Edgar Filing: Aircastle LTD

10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K



þ	Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Fiscal Year Ended December 31, 2015



¨	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number 001-32959

AIRCASTLE LIMITED

(Exact name of Registrant as Specified in its Charter)



Bermuda		98-0444035
(State or other Jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification No.)

300 First Stamford Place, 5th Floor, Stamford, Connecticut 06902

(Address of Principal Executive Offices)

Registrant’s telephone number, including area code: (203) 504-1020

______________________________________

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



Title of Each Class		Name of Each Exchange on Which Registered
Common Shares, par value $.01 per share		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	þ	Accelerated filer	¨
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

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

The aggregate market value of the Registrant’s Common Shares based upon the closing price on the New York Stock Exchange on June 30, 2015 (the last business day of registrant’s most recently completed second fiscal quarter), beneficially owned by non-affiliates of the Registrant was approximately $1.24 billion. For purposes of the foregoing calculation, which is required by Form 10-K, the Registrant has included in the shares owned by affiliates those shares owned by directors and executive officers and shareholders owning 10% or more of the outstanding common shares of the Registrant, and such inclusion shall not be construed as an admission that any such person is an affiliate for any purpose.

As of February 5, 2016, there were 78,564,901 outstanding shares of the registrant’s common shares, par value $0.01 per share.

DOCUMENTS INCORPORATED BY REFERENCE



Documents of Which Portions Are Incorporated by Reference		Parts of Form 10-K into Which Portion Of Documents Are Incorporated
Proxy Statement for Aircastle Limited		Part III
2016 Annual General Meeting of Shareholders		(Items 10, 11, 12, 13 and 14)

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TABLE OF CONTENTS



		Page
PART I

Item 1.	Business	1

Item 1A.	Risk Factors	10

Item 1B.	Unresolved Staff Comments	28

Item 2.	Properties	28

Item 3.	Legal Proceedings	29

Item 4.	Mine Safety Disclosures	29

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	31

Item 6.	Selected Financial Data	34

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	37

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	63

Item 8.	Financial Statements and Supplementary Data	63

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	64

Item 9A.	Controls and Procedures	64

Item 9B.	Other Information	66

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	66

Item 11.	Executive Compensation	66

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	66

Item 13.	Certain Relationships and Related Transactions, and Director Independence	66

Item 14.	Principal Accounting Fees and Services	66

PART IV

Item 15.	Exhibits and Financial Statement Schedules	67

SIGNATURES		S - 1

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SAFE HARBOR STATEMENT UNDER THE

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

All statements included or incorporated by reference in this Annual Report on Form 10-K (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, Adjusted EBITDA and Adjusted Net Income and the global aviation industry and aircraft leasing sector. Words such as “anticipates,” “expects,” “intends,” “plans,” “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 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 (“SEC”), including as described in Item 1A, and elsewhere in this report. 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 COMPANY’S REPORTS

The Company’s Internet website can be found at www.aircastle.com. Our annual reports on Forms 10-K, quarterly reports on Forms 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge through our website under “Investors — SEC Filings” as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC.

Statements and information concerning our status as a Passive Foreign Investment Company (“PFIC”) for U.S. taxpayers are also available free of charge through our website under “Investors — SEC Filings”.

Our Corporate Governance Guidelines, Code of Business Conduct and Ethics, and Board of Directors committee charters (including the charters of the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee) are available free of charge through our website under “Investors — Corporate Governance”. In addition, our Code of Ethics for the Chief Executive and Senior Financial Officers, which applies to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Treasurer and Controller, is available in print, free of charge, to any shareholder upon request to Investor Relations, Aircastle Limited, c/o Aircastle Advisor LLC, 300 First Stamford Place, 5th Floor, Stamford, Connecticut 06902.

The information on the Company’s website is not part of, or incorporated by reference, into this report, or any other report we file with, or furnish to, the SEC.

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PART I.

ITEM 1. BUSINESS

Unless the context suggests otherwise, references in this report to “Aircastle,” the “Company,” “we,” “us,” or “our” refer to Aircastle Limited and its subsidiaries. References in this report to “Aircastle Bermuda” refer to Aircastle Holding Corporation Limited and its subsidiaries. Throughout this report, when we refer to our aircraft, we include aircraft that we have transferred into grantor trusts or similar entities for purposes of financing such assets through securitizations and term financings. These grantor trusts or similar entities are consolidated for purposes of our financial statements. All amounts in this report are expressed in U.S. dollars and the financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).

We acquire, lease, and sell commercial jet aircraft with large, global operator bases and long useful lives. As of December 31, 2015, our aircraft portfolio consisted of 162 aircraft leased to 53 lessees located in 34 countries. Our aircraft fleet is managed by an experienced team based in the United States, Ireland and Singapore. Typically, our aircraft are subject to net leases whereby the lessee is generally responsible for maintaining the aircraft and paying operational, maintenance and insurance costs arising during the term of the lease. We also may occasionally make investments in other aviation assets, including debt investments secured by commercial jet aircraft. As of December 31, 2015, the net book value of our flight equipment and finance and sales-type lease aircraft was $6.07 billion compared to $5.69 billion at the end of 2014. Our revenues and net income for the year ended December 31, 2015 were $819.2 million and $121.7 million, respectively, and for the fourth quarter of 2015 were $208.3 million and $50.6 million, respectively.

Growth in commercial air traffic is broadly correlated with world economic activity and, in recent years, has been expanding at a rate of one and a half to two times that of global GDP growth. The expansion of air travel has driven a rise in the world aircraft fleet. There are currently 19,000 commercial mainline passenger and freighter aircraft in operation worldwide. This fleet is expected to continue expanding at an average annual rate of three to four percent per annum over the next 20 years. In addition, aircraft leasing companies own an increasing share of the world’s commercial jet aircraft and now account for approximately 40% of this fleet.

Notwithstanding the sector’s long-term growth, the aviation markets have been, and are expected to remain, subject to economic variability, as well as to changes in macroeconomic relations such as fuel price levels and foreign exchange rates. The industry is susceptible to external shocks, such as regional conflicts and terrorist events. Mitigating these risks is the portability of the assets, allowing aircraft to be redeployed in locations where demand is higher.

Air traffic data for the past several years has shown strong passenger market growth. According to the International Air Transport Association, during 2015, global passenger traffic increased 6.5% compared to 2014. This strong growth was, in part, stimulated by lower air fare prices resulting from the significant drop in fuel prices. Air cargo demand, which is more sensitive to economic conditions, appears to have stabilized. However, the air cargo market continues to be hampered by oversupply arising from the production of dedicated freighter aircraft as well as the rapid growth in belly cargo capacity in passenger aircraft. During 2015, air cargo traffic increased 2.2% on a year over year basis, but capacity increased 6.1%, further depressing load factors.

There are large regional variations in demand for air travel. Emerging market economies have been experiencing significant increases in air traffic, driven by rising levels of per capita income. Air traffic growth in some regions is being driven by the proliferation of low cost carriers, which have stimulated demand through lower prices, and by the expansion of long-haul “hub and spoke” traffic, such as that flowing through the Persian Gulf. Mature markets, such as North America and Western Europe, are likely to grow more slowly in tandem with their economies. Also, airlines operating in areas with political instability or weakening economies, such as those in Russia and Brazil, will face increasing pressures, and their near-term outlook is more uncertain. On balance, we believe air travel will increase over time, and as a result, we expect demand for modern aircraft will continue to remain strong over the long-term.

Capital availability for aircraft has varied over time, and we consider this variability to be a basic characteristic of our business and if pursued properly, represents an important source of opportunity. Both debt and equity markets have improved globally over the past several years with the recovery from the global financial crisis. Strong U.S. debt capital market conditions benefited borrowers by permitting access to financing at historic lows while higher fees have driven down export credit agency (“ECA”) demand. Commercial bank debt continues to play a critical role in the air finance market, although we believe regulatory pressures will ultimately limit its role. However, recent heightened financial markets volatility

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stemming from global growth concerns and falling oil prices may increase capital costs and limit availability going forward. We believe these market forces could generate attractive new investment and trading opportunities upon which we are well placed to capitalize given our access to different financing sources and our limited capital commitments. Over the longer term, our strategy is to achieve an investment grade credit rating, which we believe will reduce our borrowing costs and enable more reliable access to debt capital throughout the business cycle.

We believe our business approach is differentiated from those of other large leasing companies. Our investment strategy is to seek out the best risk-adjusted return opportunities across the commercial jet market, regardless of aircraft type or investment source, so our acquisition targets vary with market opportunities. Additionally, our business approach is much less reliant on orders for new aircraft from aircraft manufacturers as a source of new investments, as we prefer to limit large, long-term future capital commitments. In general, we focus on discerning investment value in situations that are often more bespoke and generally less competitive.

Competitive Strengths

We believe that the following competitive strengths will allow us to capitalize on future growth opportunities in the global aviation industry:

•

Flexible, disciplined acquisition approach and broad investment sourcing network. Our investment strategy is to seek out the best risk-adjusted return opportunities across the commercial jet market, so our acquisition targets vary with market opportunities. Indeed, we consider Aircastle to be the industry’s largest “value investor.” We source our acquisitions through well-established relationships with airlines, other aircraft lessors, manufacturers, financial institutions and other aircraft owners. Since our formation in 2004, we built our aircraft portfolio through more than 125 transactions with 75 counterparties.

•

Strong capital raising track record and access to a wide range of financing sources. Aircastle is a publicly listed company and our shares have traded on the New York Stock Exchange since 2006. Since our inception in late 2004, we raised approximately $1.7 billion in equity capital from private and public investors. Our two largest shareholders are Marubeni Corporation (“Marubeni”) and Ontario Teachers’ Pension Plan (“Teachers’”) with whom we maintain strong, strategic relationships. We also obtained $11.7 billion in debt capital from a variety of sources including export credit agency-backed debt, commercial bank debt, the aircraft securitization markets and the unsecured bond market. The diversity and global nature of our financing sources demonstrates our ability to adapt to changing market conditions and seize new opportunities.

•

Our capital structure is long-dated and provides investment flexibility. Our aircraft are currently financed under debt financings with a weighted average debt maturity of 4.0 years. We also have a $600 million unsecured revolving credit facility that expires in 2019, thereby limiting our near-term financial markets exposure. As such, and given our relatively limited future capital commitments, we have resources to take advantage of what we anticipate will be a more attractive investment environment. We also believe that our access to the unsecured bond market and our unsecured revolving line of credit, which are enabled by our large unencumbered asset base, allow us to pursue a flexible and opportunistic investment strategy.

•

Experienced management team with significant expertise. Each member of our management team has more than twenty years of industry experience and has expertise in the acquisition, leasing, financing, technical management, restructuring/repossession or sale of aviation assets. This experience spans several industry cycles and a wide range of business conditions and is global in nature. We believe our management team is highly qualified to manage and grow our aircraft portfolio and to address our long-term capital needs.

•

Significant experience in successfully selling aircraft throughout their life cycle. Since our formation, we sold 141 aircraft for $3.1 billion. These sales produced net gains of $192 million and involved a wide range of aircraft types and buyers. Our team is adept at managing and executing the sale of both new and used aircraft. We sold 100 aircraft that were 15 or more years old at the time of sale, with many of these being sold on a part-out disposition basis, where the airframe and engines may be sold to various buyers. We believe this sales experience with older aircraft is an essential portfolio management skill and one of the capabilities that sets us apart from many of our larger competitors.

•

Diversified portfolio of modern aircraft. We have a portfolio of modern aircraft that is diversified with respect to lessees, geographic markets, lease maturities and aircraft types. As of December 31, 2015, our aircraft portfolio consisted of 162 aircraft, comprising a variety of aircraft types leased to 53 lessees located in 34 countries. Our lease expirations are well dispersed, with a weighted average remaining lease term of 5.9 years as of December 31,

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2015. This provides the company with a long-dated base of contracted revenues. We believe our focus on portfolio diversification reduces the risks associated with individual lessee defaults and adverse geopolitical or economic issues, and results in generally predictable cash flows.

•

Global and scalable business platform. We operate through offices in the United States, Ireland and Singapore, using a modern asset management system designed specifically for aircraft operating lessors and capable of handling a significantly larger aircraft portfolio. We believe that our current facilities, systems and personnel are capable of supporting an increase in our revenue base and asset base without a proportional increase in overhead costs.

Business Strategy

The overall financing environment has improved in recent years and aircraft owners generally have benefited from the low interest rate environment. Particularly strong conditions in the debt capital markets have provided select borrowers, including Aircastle, with access to attractively priced, flexible financing providing a competitive advantage over airlines and lessors that lack similar access. Moreover, traditional asset-based financing for aircraft from commercial banks remains limited, particularly for older aircraft. Going forward, recent heightened financial markets volatility stemming from global growth concerns and falling oil prices may increase capital costs and limit availability. This may enable more attractive investment opportunities for Aircastle.

We plan to grow our business and profits over the long-term by continuing to employ the following elements of our fundamental business strategy:

•

Pursuing a disciplined and differentiated investment strategy. In our view, aircraft values change in different ways over time. As a consequence, we carefully evaluate investments across different aircraft models, ages, lessees and acquisition sources and re-evaluate these choices periodically as market conditions and relative investment values change. We believe the financing flexibility offered through unsecured debt and our team’s experience with a wide range of asset types enables our value oriented strategy and provides us with a competitive advantage for many investment opportunities. We view orders from equipment manufacturers to be part of our investment opportunity set but choose to limit long term capital commitments unless we believe there is an adequate return premium to compensate for risks and opportunity costs.

•

Originating investments from many different sources across the globe. Our strategy is to seek out worthwhile investments broadly leveraging our team’s wide range of contacts around the world. We utilize a multi-channel approach to sourcing acquisitions and have purchased aircraft from a large number of airlines, lessors, original equipment manufacturers, lenders and other aircraft owners. Since our formation in 2004, we have acquired aircraft from 75 different sellers.


•	Maintaining a conservative capital commitment profile. We choose to limit long term capital commitments unless we believe there to be an adequate return premium to compensate for risks and opportunity costs. This approach sets us apart from most other large aircraft leasing companies.

•

Leveraging our strategic relationships. We intend to capture the benefits provided through the extensive global contacts and relationships maintained by Marubeni Corporation, which is our biggest shareholder and one of the largest Japanese trading companies. Our joint venture with Teachers’ provides us with an opportunity to pursue larger transactions, manage portfolio concentrations on improve our return on deployed capital.

•

Maintaining efficient access to capital from a wide range of sources while targeting an investment grade credit rating. We believe the aircraft investment market is subject to forces related to the business cycle and our strategy is to increase our purchase activity when prices are low and to emphasize asset sales when competition for assets is high. To implement this approach, we believe it is very important to maintain access to a wide variety of financing sources. Our strategy is to improve our corporate credit ratings to an investment grade level by maintaining strong portfolio and capital structure metrics while achieving a critical size through accretive growth. We believe improving our credit rating will not only reduce our borrowing costs but also facilitate more reliable access to both secured and unsecured debt capital throughout the business cycle.

•

Selling assets when attractive opportunities arise and for portfolio management purposes. We pursue asset sales, as opportunities arise over the course of the business cycle, with the aim of realizing profits and reinvesting proceeds where more accretive investments are available. We also use asset sales for portfolio management purposes, such as reducing lessee specific concentrations and lowering residual value exposures to certain aircraft types, and as an exit from investments when a sale would provide the greatest expected cash flow for us.

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•

Capturing the value of our efficient operating platform and strong operating track record. We believe our team’s capabilities in the global aircraft leasing market place us in a favorable position to source and manage new income-generating activities. We intend to continue to focus our efforts in areas where we believe we have competitive advantages, including new direct investments as well as ventures with strategic business partners.

•

Intending to pay quarterly dividends to our shareholders based on the Company’s sustainable earnings levels. Aircastle has paid dividends each quarter since our initial public offering in 2006. On October 30, 2015, our Board of Directors declared a regular quarterly dividend of $0.24 per common share, or an aggregate of $19.4 million for the three months ended December 31, 2015, which was paid on December 15, 2015 to holders of record on November 30, 2015. These dividend amounts may not be indicative of any future dividends. Our ability to pay quarterly dividends will depend upon many factors, including those as described in Item 1A. “Risk Factors” and elsewhere in this report.



Declaration Date	Dividend per Common Share		Aggregate Dividend Amount		Record Date	Payment Date
			(Dollars in thousands)
October 30, 2015	$	0.240	$	19,377	November 30, 2015	December 15, 2015
August 4, 2015	$	0.220	$	17,860	August 31, 2015	September 15, 2015
May 4, 2015	$	0.220	$	17,863	May 29, 2015	June 15, 2015
February 17, 2015	$	0.220	$	17,860	March 6, 2015	March 13, 2015
October 31, 2014	$	0.220	$	17,817	November 28, 2014	December 15, 2014
July 28, 2014	$	0.200	$	16,201	August 29, 2014	September 12, 2014
May 5, 2014	$	0.200	$	16,202	May 30, 2014	June 13, 2014
February 21, 2014	$	0.200	$	16,201	March 7, 2014	March 14, 2014
October 29, 2013	$	0.200	$	16,163	November 29, 2013	December 13, 2013
August 2, 2013	$	0.165	$	13,330	August 30, 2013	September 13, 2013
May 1, 2013	$	0.165	$	11,297	May 31, 2013	June 14, 2013
February 18, 2013	$	0.165	$	11,268	March 4, 2013	March 15, 2013

We believe our team’s capabilities in the global aircraft leasing market place us in a favorable position to explore new income-generating activities as capital becomes available for such activities. We intend to continue to focus our efforts on investment opportunities in areas where we believe we have competitive advantages and on transactions that offer attractive risk/return profiles after taking into consideration available financing options. In any case, there can be no assurance that we will be able to access capital on a cost-effective basis and a failure to do so could have a material adverse effect on our business, financial condition or results of operations.

Acquisitions and Sales

We originate acquisitions and sales through well-established relationships with airlines, other aircraft lessors, financial institutions and brokers, as well as other sources. We believe that sourcing such transactions both globally and through multiple channels provides for a broad and relatively consistent set of opportunities.

Our objective is to develop and maintain a diverse and stable operating lease portfolio. We review our operating lease portfolio periodically to sell aircraft opportunistically, to manage our portfolio diversification and to exit from aircraft investments when we believe selling will achieve better expected risk-adjusted cash flows than reinvesting in and re-leasing the aircraft. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview — Acquisitions and Sales.”

We have an experienced acquisitions and sales team based in Stamford, Connecticut; Dublin, Ireland and Singapore that maintains strong relationships with a wide variety of market participants throughout the world. We believe that our seasoned personnel and extensive industry contacts facilitate our access to acquisition and sales opportunities and that our strong operating track record facilitates our access to debt and equity capital markets.

Potential investments and sales are evaluated by teams comprised of marketing, technical, risk management, financial and legal professionals. These teams consider a variety of aspects before we commit to purchase or sell an aircraft, including

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price, specification/configuration, age, condition and maintenance history, operating efficiency, lease terms, financial condition and liquidity of the lessee, jurisdiction, industry trends and future redeployment potential and values, among other factors. We believe that utilizing a cross-functional team of experts to consider the investment parameters noted above will help us assess more completely the overall risk and return profile of potential acquisitions and will help us move forward expeditiously on letters of intent and acquisition documentation. Our letters of intent are typically non-binding prior to internal approval, and upon internal approval, are binding subject to the fulfillment of customary closing conditions.

Finance

We intend to fund new investments through cash on hand, cash flows from operations, our revolving credit facility and medium to long-term financings. 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, 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Secured Debt Financings” and “ — Unsecured Debt Financings” under Item 7.

Segments

The Company manages, analyzes and reports on its business and results of operations on the basis of one operating segment: leasing, financing, selling and managing commercial flight equipment. Our chief executive officer is the chief operating decision maker.

Aircraft Leases

Nearly all of our aircraft are contracted on operating leases. Under an operating lease, we retain the benefit, and bear the risk, of re-leasing and of the residual value of the aircraft at the end of the lease. Operating leasing can be an attractive alternative to ownership for an airline because leasing increases their fleet flexibility, requires lower capital commitments, and significantly reduces aircraft residual value risks. Under these leases, the lessee agrees to lease an aircraft for a fixed term, although certain of our operating leases allow the lessee the option to extend the lease for an additional term or, in rare cases, terminate the lease prior to its expiration. As a percentage of lease rental revenue for the year ended December 31, 2015, our three largest customers, LATAM Airlines Group S.A., Iberia Lineas Aereas de Espana S.A. and South African Airways Pty. Ltd., accounted for 6%, 6% and 5%, respectively.

The scheduled maturities of our aircraft leases by aircraft type grouping currently are as follows, taking into account lease placement and renewal commitments as of February 5, 2016:



	2016	2017	2018	2019	2020	2021	2022	2023	2024	2025	2026	2027	2028	2029	Off-Lease⁽¹⁾	Total
A319/A320/A321	—	2	1	5	8	14	2	11	9	4	4	1	1	1	—	63
A330-200/300	1	5	1	2	1	4	—	—	3	5	1	1	—	—	—	24
737-700/800/900ER	—	2	3	5	9	3	10	3	4	1	—	4	—	—	1	45
757-200	—	5	1	—	—	—	—	—	—	—	—	—	—	—	—	6
777-200ER/300ER	—	1	1	2	—	1	—	1	1	1	—	—	—	—	—	8
E195	—	—	—	—	—	—	—	1	4	—	—	—	—	—	—	5
Freighters	1	4	4	—	—	—	1	1	—	—	—	—	—	—	—	11
Total	2	19	11	14	18	22	13	17	21	11	5	6	1	1	1	162

____________

(1) Includes one new Boeing 737-800 purchased in February 2016 which is being marketed for lease.

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2016 Lease Expirations and Lease Placements

We began 2016 with three aircraft having scheduled lease expirations in 2016 that did not already have signed lease commitments in place and one off lease aircraft. We have since extended the lease for one of these aircraft. The remaining three aircraft, which account for 1.3% of our net book value of flight equipment (including flight equipment held for lease and net investment in finance and sales-type leases) at December 31, 2015, represent our best estimate for the aircraft which we will need to place on lease or sell this year. We now expect to sell two of these three aircraft. In February 2016, we agreed to purchase three new Boeing 737-800 aircraft delivering between the first and third quarters of 2016. We are actively marketing these aircraft and expect to have them on lease by the delivery of the final aircraft.

2017-2020 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 period 2017-2020 representing the percentage of our net book value of flight equipment (including flight equipment held for lease and net investment in finance and sales-type leases) at December 31, 2015 specified below:


•	2017: 19 aircraft, representing 12%;


•	2018: 11 aircraft, representing 9%;


•	2019: 14 aircraft, representing 10%; and


•	2020: 18 aircraft, representing 6%.

Lease Payments and Security. Each of our leases requires the lessee to pay periodic rentals during the lease term. As of December 31, 2015, rentals on more than 92% of our leases then in effect, as a percentage of net book value, are fixed and do not vary according to changes in interest rates. For the remaining leases, rentals are payable on a floating interest-rate basis. Most lease rentals are payable either monthly or quarterly in advance, and all lease rentals are payable in U.S. dollars.

Under our leases, the lessee must pay operating expenses accrued or payable during the term of the lease, which would normally include maintenance, overhaul, fuel, crew, landing, airport and navigation charges, certain taxes, licenses, consents and approvals, aircraft registration and insurance premiums. Typically, under an operating lease, the lessee is required to make payments for heavy maintenance, overhaul or replacement of certain high-value components of the aircraft. These maintenance payments are based on hours or cycles of utilization or on calendar time, depending upon the component, and are required to be made monthly in arrears or at the end of the lease term. Our determination of whether to permit a lessee to make maintenance payments at the end of the lease term, rather than requiring such payments to be made monthly, depends on a variety of factors, including the creditworthiness of the lessee, the amount of security deposit which may be provided by the lessee and market conditions at the time. If a lessee is making monthly maintenance payments, we would typically be obligated to use the funds paid by the lessee during the lease term to reimburse the lessee for costs they incur for heavy maintenance, overhaul or replacement of certain high-value components, usually shortly following completion of the relevant work. If a lease requires end of lease term maintenance payments, typically the lessee would be required to pay us for its utilization of the aircraft during the lease; however, in some cases, we may owe a net payment to the lessee in the event heavy maintenance is performed and paid for by the lessee during the lease term and the aircraft is returned to us in better condition than at lease inception.

Many of our leases also contain provisions requiring us to pay a portion of the cost of modifications to the aircraft performed by the lessee at its expense, if such modifications are mandated by recognized airworthiness authorities. Typically, these provisions would set a threshold, below which the lessee would not have a right to seek reimbursement and above which we may be required to pay a portion of the cost incurred by the lessee. The lessees are obliged to remove liens on the aircraft other than liens permitted under the leases.

Our leases generally provide that the lessees’ payment obligations are absolute and unconditional under any and all circumstances and require lessees to make payments without withholding payment on account of any amounts the lessor may owe the lessee or any claims the lessee may have against the lessor for any reason, except that under certain of the leases a breach of quiet enjoyment by the lessor may permit a lessee to withhold payment. The leases also generally include an obligation of the lessee to gross up payments under the lease where lease payments are subject to withholding and other taxes, although there may be some limitations to the gross up obligation, including provisions which do not require a lessee to gross up payments if the withholdings arise out of our ownership or tax structure. In addition, changes in law may result

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in the imposition of withholding and other taxes and charges that are not reimbursable by the lessee under the lease or that cannot be so reimbursed under applicable law. Lessees may fail to reimburse us even when obligated under the lease to do so. Our leases also generally require the lessee to indemnify the lessor for tax liabilities relating to the leases and the aircraft, including in most cases, value added tax and stamp duties, but excluding income tax or its equivalent imposed on the lessor.

Portfolio Risk Management

Our objective is to build and maintain an operating lease portfolio which is balanced and diversified and delivers returns commensurate with risk. We have portfolio concentration objectives to assist in portfolio risk management and highlight areas where action to mitigate risk may be appropriate, and take into account the following:


•	individual lessee exposures;


•	geographic concentrations;


•	aircraft type concentrations;


•	portfolio credit quality distribution; and


•	lease maturity distribution.

We have a risk management team which undertakes detailed credit due diligence on lessees when aircraft are being acquired with a lease already in place and for placement of aircraft with new lessees following lease expiration or termination.

Lease Management and Remarketing

Our aircraft re-leasing strategy is to develop opportunities proactively, well in advance of scheduled lease expiration, to enable consideration of a broad set of alternatives, including passenger or freighter deployments, or part-out or other sales, and to allow for reconfiguration or maintenance lead times where needed. We also take a proactive approach to monitoring the credit quality of our customers, and seek early return and redeployment of aircraft if we feel that a lessee is unlikely to perform its obligations under a lease. We have invested significant resources in developing and implementing what we consider to be state-of-the-art lease management information systems and processes to enable efficient management of aircraft in our portfolio.

Other Aviation Assets and Alternative New Business Approaches

As of December 31, 2015, our investment base consisted almost entirely of commercial jet aircraft. We believe investment opportunities may arise in related areas such as financing secured by commercial jet aircraft as well as jet engine and spare parts leasing, trading and financing. In the future, we may make opportunistic investments in these or other sectors or in other aviation-related assets, and we intend to continue to explore other income-generating activities and investments.

We established a joint venture with Teachers’ in December 2013 to invest in leased aircraft. This joint venture is aimed at leveraging our capabilities and to allow us to pursue larger opportunities than we would have on our own. As of December 31, 2015, the joint venture’s total assets were $516 million. At February 5, 2016, Teachers’ holds 10.0% of our outstanding common shares. Therefore, each of the joint venture and the sales of the aircraft were arm's length related party transactions under our related party policy and were approved by our Audit Committee.

We believe we have a world class servicing platform and may also pursue opportunities to capitalize on these capabilities such as providing aircraft management services for third party aircraft owners.

Competition

The aircraft leasing and trading industry is highly competitive with a significant number of active participants. We face competition for the acquisition of aircraft from airlines and other aircraft owners, for the placement of aircraft on lease with airlines and for buyers of aircraft assets which we may wish to divest.

Competition for aircraft acquisitions comes from large established aircraft leasing companies, smaller players, and new entrants. The improvement in financial markets conditions over the past several years has increased competition across most asset types and has drawn many new investors to our business.

Larger lessors are generally more focused on acquiring new aircraft via both purchase and lease-back transactions

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with airlines and through direct orders with the original equipment manufacturers. These larger lessors include GE Capital Aviation Services, AerCap Holdings NV, Air Lease Corporation, Aviation Capital Group, CIT Aerospace, SMBC Aviation Capital, BOC Aviation and Avolon Holdings/Bohai Leasing. In addition, several major Asian financial institutions have entered the market for new aircraft over the past several years through new leasing subsidiaries and have been pursuing business aggressively.

Many aircraft leasing companies appear to be in the midst of significant changes, which have the potential to affect the industry structure. Avolon Holdings was recently acquired by Bohai Leasing, a Chinese leasing company affiliated with HNA Group, and AWAS’ ownership group is exploring exit alternatives. Further, in late 2015, CIT announced it was exploring strategic alternatives for CIT Aerospace, and Pacific Mutual Life announced it was contemplating a possible initial public offering for its Aviation Capital Group unit. Bank of China and Development Bank of China are also exploring initial public offerings for their leasing subsidiaries.

Competition for mid-aged and older aircraft typically comes from smaller players that, in many cases, rely on private equity or hedge fund capital sources. Such competitors include Apollo Aviation Group, Deucalion, Castlelake, Alterna Capital Partners and a number of relatively new players funded by alternative investment funds and companies. These companies are typically fund-based, rather than having permanent capital structures, and have benefited from the substantially improved availability of debt financing for mid-aged aircraft.

Competition for leasing or re-leasing of aircraft, as well as aircraft sales is based principally upon the availability, type and condition of aircraft, lease rates, prices and other lease terms. Aircraft manufacturers, airlines and other operators, distributors, equipment managers, leasing companies, financial institutions and other parties engaged in leasing, managing, marketing or remarketing aircraft compete with us, although their focus may be on different market segments and aircraft types.

Some of our competitors have, or may obtain, greater financial resources than we have and may have a lower cost of capital. A number also commit to speculative orders of new aircraft to be placed on operating lease upon delivery from the manufacturer, which compete with new and used aircraft offered by other lessors. However, we believe that we are able to compete favorably in aircraft acquisition, leasing and sales activities due to the reputation of our team of experienced professionals, extensive market contacts and expertise in sourcing and acquiring aircraft. We also believe our access of unsecured capital markets debt provides us with a competitive advantage in pursuing investments quickly and reliably and in acquiring aircraft in situations for which it may be more difficult to finance on a secured, non-recourse basis.

Employees

As of December 31, 2015, we had 103 employees. None of our employees are covered by a collective bargaining agreement, and we believe that we maintain excellent employee relations. We provide certain employee benefits, including retirement benefits, and health, life, disability and accident insurance plans.

Insurance

We require our lessees to carry airline general third-party legal liability insurance, all-risk aircraft hull insurance (both with respect to the aircraft and with respect to each engine when not installed on our aircraft) and war-risk hull and legal liability insurance. We are named as an additional insured on liability insurance policies carried by our lessees, and we or one of our lenders would typically be designated as a loss payee in the event of a total loss of the aircraft. We maintain contingent hull and liability insurance coverage with respect to our aircraft which is intended to provide coverage for certain risks, including the risk of cancellation of the hull or liability insurance maintained by any of our lessees without notice to us, but which excludes coverage for other risks such as the risk of insolvency of the primary insurer or reinsurer.

We maintain insurance policies to cover non-aviation risks related to physical damage to our equipment and property, as well as with respect to third-party liabilities arising through the course of our normal business operations (other than aircraft operations). We also maintain limited business interruption insurance to cover a portion of the costs we would expect to incur in connection with a disruption to our main facilities, and we maintain directors’ and officers’ liability insurance providing coverage for liabilities related to the service of our directors, officers and certain employees. Consistent with industry practice, our insurance policies are generally subject to deductibles or self-retention amounts.

We believe the insurance coverage currently carried by our lessees and by Aircastle provides adequate protection against the accident-related and other covered risks involved in the conduct of our business. However, there can be no

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assurance that we have adequately insured against all risks, that lessees will at all times comply with their obligations to maintain insurance, that our lessees’ insurers and re-insurers will be or will remain solvent and able to satisfy any claims, that any particular claim will ultimately be paid or that we will be able to procure adequate insurance coverage at commercially reasonable rates in the future.

Government Regulation

The air transportation industry is highly regulated. In general, we are not directly subject to most air transportation regulations because we do not operate aircraft. In contrast, our lessees are subject to extensive, direct regulation under the laws of the jurisdictions in which they are registered and under which they operate. Such laws govern, among other things, the registration, operation, security, and maintenance of our aircraft, as well as environmental and financial oversight regulation of their operations.

Our customers may also be subject to noise or emissions regulations in the jurisdictions in which they operate our aircraft. For example, the United States and other jurisdictions may impose stringent limits on nitrogen oxide (“NOx”), carbon monoxide (“CO”) and carbon dioxide (“CO2”) emissions from engines. In June 2015, the U.S. Environmental Protection Agency (“EPA”) started a regulatory process to find that Greenhouse Gas (“GHG”) emissions from certain engines endangers public health and welfare and announced its intention to promulgate new rules to adopt CO2 standards promulgated by the International Civil Aviation Organization (“ICAO”), which are anticipated in 2016. In addition, European countries generally have strict environmental regulations and, in particular, the European Union (“E.U.”) has included aviation in the European Emissions Trading Scheme (“ETS”), although the United States, China and other countries continue to oppose the inclusion of aviation emissions in ETS. Other environmental regulations our customers may be subject to include those relating to discharges to surface and subsurface waters, management of hazardous substances, oils, and waste materials, and other regulations affecting their aircraft operations.

Inflation

Inflation affects our lease rentals, asset values and costs, including SG&A expenses and other expenses. We do not believe that our financial results have been, or will be, adversely affected by inflation in a material way.

Subsequent Events

The Company’s management has reviewed and evaluated all events or transactions for potential recognition and/or disclosure since the balance sheet date of December 31, 2015 through the date of this filing, the date on which the consolidated financial statements included in this Form 10-K were issued.

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ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the following factors, which could materially adversely affect our business, financial condition, results of operations or ability to pay dividends in future periods or to meet our debt obligations. The risks described below are not the only risks facing our Company. Additional risks not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, results of operations or ability to pay dividends in future periods.

Risks Related to Our Business

Risks Related to Our Operations

Volatile financial market conditions may adversely impact our liquidity, our access to capital and our cost of capital and may adversely impact the airline industry and the financial condition of our lessees.

The financial crisis that began in the second half of 2008 resulted in significant global market volatility and disruption and a lack of liquidity. While these conditions have stabilized and many segments of the capital markets have improved substantially since the first quarter of 2009, the availability and pricing of capital in the commercial bank market and in the unsecured bond market remain susceptible to global events, including, for example, the recent decision by the U.S. Federal Reserve to begin raising interest rates, concerns over China’s economy and global growth implications following a precipitous drop in oil prices. If we need, but cannot obtain, adequate capital on satisfactory terms, or at all, as a result of negative conditions in the capital markets or otherwise, our business, financial condition, results of operations or our ability to pay dividends to our shareholders could be materially adversely affected. Additionally, such inability to obtain capital on satisfactory terms, or at all, could prevent us from pursuing attractive future growth opportunities.

Risks affecting the airline industry may adversely affect our customers and have a material adverse impact on our financial results.

We operate as a supplier to airlines and are indirectly impacted by all the risks facing airlines today. The ability of each lessee to perform its obligations under the relevant lease will depend primarily on the lessee’s financial condition and cash flow, which may be affected by factors beyond our control, including:


•	passenger and air cargo demand;


•	competition;


•	passenger fare levels and air cargo rates;


•	the continuing availability of government support, whether through subsidies, loans, guarantees, equity investments or otherwise;


•	availability of financing and other circumstances affecting airline liquidity, including covenants in financings, terms imposed by credit card issuers, collateral posting requirements contained in fuel hedging contracts and the ability of airlines to make or refinance principal payments as they come due;


•	geopolitical and other events, including war, acts or threats of terrorism, outbreaks of epidemic diseases and natural disasters;


•	aircraft accidents;


•	operating costs, including the price and availability of jet fuel, labor costs and insurance costs and coverages;


•	restrictions in labor contracts and labor difficulties;


•	economic conditions, including recession, financial system distress and currency fluctuations in the countries and regions in which the lessee operates or from which the lessee obtains financing; and


•	governmental regulation of, or affecting the air transportation business, including noise regulations, emissions regulations, climate change initiatives, and aircraft age limitations.

These factors, and others, may lead to defaults by our customers, or may delay or prevent aircraft deliveries or transitions, result in payment restructurings or other lease term restructurings, and may increase our costs from repossessions and reduce our revenues due to downtime or lower re-lease rates.

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We bear the risk of re-leasing and selling our aircraft in order to meet our debt obligations, finance our growth and operations, pay dividends and, ultimately, realize upon the investment in the aircraft in our portfolio.

We bear the risk of re-leasing and selling or otherwise disposing of our aircraft in order to continue to generate revenues. In certain cases we commit to purchase aircraft that are not subject to lease and therefore are subject to lease placement risk. Because only a portion of an aircraft’s value is covered by contractual cash flows from an operating lease, we are exposed to the risk that the residual value of the aircraft will not be sufficient to permit us to fully recover or realize a gain on our investment in the aircraft and to the risk that we may have to record impairment charges. Further, our ability to re-lease, lease or sell aircraft on favorable terms, or at all, or without significant off-lease time and transition costs is likely to be adversely impacted by risks affecting the airline industry generally.

Other factors that may affect our ability to realize upon the investment in our aircraft and that may increase the likelihood of impairment charges, include higher fuel prices which may reduce demand for older, less fuel efficient aircraft, additional environmental regulations, customer preferences and other factors that may effectively shorten the useful life of older aircraft.

We have written down the value of some of our assets in 2015 and in prior years, and if conditions worsen, or in the event of a customer default, we may be required to record further write-downs.

We test our assets for recoverability whenever events or changes in circumstances indicate that the carrying amounts for such assets are not recoverable from their expected, undiscounted cash flows. We also perform our annual fleet-wide recoverability assessment during the third quarter of each year. This recoverability assessment is a comparison of the carrying value of each aircraft to its undiscounted expected future cash flows. We develop the assumptions used in the recoverability assessment, including those relating to current and future demand for each aircraft type, based on management’s experience in the aircraft leasing industry as well as information received from third party sources. We refer to impairments arising from this analysis as “Annual Fleet-Wide Review.” During our 2015 assessment, we recorded an aggregate of $34.6 million in impairments during the third quarter as a result of reduced forecasted cash flows for four Boeing 747-400 converted freighter aircraft.

If anticipated aircraft lease cash flows or sales values worsen due to a decline in market conditions, or a lessee customer defaults, we may have to reassess the carrying value of one or more of our aircraft assets. In particular, we believe that as aircraft approach the end of their economic useful lives, their carrying values may be more susceptible to non-recoverable declines in value because such assets will have a shorter opportunity in which to benefit from a market recovery. As such, it is possible that additional impairments may be triggered for other long-lived assets and any such impairment amounts may be material. As of December 31, 2015, based on net book value, 13% of our aircraft portfolio was 15 years or older and 3% of our aircraft portfolio was 20 years or older.

Our financial reporting for lease revenue may be significantly impacted by a proposed new model for lease accounting.

We anticipate the Financial Accounting Standards Board (“FASB”) will issue Accounting Standards Codification (“ASC”) 842 (“ASC 842”), “Leases” which will replace the existing guidance in ASC 840, Leases, in early 2016. Based on the FASB’s tentative decisions, the accounting for leases by lessors would basically remain unchanged from the concepts existing in current ASC 840 accounting. The FASB tentatively decided that lessors would be precluded from recognizing selling profit and revenue at lease commencement for any sales-type or direct finance lease that does not transfer control of the underlying asset to the lessee. This requirement aligns the notion of what constitutes a sale in the lessor accounting guidance with that in the forthcoming revenue recognition standard, which evaluates whether a sale has occurred from the customer’s perspective. We anticipate that the standard will be effective for public entities beginning after December 15, 2018. Based on the original Leases re-exposure draft and the FASB’s tentative decisions, we believe the standard will not have a material impact on our consolidated financial statements. We do not believe that the adoption of the standard will significantly impact our existing or potential lessees' economic decisions to lease aircraft.

Our ability to obtain debt financing and our cost of debt financing is, in part, dependent upon our credit ratings and a credit downgrade could adversely impact our financial results.

Our ability to obtain debt financing and our cost of debt financing is dependent, in part, on our credit ratings. Maintaining our credit ratings depends in part on strong financial results and in part on other factors, including the outlook of the ratings agencies on our sector and on the market generally. A credit rating downgrade may result in higher pricing or less favorable terms under secured financings, including ECA backed financings, or may make it more difficult or more costly for us to

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raise debt financing in the unsecured bond market. Credit rating downgrades may therefore make it more difficult to satisfy our funding requirements.

An increase in our borrowing costs may adversely affect our earnings and cash available for distribution to our shareholders.

Our aircraft are financed under long-term debt financings. As these financings mature, we will be required to either refinance these instruments by entering into new financings, which could result in higher borrowing costs, or repay them by using cash on hand or cash from the sale of our assets.

Departure of key officers could harm our business and financial results.

Our senior management’s reputations and relationships with lessees, sellers, buyers and financiers of aircraft are a critical element of our business. We encounter intense competition for qualified employees from other companies in the aircraft leasing industry, and we believe there are only a limited number of available qualified executives in our industry. Our future success depends, to a significant extent, upon the continued service of our senior management personnel, and if we lose one or more of these individuals, our business could be adversely affected.

We may not be able to pay or maintain dividends, or we may choose not to pay dividends, and the failure to pay or maintain dividends may adversely affect our share price.

On October 30, 2015, our Board of Directors declared a regular quarterly dividend of $0.24 per common share, or an aggregate of approximately $19.4 million, which was paid on December 15, 2015 to holders of record on November 30, 2015. This dividend may not be indicative of the amount of any future quarterly dividends. Our ability to pay, maintain or increase cash dividends to our shareholders is subject to the discretion of our Board of Directors and will depend on many factors, including: our ability to comply with financial covenants in our financing documents that limit our ability to pay dividends and make certain other restricted payments; the difficulty we may experience in raising, and the cost of, additional capital and our ability to finance our aircraft acquisition commitments; our ability to re-finance our long-term financings; our ability to negotiate and enforce favorable lease rates and other contractual terms; the level of demand for our aircraft in the lease placement or sales markets; the economic condition of the commercial aviation industry generally; the financial condition and liquidity of our lessees; unexpected or increased aircraft maintenance or other expenses; the level and timing of capital expenditures, principal repayments and other capital needs; maintaining our credit ratings, our results of operations, financial condition and liquidity; legal restrictions on the payment of dividends, including a statutory dividend test and other limitations under Bermuda law; and general business conditions and other factors that our Board of Directors deems relevant. Some of these factors are beyond our control. In the future we may not choose to pay dividends or may not be able to pay dividends, maintain our current level of dividends, or increase them over time. The failure to maintain or pay dividends may adversely affect our share price.

We are subject to risks related to our indebtedness that may limit our operational flexibility and our ability to compete with our competitors.

General Risks

As of December 31, 2015, our total indebtedness was approximately $4.0 billion, representing approximately 69.4% of our total capitalization. Aircastle Limited has guaranteed most of this indebtedness and we are responsible on a full recourse basis for timely payment when due and compliance with covenants under the related debt documentation. As a result of our substantial amount of indebtedness, we may be unable to generate sufficient cash to pay, when due, the principal of, interest on or other amounts due with respect to our indebtedness, and our substantial amount of indebtedness may increase our vulnerability to adverse economic and industry conditions, reduce our flexibility in planning for or reaction to changes in the business environment or in our business or industry, and adversely affect our cash flow and our ability to operate our business and compete with our competitors.

Our indebtedness subjects us to certain risks, including:


•	a significant percentage of our aircraft and aircraft leases serve as collateral for our secured indebtedness, and the terms of certain of our indebtedness require us to use proceeds from sales of aircraft, in part, to repay amounts outstanding under such indebtedness;

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•	our failure to comply with the terms of our indebtedness, including restrictive covenants contained therein, may result in additional interest being due or defaults that could result in the acceleration of the principal, and unpaid interest on, the defaulted debt, as well as the forfeiture of any aircraft pledged as collateral; and


•	non-compliance with covenants prohibiting certain investments and other restricted payments, including limitations on our ability to pay dividends, repurchase our common shares, raise additional capital or refinance our existing debt, may reduce our operational flexibility and limit our ability to refinance or grow the business.

Risks Relating to Our Long-term Financings

The provisions of our long-term financings require us to comply with financial and other covenants. Our compliance with these ratios, tests and covenants depends upon, among other things, the timely receipt of lease payments from our lessees and upon our overall financial performance.


•	ECA Term Financings. Our ECA term financings contain a $500 million minimum net worth covenant and also contain, among other customary provisions, a material adverse change default and a cross-default to certain other financings of the Company.


•	Bank Financings. Our bank financings contain, among other customary provisions, a $500 million minimum net worth covenant and a cross-default to certain other financings of the Company.

•

Senior Notes. Our senior notes indenture imposes operating and financial restrictions on our activities. These restrictions limit our ability to, or in certain cases prohibit us from, incurring or guaranteeing additional indebtedness, refinancing our existing indebtedness, paying dividends, repurchasing our common shares, making other restricted payments, making certain investments or entering into joint ventures and a cross-default to certain other financings of the Company.


•	Revolving Credit Facility. Our Revolving Credit Facility contains a $750 million minimum net worth covenant, a minimum unencumbered asset ratio, a minimum interest coverage ratio and a cross-default to certain other financings of the Company.

The terms of our financings also restrict our ability to incur or guarantee additional indebtedness or engage in mergers, amalgamations or consolidations among our subsidiary companies or between a subsidiary company and a third party or otherwise dispose of all or substantially all of our assets.

We are subject to various risks and requirements associated with transacting business in foreign jurisdictions.

The international nature of our business exposes us to trade and economic sanctions and other restrictions imposed by the U.S. and other governments. The U.S. Departments of Justice, Commerce and Treasury, as well as other agencies and authorities have a broad range of civil and criminal penalties they may seek to impose against companies for violations of export controls, the Foreign Corrupt Practices Act (“FCPA”), and other federal statutes, sanctions and regulations, including those established by the Office of Foreign Assets Control (“OFAC”) and, increasingly, similar or more restrictive foreign laws, rules and regulations, including the U.K. Bribery Act (“UKBA”), which may also apply to us. By virtue of these laws and regulations, and under laws and regulations in other jurisdictions, we may be obliged to limit our business activities, we may incur costs for compliance programs and we may be subject to enforcement actions or penalties for noncompliance. In recent years, U.S. and foreign governments have increased their oversight and enforcement activities with respect to these laws, and we expect the relevant agencies to continue to increase these activities.

We have compliance policies and training programs in place for our employees with respect to FCPA, OFAC Regulations, UKBA and similar laws, but there can be no assurance that our employees, consultants or agents will not engage in conduct for which we may be held responsible. Violations of FCPA, OFAC Regulations, UKBA and other laws, sanctions or regulations may result in severe criminal or civil penalties, and we may be subject to other liabilities.

We are dependent upon information technology systems, which are subject to disruption, damage, failure and risks associated with implementation and integration.

We are dependent upon information technology systems to manage, process, store and transmit information associated with our operations, which may include proprietary business information and personally identifiable information of our customers and employees. Our information technology systems are subject to disruption, damage or failure from a variety of sources, including, without limitation, computer viruses, security breaches, cyber-attacks, employee error, natural disasters and defects in design. Damage, disruption, or failure of one or more information technology systems may result in

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interruptions to our operations in the interim or may require a significant investment to fix or replace them or may result in significant damage to our reputation. Although various measures have been implemented to manage our risks related to the information technology systems and network disruptions, a cyber-attack could lead to the loss of sensitive information, including our own proprietary information or that of our customers and employees, and could harm our reputation and result in lost revenues and additional costs and potential liabilities.

Risks Related to Our Aviation Assets

The variability of supply and demand for aircraft could depress lease rates for our aircraft, which would have an adverse effect on our financial results and growth prospects.

The aircraft leasing and sales industry has experienced periods of aircraft oversupply and undersupply. In recent years, we believe the market has been characterized by oversupply of certain older, less fuel efficient aircraft and certain freighter aircraft types. More recently, the values of certain types of wide-body aircraft have been under stress but it is unclear whether this is a temporary market imbalance or a long term trend. The oversupply of a specific type of aircraft in the market is likely to depress aircraft lease rates for, and the value of, that type of aircraft.

The supply and demand for aircraft is affected by various cyclical and non-cyclical factors that are not under our control, including:


•	passenger and air cargo demand;


•	operating costs, including fuel costs, and general economic conditions affecting our lessees’ operations;


•	geopolitical events, including war, prolonged armed conflict and acts of terrorism;


•	outbreaks of communicable diseases and natural disasters;


•	governmental regulation;


•	interest rates;


•	foreign exchange rates;


•	airline restructurings and bankruptcies;


•	the availability of credit;


•	changes in control of, or restructurings of, other aircraft leasing companies;


•	manufacturer production levels and technological innovation;


•	discounting by manufacturers on aircraft types nearing end of production;


•	climate change initiatives, technological change, aircraft noise and emissions regulations, aircraft age limits and other factors leading to reduced demand for, early retirement or obsolescence of aircraft models;


•	manufacturers merging, exiting the industry or ceasing to produce aircraft types;


•	new-entrant manufacturers producing additional aircraft models, or existing manufacturers producing newly engined aircraft models or new aircraft models, in competition with existing aircraft models;


•	reintroduction into service of aircraft previously in storage; and


•	airport and air traffic control infrastructure constraints.

These and other factors may produce sharp decreases or increases in aircraft values and lease rates, which would impact our cost of acquiring aircraft and our ability to grow the business, or which may result in lease defaults and also prevent the aircraft from being re-leased or sold on favorable terms. This could have an adverse effect on our financial results and growth prospects.

Other factors that increase the risk of decline in aircraft value and lease rates could have an adverse effect on our financial results and growth prospects.

In addition to factors linked to the aviation industry generally, other factors that may affect the value and lease rates of our aircraft include:


•	the age of the aircraft;


•	the particular maintenance and operating history of the airframe and engines;


•	the number of operators using that type of aircraft;

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•	whether the aircraft is subject to a lease and, if so, whether the lease terms are favorable to us;


•	applicable airworthiness directives or manufacturer’s service bulletins that have not yet been performed to the aircraft;


•	grounding orders or other regulatory action that could prevent or limit utilization of our aircraft;


•	any regulatory and legal requirements that must be satisfied before the aircraft can be purchased, sold or re-leased; and


•	compatibility of our aircraft configurations or specifications with those desired by the operators of other aircraft of that type.

Any decrease in the values of and lease rates for commercial aircraft which may result from the above factors or other unanticipated factors may have a material adverse effect on our financial results and growth prospects.

The advent of superior aircraft technology and higher production levels could cause our existing aircraft portfolio to become outdated and therefore less desirable.

As manufacturers introduce technological innovations and new types of aircraft, including the Boeing 787 and Airbus A350 and re-engined and/or replacement types for the Boeing 737, Boeing 777, Airbus A320, Airbus A330 and Embraer E-Jet families of aircraft, certain aircraft in our existing aircraft portfolio may become less desirable to potential lessees or purchasers. This next generation of aircraft is expected to deliver improved fuel consumption and reduced noise and emissions with lower operating costs compared to current-technology aircraft. The Boeing 787 is currently in production while the Boeing 777X is expected to enter service in 2020-2021. The first variant of the Airbus A350 entered service in December 2014. The A320neo, A330neo and 737 MAX families of aircraft are expected to enter service between 2016 and 2017 and first deliveries for Embraer’s second generation of E-Jets, the E-2 family, is expected to begin in 2018. Further, Bombardier Inc., Commercial Aircraft Corporation of China Ltd. and Sukhoi Company (JSC) are developing aircraft models that will compete with the Airbus A319, the Boeing 737 and the Embraer E-Jet.

The introduction of these new models, and the potential resulting overcapacity in aircraft supply, could adversely affect the residual values and the lease rates for our aircraft and our ability to lease or sell our aircraft on favorable terms, or at all.

The effects of energy, emissions, and noise regulations and policies may negatively affect the airline industry. This may cause lessees to default on their lease payment obligations to us and may limit the market for certain aircraft in our portfolio.

Governmental regulations regarding aircraft and engine noise and emissions levels apply based on where the relevant aircraft is registered and operated. For example, jurisdictions throughout the world have adopted noise regulations which require all aircraft to comply with noise level standards. In addition to the current requirements, the United States and ICAO have adopted a new, more stringent set of standards for noise levels which applies to engines manufactured or certified on or after January 1, 2006. Currently, U.S. regulations would not require any phase-out of aircraft that qualify with the older standards applicable to engines manufactured or certified prior to January 1, 2006, but the E.U. has established a framework for the imposition of operating limitations on aircraft that do not comply with the new standards. These regulations could limit the economic life of the aircraft and engines, reduce their value, limit our ability to lease or sell these non-compliant aircraft and engines or, if engine modifications are permitted, require us to make significant additional investments in the aircraft and engines to make them compliant.

In addition to stringent noise restrictions, the U.S. and other jurisdictions have imposed stringent limits on aircraft engine emissions, such as NOx, CO and CO2, consistent with current ICAO standards. European countries have relatively strict environmental regulations that can restrict operational flexibility and decrease aircraft productivity. The E.U. has included the aviation sector in its ETS, and has attempted to apply the ETS to flights outside of European airspace. This effort has been opposed by the U.S. and other countries. The E.U. has since suspended the ETS for flights from or to non- European countries due to a proposal issued by the ICAO in October 2013 for a global program to reduce aircraft GHGs, which would become effective by 2020. As a result the E.U. has also proposed to amend the ETS to permanently exclude all flights or portions thereof that do not take place in European regional airspace from the ETS until ICAO mechanism goes into effect. Finally, ICAO has also adopted a resolution designed to cap GHGs from aircraft and further committed to propose a GHG standard for aircraft engines by 2016. As noted above, the U.S. EPA has announced its intent to promulgate and adopt a rule to incorporate these new standards.

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Over time, it is possible that governments will adopt additional regulatory requirements and/or market-based policies that are intended to reduce energy usage, emissions, and noise levels from aircraft. Such initiatives may be based on concerns regarding climate change, energy security, public health, local impacts, or other factors, and may also impact the global market for certain aircraft and cause behavioral shifts that result in decreased demand for air travel. These concerns could also result in greater limitations on the operation of our fleet, particularly aircraft equipped with other technology engines.

Compliance with current or future regulations, taxes or duties could cause our lessees to incur higher costs and lead to higher ticket prices, which could mean lower demand for travel and adverse impacts on the financial condition of our lessees. Such compliance may also affect our lessees’ ability to make rental and other lease payments and limit the market for aircraft in our portfolio, which could have other negative effects on our financial position.

The older age, or older technology, of some of our aircraft may expose us to higher than anticipated maintenance related expenses.

As of December 31, 2015, 13% of our aircraft portfolio, based on net book value, was 15 years or older. In general, the costs of operating an aircraft, including maintenance expenditures, increase with the age of the aircraft. Additionally, older aircraft typically are less fuel-efficient than newer aircraft and may be more difficult to re-lease or sell, particularly if, due to increasing production rates by aircraft manufacturers or airline insolvencies or other distress, older aircraft are competing with newer aircraft in the lease or sale market. Expenses like fuel, aging aircraft inspections, maintenance or modification programs and related airworthiness directives could make the operation of older aircraft less economically feasible and may result in increased lessee defaults. We may also incur some of these increased maintenance expenses and regulatory costs upon acquisition or re-leasing of our aircraft. Re-leasing larger wide-body aircraft may result in higher reinvestment and maintenance expenditures than re-leasing narrow-body aircraft.

The concentration of aircraft types in our aircraft portfolio could lead to adverse effects on our business and financial results should any difficulties specific to these particular types of aircraft occur.

Our owned aircraft portfolio is concentrated in certain aircraft types. Should any of these aircraft types (or other types we acquire in the future) or aircraft manufacturers encounter technical, financial or other difficulties, it would cause a decrease in value of these aircraft, an inability to lease the aircraft on favorable terms or at all, or a potential grounding of these aircraft, which may adversely impact our financial results, to the extent the affected aircraft types comprise a significant percentage of our aircraft portfolio.

We operate in a highly competitive market for investment opportunities in aviation assets and for the leasing and sale of aircraft.

We compete with other operating lessors, airlines, aircraft manufacturers, financial institutions, aircraft brokers and other investors with respect to aircraft acquisitions, leasing and sales. The aircraft leasing industry is highly competitive and may be divided into three basic activities: (i) aircraft acquisition; (ii) leasing or re-leasing of aircraft; and (iii) aircraft sales. Competition varies among these three basic activities.

A number of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. Some competitors may have a lower cost of funds and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk or residual value assessments, which could allow them to consider a wider variety of investments, establish more relationships, bid more aggressively on aviation assets available for sale and offer lower lease rates or sales prices than we can. Some of our competitors may provide financial services, maintenance services or other inducements to potential lessees or buyers that we cannot provide. As a result of competitive pressures, we may not be able to take advantage of attractive investment opportunities from time to time, and we may not be able to identify and make investments that are consistent with our investment objectives. We are beginning to see a greater supply of certain aircraft, engines and parts being offered for sale in the part-out market as other leasing companies start addressing the older aircraft in their portfolios. Additionally, the barriers to entry in the aircraft acquisition and leasing market are comparatively low, and new entrants with private equity, hedge fund, Asian bank or other funding sources appear from time to time. We may not be able to compete effectively against present and future competitors in the aircraft acquisition, leasing or sales market.

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Risks Related to our Order of New Embraer E-Jet E2 Aircraft

We do not have lease commitments or financing in place for the 25 E-Jet E2 aircraft that we contracted to purchase from Embraer and are scheduled for delivery between 2018 and 2021. Our ability to lease these aircraft on favorable terms, if at all, may be adversely affected by desirability of this new aircraft type and risks to the commercial airline industry generally. If we are unable to obtain the necessary financing or otherwise satisfy our contractual obligations to Embraer, we will be subject to several potential risks, including:


•	forfeiting advance deposits and progress payments to Embraer, as well as incurring certain significant costs related to these commitments such as actual damages and legal, accounting and financial advisory expenses;


•	defaulting on any future lease commitments we may have entered into with respect to these aircraft, which could result in monetary damages and strained relationships with lessees;

•failing to realize the benefits of purchasing and leasing such aircraft; and


•	risking harm to our business reputation, which would make it more difficult to purchase and lease aircraft in the future on agreeable terms, if at all.

In addition, the Embraer E-Jet E2 is a new aircraft variant under development and is not yet in production. While the E-Jet E2 aircraft will incorporate a modified version of the recently introduced Pratt & Whitney geared turbofan engine, this version is also not in production. Airframe and engine manufacturers have occasionally experienced delays and technical difficulties in bringing new aircraft and engine types to market. If any aircraft for which we have made future lease commitments is delayed or if Embraer is unable to produce the aircraft in compliance with the performance specifications, some or all of our affected lessees might be able to terminate their leases with respect to such aircraft. Our purchase agreement with Embraer and the anticipated future leases for these aircraft contain certain cancellation rights related to delays in delivery. Any such termination could strain our relations with those lessees going forward. Lastly, we will rely on Embraer to return any advance deposits and progress payments if they are unable to meet their obligations to us, and we may not be able to recover such amounts if Embraer defaults or becomes insolvent. Any of these events could materially and adversely affect our financial results and operations.

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.

The standards of maintenance observed by the various lessees and the condition of the aircraft at the time of lease or sale may affect the future values and rental rates for our aircraft.

Under our leases, the relevant lessee is generally responsible for maintaining the aircraft and complying with all governmental requirements applicable to the lessee and the aircraft, including, without limitation, operational, maintenance, and registration requirements and airworthiness directives, although in certain cases we may agree to share certain of these costs. Failure of a lessee to perform required aircraft maintenance or required airworthiness directives could result in a decrease in value of such aircraft, an adverse effect on our ability to lease the aircraft at favorable rates or at all, or a potential grounding of such aircraft, and will likely require us to incur increased maintenance and modification costs upon the expiration or earlier termination of the applicable lease, which could be substantial, to restore such aircraft to an acceptable condition. If any of our aircraft are not subject to a lease, we would be required to bear the entire cost of maintaining that aircraft and performing any required airworthiness directives.

Certain of our leases provide that the lessee is required to make periodic payments to us during the lease term in order to provide cash reserves for the major maintenance. In these leases there is an associated liability for us to reimburse the lessee after such maintenance is performed. A substantial number of our leases do not provide for any periodic maintenance reserve payments to be made to us. Typically, these lessees are required to make payments at the end of the lease term. However, in the event such lessees default, the value of the aircraft could be negatively affected by the maintenance condition and we may be required to fund the entire cost of performing major maintenance on the relevant aircraft without, in either case, having received compensating maintenance payments from these lessees.

Even if we receive maintenance payments, these payments may not cover the entire expense of the scheduled maintenance they are intended to fund. In addition, maintenance payments typically cover only certain scheduled maintenance

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requirements and do not cover all required maintenance and all scheduled maintenance. As a result, we may incur unanticipated or significant costs at the conclusion of a lease.

Failure to pay certain potential additional operating costs could result in the grounding or arrest of our aircraft and prevent the re-lease, sale or other use of our aircraft.

As in the case of maintenance costs, we may incur other operational costs upon a lessee default or where the terms of the lease require us to pay a portion of those costs. Such costs include:


•	the costs of casualty, liability and political risk insurance and the liability costs or losses when insurance coverage has not been or cannot be obtained as required, or is insufficient in amount or scope;


•	the costs of licensing, exporting or importing an aircraft, airport charges, customs duties, air navigation charges, landing fees and similar governmental or quasi-governmental impositions, which can be substantial;


•	penalties and costs associated with the failure of lessees to keep aircraft registered under all appropriate local requirements or obtain required governmental licenses, consents and approvals; and


•	carbon taxes or other fees, taxes or costs imposed under emissions limitations, climate change regulations or other initiatives.

The failure to pay certain of these costs can result in liens on the aircraft and the failure to register the aircraft can result in a loss of insurance. These matters could result in the grounding or arrest of the aircraft and prevent the re-lease, sale or other use of the aircraft until the problem is cured.

Our lessees may have inadequate insurance coverage or fail to fulfill their respective indemnity obligations, which could result in us not being covered for claims asserted against us.

By virtue of holding title to the aircraft, lessors may be held strictly liable for losses resulting from the operation of aircraft or may be held liable for those losses based on other legal theories. Liability may be placed on an aircraft lessor in certain jurisdictions around the world even under circumstances in which the lessor is not directly controlling the operation of the relevant aircraft.

Lessees are required under our leases to indemnify us for, and insure against, liabilities arising out of the use and operation of the aircraft, including third-party claims for death or injury to persons and damage to property for which we may be deemed liable. Lessees are also required to maintain public liability, property damage and hull all risk and hull war risk insurance on the aircraft at agreed upon levels. However, they are not generally required to maintain political risk insurance. Following the terrorist attacks of September 11, 2001, aviation insurers significantly reduced the amount of insurance coverage available to airlines for liability to persons other than employees or passengers for claims resulting from acts of terrorism, war or similar events. At the same time, they significantly increased the premiums for such third-party war risk and terrorism liability insurance and coverage in general. As a result, the amount of such third-party war risk and terrorism liability insurance that is commercially available at any time may be below the amount stipulated in our leases.

Our lessees’ insurance, including any available governmental supplemental coverage, may not be sufficient to cover all types of claims that may be asserted against us. Any inadequate insurance coverage or default by lessees in fulfilling their indemnification or insurance obligations will reduce the proceeds that would be received by us upon an event of loss under the respective leases or upon a claim under the relevant liability insurance.

Failure to obtain certain required licenses and approvals could negatively affect our ability to re-lease or sell aircraft.

A number of our lessees must obtain licenses, consents or approvals in order to import or operate the aircraft or comply with the leases. These include consents from governmental or regulatory authorities for certain payments under the leases and for the import, export or deregistration of the aircraft. Subsequent changes in applicable law or administrative practice may increase such requirements and a governmental consent, once given, might be withdrawn. Furthermore, consents needed in connection with future re-leasing or sale of an aircraft may not be forthcoming. Any of these events could adversely affect our ability to re-lease or sell aircraft.

Due to the fact that many of our lessees operate in emerging markets, we are indirectly subject to many of the economic and political risks associated with competing in such markets.

Emerging markets are countries which have less developed economies that are vulnerable to economic and political problems, such as significant fluctuations in gross domestic product, interest and currency exchange rates, civil disturbances,

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government instability, nationalization and expropriation of private assets, unfavorable legal systems, change in law regarding recognition of contracts or ownership rights, changes in governments or government policy and the imposition of taxes or other charges by governments. The occurrence of any of these events in markets served by our lessees and the resulting instability may adversely affect our ownership interest in an aircraft or the ability of lessees which operate in these markets to meet their lease obligations and these lessees may be more likely to default than lessees that operate in developed economies. For the year ended December 31, 2015, 42 of our lessees, which operated 119 aircraft and generated 63% of our lease rental revenue, are domiciled or habitually based in emerging markets.

Risks Related to Our Lessees

Lessee defaults could materially adversely affect our business, financial condition and results of operations.

As a general matter, airlines with weak capital structures are more likely than well-capitalized airlines to seek operating leases, and, at any point in time, investors should expect a varying number of lessees and sub-lessees to experience payment difficulties. As a result of their weak financial condition and lack of liquidity, a portion of lessees over time may be significantly in arrears in their rental or maintenance payments. This is likely to be the case in the future and with other lessees and sub-lessees of our aircraft as well, particularly in a difficult economic or operating environment. These liquidity issues will be more likely to lead to airline failures in the context of financial system distress, volatile fuel prices, and economic slowdown, with additional liquidity being more difficult and expensive to source. Given the size of our aircraft portfolio, we expect that from time to time some lessees will be slow in making, or will fail to make, their payments in full under their leases.

We may not correctly assess the credit risk of each lessee or may not be in a position to charge risk-adjusted lease rates, and lessees may not be able to continue to perform their financial and other obligations under our leases in the future. A delayed, reduced or missed rental payment from a lessee decreases our revenues and cash flow and may adversely affect our ability to make payments on our indebtedness or to comply with debt service coverage or interest coverage ratios. While we may experience some level of delinquency under our leases, default levels may increase over time, particularly as our aircraft portfolio ages and if economic conditions deteriorate. A lessee may experience periodic difficulties that are not financial in nature, which could impair its performance of maintenance obligations under the leases. These difficulties may include the failure to perform required aircraft maintenance and labor-management disagreements or disputes.

In the event that a lessee defaults under a lease, any security deposit paid or letter of credit provided by the lessee may not be sufficient to cover the lessee’s outstanding or unpaid lease obligations and required maintenance and transition expenses.

Adverse currency movements could negatively affect our lessees’ ability to honor the terms of their leases and could materially adversely affect our business, financial condition and results of operations.

Many of our lessees are exposed to currency risk due to the fact that they earn revenues in their local currencies while a significant portion of their liabilities and expenses, including fuel, debt service, and lease payments are denominated in U.S. dollars. In the case of a devaluation of the local currency, our lessees may not be able to increase revenue sufficiently to offset the impact of exchange rates on these expenses. This is particularly true for non-U.S. airlines whose operations are primarily domestic. This difference is magnified in the event of an appreciating U.S. dollar, as we have seen over the course of the last year, due to the strengthening of the U.S. economy and the expectation of rising U.S. interest rates. Currency volatility, particularly as witnessed recently in Russia and other emerging market countries, could impact the ability of some of our customers to meet their contractual obligations in a timely manner. Shifts in foreign exchange rates can be significant, are difficult to predict, and can occur quickly.

If our lessees encounter financial difficulties and we decide to restructure our leases with those lessees, this could result in less favorable leases and in significant reductions in our cash flow or adversely affect our financial results.

When a lessee is late in making payments, fails to make payments in full or in part under the lease or has otherwise advised us that it will in the future fail to make payments in full or in part under the lease, we may elect to or be required to restructure the lease. Restructuring may involve anything from a simple rescheduling of payments to the termination of a lease without receiving all or any of the past due amounts. If any requests for payment restructuring or rescheduling are made and granted, reduced or deferred rental payments may be payable over all or some part of the remaining term of the lease, although the terms of any revised payment schedules may be unfavorable and such payments may not be made. We may be unable to agree upon acceptable terms for any requested restructurings and as a result may be forced to exercise our

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remedies under those leases. If we, in the exercise of our remedies, repossess the aircraft, we may not be able to re-lease the aircraft promptly at favorable rates, or at all.

The terms and conditions of payment restructurings or reschedulings may result in significant reductions of rental payments, which may adversely affect our cash flows or our financial results.

Significant costs resulting from lease defaults could have a material adverse effect on our business.

Although we have the right to repossess the aircraft and to exercise other remedies upon a lessee default, repossession of an aircraft after a lessee default would lead to significantly increased costs for us. Those costs include legal and other expenses of court or other governmental proceedings, particularly if the lessee is contesting the proceedings or is in bankruptcy, to obtain possession and/or de-registration of the aircraft and flight and export permissions. Delays resulting from any of these proceedings would also increase the period of time during which the relevant aircraft is not generating revenue. In addition, we may incur substantial maintenance, refurbishment or repair costs that a defaulting lessee has failed to incur or pay and that are necessary to put the aircraft in suitable condition for re-lease or sale and we may be required to pay off liens, claims, taxes and other governmental charges on the aircraft to obtain clear possession and to remarket the aircraft for re-lease or sale. We may also incur maintenance, storage or other costs while we have physical possession of the aircraft.

We may also suffer other adverse consequences as a result of a lessee default and any termination of the lease and the repossession of the related aircraft. Our rights upon a lessee default vary significantly depending upon the jurisdiction, including the need to obtain a court order for repossession of the aircraft and/or consents for de-registration or re-export of the aircraft. When a defaulting lessee is in bankruptcy, protective administration, insolvency or similar proceedings, additional limitations may apply. Certain jurisdictions will give rights to the trustee in bankruptcy or a similar officer to assume or reject the lease or to assign it to a third party, or will entitle the lessee or another third party to retain possession of the aircraft without paying lease rentals or without performing all or some of the obligations under the relevant lease. Certain of our lessees are owned in whole or in part by government-related entities, which could complicate our efforts to repossess the relevant aircraft. Accordingly, we may be delayed in, or prevented from, enforcing certain of our rights under a lease and in re-leasing or selling the affected aircraft.

If we repossess an aircraft, we will not necessarily be able to export or de-register and profitably redeploy the aircraft. For instance, where a lessee or other operator flies only domestic routes in the jurisdiction in which the aircraft is registered, repossession may be more difficult, especially if the jurisdiction permits the lessee or the other operator to resist de-registration. Significant costs may also be incurred in retrieving or recreating aircraft records required for registration of the aircraft and obtaining a certificate of airworthiness for the aircraft.

Airline reorganizations could have an adverse effect on our financial results.

As a result of economic conditions, significant volatility in oil prices and financial markets distress, airlines may be forced to reorganize. Historically, airlines involved in reorganizations have undertaken substantial fare discounting to maintain cash flows and to encourage continued customer loyalty. Such fare discounting has in the past led to lower profitability for all airlines. Bankruptcies and reduced demand may lead to the grounding of significant numbers of aircraft and negotiated reductions in aircraft lease rental rates, with the effect of depressing aircraft market values. Additional grounded aircraft and lower market values would adversely affect our ability to sell certain of our aircraft on favorable terms, or at all, or re-lease other aircraft at favorable rates comparable to the then current market conditions, which collectively would have an adverse effect on our financial results. We may not recover any of our claims or damages against an airline under bankruptcy or insolvency protection.

If our lessees fail to appropriately discharge aircraft liens, we might find it necessary to pay such claims, which could have a negative effect on our cash position and our business.

In the normal course of business, liens that secure the payment of airport fees and taxes, custom duties, air navigation charges (including charges imposed by Eurocontrol), landing charges, crew wages, repairer’s charges, salvage or other liens, are likely, depending on the jurisdiction in question, to attach to the aircraft. These liens may secure substantial sums that may, in certain jurisdictions or for certain types of liens (particularly “fleet liens”), exceed the value of the relevant aircraft. Although the financial obligations relating to these liens are the responsibility of our lessees, if they fail to fulfill their obligations, these liens may attach to our aircraft and ultimately become our responsibility. Until these liens are discharged, we may be unable to repossess, re-lease or sell the aircraft or unable to avoid detention or forfeiture of the aircraft.

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Our lessees may not comply with their obligations under their respective leases to discharge liens arising during the terms of their leases, whether or not due to financial difficulties. If they do not do so, we may, in some cases, find it necessary to pay the claims secured by any liens in order to repossess the aircraft.

Risks associated with the concentration of our lessees in certain geographical regions could harm our business or financial results.

Our business is sensitive to local economic and political conditions that can influence the performance of lessees located in a particular region.

European Concentration

Twenty three lessees in Europe accounted for 64 aircraft totaling 26% of the net book value of our aircraft at December 31, 2015. Eighteen aircraft, representing 6% of the net book value of our aircraft at December 31, 2015, were leased to a customer in Spain.

Commercial airlines in Europe continue to face increased competitive pressures due to the expansion of low cost carriers, industry consolidation, as well as the growth of strong airlines in the Middle East. While several of the continent’s larger airlines have announced comprehensive restructuring efforts, including significant cost cutting measures, we have some concerns about the ability of smaller players to adapt to the changing environment.

The Russian airline industry has been severely hurt by events including the impact of sanctions against Russia, the devaluation of the Ruble, the significant decline in oil prices, the destruction by terrorists of an aircraft flying from Egypt and increased tensions with Turkey. Three lessees accounted for four aircraft totaling 4% of the net book value of our aircraft at December 31, 2015. Continued uncertainty in Russia could lead to the early termination or repossession of more of our aircraft from Russian airlines. Our lease placement opportunities and lease rates may also be negatively impacted if other aircraft leased to Russian airlines are returned or new aircraft sales to Russian airlines fail to be consummated.

Asian Concentration

Fifteen lessees in Asia accounted for 49 aircraft totaling 39% of the net book value of our aircraft at December 31, 2015. Growth in most of Asia has been strong, driven in large part by emerging economies. Asian airlines continue to face competition from new entrants and the growth of low cost carriers in the region. There is also risk of oversupply in the future driven by large outstanding order books of some Asian airlines. Demand weaknesses, due to slowing economic growth in the region, could adversely affect the Asian airlines industry. Seven lessees in southeast Asia accounted for 35 aircraft totaling 28% of the net book value of our aircraft at December 31, 2015.

North American Concentration

Six lessees in North America accounted for 17 aircraft totaling 6% of the net book value of our aircraft at December 31, 2015. Consolidation among major airlines in the U.S. has helped drive capacity discipline and pricing power, but despite recent improvements in the financial results of many carriers, airlines remain highly susceptible to macroeconomic and geopolitical factors outside their control.

South American Concentration

Five lessees in South America accounted for 22 aircraft totaling 19% of the net book value of our aircraft at December 31, 2015. The region’s largest economy, Brazil, has suffered from depressed commodity prices, currency devaluation and a stalled economy, which has forced a reduction in capacity by the country’s airlines. Two lessees in Brazil accounted for 15 aircraft totaling 9% of the net book value of our aircraft at December 31, 2015.

Middle East and African Concentration

Four lessees in the Middle East and Africa accounted for nine aircraft totaling 10% of the net book value of our aircraft at December 31, 2015. Middle Eastern lessees, and particularly Gulf-based carriers, have a large number of aircraft on order and continue to capitalize on the region’s favorable geographic position as an East-West transfer hub. In recent years, a number of countries in the Middle East and North Africa experienced significant political instability, negatively impacting tourism and air travel. Continued unrest and instability would again negatively impact the financial performance of airlines operating to, from, and within this region.

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Risks Related to the Aviation Industry

Fuel prices significantly impact the profitability of the airline industry. If fuel prices rise in the future, our lessees might not be able to meet their lease payment obligations, which would have an adverse effect on our financial results and growth prospects.

Fuel costs represent a major expense to airlines. Fuel prices fluctuate widely depending primarily on international market conditions, geopolitical and environmental events and currency/exchange rates. As a result, fuel costs are not within the control of lessees and significant changes would materially affect their operating results.

While fuel prices have significantly declined since 2014, there can be no assurance that lower fuel prices will persist. Due to the competitive nature of the airline industry, airlines have been, and may continue to be, unable to pass on increases in fuel prices to their customers by increasing fares in a manner that fully compensates for the costs incurred. Higher and more volatile fuel prices may also have an impact on consumer confidence and spending, and thus may adversely impact demand for air transportation. In addition, airlines may not be able to successfully manage their exposure to fuel price fluctuations. If fuel prices increase due to future terrorist attacks, acts of war, armed hostilities, rebellion or political instability, natural disasters or for any other reason, they are likely to cause our lessees to incur higher costs and/or generate lower revenues, resulting in an adverse impact on their financial condition and liquidity. Fuel cost volatility may contribute to the reluctance of airlines to make future commitments to leased aircraft and reduce the demand for lease aircraft. Consequently, these conditions may: (i) affect our lessees’ ability to make rental and other lease payments; (ii) result in lease restructurings and/or aircraft repossessions; (iii) increase our costs of re-leasing or selling our aircraft; or (iv) impair our ability to re-lease or sell our aircraft on a timely basis at favorable rates or terms, or at all.

If the effects of terrorist attacks and geopolitical conditions adversely impact the financial condition of the airlines, our lessees might not be able to meet their lease payment obligations, which would have an adverse effect on our financial results and growth prospects.

War, armed hostilities or terrorist attacks, or the fear of such events, could decrease demand for air travel or increase the operating costs of our customers. The situations in Iraq, Afghanistan, Syria, North Africa and Ukraine remain unsettled, and other international incidents, such as tension over North Korea’s nuclear program and territorial disputes in East Asia, may lead to regional or broader international instability. Future terrorist attacks, war or armed hostilities, large protests or government instability, or the fear of such events, could further negatively impact the airline industry and may have an adverse effect on the financial condition and liquidity of our lessees, aircraft values and rental rates and may lead to lease restructurings or aircraft repossessions, all of which could adversely affect our financial results.

Terrorist attacks and geopolitical conditions have negatively affected the airline industry, and concerns about geopolitical conditions and further terrorist attacks could continue to negatively affect airlines (including our lessees) for the foreseeable future, depending upon various factors, including: (i) higher costs to the airlines due to the increased security measures; (ii) decreased passenger demand and revenue due to safety concerns or the inconvenience of additional security measures; (iii) the price and availability of jet fuel; (iv) higher financing costs and difficulty in raising the desired amount of proceeds on favorable terms, or at all; (v) the significantly higher costs of aircraft insurance coverage for future claims caused by acts of war, terrorism, sabotage, hijacking and other similar perils, and the extent to which such insurance has been or will continue to be available; (vi) the ability of airlines to reduce their operating costs and conserve financial resources, taking into account the increased costs incurred as a consequence of terrorist attacks and geopolitical conditions, including those referred to above; and (vii) special charges recognized by some airlines, such as those related to the impairment of aircraft and other long lived assets stemming from the above conditions.

Epidemic diseases, severe weather conditions, natural disasters or their perceived effects may negatively impact the airline industry and our lessees’ ability to meet their lease payment obligations to us, which, in turn, could have an adverse effect on our financial results.

Over the past several years, there have been outbreaks of epidemic diseases which have spread to other parts of the world. If an outbreak of epidemic diseases were to occur, numerous responses, including travel restrictions, might be necessary to combat the spread of the disease. Even if restrictions are not implemented, it is likely that passengers would voluntarily choose to reduce travel. There have been several outbreaks of epidemic diseases which have spread to other parts of the world in the last ten years, although their impact was relatively limited. Additional outbreaks of epidemic diseases, or the fear of such events, could result in travel bans or could have an adverse effect on our financial results. Similarly, demand for air travel or the inability of airlines to operate to or from certain regions due to severe weather

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conditions or natural disasters, such as floods, earthquakes or volcanic eruptions, could have an adverse effect on our lessees’ ability to their lease payment obligations to us, which could negatively impact our financial results.

Risks Related to Our Organization and Structure

If the ownership of our common shares continues to be highly concentrated, it may prevent minority shareholders from influencing significant corporate decisions and may result in conflicts of interest.

As of February 5, 2016, Marubeni owns 21,230,584 shares, or 27.0% of our common shares. Although the Shareholder Agreement, dated as of June 6, 2013, among us, Marubeni and a subsidiary of Marubeni (as amended and restated from time to time, the “Shareholder Agreement”), imposes certain restrictions on Marubeni’s and its affiliates’ ability to make additional acquisitions of our common shares, Marubeni, nonetheless, may be able to influence fundamental corporate matters and transactions, including the election of directors; mergers or amalgamations (subject to prior board approval); consolidations or acquisitions; the sale of all or substantially all of our assets; in certain circumstances, the amendment of our bye-laws; and our winding up and dissolution. This concentration of ownership may delay, deter or prevent acts that would be favored by our other shareholders. The interests of Marubeni may not always coincide with our interests or the interests of our other shareholders. This concentration of ownership may also have the effect of delaying, preventing or deterring a change in control of our company. Also, Marubeni may seek to cause us to take courses of action that, in its judgment, could enhance its investment in us, but which might involve risks to our other shareholders or adversely affect us or our other shareholders. In addition, under the Shareholder Agreement, based on the current ownership of our common shares by Marubeni and the current size of our Board of Directors, Marubeni is entitled to designate three directors for election to our Board of Directors. As a result of these or other factors, the market price of our common shares could decline or shareholders might not receive a premium over the then-current market price of our common shares upon a change in control. In addition, this concentration of share ownership may adversely affect the trading price of our common shares because investors may perceive disadvantages in owning shares in a company with a significant shareholder.

We are a holding company with no operations and rely on our operating subsidiaries to provide us with funds necessary to meet our financial obligations.

We are a holding company with no material direct operations. Our principal assets are the equity interests we directly or indirectly hold in our operating subsidiaries. As a result, we are dependent on loans, dividends and other payments from our subsidiaries to generate the funds necessary to meet our financial obligations and to pay dividends to our shareholders. Although there are currently no material legal restrictions on our operating subsidiaries ability to distribute assets to us, legal restrictions, including governmental regulations and contractual obligations, could restrict or impair our operating subsidiaries ability to pay dividends or make loan or other distributions to us. Our subsidiaries are legally distinct from us and may be prohibited or restricted from paying dividends or otherwise making funds available to us under certain conditions.

We are a Bermuda company, and it may be difficult for securityholders to enforce judgments against us or our directors and executive officers.

We are a Bermuda exempted company and, as such, the rights of holders of our common shares will be governed by Bermuda law and our memorandum of association and bye-laws. The rights of securityholders under Bermuda law may differ from the rights of securityholders of companies incorporated in other jurisdictions. A substantial portion of our assets are located outside the United States. As a result, it may be difficult for investors to effect service of process on those persons in the United States or to enforce in the United States judgments obtained in U.S. courts against us or those persons based on the civil liability provisions of the U.S. securities laws. Uncertainty exists as to whether courts in Bermuda will enforce judgments obtained in other jurisdictions, including the United States, against us or our directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against us or our directors or officers under the securities laws of other jurisdictions.

Our bye-laws restrict shareholders from bringing legal action against our officers and directors.

Our bye-laws contain a broad waiver by our shareholders of any claim or right of action, both individually and on our behalf, against any of our officers or directors. The waiver applies to any action taken by an officer or director, or the failure of an officer or director to take any action, in the performance of his or her duties, except with respect to any matter involving any fraud or dishonesty on the part of the officer or director. This waiver limits the right of shareholders to assert claims against our officers and directors unless the act or failure to act involves fraud or dishonesty.

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We have anti-takeover provisions in our bye-laws that may discourage a change of control.

Our bye-laws contain provisions that could make it more difficult for a third party to acquire us without the consent of our Board of Directors. These provisions include:


•	provisions providing for a classified board of directors with staggered three-year terms;


•	provisions regarding the election of directors, classes of directors, the term of office of directors and amalgamations to be rescinded, altered or amended only upon approval by a resolution of the directors and by a resolution of our shareholders, including the affirmative votes of at least 66% of the votes attaching to all shares in issue entitling the holder to vote on such resolution;


•	provisions in our bye-laws dealing with the removal of directors and corporate opportunity to be rescinded, altered or amended only upon approval by a resolution of the directors and by a resolution of our shareholders, including the affirmative votes of at least 80% of the votes attaching to all shares in issue entitling the holder to vote on such resolution;


•	provisions providing for the removal of directors by a resolution, including the affirmative votes of at least 80% of all votes attaching to all shares in issue entitling the holder to vote on such resolution;


•	provisions providing for our Board of Directors to determine the powers, preferences and rights of our preference shares and to issue such preference shares without shareholder approval;


•	provisions providing for advance notice requirements by shareholders for director nominations and actions to be taken at annual meetings; and

•

no provision for cumulative voting in the election of directors; all the directors standing for election may be elected by our shareholders by a plurality of votes cast at a duly convened annual general meeting, the quorum for which is two or more persons present in person or by proxy at the start of the meeting and representing in excess of 50% of all votes attaching to all shares in issue entitling the holder to vote at the meeting.

In addition, these provisions may make it difficult and expensive for a third party to pursue a tender offer, change in control or takeover attempt that is opposed by our management and/or our Board of Directors. Public shareholders who might desire to participate in these types of transactions may not have an opportunity to do so. These anti-takeover provisions could substantially impede the ability of public shareholders to benefit from a change in control or change our management and Board of Directors and, as a result, may adversely affect the market price of our common shares and your ability to realize any potential change of control premium.

There are provisions in our bye-laws that may require certain of our non-U.S. shareholders to sell their shares to us or to a third party.

Our bye-laws provide that if our Board of Directors determines that we or any of our subsidiaries do not meet, or in the absence of repurchases of shares will fail to meet, the ownership requirements of a limitation on benefits article of any bilateral income tax treaty with the U.S. applicable to us, and that such tax treaty would provide material benefits to us or any of our subsidiaries, we generally have the right, but not the obligation, to repurchase, at fair market value (as determined pursuant to the method set forth in our bye-laws), common shares from any shareholder who beneficially owns more than 5% of our issued and outstanding common shares and who fails to demonstrate to our satisfaction that such shareholder is either a U.S. citizen or a qualified resident of the U.S. or the other contracting state of any applicable tax treaty with the U.S. (as determined for purposes of the relevant provision of the limitation on benefits article of such treaty).

We will have the option, but not the obligation, to purchase all or a part of the shares held by such shareholder (to the extent the Board of Directors, in the reasonable exercise of its discretion, determines it is necessary to avoid or cure adverse consequences), provided that the Board of Directors will use its reasonable efforts to exercise this option equitably among similarly situated shareholders (to the extent feasible under the circumstances).

Instead of exercising the repurchase right described above, we will have the right, but not the obligation, to cause the transfer to, and procure the purchase by, any U.S. citizen or a qualified resident of the U.S. or the other contracting state of the applicable tax treaty (as determined for purposes of the relevant provision of the limitation on benefits article of such treaty) of the number of issued and outstanding common shares beneficially owned by any shareholder that are otherwise subject to repurchase under our bye-laws as described above, at fair market value (as determined in the good faith discretion of our Board of Directors).

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Our joint venture may have an adverse effect on our business.

The joint venture we entered into with an affiliate of Teachers’, which is referred to in “Other Aviation Assets and Alternative New Business Approaches” above, involves significant risks that may not be present with other methods of ownership, including:


•	we may not realize a satisfactory return on our investment or the joint venture may divert management’s attention from our business;


•	our joint venture partner could have investment goals that are not consistent with our investment objectives, including the timing, terms and strategies for any investments;


•	our joint venture partner might fail to fund its share of required capital contributions or fail to fulfill its obligations as a joint venture partner; and


•	our joint venture partner may have competing interests in our markets that could create conflict of interest issues, particularly if aircraft owned by the joint venture are being marketed for lease or sale at a time when the Company also has comparable aircraft available for lease or sale.

As of February 5, 2016, Teachers’ owns 10.0% of our outstanding common shares.

Risks Related to Our Common Shares

The market price and trading volume of our common shares may be volatile or may decline regardless of our operating performance, which could result in rapid and substantial losses for our shareholders.

If the market price of our common shares declines significantly, shareholders may be unable to resell their shares at or above their purchase price. The market price or trading volume of our common shares could be highly volatile and may decline significantly in the future in response to various factors, many of which are beyond our control, including:


•	variations in our quarterly or annual operating results;


•	failure to meet any earnings estimates;


•	actual or perceived reduction in our growth or expected future growth;


•	actual or anticipated accounting issues;


•	publication of research reports about us, other aircraft lessors or the aviation industry or the failure of securities analysts to cover our common shares or the decision to suspend or terminate coverage in the future;


•	additions or departures of key management personnel;


•	increased volatility in the capital markets and more limited or no access to debt financing, which may result in an increased cost of, or less favorable terms for, debt financing or may result in sales to satisfy collateral calls or other pressure on holders to sell our shares;


•	redemptions, or similar events affecting funds or other investors holding our shares, which may result in large block trades that could significantly impact the price of our common shares;


•	adverse market reaction to any indebtedness we may incur or preference or common shares we may issue in the future;


•	changes in or elimination of our dividend;


•	actions by shareholders;


•	changes in market valuations of similar companies;


•	announcements by us, our competitors or our suppliers of significant contracts, acquisitions, disposals, strategic partnerships, joint ventures or capital commitments;


•	speculation in the press or investment community;


•	changes or proposed changes in laws or regulations affecting the aviation industry or enforcement of these laws and regulations, or announcements relating to these matters; and


•	general market, political and economic conditions and local conditions in the markets in which our lessees are located.

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In addition, the equity markets in general have frequently experienced substantial price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies traded in those markets. Changes in economic conditions in the U.S., Europe or globally could also impact our ability to grow profitably. These broad market and industry factors may materially affect the market price of our common shares, regardless of our business or operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted against that company. Such litigation, if instituted against us, could cause us to incur substantial costs and divert management’s attention and resources, which could have a material adverse effect on our business, financial condition and results of operations.

Future debt, which would be senior to our common shares upon liquidation, and additional equity securities, which would dilute the percentage ownership of our then current common shareholders and may be senior to our common shares for the purposes of dividends and liquidation distributions, may adversely affect the market price of our common shares.

In the future, we may attempt to increase our capital resources by incurring debt or issuing additional equity securities, including commercial paper, medium-term notes, senior or subordinated notes or loans and series of preference shares or common shares. Upon liquidation, holders of our debt investments and preference shares and lenders with respect to other borrowings would receive a distribution of our available assets prior to the holders of our common shares. Additional equity offerings would dilute the holdings of our then current common shareholders and could reduce the market price of our common shares, or both. Preference shares, if issued, could have a preference on liquidating distributions or a preference on dividend payments. Restrictive provisions in our debt and/or preference shares could limit our ability to make a distribution to the holders of our common shares. Because our decision to incur more debt or issue additional equity securities in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future capital raising activities. Thus, holders of our common shares bear the risk of our future debt and equity issuances reducing the market price of our common shares and diluting their percentage ownership.

The market price of our common shares could be negatively affected by sales of substantial amounts of our common shares in the public markets.

As of February 5, 2016, there were 78,564,901 shares issued and outstanding, all of which are freely transferable, except for any shares held by our “affiliates,” as that term is defined in Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”). Approximately 37.1% of our outstanding common shares are held by our affiliates and can be resold into the public markets in the future in accordance with the requirements of Rule 144 under the Securities Act.

One affiliate, Marubeni, currently holds 27.0% of our outstanding common shares. Beginning in July 2016, or earlier upon the occurrence of certain events set forth in the Shareholders Agreement, Marubeni and permitted third-party transferees have the ability to cause us to register the resale of their common shares into the public markets. Another investor, Teachers’, currently holds 10.0% of our outstanding common shares and has the ability to cause us to register the resale of their common shares into the public markets.

The issuance of additional common shares in connection with acquisitions or otherwise will dilute all other shareholdings.

As of February 5, 2016, we had an aggregate of 156,541,592 common shares authorized but unissued and not reserved for issuance under our incentive plan. We may issue all of these common shares without any action or approval by our shareholders. We intend to continue to actively pursue acquisitions of aviation assets and may issue common shares in connection with these acquisitions. Any common shares issued in connection with our acquisitions, our incentive plan, and the exercise of outstanding share options or otherwise would dilute the percentage ownership held by existing shareholders.

Risks Related to Taxation

If Aircastle were treated as engaged in a trade or business in the United States, it would be subject to U.S. federal income taxation on a net income basis, which would adversely affect our business and result in decreased cash available for distribution to our shareholders.

If, contrary to expectations, Aircastle were treated as engaged in a trade or business in the United States, the portion of its net income, if any, that was “effectively connected” with such trade or business would be subject to U.S. federal income taxation at a maximum rate of 35%. In addition, Aircastle would be subject to the U.S. federal branch profits tax on its

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effectively connected earnings and profits at a rate of 30%. The imposition of such taxes would adversely affect our business and would result in decreased cash available for distribution to our shareholders.

If there is not sufficient trading in our shares, or if 50% of our shares are held by certain 5% shareholders, we could lose our eligibility for an exemption from U.S. federal income taxation on rental income from our aircraft used in “international traffic” and could be subject to U.S. federal income taxation which would adversely affect our business and result in decreased cash available for distribution to our shareholders.

We expect that we are currently eligible for an exemption under Section 883 of the Internal Revenue Code of 1986, as amended (the “Code”), which provides an exemption from U.S. federal income taxation with respect to rental income derived from aircraft used in international traffic by certain foreign corporations. No assurances can be given that we will continue to be eligible for this exemption as our stock is traded on the market and changes in our ownership or the amount of our shares that are traded could cause us to cease to be eligible for such exemption. To qualify for this exemption in respect of rental income, the lessor of the aircraft must be organized in a country that grants a comparable exemption to U.S. lessors (Bermuda and Ireland each do), and certain other requirements must be satisfied. We can satisfy these requirements in any year if, for more than half the days of such year, our shares are primarily and regularly traded on a recognized exchange and certain shareholders, each of whom owns 5% or more of our shares (applying certain attribution rules), do not collectively own more than 50% of our shares. Our shares will be considered to be primarily and regularly traded on a recognized exchange in any year if: (i) the number of trades in our shares effected on such recognized stock exchanges exceed the number of our shares (or direct interests in our shares) that are traded during the year on all securities markets; (ii) trades in our shares are effected on such stock exchanges in more than de minimis quantities on at least 60 days during every calendar quarter in the year; and (iii) the aggregate number of our shares traded on such stock exchanges during the taxable year is at least 10% of the average number of our shares outstanding in that class during that year. If our shares cease to satisfy these requirements, then we may no longer be eligible for the Section 883 exemption with respect to rental income earned by aircraft used in international traffic. If we were not eligible for the exemption under Section 883 of the Code, we expect that the U.S. source rental income of Aircastle Bermuda generally would be subject to U.S. federal taxation, on a gross income basis, at a rate of not in excess of 4% as provided in Section 887 of the Code. If, contrary to expectations, Aircastle Bermuda did not comply with certain administrative guidelines of the Internal Revenue Service, such that 90% or more of Aircastle Bermuda’s U.S. source rental income were attributable to the activities of personnel based in the United States, Aircastle Bermuda’s U.S. source rental income would be treated as income effectively connected with the conduct of a trade or business in the United States. In such case, Aircastle Bermuda’s U.S. source rental income would be subject to U.S. federal income taxation on its net income at a maximum rate of 35% as well as state and local taxation. In addition, Aircastle Bermuda would be subject to the U.S. federal branch profits tax on its effectively connected earnings and profits at a rate of 30%. The imposition of such taxes would adversely affect our business and would result in decreased cash available for distribution to our shareholders.

One or more of our Irish subsidiaries could fail to qualify for treaty benefits, which would subject certain of their income to U.S. federal income taxation, which would adversely affect our business and result in decreased cash available for distribution to our shareholders.

Qualification for the benefits of the double tax treaty between the United States and Ireland (the “Irish Treaty”) depends on many factors, including being able to establish the identity of the ultimate beneficial owners of our common shares. Each of the Irish subsidiaries may not satisfy all the requirements of the Irish Treaty and thereby may not qualify each year for the benefits of the Irish Treaty or may be deemed to have a permanent establishment in the United States. Moreover, the provisions of the Irish Treaty may change. Failure to so qualify, or to be deemed to have a permanent establishment in the United States, could result in the rental income from aircraft used for flights within the United States being subject to increased U.S. federal income taxation. The imposition of such taxes would adversely affect our business and would result in decreased cash available for distribution to our shareholders.

We may become subject to an increased rate of Irish taxation which would adversely affect our business and would result in decreased earnings available for distribution to our shareholders.

Our Irish subsidiaries and affiliates are expected to be subject to corporation tax on their income from leasing, managing and servicing aircraft at the 12.5% tax rate applicable to trading income. This expectation is based on certain assumptions, including that we will maintain at least the current level of our business operations in Ireland. If we are not successful in achieving trading status in Ireland, the income of our Irish subsidiaries and affiliates will be subject to corporation tax at the 25% rate applicable to non-trading activities, which would adversely affect our business and would result in decreased earnings available for distribution to our shareholders.

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We may be subject to an increased rate of Singapore taxation which would adversely affect our business and would result in decreased earnings available for distribution to our shareholders.

Our Singapore subsidiaries are subject to Singapore income tax on their income from leasing, managing and servicing aircraft. Singapore’s authorities have awarded our Singapore subsidiaries a reduced rate of tax until July 2017, provided that we satisfy certain conditions and requirements. If we cannot meet such conditions and requirements, or if the award is not renewed, we would be subject to additional Singapore income tax. This would adversely affect our business and would result in decreased earnings available for distribution to our shareholders.

We may become subject to income or other taxes in the non-U.S. jurisdictions in which our aircraft operate, where our lessees are located or where we perform certain services which would adversely affect our business and result in decreased cash available for distributions to shareholders.

Certain Aircastle entities are expected to be subject to the income tax laws of Ireland, Mauritius, Singapore and the United States. In addition, we may be subject to income or other taxes in other jurisdictions by reason of our activities and operations, where our aircraft operate or where the lessees of our aircraft (or others in possession of our aircraft) are located. Although we have adopted operating procedures to reduce the exposure to such taxation, we may be subject to such taxes in the future and such taxes may be substantial. In addition, if we do not follow separate operating guidelines relating to managing a portion of our aircraft portfolio through offices in Ireland and Singapore, income from aircraft not owned in such jurisdictions would be subject to local tax. Changes in tax law could impose withholding taxes on lease payments during the term of a lease. Our leases typically require our lessees to indemnify us in respect of taxes but some leases may not require such indemnification or a lessee may fail to make such indemnification payment. The imposition of such taxes could adversely affect our business and result in decreased earnings available for distribution to our shareholders.

We expect to continue to be a passive foreign investment company (“PFIC”) and may be a controlled foreign corporation (“CFC”) for U.S. federal income tax purposes.

We expect to continue to be treated as a PFIC and may be a CFC for U.S. federal income tax purposes. If you are a U.S. person and do not make a qualified electing fund (“QEF”) election with respect to us and each of our PFIC subsidiaries, unless we are a CFC and you own 10% of our voting shares, you would be subject to special deferred tax and interest charges with respect to certain distributions on our common shares, any gain realized on a disposition of our common shares and certain other events. The effect of these deferred tax and interest charges could be materially adverse to you. Alternatively, if you are such a shareholder and make a QEF election for us and each of our PFIC subsidiaries, or if we are a CFC and you own 10% or more of our voting shares, you will not be subject to those charges, but could recognize taxable income in a taxable year with respect to our common shares in excess of any distributions that we make to you in that year, thus giving rise to so-called “phantom income” and to a potential out-of-pocket tax liability.

Distributions made to a U.S. person that is an individual will not be eligible for taxation at reduced tax rates generally applicable to dividends paid by certain United States corporations and “qualified foreign corporations” on or after January 1, 2003. The more favorable rates applicable to regular corporate dividends could cause individuals to perceive investment in our shares to be relatively less attractive than investment in the shares of other corporations, which could adversely affect the value of our shares.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

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ITEM 2. PROPERTIES

We lease approximately 19,200 square feet of office space in Stamford, Connecticut for our corporate operations. The lease for the Stamford facility expires in December 2022. We lease approximately 3,380 square feet of office space in Dublin, Ireland and approximately 2,600 square feet of office space in Singapore for our operations in Europe and Asia. The lease for our Irish office expires in June 2016, and the lease for our Singapore office expires in July 2016.

We believe our current facilities are adequate for our current needs and that suitable additional space will be available as and when needed.

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any material legal or adverse regulatory proceedings.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

Executive Officers of the Registrant

Executive officers are elected by our Board of Directors, and their terms of office continue until the next annual meeting of the board or until their successors are elected and have been duly qualified. There are no family relationships among our executive officers.

Set forth below is information pertaining to our executive officers who held office as of February 5, 2016:

Ron Wainshal, 51, became our Chief Executive Officer in May 2005 and a member of our Board in May 2010. Prior to joining Aircastle, Mr. Wainshal was in charge of the Asset Management group of General Electric Capital Aviation Services (“GECAS”) from 2003 to 2005. After joining GECAS in 1998, Mr. Wainshal led many of GECAS’ U.S. airline restructuring efforts and its bond market activities, and played a major marketing and structured finance role in the Americas. Before joining GECAS, he was a principal and co-owner of a financial advisory company specializing in transportation infrastructure from 1994 to 1998 and prior to that held positions at Capstar Partners and The Transportation Group in New York and Ryder System in Miami. He received a BS in Economics from the Wharton School of the University of Pennsylvania and an MBA from the University of Chicago’s Booth Graduate School of Business.

Michael Inglese, 54, became our Chief Financial Officer in April 2007. Prior to joining the Company, Mr. Inglese served as an Executive Vice President and Chief Financial Officer of PanAmSat Holding Corporation, where he served as Chief Financial Officer from June 2000 until the closing of PanAmSat’s sale to Intelsat in July 2006. Mr. Inglese joined PanAmSat in May 1998 as Vice President, Finance after serving as Chief Financial Officer for DIRECTV Japan, Inc. He is a Chartered Financial Analyst who holds a BS in Mechanical Engineering from Rutgers University College of Engineering and his MBA from Rutgers Graduate School of Business Management.

Michael Kriedberg, 54, became our Chief Commercial Officer in April 2013. Prior to joining the Company, Mr. Kriedberg served as an Executive Vice President, Aviation Financing Operations of GECAS from August 2009. From January 2008 to August 2009, Mr. Kriedberg was the Chief Investment Officer of GE Capital Corporation (“GECC”) and President of the Bank Loan Group division of GECC from August 2006 to January 2008. Mr. Kriedberg holds a bachelor degree in Economics from SUNY Albany and a Master’s degree in Accounting from Pace University.

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Christopher L. Beers, 51, became our General Counsel in November 2014. Prior to joining Aircastle, Mr. Beers held senior positions at GE Capital since 2000, including Senior Vice President and Associate General Counsel at GECAS from 2009 to 2014, and Senior Vice President and General Counsel of GE Transportation Finance from 2006 to 2009. Previously, Mr. Beers was a Senior Associate at the law firm of Milbank Tweed Hadley and McCloy in New York City. Mr. Beers holds a BS in Economics from Arizona State University and a JD from Pace Law School.

Joseph Schreiner, 58, became our Executive Vice President, Technical in October 2004. Prior to joining Aircastle, Mr. Schreiner oversaw the technical department at AAR Corp, a provider of products and services to the aviation and defense industries from 1998 to 2004 where he managed aircraft and engine evaluations and inspections, aircraft lease transitions, reconfiguration and heavy maintenance. Prior to AAR, Mr. Schreiner spent 19 years at Boeing (McDonnell-Douglas) in various technical management positions. Mr. Schreiner received a BS from the University of Illinois and an MBA from Pepperdine University.

Aaron Dahlke, 47, became our Chief Accounting Officer in June 2005. Prior to that, Mr. Dahlke was Vice President and Controller of Boullioun Aviation Services Inc. from January 2003 to May 2005. Prior to Boullioun, Mr. Dahlke was at ImageX.com, Inc. and Ernst & Young LLP. He received a B.S. in Accounting from California State University, San Bernardino. He is a Certified Public Accountant.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTER AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common shares are listed for trading on the New York Stock Exchange under the symbol “AYR.” As of February 5, 2016, there were 19,775 record holders of our common shares.

The following table sets forth the quarterly high and low prices of our common shares on the New York Stock Exchange for the periods indicated since our initial public offering and dividends during such periods:



	High		Low		Dividends Declared per Share ($)
Year Ending December 31, 2015:
First Quarter	$	23.82	$	19.64	$	0.220
Second Quarter	$	25.52	$	22.15	$	0.220
Third Quarter	$	24.70	$	18.50	$	0.220
Fourth Quarter	$	23.49	$	19.13	$	0.240

Year Ending December 31, 2014:
First Quarter	$	20.07	$	17.82	$	0.200
Second Quarter	$	19.49	$	16.38	$	0.200
Third Quarter	$	19.55	$	16.36	$	0.200
Fourth Quarter	$	21.58	$	15.73	$	0.220

Our ability to pay, maintain or increase cash dividends to our shareholders is subject to the discretion of our Board of Directors and will depend on many factors, including the difficulty we may experience in raising capital in a market that has experienced significant volatility in recent years and our ability to finance our aircraft acquisition commitments; our ability to negotiate favorable lease and other contractual terms; the level of demand for our aircraft; the economic condition of the commercial aviation industry generally; the financial condition and liquidity of our lessees; the lease rates we are able to charge and realize; our leasing costs; unexpected or increased expenses; the level and timing of capital expenditures; principal repayments and other capital needs; the value of our aircraft portfolio; our compliance with loan to value, debt service coverage, interest rate coverage and other financial covenants in our financings; our results of operations, financial condition and liquidity; general business conditions; restrictions imposed by our securitizations or other financings; legal restrictions on the payment of dividends, including a statutory dividend test and other limitations under Bermuda law; and other factors that our Board of Directors deems relevant. Some of these factors are beyond our control and a change in any such factor could affect our ability to pay dividends on our common shares. In the future we may not choose to pay dividends or may not be able to pay dividends, maintain our current level of dividends, or increase them over time. Increases in demand for our aircraft and operating lease payments may not occur and may not increase our actual cash available for dividends to our common shareholders. The failure to maintain or pay dividends may adversely affect our share price.

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Issuer Purchases of Equity Securities

During the fourth quarter of 2015, we purchased our common shares as follows:



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs^(a)	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs^(a)
	(Dollars in thousands, except per share amounts)
October	—	$	—	—	$	100,000
November	450,905	19.77		450,905	91,086
December	504,330	19.84		504,330	81,079
Total	955,235	$	19.81	955,235	$	81,079

______________

(a) On October 31, 2014, our Board of Directors authorized the repurchase of $100.0 million of the Company’s common shares.

Performance Graph

The following stock performance graph shall not be deemed “filed” with the SEC or subject to Section 18 of the Exchange Act, nor shall it be deemed incorporated by reference in any of our filings under the Securities Act of 1933, as amended.

The following graph compares the cumulative five year total return to holders of our common shares relative to the cumulative total returns of the S&P 500 Index, the S&P Midcap 400 Index, and a customized peer group over the five year period ended December 31, 2015. The peer group consists of three companies: AerCap Holdings NV (NYSE: AER), Air Lease Corporation (NYSE: AL) and FLY Leasing Limited (NYSE: FLY). An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common shares, the S&P 500 Index, the S&P Midcap 400 Index and in the peer group on December 31, 2010, and the relative performance of each is tracked through December 31, 2015. The stock performance shown on the graph below represents historical stock performance and is not necessarily indicative of future stock price performance. We believe that the S&P Midcap 400 Index is more representative of our peers than the S&P 500 Index. In addition, we may utilize the S&P 400 Midcap Index as a performance metric for share-based compensation.

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* $100 invested on 12/31/10 in stock or index, including reinvestment of dividends.



	12/31/15		12/31/14		12/31/13		12/31/12		12/31/11		12/31/10
Aircastle Limited	$	249.87	$	245.41	$	210.79	$	132.08	$	127.29	$	100.00
S&P 500	180.75		178.29		156.82		118.45		102.11		100.00
S&P Midcap 400	166.05		169.75		154.64		115.84		98.27		100.00
Peer Group	186.93		174.05		167.61		85.20		82.53		100.00

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ITEM 6. SELECTED FINANCIAL DATA

The selected historical consolidated financial, operating and other data as of December 31, 2015 and 2014 and for each of the three years in the period ended December 31, 2015 presented in this table are derived from our audited consolidated financial statements and related notes thereto appearing elsewhere in this Annual Report. The selected consolidated financial data as of December 31, 2012 and 2011 presented in this table are derived from our audited consolidated financial statements and related notes thereto, which are not included in this Annual Report. You should read these tables along with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and the related notes thereto included elsewhere in this Annual Report.



	Year Ended December 31,
	2015			2014			2013			2012			2011
	(Dollars in thousands, except share data)
Selected Financial Data:
Consolidated Statements of Income:
Lease rental revenue	$	733,417		$	714,654		$	644,929		$	623,503		$	580,209
Total revenues	819,202			818,602			708,645			686,572			605,197
Selling, general and administrative expenses	56,198			55,773			53,436			48,370			45,953
Depreciation	318,783			299,365			284,924			269,920			242,103
Interest, net	243,577			238,378			243,757			222,808			204,150
Net income	121,729			100,828			29,781			32,868			124,270
Earnings per common share — Basic:
Net income	$	1.50		$	1.25		$	0.40		$	0.46		$	1.64
Earnings per common share — Diluted:
Net income	$	1.50		$	1.25		$	0.40		$	0.46		$	1.64
Cash dividends declared per share	$	0.90		$	0.82		$	0.695		$	0.615		$	0.50

Other Operating Data:
EBITDA	$	707,524		$	658,606		$	600,088		$	546,285		$	594,800
Adjusted EBITDA	832,105			792,283			717,209			647,622			607,870
Adjusted net income	142,271			167,642			59,260			57,009			144,963

Consolidated Statements of Cash Flows:
Cash flows provided by operations	$	526,285		$	458,786		$	424,037		$	427,277		$	359,377
Cash flows used in investing activities	(864,662		)	(861,602		)	(682,933		)	(741,909		)	(445,420		)
Cash flows provided by (used in) financing activities	324,625			(82,141		)	295,292			637,327			141,608

Consolidated Balance Sheet Data:
Cash and cash equivalents	$	155,904		$	169,656		$	654,613		$	618,217		$	295,522
Flight equipment held for lease, net of accumulated depreciation	5,867,062			5,579,718			5,044,410			4,662,661			4,387,986
Net investment in finance and sales-type leases	201,211			106,651			145,173			119,951			—
Total assets	6,569,964			6,175,146			6,199,429			5,757,073			5,188,499
Borrowings from secured and unsecured financings, net of debt issuance costs	4,041,156			3,744,587			3,684,897			3,543,589			2,950,586
Shareholders’ equity	1,779,500			1,720,335			1,645,407			1,415,626			1,404,608

Other Data:
Number of Aircraft (at the end of period)	162			148			162			159			144
Total debt to total capitalization	69.4		%	68.5		%	69.1		%	71.5		%	67.7		%
Total unencumbered assets	$	3,928,230		$	3,510,588		$	3,309,821		$	2,709,915		$	972,471

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We define EBITDA as income (loss) from continuing operations before income taxes, interest expense, 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 years ended December 31, 2015, 2014, 2013, 2012 and 2011.



	Year Ended December 31,
	2015			2014			2013			2012			2011
	(Dollars in thousands)
Net income	$	121,729		$	100,828		$	29,781		$	32,868		$	124,270
Depreciation	318,783			299,365			284,924			269,920			242,103
Amortization of net lease premiums (discounts) and lease incentives	10,664			6,172			32,411			12,844			16,445
Interest, net	243,577			238,378			243,757			222,808			204,150
Income tax provision	12,771			13,863			9,215			7,845			7,832
EBITDA	$	707,524		$	658,606		$	600,088		$	546,285		$	594,800
Adjustments:
Impairment of aircraft	119,835			93,993			117,306			96,454			6,436
Loss on extinguishment of debt	—			36,570			—			—			—
Non-cash share based payment expense	5,537			4,244			4,569			4,232			5,786
Loss (gain) on mark-to-market of interest rate derivative contracts	(791		)	(1,130		)	(4,754		)	(597		)	848
Contract termination expense	—			—			—			1,248			—
Adjusted EBITDA	$	832,105		$	792,283		$	717,209		$	647,622		$	607,870

Management believes that Adjusted Net Income (“ANI”) when viewed in conjunction with the Company’s results under U.S. GAAP and the below reconciliation, provides useful information about operating and period-over-period performance, and provides additional information that is useful for evaluating the underlying operating performance of our business without regard to periodic reporting elements related to interest rate derivative accounting.

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The table below shows the reconciliation of net income to ANI for the years ended December 31, 2015, 2014, 2013, 2012 and 2011.



	Year Ended December 31,
	2015			2014			2013			2012			2011
	(Dollars in thousands)
Net income	$	121,729		$	100,828		$	29,781		$	32,868		$	124,270
Loss on extinguishment of debt⁽²⁾	—			36,570			—			—			—
Ineffective portion and termination of cash flow hedges⁽¹⁾	455			660			2,393			2,893			8,407
Loss (gain) on mark-to-market of interest rate derivative contracts⁽²⁾	(791		)	(1,130		)	(4,754		)	(597		)	848
Loan termination payment⁽¹⁾	—			—			2,954			—			3,196
Write-off of deferred financing fees⁽¹⁾	—			—			3,975			3,034			2,456
Stock compensation expense⁽³⁾	5,537			4,244			4,569			4,232			5,786
Term Financing No. 1 hedge loss amortization charges⁽¹⁾	4,401			14,854			17,843			13,331			—
Securitization No. 1 hedge loss amortization charges⁽¹⁾	10,940			11,616			2,499			—			—
Contract termination expense	—			—			—			1,248			—
Adjusted net income	$	142,271		$	167,642		$	59,260		$	57,009		$	144,963

_____________


(1)	Included in Interest, net.


(2)	Included in Other income (expense).


(3)	Included in Selling, general and administrative expenses.

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ITEM 7. 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 Item 6. “Selected Financial Data” and 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 Item 1A. — “Risk Factors” and elsewhere in this report. Please see “Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995” for a discussion of the uncertainties, risks and assumptions associated with these statements. Our consolidated financial statements are prepared in accordance with 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.

OVERVIEW

We acquire, lease, and sell commercial jet aircraft with large, global operator bases and long useful lives. As of December 31, 2015, our aircraft portfolio consisted of 162 aircraft that were leased to 53 lessees located in 34 countries. We also may occasionally make investments in other aviation assets, including debt investments secured by commercial jet aircraft. Our aircraft fleet is managed by an experienced team based in the United States, Ireland and Singapore. As of December 31, 2015, the net book value of our flight equipment and finance and sales-type lease aircraft was $6.07 billion compared to $5.69 billion at the end of 2014. Our revenues and net income for the year ended December 31, 2015 were $819.2 million and $121.7 million respectively, and for the fourth quarter 2015 were $208.3 million and $50.6 million, respectively.

Revenues

Our revenues are comprised primarily of operating lease rentals on flight equipment held for lease, revenue from retained maintenance payments related to lease expirations, lease termination payments, lease incentive amortization and interest recognized from finance and sales-type leases.

Typically, our aircraft are subject to net leases whereby the lessee pays lease rentals and is generally responsible for maintaining the aircraft and paying operational, maintenance and insurance costs arising during the term of the lease. Our aircraft lease agreements generally provide for the periodic payment of a fixed amount of rent over the life of the lease and the amount of the contracted rent will depend upon the type, age, specification and condition of the aircraft and market conditions at the time the lease is committed. The amount of rent we receive will depend on a number of factors, including the credit-worthiness of our lessees and the occurrence of delinquencies, restructurings and defaults. Our lease rental revenues are also affected by the extent to which aircraft are off-lease and our ability to remarket aircraft that are nearing the end of their leases in order to minimize their off-lease time. Our success in re-leasing aircraft is affected by market conditions relating to our aircraft and by general industry conditions and trends. An increase in the percentage of off-lease aircraft or a reduction in lease rates upon remarketing would negatively impact our revenues.

Under an operating lease, the lessee will be responsible for performing maintenance on the relevant aircraft and will typically be required to make payments to us for heavy maintenance, overhaul or replacement of certain high-value components of the aircraft. These maintenance payments are based on hours or cycles of utilization or on calendar time, depending upon the component, and would be made either monthly in arrears or at the end of the lease term. For maintenance payments made monthly in arrears during a lease term, we will typically be required to reimburse all or a portion of these payments to the lessee upon their completion of the relevant heavy maintenance, overhaul or parts replacement. We record maintenance payments paid by the lessee during a lease as accrued maintenance liabilities in recognition of our obligation in the lease to refund such payments, and therefore we do not recognize maintenance revenue during the lease. Maintenance revenue recognition would occur at the end of a lease, when we are able to determine the amount, if any, by which reserve payments received exceed the amount we are required under the lease to reimburse to the lessee for heavy maintenance, overhaul or parts replacement. The amount of maintenance revenue we recognize in any reporting period is inherently volatile and is dependent upon a number of factors, including the timing of lease expiries, including scheduled and unscheduled expiries, the timing of maintenance events and the utilization of the aircraft by the lessee.

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Many of our leases contain provisions which may require us to pay a portion of the lessee’s costs for heavy maintenance, overhaul or replacement of certain high-value components. We account for these expected payments as lease incentives, which are amortized as a reduction of revenue over the life of the lease. We estimate the amount of our portion for such costs, typically for the first major maintenance event for the airframe, engines, landing gear and auxiliary power units, expected to be paid to the lessee based on assumed utilization of the related aircraft by the lessee, the anticipated cost of the maintenance event and the estimated amounts the lessee is responsible to pay.

This estimated lease incentive is not recognized as a lease incentive liability at the inception of the lease. We recognize the lease incentive as a reduction of lease revenue on a straight-line basis over the life of the lease, with the offset being recorded as a lease incentive liability which is included in maintenance payments on the balance sheet. The payment to the lessee for the lease incentive liability is first recorded against the lease incentive liability and any excess above the lease incentive liability is recorded as a prepaid lease incentive asset which is included in other assets on the balance sheet and continues to amortize over the remaining life of the lease.

Operating Expenses

Operating expenses are comprised of depreciation of flight equipment held for lease, interest expense, selling, general and administrative expenses, aircraft impairment charges and maintenance and other costs. Because our operating lease terms generally require the lessee to pay for operating, maintenance and insurance costs, our portion of maintenance and other costs relating to aircraft reflected in our statement of income primarily relates to expenses for unscheduled lease terminations.

Income Tax Provision

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 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 to any taxes payable by us in respect of real property owned or leased by us in Bermuda. Consequently, the provision for income taxes recorded relates to income earned by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose income taxes, primarily Ireland, Singapore and the United States.

All of our aircraft-owning subsidiaries that are recognized as corporations for U.S. tax purposes are non-U.S. corporations. These non-U.S. subsidiaries generally earn income from sources outside the United States and typically are not subject to U.S. federal, state or local income taxes, unless they operate within the U.S., in which case they may be subject to federal, state and local income taxes. The aircraft owning subsidiaries resident in Ireland, Mauritius and Singapore are subject to tax in those respective jurisdictions.

We have a U.S.-based subsidiary which provides management services to our non-U.S. subsidiaries and is subject to U.S. federal, state and local income taxes. We also have Ireland and Singapore based subsidiaries which provide management services to our non-U.S. subsidiaries and are subject to tax in those respective jurisdictions.

Segments

Acquisitions and Sales

During 2015, we acquired 46 aircraft for $1.42 billion, including 14 aircraft for $384.8 million during the fourth quarter. The average age of the acquired aircraft during 2015 was 5.0 years and the leases had an average remaining lease term of approximately 8.6 years. Of the 46 aircraft purchased during the year, 43 were narrow-bodies.

At December 31, 2015, we had commitments to acquire 35 aircraft for $1.35 billion, including 25 new E-Jet E-2 aircraft from Embraer with delivery beginning in 2018. As of February 5, 2016, we have commitments to acquire 37 aircraft for $1.42 billion.

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During 2015, we sold 31 aircraft for $562.5 million, which resulted in a net gain of $58.0 million. The weighted average age of these aircraft was 15.5 years. We repaid $150.6 million of debt associated with this flight equipment.



					Gain (Loss)
	Number	Weighted			on Sale of
	of	Average Age of	Maintenance		Flight			Transactional			Pre-tax
Year Ended December 31, 2015	Aircraft	Aircraft in Years	Revenue		Equipment			Impairment			Impact

Narrow-body	21	14.8	$	12,334	$	41,410		$	(5,328	)	$	48,416
Wide-body	6	15.9	—		17,948			—			17,948
Freighter	4	18.3	11,412		(1,341		)	(17,852		)	(7,781		)
Total	31	15.5	$	23,746	$	58,017		$	(23,180	)	$	58,583

The following table sets forth certain information with respect to the aircraft owned by us as of December 31, 2015, 2014 and 2013:

AIRCASTLE AIRCRAFT INFORMATION (dollars in millions)



	Owned Aircraft as of December 31, 2015⁽¹⁾			Owned Aircraft as of December 31, 2014⁽¹⁾			Owned Aircraft as of December 31, 2013⁽¹⁾
Flight Equipment Held for Lease	$	6,068		$	5,686		$	5,190
Unencumbered Flight Equipment included in Flight Equipment Held for Lease	$	3,928		$	3,341		$	2,655
Number of Aircraft	162			148			162
Number of Unencumbered Aircraft	118			95			80
Number of Lessees	53			54			64
Number of Countries	34			34			37
Weighted Average Age (years)⁽²⁾	7.5			8.4			9.9
Weighted Average Remaining Lease Term (years)⁽³⁾	5.9			5.4			5.0
Weighted Average Fleet Utilization during the Fourth Quarter⁽⁴⁾	99.7		%	99.9		%	99.5		%
Weighted Average Fleet Utilization for the Year Ended⁽⁴⁾	99.3		%	99.6		%	98.7		%
Portfolio Yield for the Fourth Quarter⁽⁵⁾	12.6		%	13.3		%	13.6		%
Portfolio Yield for the Year Ended⁽⁵⁾	12.6		%	13.3		%	13.6		%

____________


(1)	Calculated using net book value of flight equipment held for lease and net investment in finance and sales-type leases as at period end.


(2)	Weighted average age (years) by net book value.


(3)	Weighted average remaining lease term (years) by net book value.


(4)	Aircraft on-lease days as a percent of total days in period weighted by net book value.


(5)	Lease rental revenue for the period as a percent of the average net book value of flight equipment held for lease for the period.

Our owned aircraft portfolio as of December 31, 2015 is listed in Exhibit 99.1 to this report.

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PORTFOLIO DIVERSIFICATION



	Owned Aircraft as of December 31, 2015				Owned Aircraft as of December 31, 2014
	Number of Aircraft		% of Net Book Value		Number of Aircraft		% of Net Book Value
Aircraft Type
Passenger:
Narrow-body	118		46	%	96		36	%
Wide-body	33		44	%	37		50	%
Total Passenger	151		90	%	133		86	%
Freighter	11		10	%	15		14	%
Total	162		100	%	148		100	%

Manufacturer
Boeing	70		45	%	76		51	%
Airbus	87		53	%	67		46	%
Embraer	5		2	%	5		3	%
Total	162		100	%	148		100	%

Regional Diversification
Asia and Pacific	49		39	%	46		40	%
Europe	64		26	%	65		29	%
South America	22		19	%	13		14	%
Middle East and Africa	9		10	%	6		10	%
North America	17		6	%	17		7	%
Off-lease	1	⁽¹⁾	—	%	1	⁽²⁾	—	%
Total	162		100	%	148		100	%

_______________


(1)	Consisted of one Boeing 777-200ER aircraft that was being marketed for lease at December 31, 2015.


(2)	Consisted of one Airbus A320-200, which was subject to a commitment to lease and was delivered to our customer in February 2015.

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Our largest customer represents 7% of the net book value of flight equipment held for lease (includes net book value of flight equipment held for lease and net investment in finance and sales-type leases) at December 31, 2015. Our top 15 customers for aircraft we owned at December 31, 2015, representing 87 aircraft and 68% of the net book value of flight equipment held for lease, are as follows:



Percent of Net Book Value	Customer	Country	Number of Aircraft
Greater than 6% per customer	Avianca Brazil	Brazil	10
	LATAM	Chile	3
	Lion Air	Indonesia	11

3% to 6% per customer	Iberia	Spain	18
	South African Airways	South Africa	4
	Thai Airways	Thailand	2
	Singapore Airlines	Singapore	4
	Air Asia X	Malaysia	3
	Air Berlin	Germany	12
	Emirates	United Arab Emirates	2
	AirBridge Cargo⁽¹⁾	Russia	2
	Garuda	Indonesia	4
	Air Asia	Malaysia	8

Less than 3% per customer	Virgin Australia	Australia	2
	Avianca	Colombia	2
	Total top 15 customers		87
	All other customers		75
	Total all customers		162

(1) Guaranteed by Volga-Dnepr Airlines. If combined with one other affiliated customer, the two customers represents 5% of flight equipment held for lease.

Finance

Aircastle Limited is a publicly listed company and our shares have been trading on the New York Stock Exchange since August 2006. Since our inception in late 2004, we raised approximately $1.7 billion in equity capital from private and public investors. We also obtained $11.7 billion in debt capital from a variety of sources including export credit agency-backed debt, commercial bank debt, the aircraft securitization markets and the unsecured bond market. The diversity and global nature of our financing sources demonstrates 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, secured borrowings for aircraft, draws on our Revolving Credit Facility 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 — Secured Debt Financings” and ”Liquidity and Capital Resources — Unsecured Debt Financings” below.

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Comparison of the year ended December 31, 2015 to the year ended December 31, 2014:



	Year Ended December 31,
	2015			2014
	(Dollars in thousands)
Revenues:
Lease rental revenue	$	733,417		$	714,654
Finance and sales-type lease revenue	7,658			10,906
Amortization of net lease discounts and lease incentives	(10,664		)	(6,172		)
Maintenance revenue	71,049			88,006
Total lease rentals	801,460			807,394
Other revenue	17,742			11,208
Total revenues	819,202			818,602
Expenses:
Depreciation	318,783			299,365
Interest, net	243,577			238,378
Selling, general and administrative	56,198			55,773
Impairment of aircraft	119,835			93,993
Maintenance and other costs	11,502			7,239
Total operating expenses	749,895			694,748
Other income (expense):
Gain on sale of flight equipment	58,017			23,146
Loss on extinguishment of debt	—			(36,570		)
Other	919			1,207
Total other income (expense)	58,936			(12,217		)
Income from continuing operations before income taxes	128,243			111,637
Income tax provision	12,771			13,863
Earnings of unconsolidated equity method investment, net of tax	6,257			3,054
Net income	$	121,729		$	100,828

Revenues:

Total revenues increased by $0.6 million for the year ended December 31, 2015 as compared to the year ended December 31, 2014, primarily as a result of the following:

Lease rental revenue. The increase in lease rental revenue of $18.8 million for the year ended December 31, 2015 as compared to the same period in 2014 was primarily the result of $171.1 million of revenue consisting of $97.4 million, reflecting the full year impact of 31 aircraft purchased in 2014, and $73.7 million, reflecting the partial year impact of 42 aircraft purchased in 2015.

This increase was offset partially by a decrease in revenue of:


•	$118.6 million, consisting of $67.5 million due to the sale of 41 aircraft in 2014 and $51.1 million from the sale of 29 aircraft in 2015;


•	$27.1 million due to lease extensions, amendments and transitions; and


•	$6.6 million from the effect of lease terminations and other changes.

Finance and sales-type lease revenue. For the year ended December 31, 2015, $7.7 million of interest income from finance and sales-type leases was recognized as compared to $10.9 million of interest income from finance and sales-type

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leases recorded for the same period in 2014 due to the sale of three aircraft during 2015 and six aircraft during 2014, partially offset by the addition of six aircraft in 2015.

Amortization of net lease discounts and lease incentives.



	Year Ended December 31,
	2015			2014
	(Dollars in thousands)
Amortization of lease incentives	$	(9,897	)	$	(6,584	)
Amortization of lease premiums	(10,922		)	(9,099		)
Amortization of lease discounts	10,155			9,511
Amortization of net lease discounts and lease incentives	$	(10,664	)	$	(6,172	)

As more fully described above under “Revenues,” lease incentives represent our estimated portion of the lessee’s cost for heavy maintenance, overhaul or replacement of certain high-value components which is amortized over the life of the related lease. As we enter into new leases, the amortization of lease incentives generally increases and, conversely, if a related lease terminates, the related unused lease incentive liability will reduce the amortization of lease incentives. The increase in amortization of lease incentives of $3.3 million for the year ended December 31, 2015 as compared to the same period in 2014 was primarily attributable to $7.1 million of lease incentive amortization related to aircraft that were transitioned during the year ended December 31, 2015, partially offset by the reversal of $4.5 million of lease incentive amortization related to the early termination of one lease.

As more fully described above under “Revenues,” lease premiums represent the present value of the amount above current lease rates for acquired aircraft with attached leases. The increase in amortization of lease premiums of $1.8 million for the year ended December 31, 2015 as compared to the same period in 2014 resulted primarily from 11 aircraft purchased during 2015 and 13 aircraft purchased during 2014.

Maintenance revenue.



	Year Ended December 31,
	2015			2014
	Dollars (in thousands)		Number of Leases	Dollars (in thousands)		Number of Leases
Unscheduled lease terminations	$	9,055	1	$	45,373	10
Scheduled lease terminations	61,994		17	42,633		25
Maintenance revenue	$	71,049	18	$	88,006	35

Unscheduled lease terminations. For the year ended December 31, 2015, we recorded maintenance revenue totaling $9.1 million from unscheduled lease terminations related to one aircraft returned in 2015. Comparatively, for the same period in 2014, we recorded maintenance revenue totaling $45.4 million from unscheduled lease terminations associated with ten aircraft returned in 2014.

Scheduled lease terminations. For the year ended December 31, 2015, we recorded maintenance revenue from scheduled lease terminations totaling $62.0 million associated with 17 aircraft returned in 2015. Comparatively, for the same period in 2014, we recorded $42.6 million, associated with maintenance revenue from 25 scheduled lease terminations.

Other revenue was $17.7 million during the year ended December 31, 2015, which was primarily due to $12.9 million recognized in additional fees paid by lessees in connection with early termination of leases, $3.2 million in fees related to other lease revenue and $1.5 million in administrative fees from the joint venture with Teachers’. For the year ended December 31, 2014, other revenue was $11.2 million, which was primarily due to $10.2 million recognized in additional fees paid by lessees in connection with early termination of leases and $1.0 million in administrative fees from the joint venture with Teachers’.

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Operating Expenses:

Total operating expenses increased by 7.9%, or $55.1 million, for the year ended December 31, 2015 as compared to the year ended December 31, 2014 primarily as a result of the following:

Depreciation expense increased by $19.4 million for the year ended December 31, 2015 over the same period in 2014. The net increase is primarily the result of:


•	a $56.4 million increase in depreciation for aircraft acquired;


•	a $10.3 million increase due to changes to asset lives and residual values; and


•	a $5.5 million increase due to capitalized aircraft improvements.

This increase was offset by a $52.8 million decrease in depreciation for aircraft sales.

Interest, net consisted of the following:



	Year Ended December 31,
	2015			2014
	(Dollars in thousands)
Interest on borrowings, net settlements on interest rate derivatives, and other liabilities	$	204,326		$	189,135
Hedge ineffectiveness losses	455			738
Amortization of interest rate derivatives related to deferred losses	24,023			34,979
Amortization of deferred financing fees and notes discount	14,878			13,961
Interest Expense	243,682			238,813
Less interest income	(105		)	(435		)
Interest, net	$	243,577		$	238,378

Interest, net increased by $5.2 million, or 2.2% over the twelve months ended December 31, 2014. This increase was due to higher interest of $15.2 million primarily resulting from higher weighted average debt outstanding for the twelve months ended December 31, 2015 versus the prior year, offset primarily by lower amortization of interest rate derivatives related to deferred losses of $11.0 million.

Selling, general and administrative expenses for the year ended December 31, 2015 increased by $0.4 million over the same period in 2014 due primarily to an increase in personnel costs and professional services. Non-cash share based expense was $5.5 million and $4.2 million for the years ended December 31, 2015 and 2014, respectively.

Impairment of aircraft was $119.8 million during the year ended December 31, 2015. See “Summary of Impairments and Recoverability Assessment” below for a detailed discussion of the related impairment charge for these aircraft. Impairment of aircraft was $94.0 million during the year ended December 31, 2014.

Maintenance and other costs were $11.5 million for the year ended December 31, 2015, an increase of $4.3 million over the same period in 2014. The net increase is primarily related to higher maintenance costs of $1.3 million related to scheduled terminations and $4.1 million related to unscheduled terminations and transitions, partially offset by a decrease in other costs of $1.2 million for the year ended December 31, 2015 versus the same period in 2014.

Other Income:

Total other income (expense) for the year ended December 31, 2015 was $58.9 million of income as compared to $12.2 million of expense versus the same period in 2014. The increase of $71.2 million is primarily a result of:

Gain on sale of flight equipment increased $34.9 million in 2015 resulting from gains of $58.0 million on sales of 31 aircraft primarily driven by strong investor demand during the period versus gains of $23.1 million on sales of 49 aircraft in 2014.

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					Gain (Loss)
	Number	Weighted			on Sale of
	of	Average Age of	Maintenance		Flight			Transactional			Pre-tax
Year Ended December 31, 2015	Aircraft	Aircraft in Years	Revenue		Equipment			Impairment			Impact

Narrow-body	21	14.8	$	12,334	$	41,410		$	(5,328	)	$	48,416
Wide-body	6	15.9	—		17,948			—			17,948
Freighter	4	18.3	11,412		(1,341		)	(17,852		)	(7,781		)
Total	31	15.5	$	23,746	$	58,017		$	(23,180	)	$	58,583

Loss on extinguishment of debt of $36.6 million in 2014 relates to the early payment of our 9.75% Senior Notes due 2018 in April, 2014. We did not record any loss on extinguishment of debt in 2015.

Income Tax Provision:

Our provision for income taxes for the years ended December 31, 2015 and 2014 was $12.8 million and $13.9 million, respectively. Income taxes have been provided based on the applicable tax laws and rates of those countries in which operations are conducted and income is earned, primarily Ireland, Singapore and the United States. The decrease in our income tax provision of approximately $1.1 million for the year ended December 31, 2015 as compared to the same period in 2014 was primarily attributable to changes in operating income subject to tax in Ireland, Singapore, the United States and other jurisdictions.

All of our aircraft-owning subsidiaries that are recognized as corporations for U.S. tax purposes are non-U.S. corporations. These non-U.S. subsidiaries generally earn income from sources outside the United States and typically are not subject to U.S. federal, state or local income taxes unless they operate within the U.S., in which case they may be subject to federal, state and local income taxes. The aircraft owning subsidiaries resident in Ireland, Mauritius and Singapore are subject to tax in those respective jurisdictions.

We have a U.S.-based subsidiary which provides management services to our non-U.S. subsidiaries and is subject to U.S. federal, state and local income taxes. In addition, we have Ireland and Singapore based subsidiaries which provide management services to our non-U.S. subsidiaries and are subject to tax in those respective jurisdictions.

The Company received an assurance from the Bermuda Minister of Finance that it would be exempted from local income, withholding and capital gains taxes until March 2035. Consequently, the provision for income taxes recorded relates to income earned by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose income taxes, primarily the United States and Ireland.

Other Comprehensive Income:



	Year Ended December 31,
	2015		2014
	(Dollars in thousands)
Net income	$	121,729	$	100,828
Net change in fair value of derivatives, net of tax expense of $35 and $828, respectively	1,224		2,466
Derivative loss reclassified into earnings	24,023		34,979
Total comprehensive income	$	146,976	$	138,273

Other comprehensive income was $147.0 million for the year ended December 31, 2015, an increase of $8.7 million from the $138.3 million of other comprehensive income for the year ended December 31, 2014. Other comprehensive income for the year ended December 31, 2015 primarily consisted of:


•	$121.7 million of net income;

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•	a $1.2 million gain from a change in fair value of interest rate derivatives, net of taxes, which is due primarily to net settlements for the year ended December 31, 2015, including a slight gain due to an upward shift in the 1 Month LIBOR forward curve; and


•	$24.0 million of amortization of deferred net losses reclassified into earnings primarily related to terminated interest rate derivatives.

Other comprehensive income for the year ended December 31, 2014 primarily consisted of:


•	$100.8 million of net income;


•	a $2.5 million gain from a change in fair value of interest rate derivatives, net of taxes, which is due primarily to net settlements for the year ended December 31, 2014 partially offset by a slight loss due to a downward shift in the 1 Month LIBOR forward curve; and


•	$35.0 million of amortization of deferred net losses reclassified into earnings primarily related to terminated interest rate derivatives.

Summary of Impairments and Recoverability Assessment

Annual Fleet-Wide Review

We perform our annual fleet-wide recoverability assessment during the third quarter. This recoverability assessment is a comparison of the carrying value of each aircraft to its undiscounted expected future cash flows. We develop the assumptions used in the recoverability assessment, including those relating to current and future demand for each aircraft type, based on management’s experience in the aircraft leasing industry, as well as information received from third party sources. Estimates of the undiscounted cash flows for each aircraft type are impacted by changes in contracted and future expected lease rates, residual values, expected scrap values, economic conditions and other factors.

In our 2015 assessment, we reduced forecasted future cash flows for our six Boeing 747-400 converted freighter aircraft not subject to sales agreements, all of which are more than twenty years old. Our new forecast reflects the persisting glut of supply in the air cargo market resulting from weak growth in demand combined with the growth in capacity arising from new production air freighters and higher belly capacity in latest generation wide-body passenger aircraft. In addition to these market-wide impacts, our older freighters were affected specifically by the imposition of age limits in certain countries and by lower utilization levels.

As a result, we determined that each of our older converted freighter aircraft was on its last lease, and we reduced our residual value assumptions for these aircraft and expect to scrap them following lease expiry. During the third quarter of 2015, we therefore impaired four of these aircraft, which had an aggregate net book value as of August 31, 2015 of $115.9 million, writing down their book values by a total of $34.6 million, with a fair value date of September 1, 2015. For one of these aircraft, we recorded maintenance revenue of $5.9 million, as we no longer plan to reinvest these funds.

In the 2014 assessment, we determined that the cash flows expected to be generated by two of our McDonnell Douglas MD-11 freighter aircraft did not support their carrying values. As a result, during the third quarter of 2014, we impaired these two aircraft, which had an aggregate net book value as of June 30, 2014 of $53.8 million, writing down their book values by a total of $19.5 million. We also shortened their expected lives from 25 to 21 years and reduced their residual values.

Other Impairments

In December 2015, one of our Airbus A330-300 aircraft was returned to us early as a result of a lease termination. We elected not to reinvest in certain major maintenance needed to release this aircraft and instead have classified it as held for sale. As a result, we recorded an impairment of $16.9 million for this aircraft, partially offset by maintenance revenue of $9.1 million, reversed lease incentives of $4.5 million and other revenue of $1.8 million.

In September 2015, MAS informed us that it was effectively rejecting the lease on our Boeing 777-200ER aircraft as part of its restructuring. This aircraft, which was manufactured in 1998, was the only aircraft we had on lease to MAS. We repossessed it in October 2015. We reduced the carrying value of this aircraft to our best estimate of scrap value. While we had not decided to dispose of the aircraft, this write-down was driven by weak overall demand tor older wide-body aircraft, an increase in the supply of competing aircraft and the difficulty of recovering high redeployment costs given the

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proliferation of aircraft age limits across the world. This write-down resulted in an impairment of $37.8 million, partially offset by $1.2 million of other revenue from a letter of credit we drew following the lease rejection.

Also in September 2015, we modified the lease agreement with respect to one Airbus A321-200 aircraft. We elected not to reinvest in certain major maintenance events during the lease term, and the lessee agreed to release its rights to certain maintenance payments. As a result, we recorded an impairment of $6.1 million and maintenance revenue of $7.1 million for this aircraft.

In the second quarter of 2015, we impaired two McDonnell Douglas MD-11 freighter aircraft and one Boeing 737-800 aircraft and recorded impairment charges totaling $24.0 million and maintenance revenue of $18.2 million.

During 2014, we impaired three Boeing 747-400 converted freighter aircraft, two Boeing 737-400 aircraft, two Airbus A320-200 aircraft and one Boeing 757-200 aircraft and recorded impairment charges totaling $73.6 million. For these aircraft, we recorded maintenance revenue of $51.6 million and other revenue of $0.7 million and reversed lease incentives of $4.1 million.

Other than the aircraft discussed above, management believes that the net book value of each of our aircraft is currently supported by the estimated future undiscounted cash flows expected to be generated by that aircraft, and accordingly, no other aircraft were impaired as a consequence of this recoverability assessment. However, if our estimates or assumptions change, we may revise our cash flow assumptions and record future impairment charges. While we believe that the estimates and related assumptions used in the recoverability assessment are appropriate, actual results could differ from those estimates.

Aircraft Monitoring List

At December 31, 2015, we considered six freighter aircraft and three passenger aircraft with a total net book value of $209.4 million to be more susceptible to failing our recoverability assessments due to their sensitivity to changes in contractual cash flows, future cash flow estimates and aircraft residual or scrap values.

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Comparison of the year ended December 31, 2014 to the year ended December 31, 2013:



	Year Ended December 31,
	2014			2013
	(Dollars in thousands)
Revenues:
Lease rental revenue	$	714,654		$	644,929
Finance and sales-type lease revenue	10,906			16,165
Amortization of net lease discounts and lease incentives	(6,172		)	(32,411		)
Maintenance revenue	88,006			68,342
Total lease rentals	807,394			697,025
Other revenue	11,208			11,620
Total revenues	818,602			708,645
Expenses:
Depreciation	299,365			284,924
Interest, net	238,378			243,757
Selling, general and administrative	55,773			53,436
Impairment of aircraft	93,993			117,306
Maintenance and other costs	7,239			13,631
Total operating expenses	694,748			713,054
Other income (expense):
Gain on sale of flight equipment	23,146			37,220
Loss on extinguishment of debt	(36,570		)	—
Other	1,207			6,132
Total other income (expense)	(12,217		)	43,352
Income from continuing operations before income taxes and earnings of unconsolidated equity method investment	111,637			38,943
Income tax provision	13,863			9,215
Earnings of unconsolidated equity method investment, net of tax	3,054			53
Net income	$	100,828		$	29,781

Revenues:

Total revenues increased by 15.5%, or $110.0 million, for the year ended December 31, 2014 as compared to the year ended December 31, 2013, primarily as a result of the following:

Lease rental revenue. The increase in lease rental revenue of $69.7 million for the year ended December 31, 2014 as compared to the same period in 2013 was primarily the result of:


•	$158.7 million of revenue reflecting the full year impact of 17 aircraft purchased in 2013 and the impact of 34 aircraft purchased in 2014; and


•	$10.6 million due to lease extensions, amendments and transitions.

This increase was offset partially by a decrease in lease rental revenue of:


•	$92.4 million due to aircraft sales; and


•	$7.2 million from the effect of lease terminations and other changes.

Finance and sales-type lease revenue. For the year ended December 31, 2014, $10.9 million of interest income from finance and sales-type leases was recognized as compared to $16.2 million of interest income from finance and sales-type leases recorded for the same period in 2013 due to the sale of six aircraft during the second quarter of 2014.

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Amortization of net lease discounts and lease incentives.



	Year Ended December 31,
	2014			2013
	(Dollars in thousands)
Amortization of lease incentives	$	(6,584	)	$	(25,356	)
Amortization of lease premiums	(9,099		)	(9,003		)
Amortization of lease discounts	9,511			1,948
Amortization of net lease discounts and lease incentives	$	(6,172	)	$	(32,411	)

As more fully described above under “Revenues,” lease incentives represent our estimated portion of the lessee’s cost for heavy maintenance, overhaul or replacement of certain high-value components which is amortized over the life of the related lease. As we enter into new leases, the amortization of lease incentives generally increases and, conversely, if a related lease terminates, the related unused lease incentive liability will reduce the amortization of lease incentives. The decrease in amortization of lease incentives of $18.8 million primarily resulted from five unscheduled lease transitions, two scheduled lease transitions and one change in lease incentive estimate as compared with ten unscheduled lease transitions, three scheduled lease transitions, and one change in lease incentive estimate in 2013.

As more fully described above under “Revenues,” lease discounts represent the present value of the amount below current lease rates for acquired aircraft with attached leases. The increase in amortization of lease discounts of $7.6 million for the year ended December 31, 2014 as compared to the same period in 2013 primarily resulted from additional amortization on six aircraft purchased in 2014 and the full year amortization from four aircraft purchased in 2013.

Maintenance revenue.



	Year Ended December 31,
	2014			2013
	Dollars (in thousands)		Number of Leases	Dollars (in thousands)		Number of Leases
Unscheduled lease terminations	$	45,373	10	$	47,734	10
Scheduled lease terminations	42,633		25	20,608		7
Maintenance revenue	$	88,006	35	$	68,342	17

Unscheduled lease terminations. For the year ended December 31, 2014, we recorded maintenance revenue totaling $45.4 million from unscheduled lease terminations primarily associated with ten aircraft returned in 2014. Comparatively, for the same period in 2013, we recorded maintenance revenue totaling $47.7 million from unscheduled lease terminations associated with ten aircraft returned in 2013.

Scheduled lease terminations. For the year ended December 31, 2014, we recorded maintenance revenue from scheduled lease terminations totaling $42.6 million associated with 25 aircraft. Comparatively, for the same period in 2013, we recorded $20.6 million, associated with maintenance revenue from seven scheduled lease terminations.

Other revenue was $11.2 million during the year ended December 31, 2014, which was primarily due to $10.2 million recognized in additional fees paid by lessees in connection with early termination of leases. For the year ended December 31, 2013, other revenue was $11.6 million, which was primarily due to $9.9 million recognized in additional fees paid by lessees in connection with the early termination of leases.

Operating Expenses:

Total operating expenses decreased by 2.6%, or $18.3 million, for the year ended December 31, 2014 as compared to the year ended December 31, 2013 primarily as a result of the following:

Depreciation expense increased by $14.4 million for the year ended December 31, 2014 over the same period in 2013. The net increase is primarily the result of:

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•	a $54.1 million increase in depreciation for aircraft acquired; and


•	a $3.7 million increase due to changes to asset lives and residual values.

This increase was offset by:


•	a $40.8 million decrease in depreciation for aircraft sales; and


•	a $2.6 million decrease due to capitalized aircraft improvements being fully depreciated.

Interest, net consisted of the following:



	Year Ended December 31,
	2014			2013
	(Dollars in thousands)
Interest on borrowings, net settlements on interest rate derivatives, and other liabilities⁽¹⁾	$	189,135		$	196,176
Hedge ineffectiveness losses	738			371
Amortization of interest rate derivatives related to deferred losses	34,979			33,265
Amortization of deferred financing fees and notes discount⁽²⁾	13,961			14,719
Interest Expense	238,813			244,531
Less: Interest income	(435		)	(774		)
Interest, net	$	238,378		$	243,757

______________


(1)	For the year ended December 31, 2013, includes the loan termination fee of $2,954 related to two ECA financed aircraft sold in June 2013.


(2)	For the year ended December 31, 2013, includes the write-off of deferred financing fees of $3,975 related to the repayment of two ECA Financings.

Interest, net decreased by $5.4 million, or 2.2%, over the year ended December 31, 2013. The net decrease was primarily a result of:


•	a $7.0 million decrease in interest expense on our borrowings driven by loan breakage fees of $3.0 million in connection with the early repayment of two ECA loans in 2013 and a $4.0 million decrease due primarily to a lower weighted average interest rate on our borrowings; and


•	a $0.8 million decrease in amortization of deferred financing fees primarily due to the write-off of fees related to the early repayment of two ECA loans in June 2013.

These decreases were partially offset by a $1.7 million increase in amortization of deferred losses related to terminated interest rate derivatives reflecting the repayment of Securitization No. 1.

Selling, general and administrative expenses for the year ended December 31, 2014 increased by $2.3 million or 4.4% over the same period in 2013 primarily due to an increase in personnel costs. Non-cash share based expense was $4.2 million and $4.6 million for the years ended December 31, 2014 and 2013, respectively.

Impairment of aircraft was $94.0 million during the year ended December 31, 2014 and $117.3 million during the year ended December 31, 2013. See “Summary of Impairments and Recoverability Assessment” above for a detailed discussion of the related impairment charge for these aircraft.

Maintenance and other costs were $7.2 million for the year ended December 31, 2014, a decrease of $6.4 million over the same period in 2013. The net decrease was primarily related to lower maintenance costs of $3.4 million related to unscheduled terminations for the year ended December 31, 2013 and $3.6 million related to scheduled terminations versus the same period in 2013. This decrease was partially offset by an increase of $0.6 million in maintenance costs attributable to scheduled terminations and returns as well as other routine costs such as inspections.

Other Income (Expense):

Total other income (expense) for the year ended December 31, 2014 was $12.2 million expense as compared to $43.4 million of income the same period in 2013. The decrease of $55.6 million was primarily a result of:

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Gain on sale of flight equipment decreased $14.1 million in 2014 resulting from gains of $23.1 million on sales of 49 aircraft versus gains of $37.2 million on sales of 22 aircraft in 2013.



		Weighted					Gain (Loss)
	Number	Average Age			Lease		on Sale
	of	of Aircraft	Maintenance		Incentive		of Flight						Pre-tax
Year Ended December 31, 2014	Aircraft	in Years	Revenue		Revenue⁽¹⁾		Equipment			Impairment			Impact

Narrow-body	28	14.3	$	45,106	$	776	$	4,743		$	(11,952	)	$	38,673
Wide-body	14	8.7	2,930		—		18,615			—			21,545
Freighter⁽²⁾	7	23.1	20,401		3,626		(212		)	(43,865		)	(20,050		)
Total	49	11.7	$	68,437	$	4,402	$	23,146		$	(55,817	)	$	40,168


(1)	Included in Amortization of lease premiums, discounts and lease incentives on our Consolidated Statement of Income.


(2)	Two Boeing 747-400 converted freighters included in Flight held for sale in Other assets on our Consolidated Balance Sheet.

Loss on extinguishment of debt of $36.6 million related to the early payment of our 9.75% Senior Notes due 2018 in April, 2014.

Other decreased by $4.9 million, primarily related to the mark-to-market value of an undesignated interest rate derivative.

Income Tax Provision:

Our provision for income taxes for the years ended December 31, 2014 and 2013 was $13.9 million and $9.2 million, respectively. Income taxes have been provided based on the applicable tax laws and rates of those countries in which operations are conducted and income is earned, primarily Ireland, Singapore and the United States. The increase in our income tax provision of $4.6 million for the year ended December 31, 2014 as compared to the same period in 2013, was primarily attributable to changes in operating income subject to tax in Ireland, Singapore, the U.S. and other jurisdictions. The loss on extinguishment of debt in 2014 of $36.6 million related to Bermuda operations and provided no tax benefit. The impairment charge in 2013 of $117.3 million was related to Bermuda and Ireland, which resulted in a $2.0 million Irish tax benefit.

The Company received an assurance from the Bermuda Minister of Finance that it would be exempted from local income, withholding and capital gains taxes until March 2035. Consequently, the provision for income taxes recorded related to income earned by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose income taxes, primarily the United States and Ireland.

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Other Comprehensive Income:



	Year Ended December 31,
	2014		2013
	(Dollars in thousands)
Net income	$	100,828	$	29,781
Net change in fair value of derivatives, net of tax expense of $828 and $482, respectively	2,466		17,120
Derivative loss reclassified into earnings	34,979		33,265
Total comprehensive income	$	138,273	$	80,166

Other comprehensive income was $138.3 million for the year ended December 31, 2014, an increase of $58.1 million from the $80.2 million of other comprehensive income for the year ended December 31, 2013. Other comprehensive income for the year ended December 31, 2014 primarily consisted of:


•	$100.8 million of net income;


•	a $2.5 million gain from a change in fair value of interest rate derivatives, net of taxes, which was due primarily to net settlements for the year ended December 31, 2014 partially offset by a slight loss due to a downward shift in the 1 Month LIBOR forward curve; and


•	$35.0 million of amortization of deferred net losses reclassified into earnings primarily related to terminated interest rate derivatives.

Other comprehensive income for the year ended December 31, 2013 primarily consisted of:


•	$29.8 million of net income;


•	a $17.1 million gain from a change in fair value of interest rate derivatives, net of taxes, which is due primarily to net settlements for the year ended December 31, 2013 partially offset by a slight downward shift in the 1 Month LIBOR forward curve; and


•	$33.3 million of amortization of deferred net losses reclassified into earnings related to terminated interest rate derivatives.

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying footnotes. Our estimates and assumptions are based on historical experiences and currently available information. Actual results may differ from such estimates under different conditions, sometimes materially. A summary of our significant accounting policies is presented in the notes to our consolidated financial statements included elsewhere in this Annual Report. Critical accounting policies and estimates are defined as those that are both most important to the portrayal of our financial condition and results and require our most subjective judgments, estimates and assumptions. Our most critical accounting policies and estimates are described below.

Lease Revenue Recognition

Our operating lease rentals are recognized on a straight-line basis over the term of the lease. We will neither recognize revenue nor record a receivable from a customer when collectability is not reasonably assured. Estimating whether collectability is reasonably assured requires some level of subjectivity and judgment. When collectability is not reasonably assured, the customer is placed on non-accrual status and revenue is recognized when cash payments are received. Management determines whether customers should be placed on non-accrual status. When we are reasonably assured that payments will be received in a timely manner, the customer is placed on accrual status. The accrual/non-accrual status of a customer is maintained at a level deemed appropriate based on factors such as the customer’s credit rating, payment performance, financial condition and requests for modifications of lease terms and conditions. Events or circumstances outside of historical customer patterns can also result in changes to a customer’s accrual status.

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Maintenance Payments and Maintenance Revenue

Under our leases, the lessee must pay operating expenses accrued or payable during the term of the lease, which would normally include maintenance, overhaul, fuel, crew, landing, airport and navigation charges; certain taxes, licenses, consents and approvals; aircraft registration; and insurance premiums. Typically, our aircraft are subject to net operating leases whereby the lessee pays lease rentals and is generally responsible for maintaining the aircraft and paying operational, maintenance and insurance costs, although in a majority of cases, we are obligated to pay a portion of specified maintenance or modification costs. Our aircraft lease agreements generally provide for the periodic payment of a fixed amount of rent over the life of the lease, and the amount of the contracted rent will depend upon the type, age, specification and condition of the aircraft and market conditions at the time the lease is committed. The amount of rent we receive will depend on a number of factors, including the credit-worthiness of our lessees and the occurrence of delinquencies, restructurings and defaults. Our lease rental revenues are also affected by the extent to which aircraft are off-lease and our ability to remarket aircraft that are nearing the end of their leases in order to minimize their off-lease time. Our success in re-leasing aircraft is affected by market conditions relating to our aircraft and by general industry conditions and trends. An increase in the percentage of off-lease aircraft or a reduction in lease rates upon remarketing would negatively impact our revenues.

Under an operating lease, the lessee will be responsible for performing maintenance on the relevant aircraft and will typically be required to make payments to us for heavy maintenance, overhaul or replacement of certain high-value components of the aircraft. These maintenance payments are based on hours or cycles of utilization or on calendar time, depending upon the component, and would be made either monthly in arrears or at the end of the lease term. For maintenance payments made monthly in arrears during a lease term, we will typically be required to reimburse all or a portion of these payments to the lessee upon completion of the relevant heavy maintenance, overhaul or parts replacement. We record maintenance payments paid by the lessee during a lease as accrued maintenance liabilities in recognition of our obligation in the lease to refund such payments, and therefore we do not recognize maintenance revenue during the lease. Maintenance revenue recognition would occur at the end of a lease, when we are able to determine the amount, if any, by which reserve payments received exceed the amount we are required under the lease to reimburse to the lessee for heavy maintenance, overhaul or parts replacement. If a lease requires end of lease term maintenance payments, typically the lessee would be required to pay us for its utilization of the aircraft during the lease; however, in some cases, we may owe a net payment to the lessee in the event heavy maintenance is performed and paid for by the lessee during the lease term and the aircraft is returned to us in better condition that at lease inception. End of lease term maintenance payments made to us are recognized as maintenance revenue, and end of lease term maintenance payments we make to a lessee are recorded as contra maintenance revenue.

The amount of maintenance revenue or contra maintenance revenue we recognize in any reporting period is inherently volatile and is dependent upon a number of factors, including the timing of lease expiries, including scheduled and unscheduled expiries, the timing of maintenance events and the utilization of the aircraft by the lessee.

Lease Incentives and Amortization

This estimated lease incentive is not recognized as a lease incentive liability at the inception of the lease. We recognize the lease incentive as a reduction of lease revenue on a straight-line basis over the life of the lease, with the offset being recorded as a lease incentive liability, which is included in maintenance payments on the balance sheet. The payment to the lessee for the lease incentive liability is first recorded against the lease incentive liability, and any excess above the lease incentive liability is recorded as a prepaid lease incentive asset, which is included in other assets on the balance sheet and continues to amortize over the remaining life of the lease.

Flight Equipment Held for Lease and Depreciation

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on whether the aircraft is a converted or purpose-built freighter, to estimated residual values. Estimated residual values are generally determined to be approximately 15% of the manufacturer’s estimated realized price for passenger aircraft when new and 5% to 10% for freighter aircraft when new. Management may 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 value. Examples of situations where exceptions may arise include but are not limited to:


•	flight equipment where estimates of the manufacturers’ realized sales prices are not relevant (e.g., freighter conversions);


•	flight equipment where estimates of the manufacturers’ realized sales prices are not readily available; and


•	flight equipment which may have a shorter useful life due to obsolescence.

In accounting for flight equipment held for lease, we make estimates about the expected useful lives, the fair value of attached leases, acquired maintenance liabilities and the estimated residual values. In making these estimates, we rely upon actual industry experience with the same or similar aircraft types and our anticipated utilization of the aircraft. As part of our due diligence review of each aircraft we purchase, we prepare an estimate of the expected maintenance payments and any excess costs which may become payable by us, taking into consideration the then-current maintenance status of the aircraft and the relevant provisions of any existing lease.

For planned major maintenance activities for aircraft off-lease, the Company capitalizes the actual maintenance costs by applying the deferral method. Under the deferral method, we capitalize the actual cost of major maintenance events, which are depreciated on a straight-line basis over the period until the next maintenance event is required.

When we acquire an aircraft with a lease, determining the fair value of the attached lease requires us to make assumptions regarding the current fair values of leases for specific aircraft. We estimate a range of current lease rates of like aircraft in order to determine if the attached lease is within a fair value range. If a lease is below or above the range of current lease rates, we present value the estimated amount below or above fair value range over the remaining term of the lease. The resulting lease discount or premium is amortized into lease rental income over the remaining term of the lease.

Impairment of Flight Equipment

We perform a recoverability assessment of all aircraft in our fleet, on an aircraft-by-aircraft basis, at least annually. In addition, a recoverability assessment is performed whenever events or changes in circumstances, or indicators, indicate that the carrying amount or net book value of an asset may not be recoverable. Indicators may include, but are not limited to, a significant lease restructuring or early lease termination, significant air traffic decline, the introduction of newer technology aircraft or engines, an aircraft type is no longer in production or a significant airworthiness directive is issued. When we perform a recoverability assessment, we measure whether the estimated future undiscounted net cash flows expected to be generated by the aircraft exceed its net book value. The undiscounted cash flows consist of cash flows from currently contracted leases, future projected lease rates, transition costs, estimated down time and estimated residual or scrap values for an aircraft. In the event that an aircraft does not meet the recoverability test, the aircraft will be adjusted to fair value, resulting in an impairment charge.

Management develops the assumptions used in the recoverability analysis based on current and future expectations of the global demand for a particular aircraft type and historical experience in the aircraft leasing market and aviation industry, as well as information received from third party industry sources. The factors considered in estimating the undiscounted cash flows are impacted by changes in future periods due to changes in contracted lease rates, residual values, economic conditions, technology, airline demand for a particular aircraft type and many of the risk factors discussed in Item 1A. “Risk Factors.” See further discussion of our aircraft more susceptible to failing our recoverability assessment under “Summary of Impairments and Recoverability Assessment” above and “Fair Value Measurements” below.

Net Investment in Finance and Sales-Type Leases

If a lease meets specific criteria at the inception or at any lease modification date, we recognize the lease as a Net investment in finance and sales-type leases on our Consolidated Balance Sheets. For sales-type leases, we recognize the difference between the net book value of the aircraft and the Net investment in finance and sales-type leases as a gain or loss on sale of fight equipment, less any initial direct costs and lease incentives. The Net investment in finance and sales-type leases consists of lease receivables, less the unearned income, plus the estimated unguaranteed residual value of the leased flight equipment at the lease end date. The unearned income is recognized as Finance and sales-type lease revenue

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in our Consolidated Statements of Income over the lease term in a manner that produces a constant rate of return on the Net investment in finance and sales-type leases.

Collectability of finance and sales-type leases is evaluated periodically on an individual customer level. The evaluation of the collectability of the finance and sales-type leases considers the credit of the lessee and the value of the underlying aircraft. An allowance for credit losses is established if there is evidence that we will be unable to collect all amounts due according to the original contractual terms of the Net investment in finance and sales-type leases. At December 31, 2015, we had no allowance for credit losses for our Net investment in finance and sales-type leases. When collectability is not reasonably assured, the customer is placed on non-accrual status, and revenue is recognized when cash payments are received.

Fair Value Measurements

We measure the fair value of interest rate derivative assets and liabilities on a recurring basis. Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Our valuation model for interest rate derivatives classified in Level 2 maximizes the use of observable inputs, including contractual terms, interest rate curves, cash rates and futures rates and minimizes the use of unobservable inputs, including an assessment of the risk of non-performance by the interest rate derivative counterparty in valuing derivative assets, an evaluation of the Company’s credit risk in valuing derivative liabilities and an assessment of market risk in valuing the derivative asset or liability. We use our interest rate derivative counterparty’s valuation of our interest rate derivatives to validate our models. Our interest rate derivatives are sensitive to market changes in LIBOR as discussed in Item 7A. “Quantitative and Qualitative Disclosures about Market Risk.”

We measure the fair value of certain assets and liabilities on a non-recurring basis, when US 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 aircraft. We record aircraft at fair value when we determine the carrying value may not be recoverable. Fair value measurements for aircraft impaired are based on an income approach that uses Level 3 inputs, which include our assumptions and appraisal data as to future cash proceeds from leasing and selling aircraft.

Income Taxes

Aircastle uses an asset and liability based approach in accounting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement and tax basis of existing assets and liabilities using enacted rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount estimated by us to be realizable. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities. We did not have any unrecognized tax benefits.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

See Note 1 - Summary of Significant Accounting Policies - Organization and Basis of Presentation in the Notes to Consolidated Financial Statements below.

RECENTLY PROPOSED ACCOUNTING PRONOUNCEMENTS

See Note 1 - Summary of Significant Accounting Policies - Proposed Accounting Pronouncements in the Notes to Consolidated Financial Statements below.

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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 generate 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:


•	various forms of borrowing secured by our aircraft, including bank term facilities, limited recourse securitization financings, and export credit agency-backed financings for new aircraft acquisitions;


•	unsecured indebtedness, including our current unsecured revolving credit facility and unsecured senior notes;


•	sales of common shares; and


•	asset sales.

Going forward, we expect to continue to seek liquidity from these sources and other sources, subject to pricing and conditions we consider satisfactory.

During 2015, we met our liquidity and capital resource needs with $526.3 million of cash from operations, $500.0 million in gross proceeds from the issuance of our Senior Notes due 2022, $150.0 million of bank financings secured by two aircraft, $225.0 million draw down on our Revolving Credit Facility and $562.5 million of cash from aircraft sales.

In addition, we increased our Revolving Credit Facility from $450.0 million to $600.0 million, and we extended its maturity to May 13, 2019.

As of December 31, 2015, the weighted average maturity of our secured and unsecured debt financings was 4.0 years.

As of December 31, 2015, we are in compliance with all applicable covenants in our financings. We have also determined as of December 31, 2015 that our consolidated subsidiaries’ restricted net assets, as defined by Rule 4-08(e)(3) of Regulation S-X, are less than 25% of our consolidated net assets.

We believe that cash on hand, payments received from lessees and other funds generated from operations, secured borrowings for aircraft, borrowings under our Revolving Credit Facility 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 over the next twelve months.

Cash Flows



	Year Ended December 31,
	2015			2014			2013
	(Dollars in thousands)
Net cash flow provided by operating activities	$	526,285		$	458,786		$	424,037
Net cash flow used in investing activities	(864,662		)	(861,602		)	(682,933		)
Net cash flow provided by (used in) financing activities	324,625			(82,141		)	295,292

Operating Activities:

Cash flow provided by operations was $526.3 million and $458.8 million for the years ended December 31, 2015 and 2014, respectively. The increase in cash flow provided by operations of $67.5 million for the year ended December 31, 2015 versus the same period in 2014 was primarily a result of:


•	a $39.3 million increase in cash from maintenance revenue;


•	a $24.1 million increase in cash from lease rentals, net of finance and sales-type leases;


•	a $6.4 million decrease in cash paid for interest; and


•	a $7.1 million increase in cash from working capital.

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These inflows were offset partially by a $7.6 million increase in cash paid for taxes.

Cash flow provided by operations was $458.8 million and $424.0 million for the years ended December 31, 2014 and 2013, respectively. The increase in cash flow provided by operations of $34.7 million for the year ended December 31, 2014 versus the same period in 2013 was primarily a result of a $79.2 million increase in cash from lease rentals.

These inflows were offset partially by:


•	a $17.9 million decrease in cash from working capital;


•	a $13.8 million decrease in cash from maintenance revenue;


•	a $6.3 million increase in cash paid for interest;


•	a $5.3 million decrease in cash from finance and sales-type leases; and


•	a $4.7 million increase in cash paid for taxes.

Investing Activities:

Cash flow used in investing activities was $864.7 million and $861.6 million for the years ended December 31, 2015 and 2014, respectively. The increase in cash flow used in investing activities of $3.1 million for the year ended December 31, 2015 versus the same period in 2014 was primarily a result of:


•	a $270.4 million decrease in proceeds from the sale of flight equipment;


•	a $78.1 million increase in net investments in finance and sales-type leases; and


•	a $6.8 million increase in aircraft purchase deposits and progress payments, net of returned deposits and aircraft sales deposits.

These outflows were offset partially by a $351.8 million decrease in the acquisition and improvement of flight equipment.

Cash flow used in investing activities was $861.6 million and $682.9 million for the years ended December 31, 2014 and 2013, respectively. The increase in cash flow used in investing activities of $178.7 million for the year ended December 31, 2014 versus the same period in 2013 was primarily a result of:


•	a $408.8 million increase in the acquisition and improvement of flight equipment; and


•	a $42.0 million decrease in principal repayments on debt investments.

These outflows were offset partially by:


•	a $264.9 million increase in the proceeds from the sale of flight equipment; and


•	a $6.1 million decrease in aircraft purchase deposits and progress payments, net of returned deposits and aircraft sales deposits.

Financing Activities:

Cash flow provided by financing activities was $324.6 million for the year ended December 31, 2015 as compared to cash flow used in financing activities of $82.1 million for the year ended December 31, 2014. The net increase in cash flow provided by financing activities of $406.8 million for the year ended December 31, 2015 versus the same period in 2014 was primarily a result of:


•	a $335.9 million decrease in debt repayments primarily due to the repayment of Securitization No. 1 in February 2014 and repayment of our 9.75% Senior Notes due 2018 in April 2014, inclusive of debt extinguishment costs;


•	a $93.1 million decrease in maintenance and security deposits returned, net of deposits received; and


•	a $33.4 million decrease in payments for terminated cash flow hedges in 2014.

These inflows were offset partially by:


•	a $28.2 million decrease in proceeds from notes and debt financings;


•	an $18.8 million increase in issuances of common shares, net of repurchased shares; and

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•	a $6.5 million increase in dividends.

Cash flow used in financing activities was $82.1 million for the year ended December 31, 2014 as compared to cash flow provided by financing activities of $295.3 million for the year ended December 31, 2013. The net increase in cash flow used in financing activities of $377.4 million for the year ended December 31, 2014 versus the same period in 2013 was a result of:


•	a $474.4 million increase in securitization and term debt repayments primarily due to the repayment of $219.9 million for Securitization No. 1 in February 2014 and $450.0 million for our 9.75% Senior Notes due 2018 in April 2014;


•	a $199.5 million decrease in issuances of common shares, net of repurchased shares primarily due to the sale of shares to Marubeni in July 2013;


•	a $60.2 million decrease in maintenance deposits received net of maintenance deposits returned;


•	a $33.4 million increase in payments for terminated interest rate derivatives;


•	a $32.8 million increase in debt extinguishment costs related to the repayment of our 9.75% Senior Notes due 2018 in April 2014;


•	a $32.5 million decrease in security deposits received net of security deposits returned;


•	a $14.4 million increase in dividends; and


•	$5.0 million of higher deferred financing costs.

The decreases were offset partially by:


•	a $440.0 million increase in proceeds from notes and debt financings; and


•	a $34.7 million decrease in restricted cash and cash equivalents related to security deposits and maintenance payments.

Debt Obligations

For complete information on our debt obligations, please refer to Note 7 - “Borrowings from Secured and Unsecured Debt” Financings in the Notes to Consolidated Financial Statements below.

Contractual Obligations

Our contractual obligations consist of principal and interest payments on variable and fixed rate liabilities, interest payments on interest rate derivatives, aircraft acquisition and rent payments pursuant to our office leases. Total contractual obligations increased to approximately $6.30 billion at December 31, 2015 from $5.30 billion at December 31, 2014 due primarily to:


•	an increase in borrowings their related interest obligations; and


•	an increase in purchase obligations for aircraft to be acquired.

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The following table presents our actual contractual obligations and their payment due dates as of December 31, 2015.



	Payments Due by Period as of December 31, 2015
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(Dollars in thousands)
Principal payments:
Senior Notes due 2017	$	500,000	$	—	$	500,000	$	—	$	—
Senior Notes due 2018	400,000		—		400,000		—		—
Senior Notes due 2019	500,000		—		—		500,000		—
Senior Notes due 2020	300,000		—		—		300,000		—
Senior Notes due 2021	500,000		—		—		—		500,000
Senior Notes due 2022	500,000		—		—		—		500,000
Revolving Credit Facility	225,000		—		—		225,000		—
Securitization No. 2⁽¹⁾	125,365		114,235		11,130		—		—
ECA Term Financings	404,492		47,014		99,177		106,433		151,868
Bank Financings	641,139		60,687		183,584		115,468		281,400
Total principal payments	4,095,996		221,936		1,193,891		1,246,901		1,433,268
Interest payments on debt obligations and derivative instruments⁽²⁾	846,984		203,912		339,966		212,488		90,618
Office leases⁽³⁾	5,554		921		1,487		1,544		1,602
Purchase obligations⁽⁴⁾	1,347,836		273,508		428,382		507,668		138,278
Total	$	6,296,370	$	700,277	$	1,963,726	$	1,968,601	$	1,663,766

_____________


(1)	Estimated principal payments for this non-recourse financing are based on excess cash flows available from forecasted lease rentals, net maintenance funding and proceeds from asset dispositions after the payment of forecasted operating expenses and interest payments, including interest payments on existing interest rate derivative agreements and policy provider fees.


(2)	Future interest payments on variable rate, LIBOR-based debt obligations and derivative instruments are estimated using the interest rate in effect at December 31, 2015.


(3)	Represents contractual payment obligations for our office leases in Stamford, Connecticut; Dublin, Ireland and Singapore.


(4)	At December 31, 2015, we had commitments to acquire 35 aircraft for $1.35 billion, including 25 new E-Jet E-2 aircraft form Embraer, with delivery beginning in 2018. These amounts include estimated amounts for pre-delivery deposits, contractual price escalations and other adjustments. As of February 5, 2016, we have commitments to acquire 37 aircraft for $1.42 billion.

Capital Expenditures

We make capital expenditures from time to time in connection with improvements made to 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 years ended December 31, 2015, 2014 and 2013, we incurred a total of $36.5 million, $14.0 million and $21.7 million, respectively, of capital expenditures (including lease incentives) related to the acquisition and improvement of aircraft.

As of December 31, 2015, the weighted average age (by net book value) of our aircraft was approximately 7.5 years. In general, the costs of operating an aircraft, including maintenance expenditures, increase with the age of the aircraft. Under our leases, the lessee is primarily responsible for maintaining the aircraft. 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. These maintenance reserves are paid by the lessee to provide for future 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.

Actual maintenance payments to us by lessees in the future may be less than projected as a result of a number of factors, including defaults by the lessees. 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

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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 Business — 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.”

Off-Balance Sheet Arrangements

We have entered into a joint venture with an affiliate of Teachers’, in which we have a 30% equity interest, which does not qualify for consolidated accounting treatment. The assets and liabilities of this joint venture are off our balance sheet and we only record our net investment under the equity method of accounting. See Footnote 5 - “Unconsolidated Equity Method Investment” in the Notes to Consolidated Financial Statements below.

Foreign Currency Risk and Foreign Operations

At December 31, 2015 all of our leases are 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 year ended December 31, 2015, expenses, such as payroll and office costs, denominated in currencies other than the U.S. dollar aggregated approximately $14.3 million in U.S. dollar equivalents and represented approximately 25.4% 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, it is likely that our international operations and our exposure to foreign currency risk will increase over time. Although we have not yet entered into foreign currency hedges because our exposure to date has not been significant, if our foreign currency exposure increases we may enter into hedging transactions in the future to mitigate this risk. For the years ended December 31, 2015, 2014 and 2013, we incurred insignificant net gains and losses on foreign currency transactions.

Hedging

For complete information on our derivative instruments, please refer to Note 16 - “Accumulated Other Comprehensive Loss” in the Notes to Consolidated Financial Statements below.

Inflation

Inflation affects our lease rentals, asset values and costs, including selling, general and administrative expenses and other expenses. We do not believe that our financial results have been, or will be, adversely affected by inflation in a material way.

Management’s Use of EBITDA and Adjusted EBITDA

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.

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The table below shows the reconciliation of net income to EBITDA for the years ended December 31, 2015, 2014 and 2013, respectively.



	Year Ended December 31,
	2015			2014			2013
	(Dollars in thousands)
Net income	$	121,729		$	100,828		$	29,781
Depreciation	318,783			299,365			284,924
Amortization of net lease discounts and lease incentives	10,664			6,172			32,411
Interest, net	243,577			238,378			243,757
Income tax provision	12,771			13,863			9,215
EBITDA	$	707,524		$	658,606		$	600,088
Adjustments:
Impairment of aircraft	119,835			93,993			117,306
Loss on extinguishment of debt	—			36,570			—
Non-cash share based payment expense	5,537			4,244			4,569
Gain on mark-to-market of interest rate derivative contracts	(791		)	(1,130		)	(4,754		)
Adjusted EBITDA	$	832,105		$	792,283		$	717,209

Management’s Use of Adjusted Net Income (“ANI”)

Management believes that ANI, when viewed in conjunction with the Company’s results under U.S. GAAP and the below reconciliation, provide useful information about operating and period-over-period performance and provides additional information that is useful for evaluating the underlying operating performance of our business without regard to periodic reporting elements related to interest rate derivative accounting and gains or losses related to flight equipment and debt investments.

The table below shows the reconciliation of net income to ANI for the years ended December 31, 2015, 2014 and 2013, respectively.



	Year Ended December 31,
	2015			2014			2013
	(Dollars in thousands)
Net income	$	121,729		$	100,828		$	29,781
Loss on extinguishment of debt⁽²⁾	—			36,570			—
Ineffective portion and termination of cash flow hedges⁽¹⁾	455			660			2,393
Gain on mark-to-market of interest rate derivative contracts⁽²⁾	(791		)	(1,130		)	(4,754		)
Loan termination payment⁽¹⁾	—			—			2,954
Write-off of deferred financing fees⁽¹⁾	—			—			3,975
Stock compensation expense⁽³⁾	5,537			4,244			4,569
Term Financing No. 1 hedge loss amortization charges⁽¹⁾	4,401			14,854			17,843
Securitization No. 1 hedge loss amortization charges⁽¹⁾	10,940			11,616			2,499
Adjusted net income	$	142,271		$	167,642		$	59,260

______________


(1)	Included in Interest, net.

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(2)	Included in Other income (expense).


(3)	Included in Selling, general and administrative expenses.



	Year Ended December 31,
Weighted-average shares:	2015		2014		2013
Common shares outstanding	80,489,391		80,389,349		73,652,996
Restricted common shares	615,611		588,077		593,616
Total weighted-average shares	81,105,002		80,977,426		74,246,612

	Year Ended December 31,
Percentage of weighted-average shares:	2015		2014		2013
Common shares outstanding	99.24	%	99.27	%	99.20	%
Restricted common shares^(a)	0.76	%	0.73	%	0.80	%
Total	100.00	%	100.00	%	100.00	%



	Year Ended December 31,
	2015	2014	2013
Weighted-average common shares outstanding — Basic and Diluted^(b)	80,489,391	80,389,349	73,652,996



	Year Ended December 31,
Adjusted net income allocation:	2015			2014			2013
	(Dollars in thousands, except per share amounts)
Adjusted net income	$	142,271		$	167,642		$	59,260
Less: Distributed and undistributed earnings allocated to restricted common shares^(a)	(1,080		)	(1,217		)	(474		)
Adjusted net income allocable to common shares — Basic and Diluted	$	141,191		$	166,425		$	58,786
Adjusted net income per common share — Basic	$	1.75		$	2.07		$	0.80
Adjusted net income per common share — Diluted	$	1.75		$	2.07		$	0.80

____________


(a)	For the years ended December 31, 2015, 2014 and 2013, distributed and undistributed earnings to restricted shares is 0.76%, 0.73% and 0.80%, respectively, of net income. The amount of restricted share forfeitures for all periods presented is immaterial to the allocation of distributed and undistributed earnings.


(b)	For the years ended December 31, 2015, 2014 and 2013, we have no dilutive shares.

Limitations of EBITDA, Adjusted EBITDA and ANI

An investor or potential investor may find EBITDA, Adjusted EBITDA and ANI 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, Adjusted EBITDA and ANI have limitations as analytical tools and should not be viewed in isolation or as substitutes for U.S. GAAP measures of earnings. Material limitations in making the adjustments to our earnings to calculate EBITDA, Adjusted EBITDA and ANI, and using these non-U.S. GAAP measures as compared to U.S. GAAP net income, income 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 (benefit) provision generally represents charges (gains), which may significantly affect our financial results;


•	elements of our interest rate derivative accounting may be used to evaluate the effectiveness of our hedging policy;


•	loss on the extinguishment of debt related to our 9.75% Senior Notes due 2018;

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•	hedge loss amortization charges related to Term Financing No. 1 and Securitization No. 1; and


•	adjustments required in calculating covenant ratios and compliance as that term is defined in the indenture governing our senior unsecured notes.

EBITDA, Adjusted EBITDA and ANI are not alternatives to net income, income 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, along with our consolidated financial statements included elsewhere in this Annual Report. We also strongly urge you to not rely on any single financial measure to evaluate our business. In addition, because EBITDA, Adjusted EBITDA and ANI are not measures of financial performance under U.S. GAAP and are susceptible to varying calculations, EBITDA, Adjusted EBITDA and ANI as presented in this Annual Report, may differ from and may not be comparable to, similarly titled measures used by other companies.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 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. These risks are highly sensitive 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, floating rate debt obligations and interest rate derivatives. Rent payments under our aircraft lease agreements typically do not vary during the term of the lease according to changes in interest rates. However, our borrowing agreements generally require payments based on a variable interest rate index, such as LIBOR. Therefore, to the extent our borrowing costs are not fixed, increases in interest rates may reduce our net income by increasing the cost of our debt without any corresponding increase in rents or cash flow from our securities.

Changes in interest rates may also impact our net book value as our interest rate derivatives are periodically marked-to-market through shareholders’ equity. Generally, we are exposed to loss on our fixed pay interest rate derivatives to the extent interest rates decrease below their contractual fixed rate.

The relationship between spreads on derivative instruments may vary from time to time, resulting in a net aggregate book value increase or decrease. Changes in the general level of interest rates can also affect our ability to acquire new investments and our ability to realize gains from the settlement of such assets.

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. Although we believe a sensitivity analysis provides the most meaningful analysis permitted by the rules and regulations of the SEC, it 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 extraordinarily complex market reactions that normally would arise from the market shifts modeled. 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 forward-looking disclosure also is selective in nature and addresses only the potential interest expense impacts on our financial instruments and, in particular, does not address the mark-to-market impact on our interest rate derivatives. It also does not include a variety of other potential factors that could affect our business as a result of changes in interest rates.

A hypothetical 100-basis point increase/decrease in our variable interest rates would increase/decrease the minimum contracted rentals on our portfolio as of December 31, 2015 by $3.4 million and $2.8 million, respectively, over the next twelve months. As of December 31, 2015, a hypothetical 100-basis point increase/decrease in our variable interest rate on our borrowings would result in an interest expense increase/decrease of $3.8 million and $3.2 million, respectively, net of amounts received from our interest rate derivatives, over the next twelve months.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements and notes thereto, referred to in Item 15(A)(1) of this Form 10-K, are filed as part of this report and appear in this Form 10-K beginning on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Management’s Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). This term refers to the controls and procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) as appropriate, to allow timely decisions regarding required disclosure. An evaluation was performed under the supervision and with the participation of the Company’s management, including the CEO and CFO, of the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2015. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2015.

Management’s Annual Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The 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.

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 because the degree of compliance with policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2015. The assessment was based on criteria established in the framework Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission (2013 framework) (the COSO criteria). Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2015.

Ernst & Young LLP, the independent registered public accounting firm that audited our Consolidated Financial Statements included in this Annual Report on Form 10-K, audited the effectiveness of our controls over financial reporting as of December 31, 2015. Ernst & Young LLP has issued its report which is included below.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of

Aircastle Limited

We have audited Aircastle Limited and subsidiaries’ internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Aircastle Limited and subsidiaries’ 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 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 conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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.

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.

In our opinion, Aircastle Limited and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Aircastle Limited and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2015 of Aircastle Limited and subsidiaries and our report dated February 11, 2016 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Stamford, Connecticut

February 11, 2016

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ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The name, age and background of each of our directors nominated for election will be contained under the caption “Election of Directors” in our Proxy Statement for our 2016 Annual General Meeting of Shareholders. The identification of our Audit Committee and our Audit Committee financial experts will be contained in our Proxy Statement for our 2016 Annual General Meeting of Shareholders under the captions “CORPORATE GOVERNANCE — Committees of the Board of Directors — The Audit Committee.” Information regarding our Code of Business Ethics and Conduct, any material amendments thereto and any related waivers will be contained in our Proxy Statement for our 2016 Annual General Meeting of Shareholders under the captions “CORPORATE GOVERNANCE — Code of Business Conduct and Ethics.” All of the foregoing information is incorporated herein by reference. The Code of Business Conduct and Ethics is posted on Aircastle’s Website at www.aircastle.com under Investors — Corporate Governance. Pursuant to Item 401(b) of Regulation S-K, the requisite information pertaining to our executive officers is reported immediately following Item 4 of Part I of this report.

Information on compliance with Section 16(a) of the Exchange Act will be contained in our Proxy Statement for our 2016 Annual General Meeting of Shareholders under the captions “OWNERSHIP OF AYR COMMON SHARES — Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Information on compensation of our directors and certain named executive officers will be contained in our Proxy Statement for our 2016 Annual General Meeting of Shareholders under the captions “Directors’ Compensation” and “EXECUTIVE COMPENSATION,” respectively, and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information on the number of shares of Aircastle’s common shares beneficially owned by each director, each named executive officer and by all directors and executive officers as a group will be contained under the captions “OWNERSHIP OF THE COMPANY’S COMMON SHARES — Security Ownership by Management” and information on each beneficial owner of more than 5% of Aircastle’s common shares is contained under the captions “OWNERSHIP OF THE COMPANY’S COMMON SHARES — Security Ownership of Certain Beneficial Owners” in our Proxy Statement for our 2016 Annual General Meeting of Shareholders and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information relating to certain transactions between Aircastle and its affiliates and certain other persons will be set forth under the caption “CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS” in our Proxy Statement for our 2016 Annual General Meeting of Shareholders and is incorporated herein by reference.

Information relating to director independence will be set forth under the caption “PROPOSAL NUMBER ONE — ELECTION OF DIRECTORS — Director Independence” in our Proxy Statement for our 2016 Annual General Meeting of Shareholders and is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information relating to audit fees, audit-related fees, tax fees and all other fees billed in fiscal 2015 and by Ernst & Young LLP, for services rendered to Aircastle is set forth under the caption “INDEPENDENT AUDITOR FEES” in the

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Proxy Statement for our 2016 Annual General Meeting of Shareholders and is incorporated herein by reference. In addition, information relating to the pre-approval policies and procedures of the Audit Committee is set forth under the caption “INDEPENDENT AUDITOR FEES — Pre-Approval Policies and Procedures” in our Proxy Statement for our 2016 Annual General Meeting of Shareholders and is incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



(A)	1.	Consolidated Financial Statements.
		The following is a list of the “Consolidated Financial Statements” of Aircastle Limited and its subsidiaries included in this Annual Report on Form 10-K, which are filed herewith pursuant to Item 8:
		Report of Independent Registered Public Accounting Firm.
		Consolidated Balance Sheets as of December 31, 2015 and December 31, 2014.
		Consolidated Statements of Income for the years ended December 31, 2015, December 31, 2014 and December 31, 2013.
		Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, December 31, 2014 and December 31, 2013.
		Consolidated Statements of Cash Flows for the years ended December 31, 2015, December 31, 2014 and December 31, 2013.
		Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2015, December 31, 2014 and December 31, 2013.
		Notes to Consolidated Financial Statements.
	2.	Financial Statement Schedules.
		There are no Financial Statement Schedules filed as part of this Annual Report, since the required information is included in the Consolidated Financial Statements, including the notes thereto, or the circumstances requiring inclusion of such schedules are not present.
	3.	Exhibits.
		The exhibits filed herewith are listed on the Exhibit Index filed as part of this report on Form 10-K.

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(B) EXHIBIT INDEX



Exhibit No.		Description of Exhibit

3.1		Memorandum of Association (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (Amendment No. 2) (No. 333-134669) filed on July 25, 2006).

3.2		Amended Bye-laws (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-3 (No. 333-182242) filed on June 20, 2012).

4.1		Specimen Share Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (Amendment No. 2) (No. 333-134669) filed on July 25, 2006).

4.2		Indenture, dated as of April 4, 2012, by and between Aircastle Limited and Wells Fargo Bank, National Association as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on April 5, 2012).

4.3		Indenture, dated as of November 30, 2012, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 30, 2012).

4.4		Amended and Restated Shareholder Agreement, dated as of February 18, 2015, by and between Aircastle Limited and Marubeni Corporation (incorporated by reference to Exhibit 4.8 to the Company’s Quarterly Report on Form 10-Q filed on May 6, 2015).

4.5		Indenture, dated as of December 5, 2013, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee Citigroup Global Markets, Inc., Goldman, Sachs & Co., J.P. Morgan Securities LLC and RBC Capital Markets, LLC (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 6, 2013).

4.6		First Supplemental Indenture, dated as of December 5, 2013, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s current report on Form 8-K filed on December 6, 2013).

4.7		Second Supplemental Indenture, dated as of March 26, 2014, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 26, 2014).

4.8		Third Supplemental Indenture, dated as of January 15, 2015, by and between Aircastle Limited and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 15, 2015).

10.1		Form of Restricted Share Purchase Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-1 (No. 333-134669) filed on June 2, 2006). #

10.2		Form of Amended Restricted Share Grant Letter under the Amended and Restated Aircastle Limited 2005 Equity and Incentive Plan(incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on form 10-K filed on March 5, 2010). #

10.3		Form of Amended Restricted Share Agreement for Certain Executive Officers under the Amended and Restated Aircastle Limited 2005 Equity and Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K filed on March 10, 2011). #

10.4		Form of Amended International Employee Restricted Share Unit Agreement under the Amended and Restated Aircastle Limited 2005 Equity and Incentive Plan (incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on form 10-K filed on March 5, 2010). #

10.5		Amended and Restated Aircastle Limited 2005 Equity and Incentive Plan (incorporated by reference to Exhibit 10.28 to the Company’s Registration Statement on Form S-1 (Amendment No. 2) (No. 333-134669) filed on July 25 2006). #

10.6		Letter Agreement, dated as of February 24, 2006, by and between Aircastle Advisor LLC and Joseph Schreiner (incorporated by reference to Exhibit 10.11 to the Company’s Registration Statement on Form S-1 (No. 333-134669) filed on June 2, 2006). #

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Exhibit No.		Description of Exhibit

10.7		Trust Indenture, dated as of June 8, 2007, by and among ACS 2007-1 Limited, as Issuer, ACS Aircraft Finance Ireland 2 Limited, as Guarantor, Deutsche Bank Trust Company Americas, in its capacity as the Cash Manager, Deutsche Bank Trust Company Americas, in its capacity as the person accepting appointment as the Trustee under the Indenture, HSH Nordbank AG, New York Branch, Financial Guaranty Insurance Company and Deutsche Bank Trust Company Americas, in its capacity as the Drawing Agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 12, 2007).

10.8		Trust Indenture, dated as of June 8, 2007, by and among ACS Aircraft Finance Ireland 2 Limited, as Issuer, ACS 2007-1 Limited, as Guarantor, Deutsche Bank Trust Company Americas, in its capacity as the Cash Manager, Deutsche Bank Trust Company Americas, in its capacity as the person accepting appointment as the Trustee under the Indenture, HSH Nordbank AG, New York Branch, Financial Guaranty Insurance Company and Deutsche Bank Trust Company Americas, in its capacity as the Drawing Agent (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 12, 2007).

10.9		Letter Agreement, dated as of July 13, 2010, by and between Aircastle Advisor LLC and Ron Wainshal (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 15, 2010). #

10.10		Form of Senior Executive Employment Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 8, 2010). #

10.11		Form of Amended and Restated Indemnification Agreement with directors and officers (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on November 8, 2011).

10.12		Registration Rights Agreement, dated as of April 4, 2012, by and among Aircastle Limited and Goldman, Sachs & Co., Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, as representatives of the several Initial Purchasers named therein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 5, 2012).

10.13		Share Purchase Agreement, dated as of August 7, 2012, by and among Aircastle Limited and the Fortress Shareholders named therein (incorporated by reference to Exhibit 1.2 to the Company’s Current Report on Form 8-K filed on August 13, 2012).

10.14		Registration Rights Letter Agreement dated as of August 10, 2012, by and between Aircastle Limited and Ontario Teachers’ Pension Plan Board (incorporated by reference to Exhibit 1.3 of the Company’s Current Report on Form 8-K filed on August 13, 2012).

10.15		Registration Rights Agreement, dated as of November 30, 2012, by and among Aircastle Limited and J.P. Morgan Securities LLC, Citigroup Global Markets Inc., Goldman, Sachs & Co and RBC Capital Markets, LLC, as representatives of the several Initial Purchasers named therein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 30, 2012).

10.16		Second Amended and Restated Credit Agreement, dated as of March 31, 2014, by and among Aircastle Limited, the several lenders from time to time parties thereto, and Citibank N.A., in its capacity as agent for the lenders (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 7, 2014).

10.17		Amendment Agreement No.1 to the Second Amended and Restated Credit Agreement, dated as of January 26, 2015, by and among Aircastle Limited, the several lenders from time to time parties thereto, and Citibank N.A., in its capacity as agent for the lenders (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 26, 2015).

10.18		Amendment Agreement No.2 to the Second Amended and Restated Credit Agreement, dated as of May 13, 2015, by and among Aircastle Limited, the several lenders from time to time parties thereto, and Citibank N.A., in its capacity as agent for the lenders (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on August 6, 2015).

10.19		Aircastle Limited 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 23, 2014).#

10.20		Form of Restricted Share Agreement for Certain Executive Officers Under the Aircastle Limited 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on November 4, 2014). #

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Exhibit No.		Description of Exhibit

10.21		Form of Non-Officer Director Restricted Share Agreement Under the Aircastle Limited 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on November 4, 2014).#

10.22		Purchase Agreement COM0270-15, dated as of June 12, 2015, by and between Aircastle Holding Corporation and Embraer S.A. (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on August 6, 2015).Ø

12.1		Computation of Ratio of Earnings to Fixed Charges *

21.1		Subsidiaries of the Registrant *

23.1		Consent of Ernst & Young LLP *

31.1		Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 *

31.2		Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 *

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

99.1		Owned Aircraft Portfolio at December 31, 2015 *

101		The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2015 and December 31, 2014; (ii) Consolidated Statements of Income for the years ended December 31, 2015, December 31, 2014 and December 31, 2013; (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, December 31, 2014 and December 31, 2013; (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2015, December 31, 2014 and December 31, 2013; (v) Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income (Loss) for the years ended December 31, 2015, December 31, 2014 and December 31, 2013; and (vi) Notes to Consolidated Financial Statements *

_____________

# Management contract or compensatory plan or arrangement.

* Filed herewith.

Ø Portions of this exhibit have been omitted pursuant to a request for confidential treatment.

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Index to Financial Statements



	Page No.
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm	F - 2
Consolidated Balance Sheets as of December 31, 2015 and 2014	F - 3
Consolidated Statements of Income for the years ended December 31, 2015, 2014 and 2013	F - 4
Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013	F - 5
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013	F - 6
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2015, 2014, and 2013	F - 7
Notes to Consolidated Financial Statements	F - 8

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of

Aircastle Limited

We have audited the accompanying consolidated balance sheets of Aircastle Limited and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Aircastle Limited and subsidiaries at December 31, 2015 and 2014 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Aircastle Limited and subsidiaries’ internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 11, 2016 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Stamford, Connecticut

February 11, 2016

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Aircastle Limited and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, except share data)



	December 31,
	2015			2014
ASSETS
Cash and cash equivalents	$	155,904		$	169,656
Accounts receivable	8,566			3,334
Restricted cash and cash equivalents	98,137			98,884
Restricted liquidity facility collateral	65,000			65,000
Flight equipment held for lease, net of accumulated depreciation of $1,306,024 and $1,294,063, respectively	5,867,062			5,579,718
Net investment in finance and sales-type leases	201,211			106,651
Unconsolidated equity method investment	50,377			46,453
Other assets	123,707			105,450
Total assets	$	6,569,964		$	6,175,146

LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Borrowings from secured financings, net of debt issuance costs	$	1,146,238		$	1,373,131
Borrowings from unsecured financings, net of debt issuance costs	2,894,918			2,371,456
Accounts payable, accrued expenses and other liabilities	131,058			140,863
Lease rentals received in advance	67,327			53,216
Liquidity facility	65,000			65,000
Security deposits	115,642			117,689
Maintenance payments	370,281			333,456
Total liabilities	4,790,464			4,454,811

Commitments and Contingencies

SHAREHOLDERS’ EQUITY
Preference shares, $.01 par value, 50,000,000 shares authorized, no shares issued and outstanding	—			—
Common shares, $.01 par value, 250,000,000 shares authorized, 80,232,260 shares issued and outstanding at December 31, 2015; and 80,983,249 shares issued and outstanding at December 31, 2014	802			810
Additional paid-in capital	1,550,337			1,565,180
Retained earnings	241,574			192,805
Accumulated other comprehensive loss	(13,213		)	(38,460		)
Total shareholders’ equity	1,779,500			1,720,335
Total liabilities and shareholders’ equity	$	6,569,964		$	6,175,146

The accompanying notes are an integral part of these consolidated financial statements.

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Aircastle Limited and Subsidiaries

Consolidated Statements of Income

(Dollars in thousands, except per share amounts)



	Year Ended December 31,
	2015			2014			2013
Revenues:
Lease rental revenue	$	733,417		$	714,654		$	644,929
Finance and sales-type lease revenue	7,658			10,906			16,165
Amortization of net lease discounts and lease incentives	(10,664		)	(6,172		)	(32,411		)
Maintenance revenue	71,049			88,006			68,342
Total lease rentals	801,460			807,394			697,025
Other revenue	17,742			11,208			11,620
Total revenues	819,202			818,602			708,645

Expenses:
Depreciation	318,783			299,365			284,924
Interest, net	243,577			238,378			243,757
Selling, general and administrative (including non-cash share based payment expense of $5,537, $4,244 and $4,569, respectively)	56,198			55,773			53,436
Impairment of aircraft	119,835			93,993			117,306
Maintenance and other costs	11,502			7,239			13,631
Total expenses	749,895			694,748			713,054

Other income (expense):
Gain on sale of flight equipment	58,017			23,146			37,220
Loss on extinguishment of debt	—			(36,570		)	—
Other	919			1,207			6,132
Total other income (expense)	58,936			(12,217		)	43,352

Income from continuing operations before income taxes and earnings of unconsolidated equity method investment	128,243			111,637			38,943
Income tax provision	12,771			13,863			9,215
Earnings of unconsolidated equity method investment, net of tax	6,257			3,054			53
Net income	$	121,729		$	100,828		$	29,781

Earnings per common share — Basic:
Net income per share	$	1.50		$	1.25		$	0.40

Earnings per common share — Diluted:
Net income per share	$	1.50		$	1.25		$	0.40

Dividends declared per share	$	0.900		$	0.820		$	0.695

The accompanying notes are an integral part of these consolidated financial statements.

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Aircastle Limited and Subsidiaries

Consolidated Statements of Comprehensive Income

(Dollars in thousands)



	Year Ended December 31,
	2015		2014		2013
Net income	$	121,729	$	100,828	$	29,781
Other comprehensive income, net of tax:
Net change in fair value of derivatives, net of tax expense of $35, $828 and $482, respectively	1,224		2,466		17,120
Net derivative loss reclassified into earnings	24,023		34,979		33,265
Other comprehensive income	25,247		37,445		50,385
Total comprehensive income	$	146,976	$	138,273	$	80,166

The accompanying notes are an integral part of these consolidated financial statements.

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Aircastle Limited and Subsidiaries

Consolidated Statements of Cash Flows

(Dollars in thousands)



	Year Ended December 31,
	2015			2014			2013
Cash flows from operating activities:
Net income	$	121,729		$	100,828		$	29,781
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	318,783			299,365			284,924
Amortization of deferred financing costs	14,878			13,961			14,719
Amortization of net lease discounts and lease incentives	10,664			6,172			32,411
Deferred income taxes	(6,889		)	2,863			4,416
Non-cash share based payment expense	5,537			4,244			4,569
Cash flow hedges reclassified into earnings	24,023			34,979			33,265
Security deposits and maintenance payments included in earnings	(35,843		)	(107,031		)	(60,112		)
Gain on the sale of flight equipment	(58,017		)	(23,146		)	(37,220		)
Loss on extinguishment of debt	—			36,570			—
Impairment of aircraft	119,835			93,993			117,306
Other	(896		)	(878		)	(5,323		)
Changes on certain assets and liabilities:
Accounts receivable	(5,406		)	(509		)	3,397
Other assets	(5,033		)	(11,146		)	1,164
Accounts payable, accrued expenses and other liabilities	7,255			1,345			3,016
Lease rentals received in advance	15,665			7,176			(2,276		)
Net cash provided by operating activities	526,285			458,786			424,037
Cash flows from investing activities:
Acquisition and improvement of flight equipment	(1,320,669		)	(1,672,460		)	(1,263,706		)
Proceeds from sale of flight equipment	562,518			832,961			568,045
Restricted cash and cash equivalents related to sale of flight equipment	(17,000		)	—			—
Aircraft purchase deposits and progress payments, net of returned deposits and aircraft sales deposits	(6,812		)	—			(6,094		)
Net investment in finance leases	(91,648		)	(14,258		)	(11,595		)
Collections on finance and sales-type leases	9,559			10,312			9,508
Unconsolidated equity method investment and associated costs	—			(18,255		)	(20,189		)
Distributions from unconsolidated equity method investment in excess of earnings	—			667			—
Principal repayments on debt investment	—			—			42,001
Other	(610		)	(569		)	(903		)
Net cash used in investing activities	(864,662		)	(861,602		)	(682,933		)
Cash flows from financing activities:
Issuance of shares net of repurchases	(20,881		)	(2,092		)	197,437
Proceeds from secured and unsecured debt financings	975,000			1,003,200			563,230
Repayments of secured and unsecured debt financings	(681,393		)	(984,517		)	(510,162		)
Deferred financing costs	(11,881		)	(15,843		)	(10,865		)
Restricted secured liquidity facility collateral	—			42,000			—
Liquidity facility	—			(42,000		)	—
Restricted cash and cash equivalents related to financing activities	17,747			23,889			(10,831		)
Debt extinguishment costs	—			(32,835		)	—
Security deposits and maintenance payments received	152,391			178,805			200,678
Security deposits and maintenance payments returned	(33,398		)	(152,900		)	(82,137		)
Payments for terminated cash flow hedges	—			(33,427		)	—
Dividends paid	(72,960		)	(66,421		)	(52,058		)
Net cash provided by (used in) financing activities	324,625			(82,141		)	295,292
Net increase in cash and cash equivalents	(13,752		)	(484,957		)	36,396
Cash and cash equivalents at beginning of year	169,656			654,613			618,217
Cash and cash equivalents at end of year	$	155,904		$	169,656		$	654,613
Supplemental disclosures of cash flow information:
Cash paid during the year for interest	$	195,162		$	201,611		$	195,350
Cash paid during the year for income taxes	$	12,716		$	5,144		$	487
Supplemental disclosures of non-cash investing activities:
Security deposits, maintenance liabilities and other liabilities settled in sale of flight equipment	$	107,396		$	84,215		$	58,862
Advance lease rentals, security deposits and maintenance reserves assumed in asset acquisitions	$	13,307		$	56,298		$	88,882
Term debt financings assumed in asset acquisitions	$	—		$	39,061		$	84,721
Transfers from Flight equipment held for lease to net investment in finance and sales-type leases and other assets	$	40,327		$	66,146		$	53,510

The accompanying notes are an integral part of these consolidated financial statements.

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Aircastle Limited and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

(Dollars in thousands, except share amounts)



						Additional Paid-In Capital			Retained Earnings (Deficit)			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
	Common Shares
	Shares		Amount
Balance, December 31, 2012	68,639,729		$	686		$	1,360,555		$	180,675		$	(126,290	)	$	1,415,626
Issuance of common shares to directors and employees	12,796,051		128			205,130			—			—			205,258
Repurchase of common shares from directors and employees	(628,805	)	(6		)	(7,815		)	—			—			(7,821		)
Amortization of share based payments	—		—			4,569			—			—			4,569
Excess tax benefit from stock based compensation	—		—			(333		)	—			—			(333		)
Dividends declared	—		—			—			(52,058		)	—			(52,058		)
Net income	—		—			—			29,781			—			29,781
Net change in fair value of derivatives, net of $482 tax expense	—		—			—			—			17,120			17,120
Net derivative loss reclassified into earnings	—		—			—			—			33,265			33,265
Balance, December 31, 2013	80,806,975		808			1,562,106			158,398			(75,905		)	1,645,407
Issuance of common shares to directors and employees	354,547		4			(4		)	—			—			—
Repurchase of common shares from stockholders, directors and employees	(178,273	)	(2		)	(2,090		)	—			—			(2,092		)
Amortization of share based payments	—		—			4,244			—			—			4,244
Excess tax benefit from stock based compensation	—		—			924			—			—			924
Dividends declared	—		—			—			(66,421		)	—			(66,421		)
Net income	—		—			—			100,828			—			100,828
Net change in fair value of derivatives, net of $828 tax expense	—		—			—			—			2,466			2,466
Net derivative loss reclassified into earnings	—		—			—			—			34,979			34,979
Balance, December 31, 2014	80,983,249		810			1,565,180			192,805			(38,460		)	1,720,335
Issuance of common shares to stockholders, directors and employees	306,593		3			(3		)	—			—			—
Repurchase of common shares from stockholders, directors and employees	(1,057,582	)	(11		)	(20,870		)	—			—			(20,881		)
Amortization of share based payments	—		—			5,537			—			—			5,537
Excess tax benefit from stock based compensation	—		—			493			—			—			493
Dividends declared	—		—			—			(72,960		)	—			(72,960		)
Net income	—		—			—			121,729			—			121,729
Net change in fair value of derivatives, net of $35 tax expense	—		—			—			—			1,224			1,224
Net derivative loss reclassified into earnings	—		—			—			—			24,023			24,023
Balance, December 31, 2015	80,232,260		$	802		$	1,550,337		$	241,574		$	(13,213	)	$	1,779,500

The accompanying notes are an integral part of these consolidated financial statements.

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Aircastle Limited and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

Note 1. Summary of Significant Accounting Policies

Organization and Basis of Presentation

Aircastle Limited (“Aircastle,” the “Company,” “we,” “us” or “our”) is a Bermuda exempted company that was incorporated on October 29, 2004 under the provisions of Section 14 of the Companies Act of 1981 of Bermuda. Aircastle’s business is investing in aviation assets, including acquiring, leasing, managing and selling high-utility commercial jet aircraft.

Aircastle is a holding company that conducts its business through subsidiaries. Aircastle directly or indirectly owns all of the outstanding common shares of its subsidiaries. The consolidated financial statements presented are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The Company manages, analyzes and reports on its business and results of operations on the basis of one operating segment: leasing, financing, selling and managing commercial flight equipment. Our chief executive officer is the chief operating decision maker.

The Company’s management has reviewed and evaluated all events or transactions for potential recognition and/or disclosure since the balance sheet date of December 31, 2015 through the date on which the consolidated financial statements included in this Form 10-K were issued.

Effective July 1, 2015, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2015-03, Interest - Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. The guidance in the new standard is limited to the presentation of debt issuance costs and does not affect the recognition and measurement of debt issuance costs. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. The new guidance is applied on a retrospective basis. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Principles of Consolidation

The consolidated financial statements include the accounts of Aircastle and all of its subsidiaries. Aircastle consolidates seven Variable Interest Entities (“VIEs”) of which Aircastle is the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.

We consolidate VIEs in which we have determined that we are the primary beneficiary. We use judgment when deciding (a) whether an entity is subject to consolidation as a VIE, (b) who the variable interest holders are, (c) the potential expected losses and residual returns of the variable interest holders, and (d) which variable interest holder is the primary beneficiary. When determining which enterprise is the primary beneficiary, we consider (1) the entity’s purpose and design, (2) which variable interest holder has the power to direct the activities that most significantly impact the entity’s economic performance, and (3) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. When certain events occur, we reconsider whether we are the primary beneficiary of VIEs. We do not reconsider whether we are a primary beneficiary solely because of operating losses incurred by an entity.

Risk and Uncertainties

In the normal course of business, Aircastle encounters several significant types of economic risk including credit, market, aviation industry and capital market risks. Credit risk is the risk of a lessee’s inability or unwillingness to make contractually required payments and to fulfill its other contractual obligations. Market risk reflects the change in the value of derivatives and financings due to changes in interest rate spreads or other market factors, including the value of collateral underlying derivatives and financings. Aviation industry risk is the risk of a downturn in the commercial aviation industry 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. Capital market risk is the risk that the Company is unable to obtain capital at reasonable rates to fund the growth of our business or to refinance existing debt facilities.

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Aircastle Limited and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. While Aircastle believes that the estimates and related assumptions used in the preparation of the consolidated financial statements are appropriate, actual results could differ from those estimates.

Cash and Cash Equivalents and Restricted Cash and Cash Equivalents

Aircastle considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.

Restricted cash and cash equivalents consists primarily of rent collections, maintenance payments and security deposits received from lessees pursuant to the terms of various lease agreements held in lockbox accounts in accordance with our financings. Changes in restricted cash and cash equivalents related to rent collections are reflected within operating activities of our Consolidated Statements of Cash Flows for non-cash trapped financings. Changes in restricted cash and cash equivalents related to rent collections are reflected within financing activities of our Consolidated Statements of Cash Flows for cash trapped financings. Changes in restricted cash related to the sale of flight equipment are reflected within investing activities of our Consolidated Statements of Cash Flows. Changes in restricted cash and cash equivalents related to maintenance payments and security deposits are reflected within financing activities of our Consolidated Statements of Cash Flows.

Virtually all of our cash and cash equivalents and restricted cash and cash equivalents are held by three major financial institutions.

Flight Equipment Held for Lease and Depreciation

Flight equipment held for lease is stated at cost and depreciated using the straight-line method, typically over a 25-year life from the date of manufacture for passenger aircraft and over a 30 to 35-year life for freighter aircraft, depending on whether the aircraft is a converted or purpose-built freighter, to estimated residual values. Estimated residual values are generally determined to be approximately 15% of the manufacturer’s estimated realized price for passenger aircraft when new and 5% to 10% for freighter aircraft when new. Management may 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 value. Examples of situations where exceptions may arise include but are not limited to:


•	flight equipment where estimates of the manufacturer’s realized sales prices are not relevant (e.g., freighter conversions);


•	flight equipment where estimates of the manufacturers’ realized sales prices are not readily available; and


•	flight equipment which may have a shorter useful life due to obsolescence.

Major improvements and modifications incurred in connection with the acquisition of aircraft that are required to get the aircraft ready for initial service are capitalized and depreciated over the remaining life of the flight equipment.

When we acquire an aircraft with a lease, determining the fair value of attached leases requires us to make assumptions regarding the current fair values of leases for specific aircraft. We estimate a range of current lease rates of like aircraft in order to determine if the attached lease is within a fair value range. If a lease is below or above the range of current lease rates, we present value the estimated amount below or above the fair value range over the remaining term of the lease. The resulting lease discount or premium is amortized into lease rental income over the remaining term of the lease.

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Aircastle Limited and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

Impairment of Flight Equipment

We perform a recoverability assessment of all aircraft in our fleet, on an aircraft-by-aircraft basis annually during the third quarter. In addition, a recoverability assessment is performed whenever events or changes in circumstances, or indicators, suggest that the carrying amount or net book value of an asset may not be recoverable. Indicators may include, but are not limited to, a significant lease restructuring or early lease termination, significant change in aircraft model’s storage levels, the introduction of newer technology aircraft or engines, an aircraft type is no longer in production or a significant airworthiness directive is issued. When we perform a recoverability assessment, we measure whether the estimated future undiscounted net cash flows expected to be generated by the aircraft exceed its net book value. The undiscounted cash flows consist of cash flows from currently contracted lease rental and maintenance payments, future projected lease rates, transition costs, estimated down time, estimated residual or scrap values for an aircraft, economic conditions and other factors. In the event that an aircraft does not meet the recoverability test, the aircraft will be adjusted to fair value, resulting in an impairment charge. See Note 2 — Fair Value Measurements.

Management develops the assumptions used in the recoverability analysis based on current and future expectations of the global demand for a particular aircraft type and historical experience in the aircraft leasing market and aviation industry, as well as information received from third party industry sources. The factors considered in estimating the undiscounted cash flows are impacted by changes in future periods due to changes in projected lease rental and maintenance payments, residual values, economic conditions, technology, airline demand for a particular aircraft type and other factors.

In monitoring the aircraft in our fleet for impairment charges, we identify those aircraft that are most susceptible to failing the recoverability assessment and monitor those aircraft more closely, which may result in more frequent recoverability assessments. The recoverability in the value of these aircraft is more sensitive to changes in contractual cash flows, future cash flow estimates and residual values or scrap values for each aircraft. These are typically older aircraft for which lessee demand is declining.

Net Investment in Finance and Sales-Type Leases

Unconsolidated Equity Method Investment

Aircastle accounts for its interest in an unconsolidated joint venture using the equity method as we do not control the joint venture entity. Under the equity method, the investment is initially recorded at cost and the carrying amount is affected by its share of the unconsolidated joint venture’s undistributed earnings and losses, and distributions of dividends and capital.

Security Deposits

Most of our operating leases require the lessee to pay Aircastle a security deposit or provide a letter of credit. Security deposits represent cash received from the lessee that is held on deposit until lease expiration. Aircastle’s operating leases

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Aircastle Limited and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

also obligate the lessees to maintain flight equipment and comply with all governmental requirements applicable to the flight equipment, including without limitation, operational, maintenance, registration requirements and airworthiness directives.

Maintenance Payments

Typically, under an operating lease, the lessee is responsible for performing all maintenance but might be required to make payments to us for heavy maintenance, overhaul or replacement of certain high-value components of the aircraft. These maintenance payments are based on hours or cycles of utilization or on calendar time, depending upon the component, and are required to be made monthly in arrears or at the end of the lease term. Whether to permit a lessee to make maintenance payments at the end of the lease term, rather than requiring such payments to be made monthly, depends on a variety of factors, including the creditworthiness of the lessee, the level of security deposit which may be provided by the lessee and market conditions at the time we enter into the lease. If a lease requires monthly maintenance payments, we would typically be obligated to reimburse the lessee for costs they incur for heavy maintenance, overhaul or replacement of certain high-value components to the extent of maintenance payments received in respect of the specific maintenance event, usually shortly following completion of the relevant work. If a lease requires end of lease term maintenance payments, typically the lessee would be required to pay us for its utilization of the aircraft during the lease; however, in some cases, we may owe a net payment to the lessee in the event heavy maintenance is performed and paid for by the lessee during the lease term and the aircraft is returned to us in better condition that at lease inception.

We record monthly maintenance payments by the lessee as accrued maintenance payments liabilities in recognition of our contractual commitment to refund such receipts. In these contracts, we do not recognize such maintenance payments as maintenance revenue during the lease. Reimbursements to the lessee upon the receipt of evidence of qualifying maintenance work are charged against the existing accrued maintenance payments liability. We currently defer maintenance revenue recognition of all monthly maintenance payments collected until the end of the lease, when we are able to determine the amount, if any, by which the monthly maintenance payments received from a lessee exceed costs to be incurred by that lessee in performing heavy maintenance. End of lease term maintenance payments made to us are recognized as maintenance revenue, and end of lease term maintenance payments we make to a lessee are recorded as contra maintenance revenue.

Lease Incentives and Amortization

Many of our leases contain provisions which may require us to pay a portion of the lessee’s costs for heavy maintenance, overhaul or replacement of certain high-value components. We account for these expected payments as lease incentives, which are amortized as a reduction of revenue over the life of the lease. We estimate the amount of our portion for such costs, typically for the first major maintenance event for the airframe, engines, landing gear and auxiliary power units, expected to be paid to the lessee based on assumed utilization of the related aircraft by the lessee, the anticipated amount of the maintenance event cost and the estimated amounts the lessee is responsible to pay.

This estimated lease incentive is not recognized as a lease incentive liability at the inception of the lease. We recognize the lease incentive as a reduction of lease revenue on a straight-line basis over the life of the lease, with the offset being recorded as a lease incentive liability which is included in maintenance payments on the balance sheet. The payment to the lessee for the lease incentive liability is first recorded against the lease incentive liability, and any excess above the lease incentive liability is recorded as a prepaid lease incentive asset, which is included in other assets on the balance sheet and continues to amortize over the remaining life of the lease.

Lease acquisition costs related to reconfiguration of the aircraft cabin, other lessee specific modifications and other direct costs are capitalized and amortized into revenue over the initial life of the lease, assuming no lease renewals, and are included in other assets.

Income Taxes

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Aircastle Limited and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

likely than not that the tax position will be sustained on examination by the taxing authorities. We did not have any unrecognized tax benefits.

Lease Revenue Recognition

We lease flight equipment under net operating leases with lease terms typically ranging from three to seven years. We generally do not offer renewal terms or purchase options in our leases, although certain of our operating leases allow the lessee the option to extend the lease for an additional term. Operating leases with fixed rentals and step rentals are recognized on a straight-line basis over the term of the initial lease, assuming no renewals. Operating lease rentals that adjust based on a London Interbank Offered Rate (“LIBOR”) index are recognized on a straight-line basis over the period the rentals are fixed and accruable. Revenue is not recognized when collection is not reasonably assured. When collectability is not reasonably assured, the customer is placed on non-accrual status, and revenue is recognized when cash payments are received.

Comprehensive Income

Comprehensive income consists of net income and other gains and losses, net of income taxes, if any, affecting shareholders’ equity that, under U.S. GAAP, are excluded from net income. At December 31, 2015 and 2014, such amount consists of the effective portion of fluctuations in the fair value of derivatives designated as cash flow hedges.

Share Based Compensation

Aircastle recognizes compensation cost relating to share-based payment transactions in the financial statements based on the fair value of the equity instruments issued. Aircastle uses the straight-line method of accounting for compensation cost on share-based payment awards that contain pro-rata vesting provisions.

Deferred Financing Costs

Deferred financing costs, which are included in borrowings from secured and unsecured financings, net of debt issuance costs, in the Consolidated Balance Sheets, are amortized using the interest method for amortizing loans over the lives of the relevant related debt.

Proposed Accounting Pronouncements

We anticipate the FASB will issue Accounting Standards Codification (“ASC”) 842 (“ASC 842”), “Leases” which will replace the existing guidance in ASC 840, Leases, in early 2016. Based on the FASB’s tentative decisions, the accounting for leases by lessors would basically remain unchanged from the concepts existing in current ASC 840 accounting. The FASB tentatively decided that lessors would be precluded from recognizing selling profit and revenue at lease commencement for any sales-type or direct finance lease that does not transfer control of the underlying asset to the lessee. This requirement aligns the notion of what constitutes a sale in the lessor accounting guidance with that in the forthcoming revenue recognition standard, which evaluates whether a sale has occurred from the customer’s perspective. We anticipate that the standard will be effective for public entities beginning after December 15, 2018. Based on the original Leases re-exposure draft and the FASB’s tentative decisions, we believe the standard will not have a material impact on our consolidated financial statements. We do not believe that the adoption of the standard will significantly impact our existing or potential lessees' economic decisions to lease aircraft.

On May 28, 2014, the FASB and the International Accounting Standards Board (the “IASB”) (collectively, the Boards), jointly issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). Lease contracts within the scope of ASC 840, Leases, are specifically excluded from ASU No. 2014-09. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. The standard is effective for public entities beginning after December 15, 2017. The standard allows for either “full retrospective” adoption, meaning the standard is applied to all of the periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements. We are in the process of determining the impact the standard will have on our consolidated financial statements and related disclosures.

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Aircastle Limited and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

On August 27, 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40). The standard requires management of public companies to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern and, if so, disclose that fact. Management should evaluate whether there are conditions or events, considered in the aggregate, that raises substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued, when applicable). The standard is effective for annual periods ending after December 15, 2016 and interim periods thereafter, and early adoption is permitted. We believe the standard will not have a material impact on our consolidated financial statements and related disclosures.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation - Amendments to the Consolidation Analysis (Topic 810). The update amends the guidelines for determining whether certain legal entities should be consolidated and reduces the number of consolidation models. This new standard affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. This standard will be effective for interim and annual reporting periods beginning on January 1, 2016. The standard may be applied retrospectively or through a cumulative effect adjustment to equity as of the beginning of the year of adoption. We adopted the standard on its required effective date of January 1, 2016. The standard will not have a material impact on our consolidated financial statements and related disclosures.

Note 2. Fair Value Measurements

Fair value measurements and disclosures require the use of valuation techniques to measure fair value that maximize the use of observable inputs and minimize use of unobservable inputs. These inputs are prioritized as follows:


•	Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.


•	Level 2: Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities or market corroborated inputs.


•	Level 3: Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants price the asset or liability.

The valuation techniques that may be used to measure fair value are as follows:


•	The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.


•	The income approach uses valuation techniques to convert future amounts to a single present amount based on current market expectation about those future amounts.


•	The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).

The following tables set forth our financial assets and liabilities as of December 31, 2015 and 2014 that we measured at fair value on a recurring basis by level within the fair value hierarchy. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.



	Fair Value as of December 31, 2015		Fair Value Measurements at December 31, 2015 Using Fair Value Hierarchy
	Fair Value as of December 31, 2015		Level 1		Level 2		Level 3		Valuation Technique
Assets:
Cash and cash equivalents	$	155,904	$	155,904	$	—	$	—	Market
Restricted cash and cash equivalents	98,137		98,137		—		—		Market
Total	$	254,041	$	254,041	$	—	$	—



Liabilities:
Derivative liabilities	$	1,283	$	—	$	1,283	$	—	Income

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Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)



	Fair Value as of December 31, 2014		Fair Value Measurements at December 31, 2014 Using Fair Value Hierarchy
	Fair Value as of December 31, 2014		Level 1		Level 2		Level 3		Valuation Technique
Assets:
Cash and cash equivalents	$	169,656	$	169,656	$	—	$	—	Market
Restricted cash and cash equivalents	98,884		98,884		—		—		Market
Total	$	268,540	$	268,540	$	—	$	—



Liabilities:
Derivative liabilities	$	2,879	$	—	$	2,879	$	—	Income

Our cash and cash equivalents, along with our restricted cash and cash equivalents balances, consist largely of money market securities that are considered to be highly liquid and easily tradable. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within our fair value hierarchy. Our interest rate derivatives included in Level 2 consist of United States dollar-denominated interest rate derivatives, and their fair values are determined by applying standard modeling techniques under the income approach to relevant market interest rates (cash rates, futures rates, swap rates) in effect at the period close to determine appropriate reset and discount rates and incorporates an assessment of the risk of non-performance by the interest rate derivative counterparty in valuing derivative assets and an evaluation of the Company’s credit risk in valuing derivative liabilities.

For the years ended December 31, 2015 and 2014, we had no transfers into or out of Level 3.

We measure the fair value of certain assets and liabilities on a non-recurring basis, when U.S. 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 our investment in an unconsolidated joint venture and aircraft. We account for our investment in an unconsolidated joint venture under the equity method of accounting and record impairment when its fair value is less than its carrying value. We record aircraft at fair value when we determine the carrying value may not be recoverable. Fair value measurements for aircraft in impairment tests are based on an income approach which uses Level 3 inputs, which include the Company’s assumptions and appraisal data as to future cash proceeds from leasing and selling aircraft.

Aircraft Valuation

Annual Fleet-Wide Review

We perform our annual fleet-wide recoverability assessment during the third quarter. This recoverability assessment is a comparison of the carrying value of each aircraft to its undiscounted expected future cash flows. We develop the assumptions used in the recoverability assessment, including those relating to current and future demand for each aircraft type, based on management’s experience in the aircraft leasing industry, as well as information received from third-party sources. Estimates of the undiscounted cash flows for each aircraft type are impacted by changes in contracted and future expected lease rates, residual values, expected scrap values, economic conditions and other factors.

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Aircastle Limited and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

writing down their book values by a total of $34,575, with a fair value date of September 1, 2015. For one of these aircraft, we recorded maintenance revenue of $5,858, as we no longer plan to reinvest these funds.

In the 2014 assessment, we determined that the cash flows expected to be generated by two of our McDonnell Douglas MD-11 freighter aircraft did not support their carrying values. As a result, during the third quarter of 2014, we impaired these two aircraft, which had an aggregate net book value as of June 30, 2014 of $53,777, writing down their book values by a total of $19,515. We also shortened their expected lives from 25 to 21 years and reduced their residual values.

Other Impairments

In December 2015, one of our Airbus A330-300 aircraft was returned to us early as a result of a lease termination. We elected not to reinvest in certain major maintenance needed to release this aircraft and instead have classified it as held for sale. As a result, we recorded an impairment of $16,896 for this aircraft, partially offset by maintenance revenue of $9,055, reversed lease incentives of $4,487 and other revenue of $1,778.

Also in September 2015, we modified the lease agreement with respect to one Airbus A321-200 aircraft. We elected not to reinvest in certain major maintenance events during the lease term, and the lessee agreed to release its rights to certain maintenance payments. As a result, we recorded an impairment of $6,058 and maintenance revenue of $7,109 for this aircraft.

In the second quarter of 2015, we impaired two McDonnell Douglas MD-11 freighter aircraft and one Boeing 737-800 aircraft and recorded impairment charges totaling $23,955 and maintenance revenue of $18,234.

During 2014, we impaired three Boeing 747-400 converted freighter aircraft, two Boeing 737-400 aircraft, two Airbus A320-200 aircraft and one Boeing 757-200 aircraft and recorded impairment charges totaling $73,557. For these aircraft, we recorded maintenance revenue of $51,627 and other revenue of $698 and reversed lease incentives of $4,081.

Financial Instruments

Our financial instruments, other than cash, consist principally of cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable, amounts borrowed under financings and interest rate derivatives. The fair value of cash, cash equivalents, restricted cash and cash equivalents, accounts receivable and accounts payable approximates the carrying value of these financial instruments because of their short-term nature.

The fair value of our Securitization No. 2, which contains a third party credit enhancement, is estimated using a discounted cash flow analysis, based on our current incremental borrowing rates of borrowing arrangements that do not contain third party credit enhancements. The fair values of our ECA term financings and bank financings are estimated using a discounted cash flow analysis, based on our current incremental borrowing rates for similar types of borrowing arrangements. The fair value of our Senior Notes is estimated using quoted market prices.

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Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

The carrying amounts and fair values of our financial instruments at December 31, 2015 and 2014 are as follows:



	December 31, 2015				December 31, 2014
	Carrying Amount of Liability		Fair Value of Liability		Carrying Amount of Liability		Fair Value of Liability
Securitizations	$	125,366	$	123,696	$	391,680	$	376,752
Credit Facilities	225,000		225,000		200,000		200,000
ECA term financings	404,491		422,640		449,886		471,918
Bank financings	636,970		653,699		554,888		560,285
Senior Notes	2,700,000		2,832,125		2,200,000		2,300,615

All of our financial instruments are classified as Level 2 with the exception of our Senior Notes, which are classified as Level 1.

Note 3. Lease Rental Revenues and Flight Equipment Held for Lease

Minimum future annual lease rentals contracted to be received under our existing operating leases of flight equipment at December 31, 2015 were as follows:



Year Ending December 31,	Amount
2016	$	706,122
2017	625,842
2018	553,790
2019	484,976
2020	414,926
Thereafter	1,173,535
Total	$	3,959,191

The classification of regions in the tables below is determined based on the principal location of the lessee of each aircraft.

Geographic concentration of lease rental revenue earned from flight equipment held for lease was as follows:



	Year Ended December 31,
Region	2015		2014		2013
Europe	28	%	29	%	33	%
Asia and Pacific	42	%	40	%	38	%
North America	5	%	9	%	10	%
Middle East and Africa	9	%	9	%	10	%
South America	16	%	13	%	9	%
Total	100	%	100	%	100	%

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Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

The following table shows the number of lessees with lease rental revenue of at least 5% and their combined total percentage of lease rental revenue for the years indicated:



Year Ending December 31,	2015			2014			2013
	Number of Lessees	Combined % of Lease Rental Revenue		Number of Lessees	Combined % of Lease Rental Revenue		Number of Lessees	Combined % of Lease Rental Revenue
Largest lessees by lease rental revenue	3	17.00	%	3	17.00	%	4	24.00	%

The following table sets forth revenue attributable to individual countries representing at least 10% of total revenue (including maintenance revenue) in any year based on each lessee’s principal place of business for the years indicated:



Year Ending December 31,	2015				2014				2013
Country	Revenue		% of Total Revenue		Revenue		% of Total Revenue		Revenue		% of Total Revenue
Russia⁽¹⁾	$	—	—	%	$	86,512	11	%	$	—	—	%
United States⁽²⁾	—		—	%	—		—	%	74,274		10	%

______________


(1)	Total revenue attributable to Russia was less than 10% for the twelve months ended December 31, 2015 and 2013. For the twelve months ended December 31, 2014, includes $29,867 of maintenance revenue related to early lease terminations.


(2)	Total revenue attributable to the United States was less than 10% for the twelve months ended December 31, 2015 and 2014.

Geographic concentration of net book value of flight equipment held for lease was as follows:



	December 31, 2015				December 31, 2014
Region	Number of Aircraft		Net Book Value %		Number of Aircraft		Net Book Value %
Asia and Pacific	49		39	%	46		40	%
Europe	64		26	%	65		29	%
South America	22		19	%	13		14	%
Middle East and Africa	9		10	%	6		10	%
North America	17		6	%	17		7	%
Off-lease	1	⁽¹⁾	—	%	1	⁽²⁾	—	%
Total	162		100	%	148		100	%

______________


(1)	Consisted of one Boeing 777-200ER aircraft that was being marketed for lease at December 31, 2015.


(2)	Consisted of one Airbus A320-200 aircraft, which was subject to a commitment to lease and was delivered to our customer in February 2015.

At December 31, 2015, three lessees in Indonesia represented 11%, or $661,178, of net book value of flight equipment based on each lessee’s principal place of business. At December 31, 2014, no country represented at least 10% of net book value of flight equipment based on each lessee’s principal place of business.

At December 31, 2015 and 2014, the amounts of lease incentive liabilities recorded in maintenance payments on the Consolidated Balance Sheets were $21,432 and $22,833, respectively.

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Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

Note 4. Net Investment in Finance and Sales-Type Leases

At December 31, 2015, our net investment in finance and sales-type leases represents seven aircraft leased to two customers in the United States, one aircraft leased to a customer in the Netherlands and three aircraft leased to two customers in Germany. The following table lists the components of our net investment in finance and sales-type leases at December 31, 2015:



	Amount
Total lease payments to be received	$	156,364
Less: Unearned income	(69,175		)
Estimated residual values of leased flight equipment (unguaranteed)	114,022
Net investment in finance and sales-type leases	$	201,211

At December 31, 2015, minimum future lease payments on finance and sales-type leases are as follows:



Year Ending December 31,	Amount
2016	$	26,075
2017	24,247
2018	18,625
2019	18,545
2020	17,690
Thereafter	51,182
Total lease payments to be received	$	156,364

Note 5. Unconsolidated Equity Method Investment

On December 19, 2013, the Company and an affiliate of Teachers’ formed a joint venture (the “JV”), in which we have a 30% equity interest, to invest in leased aircraft. Teachers’ currently holds 10.0% of our outstanding common shares.

We source and service investments in this joint venture and provide marketing, asset management and administrative services to it and are paid market-based fees for those services, which are recorded in Other revenue in our Consolidated Statements of Income. The Company has recorded in its Consolidated Balance Sheet a $6,670 guarantee liability in Maintenance payments and a $5,400 guarantee liability in Security deposits representing its share of the respective exposures.



	Amount
Investment in joint venture at December 31, 2013	$	21,123
Investment in joint venture	26,050
Earnings from joint venture, net of tax	3,054
Distributions	(3,774		)
Investment in joint venture at December 31, 2014	46,453
Investment in joint venture	3,394
Earnings from joint venture, net of tax	6,257
Distributions	(5,727		)
Investment in joint venture at December 31, 2015	$	50,377

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Aircastle Limited and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

Note 6. Variable Interest Entities

Aircastle consolidates seven VIEs of which it is the primary beneficiary. The operating activities of these VIEs are limited to acquiring, owning, leasing, maintaining, operating and, under certain circumstances, selling the 12 aircraft discussed below.

Securitizations

In connection with Securitization No. 2, two of our subsidiaries, ACS Aircraft Finance Ireland 2 Limited (“ACS Ireland 2”) and ACS 2007-1 Limited (“ACS Bermuda 2”) issued Class A-1 notes and each has fully and unconditionally guaranteed the other’s obligations under the notes.

Aircastle is the primary beneficiary of ACS Ireland 2, as we have both the power to direct the activities of the VIE that most significantly impact the economic performance of such VIE and we bear the significant risk of loss and participate in gains through Class E-1 Securities. Although Aircastle has not guaranteed the ACS Ireland 2 debt, Aircastle wholly owns the ACS Bermuda 2 which has fully and unconditionally guaranteed the ACS Ireland 2 VIE obligations. The activity that most significantly impacts the economic performance is the leasing of aircraft. Aircastle Advisor (Ireland) Limited (Aircastle’s wholly owned subsidiary) is the remarketing servicer and is responsible for the leasing of the aircraft. An Irish charitable trust owns 95% of the common shares of ACS Ireland 2. The Irish charitable trust’s risk is limited to its annual dividend of $2. At December 31, 2015, the assets of ACS Ireland 2 include four aircraft transferred into the VIEs at historical cost basis in connection with Securitization No. 2.

The assets of ACS Ireland 2, net of intercompany receivables, as of December 31, 2015 are $65,952. The liabilities of ACS Ireland 2, net of $40,351 Class E-1 Securities held by the Company and intercompany payables, which are eliminated in consolidation, as of December 31, 2015 are $42,140.

ECA Term Financings

Aircastle, through various subsidiaries, each of which is owned by a charitable trust (such entities, collectively the “Air Knight VIEs”), has entered into eight different twelve-year term loans, which are supported by guarantees from Compagnie Francaise d’ Assurance pour le Commerce Exterieur (“COFACE”), the French government sponsored export credit agency (“ECA”). We refer to these COFACE-supported financings as “ECA Term Financings.”

Aircastle is the primary beneficiary of the Air Knight VIEs, as we have the power to direct the activities of the VIEs that most significantly impact the economic performance of such VIEs and we bear the significant risk of loss and participate in gains through a finance lease. The activity that most significantly impacts the economic performance is the leasing of aircraft of which our wholly owned subsidiary is the servicer and is responsible for managing the relevant aircraft. There is a cross collateralization guarantee between the Air Knight VIEs. In addition, Aircastle guarantees the debt of the Air Knight VIEs.

The only assets that the Air Knight VIEs have on their books are financing leases that are eliminated in the consolidated financial statements. The related aircraft, with a net book value as of December 31, 2015 of $619,530, were included in our flight equipment held for lease. The consolidated debt outstanding, net of debt issuance costs, of the Air Knight VIEs as of December 31, 2015 is $390,712.

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Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

Note 7. Borrowings from Secured and Unsecured Debt Financings

The outstanding amounts of our secured and unsecured term debt financings were as follows:



	At December 31, 2015						At December 31, 2014
Debt Obligation	Outstanding Borrowings			Number of Aircraft	Interest Rate⁽¹⁾	Final Stated Maturity	Outstanding Borrowings
Secured Debt Financings:
Securitization No. 2⁽²⁾	$	125,366		23	0.59%	06/14/37	$	391,680
ECA Term Financings	404,491			8	3.02% to 3.96%	12/03/21 to 11/30/24	449,886
Bank Financings	636,970			13	1.32% to 5.09%	10/26/17 to 01/19/26	554,888
Less: Debt Issuance Costs	(20,589		)				(23,323		)
Total secured debt financings, net of debt issuance costs	1,146,238			44			1,373,131
Unsecured Debt Financings:
Senior Notes due 2017	500,000				6.750%	04/15/17	500,000
Senior Notes due 2018	400,000				4.625%	12/05/18	400,000
Senior Notes due 2019	500,000				6.250%	12/01/19	500,000
Senior Notes due 2020	300,000				7.625%	04/15/20	300,000
Senior Notes due 2021	500,000				5.125%	03/15/21	500,000
Senior Notes due 2022	500,000				5.500%	02/15/22	—
Revolving Credit Facility	225,000				2.672%	05/13/19	200,000
Less: Debt Issuance Costs	(30,082		)				(28,544		)
Total unsecured debt financings, net of debt issuance costs	2,894,918						2,371,456
Total secured and unsecured debt financings, net of debt issuance costs	$	4,041,156					$	3,744,587

_______________


(1)	Reflects the floating rate in effect at the applicable reset date plus the margin for Securitization No. 2, three of our Bank Financings and our Revolving Credit Facility. All other financings have a fixed rate.


(2)	For Securitization No. 2, all cash flows available after expenses and interest are applied to debt amortization.

The following securitization structure includes liquidity facility commitments described in the table below:

Facility

Liquidity

Facility Provider

Available Liquidity

Unused

Fee

Interest Rate

on any Advances

December 31,
2015

December 31,
2014

Securitization No. 2

HSH Nordbank AG

65,000

0.50%

1 M Libor + 0.75

The purpose of this facility is to provide liquidity for Securitization No. 2 in the event that cash flow from lease contracts and other revenue sources is not sufficient to pay operating expenses with respect to the aircraft portfolio, interest payments and interest rate hedging payments for Securitization No. 2.

Secured Debt Financings:

ECA Term Financings

As described in Note 6 - Variable Interest Entities, we refer to our COFACE-supported financings as “ECA Term Financings.” In addition, Aircastle has guaranteed the repayment of the ECA Term Financings. The borrowings under these financings at December 31, 2015 have a weighted average rate of interest of 3.57%.

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Aircastle Limited and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

Bank Financings

In May 2015, we entered into two floating rate loans with The Bank of Tokyo-Mitsubishi UFJ, Ltd. and Development Bank of Japan Inc. These loans, which total $150,000, are secured by two A330-300 aircraft that we acquired in the fourth quarter of 2014.

Our Bank Financings contain, among other customary provisions, a $500,000 minimum net worth covenant and, in some cases, a cross-default to other financings with the same lender. In addition, Aircastle has guaranteed the repayment of the Bank Financings. The borrowings under these financings at December 31, 2015 have a weighted average rate of interest of 3.23%.

Unsecured Debt Financings:

Senior Notes due 2022

On January 15, 2015, Aircastle Limited issued $500,000 aggregate principal amount of Senior Notes due 2022 (the “2022 Senior Notes”). The 2022 Senior Notes will mature on February 15, 2022 and bear interest at the rate of 5.50% per annum, payable semi-annually on February 15 and August 15 of each year, commencing on August 15, 2015. Interest will accrue on the 2022 Senior Notes from January 15, 2015.

The Company may redeem the Senior Notes due 2022 at any time at a redemption price equal to (a) 100% of the principal amount of the notes redeemed, plus accrued and unpaid interest thereon to, but not including, the redemption date and (b) the sum of the present values of the remaining scheduled payments of principal and interest on the notes from the redemption date through the maturity date of the notes (computed using a discount rate equal to the Treasury Rate as of such redemption date plus 50 basis points), plus accrued and unpaid interest to, but not including, the redemption date. In addition, on or before February 15, 2018, we may redeem up to 35% of the aggregate principal amount of the notes issued under the indenture at a redemption price equal to 105.50% plus accrued and unpaid interest thereon, with the net proceeds of certain equity offerings. If the Company undergoes a change of control, it must offer to repurchase the Senior Notes due 2021 at 101% of the principal amount, plus accrued and unpaid interest. The Senior Notes due 2021 are not guaranteed by any of the Company’s subsidiaries or any third party.

Proceeds from the issuance were used to pay-off our Revolving Credit Facility and for general corporate purposes.

Revolving Credit Facility

In January 26, 2015, we increased the size of our Revolving Credit Facility from $450,000 to $600,000. On May 13, 2015, we extended the maturity of our Revolving Credit Facility to May 13, 2019. At December 31, 2015, we had $225,000 drawn on the facility.

Maturities of the secured and unsecured debt financings over the next five years and thereafter are as follows:



Year Ending December 31,	Amount
2016	$	221,936
2017	672,027
2018	521,864
2019	834,661
2020	412,240
Thereafter	1,433,268
Total	$	4,095,996

____________

As of December 31, 2015, we are in compliance with all applicable covenants in our financings.

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Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

Note 8. Shareholders’ Equity and Share Based Payment

In January 2006, the Board of Directors (the “Board”) and shareholders managed by affiliates of Fortress Investment Group LLC (the “Fortress Shareholders”) adopted the Aircastle Investment Limited 2005 Equity and Incentive Plan, and the Board and the Fortress Shareholders approved an amendment to and restatement thereof on July 20, 2006 (as so amended and restated, the “2005 Plan”).

On March 14, 2014, the Board of Directors adopted the Aircastle Limited 2014 Omnibus Incentive Plan (the “2014 Plan”). The 2014 Plan was approved by shareholders at the Company’s 2014 Annual General Meeting of Shareholders on May 22, 2014. The 2014 Plan replaced the 2005 Plan.

The purposes of the 2014 Plan are to provide an additional incentive to selected officers, employees, non-employee directors, independent contractors, and consultants of the Company or its affiliates whose contributions are essential to the growth and success of the business of the Company and its affiliates, to strengthen the commitment of such persons to the Company and its affiliates, motivate such persons to faithfully and diligently perform their responsibilities and attract and retain competent and dedicated persons whose efforts will result in the long-term growth and profitability of the Company and its affiliates. To accomplish such purposes, the 2014 Plan provides that the Company may grant options, share appreciation rights, restricted shares, restricted share units, share bonuses, other share-based awards, cash awards or any combination of the foregoing. The 2014 Plan provides that grantees of restricted common shares will have all of the rights of shareholders, including the right to receive dividends, other than the right to sell, transfer, assign or otherwise dispose of the shares until the lapse of the restricted period. Generally, the restricted common shares vest over three to five year periods based on continued service and are being expensed on a straight-line basis over the requisite service period of the awards. The terms of the grants provide for accelerated vesting under certain circumstances, including termination without cause following a change of control.

The maximum number of Common Shares reserved for issuance under the 2014 Plan is 2,500,000 Common Shares, which includes 713,540 Common Shares remaining under the 2005 Plan that became available for reuse following the adoption of the 2014 Plan. Awards outstanding under the 2005 Plan in the amount of 302,942 shares will continue to vest subject to the terms and conditions of the 2005 Plan and the applicable awards agreements which are included in the below table.

A summary of the fair value of non-vested shares for the years ended December 31, 2015, 2014 and 2013 is as follows:



Non-vested Shares	Shares (in 000’s)		Weighted Average Grant Date Fair Value
Non-vested at January 1, 2013	561.2		$	12.21
Granted	457.5		13.98
Canceled	(1.5	)	13.11
Vested	(322.5	)	11.96
Non-vested at December 31, 2013	694.7		13.49
Granted	341.1		18.80
Canceled	(69.1	)	15.89
Vested	(345.4	)	13.47
Non-vested at December 31, 2014	621.3		16.15
Granted	308.8		21.58
Canceled	(10.6	)	19.22
Vested	(268.1	)	15.82
Non-vested at December 31, 2015	651.4		$	18.81

The fair value of the restricted common shares granted in 2015, 2014 and 2013 were determined based upon the market price of the shares at the grant date.

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Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

The total unrecognized compensation cost, adjusted for estimated forfeitures, related to all non-vested shares as of December 31, 2015, in the amount of $6,957, is expected to be recognized over a weighted average period of 2.06 years.

On October 31, 2014, our Board of Directors authorized the repurchase of $100,000 of the Company’s common shares. Under the program, the Company may purchase its common shares from time to time in the open market or in privately negotiated transactions. During the fourth quarter of 2015, we repurchased 955,235 common shares at a total cost of $18,921, including commissions, under the repurchase program.

In addition, as of February 5, 2016, we repurchased an additional 1,650,778 common shares at an aggregate cost of $31,079, including commissions, during 2016. Accordingly, as of February 5, 2016, under this program we have repurchased a total of 2,606,013 common shares at a total cost of $50,000, including commissions, at an average price per share of $19.19. The remaining dollar value of common shares that may be purchased under the program is $50,000.

On February 18, 2015, the Company, Marubeni and a subsidiary of Marubeni entered into an amendment and restatement of the Shareholder Agreement, which (1) modified the terms of the Shareholder Agreement to immediately permit acquisitions by Marubeni and its affiliates of voting securities of the Company in the secondary market pursuant to a Rule 10b5-1 plan that would result in Marubeni and its affiliates collectively holding more than 21.0% but no more than 27.5% of the voting power of the Company and (2) extended the term of the standstill provision of the Shareholder Agreement by 18 months to January 2025. As of February 5, 2016, Marubeni held 27.0%% of our voting securities.

Note 9. Dividends

The following table sets forth the quarterly dividends declared by our Board of Directors for the three years ended December 31, 2015:



Declaration Date	Dividend per Common Share		Aggregate Dividend Amount		Record Date	Payment Date
October 30, 2015	$	0.240	$	19,377	November 30, 2015	December 15, 2015
August 4, 2015	$	0.220	$	17,860	August 31, 2015	September 15, 2015
May 4, 2015	$	0.220	$	17,863	May 29, 2015	June 15, 2015
February 17, 2015	$	0.220	$	17,860	March 6, 2015	March 13, 2015
October 31, 2014	$	0.220	$	17,817	November 28, 2014	December 15, 2014
July 28, 2014	$	0.200	$	16,201	August 29, 2014	September 12, 2014
May 5, 2014	$	0.200	$	16,202	May 30, 2014	June 13, 2014
February 21, 2014	$	0.200	$	16,201	March 7, 2014	March 14, 2014
October 29, 2013	$	0.200	$	16,163	November 29, 2013	December 13, 2013
August 2, 2013	$	0.165	$	13,330	August 30, 2013	September 13, 2013
May 1, 2013	$	0.165	$	11,297	May 31, 2013	June 14, 2013
February 18, 2013	$	0.165	$	11,268	March 4, 2013	March 15, 2013

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Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

Note 10. Earnings Per Share

We include all common shares granted under our incentive compensation plan which remain unvested (“restricted common shares”) and contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid (“participating securities”), in the number of shares outstanding in our basic and diluted EPS calculations using the two-class method. All of our restricted common shares are currently participating securities.

Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings allocated to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, distributed and undistributed earnings are allocated to both common shares and restricted common shares based on the total weighted average shares outstanding during the period as follows:



	Year Ended December 31,
	2015		2014		2013
Weighted-average shares:
Common shares outstanding	80,489,391		80,389,349		73,652,996
Restricted common shares	615,611		588,077		593,616
Total weighted-average shares	81,105,002		80,977,426		74,246,612

	Year Ended December 31,
	2015		2014		2013
Percentage of weighted-average shares:
Common shares outstanding	99.24	%	99.27	%	99.20	%
Restricted common shares	0.76	%	0.73	%	0.80	%
Total	100.00	%	100.00	%	100.00	%

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Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

The calculations of both basic and diluted earnings per share for the years ended December 31, 2015, 2014 and 2013 are as follows:



	Year Ended December 31,
	2015				2014				2013
Earnings per common share — Basic:
Income from continuing operations	$	121,729			$	100,828			$	29,781
Less: Distributed and undistributed earnings allocated to restricted common shares^(a)	(924		)		(732		)		(238		)
Income from continuing operations available to common shareholders — Basic	$	120,805			$	100,096			$	29,543

Weighted-average common shares outstanding — Basic	80,489,391				80,389,349				73,652,996

Net income per common share — Basic	$	1.50			$	1.25			$	0.40

Earnings per common share — Diluted:
Income from continuing operations	$	121,729			$	100,828			$	29,781
Less: Distributed and undistributed earnings allocated to restricted common shares^(a)	(924		)		(732		)		(238		)
Income from continuing operations available to common shareholders — Diluted	$	120,805			$	100,096			$	29,543

Weighted-average common shares outstanding — Basic	80,489,391				80,389,349				73,652,996
Effect of diluted shares	—			^(b)	—			^(b)	—			^(b)
Weighted-average common shares outstanding — Diluted	80,489,391				80,389,349				73,652,996

Net income per common share — Diluted	$	1.50			$	1.25			$	0.40

_____________


(a)	For the years ended December 31, 2015, 2014 and 2013, distributed and undistributed earnings to restricted shares is 0.76%, 0.73% and 0.80%, respectively, of net income. The amount of restricted share forfeitures for all periods present is immaterial to the allocation of distributed and undistributed earnings.


(b)	For the years ended December 31, 2015, 2014 and 2013, we have no dilutive shares.

Note 11. Income Taxes

Income taxes have been provided for based upon the tax laws and rates in countries in which our operations are conducted and income is earned. The Company received an assurance from the Bermuda Minister of Finance that it would be exempted from local income, withholding and capital gains taxes until March 2035. Consequently, the provision for income taxes relates to income earned by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose income taxes, primarily Ireland, Singapore and the United States.

The sources of income from continuing operations before income taxes and earnings of unconsolidated equity method investment for the years ended December 31, 2015, 2014 and 2013 were as follows:



	Year Ended December 31,
	2015		2014		2013
U.S. operations	$	2,433	$	2,047	$	2,730
Non-U.S. operations	125,810		109,590		36,213
Income from continuing operations before income taxes and earnings of unconsolidated equity method investment	$	128,243	$	111,637	$	38,943

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Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

The components of the income tax provision from continuing operations for the year ended December 31, 2015, 2014 and 2013 consisted of the following:



	Year Ended December 31,
	2015			2014			2013
Current:
United States:
Federal	$	4,167		$	1,571		$	1,742
State	994			390			515
Non-U.S	14,499			9,040			2,542
Current income tax provision	19,660			11,001			4,799
Deferred:
United States:
Federal	829			2,335			963
State	57			932			386
Non-U.S	(7,775		)	(405		)	3,067
Deferred income tax provision (benefit)	(6,889		)	2,862			4,416
Total	$	12,771		$	13,863		$	9,215

Significant components of the Company’s deferred tax assets and liabilities at December 31, 2015, 2014 and 2013 consisted of the following:



	Year Ended December 31,
	2015			2014			2013
Deferred tax assets:
Non-cash share based payments	$	1,483		$	1,106		$	1,139
Net operating loss carry forwards	52,007			42,900			23,137
Interest rate derivatives	—			35			863
Other	761			340			356
Total deferred tax assets	54,251			44,381			25,495
Deferred tax liabilities:
Accelerated depreciation	(87,716		)	(79,360		)	(56,312		)
Other	(442		)	(1,795		)	(1,143		)
Total deferred tax liabilities	(88,158		)	(81,155		)	(57,455		)
Net deferred tax liabilities	$	(33,907	)	$	(36,774	)	$	(31,960	)

The Company had approximately $27,631 of net operating loss (“NOL”) carry forwards available at December 31, 2015 to offset future taxable income subject to U.S. graduated tax rates. If not utilized, these carry forwards expire between 2030 through 2035. The Company also had NOL carry forwards of $520,177 with no expiration date to offset future Irish, Mauritius and Singapore taxable income. Deferred tax assets and liabilities are included in other assets and accounts payable and accrued liabilities, respectively, in the accompanying Consolidated Balance Sheets.

We do not expect to incur income taxes on future distributions of undistributed earnings of non-U.S. subsidiaries and accordingly, no deferred income taxes have been provided for the distributions of such earnings. As of December 31, 2015 we have elected to permanently reinvest our accumulated undistributed U.S. earnings of $10,603. Accordingly, no U.S. withholding taxes have been provided. Withholding tax of $3,181 would be due if such earnings were remitted.

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Aircastle Limited and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

subject to federal, state and local income taxes. The aircraft owning subsidiaries resident in Ireland, Mauritius and Singapore are subject to tax in those respective jurisdictions.

We have a U.S-based subsidiary which provides management services to our non-U.S. subsidiaries and is subject to U.S. federal, state and local income taxes. We also have Ireland and Singapore based subsidiaries which provide management services to our non-U.S. subsidiaries and are subject to tax in those respective jurisdictions.

Differences between statutory income tax rates and our effective income tax rates applied to pre-tax income from continuing operations at December 31, 2015, 2014 and 2013 consisted of the following:



	Year Ended December 31,
	2015			2014			2013
Notional U.S. federal income tax expense at the statutory rate:	$	44,885		$	39,073		$	13,630
U.S. state and local income tax, net	221			189			195
Non-U.S. operations:
Bermuda	(20,789		)	(12,424		)	4,749
Ireland	(3,073		)	(4,732		)	(5,514		)
Singapore	(5,650		)	(5,529		)	(597		)
Other low tax jurisdictions	(3,395		)	(2,890		)	(3,608		)
Non-deductible expenses in the U.S.	737			644			447
Other	(165		)	(468		)	(87		)
Provision for income taxes	$	12,771		$	13,863		$	9,215

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities. We did not have any unrecognized tax benefits.

We conduct business globally and, as a result, the Company and its subsidiaries or branches are subject to foreign, U.S. federal and various state and local income taxes, as well as withholding taxes. In the normal course of business the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Ireland and the United States. With few exceptions, the Company and its subsidiaries or branches remain subject to examination for all periods since inception.

Our policy is that we will recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. We did not accrue interest or penalties associated with any unrecognized tax benefits, nor was any interest expense or penalty recognized during the year.

Note 12. Interest, Net

The following table shows the components of interest, net for the years ended December 31, 2015, 2014 and 2013:



	Year Ended December 31,
	2015			2014			2013
Interest on borrowings, net settlements on interest rate derivatives, and other liabilities	$	204,326		$	189,135		$	196,176
Hedge ineffectiveness losses	455			738			371
Amortization of interest rate derivatives related to deferred losses	24,023			34,979			33,265
Amortization of deferred financing fees and debt discount	14,878			13,961			14,719
Interest Expense	243,682			238,813			244,531
Less: Interest income	(105		)	(435		)	(774		)
Interest, net	$	243,577		$	238,378		$	243,757

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Aircastle Limited and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

Note 13. Commitments and Contingencies

Rent expense, primarily for the corporate office and sales and marketing facilities, was approximately $1,163, $1,150 and $1,236 for the years ended December 31, 2015, 2014 and 2013, respectively.

As of December 31, 2015, Aircastle is obligated under non-cancelable operating leases relating principally to office facilities in Stamford, Connecticut; Dublin, Ireland; and Singapore for future minimum lease payments as follows:



Year Ending December 31,	Amount
2016	$	921
2017	736
2018	751
2019	765
2020	779
Thereafter	1,602
Total	$	5,554

On June 12, 2015, Aircastle entered into a purchase agreement with Embraer S.A. (“Embraer”) under which we agreed to acquire 25 new E-Jet E2 aircraft with purchase rights for an additional 25 E-Jet E2 aircraft. Deliveries of the 25 aircraft are scheduled to begin in 2018 for the E190-E2 aircraft and 2019 for the E195-E2 aircraft with the last delivery scheduled in March 2021. At December 31, 2015, the table below includes $142,170 of progress payments, which begin in May 2016.

At December 31, 2015, we had commitments to acquire 35 aircraft, including the above referenced 25 Embraer E-2 aircraft, for $1,347,836.

Commitments, including contractual price escalations and other adjustments, for these aircraft at December 31, 2015, net of amounts already paid are as follows:



Year Ending December 31,	Amount
2016	$	273,508
2017	170,252
2018	258,130
2019	293,267
2020	214,401
Thereafter	138,278
Total	$	1,347,836

As of February 5, 2016, we have commitments to acquire 37 aircraft for $1,423,836.

Note 14. Other Assets

The following table describes the principal components of other assets on our Consolidated Balance Sheets as of:



	December 31,
	2015		2014
Deferred federal income tax asset	$	1,362	$	567
Lease incentives and lease premiums, net of amortization of $31,623 and $26,477, respectively	86,874		75,587
Flight equipment held for sale	12,901		7,455
Other assets	22,570		21,841
Total other assets	$	123,707	$	105,450

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Aircastle Limited and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

Note 15. Accounts Payable, Accrued Expenses and Other Liabilities

The following table describes the principal components of accounts payable, accrued expenses and other liabilities recorded on our Consolidated Balance Sheets as of:



	December 31,
	2015		2014
Accounts payable and accrued expenses	$	34,457	$	40,765
Deferred federal income tax liability	35,269		37,340
Accrued interest payable	37,606		27,795
Lease discounts, net of amortization of $19,403 and $9,247, respectively	22,443		32,084
Fair value of derivative liabilities	1,283		2,879
Total accounts payable, accrued expenses and other liabilities	$	131,058	$	140,863

Note 16. Accumulated Other Comprehensive Loss

The following table describes the principal components of accumulated other comprehensive loss recorded on our Consolidated Balance Sheets as of:



Changes in accumulated other comprehensive loss by component^(a)	Twelve Months Ended December 31,
	2015			2014
Beginning balance	$	(38,460	)	$	(75,905	)

Amount recognized in other comprehensive loss on derivatives, net of tax expense of $14 and $718, respectively	(2,113		)	(3,683		)
Amounts reclassified from accumulated other comprehensive loss into income, net of tax expense of $21 and $110, respectively	27,360			41,128
Net current period other comprehensive income	25,247			37,445

Ending balance	$	(13,213	)	$	(38,460	)

(a) All amounts are net of tax. Amounts in parentheses indicate debits.



Reclassifications from accumulated other comprehensive loss^(a)	Twelve Months Ended December 31,
	2015		2014
Losses on cash flow hedges
Amount of effective amortization of net deferred interest rate derivative losses^(b)	$	24,023	$	34,979
Effective amount of net settlements of interest rate derivatives, net of tax expense of $21 and $110, respectively^(b)	3,337		6,149
Amount of loss reclassified from accumulated other comprehensive loss into income	$	27,360	$	41,128

(a) All amounts are net of tax.

(b) Included in interest expense.

At December 31, 2015, the amount of deferred net loss expected to be reclassified from OCI into interest expense over the next twelve months related to our terminated interest rate derivatives is $9,056, of which $1,118 relates to Senior Notes due 2017 and 2020 interest rate derivatives, $4,855 relates to Senior Notes due 2018 interest rate derivatives, $1,749 relates to ECA Term Financings and $1,334 relates to other financings.

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Aircastle Limited and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

Note 17. Quarterly Financial Data (Unaudited)

Quarterly results of our operations for the years ended December 31, 2015 and 2014 are summarized below:



	Fourth Quarter		Third Quarter			Second Quarter		First Quarter
2015
Revenues	$	208,267	$	212,074		$	204,565	$	194,296
Net income (loss)	$	50,641	$	(13,989	)	$	41,808	$	43,269
Basic earnings (loss) per share:
Net income (loss)	$	0.63	$	(0.17	)	$	0.51	$	0.53
Diluted earnings (loss) per share:
Net income (loss)	$	0.63	$	(0.17	)	$	0.51	$	0.53

2014
Revenues	$	238,257	$	177,596		$	226,146	$	176,603
Net income	$	72,764	$	19,151		$	3,136	$	5,777
Basic earnings per share:
Net income	$	0.90	$	0.24		$	0.04	$	0.07
Diluted earnings per share:
Net income	$	0.90	$	0.24		$	0.04	$	0.07

The sum of the quarterly earnings per share amounts may not equal the annual amount reported since per share amounts are computed independently for each period presented.

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SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, Aircastle Limited has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: February 11, 2016



	Aircastle Limited
	By:		/s/ Ron Wainshal
			Ron Wainshal
			Chief Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Aircastle Limited and in the capacities and on the date indicated.



SIGNATURE	TITLE	DATE

/s/ Ron Wainshal	Chief Executive Officer and Director	February 11, 2016
Ron Wainshal

/s/ Michael Inglese	Chief Financial Officer	February 11, 2016
Michael Inglese

/s/ Aaron Dahlke	Chief Accounting Officer	February 11, 2016
Aaron Dahlke

/s/ Peter V. Ueberroth	Chairman of the Board	February 11, 2016
Peter V. Ueberroth

/s/ Ronald W. Allen	Director	February 11, 2016
Ronald W. Allen

/s/ Giovanni Bisignani	Director	February 11, 2016
Giovanni Bisignani

/s/ Michael J. Cave	Director	February 11, 2016
Michael J. Cave

/s/ Douglas A. Hacker	Director	February 11, 2016
Douglas A. Hacker

/s/ Masumi Kakinoki	Director	February 11, 2016
Masumi Kakinoki

/s/ Ryusuke Konto	Director	February 11, 2016
Ryusuke Konto

/s/ Ronald L. Merriman	Director	February 11, 2016
Ronald L. Merriman

/s/ Agnes Mura	Director	February 11, 2016
Agnes Mura

/s/ Charles W. Pollard	Director	February 11, 2016
Charles W. Pollard

/s/ Gentaro Toya	Director	February 11, 2016
Gentaro Toya

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