Aircastle Limited
10/14/2026 | Press release | Distributed by Public on 10/14/2026 11:48
Quarterly Report for Quarter Ending August 31, 2026 (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, 2026. 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," "enables," "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, 2026. 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 worldwide. We are a leading secondary market investor, sourcing aircraft through a variety of acquisition channels, including 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 asset sales or disposals. We sell aircraft and engine assets, either with a lease attached or on a part-out basis, with the objective of generating profits and reinvesting sale proceeds. Our aircraft are managed by an experienced team based in the United States, Ireland and Singapore.
As of August 31, 2026, we owned and managed 268 aircraft leased to 67 airline customers located in 42 countries. The Net Book Value of our fleet was $8.3 billion as of August 31, 2026. The weighted average age of our fleet was 9.0 years, and the weighted average remaining lease term was 5.3 years. The weighted average utilization rate of our fleet was 98% for the six months ended August 31, 2026. Utilization was impacted by certain aircraft previously leased to a customer that has ceased operations, which are expected to remain off-lease for an extended period, as well as aircraft redeliveries during the period and the timing of related transitions or sales. During the six months ended August 31, 2026, we purchased 9 aircraft and sold 16 aircraft and other flight equipment. As of August 31, 2026, we had commitments to purchase 22 aircraft for $904.3 million, with deliveries through November 2028, which included estimated amounts for pre-delivery deposits, contractual price escalations and other adjustments.
Financial Condition
Our total revenues, net income and Adjusted EBITDA were $518.5 million, $102.9 million and $455.6 million, respectively, for the six months ended August 31, 2026. Cash flow provided by operating activities was $238.3 million for the six months ended August 31, 2026. The Company's financial performance reflects continued strong global passenger demand for air travel and solid demand for our aircraft, supported by continued constraints in aircraft and engine production and deliveries despite gradual improvements in supply chain conditions and manufacturing output. Notwithstanding geopolitical uncertainties, including the conflict in the Middle East, demand for our assets remained strong during the period. Strong gains from aircraft and engine sales, together with lease extension activity across the portfolio, contributed positively to our financial results.
We believe we have sufficient liquidity to meet our contractual obligations over the next twelve months. As of October 1, 2026, total liquidity of $2.8 billion included $2.0 billion of undrawn credit facilities, $0.7 billion of projected adjusted operating cash flows and contracted asset sales and $0.1 billion of unrestricted cash through October 1, 2027.
Market Conditions
Demand for air travel remained resilient during the six months ended August 31, 2026, supporting continued demand for leased aircraft. Aircraft leasing companies own approximately 49% of the world's commercial passenger jet aircraft. Although aircraft production and supply chain conditions have shown signs of gradual improvement, aircraft supply remained constrained due to ongoing production and delivery challenges at aircraft and engine manufacturers, limiting the availability of new aircraft and supporting demand for lease placements, lease extensions and secondary market aircraft. In addition, many airlines continue to pursue fleet modernization initiatives, including the replacement of older aircraft with more fuel-efficient aircraft, supporting demand for newer technology aircraft. Supply constraints, together with ongoing financing needs across the airline industry, continued to support favorable conditions in the aircraft leasing market.
Although geopolitical developments, including the conflict in the Middle East, have contributed to market volatility and higher fuel costs for airlines, global passenger travel demand has remained resilient. Aircastle's portfolio, which is primarily comprised of new technology and mid-life narrow-body aircraft, continues to be attractive to airlines seeking to support growing passenger traffic and fleet modernization objectives. The Company maintains a diversified global portfolio and a disciplined approach to capital allocation, which we believe supports its ability to respond to evolving market conditions and pursue investment opportunities.
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.
Middle East Conflict
Ongoing armed conflicts and heightened geopolitical tensions in the Middle East have disrupted, and may continue to disrupt, commercial aviation and broader economic activity in the region and globally. Recent escalations have contributed to volatility in oil and jet fuel prices, increasing operating costs and placing additional pressure on airline profitability and liquidity.
While the ultimate impact on our business, financial condition and results of operations remains uncertain, these conditions have adversely affected, and may continue to adversely affect, commercial aviation activity, including through airspace closures, reduced flight operations, increased fuel and insurance costs, supply chain disruptions and broader macroeconomic effects. Such conditions could result in lease restructurings, payment deferrals or defaults.
As of and for the six months ended August 31, 2026, our airline customers located in the Middle East represented approximately 5% of both our Net Book Value and lease rental revenue. Although our direct exposure to the region is limited and diversified across lessees and aircraft types, the effects of the conflict, particularly higher fuel costs, have adversely affected, and may continue to adversely affect, airlines globally. We continue to monitor customers that are more financially sensitive to higher fuel costs, including those that have historically relied on fuel supplies from the Gulf region. A sustained deterioration in regional or broader economic conditions, including persistently elevated fuel prices, could adversely affect our business, financial condition and results of operations.
Acquisitions and Sales
During the six months ended August 31, 2026, we purchased 9 aircraft for $385.6 million. As of August 31, 2026, we had commitments to purchase 22 aircraft for $904.3 million, with deliveries through November 2028, which included estimated amounts for pre-delivery deposits, contractual price escalations and other adjustments. As of October 9, 2026, we have purchased 4 additional aircraft and have commitments to purchase 20 aircraft for $767.3 million.
During the six months ended August 31, 2026, we sold 16 aircraft and other flight equipment for net proceeds of $357.1 million and recognized gains on the sale or disposition of flight equipment totaling $49.0 million. As of October 9, 2026, we have sold 8 additional aircraft, including certain aircraft classified as held for sale as of August 31, 2026.
Fiscal Year 2026 Lease Expirations and Lease Placements
As of October 9, 2026, we had 8 off-lease aircraft and 5 aircraft with a lease expiring in fiscal year 2026, which combined account for 3% of our Net Book Value at August 31, 2026, still to be placed or sold. We expect to sell or part out 7 of these aircraft.
Fiscal Years 2027 to 2030 Lease Expirations and Lease Placements
Taking into account lease and sale commitments, we currently have the following number of aircraft with lease expirations scheduled between fiscal years 2027 and 2030, representing the percentage of our Net Book Value as of August 31, 2026, specified below:
•2027: 26 aircraft, representing 7%;
•2028: 29 aircraft, representing 8%;
•2029: 39 aircraft, representing 13%; and
•2030: 21 aircraft, representing 7%.
Finance
We operate in a capital-intensive industry and have a demonstrated track record of consistently raising substantial capital from both debt and equity investors. Since our inception, we have raised $2.6 billion in equity capital from private and public investors. We have also obtained $26.2 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 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. Accordingly, 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 as of August 31, 2026 and 2025:
| As of August 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| Owned Aircraft | (Dollars in millions) | ||||||||||
| Net Book Value of Flight Equipment | $ | 8,300 | $ | 8,470 | |||||||
| Net Book Value of Unencumbered Flight Equipment | $ | 8,185 | $ | 8,351 | |||||||
| Number of Aircraft | 263 | 270 | |||||||||
| Number of Unencumbered Aircraft | 259 | 266 | |||||||||
| Number of Lessees | 67 | 75 | |||||||||
| Number of Countries | 42 | 46 | |||||||||
|
Weighted Average Age (years)(1)
|
9.0 | 8.6 | |||||||||
|
Weighted Average Remaining Lease Term (years)(1)
|
5.3 | 5.7 | |||||||||
|
Weighted Average Fleet Utilization during the Second Quarter(2)
|
97.4 | % | 99.7 | % | |||||||
|
Weighted Average Fleet Utilization during the six months ended August 31, 2026, and 2025(2)
|
97.6 | % | 99.6 | % | |||||||
|
Portfolio Yield for the Second Quarter(3)
|
9.3 | % | 9.4 | % | |||||||
|
Portfolio Yield for the six months ended August 31, 2026, and 2025(3)
|
9.3 | % | 9.6 | % | |||||||
| Managed Aircraft | |||||||||||
|
Number of Managed Aircraft(4)
|
5 | 8 | |||||||||
(1)Weighted by Net Book Value.
(2)Aircraft on lease as a percentage of total days in period weighted by net book value. Utilization was impacted by certain aircraft previously leased to a customer that has ceased operations, which are expected to remain off-lease for an extended period, as well as aircraft redeliveries during the period and the timing of related transitions or sales.
(3)Lease rental revenue, together with interest income and cash collections on our net investment in leases for the period, expressed as a percentage of the average Net Book Value for the period; quarterly information is annualized.
(4)Number of managed aircraft as of August 31, 2026 includes 4 aircraft owned by our joint venture with Mizuho Leasing.
PORTFOLIO DIVERSIFICATION
|
Owned Aircraft as of
August 31, 2026
|
Owned Aircraft as of
August 31, 2025
|
||||||||||||||||||||||
|
Number of Aircraft |
% of Net Book Value |
Number of Aircraft |
% of Net Book Value |
||||||||||||||||||||
| Aircraft Type | |||||||||||||||||||||||
| Passenger: | |||||||||||||||||||||||
|
Narrow-body - new technology(1)
|
100 | 54 | % | 91 | 50 | % | |||||||||||||||||
| Narrow-body - current technology | 148 | 40 | % | 160 | 42 | % | |||||||||||||||||
| Wide-body - current technology | 12 | 5 | % | 14 | 7 | % | |||||||||||||||||
| Total Passenger | 260 | 99 | % | 265 | 99 | % | |||||||||||||||||
| Freighter - current technology | 3 | 1 | % | 5 | 1 | % | |||||||||||||||||
| Total | 263 | 100 | % | 270 | 100 | % | |||||||||||||||||
| Manufacturer | |||||||||||||||||||||||
| Airbus | 170 | 64 | % | 175 | 64 | % | |||||||||||||||||
| Boeing | 73 | 29 | % | 74 | 29 | % | |||||||||||||||||
| Embraer | 20 | 7 | % | 21 | 7 | % | |||||||||||||||||
| Total | 263 | 100 | % | 270 | 100 | % | |||||||||||||||||
| Regional Diversification | |||||||||||||||||||||||
| Asia and Pacific | 71 | 30 | % | 67 | 26 | % | |||||||||||||||||
| Europe | 69 | 21 | % | 85 | 25 | % | |||||||||||||||||
| Middle East and Africa | 14 | 5 | % | 14 | 6 | % | |||||||||||||||||
| North America | 66 | 30 | % | 73 | 33 | % | |||||||||||||||||
| South America | 32 | 11 | % | 31 | 10 | % | |||||||||||||||||
| Off-lease | 11 |
(2)
|
3 | % | - | - | % | ||||||||||||||||
| Total | 263 | 100 | % | 270 | 100 | % | |||||||||||||||||
(1) Includes Airbus A320-200neo and A321-200neo, Boeing 737-MAX8, 737-MAX9, and Embraer E2 aircraft.
(2) The number of aircraft off-lease was impacted by certain aircraft previously leased to a customer that has since ceased operations, which are expected to remain off-lease for an extended period, as well as aircraft redeliveries during the period and the timing of related transitions and sales. Of the 11 off-lease aircraft as of August 31, 2026, 4 aircraft have subsequently been sold, delivered to a customer, or are subject to a confirmed letter of intent for lease. Of the remaining 7 aircraft, 4 are expected to remain off-lease for an extended period, while the remaining 3 aircraft are being marketed for lease or sale.
The top ten customers for our owned aircraft at August 31, 2026, were as follows:
| Customer | Country |
Percent of Net Book Value |
Number of Aircraft |
|||||||||||||||||
| IndiGo | India | 12.6% | 20 | |||||||||||||||||
| United | United States | 6.7% | 10 | |||||||||||||||||
| KLM | Netherlands | 5.7% | 15 | |||||||||||||||||
| LATAM | Chile | 4.7% | 13 | |||||||||||||||||
| American Airlines | United States | 4.6% | 16 | |||||||||||||||||
| Frontier Airlines | United States | 4.4% | 7 | |||||||||||||||||
| WestJet | Canada | 3.7% | 7 | |||||||||||||||||
| Viva Aerobus | Mexico | 3.6% | 9 | |||||||||||||||||
| AirAsia | Malaysia | 3.1% | 12 | |||||||||||||||||
| Lion Air Group | Indonesia | 3.0% | 10 | |||||||||||||||||
| Total top ten customers | 52.1% | 119 | ||||||||||||||||||
| All other customers | 47.9% | 144 | ||||||||||||||||||
| Total all customers | 100.0% | 263 | ||||||||||||||||||
COMPARATIVE RESULTS OF OPERATIONS
Results of Operations for the three months ended August 31, 2026, as compared to the three months ended August 31, 2025:
| Three Months Ended August 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Revenues: | |||||||||||
| Lease rental revenue | $ | 186,858 | $ | 190,116 | |||||||
|
Direct financing and sales-type lease revenue
|
5,389 | 5,191 | |||||||||
| Amortization of lease premiums, discounts and incentives | 7,871 | (1,513) | |||||||||
|
Maintenance revenue
|
43,004 | 9,708 | |||||||||
| Total lease revenue | 243,122 | 203,502 | |||||||||
| Gain on sale or disposition of flight equipment | 38,162 | 23,889 | |||||||||
| Other revenue | 1,669 | 119 | |||||||||
| Total revenues | 282,953 | 227,510 | |||||||||
| Operating expenses: | |||||||||||
| Depreciation | 91,728 | 96,762 | |||||||||
| Interest, net | 75,387 | 70,529 | |||||||||
| Selling, general and administrative | 20,331 | 24,247 | |||||||||
| Provision for credit losses | (92) | (116) | |||||||||
| Impairment of flight equipment | 7,730 | 31,153 | |||||||||
| Maintenance and other costs | 8,108 | 3,977 | |||||||||
| Total operating expenses | 203,192 | 226,552 | |||||||||
| Other income: | |||||||||||
| Other | 358 | 61,041 | |||||||||
| Total other income | 358 | 61,041 | |||||||||
| Income from continuing operations before income taxes and earnings of unconsolidated equity method investment | 80,119 | 61,999 | |||||||||
| Income tax provision | 11,163 | 5,228 | |||||||||
| Earnings of unconsolidated equity method investment, net of tax | 372 | 462 | |||||||||
| Net income | $ | 69,328 | $ | 57,233 | |||||||
Revenues:
Total revenues increased $55.4 million, attributable to:
Lease rental revenue decreased $3.3 million, primarily attributable to:
•a $16.4 million decrease related to the sale of 32 aircraft and other flight equipment since September 1, 2025;
•a $9.7 million decrease related to early lease terminations, including terminations associated with 2 customers that either filed for bankruptcy protection or ceased operations; and
•a $5.0 million decrease due to lease extensions, amendments, transitions and other changes.
This was partially offset by an increase of $27.9 million related to 42 aircraft purchased since September 1, 2025.
Amortization of lease premiums, discounts and lease incentives:
| Three Months Ended August 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Amortization of lease premiums | $ | (770) | $ | (1,734) | |||||||
| Amortization of lease discounts | 5,258 | 3,919 | |||||||||
| Amortization of lease incentives | 3,383 | (3,698) | |||||||||
| Amortization of lease premiums, discounts and incentives | $ | 7,871 | $ | (1,513) | |||||||
The amortization of lease incentives decreased $7.1 million, primarily due to early lease terminations and the associated reversal of lease incentive liabilities during the three months ended August 31, 2026.
Maintenance revenue. For the three months ended August 31, 2026 and 2025, we recorded $43.0 million and $9.7 million of maintenance revenue, respectively, primarily from maintenance payments received by us and recognized into income in connection with scheduled aircraft lease expirations, early lease terminations and aircraft returns.
Gain on sale or disposition of flight equipment. During the three months ended August 31, 2026, we sold 11 aircraft and other flight equipment generating gains of $38.2 million, compared to 4 aircraft and other flight equipment sold with gains of $23.9 million during the three months ended August 31, 2025.
Operating expenses:
Total operating expenses decreased $23.4 million, attributable to:
Depreciation expense decreased $5.0 million, primarily reflecting a $14.2 million decrease related to 30 aircraft sold since September 1, 2025, as well as residual adjustments and other changes for aircraft for which impairments were recorded or leases were extended. This decrease was partially offset by an increase of $9.2 million related to 42 aircraft acquired since September 1, 2025.
Interest, net increased $4.9 million due to a higher weighted average debt outstanding of $267.8 million.
Selling, general and administrative expenses decreased $3.9 million, primarily due to lower personnel costs and reduced legal fees related to Russia insurance recovery matters.
Impairment of flight equipment. During the three months ended August 31, 2026, we recorded impairment charges totaling $7.7 million, primarily related to the early lease termination of 2 narrow-body aircraft and 2 narrow-body freighter aircraft. For these aircraft, we recognized $23.4 million of maintenance payments, cash security deposits, and the reversal of lease incentive liabilities into revenue during the three months ended August 31, 2026.
During the three months ended August 31, 2025, we recorded impairment charges totaling $31.2 million, including $22.4 million related to aircraft leased to 2 customers that filed for bankruptcy protection. For these aircraft, the Company recognized $4.9 million of maintenance payments and lease rentals received in advance into revenue during the three months ended August 31, 2025. The remaining impairment charges relate to other flight equipment recorded within other assets that were subject to tear-down and parts sales programs and 1 converted narrow-body freighter aircraft.
Maintenance and other costs increased $4.1 million, primarily attributable to higher technical expenses related to the timing of aircraft transitions, including costs associated with aircraft subject to early lease terminations.
Other income:
Total other income decreased by $60.7 million. During the three months ended August 31, 2025, the Company entered into settlement agreements with certain insurers under the Company's contingent and possessed policies ("C&P policies") for an aggregate settlement amount of $55.7 million related to aircraft previously leased to Russian airlines.
Income tax provision:
Income tax provision. We recognized income tax provisions of $11.2 million and $5.2 million for the three months ended August 31, 2026 and 2025, respectively, with effective tax rates of 13.9% and 8.4% for the respective periods. The increase in our effective rate was primarily attributable to the mix of profits between the various jurisdictions in which we operate and the utilization of Bermuda net operating losses.
Results of Operations for the six months ended August 31, 2026, as compared to the six months ended August 31, 2025:
| Six Months Ended August 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Revenues: | |||||||||||
| Lease rental revenue | $ | 381,438 | $ | 373,159 | |||||||
| Direct financing and sales-type lease revenue | 10,827 | 10,333 | |||||||||
| Amortization of lease premiums, discounts and incentives | 8,262 | 1,253 | |||||||||
| Maintenance revenue | 67,162 | 47,840 | |||||||||
| Total lease revenue | 467,689 | 432,585 | |||||||||
| Gain on sale or disposition of flight equipment | 49,028 | 54,178 | |||||||||
| Other revenue | 1,766 | 591 | |||||||||
| Total revenues | 518,483 | 487,354 | |||||||||
| Operating expenses: | |||||||||||
| Depreciation | 184,556 | 192,578 | |||||||||
| Interest, net | 146,603 | 139,370 | |||||||||
| Selling, general and administrative | 41,907 | 44,938 | |||||||||
| Provision for credit losses | (275) | 26 | |||||||||
| Impairment of flight equipment | 11,091 | 36,219 | |||||||||
| Maintenance and other costs | 13,400 | 8,221 | |||||||||
| Total operating expenses | 397,282 | 421,352 | |||||||||
| Other (expense) income: | |||||||||||
| Loss on extinguishment of debt | - | (2,973) | |||||||||
| Other | (136) | 60,585 | |||||||||
| Total other (expense) income | (136) | 57,612 | |||||||||
| Income from continuing operations before income taxes and earnings of unconsolidated equity method investment | 121,065 | 123,614 | |||||||||
| Income tax provision | 18,689 | 17,949 | |||||||||
| Earnings of unconsolidated equity method investment, net of tax | 570 | 855 | |||||||||
| Net income | $ | 102,946 | $ | 106,520 | |||||||
Revenues:
Total revenues increased $31.1 million, attributable to:
Lease rental revenue increased $8.3 million, primarily attributable to an increase of $58.9 million related to 52 aircraft purchased since March 1, 2025.
This was partially offset by:
•a $30.7 million decrease related to the sale of 46 aircraft and other flight equipment since March 1, 2025;
•a $12.4 million decrease related to early lease terminations, including terminations associated with 2 customers that either filed for bankruptcy protection or ceased operations; and
•a $7.5 million decrease due to lease extensions, amendments, transitions and other changes.
Amortization of lease premiums, discounts and lease incentives:
| Six Months Ended August 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Amortization of lease premiums | $ | (2,096) | $ | (3,622) | |||||||
| Amortization of lease discounts | 10,445 | 7,442 | |||||||||
| Amortization of lease incentives | (87) | (2,567) | |||||||||
| Amortization of lease premiums, discounts and incentives | $ | 8,262 | $ | 1,253 | |||||||
The amortization of lease discounts increased $3.0 million due to the acquisition of aircraft.
The amortization of lease incentives decreased $2.5 million, primarily due to early lease terminations and the associated reversal of lease incentive liabilities during the six months ended August 31, 2026.
Maintenance revenue. For the six months ended August 31, 2026 and 2025, we recorded $67.2 million and $47.8 million of maintenance revenue, respectively, primarily from maintenance payments received by us and recognized into income in connection with scheduled aircraft lease expirations, early aircraft lease terminations and aircraft returns.
Gain on sale or disposition of flight equipment. During the six months ended August 31, 2026, we sold 16 aircraft and other flight equipment for gains of $49.0 million, compared to 18 aircraft and other flight equipment sold with gains of $54.2 million during the six months ended August 31, 2025.
Operating expenses:
Total operating expenses decreased $24.1 million, attributable to:
Depreciation expense decreased $8.0 million, primarily reflecting a $28.2 million decrease related to 32 aircraft sold since March 1, 2025, as well as residual adjustments and other changes for aircraft for which impairments were recorded or leases were extended. This decrease was partially offset by an increase of $20.2 million related to 51 aircraft acquired since March 1, 2025.
Interest, net increased $7.2 million due to a higher weighted average debt outstanding of $281.1 million.
Selling, general and administrative expenses decreased $3.0 million, primarily due to lower personnel costs and reduced legal fees related to Russia insurance recovery matters.
Impairment of flight equipment. During the six months ended August 31, 2026, the Company recorded impairment charges totaling $11.1 million that primarily related to the early lease termination of 2 narrow-body aircraft and 2 narrow-body freighter aircraft. For these aircraft, we recognized $23.4 million of maintenance payments, cash security deposits, and the reversal of lease incentive liabilities into revenue during the six months ended August 31, 2026.
During the six months ended August 31, 2025, the Company recorded impairment charges totaling $36.2 million, including $22.4 million related to aircraft leased to 2 customers that filed for bankruptcy protection. For these aircraft, the Company recognized $4.9 million of maintenance payments and lease rentals received in advance into revenue during six months ended August 31, 2025. The remaining impairment charges relate to other flight equipment, 1 converted narrow-body freighter aircraft, and certain transactional impairments.
Maintenance and other costs increased $5.2 million, primarily attributable to higher technical expenses related to the timing of aircraft transitions, including costs associated with aircraft subject to early lease terminations.
Other income:
Total other income decreased by $57.7 million. During the six months ended August 31, 2025, the Company entered into settlement agreements with certain insurers under the Company's C&P policies for an aggregate settlement amount of $55.7 million related to aircraft previously leased to Russian airlines.
Income tax provision:
Income tax provision. We recognized income tax provisions of $18.7 million and $17.9 million for the six months ended August 31, 2026 and 2025, respectively. Our effective tax rate for the six months ended August 31, 2026 and 2025 was 15.4% and 14.5%, respectively. The increase in our effective tax rate was primarily attributable to the mix of profits between the various jurisdictions in which we operate and the utilization of Bermuda net operating losses.
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 six months ended August 31, 2026, we met our liquidity and capital resource needs with $238.3 million of cash flows from operations and $357.1 million of proceeds from the sale or disposition of aircraft and other flight equipment.
As of August 31, 2026, the weighted average maturity of our secured and unsecured debt financings was 3.4 years, and we were in compliance with all applicable covenants. In addition, 98% of our total debt is unsecured and $8.2 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 October 1, 2026, total liquidity of $2.8 billion included $2.0 billion of undrawn credit facilities, $0.7 billion of projected adjusted operating cash flows and contracted asset sales and $0.1 billion of unrestricted cash through October 1, 2027. 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
| Six Months Ended August 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Net cash flow provided by operating activities | $ | 238,294 | $ | 218,647 | |||||||
| Net cash flow provided by (used in) investing activities | 780 | (629,644) | |||||||||
| Net cash flow (used in) provided by financing activities | (245,883) | 279,288 | |||||||||
Operating Activities:
Cash flow provided by operating activities was $238.3 million and $218.6 million for the six months ended August 31, 2026 and 2025, respectively. The increase in operating cash flow was primarily attributable to higher customer collections, reflecting higher lease rates on newly acquired aircraft and lease extension activity. Additionally, we received a distribution from our equity method investee, of which $10.1 million was reflected in operating cash flow. These increases were partially offset by higher cash interest payments driven by higher weighted average debt outstanding and the timing of interest payments.
Investing Activities:
Cash flow provided by investing activities was $0.8 million for the six months ended August 31, 2026, compared to cash flow used in investing activities of $629.6 million for the six months ended August 31, 2025. The decrease of $630.4 million was primarily attributable to a $603.8 million decrease in acquisitions and improvements of flight equipment and a $57.6 million increase in proceeds from the sale or disposition of aircraft and other flight equipment. In addition, during the six months ended August 31, 2025, we received cash proceeds of $40.9 million in connection with Russia insurance settlements.
Financing Activities:
Cash flow used in financing activities was $245.9 million for the six months ended August 31, 2026, compared to cash flow provided by financing activities of $279.3 million for the six months ended August 31, 2025. The decrease of $525.2 million was primarily attributable to the $400.0 million redemption of preference shares, and to a lesser extent, a $50.1 million increase in dividends paid, a $42.4 million decrease in net maintenance and security deposits received, and a $36.3 million decrease in borrowings from secured and unsecured financings, net of repayments.
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 $7.5 billion at August 31, 2026, from $7.1 billion at February 28, 2026, 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 six months ended August 31, 2026 and 2025, we incurred a total of $4.8 million and $14.2 million, respectively, of capital expenditures, including lease incentives, related to the improvement of aircraft.
As of August 31, 2026, the weighted average age of our aircraft, by Net Book Value, of our aircraft was approximately 9.0 years. In general, the costs of operating an aircraft, including maintenance expenditures, increases as aircraft age. Our lease agreements generally require the lessee to be primarily responsible for maintaining the aircraft.
Maintenance reserves are generally paid by the lessee to provide for future major maintenance events. Provided a lessee performs scheduled maintenance of the aircraft, we are required to reimburse the lessee for qualifying 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 if 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 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, 2026.
Off-Balance Sheet Arrangements
We have an unconsolidated equity method investment in an aircraft leasing entity with Mizuho Leasing in which we hold a 25% equity interest. As of August 31, 2026, the Net Book Value of its 4 aircraft was $143.0 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 August 31, 2026, 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 six months ended August 31, 2026, expenses, such as payroll and office costs, denominated in currencies other than the U.S. dollar totaled $9.6 million in U.S. dollar equivalents and represented approximately 23% 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 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 six months ended August 31, 2026 and 2025, 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 and six months ended August 31, 2026 and 2025:
|
Three Months Ended August 31, |
Six Months Ended August 31, |
||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Net income | $ | 69,328 | $ | 57,233 | $ | 102,946 | $ | 106,520 | |||||||||||||||
| Depreciation | 91,728 | 96,762 | 184,556 | 192,578 | |||||||||||||||||||
| Amortization of lease premiums, discounts and incentives | (7,871) | 1,513 | (8,262) | (1,253) | |||||||||||||||||||
| Interest, net | 75,387 | 70,529 | 146,603 | 139,370 | |||||||||||||||||||
| Income tax provision | 11,163 | 5,228 | 18,689 | 17,949 | |||||||||||||||||||
| EBITDA | $ | 239,735 | $ | 231,265 | $ | 444,532 | $ | 455,164 | |||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Impairment of flight equipment | 7,730 | 31,153 | 11,091 | 36,219 | |||||||||||||||||||
| Loss on extinguishment of debt | - | - | - | 2,973 | |||||||||||||||||||
| Adjusted EBITDA | $ | 247,465 | $ | 262,418 | $ | 455,623 | $ | 494,356 | |||||||||||||||
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.
Aircastle Limited published this content on October 14, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on October 14, 2026 at 17:48 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]