

203,918

$

543,942

$

562,416

Adjusted pre-tax profit margin(1)

35.7

%  

40.3

%

33.8

%  

38.4

%  

35.6

%  

38.3

%

Adjusted diluted earnings per share before income taxes(1)

$

1.61

$

1.67

$

1.47

$

1.80

$

4.77

$

4.98

Pre-tax return on common equity (trailing twelve months)

13.8

%

14.7

%

12.8

%  

14.3

%  

12.8

%  

14.3

%

Adjusted pre-tax return on common equity (trailing twelve months)(1)

14.9

%

15.9

%

13.9

%  

15.4

%  

13.9

%  

15.4

%

(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 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.

29

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 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

28

Table of Contents

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

 

Three Months Ended

Nine Months Ended

March 31, 

 

September 30, 

September 30, 

    

2020

    

2019

 

    

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

$

133,307

$

138,094

$

116,552

$

151,943

$

393,640

$

414,071

Amortization of debt discounts and issuance costs

10,528

8,540

10,899

9,078

31,660

26,330

Stock-based compensation

4,429

4,174

6,635

4,897

14,956

14,934

Provision for income taxes

34,521

36,850

32,860

38,000

103,686

107,081

Adjusted net income before income taxes

$

182,785

$

187,658

$

166,946

$

203,918

$

543,942

$

562,416

Total revenues

$

511,387

$

466,051

$

493,601

$

530,902

$

1,526,337

$

1,468,348

Adjusted pre-tax profit margin(1)

35.7

%

40.3

%

33.8

%

38.4

%

35.6

%

38.3

%

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

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

Three Months Ended

September 30, 

Nine Months Ended

September 30, 

 

March 31, 

    

2020

    

2019

    

2020

    

2019

 

    

2020

    

2019

(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

$

133,307

$

138,094

$

116,552

$

151,943

$

393,640

$

414,071

Amortization of debt discounts and issuance costs

 

10,528

 

8,540

10,899

9,078

31,660

26,330

Stock-based compensation

 

4,429

 

4,174

6,635

4,897

14,956

14,934

Provision for income taxes

 

34,521

 

36,850

32,860

38,000

103,686

107,081

Adjusted net income before income taxes

$

182,785

$

187,658

$

166,946

$

203,918

$

543,942

$

562,416

Weighted-average diluted common shares outstanding

 

113,785,028

 

112,380,856

 

113,951,102

 

113,263,396

 

113,928,775

 

112,837,526

Adjusted diluted earnings per share before income taxes

$

1.61

$

1.67

$

1.47

$

1.80

$

4.77

$

4.98

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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

March 31,

    

2020

    

2019

    

(unaudited)

Reconciliation of net income available to common stockholders to adjusted pre-tax return on common equity:

 

  

 

  

 

Net income available to common stockholders

$

570,376

$

538,278

Amortization of debt discounts and issuance costs

 

38,679

 

33,224

Stock-based compensation

 

21,000

 

18,220

Provision for income taxes

 

146,235

 

135,485

Adjusted net income before income taxes

$

776,290

$

725,207

Common shareholders’ equity as of beginning of the period

$

4,923,817

$

4,226,623

Common shareholders’ equity as of end of the period

5,486,369

4,923,817

Average common  shareholders' equity

$

5,205,093

$

4,575,220

Adjusted pre-tax return on common equity

 

14.9

%  

 

15.9

%

Trailing Twelve Months September 30, 

    

2020

    

2019

    

(unaudited)

Reconciliation of net income available to common stockholders to adjusted pre-tax return on common equity:

 

  

 

  

 

Net income available to common stockholders

$

554,732

$

552,470

Amortization of debt discounts and issuance costs

 

42,021

 

34,805

Stock-based compensation

 

20,767

 

19,247

Provision for income taxes

 

145,169

 

140,710

Adjusted net income before income taxes

$

762,689

$

747,232

Common shareholders' equity as of beginning of the period

$

5,212,173

$

4,478,918

Common shareholders' equity as of end of the period

$

5,727,323

$

5,212,173

Average common  shareholders' equity

$

5,469,748

$

4,845,546

Adjusted pre-tax return on common equity

 

13.9

%  

 

15.4

%

Three months ended March 31,September 30, 2020, compared to the three months ended March 31,September 30, 2019

Rental revenue

As of March 31,September 30, 2020, we owned 300308 aircraft with a net book value of $19.2$19.5 billion and recorded $496.7$468.4 million in rental revenue for the quarter then ended, which included $5.5$8.8 million in amortization expense related to initial direct costs, which is net of overhaul revenue. In the prior year, as of March 31,September 30, 2019, we owned 280307 aircraft with a net book value of $16.318.9 billion and recorded $455.7$492.9 million in rental revenue for the quarter ended March 31,September 30, 2019, which included overhaul revenue, net of$4.6 million in amortization expense related to initial direct costs, which is net of $18.0 million. This increaseoverhaul revenue. Our rental revenue for the quarter ended September 30, 2020 decreased as compared to the prior year due to $25.3 million in rental revenue not recognized because collection was principally driven by the continued growthnot reasonably assured for certain lessees. Aircraft on lease with these lessees represented approximately 6.6% of our fleet partially offset by a reduction in endnet book value as of lease revenue recognized in the period as compared to prior year. In the prior period, we recognized $20.2 million of end of lease revenue in connection with an airline bankruptcy whereas we did not recognize end of lease revenue in the current period.September 30, 2020.

Aircraft sales, trading and other revenue

Aircraft sales, trading and other revenue totaled $14.7$25.2 million for the three months ended March 31,September 30, 2020, comparedof which $17.3 million was related to $10.3the sale of one aircraft and lease termination fees recognized during the quarter. Aircraft sales, trading and other revenue totaled $38.0 million for the three months ended March 31, 2019. During the quarter ended March 31, 2020, we recorded $1.6September 30, 2019, of which $31.5 million in gains fromwas related to the sale of three aircraft from our held for sale portfolio and $5.9 million in other revenue from the forfeiture of security deposits. During the quarter ended March 31, 2019, we recorded $3.6 million in gains from the sale of sixfive aircraft from our operating lease portfolio. As noted above, we expectportfolio and lease termination fees recognized during the COVID-19 pandemic to have an adverse impact on demand for used aircraft and that we will sell fewer used aircraft in 2020 and potentially 2021 than we initially planned to sell.quarter.

Interest expense

Interest expense totaled $118.1$118.4 million for the three months ended March 31,September 30, 2020 compared to $97.8$113.7 million for the three months ended March 31,September 30, 2019. The increase was primarily due to an increase in our aggregate debt balance driven by the growth of our fleet and the increase in our liquidity position, partially offset by a decrease in our composite interest rate. We ended the quarter with an available liquidity balance of $7.2 billion. 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 $188.9$195.1 million in depreciation expense of flight equipment for the three months ended March 31,September 30, 2020 compared to $159.5$183.8 million for the three months ended March 31,September 30, 2019. The increase in depreciation expense for the

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three months ended March 31,September 30, 2020, compared to the three months ended March 31,September 30, 2019, is primarily attributable to the acquisition of additional aircraft in our operating fleet during the last twelve months.

31

Selling, general and administrative expenses

We recorded selling, general and administrative expenses of $28.3$20.2 million for the three months ended March 31,September 30, 2020 compared to $29.7$34.7 million for the three months ended March 31,September 30, 2019. Selling, general and administrative expense as a percentage of total revenue decreased to 5.5%4.1% for the three months ended March 31,September 30, 2020 compared to 6.4%6.5% for the three months ended March 31,September 30, 2019. As we continue to add new aircraft to our portfolio, we expect over the long-term,The decrease in selling, general and administrative expenseexpenses is primarily due to a decrease as a percentage of our revenue.in operating expenses and lower transactional costs incurred during the period.

Taxes

The effective tax rate was 20.1%21.4% and 21.1%19.6% for the three months ended March 31,September 30, 2020 and 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 March 31,September 30, 2020, we reported consolidated net income available to common stockholders of $133.3$116.6 million, or $1.17$1.02 per diluted share, compared to a consolidated net income available to common stockholders of $138.1$151.9 million, or $1.23$1.34 per diluted share, for the three months ended March 31,September 30, 2019. Net income available to common stockholders decreased in the firstthird quarter of 2020 as compared to 2019, principally driven by a reductionprimarily due to the decrease in end of leaserental revenue and an increase in interest expense, partially offset by the continued growth of our fleet.a decrease in selling, general and administrative expenses.

Adjusted net income before income taxes

For the three months ended March 31,September 30, 2020, we recorded adjusted net income before income taxes of $182.8$166.9 million, or $1.61$1.47 per diluted share, compared to an adjusted net income before income taxes of $187.7$203.9 million, or $1.67$1.80 per diluted share, for the three months ended March 31,September 30, 2019. Our adjusted net income before income taxes decreased principally driven byprimarily due to a reductiondecrease in end of leaserental revenue and an increase in interest expense, partially offset by the continued growth of our fleet.a decrease in selling, general and administrative expenses.

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.

Nine months ended September 30, 2020, compared to the nine months ended September 30, 2019

Rental revenue

As of September 30, 2020, we owned 308 aircraft with a net book value of $19.5 billion and recorded $1.5 billion in rental revenue for the nine months then ended, $22.4 million in amortization expense related to initial direct costs, which is net of overhaul revenue. In the prior year, as of September 30, 2019, we owned 307 aircraft with a net book value of $18.9 billion and recorded $1.4 billion in rental revenue for the nine months then ended, which included overhaul revenue, net of amortization expense related to initial direct costs, of $11.3 million. This increase was primarily driven by the continued growth of our fleet as compared to prior year, partially offset by $30.8 million in rental revenue not recognized during the nine months ended September 30, 2020 because collection was not reasonably assured for certain lessees. Aircraft on lease with these lessees represented approximately 6.6% of our fleet by net book value as of September 30, 2020.

3132

Aircraft sales, trading and other revenue

Table

Aircraft sales, trading and other revenue totaled $63.3 million for the nine months ended September 30, 2020, of Contentswhich $31.1 million was related to the sale of eight aircraft and lease termination fees recognized during the nine month period. In addition, we recorded $14.0 million in other revenue related to the repurchase of $206.1 million in aggregate principal amount of our Floating Rate Medium-Term Notes due 2021. Aircraft sales, trading and other revenue totaled $55.9 million for the nine months ended September 30, 2019, of which $33.4 million was related to the sale of 11 aircraft from our operating lease portfolio and lease termination fees recognized during the nine month period.

Interest expense

Interest expense totaled $349.4 million for the nine months ended September 30, 2020 compared to $317.0 million for the nine months ended September 30, 2019. The increase was primarily due to an increase in our aggregate debt balance driven by the growth of our fleet and the increase in our liquidity position, partially offset by the decrease in our composite interest rate. We ended the quarter with an available liquidity balance of $7.2 billion. 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 $578.0 million in depreciation expense of flight equipment for the nine months ended September 30, 2020 compared to $514.9 million for the nine months ended September 30, 2019. The increase in depreciation expense for the nine months ended September 30, 2020, compared to the nine months ended September 30, 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 $75.1 million for the nine months ended September 30, 2020 compared to $92.2 million for the nine months ended September 30, 2019. Selling, general and administrative expense as a percentage of total revenue decreased to 4.9% for the nine months ended September 30, 2020 compared to 6.3% for the nine months ended September 30, 2019. The decrease in selling, general and administrative expenses is primarily due to a decrease in operating expenses and lower transactional costs incurred during the period.

Taxes

The effective tax rate was 20.4% and 20.2% for the nine months ended September 30, 2020 and 2019, respectively. Changes in the tax rate were primarily driven by variances in permanent items.

Net income available to common stockholders

For the nine months ended September 30, 2020, we reported consolidated net income available to common stockholders of $393.6 million, or $3.46 diluted share, compared to a consolidated net income available to common stockholders of $414.1 million, or $3.67 per diluted share, for the nine months ended September 30, 2019. Net income available to common stockholders decreased for the nine months ended September 30, 2020 as compared to 2019, primarily due to an increase in interest expense, partially offset by an increase in rental revenue and a decrease in selling, general and administrative expenses.

Adjusted net income before income taxes

For the nine months ended September 30, 2020, we recorded adjusted net income before income taxes of $543.9 million, or $4.77 per diluted share, compared to an adjusted net income before income taxes of $562.4 million, or $4.98 per diluted share, for the nine months ended September 30, 2019. Our adjusted net income before income taxes decreased for the nine months ended September 30, 2020 as compared to 2019, primarily due to an increase in interest expense, partially offset by an increase in rental revenue and a decrease in selling, general and administrative expenses.

33

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.

Contractual Obligations

Our contractual obligations as of March 31,September 30, 2020, are as follows (in thousands):

    

2020

    

2021

    

2022

    

2023

    

2024

    

Thereafter

    

Total

    

2020

    

2021

    

2022

    

2023

    

2024

    

Thereafter

    

Total

Long-term debt obligations

$

319,372

$

2,049,294

$

2,751,269

$

2,988,154

$

1,534,552

$

4,936,909

$

14,579,550

$

172,778

$

1,934,141

$

2,730,561

$

2,502,123

$

1,525,428

$

6,486,910

$

15,351,941

Interest payments on debt outstanding(1)

 

327,433

433,416

373,547

290,823

210,269

446,761

 

2,082,249

 

83,800

458,685

404,501

333,891

257,424

504,325

 

2,042,626

Purchase commitments(2)(3)

 

2,206,538

4,900,832

6,519,111

6,171,228

4,456,237

2,542,133

 

26,796,079

 

1,213,581

4,841,564

5,604,050

6,153,520

4,211,633

2,789,136

 

24,813,484

Operating leases

 

5,188

7,059

6,506

6,387

4,545

33,045

 

62,730

 

1,725

7,426

6,583

6,398

4,556

33,086

 

59,774

Total

$

2,858,531

$

7,390,601

$

9,650,433

$

9,456,592

$

6,205,603

$

7,958,848

$

43,520,608

$

1,471,884

$

7,241,816

$

8,745,695

$

8,995,932

$

5,999,041

$

9,813,457

$

42,267,825

(1)Future interest payments on floating rate debt are estimated using floating rates in effect at March 31, 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 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.
(1)Future interest payments on floating rate debt are estimated using floating rates in effect at September 30, 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 orderbook 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.
(3)Due to the expected aircraft delivery delays, we expect approximately $5.1 billion of our purchase commitments will be subject to cancellation by the time of delivery.

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 non-controlling interests in two investment funds in which we own 9.5% of the equity of each fund. We account for our interest in these funds under the equity method of accounting due to our level of influence and involvement in the funds. Also, we manage aircraft that we have sold through our Thunderbolt platform. In connection with the sale of these aircraft portfolios through our Thunderbolt platform, we hold non-controlling interests of approximately 5.0% in two entities. These investments are accounted for 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, 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 threenine months ended March 31,September 30, 2020.

34

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.

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

32

Table of Contents

significant portion of our aircraft acquisitions. As of March 31,September 30, 2020 and December 31, 2019, we had $2.0$1.3 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 $19.8$13.3 million and $15.9 million as of March 31,September 30, 2020 and December 31, 2019, respectively, each on an annualized basis, which would put downward pressure on our operating margins. Further, as of March 31,September 30, 2020, 86.4%91.4% 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. Approximately 1.0%0.8% and 0.7% of our lease revenues were denominated in foreign currency as of March 31,September 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 87 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.

35

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 March 31,September 30, 2020. Based on that evaluation, our Certifying Officers have concluded that our disclosure controls and procedures were effective at March 31,September 30, 2020.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31,September 30, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Table of Contents

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

Other than stated below, thereThere 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, 2019.

The coronavirus (COVID-19) pandemic2019 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.

The global pandemic resulting from the coronavirus (“COVID-19”) pandemic has disrupted some of our operations and the operations of our lessees beginning in the first quarter of 2020. 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). These measures may remain in place for a significant amount of time. These measures, coupled with a decrease in consumer spending on travel as a result of the COVID-19 pandemic, have materially impacted airline traffic and operations throughout the world as well as our operations and the operations of our lessees and aircraft manufacturers and suppliers, including causing the temporary closure of Boeing and Airbus’ final assembly facilities. As the virus has spread in the last few months, the relatively limited impacts we saw in Asia in the early part of the year have accelerated and are now occurring throughout the rest of the world, with a rapid deterioration of global air travel. As a result of the spread of the COVID-19 pandemic, we may experience financial losses due to a number of operational factors, including but not limited to:

lease deferments, lease abatements and aircraft return requests from our lessees;
impairment or delay in our ability to remarket aircraft or otherwise re-lease aircraft on a timely basis at favorable rates;
default, bankruptcy or reorganization of our lessees;
default, bankruptcy or reorganization of airlines generally, which would place pressure on aircraft values and lease rates generally;
further delays in delivery of aircraft in our orderbook from Boeing and Airbus, including due to delays or bankruptcies of Boeing and Airbus suppliers;
cancellations of, or a decline in, placements of aircraft in our orderbook for long-term leases;
increased costs of borrowing, including if our credit ratings are ultimately downgraded;
delays and other adverse impacts on our plans to grow the size of our operating fleet;
reduced sale proceeds received in aircraft sales due to weaker market demand; and
charges recognized by us or some of our lessees as a result of the measures implemented to contain the spread of COVID-19, including impairment of aircraft and engines and other long-lived assets.

These factors may remain prevalent for a significant period of time and may continue to adversely affect our business, results of operations and financial condition even after the COVID-19 pandemic has subsided. In addition, if a resurgence of the COVID-19 virus occurs after the initial outbreak subsides, these factors will be exacerbated.

As of May 7, 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 46% of our lessees. We remain in active discussions with a number of our airline customers for accommodation arrangements, such as lease payment deferrals and other lease concessions. As of May 7, 2020, the Company has agreed to defer approximately $124.6 million in lease payments, which represents approximately 6% of our total revenue for fiscal year 2019. So far,

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Table of Contents

such solutions have generally been 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 granted so far repaid by the end of this year. In many cases, lease extensions were also negotiated as part of the deferral accommodations. We remain in active discussions with our other airline customers and may continue to provide accommodation arrangements on a case-by-case basis. While a majority of our customers are flag carriers or have some form of governmental ownership, depending on the severity and longevity of the COVID-19 pandemic, the efforts taken to reduce its spread and the possibility of a resurgence of the COVID-19 pandemic, some of our lessees may still experience insolvency or initiate bankruptcy or similar proceedings. If this occurs, we may not be able to reposition the aircraft with other lessors and it could result in a significant decrease“Part II—Item 1A. Risk Factors,” in our revenue and cash position. In addition, as of March 31, 2020, we had commitments to purchase 399 aircraft from Airbus and Boeing for delivery through 2026, and we had placed approximately 84% 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 a downward pressure on our lease rates or require us to sell aircraft in our fleet sooner than anticipated.

We also expect delivery delays for all aircraft deliveries in our orderbook, including 737 MAX delivery delays after the grounding of such aircraft is lifted. We are currently in discussions with Boeing and Airbus to determine the extent and duration of delivery delays. The delays could result in cancellation of leases for those aircraft.We are in discussions with lessees who are considering cancelling a small number of our 737 MAX leases with us.If our customers cancel leases for aircraft that have been delayed, we typically have a cancellation right with the aircraft manufacturer that parallels our lessee’s cancellation rights. Given the dynamic nature of the ongoing COVID-19 pandemic, we are not yet able to determine the full impact of the delivery days.

While we currently expect delays in delivery of new aircraft from our orderbook, we will be required to raise additional capital to finance these deliveries and our access to and cost of financing depends on, among other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, our prospects and our credit ratings. As a result of COVID-19, in March and April of 2020, S&P, Fitch and Kroll each changed their outlook on our long-term issuer and senior unsecured debt ratings from “stable” to “negative.” Such change in outlook may ultimately lead to a downgrade in our credit rating.If our credit ratings are downgraded, or general market conditions were to ascribe higher risk to our rating levels, our industry, or us, our access to capital and the cost of any debt financing will be further negatively impacted. In addition, the terms of future debt agreements could include more restrictive covenants, or require incremental collateral, which may further restrict our business operations or be unavailable due to our covenant restrictions then in effect. There is no guarantee that debt financings will be available in the future to fund our orderbook deliveries, or that such financing will be available on terms consistent with our historical agreements or expectations. Although we have sufficient liquidity to satisfy the operating requirements of our business through the next 12 months, the availability of certain sources is contingent upon our ability to continue to satisfy covenants contained in our debt agreements.

We have also experienced delays and terminations of some planned aircraft sales as a result of business limitations and shutdowns resulting from the pandemic. We also expect that demand for used aircraft will decline in the near-term and that we will sell fewer used aircraft in 2020 and perhaps 2021 than we initially planned to sell.This decline in demand for used aircraft may also result in impairment charges to the aircraft in our fleet.

As this situation is ongoing and the duration and severity of the COVID-19 pandemic is uncertain at this time, it is difficult to forecast the eventual long-term impacts on our future operating results or financial condition. We expect the COVID-19 pandemic will negatively impact our financial results, including having a larger impact on our results of operations for the second quarter and remainder of this year than has been reflected in our first quarter results for 2020. Depending on the severity and longevity of the COVID-19 pandemic, the related efforts taken to reduce its spread, and the possibility of a resurgence of the COVID-19 pandemic, we could recognize a significant adverse impact to our liquidity position due to lease deferrals and other lease concessions and a significant reduction in aircraft sales. Our earnings could also be adversely impacted by decreased revenue from airlines if airlines are forced to cease operations, decreased market prices for aircraft sales and lower volumes of aircraft sales. The extent to which the coronavirus 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.

The spread of COVID-19 has also caused us to modify our business practices, including transitioning all of our employees to work remotely, restricting employee travel, and cancelling physical participation events and conferences.

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We may take further actions as may be required by government authorities or as we determine are in the best interests of our employees.

The COVID-19 pandemic is emerging as one of the largest disruptions to the airline industry in decades. There are no comparable recent events that provide guidance as to the long-term effect the COVID-19 pandemic may have, and, as a result, the ultimate impact of the pandemic is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. Even after the COVID-19 pandemic has subsided, we may continue to experience negative impacts to our financial results due to COVID-19’s global economic impact, including the availability of credit generally and our ability to obtain capital on favorable terms, adverse impacts on our liquidity, increases in our borrowing costs, decreases in consumer discretionary spending and any recession that has occurred or may occur in the future. Risks related to our ability to obtain capital on favorable terms and increased costs of borrowing are more fully described in our risk factors titled, “Our success depends in large part on our ability to obtain capital on favorable terms to finance our growth through the purchase of aircraft and to repay or refinance our outstanding debt obligations as they mature. If we are not able to obtain capital on terms acceptable to us, or at all, it would significantly impact our ability to compete effectively in the commercial aircraft leasing market and would negatively affect our financial condition, cash flow and results of operations ” and “An increase in our borrowing costs would negatively affect our financial condition, cash flow and results of operations” under “Risk Factors - Risks Relating to our Business” in our AnnualQuarterly Report on Form 10-K10-Q for the yearquarter ended DecemberMarch 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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Table of Contents

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

Description of Capital Stock

10-K

001-35121

4.1

February 14, 2020

10.1

New Lender Supplement, dated March 5, 2020, 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

Filed herewith

10.2†

Supplemental Agreement No. 25 to Purchase Agreement No. PA-03791, dated February 28, 2020, by and between Air Lease Corporation and The Boeing Company

Filed herewith

10.3†

Supplemental Agreement No. 15 to Purchase Agreement No. PA-03659, dated February 28, 2020, by and between Air Lease Corporation and The Boeing Company

Filed herewith

10.4†

Amendment No. 13 to A350XWB Family Purchase Agreement, dated February 21, 2020, by and between Air Lease Corporation and Airbus S.A.S.

Filed herewith

10.5

Form of Indemnification Agreement with Company directors and Section 16 officers (as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended), adopted February 13, 2020

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

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†

Amendment No. 15 to the A350XWB Family Purchase Agreement, dated August 31, 2020, by and between Air Lease Corporation and Airbus S.A.S.

Filed herewith

10.2†

Amendment No. 3 to Agreement, dated August 31, 2020, between Airbus S.A.S. and Air Lease Corporation

Filed herewith

10.3†

Amendment No. 11 to the A330-900 NEO Purchase Agreement, dated August 31, 2020, between Air Lease Corporation and Airbus S.A.S.

Filed herewith

10.4†

Amendment No. 27 to A320 NEO Family Purchase Agreement, dated August 31, 2020, by and between Air Lease Corporation and Airbus S.A.S.

Filed herewith

10.5†

Amendment No. 1 to the A220 Purchase Agreement, dated August 31, 2020, by and between Air Lease Corporation and Airbus Canada Limited Partnership.

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

37

Table of Contents

Incorporated by Reference

Exhibit
Number

   

Exhibit Description

   

Form

   

File No.

   

Exhibit

   

Filing Date

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

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 March 31,September 30, 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.

38

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

May 7,November 9, 2020

/s/ John L. Plueger

John L. Plueger

Chief Executive Officer and President

(Principal Executive Officer)

May 7,November 9, 2020

/s/ Gregory B. Willis

Gregory B. Willis

Executive Vice President and Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

39