Aircastle Limited
07/10/2025 | Press release | Distributed by Public on 07/10/2025 11:53
Quarterly Report for Quarter Ending May 31, 2025 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This management's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks, uncertainties and assumptions. You should read the following discussion in conjunction with our historical consolidated financial statements and the notes thereto appearing elsewhere in this report. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those described under "Risk Factors" and included in our Annual Report on Form 10-K for the year ended February 28, 2025. Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, and, unless otherwise indicated, the other financial information contained in this report has also been prepared in accordance with U.S. GAAP. Unless otherwise indicated, all references to "dollars" and "$" in this report are to, and all monetary amounts in this report are presented in, U.S. dollars.
All statements included or incorporated by reference in this Quarterly Report on Form 10-Q (this "report"), other than characterizations of historical fact, are forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not necessarily limited to, statements relating to our ability to acquire, sell, lease or finance aircraft, raise capital, pay dividends and increase revenues, earnings, EBITDA and Adjusted EBITDA and the global aviation industry and aircraft leasing sector. Words such as "anticipates," "expects," "enable," "intends," "plans," "positions," "projects," "believes," "may," "will," "would," "could," "should," "seeks," "estimates" and variations on these words and similar expressions are intended to identify such forward-looking statements. These statements are based on our historical performance and that of our subsidiaries and on our current plans, estimates and expectations and are subject to a number of factors that could lead to actual results being materially different from those described in the forward-looking statements; Aircastle can give no assurance that its expectations will be attained. Accordingly, you should not place undue reliance on any such forward-looking statements which are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this report. These risks or uncertainties include, but are not limited to, those described from time to time in Aircastle's filings with the Securities and Exchange Commission (the "SEC") and previously disclosed under "Risk Factors" in Part I - Item 1A of Aircastle's Annual Report on Form 10-K for the year ended February 28, 2025. In addition, new risks and uncertainties emerge from time to time, and it is not possible for Aircastle to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements. Such forward-looking statements speak only as of the date of this report. Aircastle expressly disclaims any obligation to revise or update publicly any forward-looking statement to reflect future events or circumstances.
WEBSITE AND ACCESS TO THE COMPANY'S REPORTS
The information on the Company's Internet website is not part of, nor incorporated by reference, into this report, or any other report we file with, or furnish to, the SEC.
OVERVIEW
Aircastle acquires, leases, and sells commercial jet aircraft to airlines throughout the world. We are a leading secondary market investor that sources aircraft through various acquisition channels that primarily include other aircraft lessors, airlines through purchase-leaseback transactions, financial institutions and other aircraft owners, and aircraft manufacturers. We have significant experience in successfully managing aircraft throughout their life cycle, including lease and technical management, aircraft redeliveries, transitions, and sales or disposals. We sell aircraft and engine assets, either with a lease attached or on a part-out basis, with the aim of generating profits and reinvesting proceeds. Our aircraft are managed by an experienced team based in the United States, Ireland and Singapore.
As of May 31, 2025, we owned and managed on behalf of our joint venture 272 aircraft leased to 78 airline customers located in 47 countries. The Net Book Value of our fleet was $8.1 billion as of May 31, 2025. The weighted average age of our fleet was 8.9 years, and the weighted average remaining lease term was 5.6 years. The weighted average utilization rate of our fleet was over 99%for the three months ended May 31, 2025. During the three months ended May 31, 2025, we purchased 12 aircraft and sold 14 aircraft and other flight equipment. As of May 31, 2025, we had commitments to purchase 23 aircraft for $1.2 billion, with deliveries through December 2027, which included estimated amounts for pre-delivery deposits, contractual price escalations and other adjustments.
Our total revenues, net income and Adjusted EBITDA were $259.8 million, $49.3 million and $231.9 million, respectively, for the three months ended May 31, 2025. Cash flow provided by operating activities was $127.9 million for the three months ended May 31, 2025. The Company's financial performance reflects strong global passenger demand for air travel, as well as robust demand for our aircraft driven by ongoing delivery delays and supply chain challenges faced by Original Equipment Manufacturers. Increased lease extension requests and strong gains from aircraft and engine sales also contributed positively to our financial results.
Growth in commercial air traffic has been correlated with world economic activity and has historically grown at a rate one to two times that of global gross domestic product growth. This expansion of air travel has driven growth in the world aircraft fleet. There are approximately 27,000 commercial mainline passenger and freighter aircraft in the world fleet today. Aircraft leasing companies own approximately 50% of the world's commercial passenger jet aircraft. Under normal circumstances, we would expect the global fleet to continue expanding at a 2 to 3% average annual rate.
Although recent tariff announcements have introduced some volatility to the global aviation sector, we believe that the current operating environment for airlines continues to be favorable for us and the wider commercial aircraft leasing industry. We believe our portfolio, which is primarily comprised of new technology and mid-life, narrow-body aircraft, will remain attractive for our airline customers, enabling them to respond to the growing demand of global air travel. As a leading secondary market investor, we believe that our long-standing business strategy of maintaining conservative leverage and limiting long-term financial commitments positions us well to take advantage of new investment opportunities as they arise.
We employ a team of experienced senior professionals with extensive industry and financial experience. Our leadership team has an average of more than 30 years of relevant industry experience and has effectively enabled us to manage through prior downturns in the aviation industry, such as the COVID-19 pandemic, the 2008 global financial crisis, and the September 11, 2001 terror attacks. We continue to closely monitor the ongoing geopolitical developments in the Middle East; our airline customers located in the Middle East comprised 5% of both our Net Book Value and lease rental revenue as of and for the three months ended May 31, 2025. See Item 1A. "Risk Factors - Risks Related to Our Operations - Events outside of our control, including economic downturns, the threat or realization of epidemic or pandemic diseases, terrorist attacks, war or armed hostilities between countries or non-state actors, and natural disasters may adversely affect the demand for air travel, the financial condition of our lessees and of the aviation industry more broadly, and may ultimately impact our business" in our Annual Report on Form 10-K for the year ended February 28, 2025.
We believe we have sufficient liquidity to meet our contractual obligations over the next twelve months. As of July 1, 2025, total liquidity of $2.6 billion included $2.0 billion of undrawn credit facilities, $0.5 billion of projected adjusted operating cash flows and contracted asset sales and $0.1 billion of unrestricted cash through July 1, 2026.
Acquisitions and Sales
During the three months ended May 31, 2025, we purchased 12 aircraft for $464.8 million. As of May 31, 2025, we had commitments to purchase 23 aircraft for $1.2 billion, with delivery through December 2027, which included estimated amounts for pre-delivery deposits, contractual price escalations and other adjustments. As of July 1, 2025, we have purchased 4 additional aircraft and have commitments to purchase 22 aircraft for $1.1 billion.
During the three months ended May 31, 2025, we sold 14 aircraft and other flight equipment for net proceeds of $226.8 million and recognized gains on the sale or disposition of flight equipment totaling $30.3 million. As of July 1, 2025, we have sold 1 additional aircraft.
Fiscal Year 2025 Lease Expirations and Lease Placements
As of July 1, 2025, we had 1 off-lease aircraft and 6 aircraft with a lease expiring in fiscal year 2025, which combined account for approximately 1% of our Net Book Value at May 31, 2025, remaining to be placed or sold. Of these 7 aircraft, we expect to transition 3 aircraft to a new lessee and sell or part out the other 4 aircraft.
Fiscal Years 2026 to 2029 Lease Expirations and Lease Placements
Taking into account lease and sale commitments, we currently have the following number of aircraft with lease expirations scheduled in the fiscal years 2026 to 2029, representing the percentage of our Net Book Value as of May 31, 2025, specified below:
•2026: 32 aircraft, representing 10%;
•2027: 35 aircraft, representing 10%;
•2028: 32 aircraft, representing 9%; and
•2029: 36 aircraft, representing 12%.
Finance
We operate in a capital-intensive industry and have a demonstrated track record of raising substantial amounts of capital from debt and equity investors. Since our inception in late 2004, we have raised $2.6 billion in equity capital from private and public investors. We also have raised $23.8 billion in debt capital from a variety of sources, including the unsecured bond market, commercial banks, export credit agency-backed debt, the aircraft securitization market and Japanese Operating Lease with Call Option financings, which have been originated by Marubeni. The diversity and global nature of our financing sources demonstrate our ability to adapt to changing market conditions and seize new growth opportunities.
We intend to fund new investments through cash on hand, funds generated from operations, maintenance payments received from lessees, equity offerings, unsecured bond offerings, borrowings secured by our aircraft, draws under our revolving credit facilities and proceeds from any future aircraft sales. We may repay all or a portion of such borrowings from time to time with the net proceeds from subsequent long-term debt financings, additional equity offerings or cash generated from operations and asset sales. Therefore, our ability to execute our business strategy, particularly the acquisition of additional commercial jet aircraft or other aviation assets, depends to a significant degree on our ability to obtain additional debt and equity capital on terms we deem attractive.
See "Liquidity and Capital Resources" below.
AIRCASTLE AIRCRAFT INFORMATION
The following table sets forth certain information with respect to our owned aircraft and aircraft managed by us on behalf of our joint venture as of May 31, 2025 and 2024:
| As of May 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Owned Aircraft | (Dollars in millions) | ||||||||||
| Net Book Value of Flight Equipment | $ | 8,149 | $ | 7,327 | |||||||
| Net Book Value of Unencumbered Flight Equipment | $ | 8,029 | $ | 5,958 | |||||||
| Number of Aircraft | 264 | 250 | |||||||||
| Number of Unencumbered Aircraft | 260 | 212 | |||||||||
| Number of Lessees | 77 | 76 | |||||||||
| Number of Countries | 47 | 44 | |||||||||
|
Weighted Average Age (years)(1)
|
8.9 | 9.6 | |||||||||
|
Weighted Average Remaining Lease Term (years)(1)
|
5.6 | 5.2 | |||||||||
|
Weighted Average Fleet Utilization during the First Quarter(2)
|
99.5 | % | 99.1 | % | |||||||
|
Portfolio Yield for the First Quarter(3)
|
9.4 | % | 9.2 | % | |||||||
| Managed Aircraft on behalf of Joint Venture | |||||||||||
| Net Book Value of Flight Equipment | $ | 241 | $ | 268 | |||||||
| Number of Aircraft | 8 | 9 | |||||||||
(1)Weighted by Net Book Value.
(2)Aircraft on-lease days as a percentage of total days in period weighted by Net Book Value.
(3)Lease rental revenue, interest income and cash collections on our net investment in leases for the period as a percentage of the average Net Book Value for the period; quarterly information is annualized.
PORTFOLIO DIVERSIFICATION
|
Owned Aircraft as of
May 31, 2025
|
Owned Aircraft as of
May 31, 2024
|
||||||||||||||||||||||
|
Number of Aircraft |
% of Net Book Value |
Number of Aircraft |
% of Net Book Value |
||||||||||||||||||||
| Aircraft Type | |||||||||||||||||||||||
| Passenger: | |||||||||||||||||||||||
|
Narrow-body - new technology(1)
|
83 | 46 | % | 61 | 37 | % | |||||||||||||||||
| Narrow-body - current technology | 161 | 45 | % | 165 | 50 | % | |||||||||||||||||
| Wide-body - current technology | 14 | 7 | % | 17 | 10 | % | |||||||||||||||||
| Total Passenger | 258 | 98 | % | 243 | 97 | % | |||||||||||||||||
| Freighter - current technology | 6 | 2 | % | 7 | 3 | % | |||||||||||||||||
| Total | 264 | 100 | % | 250 | 100 | % | |||||||||||||||||
| Manufacturer | |||||||||||||||||||||||
| Airbus | 172 | 65 | % | 165 | 66 | % | |||||||||||||||||
| Boeing | 71 | 28 | % | 66 | 26 | % | |||||||||||||||||
| Embraer | 21 | 7 | % | 19 | 8 | % | |||||||||||||||||
| Total | 264 | 100 | % | 250 | 100 | % | |||||||||||||||||
| Regional Diversification | |||||||||||||||||||||||
| Asia and Pacific | 66 | 27 | % | 65 | 27 | % | |||||||||||||||||
| Europe | 88 | 27 | % | 91 | 30 | % | |||||||||||||||||
| Middle East and Africa | 14 | 5 | % | 10 | 5 | % | |||||||||||||||||
| North America | 64 | 30 | % | 49 | 23 | % | |||||||||||||||||
| South America | 31 | 11 | % | 32 | 14 | % | |||||||||||||||||
| Off-lease | 1 |
(2)
|
- | % | 3 | 1 | % | ||||||||||||||||
| Total | 264 | 100 | % | 250 | 100 | % | |||||||||||||||||
(1) Includes Airbus A320-200neo and A321-200neo, Boeing 737-MAX8, 737-MAX9, and Embraer E2 aircraft.
(2) We currently have 1 narrow-body freighter aircraft that we are marketing for lease or sale.
The top ten customers for our owned aircraft at May 31, 2025, were as follows:
| Customer | Country |
Percent of Net Book Value |
Number of Aircraft |
|||||||||||||||||
| IndiGo | India | 10.2% | 17 | |||||||||||||||||
| United | United States | 7.5% | 12 | |||||||||||||||||
| KLM | Netherlands | 5.1% | 13 | |||||||||||||||||
| Frontier Airlines | United States | 4.5% | 7 | |||||||||||||||||
| LATAM | Chile | 4.1% | 11 | |||||||||||||||||
| American Airlines | United States | 4.0% | 13 | |||||||||||||||||
|
Lion Air(1)
|
Indonesia | 3.3% | 10 | |||||||||||||||||
| Viva Aerobus | Mexico | 3.2% | 7 | |||||||||||||||||
| Aerolineas Argentinas | Argentina | 2.9% | 7 | |||||||||||||||||
| easyJet | United Kingdom | 2.8% | 12 | |||||||||||||||||
| Total top ten customers | 47.6% | 109 | ||||||||||||||||||
| All other customers | 52.4% | 155 | ||||||||||||||||||
| Total all customers | 100.0% | 264 | ||||||||||||||||||
(1) Includes 6 aircraft on lease with 3 affiliated airlines.
COMPARATIVE RESULTS OF OPERATIONS
Results of Operations for the three months ended May 31, 2025, as compared to the three months ended May 31, 2024:
| Three Months Ended May 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Revenues: | |||||||||||
| Lease rental revenue | $ | 183,043 | $ | 162,570 | |||||||
|
Direct financing and sales-type lease revenue
|
5,142 | 5,457 | |||||||||
| Amortization of lease premiums, discounts and incentives | 2,766 | (6,649) | |||||||||
|
Maintenance revenue
|
38,132 | 42,149 | |||||||||
| Total lease revenue | 229,083 | 203,527 | |||||||||
| Gain on sale or disposition of flight equipment | 30,289 | 1,010 | |||||||||
| Other revenue | 472 | 636 | |||||||||
| Total revenues | 259,844 | 205,173 | |||||||||
| Operating expenses: | |||||||||||
| Depreciation | 95,816 | 89,358 | |||||||||
| Interest, net | 68,841 | 64,813 | |||||||||
| Selling, general and administrative | 20,691 | 22,055 | |||||||||
| Provision for credit losses | 142 | (145) | |||||||||
| Impairment of flight equipment | 5,066 | 5,211 | |||||||||
| Maintenance and other costs | 4,244 | 4,443 | |||||||||
| Total operating expenses | 194,800 | 185,735 | |||||||||
| Other expense: | |||||||||||
| Loss on extinguishment of debt | (2,973) | - | |||||||||
| Other | (456) | (304) | |||||||||
| Total other expense | (3,429) | (304) | |||||||||
| Income from continuing operations before income taxes and earnings of unconsolidated equity method investment | 61,615 | 19,134 | |||||||||
| Income tax provision | 12,721 | 3,572 | |||||||||
| Earnings of unconsolidated equity method investment, net of tax | 393 | 519 | |||||||||
| Net income | $ | 49,287 | $ | 16,081 | |||||||
Revenues
Total revenuesincreased $54.7 million, attributable to:
Lease rental revenueincreased $20.5 million, primarily attributable to an increase of $40.4 million related to 61 aircraft purchased since March 1, 2024.
This was partially offset by:
•an $18.3 million decrease related to the sale of 39 aircraft since March 1, 2024; and
•a $1.6 million decrease due to lease extensions, amendments, transitions and other changes.
Amortization of lease premiums, discounts and lease incentives:
| Three Months Ended May 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Amortization of lease premiums | $ | (1,887) | $ | (3,242) | |||||||
| Amortization of lease discounts | 3,523 | 694 | |||||||||
| Amortization of lease incentives | 1,130 | (4,101) | |||||||||
| Amortization of lease premiums, discounts and incentives | $ | 2,766 | $ | (6,649) | |||||||
The amortization of lease discounts increased $2.8 million due to the acquisition of aircraft.
The amortization of lease incentives decreased $5.2 million primarily due to the reversal of lease incentive liabilities related to 2 engine redeliveries.
Maintenance revenue.For the three months ended May 31, 2025 and 2024, we recorded $38.1 million and $42.1 million of maintenance revenue, respectively, primarily related to maintenance payments received by us and recognized into income as a result of scheduled aircraft lease expirations and engine redeliveries.
Gain on sale or disposition of flight equipment.During the three months ended May 31, 2025, we sold 14 aircraft and other flight equipment for gains totaling $30.3 million.
During the three months ended May 31, 2024, we sold 2 aircraft and other flight equipment for gains totaling $1.0 million.
Operating expenses
Total operating expensesincreased $9.1 million, attributable to:
Depreciation expenseincreased $6.5 million, primarily attributable to an increase of $15.8 million related to 57 aircraft acquired since March 1, 2024. This increase was partially offset by a decrease of $9.9 million related to 39 aircraft sold since March 1, 2024.
Interest, netincreased $4.0 million due to a higher average cost of borrowing and a higher weighted average debt outstanding of $273.1 million.
Impairment of flight equipment.During the three months ended May 31, 2025, the Company recorded transactional impairment charges totaling $5.1 million related to engine redeliveries and 1 aircraft lease termination. The Company recognized $18.7 million of revenue related to maintenance, security deposits, and the reversal of lease incentive liabilities for these engines and aircraft during the three months ended May 31, 2025.
During the three months ended May 31, 2024, the Company recorded a transactional impairment charge of $5.2 million related to a scheduled aircraft lease expiration. The Company recognized $18.0 million of maintenance revenue for this aircraft during the three months ended May 31, 2024.
Other expense
Total other expense increased by $3.1 million. During the three months ended May 31, 2025, we recognized a $3.0 million loss on the early extinguishment of one of our secured term financings and the related write-off of unamortized financing costs.
Income tax provision
Our income tax provision was $12.7 million and $3.6 million, and our effective tax rate was 20.6%and 18.7%for the three months ended May 31, 2025 and 2024, respectively. The increase in the income tax provision is primarily attributable to the mix of profits between the various jurisdictions in which we operate.
Aircraft Valuation
For complete information on impairment of flight equipment, refer to Note 2 in the Notes to the Unaudited Consolidated Financial Statements and "Comparative Results of Operations" above.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
See Note 1 - "Summary of Significant Accounting Policies - Organization and Basis of Presentation" in the Notes to the Unaudited Consolidated Financial Statements above.
RECENT UNADOPTED ACCOUNTING PRONOUNCEMENTS
See Note 1 - "Summary of Significant Accounting Policies - Recent Accounting Pronouncements" in the Notes to the Unaudited Consolidated Financial Statements above.
LIQUIDITY AND CAPITAL RESOURCES
Our business is very capital intensive, requiring significant investments in order to expand our fleet and to maintain and improve our existing portfolio. Our operations have historically generated a significant amount of cash, primarily from lease rentals and maintenance collections. We have also met our liquidity and capital resource needs by utilizing several sources over time, including:
•unsecured indebtedness, including our current unsecured revolving credit facilities, unsecured term financings and senior notes;
•various forms of borrowing secured by our aircraft, including term financings and limited recourse securitization financings for new aircraft acquisitions;
•asset sales; and
•issuance of common and preference shares.
Going forward, we expect to continue to seek liquidity from these sources and other sources, subject to pricing and conditions we consider satisfactory.
During the three months ended May 31, 2025, we met our liquidity and capital resource needs with $127.9 million of cash flows from operations and $226.8 million of proceeds from the sale or disposition of aircraft and other flight equipment.
As of May 31, 2025, the weighted average maturity of our secured and unsecured debt financings was 3.3 years, and we were in compliance with all applicable covenants. In addition, 98% of our total debt is unsecured and $8.0 billion of our Net Book Value is unencumbered.
We believe we have sufficient liquidity to meet our contractual obligations over the next twelve months. As of July 1, 2025, total liquidity of $2.6 billion included $2.0 billion of undrawn credit facilities, $0.5 billion of projected adjusted operating cash flows and contracted asset sales and $0.1 billion of unrestricted cash through July 1, 2026. In addition, we believe payments received from lessees and other funds generated from operations, unsecured bond offerings, borrowings secured by our aircraft, borrowings under our revolving credit facilities and other borrowings and proceeds from future aircraft sales will be sufficient to satisfy our liquidity and capital resource needs over the next twelve months. Our liquidity and capital resource needs include payments due under our aircraft purchase obligations, required principal and interest payments under our long-term debt facilities, expected capital expenditures, lessee maintenance payment reimbursements and lease incentive payments.
Cash Flows
| Three Months Ended May 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Net cash flow provided by operating activities | $ | 127,872 | $ | 147,004 | |||||||
| Net cash flow used in investing activities | (249,175) | (164,584) | |||||||||
| Net cash flow provided by financing activities | 65,481 | 52,207 | |||||||||
Operating Activities:
Cash flow provided by operating activities was $127.9 million and $147.0 million for the three months ended May 31, 2025 and 2024, respectively. The decrease is attributable to lower end of lease cash maintenance payments due to fewer aircraft returns during the three months ended May 31, 2025, as well as higher cash paid for interest.
Investing Activities:
Cash flow used in investing activities was $249.2 million and $164.6 million for the three months ended May 31, 2025 and 2024, respectively. The net increase of $84.6 million was primarily attributable to an increase of $254.7 million in the acquisition and improvement of flight equipment during the three months ended May 31, 2025. Additionally, cash proceeds were higher from the sale or disposition of aircraft and other flight equipment during the three months ended May 31, 2025, by $201.4 million.
Financing Activities:
Cash flow provided by financing activities was $65.5 million and $52.2 million for the three months ended May 31, 2025 and 2024, respectively. The increase of $13.3 million was primarily attributable to a $47.7 million increase in borrowings from secured and unsecured financings, net of repayments, during the three months ended May 31, 2025. These inflows were offset by a $17.3 million increase in maintenance and security deposits returned, net of receipts, and an $11.0 million increase in dividends paid.
Debt Obligations
For complete information on our debt obligations, see Note 8 in the Notes to the Unaudited Consolidated Financial Statements.
Contractual Obligations
Our contractual obligations primarily consist of principal and interest payments on debt financings, aircraft acquisitions and rent payments pursuant to our office leases. Total contractual obligations increased to $7.3 billion at May 31, 2025, from $6.7 billion at February 28, 2025, due to higher aircraft purchase commitments, outstanding debt and interest obligations.
Capital Expenditures
From time to time, we make capital expenditures to maintain or improve our aircraft. These expenditures include the cost of major overhauls necessary to place an aircraft in service and modifications made at the request of lessees. For the three months ended May 31, 2025 and 2024, we incurred a total of $13.7 million and $9.0 million, respectively, of capital expenditures, including lease incentives, related to the improvement of aircraft.
As of May 31, 2025, the weighted average age by Net Book Value of our aircraft was approximately 8.9 years. In general, the costs of operating an aircraft, including maintenance expenditures, increase with the age of the aircraft. Our lease agreements call for the lessee to be primarily responsible for maintaining the aircraft. Our leases may require the lessee to make periodic payments to us during the lease term to provide reserves for future major maintenance events. Provided a lessee performs scheduled maintenance of the aircraft, we are required to reimburse the lessee for scheduled maintenance payments. In certain cases, we are also required to make lessor contributions, in excess of amounts a lessee may have paid, towards the costs of maintenance events performed by or on behalf of the lessee. We may incur
additional maintenance and modification costs in the future in the event we are required to remarket an aircraft, or a lessee fails to meet its maintenance obligations under the lease agreement.
Actual maintenance payments to us by lessees in the future may be less than projected as a result of a number of factors, such as in the event of a lessee default. Maintenance reserves may not cover the entire amount of actual maintenance expenses incurred and, where these expenses are not otherwise covered by the lessees, there can be no assurance that our operational cash flow and maintenance reserves will be sufficient to fund maintenance requirements, particularly as our aircraft age. See Item 1A. "Risk Factors - Risks Related to Our Leases - If lessees are unable to fund their maintenance obligations on our aircraft, we may incur increased costs at the conclusion of the applicable lease" in our Annual Report on Form 10-K for the year ended February 28, 2025.
Off-Balance Sheet Arrangements
We have an unconsolidated equity method investment in an aircraft leasing entity with Mizuho Leasing. We hold a 25% equity interest in this entity, which was established to help expand our base of new business opportunities. As of May 31, 2025, the Net Book Value of its 8 aircraft was $241.2 million.
The assets and liabilities of this entity are not included in our consolidated balance sheets, and we record our net investment under the equity method of accounting. See Note 7 in the Notes to the Unaudited Consolidated Financial Statements.
Foreign Currency Risk and Foreign Operations
At May 31, 2025, approximately 99% of our leases were payable to us in U.S. dollars. However, we incur Euro- and Singapore dollar-denominated expenses in connection with our subsidiaries in Ireland and Singapore. For the three months ended May 31, 2025, expenses, such as payroll and office costs, denominated in currencies other than the U.S. dollar totaled $6.2 million in U.S. dollar equivalents and represented approximately 27% of total selling, general and administrative expenses.
Our international operations are a significant component of our business strategy and permit us to more effectively source new aircraft, service the aircraft we own and maintain contact with our lessees. Therefore, our international operations and our exposure to foreign currency risk will likely increase over time. Although we have not yet entered into foreign currency hedges, if our foreign currency exposure increases, we may enter into hedging transactions in the future to mitigate this risk. For the three months ended May 31, 2025 and 2024, we incurred insignificant net gains and losses on foreign currency transactions.
Management's Use of EBITDA and Adjusted EBITDA
We define EBITDA as income (loss) from continuing operations before interest expense, income taxes, and depreciation and amortization. We use EBITDA to assess our consolidated financial and operating performance, and we believe this non-U.S. GAAP measure is helpful in identifying trends in our performance.
This measure provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial goals, as well as achieving optimal financial performance. It provides an indicator for management to determine if adjustments to current spending decisions are needed.
EBITDA provides us with a measure of operating performance because it assists us in comparing our operating performance on a consistent basis as it removes the impact of our capital structure (primarily interest charges on our outstanding debt) and asset base (primarily depreciation and amortization) from our operating results. Accordingly, this metric measures our financial performance based on operational factors that management can impact in the short-term, namely the cost structure, or expenses, of the organization. EBITDA is one of the metrics used by senior management and the Board of Directors to review the consolidated financial performance of our business.
We define Adjusted EBITDA as EBITDA (as defined above) further adjusted to give effect to adjustments required in calculating covenant ratios and compliance as that term is defined in the indenture governing our senior unsecured notes. Adjusted EBITDA is a material component of these covenants.
The table below shows the reconciliation of net income to EBITDA and Adjusted EBITDA for the three months ended May 31, 2025 and 2024:
| Three Months Ended May 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Net income | $ | 49,287 | $ | 16,081 | |||||||
| Depreciation | 95,816 | 89,358 | |||||||||
| Amortization of lease premiums, discounts and incentives | (2,766) | 6,649 | |||||||||
| Interest, net | 68,841 | 64,813 | |||||||||
| Income tax provision | 12,721 | 3,572 | |||||||||
| EBITDA | $ | 223,899 | $ | 180,473 | |||||||
| Adjustments: | |||||||||||
| Impairment of flight equipment | 5,066 | 5,211 | |||||||||
| Loss on extinguishment of debt | 2,973 | - | |||||||||
| Adjusted EBITDA | $ | 231,938 | $ | 185,684 | |||||||
Limitations of EBITDA and Adjusted EBITDA
An investor or potential investor may find EBITDA and Adjusted EBITDA important measures in evaluating our performance, results of operations and financial position. We use these non-U.S. GAAP measures to supplement our U.S. GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.
EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be viewed in isolation or as substitutes for U.S. GAAP measures of income (loss). Material limitations in making the adjustments to our income (loss) to calculate EBITDA and Adjusted EBITDA, and using these non-U.S. GAAP measures as compared to U.S. GAAP net income (loss), income (loss) from continuing operations and cash flows provided by or used in operations, include:
•depreciation and amortization, though not directly affecting our current cash position, represent the wear and tear and/or reduction in value of our aircraft, which affects the aircraft's availability for use and may be indicative of future needs for capital expenditures;
•the cash portion of income tax provision (benefit) generally represents charges (gains), which may significantly affect our financial results; and
•adjustments required in calculating covenant ratios and compliance as that term is defined in the indenture governing our senior unsecured notes, which may not be comparable to similarly titled measures used by other companies.
EBITDA and Adjusted EBITDA are not alternatives to net income (loss), income (loss) from operations or cash flows provided by or used in operations as calculated and presented in accordance with U.S. GAAP. You should not rely on these non-U.S. GAAP measures as a substitute for any such U.S. GAAP financial measure. We strongly urge you to review the reconciliations to U.S. GAAP net income (loss), along with our consolidated financial statements included elsewhere in this report. We also strongly urge you not to rely on any single financial measure to evaluate our business. In addition, because EBITDA and Adjusted EBITDA are not measures of financial performance under U.S. GAAP and are susceptible to varying calculations, EBITDA and Adjusted EBITDA as presented in this report, may differ from and may not be comparable to similarly titled measures used by other companies.
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