(1)

See Appendix for an explanation of the reclassification of the Gain on Sale of Flight Equipment.

(2)

Refer to the selected financial information accompanying this press release for a reconciliation of GAAP to Non-GAAP numbers.

(In thousands, except share data)

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017

Lease rental and finance and sales-type lease

revenues

$

187,354

$

194,976

$

374,279

$

389,635

Total revenues⁽¹⁾

$

204,276

$

237,059

$

406,956

$

442,091

Adjusted EBITDA⁽²⁾

$

192,623

$

224,105

$

383,768

$

417,496

Net income (loss)

$

50,203

$

(7,116)

$

107,750

$

35,323

   Per common share - Diluted

$

0.64

$

(0.09)

$

1.37

$

0.45

Adjusted net income⁽²⁾

$

52,378

$

2,448

$

109,129

$

48,139

   Per common share - Diluted

$

0.67

$

0.03

$

1.38

$

0.61

_______________

(1)

As part of the Company's adoption of Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606), we have reclassified Gain on sale of flight equipment from Other income (expense) to Revenues on our Consolidated Statement of Income as of March 31, 2018.  We believe this better reflects the sale of flight equipment as part of our ordinary activities and conforms our presentation to those of our publicly traded peers.  The presentation for the three and six months ended June 30, 2017, have also been reclassified to conform to the current period presentation.  The standard did not have a material impact on our consolidated financial statements and related disclosures

(2)

Refer to the selected financial information accompanying this press release for a reconciliation of GAAP to Non-GAAP numbers.

Owned Aircraft

As of

June 30,

2018⁽¹⁾

As of

June 30,

2017⁽¹⁾

Net Book Value of Flight Equipment ($ mils.)

$

6,776

$

6,173

Net Book Value of Unencumbered Flight Equipment ($ mils.)

$

5,419

$

4,497

Number of Aircraft

228

190

Number of Unencumbered Aircraft

199

157

Weighted Average Fleet Age (years)⁽²⁾

9.5

8.3

Weighted Average Remaining Lease Term (years)⁽²⁾

4.7

4.7

Weighted Average Fleet Utilization for the quarter ended⁽³⁾

99.5

%

99.3

%

Portfolio Yield for the quarter ended⁽²⁾⁽⁴⁾

11.5

%

12.3

%

Net Cash Interest Margin⁽⁵⁾

8.3

%

8.8

%

Managed Aircraft on behalf of  Joint Ventures

Net Book Value of Flight Equipment ($ mils.)

$

628

$

675

Number of Aircraft

12

13

_______________

(1)

Calculated using net book value of flight equipment held for lease and net investment in finance leases at period end.

(2)

Weighted by net book value.

(3)

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

(4)

Lease rental revenue, interest income and cash collections on our net investment in finance and sales-type leases for the period as a percent of the average net book value for the period; quarterly information is annualized.  Based on the growing level of finance and sales-type lease revenue management revised the calculation of portfolio yield to include our net investment in finance and sales-type leases in the average net book value and to include the interest income and cash collections on our net investment in finance and sales-type leases in lease rentals.

(5)

Net Cash Interest Margin = Lease rental yield plus finance lease revenue and collections minus interest on borrowings, net of settlements on interest rate derivatives, and other liabilities  / average NBV of flight equipment for the period calculated on a quarterly basis, annualized.

Aircastle Limited and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, except share data)

June 30,

 2018

December 31,

 2017

(Unaudited)

ASSETS

Cash and cash equivalents

$

142,360

$

211,922

Restricted cash and cash equivalents

20,880

21,935

Accounts receivable

19,357

12,815

Flight equipment held for lease, net of accumulated depreciation of $1,177,448 and

$1,125,594, respectively

6,249,406

6,188,469

Net investment in finance and sales-type leases

526,738

545,750

Unconsolidated equity method investments

80,100

76,982

Other assets

174,307

141,210

Total assets

$

7,213,148

$

7,199,083

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES

Borrowings from secured financings, net of debt issuance costs

$

798,522

$

849,874

Borrowings from unsecured financings, net of debt issuance costs

3,392,169

3,463,732

Accounts payable, accrued expenses and other liabilities

131,364

140,221

Lease rentals received in advance

76,780

57,630

Security deposits

131,101

130,628

Maintenance payments

719,806

649,434

Total liabilities

5,249,742

5,291,519

Commitments and Contingencies

SHAREHOLDERS' EQUITY

Preference shares, $0.01 par value, 50,000,000 shares authorized, no shares issued

and outstanding

—

—

Common shares, $0.01 par value, 250,000,000 shares authorized, 78,244,038

shares issued and outstanding at June 30, 2018; and 78,707,963 shares issued and

outstanding at December 31, 2017

782

787

Additional paid-in capital

1,519,479

1,527,796

Retained earnings

443,900

380,331

Accumulated other comprehensive loss

(755)

(1,350)

Total shareholders' equity

1,963,406

1,907,564

Total liabilities and shareholders' equity

$

7,213,148

$

7,199,083

Aircastle Limited and Subsidiaries

Consolidated Statements of Income (Loss)

(Dollars in thousands, except per share amounts)

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017

Revenues:

Lease rental revenue

$

178,486

$

189,098

$

355,969

$

379,684

Finance and sales-type lease revenue

8,868

5,878

18,310

9,951

Amortization of lease premiums, discounts and incentives

(3,534)

(3,280)

(6,662)

(6,392)

Maintenance revenue

—

28,944

11,991

41,231

Total lease revenue

183,820

220,640

379,608

424,474

Gain on sale of flight equipment⁽¹⁾

19,864

13,525

25,632

14,284

Other revenue

592

2,894

1,716

3,333

Total revenues⁽¹⁾

204,276

237,059

406,956

442,091

Operating expenses:

Depreciation

76,181

78,254

151,183

157,428

Interest, net

57,398

61,672

114,506

124,740

Selling, general and administrative (including non-cash share-based

payment expense of $3,076 and $6,028 for the three months ended and

$5,454 and $8,130 for the six months ended June 30, 2018 and 2017,

respectively)

18,583

22,187

36,418

38,354

Impairment of flight equipment

—

79,930

—

80,430

Maintenance and other costs

1,561

2,343

2,549

5,274

Total expenses

153,723

244,386

304,656

406,226

Total other income (expense)

901

(1,560)

4,075

(2,709)

Income (loss) from continuing operations before income taxes and

earnings of unconsolidated equity method investments

51,454

(8,887)

106,375

33,156

Income tax provision

3,132

495

2,288

2,341

Earnings of unconsolidated equity method investments, net of tax

1,881

2,266

3,663

4,508

Net income (loss)

$

50,203

$

(7,116)

$

107,750

$

35,323

Earnings (loss)per common share — Basic:

Net income (loss) per share

$

0.64

$

(0.09)

$

1.37

$

0.45

Earnings (loss) per common share — Diluted:

Net income (loss) per share

$

0.64

$

(0.09)

$

1.37

$

0.45

Dividends declared per share

$

0.28

$

0.26

$

0.56

$

0.52

_______________

(1)

As part of the Company's adoption of FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), we have reclassified Gain on sale of flight equipment from Other income (expense) to Revenues on our Consolidated Statement of Income as of March 31, 2018.  We believe this better reflects the sale of flight equipment as part of our ordinary activities and conforms our presentation to those of our publicly traded peers.  The presentation for the three and six months ended June 30, 2017, have also been reclassified to conform to the current period presentation.  The standard did not have a material impact on our consolidated financial statements and related disclosures.

Aircastle Limited and Subsidiaries

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

Six Months Ended June 30,

2018

2017

Cash flows from operating activities:

Net income

$

107,750

$

35,323

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

Depreciation

151,183

157,428

Amortization of deferred financing costs

7,042

9,125

Amortization of lease premiums, discounts and incentives

6,662

6,392

Deferred income taxes

3,126

(833)

Non-cash share-based payment expense

5,454

8,130

Cash flow hedges reclassified into earnings

595

1,156

Security deposits and maintenance payments included in earnings

(554)

(23,063)

Gain on sale of flight equipment

(25,632)

(14,284)

Impairment of flight equipment

—

80,430

Other

(7,491)

1,211

Changes in certain assets and liabilities:

Accounts receivable

(7,315)

2,090

Other assets

(3,086)

(11,407)

Accounts payable, accrued expenses and other liabilities

(14,799)

(2,194)

Lease rentals received in advance

16,908

(2,115)

Net cash and restricted cash provided by operating activities

239,843

247,389

Cash flows from investing activities:

Acquisition and improvement of flight equipment

(365,505)

(148,364)

Proceeds from sale of flight equipment

178,185

238,277

Net investment in finance and sales-type leases

(16,256)

(119,971)

Collections on finance and sales-type leases

13,127

17,185

Aircraft purchase deposits and progress payments, net of returned deposits and aircraft sales deposits

(3,965)

(2,892)

Other

2,956

88

Net cash and restricted cash used in investing activities

(191,458)

(15,677)

Cash flows from financing activities:

Repurchase of shares

(14,987)

(2,513)

Proceeds from secured and unsecured debt financings

—

500,000

Repayments of secured and unsecured debt financings

(128,342)

(667,472)

Deferred financing costs

(1,615)

(8,540)

Security deposits and maintenance payments received

108,653

87,185

Security deposits and maintenance payments returned

(38,718)

(77,593)

Dividends paid

(43,993)

(40,948)

Net cash and restricted cash used in financing activities

(119,002)

(209,881)

Net increase in cash and restricted cash

(70,617)

21,831

Cash and restricted cash at beginning of period

233,857

508,817

Cash and restricted cash at end of period

$

163,240

$

530,648

Aircastle Limited and Subsidiaries

Selected Financial Guidance Elements for the Third Quarter of 2018

($ in millions, except for percentages)

(Unaudited)

Guidance Item

Q3:18

Lease rental revenue

$181 - $185

Finance lease revenue

$8 - $9

Amortization of net lease discounts and lease incentives

$(4) - $(5)

Maintenance revenue

$0 - $1

Gain on sale

$0 - $8

Depreciation

$77 - $81

Interest, net

$58 - $60

SG&A⁽¹⁾

$17 - $18

4% - 6%

(1)

Includes ~$2.9M of non-cash share-based payment expense.

Aircastle Limited and Subsidiaries

Supplemental Financial Information

(Amount in thousands, except per share amounts)

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017

Revenues⁽¹⁾

$

204,276

$

237,059

$

406,956

$

442,091

EBITDA⁽²⁾

$

190,448

$

136,585

$

382,389

$

326,224

Adjusted EBITDA⁽²⁾

$

192,623

$

224,105

$

383,768

$

417,496

Net income (loss)

$

50,203

$

(7,116)

$

107,750

$

35,323

Net income (loss) allocable to common shares

$

49,884

$

(7,116)

$

107,113

$

35,068

Per common share - Basic

$

0.64

$

(0.09)

$

1.37

$

0.45

Per common share - Diluted

$

0.64

$

(0.09)

$

1.37

$

0.45

Adjusted net income⁽²⁾

$

52,378

$

2,448

$

109,129

$

48,139

Adjusted net income allocable to common shares

$

52,045

$

2,428

$

108,483

$

47,791

Per common share - Basic

$

0.67

$

0.03

$

1.39

$

0.61

Per common share - Diluted

$

0.67

$

0.03

$

1.38

$

0.61

Basic common shares outstanding

77,911

78,177

78,137

78,177

Diluted common shares outstanding⁽³⁾

78,248

78,177

78,420

78,404

_______________

(1)

As part of the Company's adoption of FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), we have reclassified Gain on sale of flight equipment from Other income (expense) to Revenues on our Consolidated Statements of Income as of March 31, 2018.  We believe this better reflects the sale of flight equipment as part of our ordinary activities and conforms our presentation to those of our publicly traded peers.  The presentation for the three and six months ended June 30, 2017, have also been reclassified to conform to the current period presentation.  The standard did not have a material impact on our consolidated financial statements and related disclosures.

(2)

Refer to the selected information accompanying this press release for a reconciliation of GAAP to Non-GAAP information.

(3)

For the three months ended June 30, 2018, and for the six months ended June 30, 2018 and 2017, dilutive shares represented contingently issuable shares.   For the three months ended June 30, 2017, the effect of 170,116 contingently issuable shares related to the Company's PSUs would have been anti-dilutive and were excluded from the calculation.

Aircastle Limited and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

EBITDA and Adjusted EBITDA Reconciliation

(Dollars in thousands)

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017

Net income (loss)

$

50,203

$

(7,116)

$

107,750

$

35,323

Depreciation

76,181

78,254

151,183

157,428

Amortization of lease premiums, discounts and incentives

3,534

3,280

6,662

6,392

Interest, net

57,398

61,672

114,506

124,740

Income tax provision

3,132

495

2,288

2,341

   EBITDA

190,448

136,585

382,389

326,224

Adjustments:

Impairment of flight equipment

—

79,930

—

80,430

Non-cash share-based payment expense

3,076

6,028

5,454

8,130

(Gain) loss on mark-to-market of interest rate derivative contracts

(901)

1,562

(4,075)

2,712

   Adjusted EBITDA

$

192,623

$

224,105

$

383,768

$

417,496

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.

Aircastle Limited and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

Adjusted Net Income Reconciliation

(Dollars in thousands)

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017

Net income (loss)

$

50,203

$

(7,116)

$

107,750

$

35,323

Loan termination fee⁽¹⁾

—

988

—

988

(Gain) loss on mark-to-market of interest rate derivative contracts⁽²⁾

(901)

1,562

(4,075)

2,712

Write-off of deferred financing fees⁽¹⁾

—

986

—

986

Non-cash share-based payment expense⁽³⁾

3,076

6,028

5,454

8,130

Adjusted net income

$

52,378

$

2,448

$

109,129

$

48,139

_______________

(1)   Included in Interest, net.

(2)   Included in Other income (expense).

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

Management believes that ANI, when viewed in conjunction with the Company's results under U.S. GAAP and the above reconciliation, provides useful information about operating and period-over-period performance and 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, changes related to refinancing activity and non-cash share-based payment expense.

Aircastle Limited and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

Cash Return on Equity Calculation

(Dollars in thousands)

(Unaudited)

Period

CFFO

Finance

Lease

Collections

Gain on

Sale of

Flt. Eqt.

Deprec.

Distributions

in excess

(less than)

Equity Earnings

Cash

Earnings

Average

Shareholders

Equity

Trailing

12

Month

Cash

ROE

2012

$

427,277

$

3,852

$

5,747

$

269,920

$

—

$

166,956

$

1,425,658

11.7

%

2013

$

424,037

$

9,508

$

37,220

$

284,924

$

—

$

185,841

$

1,513,156

12.3

%

2014

$

458,786

$

10,312

$

23,146

$

299,365

$

667

$

193,546

$

1,661,228

11.7

%

2015

$

526,285

$

9,559

$

58,017

$

318,783

$

(530)

$

274,548

$

1,759,871

15.6

%

2016

$

468,092

$

19,413

$

39,126

$

305,216

$

(1,782)

$

219,633

$

1,789,256

12.3

%

2017

$

490,872

$

32,184

$

55,167

$

298,664

$

(1,011)

$

278,548

$

1,861,005

15.0

%

LTM Q2:18

$

483,325

$

28,126

$

66,515

$

292,419

$

(2,265)

$

283,282

$

1,903,097

14.9

%

Note: LTM Average Shareholders' Equity is the average of the most recent five quarters period end Shareholders' Equity.  Management believes that the cash return on equity metric ("Cash ROE") when viewed in conjunction  with the Company's results under U.S. GAAP and the above reconciliation, provide useful information about operating and period-over-period performance, and provide additional information that is useful for evaluating the underlying operating performance of our business without regard to periodic reporting impacts related to non-cash revenue and expense items and interest rate derivative accounting, while recognizing the depreciating nature of our assets.

Aircastle Limited and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

Net Cash Interest Margin Calculation

(Dollars in thousands)

(Unaudited)

Period

Average NBV

Quarterly Rental

Revenue⁽¹⁾

Cash Interest⁽²⁾

Annualized Net Cash

Interest Margin⁽¹⁾⁽²⁾

Q1:12

$

4,388,008

$

152,242

$

44,969

9.8

%

Q2:12

$

4,542,477

$

156,057

$

48,798

9.4

%

Q3:12

$

4,697,802

$

163,630

$

41,373

10.4

%

Q4:12

$

4,726,457

$

163,820

$

43,461

10.2

%

Q1:13

$

4,740,161

$

162,319

$

48,591

9.6

%

Q2:13

$

4,840,396

$

164,239

$

44,915

9.9

%

Q3:13

$

4,863,444

$

167,876

$

47,682

9.9

%

Q4:13

$

5,118,601

$

176,168

$

49,080

9.9

%

Q1:14

$

5,312,651

$

181,095

$

51,685

9.7

%

Q2:14

$

5,721,521

$

190,574

$

48,172

10.0

%

Q3:14

$

5,483,958

$

182,227

$

44,820

10.0

%

Q4:14

$

5,468,637

$

181,977

$

44,459

10.1

%

Q1:15

$

5,743,035

$

181,027

$

50,235

9.1

%

Q2:15

$

5,967,898

$

189,238

$

51,413

9.2

%

Q3:15

$

6,048,330

$

191,878

$

51,428

9.3

%

Q4:15

$

5,962,874

$

188,491

$

51,250

9.2

%

Q1:16

$

5,988,076

$

186,730

$

51,815

9.0

%

Q2:16

$

5,920,030

$

184,469

$

55,779

8.7

%

Q3:16

$

6,265,175

$

193,909

$

57,589

8.7

%

Q4:16

$

6,346,361

$

196,714

$

58,631

8.7

%

Q1:17

$

6,505,355