The valuation processes for Level 3 fair value measurements.
The following disclosure requirements were added to Topic 820:
The changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements at the end of the reporting period; and
The range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.
ASU 2018-13 will be effective for annual reporting periods (including interim periods) beginning after December 15, 2019, and early adoption will be permitted. We are currently evaluating the impact of ASU 2018-13 and plan to adoptadopted the guidance effective January 1, 2020. The adoption of the standard did not have a material effect on our consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. Modifications of contracts within the scope of Topics 310, Receivables, and 470, Debt, should be accounted for by prospectively adjusting the effective interest rate. Modifications of contracts within the scope of Topics 840, Leases, and 842, Leases, should be accounted for as a continuation of the existing contracts with no reassessments of the lease classification and the discount rate (for example, the incremental borrowing rate) or remeasurements of lease payments that otherwise would be required under those Topics for modifications not accounted for as separate contracts. Modifications of contracts do not require an entity to reassess its original conclusion about whether that contract contains an embedded derivative that is clearly and closely related to the economic characteristics and risks of the host contract under Subtopic 815-15,Derivatives and Hedging—Embedded Derivatives. Entities electing to utilize expedients are required to disclose the nature of and reason for their elections to apply expedients in each interim and annual financial statement period in the fiscal year of adoption. The optional amendments are available for all entities from March 12, 2020 through December 31, 2022. We have elected to apply the hedge accounting expedients effective April 1, 2020. The election did not have a material effect on our consolidated financial statements. We will continue to evaluate the impact of the guidance and may apply other elections as applicable.
In April 2020, the FASB issued a question-and-answer document regarding accounting for lease concessions related to the effects of the COVID-19 pandemic. The document provides that a company may elect to account for lease concessions as if those concessions existed regardless of whether the enforceable rights and obligations for the concessions explicitly exist in the contract. Consequently, an entity will not have to analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract and can elect to apply or not apply the lease modification guidance under Leases ASC 842, to those contracts. This election is available for concessions that result in the total payments required by the modified contract being substantially the same as or less than total payments required by the original contract. Both lessees and lessors may make this election. We have elected to apply the relief related to lease concessions effective April 1, 2020.
Operating Results
As of December 31, 2020, we had a portfolio of 84 aircraft and seven engines, of which 78 aircraft and seven engines were held for operating lease, one aircraft was classified as an investment in finance lease and five aircraft wereoff-lease.Subsequent to December 31, 2020, we delivered one of the off-lease aircraft to a new lessee. As of December 31, 2019, we had a portfolio of 89 aircraft and seven engines, of which 81 aircraft and seven engines were held for operating lease, one aircraft was classified as an investment in finance lease, sixaircraftwere classified as flight equipment held for sale and one aircraft was off-lease.
During the year ended December 31, 2020, we acquired three aircraft. In addition, we sold eight aircraft and three part out engines for an aggregate gain on sale of aircraft of $36.0 million. During the year ended December 31, 2019, we sold 35 aircraft and recognized an aggregate gain on sale of aircraft of $97.3 million.
We classify flight equipment as held for sale when we commit to and commence a plan of sale that is reasonably expected to be completed within one year and satisfies other criteria. We recognize revenue from each aircraft until the date that such aircraft is delivered to the purchaser and cease to recognize depreciation as of the date the aircraft is classified as flight equipment held for sale. At December 31, 2020, we had no aircraft classified as flight equipment held for sale.
During the year ended December 31, 2020, we recognized flight equipment impairment of $115.0 million related to two widebody and seven narrowbody aircraft, which reduced the cost basis of flight equipment. This impairment was principally driven by the expectation that the lessee of the two widebody aircraft would return the aircraft to us prior to lease expiry. We anticipate selling the narrowbody aircraft and have recorded the assets to their net realizable value. Fair value reflects the present value of the expected future cash flows, including residual value, discounted at an appropriate rate.
We receive lease revenue from flight equipment under operating leases. Revenue is recognized to the extent that it is probable that the economic benefits will flow to us and the revenue can be reliably measured. If the revenue amounts do not meet these criteria, recognition is delayed until the criteria is met. Contingent rents are recognized as revenue when the contingency is resolved. Revenue is not recognized when we determine that collection is not probable.
We maintain an allowance for uncollectible operating lease receivables for losses we estimate will arise from our lessees’ inability to make their required lease payments. We evaluate the collectability of rent receivables and determine the appropriate provision for uncollectible operating lease receivables based on historical experience and a review of specific lessees. During year ended December 31, 2020, we recorded a provision for uncollectible operating lease receivables of $4.0 million.
At December 31, 2020, we had 11 lessees, leasing a total of 19 aircraft and two engines, on non-accrual status, as we had determined that it was not probable that we would receive the economic benefits of the leases, principally due to (i) the lessees’ failure to pay rent and maintenance payments on a timely basis and (ii) our evaluation of the lessees’ financial condition. During the year ended December 31, 2020, we recognized $54.0 million of operating lease revenue from these lessees, and would have recognized $35.6 million of additional operating lease revenue had these lessees not been placed on non-accrual status.
As of December 31, 2019, we had three lessees, leasing a total of four aircraft, on non-accrual status. During the year ended December 31, 2019, we recognized $13.6 million of operating lease revenue from these lessees.
During the year ended December 31, 2020, primarily beginning in April 2020, we executed agreements with 16 lessees to defer their rent payment obligations for 37 aircraft totaling $64.0 million due to us over the life of the leases. These deferrals are for an average of nine months with approximately half of the deferrals to be repaid by the end of 2021. We have also agreed to lease restructurings with certain of our lessees.
Presented below are the rent deferrals granted and scheduled deferral repayments as of December 31, 2020. There can be no assurance that our lessees will make their payments in accordance with the deferral terms during the expected repayment periods or at all.
| | Rent Deferrals Granted | | | Scheduled Deferral Repayments | |
| | (Dollars in thousands) | |
2020 | | $ | 53,998 | | | $ | 5,457 | |
2021 | | | 9,983 | | | | 24,514 | |
2022 | | | — | | | | 14,274 | |
Thereafter | | | — | | | | 19,736 | |
Total | | $ | 63,981 | | | $ | 63,981 | |
We may grant additional payment deferrals and extend the periods of repayment, and if the financial conditions of our airline customers do not improve, we may agree to further restructurings with some of our lessees.
We therefore anticipate a continued decline in 2021 in our cash rent collections and operating lease revenue as compared to the pre-COVID-19 operating environment.From April to December 2020, we collected approximately 56% of our pre-deferral contracted rent.
Rental income from aircraft and aircraft equipment is recognized on a straight-line basis over the initial term of the respective lease. Changes to the timing of cash rent receipts, such as under rent deferral arrangements, do not generally affect the total amount of consideration to be received under the lease and therefore do not typically impact revenue recognition, provided that we determine collection of rents is probable.
Management’s discussion and analysis of operating results presented below pertain to the consolidated statements of income (loss) of Fly for the years ended December 31, 2018, 20172020 and 2016.2019.
Consolidated Statements of Income (Loss) of Fly for the years ended December 31, 20182020 and 20172019
| | Years ended | | | Increase/ | | | Years ended | | | Increase/ | |
| | 2018 | | | 2017 | | | (Decrease) | | | 2020 | | | 2019 | | | (Decrease) | |
| | (Dollars in thousands) | | | (Dollars in thousands) | |
Revenues | | | | | | | | | | | | | | | | | | |
Operating lease revenue | | $ | 399,514 | | | $ | 346,894 | | | $ | 52,620 | | | $ | 293,743 | | | $ | 464,399 | | | $ | (170,656 | ) |
Finance lease revenue | | | 675 | | | | 731 | | | | (56 | ) | | | 557 | | | | 618 | | | | (61 | ) |
Equity earnings (loss) from unconsolidated subsidiary | | | (54 | ) | | | 496 | | | | (550 | ) | |
Gain on sale of aircraft | | | 13,398 | | | | 3,926 | | | | 9,472 | | | | 36,003 | | | | 97,323 | | | | (61,320 | ) |
Interest and other income | | | 4,766 | | | | 1,204 | | | | 3,562 | | | | 4,052 | | | | 12,684 | | | | (8,632 | ) |
Total revenues | | | 418,299 | | | | 353,251 | | | | 65,048 | | | | 334,355 | | | | 575,024 | | | | (240,669 | ) |
Expenses | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation | | | 144,084 | | | | 133,227 | | | | 10,857 | | | | 129,561 | | | | 140,798 | | | | (11,237 | ) |
Aircraft impairment | | | — | | | | 22,000 | | | | (22,000 | ) | |
Flight equipment impairment | | | | 115,000 | | | | — | | | | 115,000 | |
Interest expense | | | 144,742 | | | | 127,782 | | | | 16,960 | | | | 103,292 | | | | 137,133 | | | | (33,841 | ) |
Selling, general and administrative | | | 31,185 | | | | 30,671 | | | | 514 | | | | 30,902 | | | | 35,304 | | | | (4,402 | ) |
Gain on derivatives | | | (2,382 | ) | | | (192 | ) | | | (2,190 | ) | |
Provision for uncollectible operating lease receivables | | | | 4,000 | | | | — | | | | 4,000 | |
Loss on derivatives | | | | 1,648 | | | | 2,720 | | | | (1,072 | ) |
Fair value loss on marketable securities | | | | 13,025 | | | | — | | | | 13,025 | |
Loss on modification and extinguishment of debt | | | 2,474 | | | | 23,309 | | | | (20,835 | ) | | | 1,862 | | | | 9,590 | | | | (7,728 | ) |
Maintenance and other costs | | | 2,547 | | | | 2,524 | | | | 23 | | | | 6,622 | | | | 3,075 | | | | 3,547 | |
Total expenses | | | 322,650 | | | | 339,321 | | | | (16,671 | ) | | | 405,912 | | | | 328,620 | | | | 77,292 | |
Net income before provision for income taxes | | | 95,649 | | | | 13,930 | | | | 81,719 | | |
Provision for income taxes | | | 9,926 | | | | 11,332 | | | | (1,406 | ) | |
Net income | | $ | 85,723 | | | $ | 2,598 | | | $ | 83,125 | | |
Net income (loss) before provision (benefit) for income taxes | | | | (71,557 | ) | | | 246,404 | | | | (317,961 | ) |
Provision (benefit) for income taxes | | | | (4,132 | ) | | | 20,527 | | | | (24,659 | ) |
Net income (loss) | | | $ | (67,425 | ) | | $ | 225,877 | | | $ | (293,302 | ) |
| | Years ended | | | Increase/ | |
| | 2020 | | | 2019 | | | (Decrease) | |
| | (Dollars in thousands) | |
Operating lease revenue: | | | | | | | | | |
Operating lease rental revenue | | $ | 283,926 | | | $ | 391,142 | | | $ | (107,216 | ) |
End of lease income | | | 14,124 | | | | 78,781 | | | | (64,657 | ) |
Amortization of lease incentives | | | (3,578 | ) | | | (5,590 | ) | | | 2,012 | |
Amortization of lease premiums, discounts & other | | | (729 | ) | | | 66 | | | | (795 | ) |
Total operating lease revenue | | $ | 293,743 | | | $ | 464,399 | | | $ | (170,656 | ) |
As of December 31, 2018, we had 113 aircraft and seven engines in our portfolio. Of the 113 aircraft, 100 were held for operating lease, one was classified as an investment in finance lease and 12 were classified as held for sale. As of December 31, 2017, we had 85 aircraft in our portfolio, 84 of which were held for operating lease and one was recorded as an investment in finance lease. In 2018, we purchased 34 aircraft and seven engines and sold six aircraft.
At December 31, 2018, we had two lessees which leased a total of three aircraft on non-accrual status as we had determined that it was not probable that the economic benefits of the leases would be received by us, principally due to (i) the lessees’ failure to pay rent and overhaul payments and (ii) our evaluation of the lessees’ payment history. At December 31, 2017, no lessees were on non-accrual status.
In the year ended December 31, 2018, we contracted to sell 15 aircraft. We recognize revenue from each aircraft until the date that such aircraft is delivered to the purchaser. We ceased to recognize depreciation on these aircraft on the date the aircraft were classified as held for sale. During the year ended December 31, 2018, we sold three of these aircraft. At December 31, 2018, we had 12 aircraft classified as held for sale.
| | Years ended | | | Increase/ | |
| | 2018 | | | 2017 | | | (Decrease) | |
| | (Dollars in thousands) | |
Operating lease revenue: | | | | | | | | | |
Operating lease rental revenue | | $ | 389,350 | | | $ | 337,137 | | | $ | 52,213 | |
End of lease income | | | 20,333 | | | | 17,837 | | | | 2,496 | |
Amortization of lease incentives | | | (9,738 | ) | | | (7,668 | ) | | | (2,070 | ) |
Amortization of lease premiums, discounts & other | | | (431 | ) | | | (412 | ) | | | (19 | ) |
Total operating lease revenue | | $ | 399,514 | | | $ | 346,894 | | | $ | 52,620 | |
For the year ended December 31, 2018,2020, operating lease revenue totaled $399.5$293.7 million, an increasea decrease of $52.6$170.7 million compared to the year ended December 31, 2017.2019. The increasedecrease was primarily due to increases of (i) $68.3 million from aircraft and engines purchased in 2017 and 2018, (ii) $5.4 million related to leases with floating rate rents and (iii) $2.5 million from end of lease income recognized. These increases were partially offset by (i) a decrease of $10.8 million primarily from lower lease rates on lease extensions and remarketings, (ii) a decrease of $10.7$79.5 million in lease revenue from aircraft sold in 20172019 and 20182020, (ii) a decrease of $64.7 million from end of lease income recognized, (iii) a decrease of $35.6million from lessees on non-accrual status, (iv) a decrease of $9.7 million from lower lease rates on lease extensions, lease restructurings and (iii)remarketings and (v) a decrease of $4.6 million in lease revenue related to leases with floating rate rents. The decrease was partially offset by (i) an increase in lease revenue of $2.1$22.8 million from aircraft purchased in 2019 and 2020 and (ii) a decrease of $2.0 million in lease incentive amortization.
During the year ended December 31, 2018,2020, we sold sixeight aircraft and recognized a three part out engines recognizing an aggregate gain on sale of aircraft of $13.4$36.0 million. During the year ended December 31, 2017,2019, we sold one35 aircraft and recognized arecognizing an aggregate gain on sale of aircraft of $3.9$97.3 million.
During the years ended December 31, 2018 and 2017, interestInterest and other income totaled $4.8$4.1 million and $1.2for the year ended December 31, 2020, a decrease of $8.6 million respectively. During the third quarter of 2018, we sold a spare engine and miscellaneous engine parts for a gain of $2.0 million.
Depreciation expense duringcompared to the year ended December 31, 20182019. The decrease was $144.1primarily due to (i) a decrease of $5.1 million comparedin interest earned on deposits in bank accounts, (ii) a decrease of $1.2 million in income recognized from equity certificates and (iii) a decrease of $2.7 million in equity earnings from our unconsolidated subsidiary due to $133.2 recognizing a gain on sale of its last aircraft in 2019. This decrease was partially offset by $0.8 million of interest accrued on rent deferrals in 2020.
Depreciation expense was $129.6 million for the year ended December 31, 2017, an increase2020, a decrease of $10.9$11.2 million. compared the year ended December 31, 2019. The increasedecrease was primarily due to depreciation on aircraft acquired in 2017 and 2018. This increase was partially offset by a reduction in depreciation on aircraft sold in 20172019 and 20182020 and stoppage of depreciation on aircraft classified as flight equipment held for sale.sale in 2019. This decrease was partially offset by depreciation on aircraft acquired in 2019 and 2020.
Flight equipment impairment was $115.0 million for the year ended December 31, 2020, related to two widebody and seven narrowbody aircraft, which reduced the cost basis of flight equipment. This impairment was principally driven by the expectation that the lessee of the two widebody aircraft would return the aircraft to us prior to lease expiry. We anticipate selling the narrowbody aircraft and have recorded the assets to their net realizable value. Fair value reflects the present value of the expected future cash flows, including residual value, discounted at an appropriate rate. No aircraftflight equipment impairment was recognized during the year ended December 31, 2018. During2019.
Interest expense totaled $103.3 million for the year ended December 31, 2017, we recognized aircraft impairment totaling $22.02020, a decreaseof $33.8 million relatedcompared to one Airbus A330-200 aircraft that had been leased to Air Berlin. The lease was terminated, and this aircraft was returned to us and re-leased to another airline in January 2018.
Interest expense totaled $144.7 million and $127.8 million for the yearsyear ended December 31, 2018 and 2017, respectively. 2019. The increase of $16.9 milliondecrease was primarily due to additional secured borrowings and increases in LIBOR. This increase was partially offset by a(i) $22.4 million reduction in interest resulting from debt repayments associated with aircraft sales, (ii) $9.8 million decrease due to scheduled debt repayments, includingpaydowns and lower interest rates, (iii) $7.7 million resulting from the 2012 Term Loan refinancing in November 2019, (iv) $6.3 million resulting from the repayment of the Fly Acquisition III Facility in October 2019 and (v) $1.7 million decrease due to the repurchase and redemption of the 2021 Notes. The decrease was offset by (i) $11.4 million increase in swap interest expense and (ii) $2.7 million of interest expense for the 2020 Notes, and refinancings which lowered the applicable interest rate on the refinanced debt.Term Loan.
Selling, general and administrative expenses were $31.2 million and $30.7expense was $30.9 million for the yearsyear ended December 31, 2018 and 2017, respectively. 2020, a decrease of $4.4 million compared to the year ended December 31, 2019. The increase of $0.5 milliondecrease was primarily due to an increase(i) a decrease of $5.7 million in servicing and management fees paid to BBAM of $3.8 million due to a decrease in fleet growth. This increasesize and rental revenue and (ii) a decrease of $0.6 million in legal fees relating to fleet activity. The decrease was partially offset by an increase of $1.3 million in realized and unrealized foreign exchange gain of $0.7 million during the year ended December 31, 2018, compared to an unrealized foreign exchange loss of $2.3 million during the year ended December 31, 2017.currency losses.
Gain on derivatives totaled $2.4 million and $0.2 million for the years ended years ended December 31, 2018 and 2017, respectively. The increase of $2.2 million was primarily due to gains recognized in 2018 in connection with the termination of the interest rate lock derivative instruments which were used to partially lock-in the interest rate on anticipated future borrowings associated with the AirAsia Transactions.
During the year ended December 31, 2018, 2020, we incurred debt extinguishment costs totaling $2.5 million recorded a provision for uncollectible operating lease receivables of 4.0 million. We did not record any provision for uncollectible operating lease receivables during the year ended December 31, 2019.
During the year ended December 31, 2020, we recognized a net loss on derivatives of $1.6 million. The loss on derivatives is primarily due to (i) a net loss on derivatives of $2.3 million on interest rate swap contracts and cross currency swap contract that no longer qualify for hedge accounting treatment. The loss was partially offset by a gain on derivatives of $0.5 million due to the dedesignation event of our cross currency swap as a cash flow hedge, causing a portion of unrealized gain to be reclassified from accumulated other comprehensive loss to gain on derivatives.For the year ended December 31, 2019, we recognized a gain on derivatives of $2.7 million, primarily due to interest rate swap contracts that no longer qualify for hedge accounting treatment due to debt repayments associated with aircraft sales and (ii) the early repayment of the CBA Facility and one other aircraft secured borrowing. Fly Acquisition III Facility.
For the year ended December 31, 2020, we recognized an unrealized fair value loss on marketable securities of $13.0 million related to the write down of our equity certificates to estimated fair value. After the write-down, the carrying value of our investment in equity certificates was reduced to $3.0million as of December 31, 2020. We expect the fair value of our investment in equity certificates to remain volatile while the COVID-19 pandemic continues to affect the market for such securities.
During the year ended December 31, 2017, 2020, we incurred debt extinguishment costs totaling $23.3$1.9 million, of which $1.6 million were non-cash write-offs primarily consisting ofdue to (i) $19.7 million in connection with the repurchase and redemption of the 20202021 Notes, (ii) repayment of one other aircraft secured borrowing and (ii) $3.0 million in connection(iii) debt repayments associated with amendments to the Term Loan in April and November 2017.
Provision for income taxes was $9.9 million and $11.3 million for the years ended December 31, 2018 and 2017, respectively. In 2018 and 2017, we had a deferred tax liability of $2.1 million and $1.8 million, respectively, in connection with unrepatriated earnings from Australia. A withholding tax of 15.0% is applicable to distributions of earnings from Australia which have not yet been taxed. During the year ended December 31, 2018, we recorded a net valuation allowance reversal of $1.3 million.aircraft sales. During the year ended December 31, 2017,2019, we recorded a net valuation allowance provision of $8.4 million.
Consolidated Statements of Income of Fly for the years ended December 31, 2017 and 2016
| | Years ended | | | Increase/ | |
| | 2017 | | | 2016 | | | (Decrease) | |
| | (Dollars in thousands) | |
Revenues | | | | | | | | | |
Operating lease revenue | | $ | 346,894 | | | $ | 313,582 | | | $ | 33,312 | |
Finance lease revenue | | | 731 | | | | 2,066 | | | | (1,335 | ) |
Equity earnings from unconsolidated subsidiary | | | 496 | | | | 530 | | | | (34 | ) |
Gain on sale of aircraft | | | 3,926 | | | | 27,195 | | | | (23,269 | ) |
Interest and other income | | | 1,204 | | | | 1,666 | | | | (462 | ) |
Total revenues | | | 353,251 | | | | 345,039 | | | | 8,212 | |
Expenses | | | | | | | | | | | | |
Depreciation | | | 133,227 | | | | 120,452 | | | | 12,775 | |
Aircraft impairment | | | 22,000 | | | | 96,122 | | | | (74,122 | ) |
Interest expense | | | 127,782 | | | | 123,161 | | | | 4,621 | |
Selling, general and administrative | | | 30,671 | | | | 30,077 | | | | 594 | |
Loss (gain) on derivatives | | | (192 | ) | | | 91 | | | | (283 | ) |
Loss on modification and extinguishment of debt | | | 23,309 | | | | 9,246 | | | | 14,063 | |
Maintenance and other costs | | | 2,524 | | | | 2,279 | | | | 245 | |
Total expenses | | | 339,321 | | | | 381,428 | | | | (42,107 | ) |
Net income (loss) before provision (benefit) for income taxes | | | 13,930 | | | | (36,389 | ) | | | 50,319 | |
Provision (benefit) for income taxes | | | 11,332 | | | | (7,277 | ) | | | 18,609 | |
Net income (loss) | | $ | 2,598 | | | $ | (29,112 | ) | | $ | 31,710 | |
As of December 31, 2017, we had 85 aircraft in our portfolio, 84incurred debt extinguishments costs totaling $9.6 million, of which $8.4 million were held for operating leasenon-cash write-offs due to (i) debt repayments associated with aircraft sales, (ii) repayment of the Fly Acquisition III Facility, (iii) the redemption of the Securitization Notes and one was recorded as an investment in finance lease. As(iv) the repricing and extension of December 31, 2016, we had 76 aircraft in our portfolio, 75 of which were held for operating leasethe 2012 Term Loan.
Maintenance and one recorded as an investment in finance lease. In 2017, we purchased ten aircraft and sold one aircraft.
| | Years ended | | | Increase/ | |
| | 2017 | | | 2016 | | | (Decrease) | |
| | (Dollars in thousands) | |
Operating lease revenue: | | | | | | | | | |
Operating lease rental revenue | | $ | 337,137 | | | $ | 313,976 | | | $ | 23,161 | |
End of lease income | | | 17,837 | | | | 8,918 | | | | 8,919 | |
Amortization of lease incentives | | | (7,668 | ) | | | (8,898 | ) | | | 1,230 | |
Amortization of lease premiums, discounts & other | | | (412 | ) | | | (414 | ) | | | 2 | |
Total operating lease revenue | | $ | 346,894 | | | $ | 313,582 | | | $ | 33,312 | |
For theother costs were $6.6 million for year ended December 31, 2017, operating lease revenue totaled $346.9 million,2020, an increase of $33.3$3.5 million compared to the year ended December 31, 2016.2019. The increase was primarily due to (i) an increase of $59.6 million fromin aircraft purchased in 2016redelivery and 2017, (ii) an increase of $8.9 million from end of lease income recognized and (iii)storage costs, offset slightly by a decrease of $1.2 million in lease incentive amortization. The increase was partially offset by decreases of (i) $32.2 million in lease revenue fromlegal costs relating to aircraft sold in 2016 and 2017 and (ii) $5.7 million from lower lease rates on lease extensions and remarketings.repossession.
At December 31, 2017, we had one investment in finance lease, which was reclassified from an operating lease to a finance lease during the fourth quarter of 2016. In 2017, we recognized finance lease revenue of $0.7 million related to this aircraft. During the year ended December 31, 2016, we had two investments in finance leases, one of which was sold during the third quarter of 2016. We recognized finance leaseBenefit for income of $2.1 million in 2016 related to these two aircraft.
During the year ended December 31, 2017, we sold one aircraft and recognized a gain on sale of aircraft of $3.9 million. During the year ended December 31, 2016, we sold 27 aircraft, 26 of which generated a $27.2 million gain on sale of aircraft. We recorded a gain on debt extinguishment of $0.6 million with the sale of the remaining aircraft, which was financed by a secured borrowing. The sale proceeds were paid to the lender as full and final discharge of the associated debt.
Depreciation expense during the year ended December 31, 2017taxes was $133.2 million, compared to $120.5 4.1million for the year ended December 31, 2016, an increase2020. Provision for income taxes was $20.5 million for the year ended December 31, 2019. We are tax resident in Ireland and expect to pay the corporation tax rate of $12.7 million. 12.5% on trading income and 25.0% on non-trading income. The effective tax rate was 5.8% and 8.3% for the years ended December 31, 2020 and 2019, respectively. The increase wasdifference between the statutory and effective tax rate in each period is primarily dueattributable to depreciation on aircraft acquiredchanges in 2016 and 2017valuation allowances and the reductionamount of the economic life of certain aircraft. This increase was partially offsetincome earned by stoppage of depreciation on aircraft soldus in 2016 and 2017.
different tax jurisdictions. During the year ended December 31, 2017,2019, we recognized aircraft impairment totaling $22.0 million related to one Airbus A330-200 aircraft that had been leased to Air Berlin. The lease was terminated, and this aircraft was returned to us and re-leased to another airline in January 2018. During the year ended December 31, 2016, we recognized aircraft impairment totaling $96.1 million. This impairment charge related primarily to three wide-body aircraft. In addition, we recognized an impairment charge on one narrow-body aircraft which was sold in the third quarter of 2016, with proceeds paid to the lender as full and final discharge of the associated debt.
Interest expense totaled $127.8 million and $123.2 million for the years ended December 31, 2017 and 2016, respectively. The increase of $4.6 million was primarily due to additional secured borrowings and increases in LIBOR. This increase was partially offset byalso recorded a reduction in interest due to debt repayments, including the redemption of the 2020 Notes.
Selling, general and administrative expenses were $30.7 million and $30.1 million for the years ended December 31, 2017 and 2016, respectively. During the year ended December 31, 2017, we incurred transaction costs of $1.8 million and unrealized foreign currency exchange losses of $2.3 million. These increased costs were partially offset by a reduction in administrative and base fees paid to BBAM. During the year ended December 31, 2016, we incurred $1.1 million of professional fees related to the restatement of our financial statements, $1.0 million of aircraft acquisition costs that were expensed and unrealized foreign currency exchange gains of $0.4 million.
Debt extinguishment costs totaled $23.3 million and $9.2 million for the years ended December 31, 2017 and 2016, respectively. During the year ended December 31, 2017, we incurred debt extinguishment costs primarily consisting of (i) $19.7 million in connection with the redemption of the 2020 Notes and (ii) $3.0 million in connection with amendments to the Term Loan in April and November 2017. During the year ended December 31, 2016, we (i) wrote off unamortized loan costs and debt discounts and expensed other fees totaling $4.8 million in connection with the repayment of debt associated with aircraft sold, (ii) incurred $2.3 million of debt extinguishment costs in connection with the extension of the Term Loan in October 2016, and (iii) incurred swap breakage fees of $2.1 million.
For the years ended December 31, 2017 and 2016, we had a provision for income taxes of $11.3 million and a benefit for income taxes of $7.3 million, respectively. In 2017, we had a deferred tax liability of $1.8 million in connection with undistributed earnings from our Australian subsidiary. A withholding tax of 15.0% is applicable to distributions of earnings from Australia which have not yet been taxed. In 2016, we recognized a deduction for an interest payment made by a subsidiary.subsidiary that previously did not meet the recognition threshold. We utilized this benefit as group relief to offset income tax on repatriated earnings for which a deferred tax liability was previously recorded. In addition, during the year ended December 31, 2019, our expected Australian tax liability was reduced by $1.0 million.
A discussion of our Consolidated Statements of Income (Loss) for the years ended December 31, 2017 2019 and 2016, we recorded net valuation allowances2018 is included in Item 5 “Operating and Financial Review and Prospects” of $8.4 million and $7.2 million, respectively.our Annual Report on Form 20-F for the year ended December 31, 2019, filed with the SEC on February 28, 2020, under the heading “— Operating Results”.
Liquidity and Capital Resources
Overview
Our business is very capital intensive, requiring significant investment to maintain and expand our fleet. We have pursued a strategy of disciplined fleet growth. In 2020, we spent $73.3 million to acquire flight equipment. In 2019, we spent $331.5 million to acquire flight equipment. In 2018, we spent approximately $1.1 billion to acquire 34 aircraft and seven engines.
In During the first quarteryear ended December 31, 2020, we acquired three aircraft committed to before the start of 2018,the COVID-19 pandemic. Largely due to the pandemic and the deterioration in the aviation industry, we entered into definitive agreementsdid not commit to acquire a total of 55 Airbus narrow-bodyany additional aircraft and seven engines on operating leases, and options to purchase up to 20 additional Airbus narrow-body aircraft, not subject to lease, inafter the AirAsia Transactions. As of December 31, 2018, we had acquired 33 aircraft and seven engines in Portfolio A. Accordingly, we have completed the transfer of all aviation assets in the Portfolio A transactions.
In connection with the AirAsia Transactions, on July 13, 2018, we issued and sold a total of 1,333,334 common shares in the form of ADSs, at a purchase price of $15.00 per share, to Meridian Aviation Partners Limited and certain other affiliates of Onex Corporation and membersonset of the management team of BBAM LP in private placement transactions, for aggregate proceeds of $20.0 million. In addition, on August 30, 2018, we issued 3,333,333 common shares in the form of ADSs, valued at $15.00 per share, to AirAsia, as partial consideration in the AirAsia Transactions.pandemic.
We also have pursued opportunistic aircraft sales to rejuvenate our fleet. In 2018,2020, we sold six aircraft and committed to sell 12 additional aircraft which were classified as aircraft held for sale at December 31, 2018.eight aircraft. In 2019, we sold 35 aircraft.
We finance our business with unrestricted cash, cash generated from operatingflight equipment leases, aircraft sales and debt financings. At December 31, 2018,2020, we had $180.2$132.1 million of unrestricted cash. We also had 11 unencumberednine unencumbered aircraft with an aggregate book valuevalue of $332.0 million. We sold five of these aircraft subsequent to December 31, 2018.
$179.8 million.
In recent years, our debt financing strategy has been to diversify our lending sources and to utilize both secured and unsecured debt financing. Unsecured borrowings provide us with greater operational flexibility. Secured, recourse debt financing enables us to take advantage of favorable pricing and other terms compared to secured non-recourse debt. In addition,debt, which we also continue to utilize secured, non-recourse indebtedness underutilize.
During the fourth quarter of 2020, we retired all $325 million of our debt facilities and other aircraft secured borrowings.2021 Notes, which had an original maturity date of October 15, 2021.
On July 31, 2018,October 15, 2020, we entered intoconsummated a recourse secured borrowing in the amount of $122.5$180.0 million to finance an unencumbered aircraft. We used the loan proceeds to repay the CBA Facility and one other aircraft secured borrowing.
In connection with the AirAsia Transactions, we entered into a non-recourse secured term loan facility with a consortium of lenders (the “2020 Term Loan”). The 2020 Term Loan, which is secured by 11 aircraft, will mature on the earlier of (i) October 15, 2025 and drew down $560.8 million(ii) the date falling 30 days prior to finance the acquisitionmaturity of 29 aircraft in 2018.our 2024 Notes if not redeemed. The 2020 Term Loan was issued at a discount of 4.5%. The 2020 Term Loan bears interest at LIBOR plus a margin of 6.00%, with a LIBOR floor of 1.00% and requires quarterly principal payments of 1.25% of the original loan amount. We also drew down $114.3 millionreceived proceeds from the Fly Acquisition III Facility to finance2020 Term Loan, net of issue discount and expenses, in the acquisitionamount of four additional Portfolio A aircraft. In addition, on October 30, 2018, we borrowed $43.9$168.3 million under a recourse term loan facility with two lenders to financein the acquisitionfourth quarter of seven engines on operating leases to the AirAsia Group.2020.
Our sources of operating cash flows are principally distributions and interest payments made to us by our subsidiaries. These payments by our subsidiaries may be restricted by applicable local laws and debt covenants.
We expect that, these funds, togethereven with current market conditions, our liquidity is more than sufficient to satisfy our anticipated operational and other business needs over the next 12 months; however, we cannot assure you that operating cash flow will not be lower than we expect due to, for example, higher than expected deferral arrangements or payment defaults, or that we will continue to meet the financial covenants in certain of our debt facilities. As a consequence of entering into deferral agreements with our lessees, the rent collections under certain secured borrowings have been insufficient to cover the related debt service payments. As a result, we have made and expect that we will continue to make such payments from operating cash on hand,to cover any shortfall amounts. In addition, in 2020, we deposited approximately $7.6 million in cash from operations,maintenance reserves and cash from other financing activities, includingsecurity deposits into pledged accounts associated with aircraft sales, will satisfy our liquidity needs through at leastfinanced under the next twelve months.Fly Aladdin Acquisition Facility.
Our liquidity plans are subject to a number of risks and uncertainties, including those related to the COVID-19 pandemic, asdescribed under Item 3 “Key Information — Risk Factors” in this report.
Cash Flows of Fly for the years ended December 31, 20182020 and 20172019
We generated cash from operations of $241.1110.2 million and $179.1272.2 million for the years ended December 31, 20182020 and 20172019, respectively, an increasea decrease of $62.0162.0 million.
Cash used inprovided by investing activities was$853.593.8 million and $430.4481.4 million for the years ended December 31, 20182020 and 2017, respectively. 2019, respectively. In 2018,2020, we used $74.9 million of cash to purchase flight equipment. In 2019, we used (i) $934.5$320.0 million of cash to purchase 34flight equipment and (ii) $10.5 million to purchase equity certificates. In 2020, we sold eight aircraft and seventhree part out engines (ii) $80.5 million for the Portfolio B orderbook and (iii) $5.7 million to invest in equity certificates issued by Horizon I Limited. net cash proceeds of $187.2 million. In 2017, 2019, we used $434.1 millionsold 35 aircraft for net cash proceeds of cash to purchase ten aircraft. Net proceeds received from the sale of six aircraft was $177.7 million in 2018. Net proceeds received from the sale of one aircraft was $21.8 million in 2017. 824.1 million. Payments for lessor maintenance obligationsaircraft improvement totaled $8.617.4 million and $12.68.1 million for the years ended December 31, 2018 2020 and 20172019, respectively.
Cash provided by financing activitiesPayments for the years ended December 31, 2018 and 2017,lessor maintenance obligations totaled $436.7$0.5 million and $95.7 million, respectively. In 2018, we received (i) net proceeds of $826.4 million from secured borrowings, (ii) net maintenance reserves of $68.6 million, (iii) net proceeds of $19.6 million from shares issued and (iv) net security deposits from our lessees of $6.3 million. These receipts were partially offset by (i) repayments on our secured borrowings totaling $482.7 million primarily in connection with aircraft sales and early repayment of debt and (ii) payments of debt issuance costs of $3.6 million. In 2017, we received (i) net proceeds of $513.5 million from secured borrowings, (ii) net proceeds of $295.2 million from unsecured borrowings and (iii) net maintenance reserves of $61.5 million. These receipts were partially offset by (i) repayments on our unsecured borrowings totaling $375.0 million, (ii) repayments on our secured borrowings totaling $326.9 million, and (iii) $57.3 million to repurchase 4,274,569 shares.
Cash Flows of Fly for the years ended December 31, 2017 and 2016
We generated cash from operations of $179.1 million and $152.82.1 million for the years ended December 31, 20172020 and 20162019, respectively, an increase of $26.3 million.respectively.
Cash used in investingfinancing activities was $430.4$380.9 million and $123.3$696.3 million for the years ended December 31, 20172020 and 2016, respectively.2019. In 2017,2020, we used $434.1(i) repurchased and redeemed our 2021 Notes totaling $325.0 million, of cash to purchase ten aircraft, and sold one aircraft for cash proceeds of $21.8 million. In 2016, we used $552.2 million of cash to purchase ten aircraft, and sold 27 aircraft for net cash proceeds of $430.9 million. Payments for lessor maintenance obligations totaled $12.6(ii) made repayments on our secured borrowings totaling $229.8 million and $2.7(iii) used $6.5 million to repurchase 417,341 shares. These payments were partially offset by (i) net proceeds from secured borrowings of $171.9 million, (ii) net maintenance reserve receipts of $8.4 million, (iii) net security deposit receipts from our lessees of $3.7 million and (iv) debt issuance costs of $3.3 million. In 2019, we (i) made repayments on our secured borrowings totaling $699.0 million, largely in connection with aircraft sales, redemption of the Securitization Notes and repayment of the Fly Acquisition III Facility and (ii) used $32.9 million to repurchase 2,010,437 shares. These payments were partially offset by net maintenance reserve receipts of $38.2 million.
A discussion of our cash flows for the years ended December 31, 2017 2019 and 2016, respectively.
Cash provided by financing activitiesour Annual Report on Form 20-F for the yearsyear ended December 31, 2017 and 2016 totaled $95.7 million and $131.7 million, respectively. In 2017, we received (i) net proceeds of $513.5 million from secured borrowings, (ii) net proceeds of $295.2 million from unsecured borrowings and (iii) net maintenance reserve receipts of $61.5 million. These were partially offset by (i) repayments2019, filed with the SEC on our unsecured borrowings totaling $375.0 million, (ii) repayments on our secured borrowings totaling $326.9 million, and (iii) $57.3 million to repurchase 4,274,569 shares. In 2016, we received (i) net proceeds of $572.7 million from secured borrowings and (ii) net maintenance reserve receipts of $60.6 million. These were partially offset by (i) repayments on our secured borrowings totaling $448.3 million and (ii) $40.3 million to repurchase 3,414,960 shares.February 28, 2020, under the heading “— Operating Results”.
Maintenance Cash Flows
Under our leases, the lessee is generally responsible for maintenance and repairs, airframe and engine overhauls, and compliance with return conditions of aircraft on lease. In connection with the lease of a used aircraft we may agree to contribute additional amounts to the cost of certain major overhauls or modifications, which usually reflect the usage of the aircraft prior to the commencement of the lease. In many cases, we also agree to share with our lessees the cost of compliance with airworthiness directives. We are not obligated to pay maintenance claims submitted by lessees who are in default under their lease agreement.
Maintenance reserve payments we collect from our lessees are based on passage of time or usage of the aircraft measured by hours flown or cycles operated. Under these leases, we are obligated to make reimbursements to the lessee for expenses incurred for certain planned major maintenance, up to a maximum amount that is typically determined based on maintenance reserves paid by the lessee.
Certain leases also require us to make maintenance contributions for costs associated with certain major maintenance events in excess of any maintenance reserve payments received. Major maintenance includes heavy airframe, off-wing engine, landing gear and auxiliary power unit overhauls and replacements of engine life limited parts. We are not obligated to make maintenance contributions under any lease pursuant to which a lessee default has occurred and is continuing. We also have leases that provide for lease-end maintenance adjustment payments based on the usage of the aircraft during the lease term and its condition upon redelivery. Typically, payments are made by the lessee to us, although in some cases, we have been required to make such payments to the lessee.
WeThe significant decline in air travel as a result of the COVID-19 pandemic has resulted, and may continue to result, in lower utilization of our aircraft, which is likely to reduce future maintenance cash flows payable to us. However, we expect that the aggregate maintenance reserve and lease end adjustment payments we receive from lessees will meet the aggregate maintenance contributions and lease end adjustment payments that we will be required to make. In 2018,2020, we received $84.1$21.6 million of maintenance payments from lessees and made maintenance payment disbursements of $15.5$13.2 million.
Share Repurchases
In November 2018,August 2019, our board of directors approved a $50.0 million share repurchase program expiring in December 2019.program. Under this program, Fly maywas able to make share repurchases from time to time in the open market or in privately negotiated transactions.
We suspended share repurchases in March 2020, and the program expired in September 2020. During the year ended December 31, 2018,2020, Fly did not repurchase any shares.repurchased 417,341 shares at an average price of $15.57 per share, or $6.5 million, before commissions and fees. During the year ended December 31, 2019, Fly repurchased 2,010,437 shares at an average price of $16.29 per share, or $32.8 million, before commissions and fees.
Financing
We finance our business with unsecured and secured borrowings. As of December 31, 2018, 2020, we were not in default under any of our borrowings.
Unsecured Borrowings
On December 11, 2013, we sold $300.0 million aggregate principal amount of unsecured 6.75% Senior Notes due 2020 (together with the Additional 2020 Notes (as defined below), the “2020 Notes”). In connection with the issuance, we paid underwriting discounts totaling $8.5 million.
On October 3, 2014, we sold $75.0 million aggregate principal amount of unsecured 6.75% Senior Notes due 2020 (the “Additional 2020 Notes”) and $325.0 million aggregate principal amount of 6.375% Senior Notes due 2021 (the “2021 Notes”Notes”). The Additional 2020 Notes were issued as additional notes under the 2020 Notes indenture, and were sold at a price equal to 104.75% of the principal amount thereof. maturing on October 15, 2021. The 2021 Notes were issued undersold at par and we paid an indenture containing substantially similar terms asunderwriting discount totaling $5.7 million. During the indenture governing thefourth quarter of 2020, we repurchased $165.3 million of our 2021 Notes and were soldredeemed the remaining outstanding principal balance of the 2021 Notes at par.par, together with the accrued and unpaid interest, on December 21, 2020. In connection with these issuances,the repurchase and redemption of the 2021 Notes, we paid a net underwriting discount totaling $3.4 million.expensed approximately $1.0 million of debt extinguishment costs.
On October 16, 2017, we sold $300.0 million aggregate principal amount of unsecured 5.250% Senior Notes due 2024 (the “2024 Notes”). The net proceeds to us were approximately $294.2 million, after deducting the underwriters’ discounts and commissions and offering expenses paid by us. We used the net proceeds from the sale of the 2024 Notes, together with cash on hand, to redeem all $375.0 million of our outstanding 2020 Notes on December 15, 2017. In connection with the redemption, we incurred debt extinguishment costs totaling $19.7 million.
The 2021 Notes and 2024 Notes are senior unsecured obligations of ours and rank pari passu in right of payment with any existing and future senior unsecured indebtedness of ours. TheInterest on the 2024 Notes is payable semi-annually on April 15 and October 15 of each year. As of December 31, 2020, accrued interest on the 2024 Notes was $3.3 million. As of December 31, 2019, accrued interest on the 2021 Notes have a maturity date of October 15, 2021 and the 2024 Notes totaled $7.7 million.
The 2024 Notes have a maturity date of October 15, 2024.
Interest Rate. The 2021 Notes have a fixed annual interest rate of 6.375%, which is paid semi-annually on April 15 and October 15 of each year. The 2024 Notes have a fixed annual interest rate of 5.250%, which is paid semi-annually on April 15 and October 15 of each year.
Optional Redemption.
2021 Notes
We may redeem the 2021 Notes, in whole or in part, at the redemption prices listed below, plus accrued and unpaid interest to the redemption date.
If redeemed during the 12-month period commencing on October 15 of the years set forth below: | | Redemption Price | |
2018 | | | 103.188 | % |
2019 | | | 101.594 | % |
2020 and thereafter | | | 100.000 | % |
2024 Notes
At any time prior to October 15, 2020, we may redeem up to 35% of the original principal amount of the 2024 Notes with the proceeds of certain equity offerings at a redemption price of 105.250% of the principal amount thereof, together with accrued and unpaid interest to, but not including, the date of redemption. On and after October 15, 2020, we may redeem the 2024 Notes, in whole or in part, at the redemption prices listed below, plus accrued and unpaid interest to the redemption date.
If redeemed during the 12-month period commencing on October 15 of the years set forth below: | | | |
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At any time priorPursuant to October 15, 2020, we may also redeem all or a portion ofthe indenture governing the 2024 Notes, at par, plus accruedwe are subject to restrictive covenants which relate to dividend payments, incurrence of debt and unpaid interestissuance of guarantees, incurrence of liens, repurchases of common shares, investments, disposition of aircraft, consolidation, merger or sale of our company and transactions with affiliates. We are also subject to certain operating covenants, including reporting requirements. Our failure to comply with any of the redemption date and a “make-whole premium” equal to the present value of all future interest payments called forcovenants under the indenture.
Default and Remedies. The indentures governing the 20212024 Notes could result in an event of default which, if not cured or waived, may result in the acceleration of the indebtedness thereunder and other indebtedness containing cross-default or cross-acceleration provisions. Certain of these covenants will be suspended if the 2024 Notes obtain an investment grade rating.
The indenture governing the 2024 Notes contain customary events of default with respect to the notes of each series, including (i) default in payment when due and payable of principal or premium, (ii) default for 30 days or more in payment when due of interest, (iii) failure by us or any restricted subsidiary for 60 days after receipt of written notice given by the trustee or the holders of at least 25% in aggregate principal amount of the notes of such series then issued and outstanding to comply with any of the other agreements under the indenture, (iv) default in any of the aircraft owning entities in respect of obligations in excess of $50.0 million, which holders of such obligation accelerate or demand repayment of amounts due thereunder, (v) failure by us or any significant subsidiary to pay final judgments aggregating in excess of $50.0 million for 60 days after such judgment becomes final, subject to certain non-recourse exceptions, and (vi) certain events of bankruptcy or insolvency with respect to us or a significant subsidiary.subsidiary. As of December 31, 2018, 2020, we wereare not in default under the indenturesindenture governing the 2021 Notes or the 2024 Notes.Notes.
Certain Covenants. Pursuant to the indentures governing the 2021 Notes and 2024 Notes, we are subject to restrictive covenants which relate to dividend payments, incurrence of debt and issuance of guarantees, incurrence of liens, repurchases of common shares, investments, disposition of aircraft, consolidation, merger or sale of our company and transactions with affiliates. We are also subject to certain operating covenants, including reporting requirements. Our failure to comply with any of the covenants under the indentures governing the 2021 Notes or 2024 Notes could result in an event of default which, if not cured or waived, may result in the acceleration of the indebtedness thereunder and other indebtedness containing cross-default or cross-acceleration provisions. Certain of these covenants will be suspended if the 2021 Notes or 2024 Notes obtain an investment grade rating.
Secured Borrowings
As of December 31, 20182020, we had $2.4$1.7 billion aggregate principal amount outstanding on our secured borrowings.
We are subject to restrictive covenants under our secured borrowings which relate to the incurrence of debt, issuance of guarantees, incurrence of liens or other encumbrances, the acquisition, substitution, disposition and re-lease of aircraft, maintenance, registration and insurance of our aircraft, restrictions on modification of aircraft and capital expenditures, and requirements to maintain concentration limits.
Our loan agreements include events of default that are customary for these types of secured borrowings. Our failure to comply with any restrictive covenants, or any other operating covenants, may trigger an event of default under the relevant loan agreement. In addition, certain of our loan agreements contain cross-default provisions that could be triggered by a default under another loan agreement.
As of December 31, 2020, we are not in default under any of our secured borrowings.
Securitization Notes
At December 31, 2018, our subsidiary,On March 14, 2019, B&B Air Funding had $85.6 million principal amount outstanding on itsredeemed all remaining aircraft lease-backed Class G-1 notes (the “Securitization Notes”), which were secured by nine aircraft. The Securitization Notes are non-recourse obligations to us. The final issued on October 2, 2007 and with an original maturity date of the Securitization Notes is November 14, 2033. However, we have given notice that2033, in the Securitization Notes will be redeemed at par, plus accrued interest, on March 14, 2019.
Interest Rate. The Securitization Notes bear interest at an adjustable interest rate equal to the current one-month LIBOR plus 0.77%. Interest expense also includes amounts payable to the provider of a financial guaranty insurance policy and the liquidity facility provider thereunder, as well as accretion on the Securitization Notes re-issued at a discount. Interest and any principal payments due are payable monthly.
Payment Terms. All cash collected, including sale proceeds from the aircraft financed by the Securitization Notes, is applied to service the outstanding balance of the Securitization Notes, after the payment of certain expenses and other costs, including interest, interest rate swap payments, and the fees to the policy provider in accordance with those agreements.
Redemption. B&B Air Funding may, on any future payment date, redeem the Securitization Notes in whole or from time to time in part for an amount equal to the outstandingaggregate principal amount together with accrued and unpaid interest to, but excluding, the date fixed for redemption. Redemption prior to accelerationthen-outstanding of the Securitization Notes may be of all or any part of the Securitization Notes. Redemption after acceleration of the Securitization Notes upon default may only be for all of the Securitization Notes.
Collateral. The Securitization Notes are secured by (i) first priority, perfected security interests in and pledges or assignments of equity ownership and beneficial interests in the subsidiaries of B&B Air Funding; (ii) interests in the leases of the associated aircraft; (iii) cash held by the subsidiaries of B&B Air Funding; and (iv) rights under agreements with BBAM, the initial liquidity facility provider, hedge counterparties and the policy provider. Rentals paid under leases are placed in the collections account and paid out according to a priority of payments set forth in the indenture. The Securitization Notes are also secured by a lien or similar interest in any of the aircraft B&B Air Funding currently owns that are registered in the United States or Ireland. B&B Air Funding may not encumber the aircraft it currently owns or incur additional indebtedness except as permitted under the securitization-related documents.
Certain Covenants. B&B Air Funding is subject to operating covenants which relate to, among other things, its operations, disposition of aircraft, lease concentration limits, and restrictions on the modification of aircraft and capital expenditures. A breach of the covenants could result in the acceleration of the Securitization Notes and exercise of remedies available in relation to the collateral, including the sale of aircraft at public or private sale.
Default and Remedies. Following any event of default and any acceleration of the Securitization Notes by the controlling party (initially, the policy provider), the security trustee may, at the direction of the controlling party, exercise such remedies in relation to the collateral as may be available to it under applicable law, including the sale of any of the aircraft at public or private sale. After the occurrence of certain bankruptcy and insolvency related events of default, or any acceleration of the Securitization Notes after the occurrence of any event of default, all cash generated by B&B Air Funding will be used to prepay the Securitization Notes.
Liquidity Facility.$63.8 million. In connection with the issuanceredemption, we expensed approximately $1.9 million of the Securitization Notes, B&B Air Funding entered into a revolving credit facility (“Securitization Note Liquidity Facility”) that provides additional liquidity of up to $60.0 million. Subject to the terms and conditions of the Securitization Note Liquidity Facility, advances may be drawn for the benefit of the Securitization Note holders to cover certain expenses of B&B Air Funding, including maintenance expenses, interest rate swap payments and interest on the Securitization Notes. Advances shall bear interest at one-month LIBOR plus a spread of 1.20%. A commitment fee of 0.40% per annum is due and payable on each payment date based on the unused portion of the Securitization Note Liquidity Facility. As of December 31, 2018, B&B Air Funding had not drawn on the Securitization Note Liquidity Facility.debt extinguishment costs.
Our obligations under the Securitization Note Liquidity Facility are secured under the security trust agreement on the same basis as other indebtedness of B&B Air Funding.
Nord LB Facility
As of December 31, 2018,2020, we had $108.9 $60.7 million principal amount outstanding under our non-recourse debt facility with Norddeutsche Landesbank Gironzentrale (the “Nord LB Facility”), which was secured by five three aircraft. The Nord LB Facility is structured with loans secured by each aircraft individually.
Effective on November 14, 2018, we amended each The loans are cross-collateralized and contain cross-default provisions. Borrowings are secured by Fly’s equity interests in the aircraft owning and leasing subsidiaries, the related leases, and certain deposits. The maturity date of the Nord LB Facility is May 14, 2021.
The loans under the Nord LB Facility to (i) extend the maturity date from November 14, 2018 to January 14, 2020 and (ii) reduce the margin from 3.30% to 1.85%.
Interest Rate. Prior to November 14, 2018, the loans under the Nord LB Facility borebear interest at one-month LIBOR plus a margin of 3.30%1.85%. Effective as ofPrior to November 14, 2018, the loans bore interest at one-month LIBOR plus a margin of 1.85%3.30%. TheAs of December 31, 2020 and December 31, 2019, the blended weighted average interest rate for the Nord LB Facilityfacility was 4.29% as of December 31, 2018, 2.00% and 3.59%, respectively, excluding the amortization of debt discountdiscounts and loan cost.debt issuance costs.
Payment Terms. WeUnder the terms of the Nord LB Facility, we apply 95% of lease rentals collected towards interest and principal. If no lease rental payments are collected in the applicable period for any financed aircraft, then no payment is due under the loan associated with that aircraft during such period. Any unpaid interest increases the principal amount of the associated loan.
In the event we sell any of the financed aircraft, substantially all sale proceeds (after payment of certain expenses) must first be used to repay the debt associated with such aircraft and then to repay the outstanding amounts which finance the remaining aircraft. In addition, any maintenance reserve amounts retained by us will be used to prepay the Nord LB Facility, provided such reserves are not required for future maintenance of such aircraft.
Upon termination or expiration of a lease other than by sale, no payments are due with respect to the outstanding loan associated with that aircraft until the earlier of (i) six months from such termination or expiration and (ii) the date on which the aircraft is re-leased. Interest during this period increases the outstanding balance under the facility. We must pay interest with respect to any aircraft that remains off-lease after six months, and if such aircraft continues to be off-lease after twelve months, we must pay debt service equal to 85% of the lease rate under the prior lease agreement. The lenders may require payment in full or foreclose on an aircraft that remains off-lease after 24 months but may not foreclose on any other aircraft in the facility.
Collateral. Borrowings are secured by our equity interests in the subsidiaries that own and lease the financed aircraft, the related leases, maintenance reserves and other deposits. The loans are cross-collateralized and contain cross-default provisions.
Certain Covenants. The Nord LB Facility does not contain any financial covenants. However, the borrowers in the Nord LB Facility are subject to certain servicer termination events. BBAM may be terminated as the servicer upon the occurrence of certain events of default under the loan agreement.
Default and Remedies. An event of default with respect to the loan on any aircraft will trigger an event of default on the loans with respect to every other financed aircraft. A default by any of the aircraft owning entities in respect of obligations in excess of $10.0 million and holders of such obligation accelerate or demand repayment of amounts due thereunder would constitute an event of default.default.
CBA Facility
We had a recourse debt facility with Commonwealth Bank of Australia and CommBank Europe Limited (the “CBA Facility”), which was secured by four aircraft. Borrowings under the CBA Facility accrued interest at a fixed interest rate.
During the third quarter of 2018, we repaid in full the outstanding principal balance of $44.3 million under the CBA Facility. There was no prepayment penalty associated with such repayment.
2012 Term Loan
As of December 31, 2018,2020, we had $407.8 million$363.0 million principal amount outstanding under our senior secured term loan (the “Term“2012 Term Loan”), which was secured by 29 aircraft and matures in February 2023.25 aircraft. Fly has guaranteed all payments under the 2012 Term Loan.The final maturity date of the 2012 Term Loan is August 9, 2025. The 2012 Term Loan can be prepaid in whole or in part at par.
Interest Rate.The 2012 Term Loan bears interest at three-month LIBOR plus a margin of 2.00%1.75%.
Payment Terms. The weighted average interest rate on all outstanding amounts was 3.26% as of December 31, 2020, excluding the amortization of debt discounts and debt issuance costs. The 2012 Term Loan requires quarterly principal payments of $5.6 million. The
In connection with the amendment completed in November 2019, we paid a one-time fee of 0.25% on the then outstanding principal amount to the 2012 Term Loan can be repaid in whole or in part without penalty.lenders and there was no prepayment penalty associated with this repricing.
Collateral. Borrowings are secured by our equity interests in the aircraft owning and/or leasing subsidiaries, the aircraft and related leases.
The 2012 Term Loan contains certain concentration limits with respect to types of aircraft which can be financed in the Term Loan, as well as geographic and single lessee concentration limits. These concentration limits apply upon the acquisition, sale, removal or substitution of an aircraft. The Term Loan also includes certain customary covenants, including reporting requirements and maintenance of credit ratings.
Under the Term Loan,requires that we must maintain a maximum loan-to-value ratio (“LTV”) of 70.0% based on the lower of the mean or median of half-life adjusted base values of the financed aircraft as determined by three independent appraisers.appraisers on a semi-annual basis.
The 2012 Term Loan contains certain concentration limits with respect to types of aircraft which can be financed in the 2012 Term Loan, as well as geographic and single lessee concentration limits. These concentration limits apply upon the acquisition, sale, removal or substitution of an aircraft. The 2012 Term Loan also includes certain customary covenants, including reporting requirements and maintenance of credit ratings.
Default and Remedies.
An event of default under the 2012 Term Loan includes any of the aircraft owning entities defaulting in respect of obligations in excess of $50.0 million and holders of such obligation accelerate or demand repayment of amounts due thereunder.thereunder.
2020 Term Loan
On October 15, 2020, we entered into a $180.0 million senior secured term loan (the “2020 Term Loan”) with a consortium of lenders, which is secured by 11 aircraft. The 2020 Term Loan will mature on the earlier of (i) October 15, 2025 and (ii) the date falling 30 days prior to the maturity of the 2024 Notes if not redeemed. The 2020 Term Loan was issued at a discount of 4.5%. The 2020 Term Loan bears interest at LIBOR plus a margin of 6.00%, with a LIBOR floor of 1.00% and requires quarterly principal payments of 1.25% of the original loan amount. The 2020 Term Loan can be prepaid in whole or in part on or after October 15, 2021 without any prepayment premium. We have guaranteed all payments under the 2020 Term Loan.
The 2020 Term Loan includes certain customary covenants, including reporting requirements, maintenance of credit ratings and maintenance of insurance. The aggregate principal amount outstanding as measured on a quarterly basis must not exceed 70.0% of the lower of the mean or median of the half-life adjusted base values of the financed aircraft, as determined by three independent appraisers (the “LTV Test”). We are required to seek new appraisals semi-annually.
Upon the sale of an aircraft, we may substitute aircraft into the 2020 Term Loan subject to certain conditions. The substitute aircraft must have an appraised value equal to or greater than the aircraft removed from the 2020 Term Loan. In addition, we must be in compliance with specified concentration limits, including aircraft type, geographic and lessee concentration limits, as well as the LTV Test after such sale, removal or substitution.
Magellan Acquisition Limited Facility
As of December 31, 2018,2020, we had $305.2$252.1 million principal amount outstanding in loans and notes under our term loan facility (“Magellan(the “Magellan Acquisition Limited Facility”), which was secured by nine aircraft. Fly has guaranteed all payments under this facility. The Magellan Acquisition Limited Facility has a maturity date of December 8, 2025. Fly has guaranteed all payments under this facility.
Interest.The interest rate on the loans is based on one-month LIBOR plus an applicable margin of 1.65% per annum. The interest rate on the notes is a fixed rate of 3.93% per annum. The weighted average interest rate on all outstanding amounts was 4.18%3.95% as of December 31, 20182020, excluding the amortization of debt discounts and debt issuance costs.
Payment Terms. The facility requires monthly principal payments of $2.2 million.
Collateral. Borrowings are secured by our equity interests in the aircraft owning and/or leasing subsidiaries, the aircraft and related leases.
Certain Covenants. The facility contains financial and operating covenants, including a covenant that Fly maintain a tangible net worth of at least $325.0 million, as well as customary reporting requirements. The borrower is required to maintain (i) an initial loan-to-valueinterest coverage ratio and (ii) a LTV ratio of less than or equal to(a) 75% through December 8, 2020, (b) 70% from December 9, 2020 through December 8, 2022, (c) 65% from December 9, 2022 through December 8, 2024 and (d) 60% thereafter. The LTV is based on the lower of the average half-life adjusted current market value and base value of all aircraft financed under the facility as determined by three independent appraisers. A violation of any of these covenants could result in a default under the Magellan Acquisition Limited Facility. In addition, uponappraisers on an annual basis. Upon the occurrence of certain conditions, including a failure by Fly to maintain a minimum liquidity of at least $25.0 million, the borrower will be required to deposit certain amounts of maintenance reserves and security deposits received into accounts pledged accounts. Also, upon the occurrence of a breach of the interest coverage ratio or the LTV ratio and certain other events, all cash collected will be applied to repay the security trustee.outstanding principal balance of the loans and notes until such breach is cured. The LTV ratio was breached on the payment date falling in January 2021 triggering a cash sweep under the facility.
Default and Remedies. Upon the sale of an aircraft, the borrower may substitute aircraft into the Magellan Acquisition Limited Facility subject to certain conditions. The substitute aircraft must be equal to or greater than the appraised value of the aircraft being substituted. The borrower must be in compliance with the concentration limits after such substitution.
An event of default under the Magellan Acquisition Limited Facility includes a default in respect of ourFly’s recourse obligations in excess of $50.0 million and holders of such obligation accelerate or demand repayment of amounts due thereunder.
Fly Acquisition III Facility
As of December 31, 2018,On October 22, 2019, we had $190.5 million paid in full the outstanding principal amount outstandingbalance under a revolving credit facility (the “Fly Acquisition III Facility”), which was secured by nine aircraft. The availability period under the Fly Acquisition III Facility expired on February 26, 2019. The facility has a with an original maturity date of February 26, 2022 and all payments are guaranteed by Fly.
Commitment Fees. 2020. We paid commitment fees of 0.50% to 0.75% per annum to the lenders on the undrawn amount of our commitment fromtheir commitments during the availability period under the Fly Acquisition III Facility, which expired on February 26, 2016 until February 26, 2019.
Interest.The interest rate under the facility iswas based on one-month LIBOR plus an applicable margin of (i) from February 26, 20162.00% through February 26, 2019 2.00%and (ii) 2.50%, (ii) from February 27, 2019 through February 26, 2020, 2.50% and (iii) from February 27, 2020 through the maturityrepayment date 3.00%. The weighted average interest rate on all outstanding amounts was 4.10% as of December 31, 2018, excluding the amortization of debt discounts and debt issuance costs.
Payment Terms. We make scheduled monthly payments of principal on each loan in accordance with a fixed amortization schedule, calculated by dividing each drawdown by the remaining useful life of the associated aircraft.facility.
Certain Covenants. The Fly Acquisition III Facility contains financial and operating covenants, including covenants that Fly maintain a tangible net worth of at least $325.0 million and that Fly Acquisition III maintain a specified interest coverage ratio, as well as customary reporting requirements. Violation of any of these covenants could result in an event of default under the facility. Also, upon the occurrence of certain conditions, including a failure by Fly to maintain a minimum liquidity of at least $25.0 million, Fly Acquisition III will be required to deposit maintenance reserves and security deposits received from lessees into accounts pledged to the security trustee.
Default and Remedies. An event of default under the Fly Acquisition III Facility includes a default in respect of our recourse obligations in excess of $50.0 million and holders of such obligation accelerate or demand repayment of amounts due thereunder.
Fly Aladdin Acquisition Facility
On June 15, 2018,As of December 31, 2020, we throughhad an aggregate of $229.6million principal amount outstanding of Series B loans under our wholly-owned subsidiaries, entered into a recourse term loan facility with a consortium of lenders (the “Fly Aladdin Acquisition Facility”) to finance the acquisition of 29 Airbus A320-200 aircraft on operating leases to the AirAsia Group (see “AirAsia Transactions” above).
The Fly Aladdin Acquisition Facility provided for borrowings of up to $574.5 million, including $143.6 million , which were secured by 14 aircraft. Series AB loans withhave a final maturity date of June 15, 2020,2023. During the year ended December 31, 2019, we repaid Series A loans in full and $430.9 milliona portion of Series B loans with a final maturity date of June 15, 2023. We may elect, at any time prior to May 16, 2020, to extend the maturity date in respect of Series A loans having an original principal amount no greater than 40% of the original drawn amount to January 15, 2021. As of December 31, 2018, an aggregate of $467.2 million principal amount was outstanding under the Fly Aladdin Acquisition Facility, including $55.9 million Series A loans and $411.3 million Series B loans, which were secured by 24 aircraft. We paid aggregate arrangement and commitment fees ofexpensed approximately $9.5 million to the lenders in 2018.
During the fourth quarter of 2018, we prepaid $81.1$2.6 million of debt and wrote off approximately $0.9 million of unamortized loan costs and debt discounts as debt extinguishment costs. The aircraft associated with the debt prepayment were sold during the first quarter of 2019.
Interest. The interest rate on theSeries B loans is based on three-month LIBOR, plus an applicable margin of 1.50%1.80% per annum for the Series A loans, 1.80% per annum for the Series B loans, and 2.50% per annum during the extension period for any Series A loans that we elect to extend. annum. The weighted average interest rate on all outstanding amounts was 4.59%4.83% as of December 31, 20182020, excluding the amortization of debt discounts and debt issuance costs.
Payment Terms. We make scheduled quarterly payments of principal and interest on each loanthe loans in accordance with a fixed amortization schedule.
Collateral. Borrowings are secured by the aircraft and related leases, and ourthe equity and beneficial interests in the aircraft owning and leasing subsidiaries. In addition, we haveFly has provided a guaranty of certain of the representations, warranties and covenants under the Fly Aladdin Acquisition Facility (including, without limitation, the borrowers’ special purpose covenants), as well as ourthe obligations, upon the occurrence of certain conditions, to deposit maintenance reserves and security deposits received into pledged accounts.accounts.
Certain Covenants. The facility contains operating covenants, including covenants that the borrowers are required to maintain a (i) a debt service coverage ratio of at least 1.15:1.00, (ii) an initial loan-to-value ratio equal to 72.5% and (iii) that 85% of aircraft financed under the facility (a) are on lease, (b) have been subject to a lease in the previous six months or (c) are subject to a letter of intent for a re-lease or sale.sale (the “utilization test”) and (iii) LTV ratio of (a) 68% through December 14, 2020, (b) 65% from December 15, 2020 through June 14, 2021, (c) 63.5% from June 15, 2021 through December 14, 2021, (d) 62% from December 15, 2021 through June 14, 2022, (e) 60% from June 15, 2022 through December 14, 2022 and (f) 58% thereafter. The tests in (ii)utilization test and (iii)LTV ratio are based on the average of the most recent half-life adjusted current market value of all aircraft financed under the facility,aircraft as determined by three independent appraisers on a semi-annual basis.
Upon the occurrence of (i) a breach of the debt service coverage ratio continuing for two consecutive quarterly payment dates, (ii) an event of default that is continuing under the Fly Aladdin Acquisition Facility, or (iii) a default under any mortgage, indenture or instrument under which there is issued, or which secures or evidences, any recourse indebtedness of ours in an aggregate principal amount exceeding $50.0 million, we will be required to deposit, or cause the borrowers to deposit, all maintenance reserves and security deposits received under the associated leases into pledged accounts. UponAlso, upon the occurrence of a breach, on any payment date, of the loan-to-valueLTV ratio or the utilization test described above, and certain other events, all cash collected will be applied to repay the outstanding principal balance of the Series A and Series B loans until such breach is cured. The LTV ratio was breached in the third quarter of 2020. As a consequence of entering into deferral agreements with our lessees, in the fourth quarter of 2020, the debt service coverage ratio was breached for two consecutive quarterly payment dates, requiring us to deposit approximately $7.6 million in cash maintenance reserves and security deposits received under the associated leases into pledged accounts.
The Fly Aladdin Acquisition Facility contains geographic and single lessee concentration limits, which apply upon the acquisition, sale, removal or substitution of an aircraft, as well as aircraft type eligibility for any aircraft substitution. Upon the sale of an aircraft, the borrowers may substitute an Airbus A320 or A321 model aircraft on operating lease to the AirAsia Group into the Fly Aladdin Acquisition Facility subject to certain conditions. The facility also includes certain customary covenants, including reporting requirements. A violation of any of these covenants could result in a default under the Fly Aladdin Acquisition Facility.Facility.
Fly Aladdin Engine Funding Facility
On October 24, 2018,As of December 31, 2020, we through our wholly-owned subsidiary, entered intohad $40.6 million principal amount outstanding under a recourse term loan facility with two lenders (the “Fly Aladdin Engine Funding Facility”) to finance the acquisition of seven engines on operating leases to the AirAsia Group. The facility provided for borrowings of up to $46.0 million. In October 2018, we drew down $43.9 million and paid up-front fees of approximately $0.4 million.
As of December 31, 2018, we had $43.8 million principal amount outstanding under the Fly Aladdin Engine Funding Facility,, which was secured by seven engines. Fly has guaranteed all payments under this facility. The loans have maturity dates ranging from December 31, 2021 to April 30, 2022.
In October 2018, we drew down $43.9 million under the Fly Aladdin Engine Funding Facility and paid up-front fees of approximately $0.4 million.
The interest rate for the borrowings is based on an applicable margin of 1.90% per annum over a fixed swap rate and ranges from 4.94% to 4.96% per annum, per engine.
Payment Terms. The weighted average interest rate on all outstanding amounts was 4.95% as of December 31, 2020, excluding the amortization of debt discounts and debt issuance costs. We are required to make scheduled monthly payments of principal and interest in accordance with an amortization schedule. The loans have maturity dates ranging from December 31, 2021 to April 30, 2022.
Collateral. The loans are secured by the engines and related leases and our equity and beneficial interests in the engine owning entities.
Certain Covenants. The Fly Aladdin Engine Funding Facility contains certain customary covenants, including various reporting requirements.covenants. A violation of any of these covenants could result in a default under the facility.Fly Aladdin Engine Funding Facility.
Other Aircraft Secured Borrowings
We have entered into other aircraft secured borrowings to finance the acquisition of aircraft, one of which is denominated in Euros.Euros. As of December 31, 2018,2020, we had $807.9 $543.0 million principal amount outstanding of other aircraft secured borrowings, which were secured by 17 13 aircraft. Of this amount, $477.5$279.1 million was recourse to us.Fly. The weighted average interest rate on all outstanding amounts was 4.44%3.21% as of December 31, 20182020, excluding the amortization of debt discounts and debt issuance costs.
During the year ended December 31, 2020, we paid off one of our other aircraft secured borrowings of $61.0 million and expensed approximately $0.5 million of debt extinguishment costs.
These borrowings are structured as individual loans secured by pledges of our rights, title and interests in the financed aircraft and leases. In addition, Fly may provide guarantees of its subsidiaries’ obligations under certain of these loans and may be subject to financial and operating covenants in connection therewith. The maturity dates of these loans range from December 2020March 2021 to June 2028.
During the third quarter of 2018, we entered into a recourse secured borrowing in the amount of $122.5 million to finance an unencumbered aircraft. We used the loan proceeds to repay the CBA Facility and one other aircraft secured borrowing.
Capital Expenditures
During the year ended December 31, 2020, we purchased flight equipment for an aggregate of $73.3 million. During the year ended December 31, 2019, we purchased flight equipment for an aggregate of $331.5 million. During the year ended December 31, 2018, we purchased 34 narrow-body aircraft and seven enginesflight equipment for an aggregate of $1.1 billion,, including an allocated portion of such purchase price to the Portfolio B orderbook value. During the year ended December 31, 2017, we purchased nine narrow-body aircraft and one wide-body aircraft for an aggregate of $456.0 million. During the year ended December 31, 2016, we purchased seven narrow-body aircraft and three wide-body aircraft for an aggregate of $559.3 million.
In addition to aircraft acquisitions, weWe expect to make capital expenditures from time to time in connection with improvements to our aircraft. These expenditures include the cost of major overhauls and modifications. In general, the costs of operating an aircraft, including capital expenditures, increase with the age of the aircraft. As of December 31, 2018,2020, the weighted average age of our aircraft portfolio (excludingwas 8.4 years.
On February 28, 2018, we agreed to acquire 21 Airbus A320neo family aircraft heldto be leased to AirAsia Group Berhad and its affiliated airlines as the aircraft deliver from the manufacturer (“Portfolio B”). The first of these aircraft delivered in the fourth quarter of 2019. We also acquired options to purchase up to 20 Airbus A320neo family aircraft, not subject to lease (“Portfolio C”). We did not exercise our options with respect to any of the Portfolio C aircraft delivering in 2019. In August 2019, we exercised options with respect to eight Portfolio C aircraft to be delivered in 2020 and 2021. The Portfolio C aircraft slated for sale) was 7.0 years.
Inflation
The effects of inflation on our operating expenses have been minimal. Wedelivery in 2020 were not delivered, and we do not consider inflationexpect the Portfolio C aircraft slated for delivery in 2021 to be a significant risk to direct expensesdeliver in the current economic environment.next 12 months. Assuming the eight options exercised but not delivered are re-exercised at a future date, we have options remaining to purchase up to 17 Portfolio C aircraft delivering between 2021 and 2025. Due to the impact of COVID-19, we expect that the delivery of the Portfolio B and Portfolio C aircraft will be delayed substantially, and that no aircraft will deliver under either of these agreements in the next 12 months. We expect to fund aircraft acquisitions using cash on hand and secured borrowings.
Research and Development, Patents and Licenses, etc.
Not applicable.
Off-Balance Sheet Arrangements
Not applicable.In 2016, we entered into residual value guarantees (“RVGs”) in which we agreed to guarantee the residual value of three aircraft subject to twelve-year leases. We received residual value guarantee fees totaling $6.6 million, which are being amortized over a twelve-year period. The third-party lessors may exercise their rights under the RVGs by issuing a notice to us eleven months before each lease expiry date requiring us to purchase the aircraft on such date. The RVGs will terminate if not exercised accordingly.
We continuously re-evaluate our risk related to the RVGs based on several factors, including the estimated future base value of the aircraft based on third-party appraisals and information on similar aircraft remarketing in the secondary market. As of December 31, 2020, no liability was recorded related to these RVGs. If we were required to pay the full aggregate amount of our outstanding RVGs and were unable to remarket any of the aircraft to offset our obligations, our maximum exposure as of December 31, 2020 would have been $82.5 million.
The RVGs contain covenants requiring us to post cash collateral in an aggregate amount of $23.0 million as security for our obligations upon the occurrence of certain corporate events, including a change in control, a downgrade in our corporate family rating beyond a specified threshold, or a sale of all or substantially all of our assets.
Contractual Obligations
Our long-term contractual obligations as of December 31, 20182020 consisted of the following (in thousands):
| | 2019 | | | 2020 | | | 2021 | | | 2022 | | | 2023 | | | Thereafter | | | Total | | | 2021 | | | 2022 | | | 2023 | | | 2024 | | | 2025 | | | Thereafter | | | Total | |
Principal payments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Principal payment under the 2021 Notes | | $ | — | | | $ | — | | | $ | 325,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | 325,000 | | |
| | | | | | | | | | | | | | | | | | | | | | |
Principal payment under the 2024 Notes | | | — | | | | — | | | | — | | | | — | | | | — | | | | 300,000 | | | | 300,000 | | | | — | | | | — | | | | — | | | | 300,000 | | | | — | | | | — | | | | 300,000 | |
Principal payments under the Securitization Notes (1) | | | 60,378 | | | | 3,980 | | | | 8,525 | | | | 12,701 | | | | — | | | | — | | | | 85,584 | | |
Principal payments under the Nord LB Facility | | | 45,268 | | | | 63,614 | | | | — | | | | — | | | | — | | | | — | | | | 108,882 | | | | 60,667 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 60,667 | |
Principal payments under the Term Loan | | | 22,404 | | | | 22,404 | | | | 22,404 | | | | 22,404 | | | | 318,152 | | | | — | | | | 407,768 | | |
Principal payments under the 2012 Term Loan | | | | 22,404 | | | | 22,404 | | | | 22,404 | | | | 22,404 | | | | 273,344 | | | | — | | | | 362,960 | |
Principal payments under the 2020 Term Loan | | | | 9,000 | | | | 9,000 | | | | 9,000 | | | | 9,000 | | | | 144,000 | | | | — | | | | 180,000 | |
Principal payments under the Magellan Acquisition Limited Facility | | | 26,542 | | | | 26,542 | | | | 26,542 | | | | 26,542 | | | | 26,542 | | | | 172,516 | | | | 305,226 | | | | 26,542 | | | | 26,542 | | | | 26,542 | | | | 26,542 | | | | 145,975 | | | | — | | | | 252,143 | |
Principal payments under the Fly Acquisition III Facility | | | 33,752 | | | | 13,157 | | | | 23,966 | | | | 119,582 | | | | — | | | | — | | | | 190,457 | | |
Principal payments under the Aladdin Acquisition Facility | | | 43,689 | | | | 78,472 | | | | 35,548 | | | | 37,250 | | | | 272,220 | | | | — | | | | 467,179 | | | | 23,331 | | | | 24,453 | | | | 181,860 | | | | — | | | | — | | | | — | | | | 229,644 | |
Principal payments under the Aladdin Engine Funding Facility | | | 1,490 | | | | 1,565 | | | | 32,240 | | | | 8,534 | | | | — | | | | — | | | | 43,829 | | | | 32,106 | | | | 8,534 | | | | — | | | | — | | | | — | | | | — | | | | 40,640 | |
Principal payments under Other Aircraft Secured Borrowings | | | 81,159 | | | | 94,085 | | | | 83,816 | | | | 105,367 | | | | 248,448 | | | | 195,007 | | | | 807,882 | | | | 87,246 | | | | 80,283 | | | | 156,538 | | | | 70,830 | | | | 51,756 | | | | 96,349 | | | | 543,002 | |
Total principal payments | | | 314,682 | | | | 303,819 | | | | 558,041 | | | | 332,380 | | | | 865,362 | | | | 667,523 | | | | 3,041,807 | | | | 261,296 | | | | 171,216 | | | | 396,344 | | | | 428,776 | | | | 615,075 | | | | 96,349 | | | | 1,969,056 | |
Interest payments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest payments under the 2021 Notes and 2024 Notes | | | 36,469 | | | | 36,469 | | | | 32,152 | | | | 15,750 | | | | 15,750 | | | | 12,469 | | | | 149,059 | | |
Interest payments under secured borrowings (2) | | | 90,253 | | | | 77,300 | | | | 68,519 | | | | 53,472 | | | | 30,884 | | | | 26,596 | | | | 347,024 | | |
Interest payments under the 2024 Notes | | | | 15,750 | | | | 15,750 | | | | 15,750 | | | | 12,469 | | | | — | | | | — | | | | 59,719 | |
Interest payments under secured borrowings (1) | | | | 45,292 | | | | 39,653 | | | | 32,286 | | | | 25,512 | | | | 18,441 | | | | 4,248 | | | | 165,432 | |
Total interest payments | | | 126,722 | | | | 113,769 | | | | 100,671 | | | | 69,222 | | | | 46,634 | | | | 39,065 | | | | 496,083 | | | | 61,042 | | | | 55,403 | | | | 48,036 | | | | 37,981 | | | | 18,441 | | | | 4,248 | | | | 225,151 | |
Purchase price of Portfolio B aircraft in the AirAsia Transactions (3) | | | 200,839 | | | | 303,000 | | | | 555,744 | | | | — | | | | — | | | | — | | | | 1,059,583 | | |
Acquisition fees related to Portfolio B in the AirAsia Transactions (3) | | | 3,013 | | | | 4,545 | | | | 8,336 | | | | — | | | | — | | | | — | | | | 15,894 | | |
Disposition fees on flight equipment held for sale | | | 5,264 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 5,264 | | |
Payments to BBAM and its affiliates under our management agreement (4) | | | 9,561 | | | | 9,561 | | | | 9,561 | | | | 9,561 | | | | 9,561 | | | | 62,146 | | | | 109,951 | | |
Payments to BBAM and its affiliates under our administrative services and servicing agreements (5) | | | 16,106 | | | | 14,887 | | | | 12,976 | | | | 10,889 | | | | 8,810 | | | | 24,641 | | | | 88,309 | | |
Payments to our Manager under our management agreement (2) | | | | 6,889 | | | | 6,889 | | | | 6,889 | | | | 6,889 | | | | 6,889 | | | | 31,004 | | | | 65,449 | |
Payments to BBAM under our servicing agreements (3) | | | | 12,095 | | | | 10,641 | | | | 8,676 | | | | 7,951 | | | | 6,940 | | | | 11,705 | | | | 58,008 | |
Total | | $ | 676,187 | | | $ | 749,581 | | | $ | 1,245,329 | | | $ | 422,052 | | | $ | 930,367 | | | $ | 793,375 | | | $ | 4,816,891 | | | $ | 341,322 | | | $ | 244,149 | | | $ | 459,945 | | | $ | 481,597 | | | $ | 647,345 | | | $ | 143,306 | | | $ | 2,317,664 | |
(1) | Principal payments under the Securitization Notes are determined monthly based on revenues collected and costs and other liabilities incurred prior to the relevant payment date. Future principal payment amounts are estimated based upon existing leases and current re-leasing assumptions. Assumes debt will be fully repaid on December 14, 2022. On February 12, 2019, B&B Air Funding issued a notice of redemption to redeem the Securitization Notes in whole for an amount equal to the outstanding principal amount, with any accrued and unpaid interest, on March 14, 2019. |
(2) | For variable rate borrowings based on LIBOR plus the applicable margin, LIBOR is assumed to remain at the current rate in effect at year end through the term of the loan. |
(3) | Assumes aircraft are purchased in May, September, November and December 2019, July 2020 and July 2021. |
(4)(2) | Assumes automatic extension for one additional term of five years to June 30, 2030. Also assumes the net book value of aircraft at December 31, 20182020 remains constant in future periods. |
(4)(3) | Amounts in the table reflect the application of these servicing fees to our aircraft at December 31, 2018.2020. |
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
The following table presents information about our directors and executive officers. The business address of each of our directors and executive officers listed below is West Pier Business Campus, Dun Laoghaire, County Dublin, A96 N6T7, Ireland. Our telephone number at that address is +353 1 231-1900.
Name | | Age | | Position |
Colm Barrington | | 7375 | | Chief Executive Officer and Director |
Julie G. Ruehl | | 5355 | | Chief Financial Officer |
Joseph M. Donovan | | 6466 | | Director and Chairman |
Erik G. Braathen | | 6365 | | Director |
Eugene McCague | | 6062 | | Director |
Robert S. Tomczak | | 5759 | | Director |
Susan M. Walton | | 5860 | | Director |
Steven Zissis | | 5961 | | Director |
Colm Barrington has been our chief executive officer and a member of our board of directors since May 2007. Mr. Barrington has over 4050 years of experience in the global aviation industry, having started his aviation career in 1967 at Ireland’s national airline, Aer Lingus. In 1979, he joined GPA Group plc where he held various senior positions, including chief operating officer. In 1993, Mr. Barrington oversaw the successful integration of GPA Group plc and GE Capital Aviation Services (GECAS). In 1994, he joined Babcock & Brown Limited working in aircraft and lease management and arranging cross border lease financings of commercial aircraft. In September 2015, Mr. Barrington retired after seven years as the non-executive Chairman of the Board of Directors of Aer Lingus plc, following the sale of Aer Lingus to International Consolidated Airlines Group (IAG). Mr. Barrington is a non-executive director of Hibernia REIT plc and is Vice Chairman and a non-executive director of Finnair plc. Mr. Barrington received a BA and an MA in Economics from University College Dublin and a public administration degree from the Institute of Public Administration, also in Dublin.
Julie G. Ruehl has been our chief financial officer since August 2017. Prior to joining FLY, Ms. Ruehl previously served as the Vice President and Chief Accounting Officer for Big Heart Pet Brands and for its predecessor, Del Monte Corporation. Prior to that she was in a senior financial position with Sanmina Corporation, a global provider of electronics manufacturing services, and previously served as an Audit Partner at Arthur Andersen LLP. Ms. Ruehl graduated cum laude from Louisiana State University with a bachelor of science degree in Accounting.
Joseph M. Donovan was appointed Chairman in April 2010 and has been a member of our board of directors since June 2007. Prior to his retirement in January 2007, Mr. Donovan was chairman of Credit Suisse’s Asset-Backed Securities and Debt Financing Group, which he led for nearly seven years. Prior thereto, Mr. Donovan was a managing director and head of Asset Finance at Prudential Securities (1998-2000) and Smith Barney (1995-1997). Mr. Donovan began his banking career at The First Boston Corporation in 1983, ultimately becoming a managing director at CS First Boston, where he served as Chief Operating Officer of the Investment Banking Department from 1992 to 1995. Mr. Donovan is a director of STORE Capital Corporation. Mr. Donovan received his MBA from The Wharton School of the University of Pennsylvania and has a degree in Accountancy from the University of Notre Dame.
Erik G. Braathen has been a member of our board of directors since June 2007. Mr. Braathen has been the chief executive of Ojada AS, a privately owned investment company, since 1999. Prior to joining Ojada AS, Mr. Braathen was the chief executive officer of Braathens ASA where he gained extensive experience in the airline industry from 1986 to 1999. Mr. Braathen serves as the Deputy of Chairman of Protector Insurance ASA and is a member of the boardsboard of directors of Northsea PSV AS and Cenzia AS. Mr. Braathen is Chairman of the Boardboards of Directorsdirectors of Holmen Fondsforvaltning, Sayonara AS, Ojada AS, Okana AS, Onida AS, BB Computerteknikk and OnidaFlyr AS. Mr. Braathen has a Master of International Management from AGSIM, Phoenix Arizona, and a Bachelor of Arts & Economics from the University of Washington, Seattle, Washington.
Eugene McCague has been a member of our board of directors since November 2014. Mr. McCague was a partner of Arthur Cox, a leading Irish law firm, from 1988 to his retirement from the firm in June 2017. He served as managing partner of Arthur Cox from 1999 to 2003, and as its chairman from 2006 to 2013. Mr. McCague is the chair of the Governing Authority of University College, Dublin and has served on the boards of a number of not-for-profit organizations, and as President of the Dublin Chamber of Commerce. Mr. McCague is a non-executive director of ICON plc. Mr. McCague holds a Bachelor of Civil Law degree and a Diploma in European Law from University College, Dublin.
Robert S. Tomczak has been a member of our board of directors since April 2010. Mr. Tomczak is a Senior Vice President and the Chief Financial Officer of BBAM LP and leads BBAM’s accounting, finance and contract management teams and has over 25 years of experience in the aircraft leasing industry. From 1987 to 2010, Mr. Tomczak was a Finance Director at Babcock & Brown. Prior to joining Babcock & Brown in 1987, Mr. Tomczak worked for Arthur Andersen & Co. He graduated from California State University East Bay with a degree in Finance and Accounting.
Susan M. Walton has been a member of our board of directors since June 2007. Ms. Walton is currently a Director and trustee for Bernhard Baron Cottage Homes, a charity providing residential care for the Chief Executive Officerelderly, and a Director and trustee of theRaystede Animal Sanctuary. Until November 2020, Ms. Walton was Chairman (having served nine years as CEO) of Pestalozzi International Village Trust, a charity registered in England and Chief Executive Officer of Pestalozzi Enterprises Limited. Until September 2010, Ms. Walton wasFoundation. Prior thereto, she had been a Sub-Regional Director of the environmental charity Groundwork London. Prior thereto, Ms. Walton wasLondon and before that the Chief Executive of Hampshire & Isle of Wight Wildlife Trust (“HWT”), a leading wildlife conservation charity in England, where she was responsible for biodiversity projects in two counties and developing partnerships with key stakeholder groups.England. Prior to joining HWT in 2006, she served as General Manager — Structured Finance and Export Credit, for Rolls-Royce Capital Limited for nine years. Ms. Walton was also a Principal at Babcock & Brown from 1989 to 1997 where she was responsible for producing and implementing Babcock & Brown’s annual European Aerospace marketing plan. Ms. Walton isacts as a trusteementor for East Sussex Charity Mentors and for the Sussex East Area MeetingAssociation of Quakers, a trusteeChief Executives of Raystede Animal Sanctuary and a member of the Corporation of Sussex Coast College Hastings.Voluntary Organisations. Ms. Walton holds a degree in Environmental Conservation from Birkbeck College, University of London.
Steven Zissis was previously our chairman andhas been a member of our board of directors since June 2007. Mr. Zissis is the President and Chief Executive Officer of BBAM LP. Mr. Zissis was the Head of Aircraft Operating Leasing at Babcock & Brown and has over 2530 years of experience in the aviation industry. Prior to joining Babcock & Brown in 1990, Mr. Zissis was a vice president of Citibank, where he was also a founder and manager of the Portfolio Acquisition and Divestiture team. Mr. Zissis graduated from Rhodes College with a degree in Finance and International Studies.
Compensation of DirectorsDirectors
Each independent member of our board of directors receives an annual cash retainer of $125,000 payable in equal quarterly installments. Our chairman receives an additional $60,000 per year. Each independent director who is a chairman of a committee of the board of directors receives an additional $10,000 per year. Our Manager-appointed directors receive no additional compensation for their service as directors.
We paid to our directors aggregate cash compensation of $0.6 million for services rendered in 20182020. We do not have a retirement plan for our directors.
Executive Compensation
We do not have any employees. Pursuant to the management agreement we have with our Manager, we have the dedicated services of our Manager’s chief executive officer and chief financial officer, who serve as our chief executive officer and chief financial officer by appointment of our board of directors but who remain employees of BBAM LP. The services performed by our chief executive officer and chief financial officer are provided at the cost of our Manager or an affiliate of our Manager. Our Manager or an affiliate of our Manager, in consultation with the compensation committee of our board of directors, determines and pays the compensation of our chief executive officer and chief financial officer. We do not provide retirement benefits to any officer or employee.
We have a 2010 Omnibus Incentive Plan (“2010 Plan”) permitting the issuance of up to 1,500,000 share grants in the form of (i) stock appreciation rights (“SARs”); (ii) restricted stock units (“RSUs”); (iii) nonqualified stock options; and (iv) other stock-based awards. We have issued all shares available under the 2010 Plan. At December 31, 2018,2020, there were 796,98014,025 SARs outstanding and exercisable. The Company satisfiesWe satisfy SAR exercises with newly issued ADSs.
Board of Directors
Our board of directors currently consists of seven members. Our bye-laws provide that the board of directors is to consist of a minimum of two and a maximum of 15 directors as the board of directors may from time to time determine. Pursuant to our management agreement and our bye-laws, so long as the Manager holds any of our manager shares, our Manager has the right to appoint the whole number of directors on our board of directors that is nearest to but not more than 3/7ths of the number of directors on our board of directors. These directors are not required to stand for election by shareholders.
A majority of our directors are “independent” as defined under the applicable rules of the New York Stock Exchange. In accordance with our bye-laws, the independent directors are elected at each annual general meeting of shareholders and shall hold office until the next annual general meeting following his or her election or until his or her successor is elected or appointed or their office is otherwise vacated.
Committees of the Board
The standing committees of our board of directors consist of an audit committee, a compensation committee and a nominating and corporate governance committee. These committees are described below. Our board of directors may also establish various other committees to assist it in its responsibilities.
Audit Committee
Our Audit Committee is concerned primarily with the accuracy and effectiveness of the audits of our financial statements by our independent auditors. Its duties include:
| ● | selecting independent auditors for approval by our shareholders; |
| ● | reviewing the scope of the audit to be conducted by our independent auditors, as well as the results of their audit; |
| ● | approving audit and non-audit services provided to us by the independent auditors; |
| ● | reviewing the organization and scope of our internal system of audit, financial and disclosure controls; |
| ● | overseeing internal controls and risk management; |
| ● | overseeing our financial reporting activities, including our annual report, and the accounting standards and principles followed; |
| ● | reviewing and approving related-party transactions and preparing reports for the board of directors on such related-party transactions; |
| ● | conducting other reviews relating to compliance with applicable laws and our policies, including reviewing at least annually our decision to enter into swaps, and our hedging policy; and |
| ● | overseeing our internal audit function. |
Each of the members of the Audit Committee is an “independent” director as defined under the applicable rules of the New York Stock Exchange. Mr. Donovan and Mr. Braathen have served on the Audit Committee since June 2007. Mr. McCague has served on the Audit Committee since November 2014. Mr. Donovan serves as chairperson.
Compensation Committee
Our Compensation Committee will be consulted by our Manager regarding the remuneration of our chief executive and chief financial officers and will be responsible for determining the compensation of our independent directors. Each of the members of the Compensation Committee is an “independent” director as defined under the applicable rules of the New York Stock Exchange. Mr. Braathen and Ms. Walton have served on the Compensation Committee since June 2007. Mr. McCague has served on the Compensation Committee since November 2014. Mr. Braathen serves as chairperson.
Nominating and Corporate Governance Committee
Our Nominating and Corporate Governance Committee’s responsibilities include the selection of potential candidates for our board of directors and the development and annual review of our governance principles. This committee also makes recommendations to our board of directors concerning the structure and membership of the other board committees. Each of the members of the Nominating and Corporate Governance Committee is an “independent” director as defined under the applicable rules of the New York Stock Exchange. Ms. Walton and Mr. Braathen have served on the Nominating and Corporate Governance Committee since June 2007. Mr. McCague has served on the Nominating and Corporate Governance Committee since November 2014. Ms. Walton serves as chairperson.
Our Management
Pursuant to a management agreement, we have appointed Fly Leasing Management Co. Limited, a wholly owned subsidiary of BBAM LP, as our Manager to provide management services to us. In discharging its duties under the management agreement, our Manager uses the resources provided to it by BBAM LP and its affiliates. These resources include the dedicated services of Mr. Colm Barrington and Ms. Julie Ruehl, who serve as our chief executive officer and chief financial officer, respectively, but who also remain employees of BBAM LP, the dedicated services of other members of our Manager’s core management team, and the non-exclusive services of other personnel employed by BBAM LP.
Our chief executive officer and chief financial officer manage our day-to-day operations and affairs on a permanent and wholly dedicated basis. Our board of directors, chief executive officer and chief financial officer have responsibility for overall corporate strategy, acquisitions, dispositions, financing and investor relations.
Share OwnershipOwnership
Other than as disclosed in Item 7 below, none of our directors or executive officers beneficially own more than 1% of our outstanding common shares.shares.
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
The table below sets forth certain information regarding the beneficial ownership of our ADSs by each person known by us to be a beneficial owner of more than 5% of our ADSs as of February 15, 2019:16, 2021:
| | Shares Beneficially Owned | | | Shares Beneficially Owned | |
Name | | Number | | | Percent | | | Number | | | Percent | |
AirAsia Group Berhad (1) | | | 3,333,333 | | | | 10.2 | % | | | 3,333,333 | | | | 10.9 | % |
Onex Corporation (2) | | | 3,110,143 | | | | 9.5 | % | | | 3,110,143 | | | | 10.2 | % |
Donald Smith & Co., Inc. (3) | | | 2,670,572 | | | | 8.2 | % | | | 2,774,196 | | | | 9.1 | % |
Summit Aviation Partners LLC (4) | | | 2,195,864 | | | | 6.7 | % | |
GIC Private Limited (4) | | | | 1,928,831 | | | | 6.3 | % |
Morgan Stanley (5) | | | 1,770,913 | | | | 5.4 | % | | | 1,901,809 | | | | 6.2 | % |
Summit Aviation Partners LLC (6) | | | | 1,793,625 | | | | 5.9 | % |
(1) | The information above and in this footnote is based on information taken from the Schedule 13G filed by AirAsia Group Berhad with the SEC on September 4, 2018. AirAsia Group Berhad has sole voting and dispositive power over 3,333,333 ADSs. |
(2) | The information above and in this footnote is based on information taken from the Schedule 13G/A filed by Onex Corporation, Onex Partners III GP LP, Onex Partners GP Inc., Onex US Principals LP, Onex American Holdings GP LLC, Onex AmericanPrivate Equity Holdings II LLC, Onex Partners III PV LP, Onex Partners III Select LP, Onex Partners III LP, New PCo II Investments Ltd., Meridian Aviation Partners Limited, Onex ATR S.a.r.l., ATR Aviation Holdings I Corporation, Onex Partners III International LP, , Onex Partners III International GP LP, Onex Partners III International GP LLC, Onex Partners Canadian GP Inc., New PCo II Investments Ltd., and Gerald W. Schwartz (collectively, the “Onex Reporting Persons”) with the SEC on February 15, 2019.13, 2020. Onex Corporation has shared voting and dispositive power over 3,094,399 ADSs. Onex Partners III GP LP and Onex Partners GP Inc. have shared voting and dispositive power over 1,806,537 ADSs. Onex US Principals LP, Onex American Holdings GP LLC and Onex Private Equity Holdings LLC have shared voting and dispositive power over 5,241 ADSs. Onex Partners III PV LP has shared voting and dispositive power over 21,746 ADSs. Onex Partners III Select LP has shared voting and dispositive power over 5,517 ADSs. Onex Partners III LP has shared voting and dispositive power over 1,715,470 ADSs. Each of Meridian Aviation Partners Limited, Onex ATR S.a.r.l., ATR Aviation Holdings I Corporation, Onex Partners III International LP, Onex Partners III International GP LP, Onex Partners III International GP LLC and Onex Partners Canadian GP Inc. has shared voting and dispositive power over 666,667 ADSs. New PCo II Investments Ltd. has shared voting and dispositive power over 15,744 ADSs. Gerald W. Schwartz has shared voting and dispositive power over 3,110,143 ADSs. |
(3) | The information above and in this footnote is based on information taken from the Schedule 13G filed by Donald Smith & Co., Inc., Donald Smith Long/Short EquitiesDSCO Value Fund, L.P., Jon Hartsel, Kamal Shah, and John D. Piermont with the SEC on February 8, 2019.11, 2021. Donald Smith & Co., Inc. has sole voting power over 2,429,8292,730,447 ADSs and sole dispositive power over 2,670,5722,745,147 ADSs. Donald Smith Long/Short EquitiesDSCO Value Fund, L.P. has sole voting power over 8,39517,349 ADSs and sole dispositive power over 2,670,57217,349 ADSs. Jon Hartsel has sole voting power over 4,0006,000 ADSs and sole dispositive power over 2,670,5726,000 ADSs. Kamal Shah has sole voting power over 2,500 ADSs and sole dispositive power over 2,670,5722,500 ADSs. John D. Piermont has sole voting power over 2,0003,200 ADSs and sole dispositive power over 2,670,5723,200 ADSs. |
(4) | The information above and in this footnote is based on information taken from the Schedule 13G/A filed by GIC Private Limited and Coral Blue Investment Pte. Ltd. on February 12, 2021. GIC Private Limited and Coral Blue Investment Pte. Ltd have shared voting and dispositive power over 1,928,831 ADSs. |
(5) | The information above and in this footnote is based on information taken from the Schedule 13G/A filed by Morgan Stanley and Morgan Stanley Capital Services LLC with the SEC on February 11, 2021. Morgan Stanley has shared voting power over 1,828,678 ADSs and shared dispositive power over 1,901,809 ADSs. Morgan Stanley Capital Services LLC has shared voting power over 1,805,543 ADSs and shared dispositive power over 1,805,543 ADSs. |
(6) | The information above and in this footnote is based on information taken from the Schedule 13D/A filed by Steven Zissis, Zissis Family Trust, Summit Aviation Partners LLC and SZ Services Puerto Rico LLC (the “Summit Reporting Persons”) with the SEC on July 20, 2018, and from information independently provided to us by Mr. Zissis.the Summit Reporting Persons. Steven Zissis and Zissis Family Trust have shared voting and dispositive power over 2,195,8641,793,625 ADSs. Summit Aviation Partners LLC has shared voting and dispositive power over 1,610,717 ADSs. SZ Services Puerto Rico LLC has shared voting and dispositive power over 487,708 ADSs. |
(5) | The information above and in this footnote is based on information taken from the Schedule 13G/A filed by Morgan Stanley with the SEC on February 12, 2019. Morgan Stanley has shared voting power over 1,599,624 ADSs and shared dispositive power over 1,770,913182,908 ADSs. |
All ADS holders have the same voting rights.
As of February 28, 2019, 8,034,23822, 2021, 7,388,063 of our ADSs were held by 2919 holders of record in the United States, not including ADSs held of record by Depository Trust Company, or DTC. As of February 28, 2019,22, 2021, DTC was the holder of record of 24,615,78123,093,006 ADSs. To the best of our knowledge, 2,228,906 ADSs1,631,910 were beneficially owned by holders with U.S. addresses.
We are not aware of any arrangements, the operation of which may at a subsequent date result in a change of control.
Manager Shares
Our Manager owns 100 manager shares that are entitled to director appointment rights and the right to vote on amendments to the provision of our bye-laws relating to termination of our management agreement with them. Manager shares will not convert into common shares. Upon a termination of our management agreement, the manager shares will cease to have any appointment and voting rights and, to the extent permitted under Section 42 of Companies Act 1981 (Bermuda), will be automatically redeemed for their par value. Manager shares are not entitled to receive any dividends and, other than with respect to director appointment rights, holder of manager shares have no voting rights.
Related Party Transactions
We have entered into agreements with BBAM LP and its affiliates that effect the transactions relating to our ongoing operations and business. Although the pricing and other terms of these agreements were reviewed by our management and the independent directors of our board of directors, they were determined by entities affiliated with BBAM LP. As a result, provisions of these agreements may be less favorable to us than they might have been had they been the result of transactions among unaffiliated third parties.
On February 1, 2017,In connection with the redemption of the Securitization Notes in March 2019, B&B Air Funding amendedterminated its servicing agreement with respect to aircraft financed by the Securitization Notes. See “Servicing Agreements — B&B Air Funding — Servicing Agreement.” On February 1, 2017, we amended
In connection with the managementrepayment of the Fly Acquisition III Facility in October 2019, Fly Acquisition III Limited terminated its servicing agreement with the Managerrespect to accommodate the changes to the servicing and administrative fees relating to the aircraft financed by the Securitization Notes.facility. See “Management Agreement.Servicing Agreements — All Other Aircraft and Aviation Assets Acquired – Servicing Agreement.”
MANAGEMENT AGREEMENT
General
We have a management agreement with our Manager (the “Management Agreement”). In discharging its duties under the Management Agreement, our Manager uses the resources provided to it by BBAM LP. These resources include the dedicated services of Colm Barrington and Julie Ruehl, who serve as our chief executive officer and chief financial officer, respectively, but also remain employees of BBAM LP, the dedicated services of other members of our Manager’s core management team and the non-exclusive services of other personnel employed by BBAM LP.
Our Manager’s core management team consists of the Manager’s chief executive officer, chief financial officer and that level of dedicated or shared support personnel, such as corporate counsel, company secretary, financial controller and other accounting staff and risk and compliance personnel, as our Manager reasonably determines is necessary to provide the management and administrative services described below.
Services
Our Manager’s duties and responsibilities under the Management Agreement include the provision of the services described below. The Management Agreement requires our Manager to manage our business and affairs in conformity with the policies and investment guidelines that are approved and monitored by our board of directors. Our Manager may delegate the provision of all or any part of the services to any person affiliated or associated with BBAM.
Management and Administrative Services. Our Manager provides us with the following management and administrative services:
| ● | managing our portfolio of aircraft and other aviation assets and the administration of our cash balances; |
| ● | if requested by our board, making available a member of the core management team of our Manager as our nominee on the board of directors of any of our subsidiaries (provided that each such member must be agreed between us and our Manager); |
| ● | assisting with the implementation of our board’s decisions; |
| ● | providing us suitably qualified and experienced persons to perform the management and administrative services for us and our subsidiaries, including persons to be appointed by our board to serve as our dedicated chief executive and chief financial officers (who shall remain employees of, and be remunerated by, our Manager or an affiliate of our Manager while serving in such capacities); |
| ● | performing or procuring the performance of all reasonable accounting, tax, corporate secretarial, information technology, reporting and compliance services for us and our subsidiaries, including the preparation and maintenance of our accounts and such financial statements and other reports and filings as we are required to make with any governmental agency (including the SEC) or stock exchange; |
| ● | supervising financial audits of us by an external auditor as required; |
| ● | managing our relations with our investors and the public, including: |
| ● | preparing our annual reports and any notices of meeting, papers, reports and agendas relating to meetings of our shareholders; and |
| ● | assisting in the resolution of any complaints by or disputes with our investors and any litigation involving us (other than litigation in which our interests are adverse to those of our Manager or BBAM); and |
| ● | using commercially reasonable efforts to cause us to comply with all applicable laws. |
Origination and Disposition Services. Our Manager also provides us with the following origination and disposition services:
| ● | sourcing opportunities relating to aircraft and other aviation assets, including using its commercially reasonable efforts to notify us of potential aviation asset investment opportunities that come to the attention of our Manager and which our Manager acting reasonably believes may be of interest to us as investments; |
| ● | in relation to identified potential opportunities to purchase or sell aircraft and other aviation assets, investigating, researching, evaluating, advising and making recommendations on or facilitating such opportunities; |
| ● | with respect to prospective purchases and sales of aircraft and other aviation assets, conducting negotiations with sellers and purchasers and their agents, representatives and financial advisors; and |
| ● | with respect to prospective purchases and sales of aircraft and other aviation assets, conducting negotiations with sellers and purchasers and their agents, representatives and financial advisors; and |
| ● | otherwise providing advice and assistance to us in relation to the evaluation or pursuit of aviation asset investment or disposition opportunities as we may reasonably request from time to time. |
We are under no obligation to invest in or to otherwise pursue any aviation asset investment or disposal opportunity identified to us by our Manager pursuant to the Management Agreement. Neither BBAM nor any of its affiliates or associates are restricted from pursuing, or offering to a third party, including any party managed by, or otherwise affiliated or associated with BBAM, or are required to establish any aviation asset investment protocol in relation to prioritization of, any aviation asset investment or disposal opportunity identified to us by our Manager pursuant to the Management Agreement.
Ancillary Management and Administrative Services. Our Manager also provides us with ancillary management and administrative services upon such terms as may be agreed from time to time between us and our Manager, which may require, among other things if requested by our board of directors:
| ● | the expansion of our Manager’s core management team with additional personnel as may be required by developments or changes in the commercial aircraft leasing industry (whether regulatory, economic or otherwise) or the compliance or reporting environment for publicly listed companies in the United States (whether as a result of changes to securities laws or regulations, listing requirements or accounting principles or otherwise); and |
| ● | making available individuals (other than members of our Manager’s core management team) as our nominees on the boards of directors of any of our subsidiaries. |
Servicing
For so long as our Manager’s appointment is not terminated, we agree to engage BBAM as the exclusive Servicer for any additional aircraft or other aviation assets that we acquire in the future on terms substantially similar to those set forth in the servicing agreement for B&B Air Funding or the servicing agreement between our other subsidiaries and BBAM or on such other terms as we and BBAM may agree.
Competitors. In the Management Agreement, we agree not to sell any of our subsidiaries receiving services from BBAM pursuant to a servicing agreement to a competitor of BBAM, or to any party that does not agree in a manner reasonably acceptable to BBAM to be bound by the provisions of the applicable servicing agreement. In addition, we agree not to permit competitively sensitive information to be provided to any competitor of BBAM even if such competitor is a shareholder, and to screen any of our officers, directors, agents, advisors or consultants that are involved in any other business activities that are competitive with BBAM or an affiliate from competitively sensitive information.
Compliance with Our Strategy, Policy and Directions
In performing the services, our Manager is required to comply with our written policies and directions provided to our Manager from time to time by our board of directors unless doing so would contravene any law or the express terms of the Management Agreement.
Notwithstanding the above, we may not make any decision, take any action or omit to take any action in relation to the acquisition, disposition or management of any aircraft or other aviation assets, unless:
| ● | that matter has been the subject of a recommendation by our Manager; or |
| ● | the failure to make that decision, take that action or omit to take that action would breach the fiduciary duties of our directors or any law. |
In addition, we may not direct our Manager (unless the direction is otherwise permitted under the Management Agreement) to make any decision, take any action or omit to take any action in relation to the acquisition, disposition or management of any aircraft or other aviation asset, and our Manager is not obliged to comply with any such direction if given by us, unless:
| ● | that matter has been the subject of a recommendation by our Manager; or |
| ● | the failure to make that decision, take that action or omit to take that action would breach the fiduciary duties of our directors or any law. |
Notwithstanding the foregoing, we may direct our Manager to review a proposed decision, action or omission to take an action in relation to the acquisition, disposition or management of any aircraft or other aviation asset and require that within a reasonable period of time our Manager either make or decline to make a recommendation with respect thereto.
The Manager shall also ensure that the members of the Compensation Committee of the Board of Directors of Fly are aware of the proposed salaries, bonuses, equity grants and other compensation arrangements for the chief executive officer, chief financial officer and, at the reasonable request of the Compensation Committee, other senior BBAM employees who devote substantial time to the Company (“Senior Executives”), and allow the Compensation Committee to participate in the discussion of such proposed arrangements for each Senior Executive, before such proposed arrangements are finalized by the Manager or its affiliates.
Appointment of Our Chief Executive Officer and Chief Financial Officer
Although our chief executive officer and chief financial officer are employees of our Manager (or an affiliate of our Manager), they serve us in such corporate capacities by appointment by our board of directors. The Management Agreement acknowledges that our board may terminate our chief executive officer or chief financial officer without our Manager’s consent. The Management Agreement provides that if there is a vacancy in such position for any reason, then our Manager will recommend a candidate to serve as replacement chief executive officer or chief financial officer. If our board of directors does not appoint the initial candidate proposed by our Manager to fill such vacancy, then our Manager will be required to recommend additional candidates until our board appoints a candidate recommended by our Manager for such vacancy.
Restrictions and Duties
Our Manager has agreed that it will use reasonable care and diligence and act honestly and in good faith at all times in the performance of the services under the Management Agreement. We refer to the foregoing standard as the “standard of care” required under the Management Agreement.
Under the Management Agreement, our Manager may not, without our board’s prior consent:
(1) | carry out any transaction with an affiliate of our Manager on our behalf, it being understood that BBAM has been appointed as the exclusive Servicer for our portfolio of aircraft, and that our Manager may delegate the provision of all or any part of the services under the Management Agreement to any person affiliated or associated with BBAM; |
(2) | carry out any aviation asset investment or disposition transaction, or sequence of related aviation asset investment or disposition transactions with the same person or group of persons under common control, for us if the aggregate purchase price to be paid or the gross proceeds to be received by us in connection therewith would exceed $200 million; |
(3) | carry out any aviation asset investment or disposition transaction if the sum of all the purchase prices to be paid or of all the gross proceeds to be received by us in connection with all such transactions during any quarter would exceed $500 million; |
(4) | appoint or retain any third-party service provider to assist our Manager in providing management and administrative services if: |
| ● | the amount to be paid by our Manager and reimbursed by us or paid by us to the third party with respect to any particular matter, or series of related matters, is reasonably likely to exceed $1 million; or |
| ● | as a result of the appointment or retention, the amount to be paid by our Manager and reimbursed by us or paid by us to all such third-party service providers appointed or retained in any rolling 12-month period is reasonably likely to exceed $5 million; |
(5) | appoint or retain any third-party service provider to assist our Manager in providing ancillary management and administrative or the origination and disposition services if: |
| ● | the amount to be paid by our Manager and reimbursed by us or paid by us to the third party with respect to any particular matter, or series of related matters, is reasonably likely to exceed $1 million; or |
| ● | as a result of the appointment or retention, the amount to be paid by our Manager and reimbursed by us or paid by us to all such third-party service providers appointed or retained in any rolling 12-month period is reasonably likely to exceed $7.5 million; or |
(6) | hold any cash or other assets of ours, provided that our Manager may cause our cash and other assets to be held in our name or any custodian for us nominated or approved by us. |
The thresholds discussed in clauses (4) and (5) above are reviewed regularly by us and our Manager and may be increased by our board of directors (but shall not be decreased) having regard to changes in the value of money, changes in our market capitalization and any other principles agreed between us and our Manager. The thresholds discussed in clauses (2) and (3) may be increased or decreased by our board of directors in its sole discretion at any time by notice to our Manager. Amounts relating to transactions and third-party service providers entered into, appointed or retained by BBAM on our behalf pursuant to our servicing agreements or administrative agency agreements are not included in determining whether the thresholds discussed under this heading have been met or exceeded. Acquisitions of series of aircraft from non-affiliated persons are deemed not to be related matters for purposes of this provision.
Relationship of Management Agreement and Servicing Agreements
To the extent that BBAM is entitled to exercise any authority, enter into any transaction or take any action on our behalf pursuant to any of our servicing agreements or administrative agency agreements, such servicing agreement or administrative agency agreement shall govern such exercise of authority, transaction or authority in the event of a conflict between the Management Agreement and such servicing agreement or administrative agency agreement.
Board Appointees
Pursuant to the Management Agreement and our bye-laws, for so long as our Manager holds any of our manager shares, our Manager has the right to appoint the whole number of directors on our board of directors that is nearest to but not more than 3/7ths of the number of directors on our board of directors. Our Manager’s appointees on our board of directors are not required to stand for election by our shareholders other than by our Manager.
Our Manager’s board appointees do not receive any cash compensation from us (other than out-of-pocket expenses) and do not have any special voting rights. The appointees of our Manager shall not participate in discussions regarding, or vote on, any related-party transaction in which any affiliate of our Manager has an interest. Our independent directors are responsible for approving any such related-party transactions.
Fees and Expenses
Pursuant to the Management Agreement, we pay our Manager the fees and pay or reimburse our Manager for the expenses described below.
Management and Administrative Services
Base and Rent Fees. With respect to aircraft financed by the Securitization Notes, until December 31, 2016, BBAM wasis entitled to receive (i) a base fee of $150,000 per month, subject to certain adjustments, and (ii) a rent fee equal to 1.0% of the aggregate amount of rents due and 1.0% of the aggregate amount of rents actually collected.
Effective January 1, 2017, the servicing agreement between B&B Air Funding and BBAM relating to aircraft financed by the Securitization Notes was amended, thereby (i) amending the rent fee to 3.5% of the aggregate amount of rents actually collected, plus $1,000 per aircraft per month and (ii) eliminating the basea sales fee of $150,000 per month, and1.5% of the management agreement was amended to accommodate these changes.aggregate gross proceeds in respect of any aircraft sold.
OriginationAcquisition and Disposition Fees and Change of Control Fees. We generally pay our Manager a fee for each acquisition or sale of aircraft or other aviation assets equal to 1.5% of the gross acquisition cost in respect of acquisitions or the aggregate gross proceeds in respect of dispositions. From time to time, we and our Manager have agreed to modify originationacquisition and disposition proceeds in connection with the purchase or sale of aircraft portfolios.
We alsowill be required to pay our Manager a fee ofequal to 1.5% of the aggregate gross consideration received in respect of anyour enterprise value upon a change of control of our company, which includes the acquisition of more than 50% of our common shares or the acquisition of all or substantially all of our assets.
In 2020, we paid our Manager acquisition fees of $1.1 million in connection with the purchase of three aircraft. In 2019, we paid our Manager acquisition fees of $5.0 million in connection with the purchase of 11 aircraft. In 2018, we paid our Manager originationacquisition fees of $16.1 million in connection with the purchase of 34 aircraft and seven engines. In 2017, we paid our Manager origination fees of $6.8 million in connection with the purchase of ten aircraft. In 2016, we paid our Manager origination fees of $8.4 million in connection with the purchase of ten aircraft.
Administrative Agency Fees. We pay to our Manager an administrative agency fee equal to $750,000 per annum for each aircraft securitization financing (the amount of the administrative agency fee for each aircraft securitization financing we establish will be subject to adjustment as set forth below under “— Fees and Expenses — Adjusting the Base Fees and Administrative Agency Fees”).
Effective January 1, 2017, theThe administrative agency fee payable with respect to the B&B Air Funding Securitization Notes was reduced, through a rebate, to $20,000 per month, subject to an annual CPI adjustment.adjustment, prior to the redemption of the Securitization Notes in March 2019.
In each of2019 and 2018, and 2017, we paid the Manager administrative agency fees totaling $0.1 million and $0.2 million, respectively, which amounts were credited toward servicing fees paid pursuant to the servicing agreement between B&B Air Funding and BBAM. In 2016, we paid the Manager administrative agency fees totaling $0.9 million.
Adjusting the Base Fees and Administrative Agency Fees. The amount of the base fee payable and the amount of the administrative agency fee payable for each aircraft securitization financing we establish will be increased (but not decreased) annually by the percentage movement (if any) in the CPI index applicable for the previous calendar year.
Ancillary Management and Administrative Services
We may pay to our Manager such additional fees for any ancillary management and administrative services provided by our Manager to us from time to time as we and our Manager agree to before the ancillary management and administrative services are provided. We did not pay any ancillary management and administrative services fee to our Manager in 2018, 20172020, 2019 or 2016.2018.
Credit for Servicing Fees Paid
Base fees and rent fees paid to BBAM under our servicing agreements and administrative services fees paid to our Manager under the administrative services agreements are credited toward (and thereby reduce) the base and rent fees payable to our Manager as described above under “— Fees and Expenses — Management and Administrative Services — Base and Rent Fees” and “— Fees and Expenses — Management and administrative Services — Administrative Agency Fees.” Similarly, sales fees paid to BBAM under our servicing agreements in respect of aircraft dispositions are credited toward (and thereby reduce) the fee payable to our Manager in connection with dispositions as described above under “— Fees and Expenses — OriginationManagement and administrative Service — Acquisition and Disposition Services.Fees and Change of Control Fees.” See “Servicing Agreements — Servicing Fees.Agreements.”
Break Fees
Our Manager is entitled to one-third of the value of any break, termination or other similar fees received by us (with such value to be reduced by any third-party costs incurred by or on behalf of us or by our Manager on behalf of us in the transaction to which the fee relates) in connection with any investment or proposed investment to be made by us in any aircraft or other aviation assets. We did not pay any break fees to our Manager in 2018, 20172020, 2019 or 2016.2018.
Expenses of the Manager
We pay an annual management fee to the Manager as compensation for providing the services of the chief executive officer, the chief financial officer and other personnel, and for certain corporate overhead costs related to us. The management fee is adjusted each calendar year by (i) 0.3% of the change in the book value of our aircraft portfolio during the preceding year, up to a $2.0 billion increase over $2.7 billion and (ii) 0.25% of the change in the book value of our aircraft portfolio in excess of $2.0 billion, with a minimum annual management fee of $5.0 million. The management fee is subject to an annual adjustment tied to the Consumer Price Index applicable to the prior calendar year. For the yearyears ended December 31, 2020, 2019 and 2018, we incurred management fees of $7.8million, $9.6 million and $7.3 million. For eachmillion, respectively.
We pay or reimburse our Manager:
| ● | for all our costs paid for us by our Manager (other than remuneration and certain expenses in relation to our Manager’s core management team and our Manager’s corporate overhead), including the following items which are not covered by the management expense amount: |
| ● | directors’ fees for the independent directors on our board of directors and our subsidiaries, |
| ● | directors’ and officers’ insurance for our and our subsidiaries’ directors and officers, |
| ● | travel expenses of the directors (including flights, accommodation, taxis, entertainment and meals while traveling) to attend any meeting of the board of our Company, |
| ● | registration and listing fees in connection with the listing of our shares on the NYSE and registering the shares under the Securities Act, |
| ● | fees and expenses relating to any equity or debt financings we enter into in the future, |
| ● | fees and expenses of the depositary for our ADSs, |
| ● | costs and expenses related to insuring our aircraft and other aviation assets, including all fees and expenses of insurance advisors and brokers, |
| ● | costs incurred in connection with organizing and hosting our annual meetings or other general meetings of our Company, |
| ● | costs of production and distribution of any of our security holder communications, including notices of meetings, annual and other reports, press releases, and any prospectus, disclosure statement, offering memorandum or other form of offering document, |
| ● | website development and maintenance, |
| ● | travel expenses of the core management team and other personnel of BBAM and its affiliates (including flights, accommodation, taxis, entertainment and meals while traveling) related to sourcing, negotiating and conducting transactions on our behalf and attending any meeting of the board or our Company, |
| ● | fees of third party consultants, accounting firms and other professionals, |
| ● | external auditor’s fees, and |
| ● | internal auditor’s fees. |
| ● | for all taxes, costs, charges and expenses properly incurred by our Manager in connection with: |
| ● | the provision of ancillary management and administrative services, and |
| ● | the engagement of professional advisors, attorneys, appraisers, specialist consultants and other experts as requested by us from time to time; or which our Manager considers reasonably necessary in providing the services and discharging its duties and other functions under the Management Agreement, including, without limitation, the fees and expenses of professional advisors relating to the purchase and sale of aircraft and other aviation assets. |
Term and Termination
The term of the Management Agreement expires on July 1, 2025, and shall be automatically extended for one additional term of five years unless terminated by either party upon 12 months’ notice or terminated earlier as set forth below.
If the Management Agreement is not renewed after July 1, 2025, we will pay the Manager a non-renewal fee on the termination date in an amount equal to (i) $6.0 million plus (ii) so long as the Management Expense Amount does not exceed $12.0 million, 50% of the excess (if any) of the Management Expense Amount over $6.0 million.
We may terminate our Manager’s appointment immediately upon written notice if but only if:
| ● | BBAM LP ceases to hold (directly or indirectly) more than 50% of the voting equity of, and economic interest in our Manager;
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| ● | our Manager becomes subject to bankruptcy or insolvency proceedings that are not discharged within 75 days, unless our Manager is withdrawn and replaced within 90 days of the initiation of such bankruptcy or insolvency proceedings with an affiliate or associate of BBAM that is able to make correctly the representations and warranties set out in the Management Agreement;
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| ● | at least 75% of our independent directors and holders of 75% or more of all of our outstanding common shares (measured by vote) determine by resolution that there has been unsatisfactory performance by our Manager that is materially detrimental to us; |
| ● | our Manager materially breaches the Management Agreement and fails to remedy such breach within 90 days of receiving written notice from us requiring it to do so, or such breach results in liability to us and is attributable to our Manager’s gross negligence, fraud or dishonesty, or willful misconduct in respect of the obligation to apply the standard of care; |
| ● | any license, permit or authorization held by our Manager which is necessary for it to perform the services and duties under the Management Agreement is materially breached, suspended or revoked, or otherwise made subject to conditions which, in the reasonable opinion of our board of directors, would prevent our Manager from performing the services and the situation is not remedied within 90 days; |
| ● | BBAM Aviation Services Limited or one of its affiliates ceases to hold (directly or indirectly) more than 50% of the voting equity of, and economic interest in, our Manager; |
| ● | our Manager becomes subject to bankruptcy or insolvency proceedings that are not discharged within 75 days, unless our Manager is withdrawn and replaced within 90 days of the initiation of such bankruptcy or insolvency proceedings with an affiliate of BBAM that is able to make correctly the representations and warranties set out in the Management Agreement; |
| ● | our Manager voluntarily commences any proceeding or files any petition seeking bankruptcy, insolvency, receivership or receivership relief; consents to the institution of, or fails to contest the filing of any bankruptcy or insolvency filing; files an answer admitting the material allegations filed against it in any such proceeding;similar law, or makes a general assignment for the benefit of its creditors, unless our Manager is withdrawn and replaced within 15 days with an affiliate or associate of BBAM that is able to make correctly the representations and warranties set out in the Management Agreement;Agreement; or |
| ● | an order is made for the winding up of our Manager, unless our Manager is withdrawn and replaced within 15 days with an affiliate or associate of BBAM that is able to make correctly the representations and warranties set out in the Management Agreement.Agreement. |
Our Manager may terminate the Management Agreement immediately upon written notice if:
| ● | we fail to make any payment due under the Management Agreement to our Manager within 15 days after the same becomes due; |
| ● | we otherwise materially breach the Management Agreement and fail to remedy the breach within 90 days of receiving written notice from our Manager requiring us to do so; or |
| ● | if the directors in office on December 28, 2012 and any successor to any such director who was nominated or selected by a majority of the current directors and our Manager appointed directors, cease to constitute at least a majority of the board (excluding directors appointed by our Manager). (See “Board Appointees”.) |
If our Manager terminates the Management Agreement upon the occurrence of any of the above, we will pay our Manager a fee as followsfollows: (i) during the first five year term, an amount equal to three times the aggregate Management Expense Amount in respect of the last complete fiscal year prior to the termination date; (ii) during the second five year term, an amount an amount equal to two times the aggregate Management Expense Amount in respect of the last complete fiscal year prior to the termination date; and (iii) during the third five year term, an amount an amount equal to the aggregate Management Expense Amount in respect of the last complete fiscal year prior to the termination date.
Upon the termination of the Management Agreement, we will redeem all of the manager shares for their nominal value.
Conflicts of Interest
Nothing in the Management Agreement restricts BBAM or any of its affiliateaffiliates or associates from:
| ● | dealing or conducting business with us, our Manager, any affiliate or associate of BBAM or any shareholder of ours; |
| ● | being interested in any contract or transaction with us, our Manager, any affiliate or associate of BBAM or any shareholder of ours; |
| ● | acting in the same or similar capacity in relation to any other corporation or enterprise; |
| ● | holding or dealing in any of our shares or other securities or interests therein; or |
Acting in Interests of Shareholders
Without limiting the clause set out above, in performing the services under the Management Agreement, our Manager shall act in the best interests of our shareholders. If there is a conflict between our shareholders’ interests and our Manager’s interests, our Manager shall give priority to our shareholders’ interests.
Indemnification and Limitation of Liability
We assume liability for, and have agreed to indemnify our Manager and any person to whom our Manager delegates its obligations in compliance with the Management Agreement, and their respective members, shareholders, managers, directors, officers, employees and agents, on an after-tax basis against, any losses and liabilities (collectively, “Losses”) that arise out of or in connection with the doing or failing to do anything in connection with the Management Agreement or on account of any bona fide investment decision made by the indemnified person, except insofar as any such loss is finally adjudicated to have been caused directly by the indemnified person from gross negligence, fraud or dishonesty, or willful misconduct in respect of the obligation to apply the standard of care under the Management Agreement. Our Manager and each other indemnified person is not liable to us for any Losses suffered or incurred by us arising out of or in connection with the indemnified person doing or failing to do anything in connection with the Management Agreement or on account of any bona fide investment decision made by the indemnified person, except insofar as any such Loss is finally adjudicated to have been caused directly by the gross negligence, fraud or dishonesty of, or willful misconduct in respect of the obligation to apply the standard of care under the Management Agreement by the indemnified person.
Independent Advice
For the avoidance of doubt, nothing in the Management Agreement limits the right of the members of our board of directors to seek independent professional advice (including, but not limited to, legal, accounting and financial advice) at our expense on any matter connected with the discharge of their responsibilities, in accordance with the procedures and subject to the conditions set out in our corporate governance principles from time to time.
SERVICING AGREEMENTS
Our subsidiaries have entered into servicing agreements with BBAM relating to the aircraft and engines owned by them. The principal services provided by BBAM pursuant to these servicing agreements relate to:
| ● | lease marketing and remarketing, including lease negotiation; |
| ● | collecting rental payments and other amounts due under leases, collecting maintenance payments where applicable, lease compliance and enforcement and delivery and accepting redelivery of aircraft and engines under lease; |
| ● | implementing aircraft and engine dispositions; |
| ● | monitoring the performance of maintenance obligations of lessees under the leases; |
| ● | procuring legal and other professional services with respect to the lease, sale or financing of the aircraft or engines, any amendment or modification of any lease, the enforcement of our rights under any lease, disputes that arise as to any aircraft or engines or for any other purpose that BBAM reasonably determines is necessary in connection with the performance of its services; |
| ● | periodic reporting of operational information relating to the aircraft and engines, including providing certain reports to lenders and other third parties; and |
| ● | certain aviation insurance related services. |
B&B Air Funding – Servicing Agreement
Pursuant to the servicing agreement between B&B Air Funding and BBAM, BBAM is entitled to receive servicing fees. With respect toagreements that governed the aircraft financed by the Securitization Notes until December 31, 2016,and the Fly Acquisition III Facility, BBAM was entitled to receive (i) a base fee of $150,000 per month, subject to certain adjustments, (ii) a rent fee equal to 1.0% of the aggregate amount of rents due and 1.0% of the aggregate amount of rents actually collected and (iii) a sales fee of 1.5% of the aggregate gross proceeds in respect of any aircraft sold.
Effective January 1, 2017, the servicing agreement between B&B Air Funding and BBAM relating to aircraft financed by the Securitization Notes was amended, thereby (i) amending the rent fee to 3.5% of the aggregate amount of rents actually collected, plus $1,000 per aircraft per month and (ii) eliminating the basea sales fee of $150,000 per month.
B&B Air Funding has entered into1.5% of the aggregate gross proceeds in respect of any aircraft sold. BBAM was also entitled to (i) an administrative services agreement with our Manager to act as its administrative agent and to perform various administrative services, including maintaining its books and records, procuring and supervising legal counsel, accounting, tax and other advisers. In consideration for such services, until December 31, 2016, B&B Air Funding paid the administrative agent an annual fee of $750,000. Effective January 1, 2017, the administrative agency fee has been reduced, through a rebate, toof $20,000 per month. In each case, the administrative fee ismonth, subject to an annual CPI adjustment, and B&B Air Funding is obligated to reimburse its Manager for its expenses.
For the years ended December 31, 2018, 2017 and 2016, BBAM received rent and servicing fees pursuant to the B&B Air Funding servicing agreement totaling $0.8 million, $0.9 million and $2.4 million, respectively. In addition, for the year ended December 31, 2016, BBAM received $0.2 million for the annual CPI adjustment made to such fees pursuant to the management agreement. BBAM also received administrative fees totaling $0.2 million during each of the years ended December 31, 2018 and 2017. BBAM received administrative fees totaling $0.9 million during the year ended December 31, 2016.
For each of the years ended December 31, 2018 and 2017, B&B Air Funding incurred no disposition fees. For the year ended December 31, 2016, B&B Air Funding incurred disposition fees of $2.0 million in connection with the saleSecuritization Notes and (ii) an administrative fee of nine aircraft.
The agreement may be terminated in the case of certain events, including:
| ● | Bankruptcy or insolvency of BBAM LP;
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| ● | BBAM LP ceasing to own, directly or indirectly, at least 50% of the Servicer;
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| ● | Summit ceasing to own, directly or indirectly, at least 33.33% of the partnership interests in BBAM LP; provided that a sale that results in such ownership being at a level below 33.33% shall not constitute a servicer termination event if the sale is to a publicly listed entity or other person with a net worth of at least $100 million; and |
| ● | during any one year period commencing each April 29, 50% or more of the Servicer’s key finance and legal team or technical and marketing team ceasing to be employed by BBAM LP and are not replaced with employees with reasonably comparable experience within 90 days.
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If any of the above servicer termination events occur, B&B Air Funding, with the prior consent of its policy provider (or the policy provider alone, if an event of default$10,000 per month under the indenture governingFly Acquisition III Facility.With the redemption of the Securitization Notes has occurredin March 2019 and is continuing) andthe repayment of the Fly Acquisition III Facility in October 2019, the servicing agreements with notice to each credit rating agency, may substitute BBAM with a replacement servicer. A servicer termination event under the Servicing Agreement does not give rise to an event of default under the indenture governing the Securitization Notes.were terminated.
All Other Aircraft and Aviation Assets Acquired – Servicing Agreements
With respect to all other aircraft, BBAM is entitled to receive a servicing fee equal to 3.5% of the aggregate amount of rents actually collected, plus an administrative fee of $1,000 per monthaircraft per aircraft.month. Under the 2012 Term Loan, the 2020 Term Loan, the Magellan Acquisition Limited Facility, the Fly Acquisition III Facility and the Fly Aladdin Acquisition Facility, BBAM is also entitled to an administrative fee of $10,000 per month. Under the Fly Aladdin Engine Funding Facility, BBAM is entitled to receive a servicing fee equal to 3.5% of monthly rents actually collected and an administrative fee equal to $1,000 per month. In addition,month.
For the years ended December 31, 2020, 2019 and 2018, BBAM is entitled to receive a sales fee of 1.5% of the gross consideration collected for any aircraft or engine sold.received servicing and administrative fees totaling $11.5 million, $15.4 millionand $15.8 million, respectively.
For the years ended December 31, 2018, 20172020, 2019 and 2016, BBAM received servicing and administrative fees totaling $14.7 million, $12.0 million and $11.3 million, respectively.
For the years ended December 31, 2018, 2017 and 2016, we incurred disposition fees of $3.1$3.4 million, $0.3$15.4 million and $5.5$3.1 million, respectively, in connection with the salesales of aircraft.
These servicing agreements can generally be terminated by us in the case of a material breach by the servicer that is not cured within 30 days of written notice, the bankruptcy or insolvency of the servicer or if the servicer ceases to be actively involved in the aircraft leasing business. Some servicing agreements require the consent of the lender providing financing for the relevant aircraft prior to termination. It is our intention to enter into substantially similar servicing agreements with respect to all future aircraft and aviation assets that we acquire.
ITEM 8. | FINANCIAL INFORMATION |
Consolidated statements and other financial information
See Item 18 below for information regarding our consolidated financial statements and additional information required to be disclosed under this Item. No significant changes have occurred since the date of the annual financial statements included in this Annual Report.Report.
Legal Proceedings
We are not currently a party to any litigation or other legal proceeding that may have a material adverse impact on our business or operations. However, we are and may continue to be subject to various claims and legal actions arising in the ordinary course of business.
Dividends
No dividends were paid in 2018, 20172020, 2019 or 2016.2018.
The declaration and payment of future dividends to holders of our common shares will be at the discretion of our board of directors and will depend on many factors, including our financial condition, cash flows, legal requirements and other factors as our board of directors deems relevant.relevant.
In addition, as a Bermuda company, our ability to pay dividends is subject to certain restrictions imposed by Bermuda law.law.
ITEM 9. | THE OFFER AND LISTING |
Our ADSs, each representing one common share, are traded on the New York Stock Exchange under the symbol “FLY.”
ITEM 10. | ADDITIONAL INFORMATION |
Share Capital
Not applicable.
Memorandum and Articles of Association
Pursuant to the instructions to Form 20-F, the information called for by this section of Item 10 is contained in our Registration Statement on Form F-1, as filed with the SEC on September 12, 2007, as subsequently amended, under the heading “Description of Share Capital,” and is hereby incorporated by reference.reference.
Material Contracts
The following is a list of material contracts, other than contracts entered into in the ordinary course of business, to which we or any of our subsidiaries is a party, preceding the date of this Annual Report:
1) | Deposit Agreement between Deutsche Bank Trust Company Americas and Babcock & Brown Air Limited. See Item 5 “Liquidity and Capital Resources—Financing— Term Loan.” |
2) | Servicing Agreement, dated as of October 2, 2007, among Babcock & Brown Aircraft Management LLC, Babcock & Brown Aircraft Management (Europe) Limited, Babcock & Brown Air Funding I Limited and AMBAC Assurance Corporation. See Item 7 “Related Party Transactions — Servicing Agreement.” |
3) | Administrative Services Agreement, dated as of October 2, 2007, among Deutsche Bank Trust Company Americas, AMBAC Assurance Corporation, Babcock & Brown Air Management Co. Limited and Babcock & Brown Air Funding I Limited. See Item 7 “Related Party Transactions — Servicing Agreement.” |
4) | Trust Indenture, dated as of October 2, 2007, among Deutsche Bank Trust Company Americas, BNP Paribas, AMBAC Assurance Corporation and Babcock & Brown Air Funding I Limited. See Item 5 “Liquidity and Capital Resources — Financing — Securitization.” |
5) | Security Trust Agreement, dated as of October 2, 2007, between Deutsche Bank Trust Company Americas, and Babcock & Brown Air Funding I Limited. See Item 5 “Liquidity and Capital Resources—Financing— Securitization Notes.” |
6) | Cash Management Agreement between Deutsche Bank Trust Company Americas and Babcock & Brown Air Funding I Limited. See Item 5 “Liquidity and Capital Resources—Financing— Securitization Notes.” |
7) | Form of Director Service Agreement between Babcock & Brown Air Limited and each director thereof. See Item 6. “Directors, Senior Management and Employees.” |
8) | Amendment No. 1 to Servicing Agreement, dated as of April 29, 2010, among Babcock & Brown Aircraft Management LLC, Babcock & Brown Aircraft Management (Europe) Limited, Babcock & Brown Air Funding I Limited and AMBAC Assurance Corporation. See Item 7 “Related Party Transactions — Servicing Agreement.” |
9)3) | Fly Leasing Limited Omnibus Incentive Plan. |
10)4) | Form of Stock Appreciation Right Award Agreement. |
11)5) | Form of Restricted Stock Unit Award Agreement. |
12) | Form of Loan Agreement among Hobart Aviation Holdings Limited, Norddeutsche Landesbank Girozentrale and each borrower thereof. See Item 5 “Liquidity and Capital Resources – Financing – Nord LB Facility.” |
13) | Form of Servicing Agreement among BBAM US LP, BBAM Aviation Services Limited and each company thereof. See Item 7 “Related Party Transactions — Servicing Agreement.” |
14) | Securities Purchase Agreement dated November 30, 2012, by and among Fly Leasing Limited, Summit Aviation Partners LLC and such persons identified therein. See Item 7, “Major Shareholders and Related Party Transactions.” |
15) | Purchase Agreement dated November 30, 2012 by and among BBAM Limited Partnership, Summit Aviation Partners LLC, Fly-BBAM Holdings Ltd., Summit Aviation Management Co., Ltd. and such persons identified therein. See Item 7, “Major Shareholders and Related Party Transactions.” |
16) | First Amendment to Purchase Agreement dated December 28, 2012 by and among Fly Leasing Limited, Summit Aviation Partners LLC and such persons identified therein. See Item 7, “Major Shareholders and Related Party Transactions.”
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17)6) | Amended and Restated Fly Leasing Limited Management Agreement dated as of December 28, 2012, between Fly Leasing Limited and Fly Leasing Management Co. Limited. See Item 7 “Related Party Transactions — Management Agreement.” |
18)7) | Registration Rights Agreement dated as of December 28, 2012, by and among Fly Leasing Limited and each shareholder identified therein. See Item 7, “Major Shareholders and Related Party Transactions.” |
19) | Amended and Restated Servicing Agreement dated as of January 24, 2013, by andOctober 15, 2020 among BBAM US LP, BBAM Aviation Services Limited and Fly Leasing Limited. See Item 7 “Related Party Transactions — Servicing Agreement.” |
20)8) | Amended and Restated Term Loan Credit Agreement, dated as of November 21, 2013, among Fly Funding II S.à r.l., Fly Leasing Limited, Fly Peridot Holdings Limited, Babcock & Brown Air Acquisition I Limited, each other Guarantor Party referred to therein, the Lenders identified therein, Citibank, N.A., and Wells Fargo Bank Northwest, National Association. See Item 5 “Liquidity and Capital Resources – Financing – Term Loan.” |
21)9) | Indenture dated December 11, 2013, between Fly Leasing Limited and Wells Fargo Bank, National Association. See Item 5 “Liquidity and Capital Resources—Financing—Unsecured Borrowing.” |
22)10) | First Supplemental Indenture, dated December 11, 2013, between Fly Leasing Limited and Wells Fargo Bank, National Association. See Item 5 “Liquidity and Capital Resources—Financing—Unsecured Borrowing.” |
23)11) | Form of Loan Agreement among Hobart Aviation Holdings Limited, Norddeutsche Landesbank Girozentrale and each borrower thereof. See Item 5 “Liquidity and Capital Resources – Financing – Nord LB Facility.” |
12) | Second Supplemental Indenture, dated as of October 3, 2014, between Fly Leasing Limited and Wells Fargo Bank, National Association. See Item 5 “Liquidity and Capital Resources—Financing—Unsecured Borrowing.” |
24) | Amendment No. 1 to Trust Indenture, dated as of October 24, 2014, by and among Babcock & Brown Air Funding I Limited, Deutsche Bank Trust Company Americas, BNP Paribas and AMBAC Assurance Corporation. See Item 5 “Liquidity and Capital Resources—Financing— Securitization Notes.” |
25) | Amendment No. 2 to Servicing Agreement, dated as of October 24, 2014, by and among BBAM Aircraft Management LP, BBAM Aircraft Management (Europe) Limited, Babcock & Brown Air Funding I Limited and AMBAC Assurance Corporation. See Item 7 “Related Party Transactions — Servicing Agreement.” |
26)13) | Amendment to Credit Agreement, dated as of April 22, 2015, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Bank Northwest, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent. See Item 5 “Liquidity and Capital Resources—Financing— 2012 Term Loan.” |
27)14) | First Amendment to Amended and Restated Fly Leasing Limited Management Agreement, dated June 19, 2015, between Fly Leasing Limited and Fly Leasing Management Co. Limited. See Item 7 “Related Party Transactions — Management Agreement.” |
28) | Servicing Agreement dated as of February 26, 2016, among BBAM US LP, BBAM Aviation Services Limited and Fly Acquisition III Limited. See Item 7 “Related Party Transactions — Servicing Agreement.” |
29) | Facility Agreement [Fly 2016A Warehouse] dated as of February 26, 2016 among Fly Acquisition III Limited, the Subsidiary Guarantors party thereto, the Lenders party thereto, Commonwealth Bank of Australia, New York Branch, as Administrative Agent and Wells Fargo Bank, National Association, as Security Trustee. See Item 5 “Liquidity and Capital Resources—Financing—Fly Acquisition III.” |
30) | Note Purchase Agreement [Fly 2016A Warehouse] dated as of February 26, 2016 among Fly Acquisition III Limited, the Purchasers party thereto, Commonwealth Bank of Australia, New York Branch, as Administrative Agent and Wells Fargo Bank, National Association, as Security Trustee. See Item 5 “Liquidity and Capital Resources—Financing—Fly Acquisition III.” |
31) | Credit Agreement [Fly 2016A Warehouse] dated as of February 26, 2016 among Fly Acquisition III Limited, the Banks party thereto, Commonwealth Bank of Australia, New York Branch, as Administrative Agent and Wells Fargo Bank, National Association, as Security Trustee. See Item 5 “Liquidity and Capital Resources—Financing—Fly Acquisition III.” |
32) | Guaranty [Fly 2016A Warehouse] dated February 26, 2016 by Fly Leasing Limited. See Item 5 “Liquidity and Capital Resources—Financing—Fly Acquisition III.” |
33) | Security Agreement [Fly 2016A Warehouse] dated February 26, 2016 among Fly Acquisition III Limited, the Grantors party thereto, and Well Fargo Bank, National Association as Security Trustee. See Item 5 “Liquidity and Capital Resources—Financing—Fly Acquisition III. |
34)15) | Aircraft Mortgage and Security Agreement dated as of August 9, 2012, among Fly Funding II S.a.r.l..S.a.r.l., Fly Leasing Limited, Fly Peridot Holdings Limited, Babcock & Brown Air Acquisition I Limited, The Initial Intermediate Lessees, The Initial Lessor Subsidiaries, The Additional Grantors Referred to Therein and Wells Fargo Bank Northwest, National Association. See Item 5 “Liquidity and Capital Resources—Financing— 2012 Term Loan.” |
35)16) | Second Amendment to Credit Agreement, dated as of October 19, 2016, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Bank Northwest, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent. See Item 5 “Liquidity and Capital Resources—Financing— 2012 Term Loan.” |
36)17) | Second Amendment to Amended and Restated Fly Leasing Limited Management Agreement, dated July 27, 2016, between Fly Leasing Limited and Fly Leasing Management Co. Limited. See Item 7 “Related Party Transactions — Management Agreement.” |
37) | Amendment No. 3 to Servicing Agreement, dated as of February 1, 2017, by and among BBAM Aircraft Management LP, BBAM Aircraft Management (Europe) Limited, Babcock & Brown Air Funding I Limited and AMBAC Assurance Corporation. See Item 7 “Related Party Transactions — Servicing Agreement.” |
38)18) | Third Amendment to Amended and Restated Fly Leasing Limited Management Agreement, dated as of February 1, 2017, between Fly Leasing Limited and Fly Leasing Management Co. Limited. See Item 7 “Related Party Transactions — Management Agreement.” |
39) | Fee Rebate Side Letter, dated as of February 1, 2017, by and among Babcock & Brown Air Funding I Limited, Fly Leasing Management Co. Limited, and AMBAC Assurance Corporation. See Item 7 “Related Party Transactions — Management Agreement.” |
40)19) | Third Supplemental Indenture dated as of October 16, 2017, between Fly Leasing Limited and Wells Fargo Bank, National Association. See Item 5 “Liquidity and Capital Resources—Financing—Unsecured Borrowing.” |
41)20) | Servicing Agreement dated as of December 8, 2017, among BBAM US LP, BBAM Aviation Services Limited and Magellan Acquisition Limited. See Item 7 “Related Party Transactions — Management Agreement.” |
42)21) | Third Amendment to Credit Agreement, dated as of April 28, 2017, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Bank Northwest, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent. See Item 5 “Liquidity and Capital Resources—Financing—2012 Term Loan.” |
43)22) | Fourth Amendment to Credit Agreement, dated as of November 1, 2017, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Bank Northwest, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent. See Item 5 “Liquidity and Capital Resources—Financing—2012 Term Loan.” |
44)23) | Facility Agreement [FLY 2017A Term Loan], dated as of December 8, 2017 among Magellan Acquisition Limited, the Subsidiary Guarantors party thereto, the Lenders party thereto, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Administrative Agent and Wells Fargo Bank, National Association, as Security Trustee. See Item 5 “Liquidity and Capital Resources—Financing—Magellan Acquisition Limited.” |
45)24) | Note Purchase Agreement [FLY 2017A Term Loan], dated as of December 8, 2017 among Magellan Acquisition Limited, the Purchasers party thereto, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Administrative Agent and Wells Fargo Bank, National Association, as Security Trustee. See Item 5 “Liquidity and Capital Resources—Financing—Magellan Acquisition Limited.” |
46)25) | Credit Agreement [FLY 2017A Term Loan], dated as of December 8, 2017 among Magellan Acquisition Limited, the Banks party thereto, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Administrative Agent and Wells Fargo Bank, National Association, as Security Trustee. See Item 5 “Liquidity and Capital Resources—Financing—Magellan Acquisition Limited.” |
47)26) | Security Agreement [FLY 2017A Term Loan], dated as of December 8, 2017 among Magellan Acquisition Limited, the Grantors party thereto, and Wells Fargo Bank, National Association, as Security Trustee. See Item 5 “Liquidity and Capital Resources—Financing—Magellan Acquisition Limited.” |
48)27) | Guaranty [Fly 2017A Term Loan] dated December 8, 2017 by Fly Leasing Limited. See Item 5 “Liquidity and Capital Resources—Financing—FlyMagellan Acquisition III.Limited.” |
49)28) | Share Purchase Agreement, dated February 28, 2018, between Asia Aviation Capital Limited, Fly Aladdin Holdings Limited, Fly Leasing Limited and AirAsia Berhad. See Item 5, “Operating and Financial Review and Prospects—AirAsia Transactions.” |
50)29) | Aircraft Sale and Purchase Agreement, dated February 28, 2018, between Asia Aviation Capital Limited, Fly Aladdin Holdings Limited and AirAsia Berhad. See Item 5, “Operating and Financial Review and Prospects—AirAsia Transactions.” |
51)30) | Aircraft Sale and Purchase Option Agreement, dated April 26, 2018, but having effect between the parties as of February 28, 2018, between Asia Aviation Capital Limited, Fly Aladdin Holdings Limited and AirAsia Berhad. See Item 5, “Operating and Financial Review and Prospects—AirAsia Transactions.” |
52) | Amended and Restated Commitment Letter, dated May 1, 2018, between BNP Paribas, Citibank, N.A., Commonwealth Bank of Australia, Singapore Branch, Deutsche Bank AG, Singapore Branch and Fly Leasing Limited. See Item 5, “Operating and Financial Review and Prospects—AirAsia Transactions.” |
53) | Equity Commitment Letter, dated February 28, 2018, between Meridian Aviation Partners Limited and Fly Leasing Limited. See Item 7, “Major Shareholders and Related Party Transactions.” |
54) | Equity Commitment Letter, dated February 28, 2018, between Summit Aviation Holdings LLC and Fly Leasing Limited. See Item 7, “Major Shareholders and Related Party Transactions.” |
55)31) | Amended and Restated Purchase Commitment Letter (Portfolio C Aircraft and Portfolio D Aircraft), dated May 3, 2018, but having effect between the parties as of February 28, 2018, between Fly Leasing Limited and Nomura Babcock & Brown Co., Ltd. See Item 5, “Operating and Financial Review and Prospects—AirAsia Transactions.” |
56)32) | Amended and Restated Delivery Side Letter (Portfolio C and Portfolio D), dated May 3, 2018, but having effect between the parties as of February 28, 2018, between Fly Leasing Limited and Incline B Aviation Limited Partnership. See Item 5, “Operating and Financial Review and Prospects—AirAsia Transactions.” |
57)33) | Securities Purchase Agreement, dated July 11, 2018, between Fly Leasing Limited and Meridian Aviation Partners Limited. See Item 7, “Major Shareholders and Related Party Transactions.” |
58)34) | Securities Purchase Agreement, dated July 11, 2018, between Fly Leasing Limited and Summit Aviation Holdings LLC. See Item 7, “Major Shareholders and Related Party Transactions.” |
59)35) | Registration Rights Agreement, dated July 18,13, 2018, among Fly Leasing Limited and shareholders named therein. See Item 7, “Major Shareholders and Related Party Transactions.” |
60)36) | Subscription Agreement, dated July 18, 2018, among Fly Leasing Limited, AirAsia Group Berhad and AirAsia Berhad. See Item 7, “Major Shareholders and Related Party Transactions.” |
61)37) | Registration Rights Agreement, dated July 18, 2018, between Fly Leasing Limited and AirAsia Group Berhad. See Item 7, “Major Shareholders and Related Party Transactions.” |
62)38) | Fly SPA Amendment Agreement (No. 1) dated July 11, 2018, among Fly Aladdin Holdings Limited, Fly Leasing Limited, Asia Aviation Capital Limited and AirAsia Group Berhad. See Item 5, “Operating and Financial Review and Prospects—AirAsia Transactions.” |
63)39) | Fly SPA Amendment Agreement (No. 2) dated July 18, 2018, among Fly Aladdin Holdings Limited, Fly Leasing Limited, Asia Aviation Capital Limited and AirAsia Group Berhad. See Item 5, “Operating and Financial Review and Prospects—AirAsia Transactions.” |
64)40) | Servicing Agreement dated June 15, 2018, among BBAM Aviation Services Limited, BBAM US LP, Fly Aladdin Funding Limited, Fly Aladdin MaltaCo Limited and each Borrower Group Company that becomes a party thereto. See Item 7 “Related Party Transactions —Servicing Agreement.” |
65)41) | Senior Secured Credit Agreement dated June 15, 2018, among Fly Aladdin Funding Limited, as Borrower, Fly Aladdin MaltaCo Limited, as Fly Malta, the lenders party thereto, Wilmington Trust (London) Limited, as Security Trustee and BNP Paribas, as Administrative Agent. See Item 5 “Liquidity and Capital Resources – Financing – Fly Aladdin Acquisition Facility.” See Item 5 “Liquidity and Capital Resources—Financing—Fly Aladdin Engine Funding Facility.” |
66)42) | Borrower Parent Security Agreement dated June 15, 2018, between Fly Aladdin Holdings Limited, as Grantor and Wilmington Trust (London) Limited, as Security Trustee. See Item 5 “Liquidity and Capital Resources – Financing – Fly Aladdin Acquisition Facility.” |
67)43) | Co-Borrower Security Agreement dated June 15, 2018, between Fly Aladdin Funding Limited, as Borrower, Fly Aladdin MaltaCo Limited, as Fly Malta and Wilmington Trust (London) Limited, as Security Trustee. See Item 5 “Liquidity and Capital Resources—Financing—Fly Aladdin Acquisition Facility.” |
68)44) | Deed of Limited Guaranty dated June 15, 2018, by Fly Leasing Limited. See Item 5 “Liquidity and Capital Resources—Financing—Fly Aladdin Engine Funding Facility.” |
69)45) | AmendmentAmendment to Senior Secured Credit Agreement dated July 19, 2018, among Fly Aladdin Funding Limited, as Borrower, Fly Aladdin MaltaCo Limited, as Fly Malta, the lenders, Wilmington Trust (London) Limited, as Security Trustee and BNP Paribas, as Administrative Agent. See Item 5 “Liquidity and Capital Resources – Financing – Fly Aladdin Acquisition Facility.” See Item 5 “Liquidity and Capital Resources—Financing—Fly Aladdin Acquisition Facility.” |
70) | Omnibus Agreement No. 1 [Fly 2016A Warehouse] dated as of December 15, 2017 among Fly Acquisition III Limited, the Lenders party thereto, Commonwealth Bank of Australia, New York Branch, as Administrative Agent and Wells Fargo Bank, National Association, as Security Trustee. See Item 5 “Liquidity and Capital Resources—Financing—Fly Acquisition III Facility.” |
71) | Amendment No. 2 [Fly 2016A Warehouse] dated as of September 6, 2018 among Fly Acquisition III Limited, the Lenders party thereto, Commonwealth Bank of Australia, New York Branch, as Administrative Agent and Wells Fargo Bank, National Association, as Security Trustee. See Item 5 “Liquidity and Capital Resources—Financing—Fly Acquisition III Facility.” |
72)46) | Purchase Agreement dated November 30, 2018 among the sellers identified therein, Horizon Aircraft Finance I Limited, Horizon Aircraft Finance I LLC and the other purchasers identified therein. See Item 5, “Operating and Financial Review and Prospects.”
|
73)47) | Form of Loan Amendment Letter Agreement (2018) among Hobart Aviation Holdings Limited, Norddeutsche Landesbank Girozentrale and each borrower thereof. See Item 5, “Liquidity and Capital Resources—Financing—Resources—Financing—Nord LB Facility.” |
48) | Purchase Agreement dated July 2, 2019 among the sellers identified therein, Horizon Aircraft Finance II Limited, Horizon Aircraft Finance II LLC and the other purchasers identified therein. See Item 5, “Operating and Financial Review and Prospects.” |
49) | Purchase Agreement dated October 31, 2019 among the sellers identified therein, Horizon Aircraft Finance III Limited, Horizon Aircraft Finance III LLC and the other purchasers identified therein. See Item 5, “Operating and Financial Review and Prospects.” |
50) | Fifth Amendment to Credit Agreement dated as of November 22, 2019, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Trust Company, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent. See Item 5, “Liquidity and Capital Resources—Financing—Term Loan.” |
51) | Form of Loan Agreement Letter Agreement (2019) among Hobart Aviation Holdings Limited, Norddeutsche Landesbank Girozentrale and each borrower thereof. See Item 5 “Liquidity and Capital Resources – Financing – Nord LB Facility.” |
52) | Aircraft Mortgage and Security Agreement dated as of October 15, 2020 among Fly Willow Funding Limited, Fly Leasing Limited, Fly Willow Aircraft Holdings DAC, the additional grantors referred to therein, and Bank of Utah as Collateral Agent. See Item 5 “Liquidity and Capital Resources – Financing – 2020 Term Loan.” |
53) | Term Loan Credit Agreement dated as of October 15, 2020 among Fly Willow Funding Limited, as Borrower, Fly Leasing Limited, as a Guarantor Party, Fly Willow Aircraft Holdings DAC, as a Guarantor Party, each other guarantor party referred to therein, the lenders identified therein, Royal Bank of Canada, as Administrative Agent and Bank of Utah, as Collateral Agent. See Item 5 “Liquidity and Capital Resources – Financing – 2020 Term Loan.” |
Documents on Display
Documents concerning us that are referred to herein may be inspected at our principal executive headquarters at West Pier Business Campus, Dun Laoghaire, County Dublin, A96 N6T7, Ireland. Electronic copies of these documents, including the related exhibits and schedules, and any documents we file with the SEC without charge at the SEC’s website,http://www.sec.gov.www.sec.gov.
Our internet address is www.flyleasing.com. www.flyleasing.com. Investors and others should note that we announce material information to investors through the investor relations page on our website, SEC filings, press releases, public conference calls and webcasts. We expect to update investor presentations and similar materials on a regular basis and will continue to post these materials to our investor relations website. We encourage investors, the media and others to review the information we post from time to time on our website. The information contained on or connected to our website is not incorporated by reference into this Annual Report on Form 20-F and should not be considered part of this or any other report filed with the SEC.
Exchange Controls
We are not aware of any governmental laws, decrees or regulations, including foreign exchange controls, in Bermuda that restrict the export or import of capital, including the availability of cash and cash equivalents for our use, or that affect the remittance of dividends, interest or other payments to non-resident holders of our securities.securities.
We are not aware of any limitation of non-resident or foreign owners to hold or vote our securities imposed by the laws of Bermuda of our memorandum of association or bye-laws.
Taxation
Irish Tax Considerations
The following discussion reflects the material Irish tax consequences applicable to both Irish and Non-Irish Holders (as defined below) of the acquisition, ownership and disposition of our shares. This discussion is based on Irish tax law, statutes, treaties, regulations, tax briefings, rulings and decisions all as of the date of this Annual Report. Taxation laws are subject to change, from time to time, and no representation is or can be made as to whether such laws will change, to what impact, if any, such changes will have on the summary contained in this Annual Report. Proposed amendments may not be enacted as proposed, and legislative or judicial changes, as well as changes in administrative practice, may modify or change statements expressed herein.
This summary is of a general nature only. It does not constitute legal or tax advice nor does it discuss all aspects of Irish taxation that may be relevant to any particular holder of our shares. The Irish tax treatment of a holder of our shares may vary depending upon such holder’s particular situation, and holders or prospective purchasers of our shares are advised to consult their own tax advisors as to the Irish or other tax consequences of the purchase, ownership and disposition of our shares.
For the purposes of this summary of Irish tax considerations:
| ● | An “Irish Holder” is a holder of our shares that (1) beneficially owns our shares by virtue of holding the related ADSs evidenced by the relevant American Depositary Receipt or ADR; (2) in the case of individual holders, is resident or ordinarily resident in Ireland under Irish taxation laws; and (3) in the case of a holder that is a company, is resident in Ireland under Irish taxation laws and is not also a resident of any other country under any double taxation agreement entered into by Ireland. |
| ● | A “Non-Irish Holder” is a holder of our shares that is not an Irish Holder and has never been an Irish Holder. |
| ● | A “US Holder” is a holder of our shares that (1) beneficially owns our shares by virtue of holding the related ADSs evidenced by the relevant ADR; (2) is a resident of the United States for the purposes of the Ireland/United States Double Taxation Convention; (3) in the case of an individual holder, is not also resident or ordinarily resident in Ireland for Irish tax purposes; (4) in the case of a corporate holder, is not resident in Ireland for Irish tax purposes and is not ultimately controlled by persons resident in Ireland; and (5) is not engaged in any trade or business and does not perform independent personal services through a permanent establishment or fixed base in Ireland. |
| ● | “Relevant Territory” is defined as a country with which Ireland has a double tax treaty (which includes the United States), a country with which Ireland has signed a double taxation treaty which will come into force once all ratification procedures have been completed, or a member state of the European Union other than Ireland. |
Irish Dividend Withholding Tax
Dividends that we pay on our shares (including deemed distributions) arewere generally subject to a 20% dividend withholding tax, or DWT.DWT for 2019. This rate increased to 25% effective January 1, 2020. DWT may not apply where an exemption is permitted by Irish tax legislation or a double taxation treaty and where all necessary documentation has been submitted to the ADS depository prior to the payment of the dividend.
Irish Holders. Individual Irish Holders are generally subject to DWT on any dividend payments that we make. Irish tax resident individual shareholders should be entitled to a tax credit for the amount of DWT suffered on the dividend against their Irish income tax charge on the dividend income. Irish tax resident or ordinary resident individual shareholders that are entitled to receive dividends without DWT (for example certain incapacitated individuals) must submit the necessary documentation to the ADS depository prior to the payment of the dividend.
Corporate Irish Holders will generally be entitled to claim an exemption from DWT by delivering a declaration to us in the form prescribed by the Irish Revenue Commissioners.
Non-Irish Holders. Shareholders who are individuals resident in a Relevant Territory and who are not resident or ordinarily resident in Ireland may receive dividends free from DWT where the shareholder has provided the ADS depository with the relevant declaration and residency certificate required by Irish legislation.
Corporate shareholders that are not resident in Ireland and
| ● | who are ultimately controlled, whether directly or indirectly, by persons resident in a Relevant Territory and who are not ultimately controlled, whether directly or indirectly, by persons not resident in a Relevant Territory; or |
| ● | who are resident in a Relevant Territory and not controlled directly or indirectly by Irish residents; or |
| ● | whose principal class of shares or the principal class of shares of whose 75% or greater parents are substantially and regularly traded on a recognized stock exchange in a Relevant Territory; or which are wholly owned by two or more companies, each of whose principal class of shares are substantially and regularly traded on a recognized stock exchange in a Relevant Territory or on such other stock exchange as may be approved by the Minister for Finance. |
may receive dividends free from DWT where they provide the ADS depository with the relevant documentation required by Irish law before the record date for the dividend.
Income Tax
Irish Holders.Individual Irish Holders are subject to income tax on the gross amount of any dividend (i.e., the amount of the dividend received plus any DWT withheld), at their marginal rate of tax (currently either 20% or 40% depending on the individual’s circumstances). Individual Irish Holders will be able to claim a credit against their resulting income tax liability in respect of any DWT. Individual Irish Holders may, depending on their circumstances, be subject to Pay Related Social Insurance (PRSI) and to the Universal Social Charge with effect from 1 January 2011.
For the year ended 2018,2020, the Universal Social Charge will apply to all income where an individual has income in excess of €13,000. The Universal Social Charge applies at four different rates1 for 20182020 as follows:
0.5% on the first €12,012;
2% on the next €8,472;
| · | 0.5% on the first €12,012; |
| ·• | 4.74.5% on the next €50,672€49,560 and
|
8% on the aggregate income in excess of €70,044.
| · | 8% on the aggregate income in excess of €70,044. |
There is also a Universal Social Charge surcharge of 3% on individuals in receipt of non-PAYE income that exceeds €100,000 in a year.
Currently, individual Irish Holders may also, depending on their circumstances, be subject to Pay Related Social Insurance (PRSI) contributions of up to 4% in respect of dividend income.
Corporate Irish Holders generally will not be subject to Irish corporation tax in respect of dividends received from Fly.
Non-Irish Holders. Non-Irish Holders will not have an Irish income tax liability on dividends from us if the shareholder is neither resident nor ordinarily resident in Ireland and is:
| ● | an individual resident in a Relevant Territory and who are not resident or ordinarily resident in Ireland; or |
| ● | a corporation that is resident in a Relevant Territory and not controlled directly or indirectly by Irish residents; or |
| ● | a corporation that is ultimately controlled, whether directly or indirectly, by persons resident in a Relevant Territory and who are not ultimately controlled, whether directly or indirectly, by persons not resident in a Relevant Territory; or |
| ● | a corporation whose principal class of shares (or whose 75% or greater parent’s principal class of shares) are substantially and regularly traded on a recognized stock exchange in a Relevant Territory or on such other stock exchange as may be approved by the Minister for Finance; or |
| ● | a corporation that is wholly owned by two or more corporations each of whose principal class of shares are substantially and regularly traded on a recognized stock exchange in a Relevant Territory or on such other stock exchange as may be approved by the Minister for Finance; or |
| ● | otherwise entitled to an exemption from DWT. |
If a Non-Irish Holder is not so exempted, such a shareholder will be liable for Irish income tax (currently 20%) on dividends received from us, but may be entitled to a credit for DWT withheld.
Taxation of Capital Gains
Irish Holders. Irish Holders that acquire shares will generally be considered, for Irish tax purposes, to have acquired their shares at a base cost equal to the amount paid for shares. On subsequent dispositions, shares acquired at an earlier time will generally be deemed, for Irish tax purposes, to be disposed of on a “first in first out” basis before shares acquired at a later time. Irish Holders that dispose of their shares will generally be subject to Irish capital gains tax (CGT) to the extent that the proceeds realized from such disposition exceed the base cost of the common shares or ADSs disposed of and any incidental expenses. Disposals are subject to CGT at 33%. Unutilized capital losses from other sources generally can be used to reduce gains realized on the disposal of our shares.
An annual exemption allows individuals to realize chargeable gains of up to €1,270 in each tax year without giving rise to CGT. This exemption is specific to the individual (it is not available to corporate holders) and cannot be transferred between spouses. Irish Holders are required, under Ireland’s self-assessment system, to file a tax return reporting any chargeable gains arising to them in a particular tax year. When disposal proceeds are received in a currency other than euro they must be translated into euro amounts to calculate the amount of any chargeable gain or loss. Similarly, acquisition costs denominated in a currency other than the euro must be translated at the date of acquisition to euro amounts. Irish Holders that realize a loss on the disposition of our shares generally will be entitled to offset such allowable losses against capital gains realized from other sources in determining their CGT liability in a year. Allowable losses which remain unrelieved in a year generally may be carried forward indefinitely for CGT purposes and applied against capital gains in future years. Transfers between spouses will not give rise to any chargeable gain or loss for CGT purposes.
Non-Irish Holders. A person who is not resident or ordinarily resident in Ireland is not subject to Irish capital gains tax on the disposal of our shares unless at or before the time when the chargeable gain arose, such shares are used, held or acquired for the purposes of a trade carried on by such a shareholder though a branch or agency in Ireland.
Irish Capital Acquisitions Tax
A gift or inheritance of our sharesshares/ADRs will be within the charge to capital acquisitions tax (CAT) where the donor/deceased is Irish resident/ordinarily resident at the date of the gift/date of inheritance or the beneficiary is resident orIrish resident/r ordinarily resident in Ireland at the date of the gift/inheritance or to the extent that the property of which the gift or inheritance consists is situated in IrelandADR has an Irish situs at the relevant date. Where the ADR is in bearer form its legal situs is where it is held and if a unit trust then where the trustees are resident.
Special rules with regard to residence apply whereWhere an individual is notnon-Irish domiciled, in Ireland.then special rules apply to determine his/her residence for CAT purposes. CAT is payable by the beneficiary and is charged at 33% on the value of the gift / inheritance that exceeds a flat rate of 33% for gifts or inheritancestax-free threshold amount. The applicable tax-free threshold depends on the relationship between the donor and there are various thresholds before the tax becomes applicable. beneficiary. Gifts and inheritances between spouses are not subjectexempt from CAT. A person can receive a gift with a value of up to capital acquisitions tax.€3,000 per annum from any number of individuals exempt from CAT.
The Estate Tax Convention between Ireland and the United States generally provides for Irish CAT paid on inheritances in Ireland to be credited (or in certain cases exempted), in whole or in part, against federal estate tax payable in the United States, in the case where an inheritance of shares is subject to both Irish CAT and US federal estate tax. The Estate Tax Convention does not apply to Irish CAT paid on gifts.
Irish Stamp Duty
NoBroadly, no Irish stamp or capital duty shall apply toshould arise on the issuance of the common shares. Transfers of the common shares of a non-Irish incorporated company would not ordinarily be subject to Irish stamp duty, unless the transfer was related to Irish propertyreal estate or any matterIrish stocks or thing done or to be done in Ireland.marketable securities. In such cases a 1% stamp duty charge willwould arise for the transferee based on the transfer consideration for (or,paid or, if higher, the market value of)of the shares.
Transfers of ADSs are exempt from Irish stamp duty when the ADSs are dealt in on the New York Stock Exchange, NASDAQ National Market or any recognized stock exchange in the United States or Canada and the transfer does not relate to Irish property or any matter or thing done or to be done in Ireland.Canada.
Irish Corporation Tax
In general, Irish tax resident companies pay corporation tax at the rate of 12.5% on trading income and 25% on non-trading income. Fly and its Irish tax resident subsidiaries intend to conduct business so that they carry on a trading business for Irish tax purposes. Non-trading income, including certain categories of interest income, will be subject to corporation tax at the rate of 25%.
U.S. Federal Income Tax Considerations
The following is a general discussion of the U.S. federal income taxation of us and of certain U.S. federal income tax consequences of acquiring, holding or disposing of the shares by U.S. Holders (as defined below) and information reporting and backup withholding rules applicable to both U.S. and Non-U.S. Holders (as defined below). It is based upon the U.S. Internal Revenue Code of 1986, as amended (the “Code”), issued and proposed income tax regulations (“Treasury Regulations”) promulgated thereunder, legislative history, and judicial and administrative interpretations thereof, all as in effect on the date hereof and all of which are subject to change or differing interpretations (possibly with retroactive effect). In addition, the application and interpretation of certain aspects of the passive foreign investment company (“PFIC”) rules, referred to below, require the issuance of regulations which in many instances have not been promulgated and which may have retroactive effect. There can be no assurance that any of these regulations will be enacted or promulgated, and if so, the form they will take or the effect that they may have on this discussion. This discussion is not binding on the U.S. Internal Revenue Service (“IRS”) or the courts. This summary does not address any aspect of U.S. federal non-income tax laws, such as U.S. federal estate and gift tax laws, and does not purport to address all of the U.S. federal income tax consequences applicable to us or to all categories of investors, some of whom may be subject to special rules including, without limitation, dealers in securities, commodities, or non-U.S. currencies, financial institutions or “financial services entities,” insurance companies, holders of shares held as part of a “straddle,” “hedge,” “constructive sale,” “conversion transaction,” or other integrated transaction for U.S. federal income tax purposes, U.S. persons whose “functional currency” is not the U.S. dollar, persons who have elected “mark-to-market” accounting, persons who have not acquired their shares upon their original issuance, or in exchange for consideration other than cash, persons who hold their shares through a partnership or other entity which is a pass-through entity for U.S. federal income tax purposes, persons for whom a share is not a capital asset, and persons holding, directly indirectly or constructively, 10% or more of our shares by voting power or value. The tax consequences of an investment in our shares will depend not only on the nature of our operations and the then-applicable U.S. federal tax principles, but also on certain factual determinations that cannot be made at this time, and upon a particular investor’s individual circumstances. No rulings have been or will be sought from the IRS regarding any matter discussed herein.
For purposes of this discussion, a “U.S. Holder” is (1) a citizen or resident of the United States; (2) a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States or any political subdivision thereof; (3) an estate the income of which is subject to U.S. federal income taxation regardless of its source; or (4) a trust which (a) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. A “Non-U.S. Holder” is a beneficial owner of our shares that is not a U.S. Holder and who, in addition, is not (1) a partnership or other fiscally transparent entity; (2) an individual present in the United States for 183 days or more in a taxable year who meets certain other conditions; or (3) subject to rules applicable to certain expatriates or former long-term residents of the United States. This summary does not purport to be a comprehensive description of all of the U.S. federal income tax considerations that may be relevant to a decision to purchase the shares. This summary does not describe any tax consequences arising under the laws of any state, locality or taxing jurisdiction other than the United States. Investors should consult their own tax advisors regarding the application of the U.S. federal tax rules, including the impact of the tax reform legislation enacted on December 22, 2017 known as the Tax Cuts and Jobs Act (the “TCJA”), to their particular circumstances as well as the state, local, non-U.S. and other tax consequences to them of the acquisition, ownership and disposition of our shares. For U.S. tax purposes holders of our ADSs are treated as if they hold the underlying common shares represented by the ADSs.
Taxation of U.S. Holders of Shares
We expect that we will be treated as a PFIC for U.S. federal income tax purposes for the current taxable year and for the foreseeable future and that U.S. Holders of shares will be subject to the PFIC rules, as summarized below. However, no assurance can be given that we (or any of our subsidiaries or any investment) will or will not be considered a PFIC in the current or future years. The determination of whether or not we are a PFIC is a factual determination that is made annually (after the close of each taxable year) based on the types of income we earn and the value of our assets, and because certain aspects of the PFIC rules are not entirely certain, there can be no assurance that we are or are not a PFIC or that the IRS will agree with our conclusion regarding our PFIC status. If we (or any of our subsidiaries) are currently or were to become a PFIC, U.S. Holders of shares would be subject to special rules and a variety of potentially adverse tax consequences under the Code.
Tax Consequences of PFIC Status. The Code provides special rules regarding certain distributions received by U.S. persons with respect to, and sales, exchanges and other dispositions, including pledges, of shares of stock in a PFIC. We will be treated as a PFIC if (i) 75% or more of our gross income is passive income or (ii) at least 50% of our assets are held for the production of, or produce, passive income in a taxable year, based on a quarterly average and generally by value, including our pro rata share of the gross income or assets of any company, U.S. or non-U.S., in which we are considered to own directly or indirectly 25% or more of the shares by value. Passive income for this purpose generally includes, among other things, dividends, interest, rents, royalties, gains from commodities and securities transactions, and gains from assets that produce passive income. Assuming we are a PFIC, our dividends will not qualify for the reduced rate of U.S. federal income tax that applies to qualified dividends paid to non-corporate U.S. Holders. Thus, dividends (as determined for U.S. federal income tax purposes) will be taxed at the rate applicable to ordinary income of the U.S. Holder.
Assuming we are a PFIC, U.S. Holders of our shares will be subject to different taxation rules with respect to an investment in our shares depending on whether they elect to treat us as a qualified electing fund, or a QEF, with respect to their investment in our shares. If a U.S. Holder makes a QEF election in the first taxable year in which the U.S. Holder owns our shares (assuming we continue to provide shareholders with the annual information necessary to do so), then such U.S. Holder will be required for each taxable year to include in income a pro rata share of our ordinary earnings as ordinary income and a pro rata share of our net capital gain as long-term capital gain, subject to a separate voluntary election to defer payment of taxes, which deferral is subject to an interest charge. If a QEF election is made, U.S. Holders will not be taxed again on our distributions, which will be treated as return of capital for U.S. federal income tax purposes. Instead, distributions will reduce the U.S. Holder’s basis in our shares and, to the extent in excess of such basis, will be treated as gain from the sale or exchange of a capital asset.
U.S. Holders may, instead of making a QEF election, make a “mark-to-market” election, recognizing as ordinary income or loss each year an amount equal to the difference, as of the close of the taxable year, between the fair market value of the shares and the U.S. Holder’s adjusted tax basis in the shares. Losses would be allowed only to the extent of net mark-to-market gain previously included by the U.S. Holder under the election for prior taxable years. If the mark-to-market election were made, then the rules set forth below would not apply for periods covered by the election. The U.S. Holder’s basis in the shares will be adjusted to reflect the amounts included or deducted pursuant to the election. A mark-to-market election is only available if our shares meet trading volume requirements on qualifying exchange.
Because we are a PFIC, if a U.S. Holder does not make a QEF election or mark-to-market election, then the following special rules will apply:
| ● | Excess distributions by us to a U.S. Holder would be taxed in a special way. “Excess distributions” are amounts received by a U.S. Holder with respect to our shares in any taxable year that exceed 125% of the average distributions received by such U.S. Holder from us in the shorter of either the three previous years or such U.S. Holder’s holding period for shares before the present taxable year. Excess distributions must be allocated ratably to each day that a U.S. Holder has held our shares. A U.S. Holder must include amounts allocated to the current taxable year in its gross income as ordinary income for that year. A U.S. Holder must pay tax on amounts allocated to each prior taxable year in which we were a PFIC at the highest rate in effect for that year on ordinary income and the tax is subject to an interest charge at the rate applicable to deficiencies for income tax. The preferential U.S. federal income tax rates for dividends and long-term capital gain of individual U.S. Holders (as well as certain trusts and estates) would not apply, and special rates would apply for calculating the amount of the foreign tax credit with respect to excess distributions. |
| ● | The entire amount of gain realized by a U.S. Holder upon the sale or other disposition of shares will also be treated as an excess distribution and will be subject to tax as described above. |
| ● | The tax basis in shares that were acquired from a decedent who was a U.S. Holder would not receive a step-up to fair market value as of the date of the decedent’s death but would instead be equal to the decedent’s basis, if lower than fair market value. |
If a corporation is a PFIC for any taxable year during which a U.S. Holder holds shares in the corporation, then the corporation generally will continue to be treated as a PFIC with respect to such shares, even if the corporation no longer satisfies either the passive income or passive assets test described above, unless the U.S. Holder terminates this deemed PFIC status by electing to recognize gain, which will be taxed under the excess distribution rules as if such shares had been sold on the last day of the last taxable year for which the corporation was a PFIC.
The QEF election is made on a shareholder-by-shareholder basis and can be revoked only with the consent of the IRS. A shareholder makes a QEF election by attaching a completed IRS Form 8621 to a timely filed U.S. federal income tax return or, if not required to file an income tax return, by filing such form with the IRS. Even if a QEF election is not made, a shareholder in a PFIC who is a U.S. Holder must file a completed IRS Form 8621 every year. We have provided and intend to continue to provide U.S. Holders with all necessary information to enable them to make QEF elections as described above.
It is also possible that one or more of our subsidiaries is or will become a PFIC. Such determination is made annually at the end of each taxable year and is dependent upon a number of factors, some of which are beyond our control, including the amount and nature of a subsidiary’s income, as well as the market valuation and nature of a subsidiary’s assets. In such case, assuming a U.S. Holder does not receive from such subsidiary the information that the U.S. Holder needs to make a QEF election with respect to such a subsidiary, a U.S. Holder generally will be deemed to own a portion of the shares of such lower-tier PFIC and may incur liability for a deferred tax and interest charge if we receive a distribution from, or dispose of all or part of our interest in, or the U.S. Holder otherwise is deemed to have disposed of an interest in, the lower-tier PFIC (including through a sale of our shares). There is no assurance that we will have timely knowledge of the status of any such lower-tier PFIC, or that the lower-tier PFIC will provide the required information for a U.S. Holder to make or maintain a QEF election with respect to such lower-tier PFIC. In addition, a mark-to-market election generally would not be available with respect to such a lower-tier PFIC. U.S. Holders are advised to consult with their tax advisors regarding the tax issues raised by lower-tier PFICs.
In 2018 we made an investment in Horizon I Limited, an entity that we expect to be treated as a PFIC for U.S. federal income tax purposes. In addition, in 2019 we made investments in Horizon II Limited and Horizon III Limited, entities that we also expect to be treated as PFICs for U.S. federal income tax purposes. As such, U.S. Holders may need to make a QEF election with respect to thisthese lower-tier PFICPFICs with their 20182019 tax returns. However, there is no assurance that we will cause the lower-tier PFICPFICs to provide the required information for a U.S. Holder to make the timely QEF election for the 20182019 tax year. Further, with respect to this investmentthese investments in the lower-tier PFIC,PFICs, there is no assurance that we will have timely knowledge of the status of thisthese lower-tier PFICPFICs on an annual basis, or that we will cause the lower-tier PFICPFICs to provide the required information for a U.S. Holder to maintain the QEF election. U.S. Holders are advised to consult with their tax advisors regarding the tax issues raised by this investment.
You should consult your tax advisor about the PFIC rules, including the advisability of making a QEF election or mark-to-market election.
In addition, a U.S. Holder that is an individual (and, under proposed regulations, an entity that meets certain requirements), may be subject to certain reporting obligations with respect to shares and if the aggregate value of these and certain other “specified foreign financial assets” exceeds $50,000. If required, this disclosure is made by filing Form 8938 with the IRS. Significant penalties can apply and the period of limitations on assessment and collection of United States federal income taxes may be extended if holders are required to make this disclosure and fail to do so. In addition, a U.S. Holder should consider the possible obligation to file annually FinCEN Report 114 (Report of Foreign Bank and Financial Accounts) as a result of holding shares. Holders are thus encouraged to consult their U.S. tax advisors with respect to these and other reporting requirements that may apply to their acquisition of shares.
Taxation of the Disposition of Shares. Subject to the next paragraph, a U.S. Holder that has made a QEF election for the first year of its holding period will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s basis in the shares, which is usually the cost of such shares (as adjusted to take into account any QEF inclusion, which increases the basis of such shares, and any distribution, which decreases the basis of such shares) and the amount realized on a sale or other taxable disposition of the shares. If, as anticipated, the shares are publicly traded, a disposition of shares will be considered to occur on the “trade date,” regardless of the U.S. Holder’s method of accounting. If a QEF election has been made, then subject to the next paragraph, capital gain from the sale, exchange or other taxable disposition of shares held more than one year is long-term capital gain and generally is eligible for preferential tax rates (currently at a maximum 20% rate) for non-corporate U.S. Holders.
In the event any of our subsidiaries is treated as a PFIC and a QEF election is not made for such subsidiary, a U.S. Holder may incur liability for a deferred tax (imposed at ordinary rates) and an interest charge in respect of such subsidiary upon a disposition by such U.S. Holder of some or all of our shares, in the same manner as if we had sold or disposed of some or all of the shares of such subsidiary. U.S. Holders should consult with their tax advisors regarding the consequences to them of a sale or other disposition of our shares in a case where we have a subsidiary with respect to which a QEF election is not made.
As noted above, on December 22, 2017 the U.S. government enacted a comprehensive tax reform legislation commonly referred to as the TCJA. The TCJA amended the Internal Revenue Code to reduce tax rates and modify credits, and deductions for individuals and businesses. We have considered the provisions of the TCJA and believe that they do not alter the U.S. tax treatment as identified above.
Medicare Tax
Certain U.S. Holders who are individuals, estates or trusts are required to pay a 3.8% Medicare surtax on all or part of that U.S. Holder’s “net investment income”, which includes, among other items, dividends on, and capital gains from the sale or other taxable disposition of, the shares, subject to certain limitations and exceptions. Prospective investors should consult their own tax advisors regarding the effect, if any, of this legislation on their ownership and disposition of the shares.
Information Reporting and Backup Withholding for U.S. Holders
Dividend payments made within the United States with respect to the shares, and proceeds from the sale, exchange or redemption of shares, may be subject to information reporting to the IRS and possible U.S. backup withholding. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification or who is otherwise exempt from backup withholding. Generally, a U.S. Holder will provide such certification on IRS Form W-9 (Request for Taxpayer Identification Number and Certification).
Amounts withheld under the backup withholding rules may be credited against a U.S. Holder’s tax liability, and a U.S. Holder may obtain a refund of any excess amount withheld under the backup withholding rules by timely filing the appropriate claim for refund with the IRS.
Information Reporting and Backup Withholding for Non-U. S.Non-U.S. Holders
Information reporting to the United States and backup withholding to the IRS generally would not be required for dividends paid on our shares or proceeds received upon the sale, exchange or redemption of our shares to Non-U.S. Holders who hold or sell our shares through the non-U.S. office of a non-U.S. related broker or financial institution. Information reporting and backup withholding may apply if shares are held by a Non-U.S. Holder through a U.S., or U.S.-related, broker or financial institution, or the U.S. office of a non-U.S. broker or financial institution and the Non-U.S. Holder fails to establish an exemption from information reporting and backup withholding by certifying such holder’s status on IRS Form W-8BEN, W-8BEN-E, W-8ECI or W-8IMY, as applicable.
The IRS may make information reported to you and the IRS available under the provisions of an applicable income tax treaty to the tax authorities in the country in which you reside. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability, if any, provided the required information is timely furnished by you to the IRS. You should consult your own tax advisors regarding the filing of a U.S. tax return for claiming a refund of any such backup withholding. Non-U.S. Holders should consult their tax advisors regarding the application of these rules.
Taxation of Fly and Our Subsidiaries
Although Fly’s income is primarily subject to corporate tax in Ireland, part of our income is also subject to taxation in France, Labuan, Singapore, AustraliaLuxembourg, Malta, and Malta.Cayman Islands.
In 2011, Fly made a 57.41% investment in Fly-Z/C LP, a US partnership incorporated in Delaware. The partnership wholly owns an Irish company, Fly-Z/C Aircraft Limited. Fly-Z/C LP and Fly-Z/C Aircraft Limited are not expected to have a U.S. trade or business subject to tax on effectively connected income or a U.S. permanent establishment subject to tax on business profits under Article 7. Effectively connected taxable income means the taxable income of the partnership which is effectively connected (or treated as effectively connected) with the conduct of a trade or business in the United States.
Each year we have qualified for the benefits of the U.S. and Ireland tax treaty (the “Irish Treaty”), and we expect to be a qualified resident under the Irish treaty. No assurances can be given, however, that we will continue to qualify for the benefits of the Irish Treaty or that we will not in the future be treated as maintaining a permanent establishment in the United States or having income that is effectively connected with the conduct of a trade or business in the United States. In order for us and our subsidiaries to be eligible for the benefits of the Irish Treaty for a particular fiscal year, we must each satisfy the requirements of Article 23 (Limitation on Benefits) of the Irish Treaty for that fiscal year. We will be eligible for the benefits of the Irish Treaty if the principal class of our shares is substantially and regularly traded on one or more recognized stock exchanges. Our shares will be considered substantially and regularly traded on one or more recognized stock exchanges in a fiscal year if (1) trades in such shares are effected on such stock exchanges in more than de minimis quantities during every quarter; and (2) the aggregate number of shares traded on such stock exchanges during the previous fiscal year is at least 6% of the average number of shares outstanding during that taxable year. We satisfied this requirement for each of the years since our inception. If our shares cease to be treated as regularly traded, then we may no longer be eligible for the benefits of the Irish Treaty. Our subsidiaries and investees that are Irish tax-resident, including Fly-Z/C Aircraft Limited, will be eligible for benefits under the Irish Treaty if we hold, directly or indirectly, 50% or more of the vote and value of the subsidiary and we meet the regularly traded test described above.
If we or any subsidiary were not entitled to the benefits of the Irish Treaty, any income that we or that subsidiary earns that is treated as effectively connected with a trade or business in the United States, either directly or through agents, would be subject to tax in the United States at a rate of 21%. In addition, we or that subsidiary would be subject to the U.S. federal branch profits tax at a rate of 30% on its effectively connected earnings and profits, considered distributed from the U.S. business. In addition, if we did not qualify for the Irish Treaty benefits, certain U.S. source rental income not connected with a U.S. trade or business could be subject to withholding tax of 30% and certain U.S. source gross transportation income could be subject to a 4% gross transportation tax if an exemption did not apply.
Bermuda Tax Considerations
We are incorporated under the laws of Bermuda. At the present time, there is no Bermuda income or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by us or by our shareholders in respect of our shares. We have obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until March 31, 2035, be applicable to us or to any of our operations or to our shares, debentures or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or is payable by us in respect of real property owned or leased by us in Bermuda.
79Bermuda Economic Substance Regulation
enumerated activities (“relevant activities”) to satisfy economic substance requirements within Bermuda. We are a Bermuda exempted company and entities within the scope of the Bermuda economic substance legislation include Bermuda exempted companies, where carrying on a ‘relevant activity’ as a business, but does not include non-resident entities. For this purpose, a non-resident entity is an entity which is resident for tax purposes in a jurisdiction outside Bermuda which is not designated by the EU as a non-cooperative jurisdiction for tax purposes. As we are tax resident in Ireland, we qualify as such a non-resident entity and are therefore outside the scope of the Bermuda economic substance legislation.ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Interest Rate Risk
Interest rate risk is the exposure to loss resulting from changes in the level of interest rates and the spread between different interest rates. Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control. We are exposed to changes in the level of interest rates and to changes in the relationship or spread between interest rates. Our primary interest rate exposures relate to our lease agreements and our floating rate debt obligations. obligations. As of December 31, 2018,2020, we had 108 79 lease agreements (excludingand seven engine lease agreements. 81 of these lease agreements associated with aircraft classified as held for sale), 98 of which require the payment of ahad fixed rent amount during the lease term,rates and the remaining 10 require afive had floating rent amountlease rates based on LIBOR. Our floating rate indebtedness requires payments based on a variable interest rate index such as LIBOR. Therefore, increases in interest rates may reduce our net income by increasing the cost of our debt without any corresponding proportional increase in rents or cash flow from our leases.leases.
We have entered into interest rate swap contracts to mitigate the interest rate fluctuation risk associated with our debt. We expect that these interest rate swap contracts will significantly reduce the additional interest expense that would be caused by an increase in variable interest rates.rates.
Sensitivity Analysis
The following discussion about the potential effects of changes in interest rates is based on a sensitivity analysis, which models the effects of hypothetical interest rate shifts on our financial condition and results of operations. A sensitivity analysis is constrained by several factors, including the necessity to conduct the analysis based on a single point in time and by the inability to include the complex market reactions that normally would arise from the market shifts. Although the following results of a sensitivity analysis for changes in interest rates may have some limited use as a benchmark, they should not be viewed as a forecast. This hypothetical disclosure also is selective in nature and addresses only the potential impacts on our financial instruments and our variable rate leases. It does not include a variety of other potential factors that could affect our business as a result of changes in interest rates.rates.
Assuming we do not hedge our exposure to interest rate fluctuations, a hypothetical 100 basis-point increase or decrease in our variable interest rates would have increased or decreased our interest expense by $18.2 $12.9 million andon an annualized basis. A hypothetical 100 basis-point increase would have increased orour revenues by $3.4 million on an annualized basis. A hypothetical 100 basis-point decrease would have decreased our revenues by $5.6$1.1 million on an annualized basis.
The fair value of our interest rate swap contracts is affected by changes in interest rates and credit risk of the parties to the swap. We determine the fair value of our derivative instruments using a discounted cash flow model which incorporates an assessment of the risk of non-performance by the swap counterparty and an evaluation of Fly’s credit risk in valuing derivative liabilities. The valuation model uses various inputs including contractual terms, interest rate curves, credit spreads, and measures of volatility. Changes in the fair value of a derivative that is designated and qualifies as an effective cash flow hedge are recorded in accumulated other comprehensive income (loss), net of tax, until earnings are affected by the variability of cash flows of the hedged item. Any derivative gains and losses that are not effective in hedging the variability of expected cash flows of the hedged item or that do not qualify for hedge accounting treatment are recognized directly into income.income (loss). As of December 31, 2018, 2020, the fair value of our interest rate swap derivative liabilities, excluding accrued interest, was $7.9 $43.9 million. A 100 basis-point increase in the interest rate would reduce the fair value of our derivative liabilities by approximately $26.6 million.$18.7 million. A 100 basis-point decrease in the interest rate would increase the fair value of our derivative liabilities by approximately $28.2 $19.6 million. As of December 31, 2018, the fair market value of our interest rate swap derivative assets, excluding accrued interest, was $3.2 million. A 100 basis-point increase in the interest rate would increase the fair market value of our derivative assets by approximately $7.9 million. A 100 basis-point decrease in the interest rate would reduce the fair market value of our derivative assets by approximately $8.2 million.
Foreign Currency Exchange Risk
We receive substantially all of our revenue in U.S. Dollars. We have two leases pursuant to which we receive a portion of the rent amount in Euros. For these leases, a 10% increase or decrease in the Euro to U.S. Dollar exchange rate would increase or decrease the annual rental revenue by $1.2 million.
In 2018, we entered into a cross currency swap contract to mitigate our exposure to foreign currency exchange fluctuations in conjunction with one of these leases. As of December 31, 2018, 2020, the fair value of our cross currency swap derivative asset excluding accrued rent, was $2.7$2.1 million. A 10% increase or decrease in the Euro to U.S. Dollar exchange rate would decrease or increase the fair value of our derivative asset by approximately $6.0$4.6 million, respectively. For the other Euro denominated lease, a 10% increase or decrease in the Euro to U.S. Dollar exchange rate would increase or decrease the annual rental revenue by $0.3 million, respectively.
As of December 31, 20182020, we had one other aircraft secured borrowing denominated in Euros. During the year ended December 31, 2018,2020, we recorded an unrealized foreign currency exchange gainloss of $1.0$1.4 million associated with this borrowing, resulting primarily from an increasea decrease in value of the U.S. Dollar relative to the Euro. A 10% increase or decrease in the Euro to U.S. Dollar exchange rate on the Euro denominated borrowing at December 31, 20182020 would have resultedresulted in a $1.9$1.6 million unrealized foreign exchange loss or gain, respectively.
We pay substantially all of our expenses in U.S. Dollars. However, we incur some of our expenses in other currencies, primarily the Euro. Changes in the value of the U.S. Dollar relative to the Euro and other currencies may increase the U.S. Dollar cost to us to pay such expenses. The portion of our business conducted in other currencies could increase in the future, which could expand our exposure to losses arising from currency fluctuations. Volatility in foreign exchange rates could have a material impact on our results of operations.
| DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
American Depositary Shares
Fees and Expenses
We pay all fees, charges and expenses of the depositary, Deutsche Bank Trust Company Americas (the “Depositary”) and any agent of the Depositary pursuant to agreements from time to time between us and the Depositary, except that if a holder elects to withdraw the common shares underlying their American Depositary Receipts, or ADRs, from the Depositary they will be required to pay the Depositary a fee of up to US$5.00 per 100 ADSs surrendered or any portion thereof, together with expenses incurred by the Depositary and any taxes or charges, such as stamp taxes or stock transfer taxes or fees, in connection with the withdrawal.withdrawal.
We will not receive any portion of the fee payable to the Depositary upon a withdrawal of shares from the Depositary. The Depositary will not make any payments to us, and we will not receive any portion of any fees collected by the Depositary.Depositary.
Dividends and Other Distributions
The Depositary has agreed to pay holders of ADRs the cash dividends or other distributions it or the custodian receives on common shares or other deposited securities, less any fees for withholding taxes, duties and other governmental charges. Dividends on our shares are subject to deduction of Irish withholding taxes, unless an exemption to withholding is available. U.S. holders of ADSs (including U.S. citizens or residents) are entitled to claim a refund of Irish withholding taxes on dividends. Unless a U.S. holder of ADSs otherwise specifies, a customary fee of $0.005 per ADS will be deducted from each dividend paid to such holder so that such dividend may be paid gross of Irish withholding taxes.taxes.
PART II
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
None.
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
None.
ITEM 15. | CONTROLS AND PROCEDURES |
(a) Disclosure Controls and Procedures
As of December 31, 2018, 2020, an evaluation was conducted under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective.effective.
(b) Management’s Annual Report on Internal Control over Financial Reporting
Management of Fly Leasing Limited is responsible for establishing and maintaining adequate internal control over financial reporting for ourour company. With the participation of our Chief Executive Officer and our Chief Financial Officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, 20182020 using the framework and criteria established in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on this assessment, our management concluded that our internal control over financial reporting was effective as of December 31, 2018.2020.
Our independent auditor, Deloitte & Touche LLP, a registered public accounting firm, has issued their report which is included below.
(c) Report of the Independent Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of
Fly Leasing Limited
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Fly Leasing Limited and subsidiaries (the “Company”) as of December 31, 2018,2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement scheduleschedules as of and for the year ended December 31, 2018,2020, of the Company and our report dated March 12, 20191, 2021, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
San Francisco, CA
March 12, 20191, 2021
(d) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2018 2020that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.reporting.
ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT |
Our board has determined that Joseph M. Donovan, the Chairman of our Audit Committee of the Board of Directors, qualifies as an audit committee financial expert and is “independent” as defined under the applicable rules of the New York Stock Exchange. See Item 6 — Directors, Senior Management and Employees.Employees.
We have adopted our (i) Board Governance Document, (ii) Code of Business Conduct and Ethics and (iii) Supplemental Code of Ethics for the Chief Executive Officer and Senior Officers. These documents, along with the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee charters are available under “Corporate Governance” in the “About Fly Leasing” section of our website (www.flyleasing.com)(www.flyleasing.com).
ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Our principal accountants for the years ended December 31, 20182020 and 20172019 were Deloitte & Touche LLP.
The table below summarizes the fees for professional services rendered by Deloitte & Touche LLP for the audit of our annual financial statements for the years ended December 31, 20182020 and 2017,2019, respectively, and fees billed for other services rendered (in thousands):
| | Years ended | |
| | 2018 | | | 2017 | |
| | Amount | | | % | | | Amount | | | % | |
Audit fees | | $ | 2,187 | | | | 91 | % | | $ | 1,803 | | | | 73 | % |
Tax fees | | | 228 | | | | 9 | % | | | 304 | | | | 11 | % |
All other fees | | | 3 | | | | — | | | | 269 | | | | 16 | % |
Total | | $ | 2,418 | | | | 100 | % | | $ | 2,376 | | | | 100 | % |
| Years ended |
| 2020 | | 2019 |
| Amount | | % | | Amount | | % |
Audit fees | $ | 2,056 | | 82% | | $ | 2,014 | | 88% |
Tax fees | | 364 | | 15% | | | 240 | | 10% |
All other fees | | 70 | | 3% | | | 36 | | 2% |
Total | $ | 2,490 | | 100% | | $ | 2,290 | | 100% |
The Audit Committee pre-approves all audit and non-audit services provided to the Company by its auditors.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
Not applicable.
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
Issuer Purchases of Equity Securities
In November 2018, our boardThe following table summarizes the repurchase of directors approved a $50.0 million share repurchase program expiring inour common shares during the year ended December 2019. Under this program, we may make share repurchases from time to time in the open market or in privately negotiated transactions. No shares were repurchased in 2018. 31, 2020:
Period | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of a Publicly Announced Repurchased Plan | | Approximate Dollar Value of Shares that may yet be Purchased Under the Plans or Programs(1) |
January 1-31, 2020 | | | 10,654 | | $ | 17.00 | | | 10,654 | | $ | 49.8 million |
February 1-29, 2020 | | | 103,700 | | $ | 16.83 | | | 103,700 | | $ | 48.1 million |
March 1-31, 2020 | | | 302,987 | | $ | 15.08 | | | 302,987 | | $ | 43.5 million |
April 1-30, 2020 | | | — | | $ | — | | | — | | $ | 43.5 million |
May 1-31, 2020 | | | — | | $ | — | | | — | | $ | 43.5 million |
June 1-30, 2020 | | | — | | $ | — | | | — | | $ | 43.5 million |
July 1-31, 2020 | | | — | | $ | — | | | — | | $ | 43.5 million |
August 1-31, 2020 | | | — | | $ | — | | | — | | $ | 43.5 million |
September 1-30, 2020 | | | — | | $ | — | | | — | | $ | 43.5 million |
(1) | In August 2019, our board of directors approved a $50.0 million share repurchase program. Under this program, Fly was able to make share repurchases from time to time in the open market or in privately negotiated transactions. We suspended share repurchases in March 2020, and the program expired in September 2020. |
ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
Not applicable.
ITEM 16G. | CORPORATE GOVERNANCE |
The New York Stock Exchange requires companies with listed shares to comply with its corporate governance standards. As a foreign private issuer, we are not required to comply with all of the rules that apply to listed U.S. companies. Nevertheless, we have generally chosen to comply with the New York Stock Exchange’s corporate governance rules as though we were a U.S. company. Accordingly, we do not believe there are any significant differences between our corporate governance practices and those that would typically apply to a U.S. domestic issuer under the New York Stock Exchange corporate governance rules.
However, we intend to follow the practices of our home country, Bermuda, in connection with certain matters, including shareholder approval requirements. Under Bermuda law, we are not required to obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity-based compensation plans, certain transactions other than a public offering involving issuances of a 20% or greater interest in our company and certain acquisitions of the stock or assets of another company.company.
ITEM 16H. | MINE SAFETY DISCLOSURE |
Not applicable.
PART III
ITEM 17. | FINANCIAL STATEMENTS |
See Item 18 below for information regarding our financial statements and additional information required to be disclosed under this Item.
INDEX
| Page |
Report of Independent Registered Public Accounting Firm | F-3 |
Consolidated Balance Sheets of Fly Leasing Limited as of December 31, 20182020 and 20172019 | F-4F-6 |
Consolidated Statements of Income (Loss) of Fly Leasing Limited for the years ended December 31, 2018, 20172020, 2019 and 20162018 | F-5F-7 |
Consolidated Statements of Comprehensive Income (Loss) of Fly Leasing Limited for the years ended December 31, 2018, 20172020, 2019 and 20162018 | F-6F-8 |
Consolidated Statements of Shareholders’ Equity of Fly Leasing Limited for the years ended December 31, 2016, 20172018, 2019 and 20182020 | F-7F-9 |
Consolidated Statements of Cash Flows of Fly Leasing Limited for the years ended December 31, 2018, 20172020, 2019 and 20162018 | F-8F-10 |
Notes to Consolidated Financial Statements | F-10F-12 |
Schedule I — Condensed Financial Information of Parent | F-39 |
Report of Independent Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of
Fly Leasing Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Fly Leasing Limited and subsidiaries (the “Company”) as of December 31, 2018,2020 and 2017,2019, the related consolidated statements of income (loss), comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2018,2020, and the related notes and the schedule listed in the Index at Item 18 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 12, 2019,1, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements of the Company that were communicated or required to be communicated to the audit committee of the Company, and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgment. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Impairment of Flight Equipment — Refer to Notes 2, 6, and 19 to the financial statements
Critical Audit Matter Description
The Company has flight equipment that is recorded net of depreciation and impairment charges. As of December 31, 2020, the carrying value of flight equipment, net was $2.5 billion after recording $115 million of impairment charges during the year ended December 31, 2020. As more fully described in Notes 2, 6, and 19 to the financial statements, the Company’s flight equipment is evaluated for impairment at least annually or when events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable. Possible indicators of impairment may include recent transactions for similar aircraft, adverse changes in market conditions for specific aircraft types, changes in third party appraisals of aircraft, or significant decline in lease rates. When events or changes in circumstances exist, the Company evaluates its flight equipment for impairment by comparing undiscounted future cash flows to their respective carrying amounts. If the sum of undiscounted future cash flows is less than the carrying amount of the asset, an impairment loss is recognized equal to the excess of the carrying amount of the impaired asset over its fair value. Fair value reflects the present value of cash flows expected to be generated in the future, including expected residual value, discounted at an appropriate discount rate.
We identified impairment of flight equipment as a critical audit matter because of assumptions and estimates management makes to evaluate impairment indicators, recoverability of flight equipment, and fair value of flight equipment. These assumptions and estimates include the level of future rents, the residual value of flight equipment to be realized upon sale, and the discount rate utilized. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s impairment analysis as well as their undiscounted and discounted cash flow analyses.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the assessment of flight equipment for possible indicators of impairment and measurement of impairment expense included the following, among other considerations:
We tested the design and operating effectiveness of controls related to flight equipment impairment, including management’s identification of possible events and circumstances that may indicate that the carrying amount of flight equipment may not be recoverable and the significant assumptions used within the recoverability assessment and determination of flight equipment impairment.
We tested the Company’s assessment of qualitative and quantitative impairment indicators by assessing completeness and accuracy of management’s identification and evaluation of impairment indicators.
When indicators of impairment related to flight equipment were identified, we tested the estimated undiscounted future cash flows associated with the flight equipment by:
o | Inquiring with management regarding appropriateness of the assumptions, including those discussed above and related to the impact of the COVID-19 pandemic on the Company’s flight equipment, and evaluating the consistency of the assumptions used with evidence obtained in other areas of the audit. |
o | Comparing the projections included in management’s estimate of future operating cash flows to the Company’s historical results and external market sources and evaluating such projections for management bias. |
o | Evaluating the third-party data used by management to estimate the undiscounted future cash flows by obtaining an understanding of industry trends and assumptions, including the impact of the COVID-19 pandemic on the Company’s flight equipment and benchmarking the third-party data to other external sources. |
When management determined that the carrying value of certain flight equipment was not recoverable, we tested the discounted cash flows associated with the flight equipment by evaluating, with the assistance of our fair value specialists, the appropriateness of management’s discount rate used in the determination of the fair value of flight equipment.
Rent Receivables – Collectibility – Refer to Notes 2 and 6 to the financial statements
Critical Audit Matter Description
The Company records receivables related to rent due under leases of flight equipment within rent receivables, net of any reserves for uncollectible amounts. As of December 31, 2020, the Company had $57 million of rent receivables, net. As more fully described in Notes 2 and 6 to the financial statements, the Company places a lessee on non-accrual status once it determines that it is no longer probable that the Company will receive the economic benefits of the lease. In light of the recent and ongoing COVID-19 pandemic, the Company is closely monitoring changes in the collectibility assessment of its rent receivables as a result of certain lessees suffering adverse financial conditions.
We identified the evaluation of collectibility of rent receivables as a critical audit matter because of the significant judgements and assumptions utilized in determining whether collection of rent receivables is probable. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s assessment of collectibility and its determination of when a lessee should be placed on non-accrual status.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s significant judgments and assumptions in evaluating the collectibility of rent receivables included the following, among others:
We tested the design and operating effectiveness of controls related to the collectibility of rent receivables, including controls over management’s evaluation and determination of non-accrual lessees.
We evaluated management’s estimates of collectibility of rent receivables and its determination of which lessees should be on non-accrual status by:
o | Assessing the inputs used and assumptions made in management’s determination of collectibility by reading available information about the lessees’ public filings, financial statements, news articles and publicly available information about the lessees’ financial condition, among other procedures. |
o | Inquiring with the Company’s employees in departments outside of accounting to corroborate evidence regarding management’s collectibility assessment. |
o | Evaluating evidence obtained through the procedures described above, other evidence obtained throughout our audit, and events or changes in facts and circumstances occurring subsequent to year end, but before the date the financial statements were available to be issued. |
/s/ DELOITTE & TOUCHE LLP
San Francisco, CA
March 12, 20191, 2021
We have served as the Company’s auditor since 2015.2015.
Fly Leasing Limited
Consolidated Balance Sheets
AT DECEMBER 31, 20182020 AND 20172019
(Dollars in thousands, except par value data)
| | December 31, | | | December 31, | |
| | 2018 | | | 2017 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | |
Assets | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 180,211 | | | $ | 329,105 | | | $ | 132,097 | | | $ | 285,565 | |
Restricted cash and cash equivalents | | | 100,869 | | | | 127,710 | | | | 29,432 | | | | 52,738 | |
Rent receivables | | | 9,307 | | | | 2,059 | | |
Rent receivables, net | | | | 57,015 | | | | 14,264 | |
Investment in finance lease, net | | | 12,822 | | | | 13,946 | | | | 10,396 | | | | 11,639 | |
Flight equipment held for sale, net | | | 259,644 | | | | — | | | | 0 | | | | 144,119 | |
Flight equipment held for operating lease, net | | | 3,228,018 | | | | 2,961,744 | | | | 2,529,428 | | | | 2,720,000 | |
Maintenance rights, net | | | 298,207 | | | | 131,299 | | |
Maintenance rights | | | | 279,124 | | | | 290,958 | |
Deferred tax asset, net | | | 6,505 | | | | 9,943 | | | | 11,753 | | | | 11,675 | |
Fair value of derivative assets | | | 5,929 | | | | 2,643 | | | | 2,085 | | | | 4,824 | |
Other assets, net | | | 124,960 | | | | 17,166 | | | | 116,255 | | | | 129,377 | |
Total assets | | $ | 4,226,472 | | | $ | 3,595,615 | | | $ | 3,167,585 | | | $ | 3,665,159 | |
| | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | |
Accounts payable and accrued liabilities | | $ | 23,146 | | | $ | 18,305 | | | $ | 18,135 | | | $ | 22,746 | |
Rentals received in advance | | | 21,322 | | | | 14,968 | | | | 8,724 | | | | 16,391 | |
Payable to related parties | | | 4,462 | | | | 2,084 | | | | 4,058 | | | | 10,077 | |
Security deposits | | | 60,097 | | | | 49,689 | | | | 36,439 | | | | 40,726 | |
Maintenance payment liability, net | | | 292,586 | | | | 244,151 | | | | 203,684 | | | | 219,371 | |
Unsecured borrowings, net | | | 617,664 | | | | 615,922 | | | | 296,876 | | | | 619,407 | |
Secured borrowings, net | | | 2,379,869 | | | | 2,029,675 | | | | 1,642,242 | | | | 1,695,525 | |
Deferred tax liability, net | | | 36,256 | | | | 30,112 | | | | 51,366 | | | | 57,935 | |
Fair value of derivative liabilities | | | 8,558 | | | | 7,344 | | | | 46,169 | | | | 27,943 | |
Other liabilities | | | 80,402 | | | | 39,656 | | | | 70,896 | | | | 76,761 | |
Total liabilities | | | 3,524,362 | | | | 3,051,906 | | | | 2,378,589 | | | | 2,786,882 | |
| | | | | | | | | |
Shareholders’ equity | | | | | | | | | | | | | | | | |
Common shares, $0.001 par value; 499,999,900 shares authorized; 32,650,019 and 27,983,352 shares issued and outstanding at December 31, 2018 and 2017, respectively | | | 33 | | | | 28 | | |
Common shares, $0.001 par value; 499,999,900 shares authorized; 30,481,069 and 30,898,410 shares issued and outstanding at December 31, 2020 and 2019, respectively | | | | 31 | | | | 31 | |
Manager shares, $0.001 par value; 100 shares authorized, issued and outstanding | | | — | | | | — | | | | 0 | | | | 0 | |
Additional paid-in capital | | | 549,123 | | | | 479,637 | | | | 509,738 | | | | 516,254 | |
Retained earnings | | | 154,347 | | | | 68,624 | | | | 312,967 | | | �� | 380,392 | |
Accumulated other comprehensive loss, net | | | (1,393 | ) | | | (4,580 | ) | | | (33,740 | ) | | | (18,400 | ) |
Total shareholders’ equity | | | 702,110 | | | | 543,709 | | | | 788,996 | | | | 878,277 | |
Total liabilities and shareholders’ equity | | $ | 4,226,472 | | | $ | 3,595,615 | | | $ | 3,167,585 | | | $ | 3,665,159 | |
The accompanying notes are an integral part of these consolidated financial statements.
Fly Leasing Limited
Consolidated Statements of Income (Loss)
FOR THE YEARS ENDED DECEMBER 31, 2018, 20172020, 2019 AND 20162018
(Dollars in thousands, except per share data)
| | Years ended | | | Years ended | |
| | 2018 | | | 2017 | | | 2016 | | | 2020 | | | 2019 | | | 2018 | |
Revenues | | | | | | | | | | | | | | | | | | |
Operating lease revenue | | $ | 399,514 | | | $ | 346,894 | | | $ | 313,582 | | | $ | 293,743 | | | $ | 464,399 | | | $ | 399,514 | |
Finance lease revenue | | | 675 | | | | 731 | | | | 2,066 | | | | 557 | | | | 618 | | | | 675 | |
Equity earnings (loss) from unconsolidated subsidiary | | | (54 | ) | | | 496 | | | | 530 | | |
Gain on sale of aircraft | | | 13,398 | | | | 3,926 | | | | 27,195 | | | | 36,003 | | | | 97,323 | | | | 13,398 | |
Interest and other income | | | 4,766 | | | | 1,204 | | | | 1,666 | | | | 4,052 | | | | 12,684 | | | | 4,712 | |
Total revenues | | | 418,299 | | | | 353,251 | | | | 345,039 | | | | 334,355 | | | | 575,024 | | | | 418,299 | |
| | | | | | | | | | | | | |
Expenses | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation | | | 144,084 | | | | 133,227 | | | | 120,452 | | | | 129,561 | | | | 140,798 | | | | 144,084 | |
Aircraft impairment | | | — | | | | 22,000 | | | | 96,122 | | |
Flight equipment impairment | | | | 115,000 | | | | 0 | | | | 0 | |
Interest expense | | | 144,742 | | | | 127,782 | | | | 123,161 | | | | 103,292 | | | | 137,133 | | | | 144,742 | |
Selling, general and administrative | | | 31,185 | | | | 30,671 | | | | 30,077 | | | | 30,902 | | | | 35,304 | | | | 31,185 | |
Provision for uncollectible operating lease receivables | | | | 4,000 | | | | 0 | | | | 0 | |
Loss (gain) on derivatives | | | (2,382 | ) | | | (192 | ) | | | 91 | | | | 1,648 | | | | 2,720 | | | | (2,382 | ) |
Fair value loss on marketable securities | | | | 13,025 | | | | 0 | | | | 0 | |
Loss on modification and extinguishment of debt | | | 2,474 | | | | 23,309 | | | | 9,246 | | | | 1,862 | | | | 9,590 | | | | 2,474 | |
Maintenance and other costs | | | 2,547 | | | | 2,524 | | | | 2,279 | | | | 6,622 | | | | 3,075 | | | | 2,547 | |
Total expenses | | | 322,650 | | | | 339,321 | | | | 381,428 | | | | 405,912 | | | | 328,620 | | | | 322,650 | |
| | | | | | | | | | | | | |
Net income (loss) before provision (benefit) for income taxes | | | 95,649 | | | | 13,930 | | | | (36,389 | ) | | | (71,557 | ) | | | 246,404 | | | | 95,649 | |
Provision (benefit) for income taxes | | | 9,926 | | | | 11,332 | | | | (7,277 | ) | | | (4,132 | ) | | | 20,527 | | | | 9,926 | |
Net income (loss) | | $ | 85,723 | | | $ | 2,598 | | | $ | (29,112 | ) | | $ | (67,425 | ) | | $ | 225,877 | | | $ | 85,723 | |
| | | | | | | | | | | | | |
Weighted average number of shares: | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | 29,744,083 | | | | 30,307,357 | | | | 33,239,001 | | | | 30,551,873 | | | | 31,607,781 | | | | 29,744,083 | |
Diluted | | | 29,783,904 | | | | 30,353,425 | | | | 33,239,001 | | | | 30,551,873 | | | | 31,715,469 | | | | 29,783,904 | |
Earnings (loss) per share: | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 2.88 | | | $ | 0.09 | | | $ | (0.88 | ) | | $ | (2.21 | ) | | $ | 7.15 | | | $ | 2.88 | |
Diluted | | $ | 2.88 | | | $ | 0.09 | | | $ | (0.88 | ) | | $ | (2.21 | ) | | $ | 7.12 | | | $ | 2.88 | |
The accompanying notes are an integral part of these consolidated financial statements.
Fly Leasing Limited
Consolidated Statements of Comprehensive Income (Loss)
FOR THE YEARS ENDED DECEMBER 31, 2018, 20172020, 2019 AND 20162018
(Dollars in thousands)
| | Years ended | |
| | 2018 | | | 2017 | | | 2016 | |
Net income (loss) | | $ | 85,723 | | | $ | 2,598 | | | $ | (29,112 | ) |
Other components of comprehensive income (loss), net of tax: | | | | | | | | | | | | |
Change in fair value of derivatives, net of deferred tax (1) | | | (530 | ) | | | 3,926 | | | | 5,036 | |
Reclassification from other comprehensive loss into earnings due to termination of derivative liabilities, net of deferred tax (2) | | | — | | | | — | | | | (10 | ) |
Reclassification from other comprehensive loss into earnings due to derivatives that no longer qualified for hedge accounting treatment, net of deferred tax (3) | | | 3,717 | | | | 1,239 | | | | 729 | |
Comprehensive income (loss) | | $ | 88,910 | | | $ | 7,763 | | | $ | (23,357 | ) |
| | Years ended | |
| | 2020 | | | 2019 | | | 2018 | |
Net income (loss) | | $ | (67,425 | ) | | $ | 225,877 | | | $ | 85,723 | |
Other components of comprehensive income (loss), net of deferred tax: | | | | | | | | | | | | |
Change in fair value of derivatives, net of deferred tax(1) | | | (14,884 | ) | | | (19,668 | ) | | | (530 | ) |
Reclassification from other comprehensive loss into earnings due to derivatives that no longer qualified for hedge accounting treatment, net of deferred tax(2) | | | (456 | ) | | | 2,829 | | | | 3,717 | |
Comprehensive income (loss) | | $ | (82,765 | ) | | $ | 209,038 | | | $ | 88,910 | |
(1) | The associated deferred tax benefit was $(2,343), $(3,453) and $(678) for the year ended December 31, 2018 was $0.7 million. The associated deferred tax expense was $0.6 million and $0.7 million for the years ended December 31, 20172020, 2019 and 2016, respectively.2018, respectively. |
(2) | The associated deferred tax benefit was $1,000 for the year ended December 31, 2016. |
(3) | The associated deferred tax expense was $0.3 million, $0.2 million$(63), $432 and $0.1 million$295 for the years ended December 31, 2018, 20172020, 2019 and 2016,2018, respectively. |
The accompanying notes are an integral part of these consolidated financial statements.
Fly Leasing Limited
Consolidated Statements of Shareholders’ Equity
FOR THE YEARS ENDED DECEMBER 31, 2016, 20172018, 2019 AND 20182020
(Dollars in thousands)
| | Manager Shares | | | Common Shares | | | Additional | | | | | | Accumulated Other | | | Total | |
| | Shares | | | Amount | | | Shares | | | Amount | | | Paid-in Capital | | | Retained Earnings | | | Comprehensive Loss, net | | | Shareholders’ Equity | |
Balance December 31, 2015 | | | 100 | | | $ | — | | | | 35,671,400 | | | $ | 36 | | | $ | 577,290 | | | $ | 95,138 | | | $ | (15,500 | ) | | $ | 656,964 | |
Shares repurchased | | | — | | | | — | | | | (3,414,960 | ) | | | (4 | ) | | | (40,368 | ) | | | — | | | | — | | | | (40,372 | ) |
Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (29,112 | ) | | | — | | | | (29,112 | ) |
Net change in the fair value of derivatives, net of deferred tax of $0.7 million (1) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 5,036 | | | | 5,036 | |
Reclassification from other comprehensive loss into earnings due to termination of derivative liabilities, net of deferred tax of $1,000 (1) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (10 | ) | | | (10 | ) |
Reclassification from other comprehensive loss into earnings due to derivatives that no longer qualified for hedge accounting treatment, net of deferred tax of $0.1 million (1) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 729 | | | | 729 | |
Balance December 31, 2016 | | | 100 | | | $ | — | | | | 32,256,440 | | | $ | 32 | | | $ | 536,922 | | | $ | 66,026 | | | $ | (9,745 | ) | | $ | 593,235 | |
Shares issued in connection with SARs exercised | | | — | | | | — | | | | 1,481 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Shares repurchased | | | — | | | | — | | | | (4,274,569 | ) | | | (4 | ) | | | (57,285 | ) | | | — | | | | — | | | | (57,289 | ) |
Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,598 | | | | — | | | | 2,598 | |
Net change in the fair value of derivatives, net of deferred tax of $0.6 million (1) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,926 | | | | 3,926 | |
Reclassification from other comprehensive loss into earnings due to derivatives that no longer qualified for hedge accounting treatment, net of deferred tax of $0.2 million (1) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,239 | | | | 1,239 | |
Balance December 31, 2017 | | | 100 | | | $ | — | | | | 27,983,352 | | | $ | 28 | | | $ | 479,637 | | | $ | 68,624 | | | $ | (4,580 | ) | | $ | 543,709 | |
Shares issued in connection with AirAsia Transactions (2) | | | — | | | | — | | | | 4,666,667 | | | | 5 | | | | 69,486 | | | | — | | | | — | | | | 69,491 | |
Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 85,723 | | | | — | | | | 85,723 | |
Net change in the fair value of derivatives, net of deferred tax of $0.7 million (1) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (530 | ) | | | (530 | ) |
Reclassification from other comprehensive loss into earnings due to derivatives that no longer qualified for hedge accounting treatment, net of deferred tax of $0.3 million (1) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,717 | | | | 3,717 | |
Balance December 31, 2018 | | | 100 | | | $ | — | | | | 32,650,019 | | | $ | 33 | | | $ | 549,123 | | | $ | 154,347 | | | $ | (1,393 | ) | | $ | 702,110 | |
| | Manager Shares | | | Common Shares | | | Additional Paid-in | | | Retained | | | Accumulated Other Comprehensive | | | Total Shareholders’ | |
| | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Earnings | | | Loss, net | | | Equity | |
Balance December 31, 2017 | | | 100 | | | $ | 0 | | | | 27,983,352 | | | $ | 28 | | | $ | 479,637 | | | $ | 68,624 | | | $ | (4,580 | ) | | $ | 543,709 | |
Shares issued in connection with AirAsia transactions | | | 0 | | | | 0 | | | | 4,666,667 | | | | 5 | | | | 69,486 | | | | 0 | | | | 0 | | | | 69,491 | |
Net income | | | — | | | | 0 | | | | — | | | | 0 | | | | 0 | | | | 85,723 | | | | 0 | | | | 85,723 | |
Net change in the fair value of derivatives, net of deferred tax of $(678)(1) | | | — | | | | 0 | | | | — | | | | 0 | | | | 0 | | | | 0 | | | | (530 | ) | | | (530 | ) |
Reclassification from other comprehensive loss into earnings due to derivatives that no longer qualified for hedge accounting treatment, net of deferred tax of $295(1) | | | — | | | | 0 | | | | — | | | | 0 | | | | 0 | | | | 0 | | | | 3,717 | | | | 3,717 | |
Balance December 31, 2018 | | | 100 | | | $ | 0 | | | | 32,650,019 | | | $ | 33 | | | $ | 549,123 | | | $ | 154,347 | | | $ | (1,393 | ) | | $ | 702,110 | |
Reclassification from prior period losses into other comprehensive loss due to adoption of new accounting guidance, net of deferred tax of $(52)(1) | | | | | | | | | | | | | | | | | | | | | | | 168 | | | | (168 | ) | | | 0 | |
Adjusted balance January 1, 2019 | | | 100 | | | $ | 0 | | | | 32,650,019 | | | $ | 33 | | | $ | 549,123 | | | $ | 154,515 | | | $ | (1,561 | ) | | $ | 702,110 | |
Shares issued in connection with SARs exercised | | | 0 | | | | 0 | | | | 258,828 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Shares repurchased | | | 0 | | | | 0 | | | | (2,010,437 | ) | | | (2 | ) | | | (32,869 | ) | | | 0 | | | | 0 | | | | (32,871 | ) |
Net income | | | — | | | | 0 | | | | — | | | | 0 | | | | 0 | | | | 225,877 | | | | 0 | | | | 225,877 | |
Net change in the fair value of derivatives, net of deferred tax of $(3,453)(1) | | | — | | | | 0 | | | | — | | | | 0 | | | | 0 | | | | 0 | | | | (19,668 | ) | | | (19,668 | ) |
Reclassification from other comprehensive loss into earnings due to derivatives that no longer qualified for hedge accounting treatment, net of deferred tax of $432(1) | | | — | | | | 0 | | | | — | | | | 0 | | | | 0 | | | | 0 | | | | 2,829 | | | | 2,829 | |
Balance December 31, 2019 | | | 100 | | | $ | 0 | | | | 30,898,410 | | | $ | 31 | | | $ | 516,254 | | | $ | 380,392 | | | $ | (18,400 | ) | | $ | 878,277 | |
Shares repurchased | | | 0 | | | | 0 | | | | (417,341 | ) | | | 0 | | | | (6,516 | ) | | | 0 | | | | 0 | | | | (6,516 | ) |
Net loss | | | — | | | | 0 | | | | — | | | | 0 | | | | 0 | | | | (67,425 | ) | | | 0 | | | | (67,425 | ) |
Net change in the fair value of derivatives, net of deferred tax of $(2,343)(1) | | | — | | | | 0 | | | | — | | | | 0 | | | | 0 | | | | 0 | | | | (14,884 | ) | | | (14,884 | ) |
Reclassification from other comprehensive loss into earnings due to derivatives that no longer qualified for hedge accounting treatment, net of deferred tax of $(63)(1) | | | — | | | | 0 | | | | — | | | | 0 | | | | 0 | | | | 0 | | | | (456 | ) | | | (456 | ) |
Balance December 31, 2020 | | | 100 | | | $ | 0 | | | | 30,481,069 | | | $ | 31 | | | $ | 509,738 | | | $ | 312,967 | | | $ | (33,740 | ) | | $ | 788,996 | |
(1) | See Note 11 to Notes to Consolidated Financial Statements. |
(2) | See Note 14 to Notes to Consolidated Financial Statements. |
The accompanying notes are an integral part of these consolidated financial statements.
Fly Leasing Limited
Consolidated Statements of Cash Flows
FOR THE YEARS ENDED DECEMBER 31, 2018, 20172020, 2019 AND 20162018
(Dollars in thousands)
| | Years ended | | | Years ended | |
| | 2018 | | | 2017 | | | 2016 | | | 2020 | | | 2019 | | | 2018 | |
Cash Flows from Operating Activities | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 85,723 | | | $ | 2,598 | | | $ | (29,112 | ) | | $ | (67,425 | ) | | $ | 225,877 | | | $ | 85,723 | |
Adjustments to reconcile net income (loss) to net cash flows provided by operating activities: | | | | | | | | | | | | | | | | | | | | | | | | |
Finance lease revenue | | | (675 | ) | | | (731 | ) | | | (2,066 | ) | |
Equity in (earnings) loss from unconsolidated subsidiary | | | 54 | | | | (496 | ) | | | (530 | ) | |
Gain on sale of aircraft | | | (13,398 | ) | | | (3,926 | ) | | | (27,195 | ) | | | (36,003 | ) | | | (97,323 | ) | | | (13,398 | ) |
Depreciation | | | 144,084 | | | | 133,227 | | | | 120,452 | | | | 129,561 | | | | 140,798 | | | | 144,084 | |
Aircraft impairment | | | — | | | | 22,000 | | | | 96,122 | | |
Flight equipment impairment | | | | 115,000 | | | | 0 | | | | 0 | |
Amortization of debt discounts and debt issuance costs | | | 9,455 | | | | 7,955 | | | | 9,375 | | | | 7,717 | | | | 9,906 | | | | 9,455 | |
Amortization of lease incentives | | | 9,738 | | | | 7,668 | | | | 8,898 | | |
Amortization of lease premiums, discounts and other items | | | 432 | | | | 412 | | | | 388 | | |
Amortization of acquisition fair value adjustments | | | 1,239 | | | | 1,223 | | | | 1,621 | | |
Amortization of lease incentives and other items | | | | 4,621 | | | | 6,152 | | | | 11,409 | |
Provision for uncollectible operating lease receivables | | | | 4,000 | | | | 0 | | | | 0 | |
Fair value loss on marketable securities | | | | 13,025 | | | | 0 | | | | 0 | |
Loss on modification and extinguishment of debt | | | 2,474 | | | | 23,309 | | | | 9,246 | | | | 1,862 | | | | 9,590 | | | | 2,474 | |
Unrealized foreign exchange (gain) loss | | | (563 | ) | | | 2,305 | | | | (437 | ) | |
Provision (benefit) for deferred income taxes | | | 9,864 | | | | 5,178 | | | | (9,158 | ) | | | (4,296 | ) | | | 20,449 | | | | 9,864 | |
(Gain) loss on derivative instruments | | | (1,269 | ) | | | (478 | ) | | | 76 | | |
Security deposits and maintenance payment liability recognized into earnings | | | (15,597 | ) | | | (16,268 | ) | | | (3,450 | ) | | | (12,650 | ) | | | (47,890 | ) | | | (15,597 | ) |
Security deposits and maintenance payment claims applied towards operating lease revenue | | | — | | | | — | | | | (684 | ) | |
Distributions from unconsolidated subsidiary | | | 2,131 | | | | — | | | | — | | |
Cash receipts from maintenance rights | | | 3,013 | | | | — | | | | 9,513 | | | | 2,725 | | | | 4,637 | | | | 3,013 | |
Maintenance rights recognized into earnings | | | — | | | | 465 | | | | — | | |
Other | | | | 6,864 | | | | 2,345 | | | | (322 | ) |
Changes in operating assets and liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Rent receivables | | | (12,866 | ) | | | (4,251 | ) | | | (1,034 | ) | | | (54,170 | ) | | | (10,668 | ) | | | (12,866 | ) |
Other assets | | | (4,119 | ) | | | (2,599 | ) | | | (1,134 | ) | | | 3,073 | | | | (2,160 | ) | | | (4,119 | ) |
Payable to related parties | | | 2,378 | | | | (10,126 | ) | | | (17,163 | ) | | | (6,019 | ) | | | 5,615 | | | | 2,378 | |
Accounts payable, accrued liabilities and other liabilities | | | 18,982 | | | | 11,588 | | | | (10,964 | ) | | | 2,285 | | | | 4,842 | | | | 18,982 | |
Net cash flows provided by operating activities | | | 241,080 | | | | 179,053 | | | | 152,764 | | | | 110,170 | | | | 272,170 | | | | 241,080 | |
Cash Flows from Investing Activities | | | | | | | | | | | | | | | | | | | | | | | | |
Distributions from unconsolidated subsidiary | | | 3,103 | | | | — | | | | — | | |
Rent received from finance lease | | | 1,800 | | | | 1,880 | | | | 2,970 | | |
Investment in Horizon I Limited equity certificates | | | (5,747 | ) | | | — | | | | — | | |
Purchase of flight equipment | | | (934,481 | ) | | | (434,122 | ) | | | (552,166 | ) | | | (74,940 | ) | | | (319,995 | ) | | | (934,481 | ) |
Proceeds from sale of aircraft, net | | | 177,702 | | | | 21,750 | | | | 430,867 | | | | 187,154 | | | | 824,116 | | | | 177,702 | |
Payments for aircraft improvement | | | | (17,362 | ) | | | (8,085 | ) | | | (6,779 | ) |
Purchase price allocated to Portfolio B orderbook value | | | (80,450 | ) | | | — | | | | — | | | | 0 | | | | 0 | | | | (80,450 | ) |
Payments for aircraft improvement | | | (6,779 | ) | | | (7,357 | ) | | | (2,230 | ) | |
Payments for lessor maintenance obligations | | | (8,601 | ) | | | (12,564 | ) | | | (2,712 | ) | | | (521 | ) | | | (2,110 | ) | | | (8,601 | ) |
Net cash flows used in investing activities | | | (853,453 | ) | | | (430,413 | ) | | | (123,271 | ) | |
Purchase of marketable securities | | | | 0 | | | | (10,481 | ) | | | (5,747 | ) |
Other | | | | (536 | ) | | | (2,059 | ) | | | 4,903 | |
Net cash flows provided by (used in) investing activities | | | | 93,795 | | | | 481,386 | | | | (853,453 | ) |
| | Years ended | |
| | 2018 | | | 2017 | | | 2016 | |
Cash Flows from Financing Activities | | | | | | | | | |
Security deposits received | | | 15,042 | | | | 7,196 | | | | 920 | |
Security deposits returned | | | (8,716 | ) | | | (3,554 | ) | | | (7,438 | ) |
Maintenance payment liability receipts | | | 84,102 | | | | 75,765 | | | | 71,514 | |
Maintenance payment liability disbursements | | | (15,495 | ) | | | (14,303 | ) | | | (10,951 | ) |
Net swap termination payments | | | 1,801 | | | | — | | | | (709 | ) |
Debt modification and extinguishment costs | | | 301 | | | | (17,396 | ) | | | (3,153 | ) |
Debt issuance costs | | | (3,619 | ) | | | (1,464 | ) | | | (2,552 | ) |
Proceeds from unsecured borrowings | | | — | | | | 295,150 | | | | — | |
Repayment of unsecured borrowings | | | — | | | | (375,000 | ) | | | — | |
Proceeds from secured borrowings | | | 826,396 | | | | 513,459 | | | | 572,719 | |
Repayment of secured borrowings | | | (482,703 | ) | | | (326,909 | ) | | | (448,346 | ) |
Net proceeds from issuance of shares | | | 19,624 | | | | — | | | | — | |
Shares repurchased | | | — | | | | (57,286 | ) | | | (40,257 | ) |
Net cash flows provided by financing activities | | | 436,733 | | | | 95,658 | | | | 131,747 | |
Effect of exchange rate changes on unrestricted and restricted cash and cash equivalents | | | (95 | ) | | | 430 | | | | (84 | ) |
Net increase (decrease) in unrestricted and restricted cash and cash equivalents | | | (175,735 | ) | | | (155,272 | ) | | | 161,156 | |
Unrestricted and restricted cash and cash equivalents at beginning of period | | | 456,815 | | | | 612,087 | | | | 450,931 | |
Unrestricted and restricted cash and cash equivalents at end of period | | $ | 281,080 | | | $ | 456,815 | | | $ | 612,087 | |
| | | | | | | | | | | | |
Reconciliation to Consolidated Balance Sheets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 180,211 | | | $ | 329,105 | | | $ | 517,964 | |
Restricted cash and cash equivalents | | | 100,869 | | | | 127,710 | | | | 94,123 | |
Unrestricted and restricted cash and cash equivalents | | $ | 281,080 | | | $ | 456,815 | | | $ | 612,087 | |
| | Years ended | |
| | 2020 | | | 2019 | | | 2018 | |
Cash Flows from Financing Activities | | | | | | | | | |
Security deposits received | | $ | 4,009 | | | $ | 4,369 | | | $ | 15,042 | |
Security deposits returned | | | (349 | ) | | | (4,617 | ) | | | (8,716 | ) |
Maintenance payment liability receipts | | | 21,593 | | | | 60,744 | | | | 84,102 | |
Maintenance payment liability disbursements | | | (13,196 | ) | | | (22,567 | ) | | | (15,495 | ) |
Net swap termination proceeds | | | 0 | | | | 0 | | | | 1,801 | |
Debt modification and extinguishment costs | | | (230 | ) | | | (2,052 | ) | | | 301 | |
Debt issuance costs | | | (3,312 | ) | | | (342 | ) | | | (3,619 | ) |
Repayment of unsecured borrowings | | | (325,000 | ) | | | 0 | | | | 0 | |
Proceeds from secured borrowings | | | 171,900 | | | | 0 | | | | 826,396 | |
Repayment of secured borrowings | | | (229,786 | ) | | | (698,989 | ) | | | (482,703 | ) |
Net proceeds from issuance of shares | | | 0 | | | | 0 | | | | 19,624 | |
Shares repurchased | | | (6,516 | ) | | | (32,871 | ) | | | 0 | |
Net cash flows (used in) provided by financing activities | | | (380,887 | ) | | | (696,325 | ) | | | 436,733 | |
Effect of exchange rate changes on unrestricted and restricted cash and cash equivalents | | | 148 | | | | (8 | ) | | | (95 | ) |
Net increase (decrease) in unrestricted and restricted cash and cash equivalents | | | (176,774 | ) | | | 57,223 | | | | (175,735 | ) |
Unrestricted and restricted cash and cash equivalents at beginning of year | | | 338,303 | | | | 281,080 | | | | 456,815 | |
Unrestricted and restricted cash and cash equivalents at end of year | | $ | 161,529 | | | $ | 338,303 | | | $ | 281,080 | |
| | | | | | | | | | | | |
Reconciliation to Consolidated Balance Sheets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 132,097 | | | $ | 285,565 | | | $ | 180,211 | |
Restricted cash and cash equivalents | | | 29,432 | | | | 52,738 | | | | 100,869 | |
Unrestricted and restricted cash and cash equivalents | | $ | 161,529 | | | $ | 338,303 | | | $ | 281,080 | |
The accompanying notes are an integral part of these consolidated financial statements.
Fly Leasing Limited
Notes to Consolidated Financial Statements
For the year ended December 31, 2018
Fly Leasing Limited (“Fly”) is a Bermuda exempted company that was incorporated on May 3, 2007, under the provisions of Section 14 of the Companies Act 1981 of Bermuda. Fly was formed to acquire, finance, lease and sell commercial jet aircraft directly or indirectly through its subsidiaries (Fly and its subsidiaries collectively, the “Company”).
Although Fly is organized under the laws of Bermuda, it is a resident of Ireland for tax purposes and is subject to Irish corporation tax on its income in the same way, and to the same extent, as if it werethe Company was organized under the laws of Ireland.
In accordance with Fly’s amended and restated bye-laws, Fly issued 100 shares (“Manager Shares”) with a par value of $0.001 to Fly Leasing Management Co. Limited (the “Manager”) for no consideration. Subject to the provisions of Fly’s amended and restated bye-laws, the Manager Shares have the right to appoint the nearest whole number of directors to Fly which is not more than 3/7th of the number of directors comprising the board of directors. The Manager Shares are not entitled to receive any dividends, are not convertible into common shares and, except as provided for in Fly’s amended and restated bye-laws, have no voting rights.
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
BASIS OF PREPARATION
Fly is a holding company that conducts its business through its subsidiaries. Fly directly or indirectly owns all of the common shares of its consolidated subsidiaries. The consolidated financial statements presented are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The consolidated financial statements include the accounts of Fly and all of its subsidiaries. In instances where it is the primary beneficiary, the Company consolidates a Variable Interest Entity (“VIE”). Fly is deemed the primary beneficiary when it has both the power to direct the activities of the VIE that most significantly impact the economic performance of such VIE, and it bears the significant risk of loss and participates in gains of the VIE. All intercompany transactions and balances have been eliminated. The consolidated financial statements are stated in U.S. Dollars, which is the principal operating currency of the Company.
The Company has one1 operating and reportable segment which is aircraft and aircraft equipment leasing.
Certain amounts in prior period consolidated financial statements have been reclassified to conform to the current period presentation.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The use of estimates is or could be a significant factor affecting the reported carrying values of rent receivables, flight equipment, deferred tax assets, liabilities and reserves. To the extent available, the Company utilizes industry specific resources, third-party appraisers and other materials to support management’s estimates, particularly with respect to flight equipment. Despite management’s best efforts to accurately estimate such amounts, actual results could differ from those estimates.
RISKS AND UNCERTAINTIES
The Company encounters several types of risk during the course of its business, including credit, market, aviation industry and capital market risks. Credit risk addresses a lessee’s or derivative counterparty’s inability or unwillingness to make contractually required payments. Market risk reflects the change in the value of derivatives and credit facilities due to changes in interest rate spreads or other market factors, including the value of collateral underlying the Company’s credit facilities. Aviation industry risk is the risk of a downturn in the commercial aviation industry, as a result of global, regional or industry-specific factors, which could adversely impact a lessee’s ability to make payments, increase the risk of unscheduled lease terminations and depress lease rates and the value of the Company’s aircraft and aircraft equipment. Capital market risk is the risk that the Company is unable to obtain capital at reasonable rates to fund the growth of its business or to refinance existing credit facilities.
COVID-19 PANDEMIC
On January 30, 2020, the spread of COVID-19 was declared a Public Health Emergency of International Concern by the World Health Organization (“WHO”), and on March 11, 2020, the WHO characterized the COVID-19 outbreak as a pandemic. The COVID-19 pandemic and the measures that governments and private parties have implemented in response to the pandemic have caused significant economic disruption and have had, and are likely to continue to have, a material adverse effect on the demand for worldwide air travel, the airline industry and demand for commercial jet aircraft globally, all of which have had, and are likely to continue to have, an adverse effect on the Company’s business, results of operations, financial condition, cash flows and growth prospects.
Beginning in March 2020 and continuing into 2021, airlines around the world experienced a material decline in demand for their services as well as materially increased cancellations for pre-paid trips compared to historic norms. Although air travel demand improved in the second half of 2020, it remained significantly less than the prior year. These circumstances have had a material adverse effect on the ability of the Company’s lessees to fulfill their obligations under their leases with the Company and, in some cases, have cause the Company’s lessees to default on their obligations, or to initiate bankruptcy or similar proceedings.
In response to these developments, beginning in March 2020 and continuing into 2021, the Company has worked closely with its airline customers to support their continued operations, while at the same time seeking to enhance the Company’s liquidity and position it for recovery.
During the year ended December 31, 2020, the Company executed agreements with 16 lessees to defer their rent payment obligations for 37 aircraft totaling $64.0 million due to us over the life of the leases. These deferrals are for an average of nine months with approximately half of the deferrals to be repaid by the end of 2021. The Company also agreed to lease restructurings with certain of its lessees. In addition to rent deferrals, the significant decline in air travel has resulted in decreased usage of the Company’s aircraft by lessees, which is likely to reduce future supplemental maintenance rent and end-of-lease compensation payable by the lessees to the Company. Reductions in payments by the Company’s lessees under their leases has adversely affected the Company’s cash flows and its results of operations.
The Company’s unrestricted cash and cash equivalents as of December 31, 2020, was $132.1 million, as a result of the Company’s efforts to enhance its liquidity and strengthen its financial position. In the fourth quarter of 2020, the Company entered into a $180.0 million senior secured term loan with a consortium of lenders, and repurchased and redeemed the principal amount of $325.0 million of its 6.375% Senior Notes due 2021. In addition, in the fourth quarter of 2020, the Company sold 2 aircraft, which generated additional cash to strengthen the Company’s financial condition. The Company had also suspended share repurchases in March 2020 and this program expired in September 2020.
The full extent of the impact of COVID-19on the airline industry and the Company’s business, results of operations, financial condition, cash flows, and growth prospects is uncertain and will depend on many factors outside the Company’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic; the availability, distribution and effectiveness of vaccines; the measures implemented by governments or private parties to reduce the spread of COVID-19; and the impact of the pandemic on the global economy and demand for air travel.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. All cash and cash equivalents are held by major financial institutions.
RESTRICTED CASH AND CASH EQUIVALENTS
The Company’s restricted cash and cash equivalents consist primarily of (i) security deposits and certain maintenance payments received from lessees under the terms of the lease agreements, (ii) a portion of rents collected which may be required to be held as cash collateral under certain of the Company’s debt facilities and (iii) other cash, which may be subject to withdrawal restrictions pursuant to the Company’s credit agreements. All restricted cash is held by major financial institutions in segregated accounts.
RENT RECEIVABLES
Rent receivables represent unpaid lessee obligations under existing lease contracts. AnyThe allowance for doubtful accounts is established on a specific identification basis anduncollectible operating lease receivables is maintained at a level believed by management to be adequate to absorb probable losses associated with rent receivables. The assessment of credit risk is primarily based on the extent to which amounts outstanding exceed the value of security held, the financial strength and condition of a debtor and the current economic and regulatory conditions of the debtor’s operating environment. Determination of the allowance is inherently subjective as it requires significant estimates, including the amounts and timing of expected future cash flows and consideration of current factors and economic trends impacting the lessees and their credit worthiness, all of which may be susceptible to significant change.
The Company maintains an allowance for uncollectible operating lease receivables for losses it estimates will arise from its lessees’ inability to make their required lease payments. The Company evaluates the collectability of rent receivables and determines the appropriate provision for uncollectible operating lease receivables based on historical experience and a review of specific lessees. Uncollectible rent receivables are charged off against the allowance, while recoveries of amounts previously charged off are credited to the allowance. ADuring the year ended December 31, 2020, the Company recorded a provision for credit losses is recorded based on management’s periodic evaluation uncollectible operating lease receivables of the factors previously mentioned, as well as other pertinent factors. As of December 31, 2018 and 2017, the Company had no allowance for doubtful accounts.$4.0 million.
In addition, the Company places a lessee on non-accrual status once it determines that it is no longer probable that the Company will receive the economic benefits of the lease. The Company recognizes revenue from a lessee on non-accrual status only asto the extent cash is received.received.
INVESTMENT IN FINANCE LEASE
The Company has recorded one1 lease as an investment in finance lease. The investment in finance lease equals the sum of amounts to be received under the lease, plus the estimated residual value of the equipment at lease termination, less unearned income. Residual value reflects management’s estimate of the amounts to be received at lease termination from the re-lease or disposition of the leased equipment. Initial unearned income represents the amount by which the original sum of the lease receivable and the estimated residual value exceeds the original cost of the leased equipment. Unearned income is recognized as finance lease income over the lease term in a manner that produces a constant rate of return on the net investment in the lease based on an implicit interest rate. Initial direct costs and fees related to lease origination are deferred as part of the investment and amortized over the lease term.
FLIGHT EQUIPMENT HELD FOR SALE
Flight equipment is classified as held for sale when the Company commits to and commences a plan of sale that is reasonably expected to be completed within one year and satisfies certain other criteria. Flight equipment held for sale is recorded at the lesser of carrying value or fair value, less estimated cost to sell. The Company continues to recognize rent from aircraft held for sale until the date the aircraft is sold. An impairment loss is recorded for an asset or asset group held for sale when the carrying value of the asset or asset group exceeds its fair value, less estimated cost to sell. Aircraft classified as flight equipment held for sale are not depreciated.
Subsequent changes to the asset’s fair value are recorded as adjustments to the carrying value of the flight equipment. However, any such adjustment will not cause the asset’s fair value to exceed its original carrying value.
FLIGHT EQUIPMENT HELD FOR OPERATING LEASE
Flight equipment held for operating lease areis recorded at cost, net of any impairment charges, and depreciated to estimated residual values on a straight-line basis over their estimated remaining useful lives. Useful life is generally 25 years from the date of manufacture. Residual values are generally estimated to be 15% of the original manufacturer’s estimated realized price for the flight equipment when new. Management may, at its discretion, make exceptions to this policy on a case by case basis when, in its judgment, the residual value calculated pursuant to this policy does not appear to reflect current expectations of residual values. Examples of such situations include, but are not limited to:
| ● | Flight equipment where original manufacturer’s prices are not relevant due to plane modifications and conversions. |
| ● | Flight equipment that is out of production and may have a shorter useful life or lower residual value due to obsolescence. |
| ● | The remaining life of a converted freighter is determined based on the date of conversion, in which case, the total useful life may extend beyond 25 years from the date of manufacture. |
| ● | Flight equipment that management believes will be disposed of prior to the end of its estimated useful life. |
Estimated residual values and useful lives of flight equipment are reviewed and adjusted, if appropriate, during each reporting period.
Aircraft improvements or lessee-specific aircraft modifications to be performed by the Company pursuant to a lease agreement are accounted for as lease incentives and amortized against revenue over the term of the lease, assuming no lease renewal. Generally, lessees are responsible for repairs, scheduled maintenance and overhauls during the lease term and compliance with return conditions of flight equipment at lease termination.
Major aircraft improvements and modifications incurred during an off-lease period are capitalized and depreciated over a period to the remaining life of the flight equipment.next scheduled maintenance event. In addition, costs paid by the Company for scheduled maintenance and overhauls are also capitalized and depreciated over a period to the next scheduled maintenance or overhaul event. Miscellaneous repairs are expensed when incurred.
IMPAIRMENT OF FLIGHT EQUIPMENT
Impairment analyses require the use of assumptions and estimates, including the level of future projected rents, the estimated residual value of the flight equipment to be realized upon sale at some future date, estimated downtime between re-leasing events, the amount of re-leasing costs and the discount rate utilized to calculate the present value of expected future cash flows.
The Company evaluates flight equipment for impairment whenat least annually or whenever events or circumstances indicate that the carrying amounts of such assets may not be recoverable. The Company’s evaluation of impairment indicators include, but areis not limited to, recent transactions for similar aircraft or aircraft equipment, adverse changes in market conditions for specific aircraft or engine types, changes in third party appraisals of aircraft and aircraft equipment, published values for similar aircraftand a significant decline in lease rates. When events or aircraft equipment, any occurrence of adverse changes in circumstances exist, the aviation industry and the overall market conditions that could impact the fair value of the Company’s aircraft and aircraft equipment.Company performs a review for recoverability by comparing undiscounted future cash flows to their respective carrying amounts. The review for recoverability includes an assessment of the estimated future cash flows associated with the use of an asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, the Company will assess whether the carrying values of the flight equipment exceed the fair values and an impairment loss is required. The undiscounted cash flows consist of cash flows from currently contracted leases,lease rates, future projected lease rates, transitionre-leasing costs, estimated down time and estimated residual or scrap values for an aircraft. The Company will also record an impairment charge if the expected sale proceeds of an aircraft or aircraft equipment are less than its carrying value. The impairment loss is measured as the excess of the carrying amount of the impaired asset overaircraft on its fair value.eventual disposition.
Future cash flows are assumed to occur under current market conditions and assume adequate time for a sale between a willing and able buyer and a willing seller. Expected future lease rates are based on all relevant information available, including the existing lease, current contracted rates for similar aircraft, appraisal data and industry trends. Residual value assumptions generally reflect an aircraft’s salvage value, except where more recent industry information indicates a different value is appropriate.
Impairment analyses requireIf the usesum of assumptions and estimates, including the levelexpected future undiscounted cash flows without interest charges is less than the carrying amount of future rents, the residualasset, the Company will assess whether the carrying value of the flight equipment exceeds the fair value and an impairment loss is required. In that instance, an impairment loss is recognized equal to be realized upon sale at some future date, estimated downtime between re-leasing events and the excess of the carrying amount of re-leasing costs.the impaired asset over its fair value. Fair value reflects the present value of the expected future cash flows, including residual value, discounted at an appropriate rate.
During the year ended December 31, 2020, the Company recognized impairment of $115.0 million. Changes to expected future cash flows could result in impairment charges which could have a significant impact on the Company’s results of operations.
MAINTENANCE RIGHTS
The Company identifies, measures and accounts for maintenance right assets and liabilities associated with its acquisitions of aircraft or aircraft equipment with in-place leases. A maintenance right asset represents the value of its contractual right under a lease to receive an aircraft or aircraft equipment in an improved maintenance condition at lease expiry as compared to the maintenance condition on the acquisition date. A maintenance right liability represents the Company’s obligation to pay the lessee for the difference between the contractual maintenance condition of the aircraft or aircraft equipment at lease expiry and the actual maintenance condition of the aircraft or aircraft equipment on the acquisition date.
The Company’s aircraft and aircraft equipment are typically subject to triple-net leases pursuant to which the lessee is responsible for maintenance, which is accomplished through one of two types of provisions in its leases: (i) end of lease return conditions (EOL Leases) or (ii) periodic maintenance payments (MR Leases).
EOL Leases
Under EOL Leases, the lessee is obligated to comply with certain return conditions which require the lessee to perform lease end maintenance work or make cash compensation payments at the end of the lease to bring the aircraft or aircraft equipment into a specified maintenance condition.condition.
Maintenance right assets in EOL Leases represent the difference in value between the contractual right to receive an aircraft or aircraft equipment in an improved maintenance condition at lease expiry as compared to the maintenance condition on the acquisition date. Maintenance right liabilities exist in EOL Leases if, on the acquisition date, the maintenance condition of the aircraft or aircraft equipment is greater than the contractual return condition in the lease at lease expiry and the Company is required to pay the lessee in cash for the improved maintenance condition.condition.
When the Company has recorded maintenance right assets with respect to EOL Leases, the following accounting scenarios exist: (i) the aircraft or aircraft equipment is returned at lease expiry in the contractually required maintenance condition without any cash payment to the Company by the lessee, the maintenance right asset is relieved and an aircraft improvement is recorded to the extent the improvement is substantiated and deemed to meet the Company’s capitalization policy; (ii) the lessee pays the Company cash compensation at lease expiry in excess of the value of the maintenance right asset, the maintenance right asset is relieved and any excess is recognized as end of lease income; or (iii) the lessee pays the Company cash compensation at lease expiry that is less than the value of the maintenance right asset, the cash is applied to the maintenance right asset and the balance of such asset is relieved and recorded as an aircraft improvement to the extent the improvement is substantiated and meets the Company’s capitalization policy. Any aircraft improvement will be depreciated over a period to the next scheduled maintenance event in accordance with the Company’s policy with respect to major maintenance.maintenance.
When the Company has recorded maintenance right liabilities with respect to EOL Leases, the following accounting scenarios exist: (i) the aircraft or aircraft equipment is returned at lease expiry in the contractually required maintenance condition without any cash payment by the Company to the lessee, the maintenance right liability is relieved and end of lease income is recognized; (ii) the Company pays the lessee cash compensation at lease expiry of less than the value of the maintenance right liability, the maintenance right liability is relieved and any difference is recognized as end of lease income; or (iii) the Company pays the lessee cash compensation at lease expiry in excess of the value of the maintenance right liability, the maintenance right liability is relieved and the excess amount is recorded as an aircraft improvement.improvement to the extent the improvement is substantiated and deemed to meet the Company’s capitalization policy.
MR Leases
Under MR Leases, the lessee is required to make periodic maintenance payments to the Company based upon usage of the aircraft or aircraft equipment. When qualified major maintenance is performed during the lease term, the Company is required to reimburse the lessee for the costs associated with such maintenance. At the end of lease, the Company is entitled to retain any cash receipts in excess of the required reimbursements to the lessee.
Maintenance right assets in MR Leases represent the right to receive an aircraft or aircraft equipment in an improved condition relative to the actual condition on the acquisition date. The aircraft or aircraft equipment is improved by the performance of qualified major maintenance paid for by the lessee who is reimbursed by the Company from the periodic maintenance payments that it receives.
When the Company has recorded maintenance right assets with respect to MR Leases, the following accounting scenarios exist: (i) the aircraft or aircraft equipment is returned at lease expiry and no qualified major maintenance has been performed by the lessee since the acquisition date, the maintenance right asset is offset by the amount of the associated maintenance payment liability and any excess is recorded as end of lease income, which is consistent with the Company’s existing policy;income; or (ii) the Company has reimbursed the lessee for the performance of qualified major maintenance, the maintenance right asset is relieved and an aircraft improvement is recorded.
There are no maintenance right liabilities for MR Leases.
When flight equipment is sold, maintenance rights are released from the balance sheet as part of the disposition gain or loss.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to manage its exposure to interest rate and foreign currency risks. All derivatives are recognized on the balance sheet at their fair values. Pursuant to U.S. GAAP, changes in the fair value of the item being hedged are recognized into earnings in the same period and in the same income statement line as the change in the fair value of the derivative instrument. On the date that the Company enters into a derivative contract, the Company typically documents all relationships between the hedging instruments and the hedged items, as well as its risk management objective and strategy for undertaking each hedge transaction.
Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the balance sheet as either a freestanding asset or liability. Changes in the fair value of a derivative that is designated and qualifies as an effective cash flow hedge are recorded in accumulated other comprehensive income, net of tax, until earnings are affected by the variability of cash flows of the hedged item. Any derivative gains andor losses from derivatives that are not highly effective in hedging the variability of expected cash flows of the hedged itemitems or that do not qualify for hedge accounting treatment are recognized directly into income.income.
At the hedge’s inception and at least every reporting period thereafter, a formal assessment is performed to determine whether changes in cash flows of the derivative instrument have been highly effective in offsetting changes in the cash flows of the hedged items and whether they are expected to be highly effective in the future. The Company discontinues hedge accounting prospectively when (i) it determines that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item; (ii) the derivative expires or is sold, terminated, or exercised; or (iii) management determines that designating the derivative as a hedging instrument is no longer appropriate. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the derivative instrument is carried at its fair value on the balance sheet with changes in fair value recognized into current-period earnings. The remaining balance in accumulated other comprehensive income associated with the derivative that has been discontinued is not recognized in the income statement unless it is probable that the forecasted transaction will not occur. Such amounts are recognized in earnings when earnings are affected by the hedged transaction.
OTHER ASSETS
Other assets consist primarily of the Company’s Portfolio B orderbook value (see Note 617 below), investment in equity certificates which are considered marketable securities, net value added tax receivables, investment in unconsolidated subsidiary unamortized lease premiums, initial direct lease costs and other miscellaneous receivables.receivables.
The Company accountsInvestment in equity certificates are initially accounted for its interest in the unconsolidated subsidiary using the equity method as it does not control the entity. Under the equity method, the Company’s investment is initially recorded at cost and the carrying amount is affected by its share of the unconsolidated subsidiary’s undistributed earnings and losses, and distributions of dividends and capital.
The Company periodically reviews the carrying amount of its investment in the unconsolidated subsidiary, including whenever events orsubsequent changes in circumstances indicate that a decline in value may have occurred. If its investment is determined to be impaired on an other-than-temporary basis, a loss equal to the difference between the fair value of the investment and its carrying value is recorded in the period of identification.are recognized into income.
SECURITY DEPOSITS
In the normal course of leasing flight equipment to third parties under its lease agreements, the Company receives cash or letters of credit as security for certain contractual obligations, which are held on deposit until termination of the lease. Security deposits are returned to the lessee at lease termination or taken into income if the lessee fails to perform under its lease.
MAINTENANCE PAYMENT LIABILITY
The Company’s flight equipment is typically subject to triple-net leases under which the lessee is responsible for maintenance, insurance and taxes. Fly’s operating leases also obligate the lessees to comply with all governmental requirements applicable to the flight equipment, including without limitation, operational, maintenance, registration and airworthiness directives.
Under the terms of the lease agreements, cash collected from lessees for future maintenance of the aircraft is recorded as maintenance payment liabilities. The Company does not recognize such maintenance payments as revenue during the lease term. Maintenance payment liabilities are attributable to specific aircraft and are typically based on hours or cycles of utilization, depending upon the component. Upon the occurrence of qualified maintenance events, the lessee submits a request for reimbursement and upon disbursement of the funds, the liability is relieved.
The lessor may be obligated to contribute to maintenance related expenses on an aircraft during the term of the lease. In other instances, the lessee or lessor may be obligated to make a payment to the other party at lease termination based on a computation stipulated in the lease agreement. The calculation is based on utilization and condition of the airframe, engines and other major life-limited components as determined at lease termination.
The Company may also incur maintenance expenses on off-lease aircraft. Scheduled major maintenance or overhaul activities and costs for certain high-value components that are paid by the Company are capitalized and depreciated over the period until the next overhaul is required. Payments made by the Company for minor maintenance, repairs and re-leasing of aircraft are expensed as incurred.
At lease termination, maintenance payment liabilities are offset against any maintenance right balance for the aircraft, and the remainder is recognized as end of lease income. When flight equipment is sold, the maintenance payment liability amounts may be remitted to the buyer in accordance with the terms of the related agreements and are released from the balance sheet as part of the disposition gain or loss.
REVENUE RECOGNITION
Revenue isThe Company principally leases flight equipment under operating leases. Revenues are recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. Where revenue amounts do not meet these recognition criteria, recognition is delayed until the criteria are met.
| ● | Operating lease revenue. revenue. The Company receives lease revenue from flight equipment under operating leases. Rental income from aircraft and aircraft equipment is recognized on a straight-line basis over the initial term of the respective lease. The operating lease agreements generally do not provide for purchase options, however, the leases may allow the lessee to exercise an option to extend the lease for an additional term. Contingent rents are recognized as revenue when the contingency is resolved. Revenue is not recognized when collection is not reasonably assured.probable. |
Changes to the timing of cash rent receipts, such as under rent deferral arrangements, do not generally affect the total amount of consideration to be received under the lease and therefore do not typically impact revenue recognition, provided that the Company determines collection of rents is probable.
| ● | End of lease income. income. The amount of end of lease income the Company recognizes in any reporting period is inherently volatile and depends upon a number of factors, including the timing of both scheduled and unscheduled lease expiries and the timing of maintenance performed on the aircraft or aircraft equipment by the lessee, among others. |
| ● | Lease incentives.The Company’s leases may contain provisions which require it to contribute a portion of the lessee’s costs for heavy maintenance, overhaul or replacement of certain high-value components. The Company accounts for these expected payments as lease incentives, which are amortized as a reduction of lease revenue over the life of the lease. |
| ● | Lease premiums and lease discounts. discounts. Lease premiums and lease discounts are amortized into operating lease revenue over the lease term. Amortization of lease premiums decreases rental revenue and amortization of lease discounts increases rental revenue. |
| ● | Finance lease income. income. Revenue from finance lease is recognized using the interest method to produce a level yield over the life of the finance lease. |
INCOME TAXES
The Company provides for income taxes by tax jurisdiction. Deferred income tax assets and liabilities are recognized for the future tax consequences of temporary differences between the financial statements and tax basis of existing assets and liabilities at the enacted tax rates expected to apply when the assets are recovered or liabilities are settled. A valuation allowance is used to reduce deferred tax assets to the amount that management ultimately expects to be more likely than not realized.
The Company recognizes an uncertain tax benefit only to the extent that it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The Company has elected to classify interest on unpaid income taxes and penalties as a component of the provision (benefit) for income taxes. Notaxes. NaN interest on unpaid income taxes and penalties were incurred during each of the years ended December 31, 2018, 2017 and 2016.2020, 2019, or 2018.
NEW ACCOUNTING PRONOUNCEMENTS
In May 2014, FASBJune 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 outlines a single comprehensive2016-13, Measurement of Credit Losses on Financial Instruments, which amends its guidance on the impairment of financial instruments. The standard adds to U.S. GAAP an impairment model, for entities to use in accounting for revenues arising from contracts with customers.known as the current expected credit loss model, that is based on expected losses rather than incurred losses. Under the new guidance, revenuean entity recognizes its estimate of lifetime expected credit losses as an allowance for most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, investment in finance leases and off-balance sheet credit exposures. The FASB believes the new accounting standard will result in more timely recognition of losses. The standard is recognized whenapplied on a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expectsmodified retrospective approach. ASU 2016-13 does not apply to receive in exchange for those goods or services. In addition, the guidance requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The guidance specifically notes thatoperating lease contracts are a scope exception. The guidance is effective for annual reporting periods, including interim periods, beginning after December 15, 2017.receivables. The Company adopted the guidance effective January 1, 2018.2020. The adoption of the standard did not have a significant impactmaterial effect on the Company’s consolidated financial statements and the related footnotes because lease revenue, which comprises the majority of the Company’s revenue, is excluded from the scope of this guidance.statements.
In February 2016, the Financial Accounting Standards Board (the “FASB”) issued its new lease guidance, ASU 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. FASB has decided that lessors will be precluded from recognizing selling profit and revenue at lease commencement for any finance lease that does not transfer control of the underlying asset to the lessee. In addition, the new guidance will require lessors to capitalize, as initial direct costs, only those costs that are incurred in connection with the execution of a lease. Any other costs incurred, including allocated indirect costs, will no longer be capitalized and instead will be expensed as incurred.
In July 2018, the FASB issued new guidance to provide entities with relief from the costs of implementing certain aspects of ASU 2016-02, Leases, (Topic 842). Under a new transition method, entities can elect to not restate comparative periods presented in financial statements in the period of adoption. The FASB also issued new practical expedients that allows lessors to elect not to separate lease and associated lease components within a contract if the following conditions are met:
| · | The timing and pattern of transfer for the non-lease component and the associated lease component are the same; and |
| · | The stand-alone lease component would be classified as an operating lease if accounted for separately. |
The new leasing guidance is effective for annual reporting periods (including interim periods) beginning after December 15, 2018, and early adoption is permitted. The Company adopted the guidance effective January 1, 2019 and elected the practical expedients and transition relief, which will not requirerelief. Accordingly, the Company to restate comparative periods. The adoption did not result in any adjustment to the Company’s consolidated balance sheets, resultsfinancial statements.
In August 2017, FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815). ASU 2017-12 is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. Under the guidance, if a cash flow hedge is highly effective, all changes in the fair value of the derivative hedging instrument will be recorded in other comprehensive income and reclassified to earnings when the hedged item impacts earnings. After initial qualification, the new guidance permits a qualitative effectiveness assessment for certain hedges instead of a quantitative test, such as a regression analysis, if the company can reasonably support an expectation of high effectiveness throughout the term of the hedge. An initial quantitative test to establish that the hedge relationship is highly effective is still required. Additional disclosures include cumulative basis adjustments for fair value hedges and the effect of hedging on individual income statement line items. The guidance will be effective for annual reporting periods (including interim periods) beginning after December 15, 2018, and early adoption will be permitted. The Company adopted the guidance effective January 1, 2019. The standard did not have a material effect on the Company’s consolidated balance sheets, results of operations or cash flows.
In August 2018, the Securities and Exchange Commission (the “Commission”) issued a final rule that amended certain disclosure requirements that had become redundant, duplicative, overlapping, outdated or superseded. The amendments were intended to facilitate the disclosure of information to investors and simplify compliance without significantly altering the total mix of information provided to investors. The final rule included amendments requiring an analysis of changes in stockholders’ equity for the current and comparative year-to-date interim periods, including dividends per share instead of presenting dividends per share on the face of the income statement. The final rule became effective on November 5, 2018. The standard did not have a material effect on the Company’s consolidated balance sheets, results of operations or cash flows. The Company has applied the amendments commencing with the quarter ended September 30, 2018.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 removes the following disclosure requirements from Topic 820:
| ·● | The amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; |
| ·● | The policy for timing of transfers between levels; and |
| ·● | The valuation processes for Level 3 fair value measurements. |
The following disclosure requirements were added to Topic 820:
| ·● | The changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements at the end of the reporting period; and |
| ·● | The range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. |
ASU 2018-13 will be effective for annual reporting periods (including interim periods) beginning after December 15, 2019, and early adoption will be permitted. The Company is currently evaluating the impact of ASU 2018-13 and plans to adoptadopted the guidance effective January 1, 2020. The adoption of the standard did not have a material effect on the Company’s consolidated financial statements.
F-16In March 2020, the FASB issued ASU 2020-04,Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. Modifications of contracts within the scope of Topics 310, Receivables, and 470, Debt, should be accounted for by prospectively adjusting the effective interest rate. Modifications of contracts within the scope of Topics 840, Leases, and 842, Leases, should be accounted for as a continuation of the existing contracts with no reassessments of the lease classification and the discount rate (for example, the incremental borrowing rate) or remeasurements of lease payments that otherwise would be required under those Topics for modifications not accounted for as separate contracts. Modifications of contracts do not require an entity to reassess its original conclusion about whether that contract contains an embedded derivative that is clearly and closely related to the economic characteristics and risks of the host contract under Subtopic 815-15,Derivatives and Hedging—Embedded Derivatives. Entities electing to utilize expedients are required to disclose the nature of and reason for their elections to apply expedients in each interim and annual financial statement period in the fiscal year of adoption. The optional amendments are available for all entities from March 12,2020 through December 31,2022. The Company has elected to apply the hedge accounting expedients effective April 1, 2020. The election did not have a material effect on the Company’s consolidated financial statements. The Company will continue to evaluate the impact of the guidance and may apply other elections as applicable.
TableIn April 2020, the FASB issued a question-and-answer document regarding accounting for lease concessions related to the effects of Contentsthe COVID-19 pandemic. The document provides that a company may elect to account for lease concessions as if those concessions existed regardless of whether the enforceable rights and obligations for the concessions explicitly exist in the contract. Consequently, an entity will not have to analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract and can elect to apply or not apply the lease modification guidance under Leases ASC 842, to those contracts. This election is available for concessions that result in the total payments required by the modified contract being substantially the same as or less than total payments required by the original contract. Both lessees and lessors may make this election. The Company has elected to apply the relief related to lease concessions effective April 1, 2020.3. | SUPPLEMENTAL DISCLOSURE TO CONSOLIDATED STATEMENTS OF CASH FLOWS |
| | Years ended | |
| | 2020 | | | 2019 | | | 2018 | |
| | (Dollars in thousands) | |
Cash paid during the year for: | | | | | | | | | |
Interest | | $ | 101,100 | | | $ | 126,659 | | | $ | 126,648 | |
Taxes | | | 746 | | | | 787 | | | | 4,163 | |
Noncash Activities: | | | | | | | | | | | | |
Security deposits applied to rent receivables, maintenance payment liability and other liabilities | | | 4,955 | | | | 3,224 | | | | 1 | |
Maintenance payment liability applied to rent receivables, maintenance rights, and other liabilities | | | 9,015 | | | | 9,133 | | | | 25,837 | |
Other liabilities applied to security deposits, maintenance payment liability and rent receivables | | | 2,523 | | | | 5,016 | | | | 5,520 | |
Noncash investing activities: | | | | | | | | | | | | |
Maintenance rights and lessor contribution capitalized to aircraft improvements | | | 8,888 | | | | 7,143 | | | | 10,870 | |
Noncash activities in connection with purchase of flight equipment | | | 399 | | | | 34,925 | | | | 79,727 | |
Noncash activities in connection with sale of flight equipment | | | 8,108 | | | | 20,480 | | | | 2,648 | |
Noncash financing activities: | | | | | | | | | | | | |
Debt issuance costs | | | 263 | | | | 0 | | | | 0 | |
| | Years ended | |
| | | | | | | | | |
| | (Dollars in thousands) | |
Cash paid during the year for: | | | | | | | | | |
Interest | | $ | 126,648 | | | $ | 113,710 | | | $ | 110,351 | |
Taxes | | | 4,163 | | | | 2,155 | | | | 460 | |
Noncash Activities: | | | | | | | | | | | | |
Security deposits applied to rent receivables, other assets, maintenance payment liability and rentals received in advance | | | 1 | | | | 2,045 | | | | — | |
Maintenance payment liability applied to rent receivables, maintenance rights, rentals received in advance and other liabilities | | | 25,837 | | | | 68 | | | | — | |
Other liabilities applied to maintenance payment liability, security deposits and rent receivables | | | 5,520 | | | | 676 | | | | 2,550 | |
Noncash investing activities: | | | | | | | | | | | | |
Aircraft improvement | | | 10,870 | | | | 192 | | | | 5,245 | |
Noncash activities in connection with purchase of flight equipment: | | | | | | | | | | | | |
Security deposits and maintenance payment liabilities assumed | | | 29,860 | | | | — | | | | — | |
Shares issued | | | 49,867 | | | | — | | | | — | |
Other | | | — | | | | 3,979 | | | | 6,388 | |
Noncash activities in connection with sale of flight equipment | | | 2,648 | | | | — | | | | 78,722 | |
4. | INVESTMENT IN FINANCE LEASE |
At each of December 31, 20182020 and 2017,2019, the Company had one1 aircraft classified as an investment in finance lease, which was reclassified fromhad an operating lease to a finance lease during the fourth quarter of 2016. As a result of this reclassification, the Company recognized a gain of $2.7 million during the year ended December 31, 2016. The implicit interest rate in this finance lease wasof 5%. During the years ended December 31, 2018, 20172020, 2019 and 2016,2018, the Company recognized finance lease revenue totaling $0.6 million, $0.6 million and $0.7 million, $0.7 million and $2.1 million, respectively.
The Company’s net investment in finance lease consisted of the following (dollars in thousands):
| | December 31, 2018 | | | December 31, 2017 | | | December 31, 2020 | | | December 31, 2019 | |
Total minimum lease payments receivable | | $ | 11,400 | | | $ | 13,200 | | | $ | 7,800 | | | $ | 9,600 | |
Estimated unguaranteed residual value of leased asset | | | | | | | | | | | 4,227 | | | | 4,227 | |
Unearned finance income | | | (2,805 | ) | | | (3,481 | ) | | | (1,631 | ) | | | (2,188 | ) |
Net Investment in Finance Lease | | $ | 12,822 | | | $ | 13,946 | | | $ | 10,396 | | | $ | 11,639 | |
During the year ended December 31, 2016, the Company sold its other investment in finance lease and recognized a $4.2 million gain on sale of aircraft.
Presented below are the contracted future minimum rental payments due under the non-cancellable finance lease, as of December 31, 2018.2020.
Year ending December 31, | | (Dollars in thousands) | | | (Dollars in thousands) | |
2019 | | $ | 1,800 | | |
2020 | | | 1,800 | | |
2021 | | | 1,800 | | | $ | 1,800 | |
2022 | | | 1,800 | | | | 1,800 | |
2023 | | | 1,800 | | | | 1,800 | |
2024 | | | | 1,800 | |
2025 | | | | 600 | |
Thereafter | | | 2,400 | | | | 0 | |
Future minimum rental payments under finance lease | | $ | 11,400 | | | $ | 7,800 | |
5. | FLIGHT EQUIPMENT HELD FOR SALE |
On November 30, 2018, the Company agreed to sell 12 aircraft to Horizon Aircraft Finance I Limited and Horizon Aircraft Finance I LLC (together, “Horizon”) for an aggregate amount of approximately $295 million, subject to adjustment based on rents and maintenance reserves in respect of the aircraft. The Company delivered three of these aircraft to Horizon in 2018 and recognized a gain of $7.9 million. Fly has delivered eight aircraft to Horizon subsequent to December 31, 2018 and expects to deliver the last aircraft in the first quarter of 2019.
Also, during the fourth quarter of 2018, the Company agreed to sell three other aircraft to a third party. At December 31, 2018,2020, the Company had a total of 120 aircraft classified as flight equipment held for sale.
During the third quarter of 2017,sale. At December 31, 2019, the Company reclassified onehad 6 aircraft and 2 part out engines classified as flight equipment held for sale. The Company sold these 6 aircraft and 2 part out engines in 2020 and recognized an aggregate gain on sale asof aircraft of $31.7 million.
During the lessee notified the Company of its election to purchase this aircraft. This aircraft was sold for a gain of $3.9 million in the fourth quarter of 2017. Atyear ended December 31, 2017, the Company had no flight equipment held for sale.
In 2016,2019, the Company sold 1325 aircraft that had been classified as flight equipment held for sale and recognized aan aggregate gain on sale of $5.0aircraft of $94.4 million. During the year ended December 31, 2018, the Company sold 3 aircraft that had been classified as flight equipment held for sale and recognized an aggregate gain on sale of aircraft of $7.9 million.
6. | FLIGHT EQUIPMENT HELD FOR OPERATING LEASE |
As of December 31, 20182020, the Company had 100a portfolio of 83 aircraft and seven7 engines held for operating lease on lease to 43 lessees in 24 countries. As of December 31, 2017, the Company had 84 aircraft held for operating lease, of which 8278 aircraft and 7 engines were on lease to 4336 lessees in 2722 countries and 5 aircraft were off-lease. As of December 31, 2019, the Company had a portfolio of 82 aircraft and 7 engines, of which 81 aircraft and 7 engines were on lease to 39 lessees in 22 countries and two1 aircraft werewas off-lease.
During the year ended December 31,, 2018 2020, the Company purchased 34 aircraft and seven engines held for operating lease, and capitalized $820.9$53.9 million of flight equipment purchased. During the year ended December 31, 2019, the Company capitalized $260.3 million of flight equipment purchased.
During the year ended December 31, 2017,2020, the Company purchased tensold 2 aircraft held for operating lease and capitalized $438.1 million.
On February 28, 2018,1 engine as the Company entered intoresult of an aircraft part out and recognized an aggregate gain on sale of aircraft of $4.3 million. During the Share Purchase Agreement (as amended, the “SPA”) with its subsidiary, Fly Aladdin Holdings Limited (“Fly Aladdin”), AirAsia Group Berhad, as successor to AirAsia Berhad (“AirAsia”), and its subsidiary, Asia Aviation Capital Limited (“AACL”) with respect to the AirAsia Transactions. Under the terms of the SPA, the Company agreed to acquire a portfolio of 33 Airbus A320-200 aircraft and seven engines on operating leases to the AirAsia Group (“Portfolio A”), and one Airbus A320-200 aircraft on operating lease to a third-party airline. As ofyear ended December 31, 2018, 33 Airbus A320-200 aircraft and seven engines in Portfolio A were transferred to the Company. Under the terms of the SPA, the delivery period expired in the fourth quarter of 2018. At expiry, one Airbus A320-200 aircraft on operating lease to a third-party airline had not been transferred, and the parties’ obligations under the SPA to purchase and sell this aircraft expired. Accordingly, the Company has completed the transfer of all aviation assets from AACL in the Portfolio A transactions.
In addition, on February 28, 2018, the Company entered into agreements pursuant to which it agreed to acquire 21 Airbus A320neo family aircraft to be leased to the AirAsia Group as the aircraft deliver between 2019, and 2021 (“Portfolio B”), and pursuant to which it acquired options to purchase up to 20 Airbus A320neo family aircraft, not subject to lease, which deliver from the manufacturer between 2019 and 2025 (“Portfolio C”). The Company did not exercise its options with respect to any of the Portfolio C aircraft delivering in 2019. The Company has options to purchase up to 17 Portfolio C aircraft delivering between 2020 and 2025.
In accordance with GAAP, the Company allocated the purchase price in connection with the AirAsia Transactions to individual aircraft acquired, maintenance rights, orderbook value, lease discounts, security deposits and maintenance payment liability based on their relative fair values. Fair values were estimated based on independent appraised values of aircraft and leases, and discounted cashflow valuation models.
The Portfolio A aircraft were recorded as flight equipment held for operating lease at their allocated values as they were transferred by the seller. The Portfolio B orderbook value, reflected on the Company’s balance sheet in “Other assets, net”, was recorded on a pro-rata basis as each aircraft in Portfolio A was transferred. The orderbook value consists of individual values for the 21 Portfolio B aircraft and will be recognized into flight equipment held for operating lease as each aircraft is acquired between 2019 and 2021. Until each Portfolio B aircraft is delivered, the Company capitalizes interest into the orderbook value based on a weighted-average cost of debt. As part of the Portfolio B arrangement, the Company has committed to lease the acquired Portfolio B aircraft to the AirAsia Group at lease rates that the Company has determined are more favorable to the lessees than the future market lease rates projected by third-party appraisers. The Company allocated purchase price to the lease discount based on relative fair value. No value was assigned to Portfolio C as it does not meet the GAAP definition of an asset or liability.
The following balances related to the AirAsia Transactions are included in the Company’s balance sheet (dollars in thousands):
| | December 31, 2018 | |
Flight equipment held for sale, net | | $ | 163,236 | |
Flight equipment held for operating lease, net | | | 605,058 | |
Maintenance rights | | | 189,864 | |
Other assets, net (Portfolio B orderbook value) | | | 103,951 | |
Security deposits | | | 14,477 | |
Maintenance payment liability, net | | | 22,743 | |
Other liabilities (lease discounts) | | | 25,539 | |
During the fourth quarter of 2018, the Company reclassified eight aircraft from Portfolio A to flight equipment held for sale (see Note 5).
In addition to the three aircraft sold as indicated in Note 5, the Company sold three other10 aircraft held for operating lease and recognized a gain of $5.5 million during the year ended December 31, 2018. The Company did not sell any aircraft during the year ended December 31, 2017 other than the one aircraft reclassified as flight equipment held for sale (see Note 5). During the year ended December 31, 2016, the Company sold 13 aircraft held for operating lease, 12 of which generated a $15.2 million gain. The Company recorded aan aggregate gain on debt extinguishment of $0.6 million with the sale of the last aircraft which was financed by a secured borrowing. The sale proceeds were paid to the lender as full and final discharge of the associated debt.
The Company did not recognize any aircraft impairment in 2018.
In 2017, the Company had two aircraft on lease to Air Berlin, including one Airbus A321-200 aircraft (manufactured in 2015) and one Airbus A330-200 aircraft (manufactured in 2001). In August 2017, Air Berlin commenced insolvency proceedings in Germany and the United States. As a result of these insolvency proceedings, the Company assessed both aircraft leased to Air Berlin for impairment. $2.9 million. During the year ended December 31, 2017,2018, the Company sold 3 aircraft held for operating lease and recognized an aggregate gain on sale of aircraft impairment of $22.0 million related to the Airbus A330-200 aircraft. The lease was terminated, and this aircraft was returned to the Company and re-leased to another airline in January 2018. The Company did not recognize aircraft impairment on the Airbus A321-200 aircraft.$5.5 million.
During the year ended December 31, 2016,2020, the Company recognized aircraftflight equipment impairment of $96.1$115.0 million related to one narrow-body2 widebody and 7 narrowbody aircraft, which reduced the cost basis of flight equipment. This impairment was principally driven by the expectation that the lessee of the 2 widebody aircraft would return the aircraft to the Company prior to lease expiry. The Company anticipates selling the narrowbody aircraft and three wide-body aircraft. The Company soldhas recorded the narrow-body aircraft inassets to their net realizable value. Fair value reflects the third quarter of 2016, with proceeds paid to the lender in full satisfactionpresent value of the associated debt.expected future cash flows, including residual value, discounted at an appropriate rate.
Flight equipment held for operating lease consists of the following (dollars in thousands):
| | December 31, 2018 | | | December 31, 2017 | | | December 31, 2020 | | | December 31, 2019 | |
Cost | | $ | 3,900,938 | | | $ | 3,574,202 | | | $ | 3,197,702 | | | $ | 3,334,996 | |
Accumulated depreciation | | | (672,920 | ) | | | (612,458 | ) | | | (668,274 | ) | | | (614,996 | ) |
Flight equipment held for operating lease, net | | $ | 3,228,018 | | | $ | 2,961,744 | | | $ | 2,529,428 | | | $ | 2,720,000 | |
The Company capitalized $16.4 $33.3 million and $7.416.3 million of major maintenance for the years ended December 31, 20182020 and 2017, 2019, respectively.
The classification of the net book value of flight equipment held for operating lease, net and operating lease revenue by geographic region in the tables and discussion below is based on the principal operating location of the lessees.
The distribution of the net book value of flight equipment held for operating lease by geographic region is as follows (dollars in thousands):
| | December 31, 2018 | | | December 31, 2017 | | | December 31, 2020 | | | December 31, 2019 | |
Europe: | | | | | | | | | | | | | | | | | | | | | | | | |
Spain | | | $ | 154,414 | | | | 6 | % | | $ | 161,474 | | | | 6 | % |
United Kingdom | | $ | 169,763 | | | | 5 | % | | $ | 128,116 | | | | 4 | % | | | 75,598 | | | | 3 | % | | | 52,212 | | | | 2 | % |
Spain | | | 168,534 | | | | 5 | % | | | 175,593 | | | | 6 | % | |
Turkey | | | 22,843 | | | | 1 | % | | | 135,764 | | | | 5 | % | |
Other | | | 242,711 | | | | 8 | % | | | 251,345 | | | | 8 | % | | | 242,068 | | | | 10 | % | | | 259,176 | | | | 9 | % |
Europe — Total | | | 603,851 | | | | 19 | % | | | 690,818 | | | | 23 | % | | | 472,080 | | | | 19 | % | | | 472,862 | | | | 17 | % |
Asia and South Pacific: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
India | | | 690,193 | | | | 21 | % | | | 601,072 | | | | 20 | % | | | 446,164 | | | | 18 | % | | | 542,312 | | | | 20 | % |
Malaysia | | | | 390,469 | | | | 16 | % | | | 406,777 | | | | 15 | % |
Indonesia | | | | 211,560 | | | | 8 | % | | | 220,304 | | | | 8 | % |
China | | | | 160,012 | | | | 6 | % | | | 168,703 | | | | 6 | % |
Philippines | | | 276,237 | | | | 9 | % | | | 268,504 | | | | 9 | % | | | 148,356 | | | | 6 | % | | | 264,814 | | | | 10 | % |
Indonesia | | | 296,390 | | | | 9 | % | | | 204,840 | | | | 7 | % | |
Malaysia | | | 394,441 | | | | 12 | % | | | 76,706 | | | | 3 | % | |
China | | | 177,393 | | | | 5 | % | | | 186,083 | | | | 6 | % | |
Other | | | 161,330 | | | | 6 | % | | | 75,665 | | | | 2 | % | | | 79,452 | | | | 3 | % | | | 113,713 | | | | 4 | % |
Asia and South Pacific — Total | | | 1,995,984 | | | | 62 | % | | | 1,412,870 | | | | 47 | % | | | 1,436,013 | | | | 57 | % | | | 1,716,623 | | | | 63 | % |
Mexico, South and Central America — Total | | | 58,202 | | | | 2 | % | | | 162,274 | | | | 6 | % | | | 17,611 | | | | 1 | % | | | 37,618 | | | | 1 | % |
North America: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
United States | | | 126,498 | | | | 4 | % | | | 147,580 | | | | 5 | % | | | 85,808 | | | | 3 | % | | | 95,910 | | | | 4 | % |
Other | | | 49,320 | | | | 1 | % | | | 52,182 | | | | 2 | % | |
North America — Total | | | 175,818 | | | | 5 | % | | | 199,762 | | | | 7 | % | | | 85,808 | | | | 3 | % | | | 95,910 | | | | 4 | % |
Middle East and Africa: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ethiopia | | | 312,977 | | | | 10 | % | | | 322,896 | | | | 11 | % | | | 293,137 | | | | 11 | % | | | 303,057 | | | | 11 | % |
Other | | | 81,186 | | | | 2 | % | | | 116,273 | | | | 4 | % | | | 91,032 | | | | 4 | % | | | 51,815 | | | | 2 | % |
Middle East and Africa — Total | | | 394,163 | | | | 12 | % | | | 439,169 | | | | 15 | % | | | 384,169 | | | | 15 | % | | | 354,872 | | | | 13 | % |
Off-Lease — Total | | | — | | | | — | | | | 56,851 | | | | 2 | % | | | 133,747 | | | | 5 | % | | | 42,115 | | | | 2 | % |
Total flight equipment held for operating lease, net | | $ | 3,228,018 | | | | 100 | % | | $ | 2,961,744 | | | | 100 | % | | $ | 2,529,428 | | | | 100 | % | | $ | 2,720,000 | | | | 100 | % |
The distribution of operating lease revenue by geographic region for the years ended December 31, 2018, 20172020, 2019 and 20162018 is as follows (dollars in thousands):
| | Years ended | | | Years ended | |
| | 2018 | | | 2017 | | | 2016 | | | 2020 | | | 2019 | | | 2018 | |
Europe: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Spain | | | $ | 10,723 | | | | 4 | % | | $ | 17,475 | | | | 4 | % | | $ | 17,267 | | | | 4 | % |
United Kingdom | | $ | 31,259 | | | | 8 | % | | $ | 29,182 | | | | 8 | % | | $ | 34,498 | | | | 11 | % | | | 5,897 | | | | 2 | % | | | 79,022 | | | | 17 | % | | | 31,259 | | | | 8 | % |
Spain | | | 17,267 | | | | 4 | % | | | 11,199 | | | | 3 | % | | | 5,361 | | | | 2 | % | |
Turkey | | | 12,114 | | | | 3 | % | | | 17,103 | | | | 5 | % | | | 24,593 | | | | 8 | % | |
Germany | | | — | | | | — | | | | 26,457 | | | | 8 | % | | | 13,836 | | | | 4 | % | |
Other | | | 31,995 | | | | 8 | % | | | 29,180 | | | | 9 | % | | | 28,394 | | | | 9 | % | | | 25,233 | | | | 8 | % | | | 34,189 | | | | 7 | % | | | 44,109 | | | | 11 | % |
Europe — Total | | | 92,635 | | | | 23 | % | | | 113,121 | | | | 33 | % | | | 106,682 | | | | 34 | % | | | 41,853 | | | | 14 | % | | | 130,686 | | | | 28 | % | | | 92,635 | | | | 23 | % |
Asia and South Pacific: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
India | | | 87,492 | | | | 22 | % | | | 64,381 | | | | 18 | % | | | 39,640 | | | | 13 | % | | | 57,597 | | | | 20 | % | | | 103,422 | | | | 22 | % | | | 87,492 | | | | 22 | % |
Malaysia | | | | 55,987 | | | | 19 | % | | | 55,189 | | | | 12 | % | | | 26,748 | | | | 7 | % |
Indonesia | | | | 12,861 | | | | 4 | % | | | 32,882 | | | | 7 | % | | | 32,336 | | | | 8 | % |
China | | | | 20,348 | | | | 7 | % | | | 23,320 | | | | 5 | % | | | 21,103 | | | | 5 | % |
Philippines | | | 35,009 | | | | 9 | % | | | 29,825 | | | | 9 | % | | | 29,129 | | | | 9 | % | | | 25,757 | | | | 9 | % | | | 34,217 | | | | 7 | % | | | 35,009 | | | | 9 | % |
Indonesia | | | 32,336 | | | | 8 | % | | | 16,308 | | | | 5 | % | | | 8,320 | | | | 3 | % | |
Malaysia | | | 26,748 | | | | 7 | % | | | 8,767 | | | | 3 | % | | | 2,647 | | | | 1 | % | |
China | | | 21,103 | | | | 5 | % | | | 22,611 | | | | 6 | % | | | 23,882 | | | | 8 | % | |
Other | | | 18,756 | | | | 4 | % | | | 10,496 | | | | 3 | % | | | 16,320 | | | | 4 | % | | | 17,623 | | | | 6 | % | | | 18,550 | | | | 5 | % | | | 18,756 | | | | 4 | % |
Asia and South Pacific — Total | | | 221,444 | | | | 55 | % | | | 152,388 | | | | 44 | % | | | 119,938 | | | | 38 | % | | | 190,173 | | | | 65 | % | | | 267,580 | | | | 58 | % | | | 221,444 | | | | 55 | % |
Mexico, South and Central America — Total | | | 11,415 | | | | 3 | % | | | 17,565 | | | | 5 | % | | | 17,707 | | | | 6 | % | | | 8,441 | | | | 3 | % | | | 5,425 | | | | 1 | % | | | 11,415 | | | | 3 | % |
North America: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
United States | | | 20,147 | | | | 5 | % | | | 17,647 | | | | 5 | % | | | 24,591 | | | | 8 | % | | | 13,419 | | | | 5 | % | | | 16,267 | | | | 4 | % | | | 20,147 | | | | 5 | % |
Other | | | 6,242 | | | | 2 | % | | | 6,237 | | | | 2 | % | | | 6,223 | | | | 2 | % | | | 271 | | | | 0 | | | | 4,991 | | | | 1 | % | | | 6,242 | | | | 2 | % |
North America — Total | | | 26,389 | | | | 7 | % | | | 23,884 | | | | 7 | % | | | 30,814 | | | | 10 | % | | | 13,690 | | | | 5 | % | | | 21,258 | | | | 5 | % | | | 26,389 | | | | 7 | % |
Middle East and Africa: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ethiopia | | | 30,019 | | | | 8 | % | | | 30,018 | | | | 9 | % | | | 30,084 | | | | 10 | % | | | 30,019 | | | | 10 | % | | | 30,019 | | | | 6 | % | | | 30,019 | | | | 8 | % |
Other | | | 17,612 | | | | 4 | % | | | 9,918 | | | | 2 | % | | | 8,357 | | | | 2 | % | | | 9,567 | | | | 3 | % | | | 9,431 | | | | 2 | % | | | 17,612 | | | | 4 | % |
Middle East and Africa — Total | | | 47,631 | | | | 12 | % | | | 39,936 | | | | 11 | % | | | 38,441 | | | | 12 | % | | | 39,586 | | | | 13 | % | | | 39,450 | | | | 8 | % | | | 47,631 | | | | 12 | % |
Total Operating Lease Revenue | | $ | 399,514 | | | | 100 | % | | $ | 346,894 | | | | 100 | % | | $ | 313,582 | | | | 100 | % | | $ | 293,743 | | | | 100 | % | | $ | 464,399 | | | | 100 | % | | $ | 399,514 | | | | 100 | % |
In each of the yearsyear ended December 31, 2018,2020, Air India, AirAsia Berhad and 2017, the Company had one customer (Air India) thatEthiopian Airlines each accounted for 10% or more of total operating lease revenue. Norevenue at 12%, 11%, and 10%, respectively. NaN customer accounted for 10% or more of total operating lease revenue forin the year ended December 31, 2016.2019. In the year ended December 31, 2018, Air India accounted for 10% or more of total operating lease revenue at 11%.
For the years ended December 31, 2020, 2019 and 2018, the Company recognized end of lease income, which is included in operating lease revenue, of $14.1 million, $78.8 million and $20.3 million, respectively. Approximately $52.8 million of end of lease income recognized in 2019 was attributable to 4 lessees operating in the United Kingdom.
As noted above, the COVID-19 pandemic has had an unprecedented impact on the airline industry, causing multiple lessees in the Company’s fleet to fail to make rent and maintenance payments. This has led to the Company placing a number of lessees on non-accrual status in 2020, which in turn has caused the operating lease revenue concentration of other lessees to increase.
At December 31, 2018,2020, the Company had two11 lessees, which leasedleasing a total of three19 aircraft and 2 engines, on non-accrual status, as the Company had determined that it was not probable that the Company would receive the economic benefits of the leases, would be received by the Company, principally due to (i) the lessees’ failure to pay rent and overhaulmaintenance payments on a timely basis and (ii) the Company’s evaluation of the lessees’ payment history. financial condition. During the year ended December 31, 2020, the Company recognized $54.0 million of operating lease revenue from these lessees, and would have recognized $35.6 million of additional operating lease revenue had these lessees not been placed on non-accrual status.
At December 31, 2017 and 2016, no2019, the Company had 3 lessees, wereleasing a total of 4 aircraft, on non-accrual status. During the year ended December 31, 2019, the Company recognized $13.6 million of operating lease revenue from these lessees.
Following the Air Berlin insolvency proceedings in August 2017,At December 31, 2018, the Company had placed Air Berlin2 lessees, which leased a total of 3 aircraft, on non-accrual status and recognized revenue fromstatus. During the two aircraft leased to Air Berlin only as cash was received, including the application of any security deposits and letters of credit. Air Berlin returned both aircraft to the Company and the Company recognized $16.6 million of end of lease income during the fourth quarter of 2017.
For the yearsyear ended December 31, 2018, 2017 and 2016, the Company recognized end$9.3 million of lease income, which is included in operating lease revenue from these lessees.
During the year ended December 31, 2020, the Company executed agreements with 16 lessees to defer their rent payment obligations for 37 aircraft totaling $64.0 million $17.8 milliondue to the Company over the life of the leases. These deferrals are for an average of nine months with approximately half of the deferrals to be repaid by the end of 2021. The Company has also agreed to lease restructurings with certain of its lessees.
Presented below are the Company’s rent deferrals granted and $8.9 million, respectively.scheduled deferral repayments as of December 31, 2020.
| | Rent Deferrals Granted | | | Scheduled Deferral Repayments | |
| | (Dollars in thousands) | |
2020 | | $ | 53,998 | | | $ | 5,457 | |
2021 | | | 9,983 | | | | 24,514 | |
2022 | | | 0 | | | | 14,274 | |
Thereafter | | | 0 | | | | 19,736 | |
Total | | $ | 63,981 | | | $ | 63,981 | |
As of December 31, 20182020 and 2017,2019, the weighted average remaining lease term of the Company’s aircraft held for operating lease was 5.94.7 years and 6.35.4 years, respectively.
F-21Leases are entered into with specified lease terms and may provide the lessee with an option to extend the lease term. The Company’s leases do not typically provide for early termination or purchase options.
operating lease rental revenue, $55.9 million of which was from leases with variable rates. For the year ended December 31, 2019, the Company recognized $391.1 million of operating lease rental revenue, $71.4 million of which was from leases with variable rates. Variable rates are rents that reset based on changes in LIBOR or usage of aircraft. Presented below are the contracted future minimum rental payments, inclusive of rents due from lessees on non-accrual status and rent deferrals, due under non-cancellable operating leases for flight equipment held for operating lease, as of December 31, 2018.2020. For leases that have floating rental rates, the future minimum rental payments assume that the rental payment dueLIBOR as of December 31, 20182020 is held constant for the duration of the lease.
Year ending December 31, | | (Dollars in thousands) | | | (Dollars in thousands) | |
2019 | | $ | 403,535 | | |
2020 | | | 372,432 | | |
2021 | | | 323,232 | | | $ | 305,377 | |
2022 | | | 272,427 | | | | 268,216 | |
2023 | | | 227,535 | | | | 218,818 | |
2024 | | | | 201,873 | |
2025 | | | | 179,107 | |
Thereafter | | | 661,006 | | | | 313,123 | |
Future minimum rental payments under operating leases | | $ | 2,260,167 | | | $ | 1,486,514 | |
For the years ended December 31, 2018, 20172020, 2019 and 2016,2018, amortization of lease incentives recorded as a reduction of operating lease revenue totaled $9.7$3.6 million, $7.7$5.6 million and $8.9$9.7 million, respectively. At December 31, 2018,2020, lease incentive amortization for the next five years and thereafter is as follows (dollars in thousands):
Year ending December 31, | | | | | | |
2019 | | $ | 7,432 | | |
2020 | | | 4,652 | | |
2021 | | | 3,243 | | | $ | 3,738 | |
2022 | | | 2,744 | | | | 3,116 | |
2023 | | | 1,543 | | | | 2,353 | |
2024 | | | | 1,515 | |
2025 | | | | 1,429 | |
Thereafter | | | 939 | | | | 1,315 | |
Future amortization of lease incentives | | $ | 20,553 | | | $ | 13,466 | |
Changes in maintenance right assets, net of maintenance right liabilities, during the years ended December 31, 20182020 and 20172019 were as follows (dollars in thousands):
| | December 31, 2018 | | | December 31, 2017 | | | December 31, 2020 | | | December 31, 2019 | |
Maintenance rights, net beginning balance | | $ | 131,299 | | | $ | 101,969 | | |
Maintenance rights, beginning balance | | | $ | 290,958 | | | $ | 298,207 | |
Acquisitions | | | 189,864 | | | | 25,033 | | | | 19,780 | | | | 94,664 | |
Capitalized to aircraft improvements | | | (9,240 | ) | | | (192 | ) | | | (8,888 | ) | | | (6,739 | ) |
Maintenance rights settled with retained maintenance payments | | | (2,369 | ) | | | (465 | ) | | | 0 | | | | (3,996 | ) |
Maintenance rights offset against end of lease income | | | | (5,014 | ) | | | 0 | |
Cash receipts from maintenance rights | | | (3,013 | ) | | | — | | | | (2,725 | ) | | | (4,637 | ) |
Maintenance rights associated with aircraft sold | | | (8,334 | ) | | | 4,954 | | | | (14,987 | ) | | | (86,541 | ) |
Maintenance rights, net ending balance | | $ | 298,207 | | | $ | 131,299 | | |
Maintenance rights, ending balance | | | $ | 279,124 | | | $ | 290,958 | |
The principal components of the Company’s other assets are as follows (dollars in thousands):
| | December 31, 2018 | | | December 31, 2017 | |
Value added tax receivables, net | | $ | 6,016 | | | $ | 2,915 | |
Investment in unconsolidated subsidiary | | | 2,908 | | | | 8,196 | |
Portfolio B orderbook value (see Note 6) | | | 103,951 | | | | — | |
Horizon I Limited equity certificates | | | 5,747 | | | | — | |
Other assets | | | 6,338 | | | | 6,055 | |
Total other assets | | $ | 124,960 | | | $ | 17,166 | |
| | December 31, 2020 | | | December 31, 2019 | |
Portfolio B orderbook value | | $ | 104,155 | | | $ | 100,935 | |
Equity certificates | | | 3,023 | | | | 16,048 | |
Value added tax receivables | | | 4,381 | | | | 7,714 | |
Other assets | | | 4,696 | | | | 4,680 | |
Total other assets | | $ | 116,255 | | | $ | 129,377 | |
DuringThe Portfolio B orderbook value consists of individual values for the fourth quarter20 Portfolio B aircraft (see Note 17) and will be recognized into flight equipment held for operating lease as each aircraft is acquired.
In 2019, the Company purchased $7.4 million, or 6%, and $3.1 million, or 3%, of the equity certificates issued by Horizon II Limited and Horizon III Limited, respectively. In 2018, the Company purchased $5.7 million, or 4%, of the equity certificates issued by Horizon I Limited. The investment was initially accounted for at cost and changes in fair value will be recognized into income. The Company has entered into a seven-year lock-up agreement in connection with the equity certificates.
The Company has a 57.4% interest in Fly-Z/C Aircraft Holdings LP (“Fly-Z/C LP”). Summit Aviation Partners LLC (“Summit”) has a 10.2% interest in the joint venture. A subsidiary of BBAM Limited Partnership (“BBAM LP”) is the general partner of the joint venture. The joint venture owns one aircraft. During For the year ended December 31, 2018,2020, the Company received cash distributionsrecognized an unrealized fair value loss of $5.2 million. During$13.0 million on its investments in equity certificates to write down the years ended December 31, 2017 and 2016, the Company received no distributions.equity certificates to estimated fair value.
| | Balance as of | |
| | December 31, 2020 | | | December 31, 2019 | |
| | (Dollars in thousands) | |
Outstanding principal balance: | | | | | | |
2021 Notes | | $ | 0 | | | $ | 325,000 | |
2024 Notes | | | 300,000 | | | | 300,000 | |
Total outstanding principal balance | | | 300,000 | | | | 625,000 | |
Unamortized debt discounts and loan costs | | | (3,124 | ) | | | (5,593 | ) |
Unsecured borrowings, net | | $ | 296,876 | | | $ | 619,407 | |
| | Balance as of | |
| | December 31, 2018 | | | December 31, 2017 | |
| | (Dollars in thousands) | |
Outstanding principal balance: | | | | | | |
2021 Notes | | $ | 325,000 | | | $ | 325,000 | |
2024 Notes | | | 300,000 | | | | 300,000 | |
Total outstanding principal balance | | | 625,000 | | | | 625,000 | |
Unamortized debt discounts and loan costs | | | (7,336 | ) | | | (9,078 | ) |
Unsecured borrowings, net | | $ | 617,664 | | | $ | 615,922 | |
On December 11, 2013, the Company sold $300.0 million aggregate principal amount of unsecured 6.75% Senior Notes due 2020 (together with the Additional 2020 Notes (as defined below), the “2020 Notes”). In connection with the issuance, the Company paid an underwriting discount totaling $8.5 million.
On October 3, 2014, the Company sold $75.0 million aggregate principal amount of unsecured 6.75% Senior Notes due 2020 (the “Additional 2020 Notes”) and $325.0 million aggregate principal amount of 6.375% Senior Notes due 2021 (the “2021 Notes”). The Additional 2020 Notes were issued as additional notes under the 2020 Notes indenture and were sold at a price equal to 104.75% of the principal amount thereof. maturing on October 15, 2021. The 2021 Notes were issued undersold at par and the Company paid an indenture containing substantially similar terms asunderwriting discount totaling $5.7 million. During the indenture governingfourth quarter of 2020, the 2020Company repurchased $165.3 million of its 2021 Notes and were soldredeemed the remaining outstanding principal balance of the 2021 Notes at par.par, together with the accrued and unpaid interest on December 21, 2020. In connection with these issuances,the repurchase and redemption of the 2021 Notes, the Company paid a net underwriting discount totaling $3.4 million.expensed approximately $1.0 million of debt extinguishment costs.
On October 16, 2017, the Company sold $300.0 million aggregate principal amount of unsecured 5.250% Senior Notes due 2024 (the “2024 Notes”). The net proceeds to the Company were approximately $294.2 million, after deducting the underwriters’ discounts and commissions and offering expenses paid by the Company. The Company used the net proceeds from the sale
The 2021 Notes and 2024 Notes are senior unsecured obligations of the Company and rank pari passu in right of payment with any existing and future senior unsecured indebtedness of the Company. The 2021 Notes have a maturity date of October 15, 2021 and the 2024 Notes have a maturity date of October 15, 2024.
Interest on the 2021 Notes and 2024 Notes is payable semi-annually on April 15 and October 15 of each year. As of eachDecember 31, 2020, accrued interest on the 2024 Notes was $3.3 million. As of December 31, 2018 and 2017,2019, accrued interest on unsecured borrowingsthe 2021 Notes and 2024 Notes totaled $7.7 million.
The Company may redeem the 20212024 Notes in whole or in part, at the redemption prices listed below, plus accrued and unpaid interest to the redemption date.
If redeemed during the 12-month period commencing on October 15 of the years set forth below: | | Redemption Price | |
2018 | | | 103.188 | % |
2019 | | | 101.594 | % |
2020 and thereafter | | | 100.000 | % |
2024 Notes
At any time prior tohave a maturity date of October 15, 2020, the Company may redeem up to 35% of the original principal amount of the 2024 Notes with the proceeds of certain equity offerings at a redemption price of 105.250% of the principal amount thereof, together with accrued and unpaid interest to, but not including, the date of redemption.2024. On and after October 15, 2020, the Company may redeem the 2024 Notes, in whole or in part, at the redemption prices listed below, plus accrued and unpaid interest to the redemption date.
If redeemed during the 12-month period commencing on October 15 of the years set forth below: | | Redemption Price | |
2020 | | | 102.625 | % |
2021 | | | 101.313 | % |
2022 and thereafter | | | 100.000 | % |
At any time prior to October 15, 2020, the Company may also redeem all or a portion of the 2024 Notes at par, plus accrued and unpaid interest to the redemption date and a “make-whole premium” equal to the present value of all future interest payments called for under the indenture.
Pursuant to the indenturesindenture governing the 2021 Notes and 2024 Notes, the Company is subject to restrictive covenants which relate to dividend payments, incurrence of debt and issuance of guarantees, incurrence of liens, repurchases of common shares, investments, disposition of aircraft, consolidation, merger or sale of the Company and transactions with affiliates. The Company is also subject to certain operating covenants, including reporting requirements. The Company’s failure to comply with any of the covenants under the indentures governing the 2021 Notes or 2024 Notes could result in an event of default which, if not cured or waived, may result in the acceleration of the indebtedness thereunder and other indebtedness containing cross-default or cross-acceleration provisions. Certain of these covenants will be suspended if the 2021 Notes or 2024 Notes obtain an investment grade rating.
The indenturesindenture governing the 2021 Notes and the 2024 Notes contain customary events of default with respect to the notes of each series, including (i) default in payment when due and payable of principal or premium, (ii) default for 30 days or more in payment when due of interest, (iii) failure by the Company or any restricted subsidiary for 60 days after receipt of written notice given by the trustee or the holders of at least 25% in aggregate principal amount of the notes of such series then issued and outstanding to comply with any of the other agreements under the indenture, (iv) default in any of the aircraft owning entities in respect of obligations in excess of $50.0 million, which holders of such obligation accelerate or demand repayment of amounts due thereunder, (v) failure by the Company or any significant subsidiary to pay final judgments aggregating in excess of $50.0 million for 60 days after such judgment becomes final, subject to certain non-recourse exceptions, and (vi) certain events of bankruptcy or insolvency with respect to usFly or a significant subsidiary. As of December 31, 2018,2020, the Company was not in default under the indenturesindenture governing the 2021 Notes or the 2024 Notes.
The Company’s secured borrowings, net balance as of December 31, 20182020 and 20172019 are presented below (dollars in thousands):
| | Outstanding principal balance as of December 31, | | | Weighted average interest rate(1) as of December 31, | | | | | Outstanding principal balance as of December 31, | | | Weighted average interest rate(1) as of December 31, | | |
| | 2018(2) | | | 2017(2) | | | 2018 | | | 2017 | | | Maturity date | | 2020(2) | | | 2019(2) | | | 2020 | | | 2019 | | Maturity date |
Securitization Notes | | $ | 85,584 | | | $ | 101,551 | | | | 3.08 | % | | | 3.06 | % | | November 2033 | |
Nord LB Facility | | | 108,882 | | | | 153,176 | | | | 4.29 | % | | | 4.47 | % | | January 2020 | | | 60,667 | | | | 65,290 | | | | 2.00 | % | | | 3.59 | % | May 2021 |
CBA Facility | | | — | | | | 49,080 | | | | — | | | | 5.53 | % | | N/A | |
Term Loan | | | 407,768 | | | | 431,271 | | | | 5.17 | % | | | 4.25 | % | | February 2023 | |
2012 Term Loan | | | | 362,960 | | | | 385,364 | | | | 3.26 | % | | | 4.15 | % | August 2025 |
2020 Term Loan | | | | 180,000 | | | | 0 | | | | 7.00 | % | | | 0 | | October 2025 |
Magellan Acquisition Limited Facility | | | 305,226 | | | | 331,768 | | | | 4.18 | % | | | 3.15 | % | | December 2025 | | | 252,143 | | | | 278,684 | | | | 3.95 | % | | | 4.11 | % | December 2025 |
Fly Acquisition III Facility | | | 190,457 | | | | 86,520 | | | | 4.10 | % | | | 3.41 | % | | February 2022 | |
Fly Aladdin Acquisition Facility | | | 467,179 | | | | — | | | | 4.59 | % | | | — | | | June 2020 – June 2023 | | | 229,644 | | | | 272,343 | | | | 4.83 | % | | | 4.85 | % | June 2023 |
Fly Aladdin Engine Funding Facility | | | 43,829 | | | | — | | | | 4.95 | % | | | — | | | December 2021 – April 2022 | | | 40,640 | | | | 42,339 | | | | 4.95 | % | | | 4.95 | % | December 2021 – April 2022 |
Other Aircraft Secured Borrowings | | | 807,882 | | | | 905,525 | | | | 4.44 | % | | | 3.83 | % | | December 2020 – June 2028 | | | 543,002 | | | | 673,463 | | | | 3.21 | % | | | 4.07 | % | March 2021 – June 2028 |
Total outstanding principal balance | | | 2,416,807 | | | | 2,058,891 | | | | | | | | | | | | | | 1,669,056 | | | | 1,717,483 | | | | | | | | | | |
Unamortized debt discounts and loan costs | | | (36,938 | ) | | | (29,216 | ) | | | | | | | | | | | | | (26,814 | ) | | | (21,958 | ) | | | | | | | | | |
Total secured borrowings, net | | $ | 2,379,869 | | | $ | 2,029,675 | | | | | | | | | | | | | $ | 1,642,242 | | | $ | 1,695,525 | | | | | | | | | | |
(1) | Represents the contractual interest rates and effect of derivative instruments and excludes the amortization of debt discounts and debt issuance costs. |
(2) | As of December 31, 20182020 and 2017,2019, accrued interest on secured borrowings totaled $10.9$6.5 million and $6.6$9.2 million, respectively. |
The Company is subject to restrictive covenants under its secured borrowings which relate to the incurrence of debt, issuance of guarantees, incurrence of liens or other encumbrances, the acquisition, substitution, disposition and re-lease of aircraft, maintenance, registration and insurance of its aircraft, restrictions on modification of aircraft and capital expenditures, and requirements to maintain concentration limits.
The Company’s loan agreements include events of default that are customary for these types of secured borrowings. The Company’s failure to comply with any restrictive covenants, or any other operating covenants, may trigger an event of default under the relevant loan agreement. In addition, certain of the Company’s loan agreements contain cross-default provisions that could be triggered by a default under another loan agreement.
As of December 31, 2018,2020, the Company was not in default under any of its secured borrowings.
Securitization Notes
At December 31, 2018, Fly’s subsidiary,On March 14, 2019, B&B Air Funding had $85.6 million principal amount outstanding on itsredeemed all remaining aircraft lease-backed Class G-1 notes (the “Securitization Notes”), which were secured by nine aircraft. The final issued on October 2, 2007 and with an original maturity date of the Securitization Notes is November 14, 2033. The Securitization Notes are non-recourse obligations to Fly.
The Securitization Notes bear interest at an adjustable interest rate equal to2033, in the current one-month LIBOR plus 0.77%. Interest expense also includes amounts payable to the provider of a financial guaranty insurance policy and the liquidity facility provider thereunder, as well as accretion on the Securitization Notes re-issued at a discount. Interest and any principal payments due are payable monthly.
All cash collected, including sale proceeds from the aircraft financed by the Securitization Notes, is applied to service the outstanding balance of the Securitization Notes, after the payment of certain expenses and other costs, including interest, interest rate swap payments, and the fees to the policy provider in accordance with those agreements.
B&B Air Funding may, on any future payment date, redeem the Securitization Notes in whole or from time to time in part for an amount equal to the outstandingaggregate principal amount together with accrued and unpaid interest to, but excluding, the date fixed for redemption. Redemption prior to accelerationthen-outstanding of the Securitization Notes may be of all or any part of the Securitization Notes. Redemption after acceleration of the Securitization Notes upon default may only be for all of the Securitization Notes.
The Securitization Notes are secured by (i) first priority, perfected security interests in and pledges or assignments of equity ownership and beneficial interests in the subsidiaries of B&B Air Funding; (ii) interests in the leases of the associated aircraft; (iii) cash held by the subsidiaries of B&B Air Funding; and (iv) rights under agreements with BBAM, the initial liquidity facility provider, hedge counterparties and the policy provider. Rentals paid under leases are placed in the collections account and paid out according to a priority of payments set forth in the indenture. The Securitization Notes are also secured by a lien or similar interest in any of the aircraft B&B Air Funding currently owns that are registered in the United States or Ireland. B&B Air Funding may not encumber the aircraft it currently owns or incur additional indebtedness except as permitted under the securitization-related documents.
B&B Air Funding is subject to operating covenants which relate to, among other things, its operations, disposition of aircraft, lease concentration limits, and restrictions on the modification of aircraft and capital expenditures. A breach of the covenants could result in the acceleration of the Securitization Notes and exercise of remedies available in relation to the collateral, including the sale of aircraft at public or private sale.
$63.8 million. In connection with the issuanceredemption, the Company expensed approximately $1.9 million of the Securitization Notes, B&B Air Funding entered into a revolving credit facility (“Securitization Note Liquidity Facility”) that provides additional liquidity of up to $60.0 million. Subject to the terms and conditions of the Securitization Note Liquidity Facility, advances may be drawn for the benefit of the Securitization Note holders to cover certain expenses of B&B Air Funding, including maintenance expenses, interest rate swap payments and interest on the Securitization Notes. Advances shall bear interest at one-month LIBOR plus a spread of 1.20%. A commitment fee of 0.40% per annum is due and payable on each payment date based on the unused portion of the Securitization Note Liquidity Facility. As of each of December 31, 2018 and 2017, B&B Air Funding had not drawn on the Securitization Note Liquidity Facility.debt extinguishment costs.
The financial guaranty insurance policy (the “Policy”) issued by the Policy Provider supports the payment of interest due on the Notes and the payment of the outstanding principal balance of the Securitization Notes on the final maturity date and, under certain circumstances, prior thereto. A downgrade of the policy provider’s credit rating or its failure to meet its obligations under the Policy will not have a direct impact on B&B Air Funding’s obligations or rights under the Securitization Notes.
Nord LB Facility
As of December 31, 2018,2020, the Company had $108.9$60.7 million principal amount outstanding under its non-recourse debt facility with Norddeutsche Landesbank Gironzentrale (the “Nord LB Facility”), which was secured by five3 aircraft. The Nord LB Facility is structured with loans secured by each aircraft individually. The loans are cross-collateralized and contain cross-default provisions. Borrowings are secured by Fly’s equity interests in the aircraft owning and leasing subsidiaries, the related leases, and certain deposits. The maturity date of the Nord LB Facility is May 14, 2021.
The loans under the Nord LB Facility bear interest at one-month LIBOR plus a margin of 1.85%. Prior to November 14, 2018, the loans bore interest at one-month LIBOR plus a margin of 3.30%. Effective on November 14, 2018, the Company amended each of the loans under the Nord LB Facility to (i) extend the maturity date from November 14, 2018 to January 14, 2020 and (ii) reduce the margin to 1.85%.
Under the terms of the Nord LB Facility, the Company applies 95% of lease rentals collected towards interest and principal. If no lease rental payments are collected in the applicable period for any financed aircraft, then no payment is due under the loan associated with that aircraft during such period. Any unpaid interest increases the principal amount of the associated loan.
In the event the Company sells any of the financed aircraft, substantially all sale proceeds (after payment of certain expenses) must first be used to repay the debt associated with such aircraft and then to repay the outstanding amounts which finance the remaining aircraft. In addition, any maintenance reserve amounts retained by the Company will be used to prepay the Nord LB Facility, provided such reserves are not required for future maintenance of such aircraft.
Upon termination or expiration of a lease other than by sale, no payments are due with respect to the outstanding loan associated with that aircraft until the earlier of (i) six months from such termination or expiration and (ii) the date on which the aircraft is re-leased. Interest during this period increases the outstanding balance under the facility. The Company must pay interest with respect to any aircraft that remains off-lease after six months, and if such aircraft continues to be off-lease after twelve months, the Company must pay debt service equal to 85% of the lease rate under the prior lease agreement. The lenders may require payment in full or foreclose on an aircraft that remains off-lease after 24 months but may not foreclose on any other aircraft in the facility.
An event of default with respect to the loan on any aircraft will trigger an event of default on the loans with respect to every other financed aircraft. A default by any of the aircraft owning entities in respect of obligations in excess of $10.0 million and holders of such obligation accelerate or demand repayment of amounts due thereunder would constitute an event of default.
CBA Facility
The Company had a recourse debt facility with Commonwealth Bank of Australia and CommBank Europe Limited (the “CBA Facility”), which was secured by four aircraft. During the third quarter of 2018, the Company repaid in full the outstanding principal balance of $44.3 million under the CBA Facility. There was no prepayment penalty associated with such repayment.
2012 Term Loan
As of December 31, 2018,2020, the Company had $407.8$363.0 million principal amount outstanding under its senior secured term loan (the “Term(the “2012 Term Loan”), which was secured by 2925 aircraft. Fly has guaranteed all payments under the Term Loan. The2012 Term Loan bears. The final maturity date of the 2012 Term Loan is August 9, 2025. The 2012 Term Loan can be prepaid in whole or in part at par.
Prior to November 22, 2019, the 2012 Term Loan bore interest at three-month LIBOR plus a margin of 2.00%. The Term Loan can be prepaid in whole or in part without penalty.
On October 19, 2016,Effective on November 22, 2019, the Company amended the 2012 Term Loan to (i) reduce the margin to 1.75% and (ii) extend the maturity date from February 9, 2023 to August 2019 to February 2022. 9, 2025. The 2012 Term Loan requires quarterly principal payments of $5.6 million.
In connection with thisthe amendment completed in November 2019, the Company paid a one-time fee of 0.25% on the then outstanding principal amount underto the 2012 Term Loan to its lenders. lenders and there was 0 prepayment penalty associated with this repricing.
The Company also expensed $2.3 million as debt extinguishment costs.
On April 28, 2017, the Company amended the2012 Term Loan to (i) reduce the margin from 2.75% to 2.25%, (ii) eliminate the LIBOR floor of 0.75% and (iii) extend the maturity date from February 2022 to February 2023. The Company also upsized the Term Loan by $50.0 million. On November 1, 2017, the Company further amended the Term Loan to reduce the margin from 2.25% to 2.00%. During the year ended December 31, 2017, the Company incurred debt extinguishment costs totaling $3.0 million in connection with these amendments.
The Term Loan requires that the Company maintain a maximum loan-to-value ratio of 70.0% based on the lower of the mean or median of half-life adjusted base values of the financed aircraft as determined by three3 independent appraisers. The 2012 Term Loan contains certain concentration limits with respect to types of aircraft which can be financed in the 2012 Term Loan, as well as geographic and single lessee concentration limits. These concentration limits apply upon the acquisition, sale, removal or substitution of an aircraft. The 2012 Term Loan also includes certain customary covenants, including reporting requirements and maintenance of credit ratings.
An event of default under the 2012 Term Loan includes any of the aircraft owning entities defaulting in respect of obligations in excess of $50.0$50.0 million and holders of such obligation accelerate or demand repayment of amounts due thereunder.
2020 Term Loan
On October 15, 2020, the Company entered into a $180.0 million senior secured term loan (the “2020 Term Loan”) with a consortium of lenders, which is secured by 11 aircraft. The 2020 Term Loan will mature on the earlier of (i) October 15, 2025 and (ii) the date falling 30 days prior to the maturity of the 2024 Notes if not redeemed. The 2020 Term Loan was issued at a discount of 4.5%. The 2020 Term Loan bears interest at LIBOR plus a margin of 6.00%, with a LIBOR floor of 1.00% and requires quarterly principal payments of 1.25% of the original loan amount. The 2020 Term Loan can be prepaid in whole or in part on or after October 15, 2021 without any prepayment premium. The Company has guaranteed all payments under the 2020 Term Loan.
The 2020 Term Loan includes certain customary covenants, including reporting requirements, maintenance of credit ratings and maintenance of insurance. The aggregate principal amount outstanding as measured on a quarterly basis must not exceed 70.0% of the lower of the mean or median of the half-life adjusted base values of the financed aircraft, as determined by 3 independent appraisers (the “LTV Test”). The Company is required to seek new appraisals semi-annually.
Upon the sale of an aircraft, the Company may substitute aircraft into the 2020 Term Loan subject to certain conditions. The substitute aircraft must have an appraised value equal to or greater than the aircraft removed from the 2020 Term Loan. In addition, the Company must be in compliance with specified concentration limits, including aircraft type, geographic and lessee concentration limits, as well as the LTV Test after such sale, removal or substitution.
Magellan Acquisition Limited Facility
As of December 31, 2018,2020, the Company had $305.2$252.1 million principal amount outstanding in loans and notes under its term loan facility (“Magellan Acquisition Limited Facility”), which was secured by nine9 aircraft. Fly has guaranteed all payments under this facility. The Magellan Acquisition Limited Facility has a maturity date of December 8, 2025. Fly has guaranteed all payments under this facility.
The interest rate on the loans is based on one-month LIBOR plus an applicable margin of 1.65% per annum. The interest rate on the notes is a fixed rate of 3.93% per annum. The facility requires monthly principal payments of $2.2 million.
The facility contains financial and operating covenants, including a covenant that Fly maintain a tangible net worth of at least $325.0$325.0 million, as well as customary reporting requirements. The borrower is required to maintain (i) an initial loan-to-valueinterest coverage ratio and (ii) a LTV ratio of less than or equal to(a) 75% through December 8, 2020, (b) 70% from December 9, 2020 through December 8, 2022, (c) 65% from December 9, 2022 through December 8, 2024 and (d) 60% thereafter. The LTV is based on the lower of the average half-life adjusted current market value and base value of all aircraft financed under the facility as determined by three3 independent appraisers. A violation of any of these covenants could result in a default under the Magellan Acquisition Limited Facility. In addition, uponappraisers on an annual basis. Upon the occurrence of certain conditions, including a failure by Fly to maintain a minimum liquidity of at least $25.0 million, the borrower will be required to deposit certain amounts of maintenance reserves and security deposits received into accounts pledged accounts. Also, upon the occurrence of a breach of the interest coverage ratio or the LTV ratio and certain other events, all cash collected will be applied to repay the security trustee.outstanding principal balance of the loans and notes until such breach is cured. The LTV ratio was breached on the payment date falling in January 2021, triggering a cash sweep under the facility.
Upon the sale of an aircraft, the borrower may substitute aircraft into the Magellan Acquisition Limited Facility subject to certain conditions. The substitute aircraft must be equal to or greater than the appraised value of the aircraft being substituted. The borrower must be in compliance with the concentration limits after such substitution.
An event of default under the Magellan Acquisition Limited Facility includes a default in respect of the Fly’s recourse obligations in excess of $50.0 million and holders of such obligation accelerate or demand repayment of amounts due thereunder.
Fly Acquisition III Facility
As of December 31, 2018,On October 22, 2019, the Company had $190.5 millionpaid in full the outstanding principal amount outstandingbalance under itsa revolving credit facility (the “Fly Acquisition III Facility”), which was secured by nine aircraft. The availability period under the Fly Acquisition III Facility expired on February 26, 2019. The facility has a with an original maturity date of February 26, 2022 and all payments are guaranteed by Fly.
2022. The Company paid commitment fees of 0.50% to 0.75% per annum to the lenders on the undrawn amount of their commitment from February 26, 2016 untilcommitments during the availability period under the Fly Acquisition III Facility, which expired on February 26, 2019.
The interest rate under the facility iswas based on one-month LIBOR plus an applicable margin of (i) from February 26, 20162.00% through February 26, 2019 2.00%and (ii) 2.50%, (ii) from February 27, 2019 through February 26, 2020, 2.50% and (iii) from February 27, 2020 through the maturityrepayment date 3.00%.
The Fly Acquisition III Facility contains financial and operating covenants, including covenants that Fly maintain a tangible net worth of at least $325.0 million and that Fly Acquisition III maintain a specified interest coverage ratio, as well as customary reporting requirements. Violation of any of these covenants could result in an event of default under the facility. Also, upon the occurrence of certain conditions, including a failure by Fly to maintain a minimum liquidity of at least $25.0 million, Fly Acquisition III will be required to deposit maintenance reserves and security deposits received from lessees into accounts pledged to the security trustee.
An event of default under the Fly Acquisition III Facility includes a default in respect of the Company’s recourse obligations in excess of $50.0 million and holders of such an obligation accelerate or demand repayment of amounts due thereunder.
Fly Aladdin Acquisition Facility
On June 15, 2018, Fly, throughAs of December 31, 2020, the Company had an aggregate of $229.6 million principal amount outstanding of Series B loans under its wholly-owned subsidiaries, entered into a term loan facility with a consortium of lenders (the “Fly Aladdin Acquisition Facility”) to finance the acquisition of 29 Airbus A320-200 aircraft on operating leases to the AirAsia Group.
The Fly Aladdin Acquisition Facility provided for borrowings of up to $574.5 million, including $143.6 million, which were secured by 14 aircraft. Series AB loans withhave a final maturity date of June 15, 2020,2023. During the year ended December 31, 2019, the Company repaid Series A loans in full and $430.9 milliona portion of Series B loans with a final maturity dateand expensed approximately $2.6 million of June 15, 2023. The Company may elect, at any time prior to May 16, 2020, to extend the maturity date in respect of Series A loans having an original principal amount no greater than 40% of the original drawn amount to January 15, 2021. As of December 31, 2018, an aggregate of $467.2 million principal amount was outstanding under the Fly Aladdin Acquisition Facility, including $55.9 million Series A loans and $411.3 million Series B loans, which were secured by 24 aircraft. The Company paid aggregate arrangement and commitment fees of approximately $9.5 million to the lenders in 2018.debt extinguishment costs.
During the fourth quarter of 2018, the Company prepaid $81.1 million of debt and wrote off approximately $0.9 million of unamortized loan costs and debt discounts as debt extinguishment costs. The aircraft associated with the debt prepayment were sold during the first quarter of 2019.
The interest rate on theSeries A loans was based on three-month LIBOR, plus an applicable margin of 1.50% per annum. The interest rate on Series B loans is based on three-month LIBOR, plus an applicable margin of 1.50% per annum for the Series A loans, 1.80% per annum for the Series B loans, and 2.50% per annum during the extension term for any Series A loans that the Company elects to extend.annum. The Company makes scheduled quarterly payments of principal and interest on each loanthe loans in accordance with a fixed amortization schedule.
Borrowings are secured by the aircraft and related leases, and the equity and beneficial interests in the aircraft owning and leasing subsidiaries. In addition, Fly has provided a guaranty of certain of the representations, warranties and covenants under the Fly Aladdin Acquisition Facility (including, without limitation, the borrowers’ special purpose covenants), as well as the obligations, upon the occurrence of certain conditions, to deposit maintenance reserves and security deposits received into pledged accounts.
The facility contains operating covenants, including covenants that the borrowers are required to maintain a (i) a debt service coverage ratio of at least 1.15:1.00, (ii) an initial loan-to-value ratio equal to 72.5% and (iii) that 85% of aircraft financed under the facility (a) are on lease, (b) have been subject to a lease in the previous six months or (c) are subject to a letter of intent for a re-lease or sale.sale (the “utilization test”) and (iii) LTV ratio of (a) 68% through December 14, 2020, (b) 65% from December 15, 2020 through June 14, 2021, (c) 63.5% from June 15, 2021 through December 14, 2021, (d) 62% from December 15, 2021 through June 14, 2022, (e) 60% from June 15, 2022 through December 14, 2022 and (f) 58% thereafter. The tests in (ii)utilization test and (iii)LTV ratio are based on the average of the most recent half-life adjusted current market value of all aircraft financed under the facility,aircraft as determined by three3 independent appraisers on a semi-annual basis.
Upon the occurrence of (i) a breach of the debt service coverage ratio continuing for two2 consecutive quarterly payment dates, (ii) an event of default that is continuing under the Fly Aladdin Acquisition Facility, or (iii) a default under any mortgage, indenture or instrument under which there is issued, or which secures or evidences, any recourse indebtedness of the Company in an aggregate principal amount exceeding $50.0 million, Fly will be required to deposit, or cause the borrowers to deposit, all maintenance reserves and security deposits received under the associated leases into pledged accounts. UponAlso, upon the occurrence of a breach, on any payment date, of the loan-to-valueLTV ratio or the utilization test described above, and certain other events, all cash collected will be applied to repay the outstanding principal balance of the Series A and Series B loans until such breach is cured. The LTV ratio was breached in the third quarter of 2020. As a consequence of entering into deferral agreements with the Company’s lessees, in the fourth quarter of 2020, the debt service coverage ratio was breached for 2 consecutive quarterly payment dates, requiring the Company to deposit approximately $7.6 million in cash maintenance reserves and security deposits received under the associated leases into pledged accounts.
The Fly Aladdin Acquisition Facility contains geographic and single lessee concentration limits, which apply upon the acquisition, sale, removal or substitution of an aircraft, as well as aircraft type eligibility for any aircraft substitution. Upon the sale of an aircraft, the borrowers may substitute an Airbus A320 or A321 model aircraft on operating lease to the AirAsia Group into the Fly Aladdin Acquisition Facility subject to certain conditions. The facility also includes certain customary covenants, including reporting requirements. A violation of any of these covenants could result in a default under the Fly Aladdin Acquisition Facility.
Fly Aladdin Engine Funding Facility
On October 24, 2018, Fly, throughAs of December 31, 2020, the Company had $40.6 million principal amount outstanding under a wholly-owned subsidiary, entered into a recourse term loan facility with two lenders (the(the “Fly Aladdin Engine Funding Facility”), which was secured by 7 engines. Fly has guaranteed all payments under this facility. The loans have maturity dates ranging from December 31, 2021 to finance the acquisition of seven engines on operating leases to the AirAsia Group. The facility provided for borrowings of up to $46.0 million. April 30, 2022.
In October 2018, the Company drew down $43.9 million under the Fly Aladdin Engine Funding Facility and paid up-front fees of approximately $0.4 million. As of December 31, 2018, the Company had $43.8 million principal amount outstanding under the Fly Aladdin Engine Funding Facility, which was secured by seven engines. Fly has guaranteed all payments under this facility.
The interest raterates for the borrowings rangesrange from 4.94% to 4.96% per annum, per engine. The Company is required to make scheduled monthly payments of principal and interest in accordance with an amortization schedule. The loans have maturity dates ranging from December 31, 2021 to April 30, 2022.
The loans are secured by the engines and related leases and the Company’s equity and beneficial interests in the engine owning entities. The Fly Aladdin Engine Funding Facility contains customary covenants, including various reporting requirements.covenants. A violation of any of these covenants could result in a default under the facility.Fly Aladdin Engine Funding Facility.
Other Aircraft Secured Borrowings
The Company has entered into other aircraft secured borrowings to finance the acquisition of aircraft, one1 of which is denominated in Euros. As of December 31, 2018,2020, the Company had $807.9$543.0 million principal amount outstanding of other aircraft secured borrowings, which were secured by 1713 aircraft. Of this amount, $477.5$279.1 million was recourse to Fly.
These borrowings are structured as individual loans secured by pledges of the Company’s rights, title and interests in the financed aircraft and leases. In addition, Fly may provide guarantees of its subsidiaries’ obligations under certain of these loans and may be subject to financial and operating covenants in connection therewith. The maturity dates of these loans range from December 2020March 2021 to June 2028.2028.
During the third quarteryear ended December 31, 2020, the Company paid off 1 of its other aircraft secured borrowings of $61.0 million and expensed approximately $0.5 million of debt extinguishment costs.
During 2018, the Company entered into a recourse secured borrowing in the amount of $122.5 million to finance an unencumbered aircraft. The Company used the loan proceeds to repay the CBA Facility and one other aircraft secured borrowing.
Future Minimum Principal Payments on Secured Borrowings
During the year ended December 31, 2018,2020, the Company made scheduled principal payments of $188.7$148.8 million on its secured borrowings. The anticipated future minimum principal payments due for its secured borrowings are as follows (dollars in thousands):
Year ending December 31, | | | | | | |
2019 | | $ | 314,682 | | |
2020 | | | 303,819 | | |
2021 | | | 233,041 | | | $ | 261,296 | |
2022 | | | 332,380 | | | | 171,216 | |
2023 | | | 865,362 | | | | 396,344 | |
2024 | | | | 128,776 | |
2025 | | | | 615,075 | |
Thereafter | | | 367,523 | | | | 96,349 | |
Future minimum principal payments due | | $ | 2,416,807 | | | $ | 1,669,056 | |
Derivatives are used by the Company to manage its exposure to identified risks, such as interest rate and foreign currency exchange fluctuations. The Company uses interest rate swap contracts to hedge variable interest payments due on borrowings associated with aircraft with fixed rate rentals. As of December 31, 2018,2020, the Company had $1.6 billion$1,081.7 million of floating rate debt associated with aircraft with fixed rate rentals.
Interest rate swap contracts allow the Company to pay fixed interest rates and receive variable interest rates with the swap counterparty based on either the one-month or three-month LIBOR applied to the notional amounts over the life of the contracts. As of December 31, 20182020 and 2017,2019, the Company had interest rate swap contracts with notional amounts aggregating $1.1 billion and $0.7 billion, respectively. The unrealized fair value gain on the interest rate swap contracts, reflected as derivative assets, was $3.2$675.3 million and $2.6$804.9 million, as of December 31, 2018 and 2017, respectively. The unrealized fair value loss on the interest rate swap contracts, reflected as derivative liabilities, was $8.6$46.2 million and $7.3$27.9 million as of December 31, 20182020 and 2017,2019, respectively.
During the year ended December 31, 2018, the Company entered into interest rate derivative contracts to partially lock-in the interest rate on anticipated future borrowings associated with the AirAsia Transactions. As
To mitigate its exposure to foreign currency exchange fluctuations, the Company entered into a cross currency swap contract in 2018 in conjunction with a lease in which a portion of the lease rental is denominated in Euros. Pursuant to such cross currency swap, the Company receives U.S. dollars based on a fixed conversion rate through the maturity date of the swap contract. Over the remaining life of the cross currency swap contract, the Company expects to receive $68.5$48.7 million in U.S. dollars. The unrealized fair value gain, reflected as a derivative asset, was $2.7$2.1 million and $4.8 million as of December 31, 2018.2020 and 2019, respectively.
The Company determines the fair value of derivative instruments using a discounted cash flow model. The model incorporates an assessment of the risk of non-performance by the swap counterparty in valuing derivative assets and an evaluation of the Company’s credit risk in valuing derivative liabilities.
The Company considers in its assessment of non-performance risk, if applicable, netting arrangements under master netting agreements, any collateral requirement, and the derivative payment priority in the Company’s debt agreements. The valuation model uses various inputs including contractual terms, interest rate curves and credit spreads.
Effective January 1, 2019, the Company adopted ASU 2017-12, Derivatives and Hedging (Topic 815), which is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. Under the guidance, if a cash flow hedge is highly effective, all changes in the fair value of the derivative hedging instrument will be recorded in other comprehensive income and reclassified to earnings when the hedged item impacts earnings. After initial qualification, the new guidance permits a qualitative effectiveness assessment for certain hedges instead of a quantitative test, such as a regression analysis, if the company can reasonably support an expectation of high effectiveness throughout the term of the hedge. An initial quantitative test to establish that the hedge relationship is highly effective is still required. Additional disclosures include cumulative basis adjustments for fair value hedges and the effect of hedging on individual income statement line items. As a result of the adoption, the Company reclassified $0.2 million of prior year losses into accumulated other comprehensive loss, net.
During the year ended December 31, 2020, the Company recorded $14.1 million of interest expense in the consolidated statements of income (loss) from its interest rate swap contracts. The Company also recognized $0.8 million of rental revenue, included in operating lease revenue in the consolidated statements of income (loss), under its cross currency swap contract during the year ended December 31, 2020.
During the year ended December 31, 2019, the Company recorded $3.1 million of interest expense in the consolidated statements of income (loss) from its interest rate swap contracts. The Company also recognized $1.4 million of rental revenue, included in operating lease revenue in the consolidated statements of income (loss), under its cross currency swap contract during the year ended December 31, 2019.
During the year ended December 31, 2018, the Company recorded $5.9 million of interest expense in the consolidated statements of income (loss) from its interest rate swap contracts. The Company also recognized $0.8 million of rental revenue, included in operating lease revenue in the consolidated statements of income (loss), under its cross currency swap contract during the year ended December 31, 2018.
Designated Derivatives
TheCertain of the Company’s cross currency swap and certain of its interest rate derivatives have been designated as cash flow hedges. The effective portion of changesChanges in fair value of these derivatives are recorded as a component of accumulated other comprehensive income (loss), net of a provision for income taxes.deferred tax. Changes in the fair value of these derivatives are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.earnings.
As of December 31, 2018, the Company had the following designated derivative instruments classified as derivative assets on its balance sheet (dollars in thousands):
Type | | Quantity | | Maturity Date | | Hedge Interest Rate | | | Swap Contract Notional Amount | | | Credit Risk Adjusted Fair Value | | | Gain Recognized in Accumulated Comprehensive Loss | | | Loss Recognized into Earnings | |
Interest rate swap contracts | | | 8 | | 11/9/21 -6/11/23 | | | 0.99% -4.30 | % | | $ | 205,540 | | | $ | 3,013 | | | $ | 2,529 | | | $ | (87 | ) |
Accrued interest | | | | | | | | | | | | — | | | | 46 | | | | — | | | | — | |
Sub-total | | | 8 | | | | | | | | $ | 205,540 | | | $ | 3,059 | | | $ | 2,529 | | | $ | (87 | ) |
Type | | Quantity | | Maturity Date | | Contracted Fixed Conversion Rate to U.S. Dollar | | Total Contracted USD to be Received | | | Credit Risk Adjusted Fair Value | | | Gain Recognized in Accumulated Comprehensive Loss | | | Loss Recognized into Earnings | |
Cross currency swap contract | | | 1 | | 11/26/25 | | 1 EURO to $1.3068 | | $ | 68,494 | | | $ | 2,704 | | | $ | 2,366 | | | $ | — | |
Accrued rent | | | | | | | | | | — | | | | 17 | | | | — | | | | — | |
Sub-total | | | 1 | | | | | | $ | 68,494 | | | $ | 2,721 | | | $ | 2,366 | | | $ | — | |
Total – designated derivative assets | | | 9 | | | | | | | | | | | 5,780 | | | | 4,895 | | | | (87 | ) |
As of December 31, 2018,2020, the Company had the following designated derivative instruments classified as derivative liabilities on its balance sheet (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | |
Type | | Quantity | | Maturity Date | | Hedge Interest Rate | | | Swap Contract Notional Amount | | | Credit Risk Adjusted Fair Value | | | Loss Recognized in Accumulated Comprehensive Loss | | | Loss Recognized into Earnings | | | Quantity | | Maturity Date | | Hedge Interest Rate | | Swap Contract Notional Amount | | Credit Risk Adjusted Fair Value | | Loss Recognized in Accumulated Comprehensive Loss, Net of Deferred Tax |
Interest rate swap contracts | | | 26 | | 2/15/22- 12/8/25 | | | 2.50%- 3.13 | % | | $ | 615,570 | | | $ | (7,621 | ) | | $ | (5,906 | ) | | $ | (366 | ) | | | 22 | | 2/9/23-12/8/25 | | | 2.28%-3.13% | | $ | 567,894 | | $ | (36,480) | | $ | (31,930) |
Accrued interest | | | | | | | | | | | | — | | | | (347 | ) | | | — | | | | — | | | | | | | | | | | | — | | | (1,688) | | | — |
Total – designated derivative liabilities | | | 26 | | | | | | | | $ | 615,570 | | | $ | (7,968 | ) | | $ | (5,906 | ) | | $ | (366 | ) | | | 22 | | | | | | | $ | 567,894 | | $ | (38,168) | | $ | (31,930) |
Dedesignated and Undesignated Derivatives
As of December 31, 2020, the Company’s cross currency swap no longer qualified for hedge accounting and was dedesignated due to missed rent payments associated with a variable rate lease. The Company had the following dedesignated derivative instrument classified as derivative assets on its balance sheet as of December 31, 2020 (dollars in thousands):
Type | | Quantity | | Maturity Date | | Contracted Fixed Conversion Rate to U.S. Dollar | | Total Contracted USD to be Received | | Credit Risk Adjusted Fair Value | | Gain Recognized in Accumulated Comprehensive Loss, Net of Deferred Tax |
Cross currency swap contract | | | 1 | | 11/26/25 | | | 1 Euro to $1.3068 | | $ | 48,689 | | $ | 2,076 | | $ | 3,179 |
Accrued rent | | | | | | | | | | | — | | | 9 | | | — |
Total - dedesignated derivative asset | | | 1 | | | | | | | $ | 48,689 | | $ | 2,085 | | $ | 3,179 |
At December 31, 2020, the Company had an accumulated other comprehensive gain, net of deferred tax, of $3.2million, which will be amortized over the remaining term of the cross currency swap contract. During the year ended December 31, 2020, the Company reclassified $0.5 million from accumulated other comprehensive loss, net of deferred tax, to gain on derivatives.
Certain of the Company’s interest rate swap contracts no longer qualify for hedge accounting and have been dedesignated. dedesignated due to debt repayments associated with aircraft sales. As of December 31, 2020, the Company had the following dedesignated derivative instruments classified as derivative liabilities on its balance sheet (dollars in thousands):
Type | | Quantity | | Maturity Date | | Hedge Interest Rate | | Swap Contract Notional Amount | | Credit Risk Adjusted Fair Value | | Loss Recognized in Accumulated Comprehensive Loss, Net of Deferred Tax |
Interest rate swap contracts | | | 11 | | 6/15/23 | | | 2.66%-3.12% | | $ | 107,412 | | $ | (7,419) | | $ | (5,237) |
Accrued interest | | | | | | | | | | | — | | | (582) | | | — |
Total – dedesignated derivative liabilities | | | 11 | | | | | | | $ | 107,412 | | $ | (8,001) | | $ | (5,237) |
At December 31, 2020, the Company had an accumulated other comprehensive loss, net of deferred tax, of $5.4 million, attributable to both dedesignated interest rate swaps and terminated interest rate swaps, and will be amortized over the remaining term of the interest rate swap contracts.
During the year ended December 31, 2019, 1 interest rate swap contract matured and 16 other interest rate swap contracts were terminated. Also during the year ended December 31, 2019, the Company reclassified $2.4 million of accumulated comprehensive loss, net of deferred tax, to loss on derivatives. At December 31, 2019, the Company had an accumulated other comprehensive loss, net of deferred tax, of $0.4 million, which will be amortized over the remaining term of the interest rate swap contracts. During the year ended December 31, 2019, the Company amortized $0.5million from accumulated other comprehensive loss, net of deferred tax, to interest expense.
At December 31, 2018, the Company had an accumulated other comprehensivecomprehensive loss, net of deferred tax, of $0.5 million, which is beingwill be amortized over the remaining term of the interest rate swap contracts.contracts. During the year ended December 31, 2018, $4.1the Company amortized $4.1 million was recognized asfrom accumulated other comprehensive loss, net of deferred tax, into interest expense.
Fly did not designate as an accounting hedge thecertain interest rate derivative contracts entered into during the year ended December 31, 2018 to partially lock-in the interest rate on anticipated future borrowings associated with the AirAsia Transactions.transactions. Changes in the fair value of undesignated derivative instruments were recognized as gain or loss on derivatives in each reporting period. During the year ended December 31, 2018, theThe Company terminated these interest rate swap contracts in 2018 and recognized a total gain on derivatives of $1.8$1.8 million.
As of December 31, 2018, the Company had one dedesignated derivative instrument classified as a derivative asset on its balance sheet (dollars in thousands):
Type | | Quantity | | Maturity Date | | Hedge Interest Rate | | | Swap Contract Notional Amount | | | Credit Risk Adjusted Fair Value | | | Gain Recognized into Earnings | |
Interest rate swap contracts | | | 1 | | 12/14/20 | | | 2.25 | % | | $ | 55,439 | | | $ | 144 | | | $ | 132 | |
Accrued interest | | | | | | | | | | | | — | | | | 5 | | | | — | |
Total – dedesignated derivative assets | | | 1 | | | | | | | | $ | 55,439 | | | $ | 149 | | | $ | 132 | |
As of December 31, 2018, the Company had one dedesignated derivative instrument classified as a derivative liability on its balance sheet (dollars in thousands):
Type | | Quantity | | Maturity Date | | Hedge Interest Rate | | | Swap Contract Notional Amount | | | Credit Risk Adjusted Fair Value | | | Gain Recognized into Earnings | |
Interest rate swap contract | | | 1 | | 2/9/19 | | | 3.47 | % | | $ | 262,734 | | | $ | (256 | ) | | $ | 906 | |
Accrued interest | | | | | | | | | | | | — | | | | (334 | ) | | | — | |
Total – dedesignated derivative liability | | | 1 | | | | | | | | $ | 262,734 | | | $ | (590 | ) | | $ | 906 | |
Fly is a tax resident of Ireland and has wholly-owned subsidiaries in Ireland, France, Luxembourg, Australia, Singapore, LabuanMalta and MaltaCayman Islands that are tax residents in those jurisdictions. In general, Irish resident companies pay corporation tax at the rate of 12.5% on trading income and 25.0% on non-trading income. Historically, most of the Company’s operating income has been trading income in Ireland.
Income tax expense (benefit) by jurisdiction is shown below (dollars in thousands):
| | Years ended | | | Years ended | |
| | 2018 | | | 2017 | | | 2016 | | | 2020 | | | 2019 | | | 2018 | |
Current tax expense (benefit): | | | | | | | | | | | | | | | | | | |
Ireland | | $ | — | | | $ | — | | | $ | — | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Luxembourg | | | 44 | | | | 195 | | | | 145 | | | | 1 | | | | 55 | | | | 44 | |
Australia | | | (138 | ) | | | 4,062 | | | | 1,742 | | | | 139 | | | | 0 | | | | (138 | ) |
Other | | | 50 | | | | 43 | | | | 33 | | | | 24 | | | | 23 | | | | 50 | |
Current tax expense (benefit) — total | | | (44 | ) | | | 4,300 | | | | 1,920 | | | | 164 | | | | 78 | | | | (44 | ) |
Deferred tax expense (benefit): | | | | | | | | | | | | | | | | | | | | | | | | |
Ireland | | | 9,865 | | | | 8,710 | | | | (10,812 | ) | | | (4,296 | ) | | | 21,359 | | | | 9,865 | |
Australia | | | 105 | | | | (1,743 | ) | | | 1,615 | | | | 0 | | | | (910 | ) | | | 105 | |
Other | | | — | | | | 65 | | | | — | | |
Deferred tax expense (benefit) — total | | | 9,970 | | | | 7,032 | | | | (9,197 | ) | | | (4,296 | ) | | | 20,449 | | | | 9,970 | |
Total income tax expense (benefit) | | $ | 9,926 | | | $ | 11,332 | | | $ | (7,277 | ) | | $ | (4,132 | ) | | $ | 20,527 | | | $ | 9,926 | |
The Company had no0 unrecognized tax benefits as of December 31, 20182020 and 2017.2019. The principal components of the Company’s net deferred tax asset (liability) were as follows (dollars in thousands):
| | December 31, 2018 | | | December 31, 2017 | | | December 31, 2020 | | | December 31, 2019 | |
Deferred tax asset: | | | | | | | | | | | | |
Net operating loss carry forwards | | $ | 177,663 | | | $ | 170,960 | | | $ | 148,824 | | | $ | 142,685 | |
Net unrealized losses on derivative instruments | | | 773 | | | | 390 | | | | 6,200 | | | | 3,794 | |
Basis difference on acquisition of GAAM Australian assets | | | 6,619 | | | | 7,314 | | | | 0 | | | | 6,575 | |
Other | | | 168 | | | | 55 | | | | 636 | | | | 124 | |
Valuation allowance | | | (37,429 | ) | | | (39,484 | ) | | | (31,739 | ) | | | (33,929 | ) |
Total deferred tax asset | | | 147,794 | | | | 139,235 | | | | 123,921 | | | | 119,249 | |
Deferred tax liability: | | | | | | | | | | | | | | | | |
Excess of tax depreciation over book depreciation | | | (171,725 | ) | | | (153,447 | ) | | | (163,534 | ) | | | (165,343 | ) |
Book/tax differences identified in connection with GAAM Portfolio acquisition | | | (112 | ) | | | (412 | ) | |
Net earnings of non-European Union member subsidiaries | | | (3,654 | ) | | | (3,745 | ) | |
Withholding tax on Australian unrepatriated earnings | | | (2,054 | ) | | | (1,800 | ) | |
Miscellaneous book/tax differences | | | | 0 | | | | (166 | ) |
Total deferred tax liability | | | | | | | (159,404 | ) | | | (163,534 | ) | | | (165,509 | ) |
Deferred tax liability, net | | $ | (29,751 | ) | | $ | (20,169 | ) | | $ | (39,613 | ) | | $ | (46,260 | ) |
The majority of the Company’s net operating loss carryforwards are attributable to Ireland. Under current tax rules in Ireland, the Company is allowed to carry forward its net operating losses for an indefinite period to offset any future income. The Company has recorded valuation allowances to reduce deferred tax assets to the extent it believes it is more likely than not that a portion of such assets will not be realized. In making such determinations, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and its ability to carry back losses to prior years.
The Company is required to make assumptions and judgments about potential outcomes that may be outside its control. Critical factors include the projection, source, and character of future taxable income. Although realization is not assured, the Company believes it is more likely than not that deferred tax assets, net of the valuation allowance, will be realized. The amount of deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward periods are reduced or current tax planning strategies are not implemented.
At December 31, 20182020 and 2017,2019, the Company had a valuation allowance of $37.4$31.7 million and $39.5$33.9 million, respectively. For the year ended December 31, 2018,2020, the Company recorded a net valuation allowance provision of $4.5 million. For the year ended December 31, 2019, the Company recorded a net valuation allowance reversal of $1.3$3.4 million. For the years ended December 31, 2017 and 2016, the Company recorded net valuation allowance provisions
The Company has undistributed earnings from its Australian subsidiary. The Company does not intend to indefinitely reinvest its subsidiary’s earnings back into Australia. A withholding tax of 15.0% may be due on distributions of earnings which have not been taxed in Australia. At December 31, 2018 and 2017, the Company had deferred tax liabilities of $2.1 million and $1.8 million, respectively, in connection with its unrepatriated Australian earnings.
For the years ended December 31, 2018, 20172020, 2019 and 2016,2018, the effective tax rate was 10.4%5.8%, 81.3%8.3% and 20.0%10.4%, respectively. The effective tax rate in any period is impacted by the source and amount of income earned and expenses incurred in different tax jurisdictions and valuation allowances the Company has recorded. The table below is a reconciliation of the Irish statutory corporation tax rate of 12.5% on trading income to the Company’s recorded income tax expense or benefit:
| | Years ended | | | Years ended | |
| | 2018 | | | 2017 | | | 2016 | | | 2020 | | | 2019 | | | 2018 | |
Irish statutory corporate tax rate on trading income | | | 12.5 | % | | | 12.5 | % | | | 12.5 | % | | | 12.5 | % | | | 12.5 | % | | | 12.5 | % |
Valuation allowances | | | (1.4 | )% | | | 59.9 | % | | | (19.8 | )% | | | (6.4 | )% | | | (1.4 | )% | | | (1.4 | )% |
Tax impact of repurchased and resold Notes | | | 0.1 | % | | | (0.8 | )% | | | 1.3 | % | | | 0 | | | | (0.1 | )% | | | 0.1 | % |
Foreign tax rate differentials | | | (2.8 | )% | | | (18.4 | )% | | | 7.8 | % | | | 0.3 | % | | | (0.4 | )% | | | (2.8 | )% |
True-up of prior year tax provision | | | — | | | | 2.2 | % | | | — | | | | 0.2 | % | | | (0.1 | )% | | | 0 | |
Non-taxable gain on debt extinguishment | | | — | | | | — | | | | 0.3 | % | |
Non-deductible interest expense, transaction fees and expenses | | | 1.8 | % | | | 12.2 | % | | | (4.8 | )% | | | (0.1 | )% | | | 0.5 | % | | | 1.8 | % |
Deductible intra-group interest | | | — | | | | — | | | | 30.9 | % | |
Deductible interest paid in the period | | | | 0 | | | | (2.7 | )% | | | 0 | |
Unrealized foreign exchange loss on re-valuation of deferred tax balances | | | 0.1 | % | | | 0.5 | % | | | (8.6 | )% | | | 0 | | | | 0 | | | | 0.1 | % |
Withholding tax | | | — | | | | 13.3 | % | | | — | | | | (0.2 | )% | | | 0 | | | | 0 | |
Other | | | 0.1 | % | | | (0.1 | )% | | | 0.4 | % | | | (0.5 | )% | | | 0 | | | | 0.1 | % |
Effective tax rate | | | 10.4 | % | | | 81.3 | % | | | 20.0 | % | | | 5.8 | % | | | 8.3 | % | | | 10.4 | % |
In 2018, the Company had a deferred tax liability of $2.1 million in connection with unrepatriated earnings from Australia, which the Company reduced by $0.9 million in 2019. In 2019, the Company recorded a benefit of $6.7 million, which it utilized as group relief to offset taxable income.
Under Irish tax legislation, Irish Revenue (“Revenue”) is entitled to make enquiries and/or raise an assessment of any corporation tax return submitted up to a period of four years from the end of the year in which the return is submitted. As such, Revenue is entitled to make enquiries and/or raise an assessment in respect of the corporation tax returns submitted by the Company’s Irish subsidiaries for each of the years ended December 31, 20142016 to 2018.2020.
Revenue is conducting a VAT audit for the period March 1, 2017 to June 30, 2018. Fly has not recorded any uncertain tax position liability or loss contingency related to this matter based on its position that Fly is able to reclaim any VAT that it is required to pay.
In February 2018, Revenue issued a Value Added Tax (“VAT”) assessment to Fly for the period from January 1, 2014 to December 31, 2016 in the amount of 6.1 million Euros, representing a portion of the VAT refunded to Fly during that time period. Fly has had an ongoing dialogue with Revenue since January 2017 regarding its VAT returns and believes the assessment was raised as a protective measure by Revenue to avoid missing the statute of limitations for any claims. In March 2018, Fly filed an appeal ofappealed the assessment and the case is awaiting action bycurrently progressing through the Tax Appeals Commission.Commission process. Fly has not recorded any liability related to this assessment based on the facts and circumstances, and as also supported by a relevant tax court case, the positions taken in Fly’s VAT returns are more likely than notprobable to be sustained upon ultimate resolution of this matter.
The following table describes the principal components of the Company’s other liabilities (dollars in thousands):
| | December 31, 2018 | | | December 31, 2017 | | | December 31, 2020 | | | December 31, 2019 | |
Current tax payable | | $ | 50 | | | $ | 4,226 | | | $ | 43 | | | $ | 308 | |
Lease discount | | | 25,539 | | | | — | | | | 24,233 | | | | 24,965 | |
Lease incentive obligation | | | 14,020 | | | | 20,306 | | | | 7,264 | | | | 15,634 | |
Deferred rent | | | 15,067 | | | | 8,444 | | | | 21,271 | | | | 15,715 | |
Refundable deposits | | | 3,420 | | | | 805 | | | | 6,185 | | | | 3,210 | |
Other | | | 22,306 | | | | 5,875 | | | | 11,900 | | | | 16,929 | |
Total other liabilities | | $ | 80,402 | | | $ | 39,656 | | | $ | 70,896 | | | $ | 76,761 | |
Share Repurchases
In November 2018, the Company’s board of directors approved a $50.0 million share repurchase program expiring in December 2019. Under this program, the Company may make share repurchases from time to time in the open market or in privately negotiated transactions.
During the year ended December 31, 2018, the Company did not repurchase any shares. During the year ended December 31, 2017, the Company repurchased 4,274,569 shares at an average price of $13.35 per share, or $57.1 million, before commissions and fees. During the year ended December 31, 2016, the Company repurchased 3,414,960 shares at an average price of $11.73 per share, or $40.1 million, before commissions and fees.
Dividends
No dividends were declared or paid during the years ended December 31, 2018, 2017 or 2016.
Share Issuances
In connection with the AirAsia Transactions, on July 13, 2018, the Company issued and sold a total of 1,333,334 common shares in the form of ADSs, at a purchase price of $15.00 per share, to Meridian Aviation Partners Limited and certain other affiliates of Onex Corporation (collectively, “Onex”) and members of the management team of BBAM LP in private placement transactions, for aggregate proceeds of $20.0 million. All Fly common shares held by Onex, and the newly issued Fly common shares held by members of the management team of BBAM LP, are subject to a 180-day lock-up from the date of issuance. In addition, on August 30, 2018, the Company issued 3,333,333 common shares in the form of ADSs, valued at $15.00 per share, to AirAsia, as partial consideration in the AirAsia Transactions. The Fly common shares issued to AirAsia are subject to lock-up restrictions until 2021, as well as voting and standstill undertakings until AirAsia and its affiliates own less than 10% of Fly’s outstanding shares. The Company has agreed to register the common shares issued to Onex, members of the management team of BBAM LP and AirAsia for resale with the Securities and Exchange Commission.
During the year ended December 31, 2017, the Company issued 1,481 shares in connection with SARs that were exercised.
During the year ended December 31, 2016, the Company issued no shares.
15. | SHARE-BASED COMPENSATION |
Description of Plan
On April 29, 2010, the Company adopted the 2010 Omnibus Incentive Plan (“2010 Plan”) permitting the issuance of up to 1,500,000 share grants in the form of (i) SARs;stock appreciation rights (“SARs”); (ii) RSUs;restricted stock units (“RSUs”); (iii) nonqualified stock options; and (iv) other stock-based awards. The Company has issued all shares available under the 2010 Plan. Since June 30, 2015, all SARs and RSUs granted under the 2010 Plan have vested.
SARs entitle the holder to receive any increase in value between the grant date price of Fly’s ADSs and their value on the exercise date. RSUs entitle the holder to receive a number of Fly’s ADSs equal to the number of RSUs awarded upon vesting. All awards are fully vested. The granted SARs and RSUs vested in three equal installments and SARs expire on the tenth anniversary of the grant date. The Company satisfies SAR and RSU exercises with newly issued ADSs.
The holder of a SAR or RSU is also entitled to dividend equivalent rights (“Dividend Equivalent”) on each SAR and RSU.SAR. For each Dividend Equivalent, the holder shall have the non-forfeitable right to receive a cash amount equal to the per share dividend paid by the Company during the period between the grant date and the earlier of the (i) award exercise or vesting date, (ii) termination date or (iii) expiration date. Dividend Equivalents expire at the same time and in the same proportion that the SARs and RSUs are exercised, cancelled, forfeited or expired.
Grant Activity
Since June 30, 2015, all SARs and RSUs granted underA summary of the 2010 Plan have vested.
AtCompany’s SAR activity for the years ended December 31, 2016, there were 821,117 SARs outstanding2020, 2019 and exercisable at2018 are presented as follows:
| | Number of shares | | | Weighted average exercised price | | | Weighted average remaining contractual life (in years) | |
Outstanding and vested at January 1, 2018 | | | 796,980 | | | $ | 12.74 | | | | 3.1 | |
SARs exercised | | | 0 | | | | 0 | | | | | |
Outstanding at December 31, 2018 | | | 796,980 | | | $ | 12.74 | | | | 2.1 | |
SARs exercised | | | 782,955 | | | | 12.73 | | | | | |
Outstanding at December 31, 2019 | | | 14,025 | | | $ | 12.95 | | | | 1.6 | |
SARs exercised | | | 0 | | | | 0 | | | | | |
Outstanding and exercisable at December 31, 2020 | | | 14,025 | | | | 12.95 | | | | 0.6 | |
Share Repurchases
In August 2019, the Company’s board of directors approved a weighted average exercise price of $12.74.$50.0 million share repurchase program. Under this program, the Company was able to make share repurchases from time to time in the open market or in privately negotiated transactions.
The Company suspended share repurchases in March 2020, and the program expired in September 2020. During the year ended December 31, 2017, 24,137 SARs were exercised2020, the Company repurchased 417,341 shares at a weightedan average price of $12.73. At$15.57 per share, or $6.5 million, before commissions and fees. During the year ended December 31, 2018 and 2017, there were 796,980 SARs outstanding and exercisable2019, the Company repurchased 2,010,437 shares at a weightedan average exercise price of $12.74. At$16.29 per share, or $32.8 million, before commissions and fees. During the year ended December 31, 2018, the weighted average remaining contractual lifeCompany did 0t repurchase any shares.
Dividends
NaN dividends were declared or paid during the years ended December 31, 2020, 2019 or 2018.
Share Issuances
NaN shares were issued during the year ended December 31, 2020 and 2018. During the year ended December 31, 2019, the Company issued 258,828 shares in connection with SARs that were exercised.
In connection with the AirAsia transactions (see Note 17), on July 13, 2018, the Company issued and sold a total of 1,333,334 common shares in the form of ADSs, at a purchase price of $15.00 per share, to Meridian Aviation Partners Limited and certain other affiliates of Onex Corporation (collectively, “Onex”) and members of the SARs was 2.1 years.management team of BBAM LP in private placement transactions, for aggregate proceeds of $20.0 million. In addition, on August 30, 2018, the Company issued 3,333,333 common shares in the form of ADSs, valued at $15.00 per share, to AirAsia, as partial consideration in the AirAsia transactions. The Fly common shares issued to AirAsia are subject to lock-up restrictions until at least 2021, as well as voting and standstill undertakings until AirAsia and its affiliates own less than 10% of Fly’s outstanding shares. The Company registered the common shares issued to AirAsia for resale with the Securities and Exchange Commission.
16. | EARNINGS (LOSS) PER SHARE |
The following table sets forth the calculation of basic and diluted earnings (loss) per common share using the two-class method, in which dividends attributable to SARs, if any, are deducted from net income (loss) in determining net income (loss) attributable to common shareholders (dollars in thousands, except per share data)data):
| | |
| | Years ended | | | Years ended | |
| | 2018 | | | 2017 | | | 2016 | | | 2020 | | | 2019 | | | 2018 | |
Numerator | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 85,723 | | | $ | 2,598 | | | $ | (29,112 | ) | |
Less: | | | | | | | | | | | | | |
Dividends declared and paid to shareholders | | | — | | | | — | | | | — | | |
Dividend equivalents paid to vested RSUs and SARs | | | — | | | | — | | | | — | | |
Net income (loss) attributable to common shareholders | | $ | 85,723 | | | $ | 2,598 | | | $ | (29,112 | ) | | $ | (67,425 | ) | | $ | 225,877 | | | $ | 85,723 | |
Denominator | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average shares outstanding-Basic | | | 29,744,083 | | | | 30,307,357 | | | | 33,239,001 | | | | 30,551,873 | | | | 31,607,781 | | | | 29,744,083 | |
Dilutive common equivalent shares: | | | | | | | | | | | | | | | | | | | | | | | | |
RSUs | | | — | | | | — | | | | — | | |
SARs | | | 39,821 | | | | 46,068 | | | | — | | | | 0 | | | | 107,688 | | | | 39,821 | |
Weighted average shares outstanding-Diluted | | | 29,783,904 | | | | 30,353,425 | | | | 33,239,001 | | | | 30,551,873 | | | | 31,715,469 | | | | 29,783,904 | |
Earnings (loss) per share: | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | | | | | | | | | | | | | | | | | | | | | | |
Distributed earnings | | $ | — | | | $ | — | | | $ | — | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Undistributed income (excess distribution) | | $ | 2.88 | | | $ | 0.09 | | | $ | (0.88 | ) | |
Undistributed income (loss) | | | $ | (2.21 | ) | | $ | 7.15 | | | $ | 2.88 | |
Basic earnings (loss) per share | | $ | 2.88 | | | $ | 0.09 | | | $ | (0.88 | ) | | $ | (2.21 | ) | | $ | 7.15 | | | $ | 2.88 | |
Diluted | | | | | | | | | | | | | | | | | | | | | | | | |
Distributed earnings | | $ | — | | | $ | — | | | $ | — | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Undistributed income (excess distribution) | | $ | 2.88 | | | $ | 0.09 | | | $ | (0.88 | ) | |
Undistributed income (loss) | | | $ | (2.21 | ) | | $ | 7.12 | | | $ | 2.88 | |
Diluted earnings (loss) per share | | $ | 2.88 | | | $ | 0.09 | | | $ | (0.88 | ) | | $ | (2.21 | ) | | $ | 7.12 | | | $ | 2.88 | |
Basic earnings (loss) per share is calculated by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) available to common shareholders by the sum of the weighted average number of common shares outstanding and the potential number of dilutive common shares outstanding during the period, excluding the effect of any anti-dilutive securities.
SARs granted by the Company that contain non-forfeitable rights to receive dividend equivalents are deemed participating securities (see Note 15)14). Net income (loss) available to common shareholders is determined by reducing the Company’s net income (loss) for the period by dividend equivalents paid on vested SARs during the period.
17. | COMMITMENTS AND CONTINGENCIES |
From time to time, the Company contracts with third-party service providers to perform maintenance or overhaul activities on its off-lease aircraft.
In 2016, Flythe Company entered into agreements with third-party lessors to guarantee the residual value of three3 aircraft subject to twelve-year leases (“RVGs”). Fly and received residual value guarantee fees totaling $6.6 million, which are being amortized over a twelve-year period. The third-party lessors may exercise their rights under the RVGs by issuing a notice to Fly eleven months before eachprior to the respective lease expiry datematurity requiring Flythe Company to purchase the aircraft on such date. The RVGs will terminate if not exercised accordingly. DuringFor each of the years ended December 31, 20182020, 2019 and 2017,2018, the Company recognized income of $0.6 million of income.
As ofmillion. At December 31, 2018, the Company had a commitment to sell 12 aircraft, nine2020, 0 liability was recorded for these RVGs.
AirAsia Transactions
In connection with the AirAsia Transactions,On February 28, 2018, the Company agreed to acquire Portfolio B, consisting of 21 Airbus A320neo family aircraft to be leased to the AirAsia Group Berhad (“AirAsia”) and its affiliated airlines (the “AirAsia Group”) as the aircraft deliver between 2019 and 2021. Additional cash consideration will be payable as eachfrom the manufacturer (“Portfolio B”). The first of these aircraft delivered in Portfolio B is delivered.the fourth quarter of 2019. The Company also acquired options to purchase Portfolio C, which consists ofup to 20 Airbus A320neo family aircraft, not subject to lease which deliver from the manufacturer between 2019 and 2025.(“Portfolio C”). The Company did not exercise itsour options with respect to any of the Portfolio C aircraft delivering in 2019. In August 2019, the Company exercised options with respect to 8 Portfolio C aircraft to be delivered in 2020 and 2021. The Portfolio C aircraft slated for delivery in 2020 were not delivered, and the Company does not expect the Portfolio C aircraft slated for delivery in 2021 to deliver in the next 12 months. Assuming the 8 options exercised but not delivered are re-exercised at a future date, the Company has options remaining to purchase up to 17 Portfolio C aircraft delivering between 20202021 and 2025. Due to the impact of COVID-19, the Company expects that the delivery of the Portfolio B and Portfolio C aircraft will be delayed substantially, and that 0 aircraft will deliver under either of these agreements in the next 12 months.
From time to time, the Company contracts with third-party service providers to perform maintenance or overhaul activities on its off-lease aircraft.
18. | RELATED PARTY TRANSACTIONS |
With respectPursuant to the servicing agreements that governed the aircraft financed by the Securitization Notes through December 31, 2016,and the Fly Acquisition III Facility, BBAM was entitled to receive (i) a base fee of $150,000 per month, subject to certain adjustments, (ii) a rent fee equal to 1.0% of the aggregate amount of rents due and 1.0% of the aggregate amount of rents actually collected and (iii) a sales fee of 1.5% of the aggregate gross proceeds in respect of any aircraft sold. BBAM also was entitled, until December 31, 2016, to an administrative agency fee from B&B Air Funding equal to $750,000 per annum, subject to an annual CPI adjustment.
Effective January 1, 2017, the servicing agreement between B&B Air Funding and BBAM relating to aircraft financed by the Securitization Notes was amended, thereby (i) amending the rent fee to 3.5% of the aggregate amount of rents actually collected, plus $1,000 per aircraft per month and (ii) eliminating the basea sales fee of $150,000 per month. In connection with this amendment, effective January 1, 2017,1.5% of the aggregate gross proceeds in respect of any aircraft sold. BBAM was also entitled to (i) an administrative agency fee was also reduced, through a rebate, toof $20,000 per month, subject to an annual CPI adjustment.adjustment, in connection with the Securitization Notes and (ii) an administrative fee of $10,000 per month under the Fly Acquisition III Facility. With the redemption of the Securitization Notes in March 2019 and the repayment of the Fly Acquisition III Facility in October 2019, the servicing agreements with BBAM were terminated.
With respect to all other aircraft, BBAM is entitled to receive a servicing fee equal to 3.5% of the aggregate amount of rents actually collected, plus an administrative fee of $1,000$1,000 per aircraft per month. Under the 2012 Term Loan, the Fly Acquisition III Facility, 2020 Term Loan, the Magellan Acquisition Limited Facility and the Fly Aladdin Acquisition Facility, BBAM is also entitled to an administrative fee of $10,000$10,000 per month. Under the Fly Aladdin Engine Funding Facility, BBAM is entitled to receive a servicing fee equal to 3.5% of monthly rents actually collected and an administrative fee equal to $1,000$1,000 per month. In addition,
For the years ended December 31, 2020, 2019 and 2018, BBAM received servicing and administrative fees totaling $11.5 million, $15.4 million and $15.8 million, respectively.
BBAM also is entitled to receive an acquisition fee of 1.5% of the gross acquisition cost for any aircraft or aviation asset purchased by the Company, and a disposition fee of 1.5% of the gross proceeds for any aircraft or aviation asset sold.
Forsold by the years ended December 31, 2018, 2017 and 2016, BBAM received servicing and administrative fees totaling $15.8 million, $13.1 million and $14.6 million, respectively.
Company. During the years ended December 31, 2018, 20172020, 2019 and 2016,2018, the Company incurred $1.1 million, $5.0 million and $16.1 million $6.8 million and $8.4 million of originationacquisition fees, respectively, payable to BBAM.
During the years ended December 31, 2018, 20172020, 2019 and 2016,2018, the Company incurred disposition fees of $3.1$3.4 million, $0.3$15.4 million and $7.5$3.1 million, respectively, payable to BBAM.
In addition, Fly pays an annual management fee to the Manager as compensation for providing the services of the chief executive officer, the chief financial officer and other personnel, and for certain corporate overhead costs related to the Company. The management fee is adjusted each calendar year by (i) 0.3% of the change in the book value of the Company’s aircraft portfolio during the preceding year, up to a $2.0 billion increase over $2.7 billion and (ii) 0.25% of the change in the book value of the Company’s aircraft portfolio in excess of $2.0 billion, with a minimum management fee of $5.0 million. The management fee is also subject to an annual CPI adjustment applicable to the prior calendar year. For the yearyears ended December 31, 2020, 2019 and 2018, the Company incurred Management Expenses of $7.8 million, $9.6 million and $7.3 million. For the years ended December 31, 2017 and 2016, the Company incurred Management Expenses of $6.3 million.million, respectively.
The Company further amended the management agreement, effective as of January 1, 2017, to reflect the amendments made to the servicing and administrative fees payable in respect of the aircraft financed by the Securitization Notes.
The management agreement is scheduled to terminate on July 1, 2025 and shall be automatically extended for one1 additional term of five years unless terminated by either party with 12 months’ notice or otherwise terminated earlier in accordance with the terms therein.
If the management agreement is not renewed on July 1, 2025, Fly will pay the Manager a non-renewal fee on such termination date in an amount equal to (i) $6.0$6.0 million plus (ii) so long as the Management Expense Amount does not exceed $12.0$12.0 million, 50% of the excess (if any) of the Management Expense Amount over $6.0$6.0 million in respect of the last fiscal year prior to such termination date.
The Company’s minimum long-term contractual obligations with BBAM LP as of December 31, 2018,2020, excluding rent fees, consisted of the following (dollars in thousands):
| | 2019 | | | 2020 | | | 2021 | | | 2022 | | | 2023 | | | Thereafter | | | Total | |
Fixed base fee payments (1) | | $ | 250 | | | $ | 250 | | | $ | 250 | | | $ | 238 | | | $ | — | | | $ | — | | | $ | 988 | |
Fixed administrative agency fee payments due by B&B Air Funding (1) | | | 76 | | | | 37 | | | | 24 | | | | 21 | | | | 12 | | | | 1 | | | | 171 | |
Fixed administrative services fee due under the Term Loan (2) | | | 441 | | | | 385 | | | | 300 | | | | 212 | | | | 61 | | | | 62 | | | | 1,461 | |
Fixed administrative services fee due under the Magellan Acquisition Limited Facility (2) | | | 228 | | | | 228 | | | | 226 | | | | 215 | | | | 204 | | | | 601 | | | | 1,702 | |
Fixed administrative services fee due under Fly Acquisition III Facility (2) | | | 228 | | | | 228 | | | | 213 | | | | 91 | | | | 67 | | | | 213 | | | | 1,040 | |
Fixed administrative services fee due under Fly Aladdin Acquisition Facility (2) | | | 372 | | | | 370 | | | | 349 | | | | 306 | | | | 176 | | | | 255 | | | | 1,828 | |
Fixed administrative services fee due under Fly Aladdin Engine Funding Facility (2) | | | 12 | | | | 12 | | | | 12 | | | | 12 | | | | 10 | | | | — | | | | 58 | |
Fixed administrative agency fee payments due by other subsidiaries (2) | | | 312 | | | | 280 | | | | 225 | | | | 197 | | | | 253 | | | | 289 | | | | 1,556 | |
Fixed payments for Management Expenses (1) (3) | | | 9,561 | | | | 9,561 | | | | 9,561 | | | | 9,561 | | | | 9,561 | | | | 62,146 | | | | 109,951 | |
Acquisition fees related to Portfolio B in the AirAsia Transactions | | | 3,013 | | | | 4,545 | | | | 8,336 | | | | — | | | | — | | | | — | | | | 15,894 | |
Disposition fees on flight equipment held for sale | | | 5,264 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 5,264 | |
Total | | $ | 19,757 | | | $ | 15,896 | | | $ | 19,496 | | | $ | 10,853 | | | $ | 10,344 | | | $ | 63,567 | | | $ | 139,913 | |
| | 2021 | | | 2022 | | | 2023 | | | 2024 | | | 2025 | | | Thereafter | | | Total | |
Fixed administrative services fee due under the 2012 Term Loan(1) | | $ | 388 | | | $ | 301 | | | $ | 233 | | | $ | 206 | | | $ | 156 | | | $ | 180 | | | $ | 1,464 | |
Fixed administrative services fee due under the 2020 Term Loan(1) | | | 250 | | | | 240 | | | | 228 | | | | 211 | | | | 155 | | | | 101 | | | | 1,185 | |
Fixed administrative services fee due under the Magellan Acquisition Limited Facility(1) | | | 228 | | | | 227 | | | | 216 | | | | 216 | | | | 208 | | | | 208 | | | | 1,303 | |
Fixed administrative services fee due under Fly Aladdin Acquisition Facility(1) | | | 278 | | | | 254 | | | | 140 | | | | 81 | | | | 31 | | | | 61 | | | | 845 | |
Fixed administrative services fee due under Fly Aladdin Engine Funding Facility(1) | | | 12 | | | | 12 | | | | 10 | | | | 0 | | | | 0 | | | | 0 | | | | 34 | |
Fixed administrative agency fee payments due by other subsidiaries(1) | | | 188 | | | | 156 | | | | 128 | | | | 108 | | | | 101 | | | | 196 | | | | 877 | |
Fixed payments for Management Expenses(2) (3) | | | 6,889 | | | | 6,889 | | | | 6,889 | | | | 6,889 | | | | 6,889 | | | | 31,004 | | | | 65,449 | |
Total | | $ | 8,233 | | | $ | 8,079 | | | $ | 7,844 | | | $ | 7,711 | | | $ | 7,540 | | | $ | 31,750 | | | $ | 71,157 | |
(1) | Assumes number of aircraft and engines at December 31, 2020 remain constant in future periods. |
(2) | Assumes Consumer Price Index (“CPI”) rates in effect as of December 31, 20182020 remain constant in future periods. |
(2) | Assumes number of aircraft and engines at December 31, 2018 remain constant in future periods. |
(3) | Assumes automatic extension for one1 additional term of five years to June 30, 2030. Also assumes net book values of aircraft and engines at December 31, 20182020 remains constant in future periods. |
19. | FAIR VALUE MEASUREMENTSOF FINANCIAL INSTRUMENTS |
Assets and liabilities recorded at fair value on a recurring and non-recurring basis in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. The hierarchy levels give the highest priority to quoted prices in active markets and the lowest priority to unobservable data. Fair value measurements are disclosed by level within the following fair value hierarchy:
Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2 — Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level 3 — Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
The Company’s financial instruments consist principally of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, derivative instruments, accounts payable and borrowings. Fair value of an asset is defined as the price a seller would receive in a current transaction between knowledgeable, willing and able parties. A liability’s fair value is defined as the amount that an obligor would pay to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor.
Where available, the fair value of the Company’s investment in equity certificates, notes payable and debt facilities is based on observable market prices or parameters or derived from such prices or parameters (Level 2). For the year ended December 31,2020, the Company recognized an unrealized fair value loss of $13.0 million on its investment in equity certificates to write down the equity certificates to estimated fair value.
Where observable prices or inputs are not available, valuation models are applied, using the net present value of cash flow streams over the term using estimated market rates for similar instruments and remaining terms (Level 3). These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.
The Company determines the fair value of its derivative instruments using a discounted cash flow model which incorporates an assessment of the risk of non-performance by the swap counterparty and an evaluation of its credit risk in valuing derivative liabilities. The valuation model uses various inputs including contractual terms, interest rate curves, credit spreads and measures of volatility.volatility (Level 2).
The Company also measures the fair value for certain assets and liabilities on a non-recurring basis, when GAAP requires the application of fair value, including events or changes in circumstances that indicate that the carrying amounts of assets may not be recoverable. Assets subject to these measurements include Fly’s investment in an unconsolidated subsidiaryPortfolio B orderbook value and flight equipment held for operating lease, net. Fly accounts for its investment in an unconsolidated subsidiary under the equity method and records impairment when its fair value is less than its carrying value and the Company determines that the decline is other-than-temporarynet (Level 3).
The Company records flight equipment at fair value when the carrying value may not be recoverable. Such fair value measurements are based on management’s best estimates and judgment and use Level 3 inputs which include assumptions as toof future cash flows associated withprojected lease rates, re-leasing costs, estimated down time and estimated residual or scrap values of the use of an aircraft andon its eventual disposition of such aircraft.disposition. The Company will record an impairment charge if the sum of the expected sale proceeds of an aircraft arefuture cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset. The impairment charge is equal to the excess of the carrying amount of the impaired asset over its carryingfair value. ForFair value reflects the present value of the expected future cash flows, discounted at an appropriate rate. The Company recorded an impairment charge of $115.0 million during the year ended December 31,2020.The Company did 0t record any impairment during the years ended December 31, 20172019 and 2016, the Company wrote down aircraft to their net realizable value and recognized charges of $22.0 million and $96.1 million, respectively (See Note 6).2018.
The carrying amounts and fair values of certain of the Company’s debt instruments are as follows (dollars in thousands):
| | As of December 31, 2018 | | | As of December 31, 2017 | | | As of December 31, 2020 | | | As of December 31, 2019 | |
| | Principal Amount Outstanding | | | Fair Value | | | Principal Amount Outstanding | | | Fair Value | | | Principal Amount Outstanding | | | Fair Value | | | Principal Amount Outstanding | | | Fair Value | |
Securitization Notes | | $ | 85,584 | | | $ | 80,770 | | | $ | 101,551 | | | $ | 95,839 | | |
Term Loan | | | 407,768 | | | | 396,554 | | | | 431,271 | | | | 431,271 | | |
2012 Term Loan | | | $ | 362,960 | | | $ | 342,997 | | | $ | 385,364 | | | $ | 385,364 | |
2020 Term Loan | | | | 180,000 | | | | 177,750 | | | | 0 | | | | 0 | |
Magellan Acquisition Limited Facility | | | | 252,143 | | | | 244,579 | | | | 278,684 | | | | 278,684 | |
Fly Aladdin Acquisition Facility | | | | 229,644 | | | | 192,407 | | | | 272,343 | | | | 272,343 | |
2021 Notes | | | 325,000 | | | | 329,875 | | | | 325,000 | | | | 339,235 | | | | 0 | | | | 0 | | | | 325,000 | | | | 331,207 | |
2024 Notes | | | 300,000 | | | | 279,390 | | | | 300,000 | | | | 301,500 | | | | 300,000 | | | | 286,500 | | | | 300,000 | | | | 314,070 | |
The Company’s principal amount outstanding on its remaining debt instruments approximates fair value at December 31, 20182020 and 2017.2019.
As of December 31, 20182020 and 2017,2019, the categorized assets and liabilities measured at fair value on a recurring basis, based upon the lowest level of significant inputs to the valuations are as follows (dollars in thousands):
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
December 31, 2018: | | | | | | | | | | | | | |
December 31, 2020: | | | | | | | | | | | | | |
Derivative assets | | | — | | | $ | 5,929 | | | | — | | | $ | 5,929 | | | | 0 | | | $ | 2,085 | | | | 0 | | | $ | 2,085 | |
Derivative liabilities | | | — | | | | 8,558 | | | | — | | | | 8,558 | | | | 0 | | | | 46,169 | | | | 0 | | | | 46,169 | |
Investment in equity certificates | | | — | | | | 5,747 | | | | — | | | | 5,747 | | | | 0 | | | | 3,023 | | | | 0 | | | | 3,023 | |
December 31, 2017: | | | | | | | | | | | | | | | | | |
December 31, 2019: | | | | | | | | | | | | | | | | | |
Derivative assets | | | — | | | $ | 2,643 | | | | — | | | $ | 2,643 | | | | 0 | | | $ | 4,824 | | | | 0 | | | $ | 4,824 | |
Derivative liabilities | | | — | | | | 7,344 | | | | — | | | | 7,344 | | | | 0 | | | | 27,943 | | | | 0 | | | | 27,943 | |
Investment in equity certificates | | | | 0 | | | | 16,048 | | | | 0 | | | | 16,048 | |
20. | UNAUDITED QUARTERLY CONDENSED CONSOLIDATED FINANCIAL INFORMATION |
The unaudited quarterly financial information for each of the quarters in the years ended December 31, 20182020 and 20172019 is presented below (dollars in thousands, except per share data):
| | March 31, 2018 | | | June 30, 2018 | | | September 30, 2018 | | | December 31, 2018 | |
Total revenues | | $ | 88,755 | | | $ | 102,673 | | | $ | 104,566 | | | $ | 122,305 | |
Net income | | $ | 9,630 | | | $ | 24,344 | | | $ | 20,740 | | | $ | 31,009 | |
Earnings per share — Basic | | $ | 0.34 | | | $ | 0.87 | | | $ | 0.68 | | | $ | 0.95 | |
Earnings per share — Diluted | | $ | 0.34 | | | $ | 0.87 | | | $ | 0.68 | | | $ | 0.95 | |
| | March 31, 2020 | | | June 30, 2020 | | | September 30, 2020 | | | December 31, 2020 | |
Total revenues | | $ | 121,555 | | | $ | 79,962 | | | $ | 60,084 | | | $ | 72,754 | |
Net income (loss) | | $ | 38,072 | | | $ | 9,606 | | | $ | (8,067 | ) | | $ | (107,036 | ) |
Earnings (loss) per share — Basic | | $ | 1.24 | | | $ | 0.32 | | | $ | (0.26 | ) | | $ | (3.51 | ) |
Earnings (loss) per share — Diluted | | $ | 1.24 | | | $ | 0.32 | | | $ | (0.26 | ) | | $ | (3.51 | ) |
| | March 31, 2019 | | | June 30, 2019 | | | September 30, 2019 | | | December 31, 2019 | |
Total revenues | | $ | 134,703 | | | $ | 147,033 | | | $ | 139,034 | | | $ | 154,254 | |
Net income | | $ | 44,965 | | | $ | 54,050 | | | $ | 51,704 | | | $ | 75,158 | |
Earnings per share — Basic | | $ | 1.38 | | | $ | 1.69 | | | $ | 1.67 | | | $ | 2.43 | |
Earnings per share — Diluted | | $ | 1.38 | | | $ | 1.68 | | | $ | 1.67 | | | $ | 2.43 | |
| | March 31, 2017 | | | June 30, 2017 | | | September 30, 2017 | | | December 31, 2017 | |
Total revenues | | $ | 79,266 | | | $ | 79,832 | | | $ | 86,219 | | | $ | 107,934 | |
Net income (loss) | | $ | 5,052 | | | $ | 2,880 | | | $ | (12,504 | ) | | $ | 7,170 | |
Earnings (loss) per share — Basic | | $ | 0.16 | | | $ | 0.09 | | | $ | (0.43 | ) | | $ | 0.25 | |
Earnings (loss) per share — Diluted | | $ | 0.16 | | | $ | 0.09 | | | $ | (0.43 | ) | | $ | 0.25 | |
Subsequent to December 31, 2018, the Company sold nine aircraft, which includes the sale of eight aircraft to Horizon and one aircraft to a third party, all of which were classified as held for sale as of December 31, 2018 (see Note 5).
On February 12, 2019, B&B Air Funding issued a notice of redemption to the trustee, policy provider, liquidity facility provider, listing agent and Euronext Dublin pursuant to the indenture governing the Securitization Notes to redeem the Securitization Notes in whole for an amount equal to the outstanding principal amount, with any accrued and unpaid interest, on March 14, 2019.
Schedule I — Condensed financial information of parent
Fly Leasing Limited
Condensed Balance Sheets
AS OF DECEMBER 31, 20182020 AND 20172019
(Dollars in thousands)
| | December 31, | | | December 31, | |
| | 2018 | | | 2017 | | | 2020 | | | 2019 | |
Assets | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 43,233 | | | $ | 157,014 | | | $ | 75,877 | | | $ | 229,431 | |
Notes receivable from subsidiaries | | | 466,729 | | | | 375,477 | | | | 519,658 | | | | 440,801 | |
Investments in subsidiaries | | | 1,019,048 | | | | 985,476 | | | | 1,040,079 | | | | 1,197,465 | |
Deferred tax asset, net | | | | 0 | | | | 145 | |
Other assets, net | | | 11,019 | | | | 9,851 | | | | 5,656 | | | | 19,553 | |
Total assets | | $ | 1,540,029 | | | $ | 1,527,818 | | | $ | 1,641,270 | | | $ | 1,887,395 | |
Liabilities | | | | | | | | | | | | | | | | |
Payable to related parties | | $ | 729 | | | $ | 223 | | | $ | 647 | | | $ | 823 | |
Payable to subsidiaries | | | 202,298 | | | | 349,585 | | |
Payable to subsidiaries, net | | | | 544,749 | | | | 256,473 | |
Unsecured borrowings, net | | | 617,664 | | | | 615,922 | | | | 296,876 | | | | 734,053 | |
Deferred tax liability, net | | | 3,066 | | | | 3,739 | | |
Accrued and other liabilities | | | 14,162 | | | | 14,640 | | | | 10,002 | | | | 17,769 | |
Total liabilities | | | 837,919 | | | | 984,109 | | | | 852,274 | | | | 1,009,118 | |
Shareholders’ equity | | | 702,110 | | | | 543,709 | | | | 788,996 | | | | 878,277 | |
Total liabilities and shareholders’ equity | | $ | 1,540,029 | | | $ | 1,527,818 | | | $ | 1,641,270 | | | $ | 1,887,395 | |
The accompanying note is an integral part of theseThese condensed financial statements should be read in conjunction with the notes to consolidated financial statements.
Schedule I — Condensed financial information of parent
Fly Leasing Limited
Condensed Statements of Income (Loss)
FOR THE YEARS ENDED DECEMBER 31, 2018, 20172020, 2019 AND 20162018
(Dollars in thousands, except per share data)
| | Years ended | | | Years ended | |
| | 2018 | | | 2017 | | | 2016 | | | 2020 | | | 2019 | | | 2018 | |
Revenues | | | | | | | | | | | | | | | | | | |
Equity earnings (loss) from subsidiaries | | $ | 90,175 | | | $ | 35,208 | | | $ | (24,385 | ) | | $ | (67,122 | ) | | $ | 219,720 | | | $ | 90,175 | |
Equity earnings (loss) from unconsolidated subsidiary | | | (54 | ) | | | 496 | | | | 530 | | |
Intercompany management fee income | | | 16,844 | | | | 12,124 | | | | 8,866 | | | | 14,042 | | | | 16,452 | | | | 16,844 | |
Intercompany interest income | | | 25,740 | | | | 34,068 | | | | 44,394 | | | | 48,847 | | | | 33,290 | | | | 25,740 | |
Interest and other income | | | 1,072 | | | | 809 | | | | 410 | | | | 1,727 | | | | 8,783 | | | | 1,018 | |
Total revenues | | | 133,777 | | | | 82,705 | | | | 29,815 | | | | (2,506 | ) | | | 278,245 | | | | 133,777 | |
Expense | | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | 38,211 | | | | 45,970 | | | | 48,013 | | | | 36,431 | | | | 38,211 | | | | 38,211 | |
Selling, general and administrative | | | 12,314 | | | | 12,630 | | | | 11,803 | | | | 14,105 | | | | 14,102 | | | | 12,314 | |
Ineffective, dedesignated and terminated derivatives | | | (1,798 | ) | | | — | | | | — | | |
Gain on derivatives | | | | 0 | | | | 0 | | | | (1,798 | ) |
Fair value loss on marketable securities | | | | 13,025 | | | | 0 | | | | 0 | |
Loss on modification and extinguishment of debt | | | — | | | | 19,655 | | | | — | | | | 1,013 | | | | 0 | | | | 0 | |
Total expenses | | | 48,727 | | | | 78,255 | | | | 59,816 | | | | 64,574 | | | | 52,313 | | | | 48,727 | |
Net income (loss) before provision (benefit) for income taxes | | | 85,050 | | | | 4,450 | | | | (30,001 | ) | | | (67,080 | ) | | | 225,932 | | | | 85,050 | |
Provision (benefit) for income taxes | | | (673 | ) | | | 1,852 | | | | (889 | ) | | | 345 | | | | 55 | | | | (673 | ) |
Net income (loss) | | $ | 85,723 | | | $ | 2,598 | | | $ | (29,112 | ) | | $ | (67,425 | ) | | $ | 225,877 | | | $ | 85,723 | |
Weighted average number of shares: | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | 29,744,083 | | | | 30,307,357 | | | | 33,239,001 | | | | 30,551,873 | | | | 31,607,781 | | | | 29,744,083 | |
Diluted | | | 29,783,904 | | | | 30,353,425 | | | | 33,239,001 | | | | 30,551,873 | | | | 31,715,469 | | | | 29,783,904 | |
Earnings (loss) per share: | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 2.88 | | | $ | 0.09 | | | $ | (0.88 | ) | | $ | (2.21 | ) | | $ | 7.15 | | | $ | 2.88 | |
Diluted | | $ | 2.88 | | | $ | 0.09 | | | $ | (0.88 | ) | | $ | (2.21 | ) | | $ | 7.12 | | | $ | 2.88 | |
The accompanying note is an integral part of theseThese condensed financial statements should be read in conjunction with the notes to consolidated financial statements.
Schedule I — Condensed financial information of parent
Fly Leasing Limited
Condensed Statements of Cash Flows
FOR THE YEARS ENDED DECEMBER 31, 2018, 20172020, 2019 AND 20162018
(Dollars in thousands)
| | Years ended | | | Years ended | |
| | 2018 | | | 2017 | | | 2016 | | | 2020 | | | 2019 | | | 2018 | |
Cash Flows from Operating Activities | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 85,723 | | | $ | 2,598 | | | $ | (29,112 | ) | | $ | (67,425 | ) | | $ | 225,877 | | | $ | 85,723 | |
Adjustments to reconcile net income (loss) to net cash flows provided by operating activities: | | | | | | | | | | | | | |
Equity (earnings) loss from subsidiaries | | | (90,175 | ) | | | (35,208 | ) | | | 24,385 | | |
Equity (earnings) loss from unconsolidated subsidiary | | | 54 | | | | (496 | ) | | | (530 | ) | |
Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities: | | | | | | | | | | | | | |
Equity earnings (loss) from subsidiaries | | | | 67,122 | | | | (219,720 | ) | | | (90,175 | ) |
Deferred income taxes | | | (673 | ) | | | 1,852 | | | | (12,139 | ) | | | 145 | | | | (3,793 | ) | | | (673 | ) |
Fair value loss on marketable securities | | | | 13,025 | | | | 0 | | | | 0 | |
Amortization of debt discount and other | | | 1,742 | | | | 1,931 | | | | 1,982 | | | | 1,666 | | | | 1,742 | | | | 1,742 | |
Loss on modification and extinguishment of debt | | | — | | | | 19,655 | | | | — | | | | 1,013 | | | | 0 | | | | 0 | |
Distributions from unconsolidated subsidiary | | | 2,131 | | | | — | | | | — | | |
Other | | | | 28 | | | | 10 | | | | 2,185 | |
Changes in operating assets and liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Payable to subsidiaries
| | | (104,303 | ) | | | 6,144 | | | | (162,229 | ) | | | 242,991 | | | | 240,470 | | | | (104,303 | ) |
Other assets | | | (709 | ) | | | (1,121 | ) | | | 476 | | | | 172 | | | | (2,305 | ) | | | (709 | ) |
Payable to related parties | | | 506 | | | | (683 | ) | | | 856 | | | | (176 | ) | | | 94 | | | | 506 | |
Accrued and other liabilities | | | (477 | ) | | | (9,478 | ) | | | 12,622 | | | | (7,716 | ) | | | 3,605 | | | | (477 | ) |
Net cash flows used in operating activities | | | (106,181 | ) | | | (14,806 | ) | | | (163,689 | ) | |
Net cash flows provided by (used in) operating activities | | | | 250,845 | | | | 245,980 | | | | (106,181 | ) |
Cash Flows from Investing Activities | | | | | | | | | | | | | | | | | | | | | | | | |
Capital contributions to subsidiaries | | | (8,986 | ) | | | — | | | | — | | | | (14,587 | ) | | | (46,601 | ) | | | (8,986 | ) |
Distributions received from subsidiaries | | | 25,792 | | | | — | | | | — | | | | 353 | | | | 0 | | | | 25,792 | |
Distributions received from unconsolidated subsidiary | | | 3,103 | | | | — | | | | — | | |
Advances of notes receivable to subsidiaries | | | (265,311 | ) | | | (48,335 | ) | | | (40,172 | ) | | | (189,761 | ) | | | (271,084 | ) | | | (265,311 | ) |
Repayment of notes receivable from subsidiaries | | | 223,925 | | | | 144,718 | | | | 334,556 | | | | 110,903 | | | | 297,013 | | | | 223,925 | |
Investment in Horizon I Limited equity certificates | | | (5,747 | ) | | | — | | | | — | | |
Net cash flows provided by (used in) investing activities | | | (27,224 | ) | | | 96,383 | | | | 294,384 | | |
Purchase of marketable securities | | | | 0 | | | | (10,481 | ) | | | (5,747 | ) |
Advances to subsidiaries, net | | | | (1,344 | ) | | | 0 | | | | 0 | |
Other | | | | 625 | | | | 4,242 | | | | 3,103 | |
Net cash flows used in investing activities | | | | (93,811 | ) | | | (26,911 | ) | | | (27,224 | ) |
Cash Flows from Financing Activities | | | | | | | | | | | | | | | | | | | | | | | | |
Proceeds from issuance of unsecured borrowings | | | — | | | | 295,150 | | | | — | | |
Advances from subsidiaries, net | | | | 21,139 | | | | 0 | | | | 0 | |
Repayment of unsecured borrowings | | | — | | | | (375,000 | ) | | | — | | | | (325,000 | ) | | | 0 | | | | 0 | |
Debt modification and extinguishment costs | | | — | | | | (16,287 | ) | | | — | | | | (210 | ) | | | 0 | | | | 0 | |
Debt issuance costs | | | — | | | | (917 | ) | | | — | | |
Shares issued | | | 19,624 | | | | — | | | | — | | | | 0 | | | | 0 | | | | 19,624 | |
Shares repurchased | | | — | | | | (57,286 | ) | | | (40,257 | ) | | | (6,517 | ) | | | (32,871 | ) | | | 0 | |
Net cash flows provided by (used in) financing activities | | | 19,624 | | | | (154,340 | ) | | | (40,257 | ) | |
Net increase (decrease) in cash and cash equivalents | | | (113,781 | ) | | | (72,763 | ) | | | 90,438 | | |
Cash and cash equivalents at beginning of period | | | 157,014 | | | | 229,777 | | | | 139,339 | | |
Cash and cash equivalents at end of period | | $ | 43,233 | | | $ | 157,014 | | | $ | 229,777 | | |
Net cash flows (used in) provided by financing activities | | | | (310,588 | ) | | | (32,871 | ) | | | 19,624 | |
Net (decrease) increase in cash and cash equivalents | | | | (153,554 | ) | | | 186,198 | | | | (113,781 | ) |
Cash and cash equivalents at beginning of year | | | | 229,431 | | | | 43,233 | | | | 157,014 | |
Cash and cash equivalents at end of year | | | $ | 75,877 | | | $ | 229,431 | | | $ | 43,233 | |
Supplemental Disclosure: | | | | | | | | | | | | | | | | | | | | | | | | |
Cash paid during the year for: | | | | | | | | | | | | | | | | | | | | | | | | |
Interest | | $ | 36,425 | | | $ | 41,883 | | | $ | 46,032 | | | $ | 39,139 | | | $ | 36,469 | | | $ | 36,425 | |
Taxes | | | — | | | | — | | | | — | | | | 0 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Noncash Activities: | | | | | | | | | | | | | |
Noncash Activities: | | | | | | | | | | | | | |
Noncash investing activities: | | | | | | | | | | | | | | | | | | | | | | | | |
Capital contribution to subsidiaries | | | 7 | | | | 109,391 | | | | 207,340 | | | | 52,112 | | | | 142,246 | | | | 7 | |
Distributions from subsidiaries | | | 3,386 | | | | 76,451 | | | | 55,039 | | | | 80,671 | | | | 213,312 | | | | 3,386 | |
Intercompany sale of subsidiaries | | | 39,605 | | | | — | | | | — | | | | 60,598 | | | | 0 | | | | 39,605 | |
The accompanying note is an integral part of theseThese condensed financial statements should be read in conjunction with the notes to consolidated financial statements.
We have filed the following documents as exhibits to this Annual Report.
Exhibit Number | | Description of Exhibit |
| | |
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2.2 | | |
| | |
4.1 | | Administrative Services Agreement, dated as of October 2, 2007, among Deutsche Bank Trust Company Americas, AMBAC Assurance Corporation, Babcock & Brown Air Management Co. Limited and Babcock & Brown Air Funding I Limited. (1)
|
| | |
| | Trust Indenture, dated as of October 2, 2007, among Deutsche Bank Trust Company Americas, BNP Paribas, AMBAC Assurance Corporation and Babcock & Brown Air Funding I Limited. (1)
|
| | |
| | Security Trust Agreement, dated as of October 2, 2007, between Deutsche Bank Trust Company Americas, and Babcock & Brown Air Funding I Limited. (1)
|
| | |
| | Cash Management Agreement between Deutsche Bank Trust Company Americas and Babcock & Brown Air Funding I Limited. (1)
|
| | |
| | Form of Director Service Agreement between Babcock & Brown Air Limited and each director thereof.(1) |
| | |
4.2 | | |
| | |
4.3 | | |
| | |
4.4 | | Form of Stock Appreciation Right Award Agreement. (3)
|
| | |
| | Form of Restricted Stock Unit Award Agreement. (3)
|
| | |
| | Loan Agreement dated as of November 14, 2007, among Global Aviation Holdings Fund Limited, GAHF (Ireland) Limited, Caledonian Aviation Holdings Limited and Norddeutsche Landesbank Girozentrale. (4)
|
| | |
| | Form of Loan Agreement among Hobart Aviation Holdings Limited, Norddeutsche Landesbank Girozentrale and each borrower thereof.(4) |
| | |
4.5 | | |
| | |
4.6 | | Securities Purchase Agreement dated November 30, 2012, by and among Fly Leasing Limited, Summit Aviation Partners LLC and such persons identified therein. (8)
|
| | |
4.15 | | Purchase Agreement dated November 30, 2012 by and among BBAM Limited Partnership, Summit Aviation Partners LLC, Fly-BBAM Holdings Ltd., Summit Aviation Management Co., Ltd. and such persons identified therein. (6)
|
| | |
| | First Amendment to Purchase Agreement dated December 28, 2012 by and among Fly Leasing Limited, Summit Aviation Partners LLC and such persons identified therein. (8)
|
Exhibit
Number
| | Description of Exhibit |
| | |
| | Registration Rights Agreement dated as of December 28, 2012, by and among Fly Leasing Limited and each shareholder identified therein. (8)
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| | |
| | Amended and Restated Servicing Agreement dated as of January 24, 2013, by and among BBAM US LP, BBAM Aviation Services Limited and Fly Leasing Limited. (8)
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| | |
| | Indenture dated December 11, 2013 between Fly Leasing Limited and Wells Fargo Bank, National Association.(7)(6) |
| | |
4.7 | | |
| | |
4.8 | | |
| | |
4.9 | | Amendment No. 1 to Trust Indenture, dated as of October 24, 2014, by and among Babcock & Brown Air Funding I Limited, Deutsche Bank Trust Company Americas, BNP Paribas and AMBAC Assurance Corporation. (12)
|
| | |
| | Amendment No. 2 to Servicing Agreement, dated as of October 24, 2014, by and among BBAM Aircraft Management LP, BBAM Aircraft Management (Europe) Limited, Babcock & Brown Air Funding I Limited and AMBAC Assurance Corporation. (12)
|
| | |
| | First Amendment to Amended and Restated Fly Leasing Limited Management Agreement, dated June 19, 2015, between Fly Leasing Limited and Fly Leasing Management Co. Limited.(13)(10) |
| | |
4.10 | | Sale Agreement dated June 19, 2015, among certain sellers and ECAF I Ltd. (13)
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| | |
| | Servicing Agreement dated as of February 26, 2016, among BBAM US LP, BBAM Aviation Services Limited and Fly Acquisition III Limited. (14)
|
| | |
| | Second Amendment to Amended and Restated Fly Leasing Limited Management Agreement, dated July 27, 2016, between Fly Leasing Limited and Fly Leasing Management Co. Limited.(16)(12) |
| | |
4.11 | | Amendment No. 3 to Servicing Agreement, dated as of February 1, 2017, by and among BBAM Aircraft Management LP, BBAM Aircraft Management (Europe) Limited, Babcock & Brown Air Funding I Limited and AMBAC Assurance Corporation. (17)
|
| | |
| | Third Amendment to Amended and Restated Fly Leasing Limited Management Agreement, dated as of February 1, 2017, between Fly Leasing Limited and Fly Leasing Management Co. Limited.(17)(13) |
| | |
4.12 | | Fee Rebate Side Letter, dated as of February 1, 2017, by and among Babcock & Brown Air Funding I Limited, Fly Leasing Management Co. Limited, and AMBAC Assurance Corporation. (17)
|
| | |
| | Guaranty [Fly 2016A Warehouse] dated February 26, 2016 by Fly Leasing Limited. (17)
|
| | |
| | Third Supplemental Indenture dated as of October 16, 2017, between Fly Leasing Limited and Wells Fargo Bank, National Association.(19)(15) |
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4.13 | | |
Exhibit
Number
| | Description of Exhibit |
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4.14 | | |
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4.15 | | |
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4.16 | | |
Exhibit Number | | Description of Exhibit |
4.17 | | |
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4.18 | | Amended and Restated Commitment Letter, dated May 1, 2018, between BNP Paribas, Citibank, N.A., Commonwealth Bank of Australia, Singapore Branch, Deutsche Bank AG, Singapore Branch and Fly Leasing Limited. (22)
|
| | |
| | Equity Commitment Letter, dated February 28, 2018, between Meridian Aviation Partners Limited and Fly Leasing Limited. (22)
|
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| | Equity Commitment Letter, dated February 28, 2018, between Summit Aviation Holdings LLC and Fly Leasing Limited. (22)
|
| | |
| | Amended and Restated Purchase Commitment Letter (Portfolio C Aircraft and Portfolio D Aircraft), dated May 3, 2018, but having effect between the parties as of February 28, 2018, between Fly Leasing Limited and Nomura Babcock & Brown Co., Ltd.(22)(18) |
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4.19 | | |
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4.20 | | |
| | |
4.21 | | |
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4.22 | | |
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4.23 | | |
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4.24 | | |
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4.25 | | |
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4.26 | | |
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4.27 | | |
| | |
4.52 4.28 | | |
| | |
4.29 | | List of |
sellers identified therein, Horizon Aircraft Finance II Limited, Horizon Aircraft Finance II LLC and the other purchasers identified therein.(21)
Exhibit
Number
| | Description of Exhibit |
| | |
4.30 | | |
| | |
4.31 | | |
Exhibit Number | | Description of Exhibit |
4.32 | | Amended and Restated Senior Secured Credit Agreement dated July 3, 2013 among Fly Acquisition II Limited, the Subsidiary Guarantors party thereto, the Lenders party thereto, and Deutsche Bank Trust Company Americas, as Security Trustee and as Administrative Agent. (9)
|
| | |
| | Amended and Restated Term Loan Credit Agreement dated as of November 21, 2013 among Fly Funding II S.A.R.L., Fly Leasing Limited, Fly Peridot Holdings Limited, Babcock & Brown Air Acquisition I Limited, each other Guarantor Party referred to therein, the Lenders identified therein, Citibank, N.A., and Well Fargo Bank Northwest, National Association.(11)(9) |
| | |
4.33 | | Amendment to Credit Agreement, dated as of April 22, 2015, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Bank Northwest, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent.(13)(10) |
| | |
4.34 | | Facility Agreement [Fly 2016A Warehouse] dated as of February 26, 2016 among Fly Acquisition III Limited, the Subsidiary Guarantors party thereto, the Lenders party thereto, Commonwealth Bank of Australia, New York Branch, as Administrative Agent and Wells Fargo Bank, National Association, as Security Trustee. (14)
|
| | |
| | Note Purchase Agreement [Fly 2016A Warehouse] dated as of February 26, 2016 among Fly Acquisition III Limited, the Purchasers party thereto, Commonwealth Bank of Australia, New York Branch, as Administrative Agent and Wells Fargo Bank, National Association, as Security Trustee. (14)
|
| | |
| | Credit Agreement [Fly 2016A Warehouse] dated as of February 26, 2016 among Fly Acquisition III Limited, the Banks party thereto, Commonwealth Bank of Australia, New York Branch, as Administrative Agent and Wells Fargo Bank, National Association, as Security Trustee. (14)
|
| | |
| | Second Amendment to Credit Agreement, dated as of October 19, 2016, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Bank Northwest, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent.(15)(11) |
| | |
4.35 | | Third Amendment to Credit Agreement, dated as of April 28, 2017, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Bank Northwest, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent.(18)(14) |
| | |
4.36 | | Fourth Amendment to Credit Agreement, dated as of November 1, 2017, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Bank Northwest, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent.(20)(16) |
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4.37 | | |
| | |
4.38 | | |
| | |
4.38 | | |
Exhibit
Number
| | Description of Exhibit |
| | |
4.40 | | |
| | |
4.41 | | Security Agreement [Fly 2016A Warehouse] dated February 26, 2016 among Fly Acquisition III Limited, the Grantors party thereto, and Well Fargo Bank, National Association as Security Trustee. (21)
|
| | |
| | Senior Secured Credit Agreement dated June 15, 2018, among Fly Aladdin Funding Limited, as Borrower, Fly Aladdin MaltaCo Limited, as Fly Malta, the lenders party thereto, Wilmington Trust (London) Limited, as Security Trustee and BNP Paribas, as Administrative Agent.(23)(19) |
| | |
4.42 | | |
| | |
4.43 | | |
| | |
4.44 | | |
| | |
4.45 | | |
Exhibit Number | | Description of Exhibit |
4.46 | | |
| | |
| | OmnibusFifth Amendment to Credit Agreement No. 1 [Fly 2016A Warehouse] dated as of December 15, 2017November 22, 2019, among Fly Acquisition III Limited,Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders party thereto, Commonwealth Bank of Australia, New York Branch, as Administrative Agent and the Replacement Lenders named therein, Wells Fargo Bank,Trust Company, National Association, as Security Trustee. Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent.(24)(23) |
| | |
4.48 | | Amendment No. 2 [Fly 2016A Warehouse] dated as of September 6, 2018 among Fly Acquisition III Limited, the Lenders party thereto, Commonwealth Bank of Australia, New York Branch, as Administrative Agent and Wells Fargo Bank, National Association, as Security Trustee. (24)
|
| | |
10.23
| | Form of Loan Amendment Letter Agreement (2019) among Hobart Aviation Holdings Limited, Norddeutsche Landesbank Girozentrale and each borrower thereof.(24) |
| | |
4.49 | | |
| | |
4.50 | | Term Loan Credit Agreement dated as of October 15, 2020 among Fly Willow Funding Limited, as Borrower, Fly Leasing Limited, as a Guarantor Party, Fly Willow Aircraft Holdings DAC, as a Guarantor Party, each other guarantor party referred to therein, the lenders identified therein, Royal Bank of Canada, as Administrative Agent and Bank of Utah, as Collateral Agent.(25) |
| | |
4.51 | | |
| | |
4.52 | | |
| | |
8.1 | | |
| | |
12.1 | | |
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101 | | The following materials from the Company’s Annual Report on Form 20-F for the year ended December 31, 2018,2020, formatted in XBRL (eXtensibleas Inline eXtensible Business Reporting Language)Language (iXBRL): (i) Consolidated Balance Sheets as of December 31, 20182020 and 2017,2019, (ii) Consolidated Statements of Income (Loss) for the years ended December 31, 2018, 20172020, 2019 and 2016,2018, (iii) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2018, 20172020, 2019 and 2016,2018, (iv) Consolidated Statement of Shareholders’ Equity for the years ended December 31, 2016, 20172018, 2019 and 2018,2020, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2018, 20172020, 2019 and 2016,2018, and (vi) Notes to Consolidated Financial Statements for the year ended December 31, 2018.Statements. |
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104 | | Cover Page Interactive Data File (formatted in iXBRL and included in Exhibit 101). |
(1) | Previously filed with the Registration Statement on Form F-1, File No. 333-145994. |
(2) | Previously filed as an exhibit on Form 6-K dated June 30, 2010. |
(3) | Previously filed as an exhibit on Form 6-K dated May 7, 2010. |
(4) | Previously filed with the Annual Report on Form 20-F for the year ended December 31, 2011. |
(5) | Previously filed as an exhibit on Form 6-K dated November 13, 2012. |
(6) | Confidential treatment has been requested with certain portions of this exhibit. This exhibit omits the information subject to this confidential treatment request. The omitted information has been filed separately with the Securities and Exchange Commission. |
(7) | Previously filed as an exhibit on Form 6-K dated December 11, 2013. |
(8)(7) | Previously filed with the Annual Report on Form 20-F for the year ended December 31, 2012. |
(9) | Previously filed as an exhibit on Form 6-K dated August 6, 2013. |
(10)(8) | Previously filed as an exhibit on Form 6-K dated October 3, 2014. |
(11)(9) | Previously filed with the Annual Report on Form 20-F for the year ended December 31, 2013. |
(10) | Previously filed as an exhibit on Form 6-K dated August 5, 2015. |
(11) | Previously filed as an exhibit on Form 6-K dated October 20, 2016. |
(12) | Previously filed as an exhibit on Form 6-K dated November 17, 2016. |
(13) | Previously filed with the Annual Report on Form 20-F for the year ended December 31, 2014.2016. |
(13) | Previously filed as an exhibit on Form 6-K dated August 5, 2015. |
(14) | Previously filed as an exhibit on Form 6-K dated May 19, 2016.1, 2017. |
(15) | Previously filed as an exhibit on Form 6-K dated October 20, 2016.16, 2017. |
(16) | Previously filed as an exhibit on Form 6-K dated November 17, 2016.1, 2017. |
(17) | Previously filed with the Annual Report on Form 20-F for the year ended December 31, 2016.2017. |
(18) | Previously filed as an exhibit on Form 6-K dated May 1, 2017.8, 2018. |
(19) | Previously filed as an exhibit on Form 6-K dated October 16, 2017.August 24, 2018. |
(20) | Previously filed as an exhibit on Form 6-K dated November 1, 2017. |
(21) | Previously filed with the Annual Report on Form 20-F for the year ended December 31, 2017.2018. |
(21) | Previously filed as an exhibit on Form 6-K dated August 23, 2019. |
(22) | Previously filed as an exhibit on Form 6-K dated May 8, 2018.November 12, 2019. |
(23) | Previously filed as an exhibit on Form 6-K dated August 24, 2018.November 25, 2019. |
(24) | Previously filed with the Annual Report on Form 20-F for the year ended December 31, 2019. |
(25) | Previously filed as an exhibit on Form 6-K dated November 9, 2018.13, 2020. |
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
| Fly Leasing Limited | |
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| By: | /s/ Colm Barrington | |
| | Colm Barrington | |
| | Chief Executive Officer and Director |
Dated: March 12, 20191, 2021
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