Aircastle (AYR)

their local currencies and certain of their liabilities and expenses are denominated in U.S. dollars, including lease payments to us. 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 the leases.

 

We may not correctly assess the credit risk of each lessee or 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, missed or reduced 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, and to pay dividends on our common shares. 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 continue to 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 under the required aircraft maintenance program in a sufficient manner and labor-management disagreements or disputes.

 

We will typically not be in possession of any aircraft while the aircraft are on lease to the lessees. Consequently, our ability to determine the condition of the aircraft or whether the lessees are properly maintaining the aircraft will be limited to periodic inspections we perform or that are performed on our behalf by third-party service providers or aircraft inspectors, and even these periodic inspections will be summary in nature and will not necessarily reveal any maintenance shortfalls which may exist. A continuous failure by a lessee to meet its maintenance obligations under the relevant lease could:

 

 

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.

 

If our lessees encounter financial difficulties and we decide to restructure our leases with those lessees, this would result in less favorable leases and could result in significant reductions in our cash flow and affect our ability to meet our debt obligations and to pay dividends on our common shares.

 

When a lessee (i) is late in making payments, (ii) fails to make payments in full or in part under the lease or (iii) 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 request 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 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 and our ability to meet our debt obligations and to pay dividends on our common shares.

 

We operate as a supplier to airlines and are indirectly impacted
by all the risks facing airlines today. Our ability to succeed
is dependent upon (i) the financial strength of our
lessees, (ii) the ability to diligently and appropriately
assess the credit risk of our lessees and (iii) the ability
of lessees to perform their contractual obligations to us. The
ability of each lessee to perform its obligations under its
lease will depend primarily on the lessee’s financial
condition and cash flow, which may be affected by factors beyond
our control, including:

 

 

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, a
large portion of lessees over time may be significantly in
arrears in their rental or maintenance payments. Many of our
existing lessees are in a weak financial condition and suffer
liquidity problems, and 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 softening economic environment. These
liquidity issues will be more likely to lead to airline failures
in the context of the current financial system distress,
volatile commodity (fuel) prices, and economic slowdown, with
additional liquidity being more difficult and expensive to
source. In addition, many of our lessees are exposed to currency
risk due to the fact that they earn revenues in

their local currencies and certain of their liabilities and
expenses are denominated in U.S. dollars, including lease
payments to us. 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 the
leases.

 

We may not correctly assess the credit risk of each lessee or
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, missed or reduced 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, and to pay dividends on our common
shares. 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
continue to 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
under the required aircraft maintenance program in a sufficient
manner and labor-management disagreements or disputes.

 

We will typically not be in possession of any aircraft while the
aircraft are on lease to the lessees. Consequently, our ability
to determine the condition of the aircraft or whether the
lessees are properly maintaining the aircraft will be limited to
periodic inspections we perform or that are performed on our
behalf by third-party service providers or aircraft inspectors,
and even these periodic inspections will be summary in nature
and will not necessarily reveal any maintenance shortfalls which
may exist. A continuous failure by a lessee to meet its
maintenance obligations under the relevant lease could:

 

 

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.

 

If our
lessees encounter financial difficulties and we decide to
restructure our leases with those lessees, this would result in
less favorable leases and could result in significant reductions
in our cash flow and affect our ability to meet our debt
obligations and to pay dividends on our common
shares.

 

When a lessee (i) is late in making payments,
(ii) fails to make payments in full or in part under the
lease or (iii) 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 request 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 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 and our
ability to meet our debt obligations and to pay dividends on our
common shares.

 

 

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, a large portion of lessees over time may be significantly in arrears in their rental or maintenance payments. Many of our existing lessees are in a weak financial condition and suffer liquidity problems, and 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 softening economic environment. These liquidity issues will be more likely to lead to airline failures in the context of the current financial system distress, with additional liquidity being more difficult and expensive to source. In addition, many of our lessees are exposed to currency risk due to the fact that they earn revenues in their local currencies and certain of their liabilities and expenses are denominated in U.S. dollars, including lease payments to us. Given the size of our aircraft portfolio, we expect that some lessees from time to time, and possibly in the near future, will be slow in making or will fail to make their payments in full under the leases.

 

We may not correctly assess the credit risk of each lessee or 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, missed or reduced 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, and to pay dividends on our common shares. 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 continue to 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 under the required aircraft maintenance program in a sufficient manner and labor-management disagreements or disputes.

 

We will typically not be in possession of any aircraft while the aircraft are on lease to the lessees. Consequently, our ability to determine the condition of the aircraft or whether the lessees are properly maintaining the aircraft will be limited to periodic inspections we perform or that are performed on our behalf by third-party service providers or aircraft inspectors, and even these periodic inspections

will be summary in nature and will not necessarily reveal any maintenance shortfalls which may exist. A continuous failure by a lessee to meet its maintenance obligations under the relevant lease could:

 

 

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.

 

If our lessees encounter financial difficulties and we decide to restructure our leases with those lessees, this would result in less favorable leases and could result in significant reductions in our cash flow and affect our ability to meet our debt obligations and to pay dividends on our common shares.

 

When a lessee (i) is late in making payments, (ii) fails to make payments in full or in part under the lease or (iii) 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 request 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 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. You should expect that restructurings and/or repossessions with some lessees might occur.

 

The terms and conditions of possible payment restructurings or reschedulings may result in significant reductions of rental payments, which may adversely affect our cash flows and our ability to meet our debt obligations and to pay dividends on our common shares.