Company Quick10K Filing
AerCap
20-F 2020-12-31 Filed 2021-03-02
20-F 2019-12-31 Filed 2020-03-05
20-F 2018-12-31 Filed 2019-03-08
20-F 2017-12-31 Filed 2018-03-09
20-F 2016-12-31 Filed 2017-03-20
20-F 2015-12-31 Filed 2016-03-23
20-F 2014-12-31 Filed 2015-03-30
20-F 2013-12-31 Filed 2014-03-18
20-F 2012-12-31 Filed 2013-03-13
20-F 2011-12-31 Filed 2012-03-23
20-F 2010-12-31 Filed 2011-03-23
20-F 2009-12-31 Filed 2010-03-16

AER 20F Annual Report

Part I
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on The Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Item 12. Description of Securities Other Than Equity Securities
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions From The Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F. Change in Registrant's Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
Part III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
EX-2.6 aercap202020-fxex26.htm
EX-2.53 aercap202020-fxex253.htm
EX-8.1 aercap202020-fxex81.htm
EX-12.1 aercap202020-fxex121.htm
EX-12.2 aercap202020-fxex122.htm
EX-13.1 aercap202020-fxex131.htm
EX-15.1 aercap202020-fxex151.htm

AerCap Earnings 2020-12-31

Balance SheetIncome StatementCash Flow

aer-20201231
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
Commission file number 001-33159
AerCap Holdings N.V.
(Exact name of Registrant as specified in its charter)
The Netherlands
(Jurisdiction of incorporation or organization)
AerCap House
65 St. Stephen’s Green
Dublin D02 YX20
Ireland
+ 353 1 819 2010
(Address of principal executive offices)
Vincent Drouillard, AerCap House, 65 St. Stephen’s Green, Dublin D02 YX20, Ireland
Telephone number: +353 1 819 2010, Fax number: +353 1 672 0270
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Ordinary SharesAERThe New York Stock Exchange
5.875% Fixed-Rate Reset Junior Subordinated Notes due 2079AER79The New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or ordinary stock as of the close of the period covered by the annual report.
Ordinary Shares, Euro 0.01 par value130,398,538 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes     No 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes     No 
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     No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes     No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non accelerated filer
(Do not check if a
smaller reporting company)
Emerging growth company
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes No ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAPInternational Financial Reporting Standards as
issued by the International Accounting Standards Board
Other
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: Item 17 Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No 




TABLE OF CONTENTS
F-1

1


SPECIAL NOTE ABOUT FORWARD LOOKING STATEMENTS
This annual report includes “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, principally under the captions “Item 3. Key Information—Risk Factors,” “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects.” We have based these forward looking statements largely on our current beliefs and projections about future events and financial trends affecting our business. Many important factors, in addition to those discussed in this annual report, could cause our actual results to differ substantially from those anticipated in our forward looking statements, including, among other things:
the severity, extent and duration of the Covid-19 pandemic and the rate of recovery in air travel, the aviation industry and global economic conditions; the potential impacts of the pandemic and responsive government actions on our business and results of operations, financial condition and cash flows;
the availability of capital to us and to our customers and changes in interest rates;
the ability of our lessees and potential lessees to make lease payments to us;
our ability to successfully negotiate aircraft purchases, sales and leases, to collect outstanding amounts due and to repossess aircraft under defaulted leases, and to control costs and expenses;
changes in the overall demand for commercial aircraft leasing and aircraft management services;
the effects of terrorist attacks on the aviation industry and on our operations;
the economic condition of the global airline and cargo industry and economic and political conditions;
development of increased government regulation, including travel restrictions, regulation of trade and the imposition of import and export controls, tariffs and other trade barriers;
competitive pressures within the industry;
the negotiation of aircraft management services contracts;
regulatory changes affecting commercial aircraft operators, aircraft maintenance, engine standards, accounting standards and taxes; and
the risks set forth in “Item 3. Key Information—Risk Factors” included in this annual report.
The words “believe,” “may,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar words are intended to identify forward looking statements. Forward looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation and the effects of competition. Forward looking statements speak only as of the date they were made and we undertake no obligation to update publicly or to revise any forward looking statements because of new information, future events or other factors. In light of the risks and uncertainties described above, the forward looking events and circumstances described in this annual report might not occur and are not guarantees of future performance.

2


PART I
Item 1.    Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2.    Offer Statistics and Expected Timetable
Not applicable.
3


Item 3.    Key Information
RISK FACTORS

Summary Risk Factors
Risks related to disease, natural disasters, terrorist attacks and other world events
The Covid-19 pandemic may continue to have a material and adverse impact on the aviation industry.
Global or regional public health developments, extreme weather or natural disasters or other force majeure events may adversely affect the demand for air travel, the financial condition of our lessees and the aviation industry more broadly, and ultimately our financial condition, results and cash flows.
The effects of terrorist attacks and the threat of terrorist attacks, war or armed hostilities may adversely affect the financial condition of the airline industry.
Risks relating to our funding and liquidity
We require significant capital to fund our business and service our debt, and changes in the availability of capital or in the interest rates we pay on our debt may affect our operations or financial results.
We have a substantial level of indebtedness and we might incur significantly more debt, which could adversely impact our operating flexibility and subject us to covenants that impose restrictions that may affect our ability to operate our business.
Risks relating to market demand for, and lease rates and value of, aircraft in our fleet
Our business depends heavily on the level of demand for the aircraft in our fleet, which may decline as a result of factors outside our control, thereby affecting the returns on our aircraft investments.
Our operations depend on aircraft manufacturers, whose behavior may change in ways that adversely affect the lease rates and value of aircraft in our fleet or our results of operations more broadly.
If a decline in demand for certain aircraft causes a decline in their projected lease rates, or if we dispose of aircraft for a price that is less than their depreciated book value on our balance sheet, then we will recognize impairments or make fair value adjustments.
Risks related to the financial strength of our lessees
Our financial condition depends, in part, on the financial strength of our lessees, and factors outside of our control may adversely affect our lessees’ operations, their ability to meet their payment obligations to us or their demand for our aircraft.
Airline bankruptcy proceedings or reorganizations may limit our ability to collect lease rentals and other payments, depress aircraft market values and adversely affect our ability to re-lease or sell aircraft at favorable rates, if at all, particularly where such proceedings involve our lessees.
Risks related to our relationship with our lessees
We have limited control over the operation of our aircraft and engine assets while they are under lease and we depend on our lessees to properly maintain and insure our aircraft, which may expose us to additional and unexpected costs.
If our lessees encounter financial difficulties and we restructure or terminate our leases, our ability to re-lease aircraft on favorable lease terms, collect outstanding amounts due to us, and repossess aircraft under defaulted leases may be limited and require us to incur additional costs and expenses.

4


Risks related to competition and the aviation industry
We face significant competition and our business may be adversely affected if market participants change as a result of restructuring or bankruptcies, mergers and acquisitions, or new entities entering or exiting the industry, or if existing competitors enter into new or different market segments.
We rely on a small number of manufacturers for the supply of commercial aircraft, and any disruption in these manufacturers’ operating abilities may cause us to experience delivery delays on our aircraft orders. We may experience additional delivery delays and associated costs if aircraft manufacturers deliver aircraft that fail to meet our lessees’ expectations or the requirements of air travel regulators.
Risks related to the geopolitical, regulatory and legal exposure of our business
We are exposed to geopolitical, economic and legal risks associated with the international operations of our business and those of our lessees, including many of the economic and political risks associated with emerging markets. We are exposed to concentrated political and economic risks in certain geographical regions in which our lessees are concentrated, particularly China.
Our aircraft are subject to various environmental regulations and concerns that may be supplemented by additional regulations and requirements or become more stringent, which may negatively affect our operations.
Risks related to our IT, structure and taxation
We depend on our information technology systems and those of third parties, and our business may suffer if they are damaged or interrupted, including by cyberattack.
We are incorporated in the Netherlands and it may be difficult to obtain or enforce judgments against us or our executive officers, some of our directors and some of our named experts in the United States.
We are subject to taxation regimes in various jurisdictions, and we may become subject to additional taxes in those jurisdictions, taxes in other jurisdictions, or experience changes in our tax status in certain jurisdictions, which may affect the effective tax rates that we are subject to and the results of our operations.
5


Risks related to disease, natural disasters, terrorist attacks and other world events
The Covid-19 pandemic may continue to have a material and adverse impact on our business.
On March 11, 2020, the World Health Organization declared that the Covid-19 outbreak was a pandemic. The Covid-19 pandemic and responsive government actions have caused significant economic disruption and a dramatic reduction in commercial airline traffic, resulting in a broad adverse impact on air travel, the aviation industry and demand for commercial aircraft globally, all of which has impacted our results of operations. The continued impact of the Covid-19 pandemic on our business will depend, among other things, on the duration of the pandemic and the speed and effectiveness of vaccination efforts; the rate of recovery in air travel and the aviation industry, including the future demand for commercial aircraft; and global economic conditions.
We have agreed with many of our lessees to defer rent obligations. We expect that we may grant additional rent deferrals and extend the periods of repayment. If the financial condition of our customers continues to weaken, we may grant further accommodations.
If we determine that the collectability of lessee rental payments is no longer probable (including any deferral thereof), we are then required to recognize rental revenues using a cash accounting method rather than an accrual method. In the period we conclude that collection of lease payments is no longer probable, we recognize any difference between revenue amounts recognized to date under the accrual method and payments that have been collected from the lessee, including security deposit amounts held, as a current period adjustment to lease revenue. Subsequently, we recognize revenues based on the lesser of the straight-line rental income and the lease payments collected from the lessee until such time that collection is probable, which could materially reduce our reported revenue. During the year ended December 31, 2020, we recognized rent payments from a number of our lessees, using the cash method, which resulted in a decrease in basic lease rents of approximately $310.6 million. If the financial condition of any additional lessees worsens, we may determine to recognize rent payments from these lessees using the cash method, which could, in future periods, further decrease basic lease rents.
Many national governments have provided, have introduced plans to provide, or have indicated that they may provide financial assistance to airlines. In some cases, governments have imposed conditions on airline recipients of assistance, and governments may also impose conditions on any future assistance, such as requiring airlines to remove less environmentally-friendly aircraft from their fleets or obtain concessions from their creditors, including aircraft lessors, which could adversely impact our business. See “Item 3. Key Information—Risk Factors—Risks related to the financial strength of our lessees—Our financial condition is dependent, in part, on the financial strength of our lessees”.
In addition to a reduction in basic lease rents, the significant decline in air travel has resulted, and may continue to result, in lower utilization of our aircraft, which is likely to reduce future supplemental maintenance rent and EOL compensation payable to us. We may also experience delayed or lost revenue if key aircraft manufacturers are unable to deliver aircraft on schedule due to Covid-19-related issues, such as supply chain disruptions, production cuts, facility shutdowns or liquidity constraints, although it is difficult for us to predict with certainty the impact that Covid-19 will have on manufacturers.
We are observing, as a result of the significant and sustained decline in international air passenger traffic and an expectation of a long recovery time for international air traffic, a shift by some airlines away from current technology widebody aircraft in favor of new technology widebody aircraft. This has led us to recognize an impairment charge of $1.1 billion, primarily related to current technology aircraft, in particular Airbus A330 and Boeing 777 aircraft, during the year ended December 31, 2020. Further, a number of our lessees have initiated bankruptcy or comparable proceedings, and current market conditions have increased the likelihood that other lessees will default on their obligations to us or experience bankruptcy. If airlines continue to experience prolonged financial hardship or bankruptcies, or there are other adverse developments to the air travel industry arising from the pandemic, aircraft values may decline further, thereby increasing the likelihood that in future quarters we recognize additional impairment charges with respect to our aircraft. See “Item 5. Critical accounting policies and estimates—Event-driven impairment and impairment calculation charges.” Additionally, any such developments could increase the likelihood that our definite-lived customer relationships intangible assets could be impaired. In addition, any bankruptcy, insolvency, reorganization or other restructuring of our lessees may result in their grounding our aircraft, negotiating reductions in aircraft lease rentals or altogether rejecting their leases, all of which could depress aircraft market value and adversely affect our ability to timely re-lease or sell aircraft at favorable rates, if at all. See “Item 3. Key Information—Risk Factors—Risks related to the financial strength of our lessees—If our lessees encounter financial difficulties and we restructure or terminate our leases, including as a result of airline reorganizations or bankruptcies, we are likely to obtain less favorable lease terms.”
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While we expect that, even with current market conditions, our liquidity is more than sufficient to satisfy our anticipated operational and other business needs over the next 12 months, we cannot assure you that operating cash flow will not be lower than we expect due to, for example, higher than expected deferral arrangements or payment defaults. Although we currently have a number of sources of liquidity, in some cases the availability of these sources is contingent upon our ability to satisfy certain financial covenants. See Note 13—Debt to our Consolidated Financial Statements included in this annual report. To the extent that the Covid-19 pandemic adversely affects our ability to comply with any of these covenants, it may also have the effect of exacerbating many of the other risks identified in “Item 3—Risk Factors—Risks related to our funding and liquidity—The agreements governing our debt contain various covenants that impose restrictions on us that may affect our ability to operate our business.” Even though we do not currently foresee any difficulty or inability to remain in compliance with these financial covenants, to the extent we do not do so, we may be in default under, and/or unable to draw upon, these sources of liquidity or may be required to negotiate amendments with our counterparties, the terms of which could be unfavorable to us.
Additionally, the Covid-19 pandemic has led us to adopt remote working arrangements (which remain in place in some of our locations), which could negatively affect our operations or internal controls over financial reporting and may require us to implement new processes, procedures and controls to respond to further changes in our business environment. We also depend on certain key officers and employees; should any of them become ill and unable to work, it could impact our productivity and business continuity.
Global or regional public health developments, extreme weather or natural disasters or other force majeure events may adversely affect the demand for air travel, the financial condition of our lessees and the aviation industry more broadly, and ultimately our financial condition, results and cash flows.
Our international operations expose us to risks associated with unforeseen global and regional events. Epidemic diseases such as Covid-19, Ebola, measles, Severe Acute Respiratory Syndrome (SARS), H1N1 (swine flu) and Zika virus could materially and adversely affect the overall amount of air travel. These epidemic diseases or the fear of these diseases could result in government-imposed travel restrictions and reduced passenger demand for travel. The occurrence of severe weather events or natural disasters, including floods, earthquakes and volcanic eruptions, may make airlines unable to operate to or from certain regions or impact demand for air travel. The occurrence or outbreak of any of the above events or other force majeure events could adversely affect commercial airline traffic, reduce demand for aircraft leases or impair the financial condition of the aviation industry, including our lessees. As a result, our lessees may not be able to satisfy their payment obligations to us. These events may also cause damage to our aircraft and engine assets, the extent of losses from which may not be fully covered by insurance. For these and other reasons, our financial results may be materially and adversely affected by the occurrence of such events.
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The effects of terrorist attacks, war or armed hostilities may adversely affect the financial condition of the airline industry and our lessees’ ability to meet their lease payment obligations to us.
Terrorist attacks and the threat of terrorist attacks, war or armed hostilities, or the fear of such events, have historically had a negative impact on the aviation industry and could result in:
higher costs to the airlines due to the increased security measures;
decreased passenger and air cargo demand and revenue;
the imposition of “no-fly zone” or other restrictions on commercial airline traffic in certain regions;
uncertainty of the price and availability of jet fuel and the cost and practicability of obtaining fuel hedges;
higher financing costs and difficulty in raising the desired amount of proceeds on favorable terms, if at all;
significantly higher premiums or reduced coverage amounts for aviation insurance coverage for future claims caused by acts of war, terrorism, sabotage, hijacking and other similar perils, which may be insufficient to comply with the current requirements of aircraft lenders and lessors or applicable government regulations, or the unavailability of certain types of insurance;
reliance by aircraft lenders or lessors on government programs for specified types of aviation insurance, which may not be available at the relevant time or under which governments may not pay in a timely fashion;
inability of airlines to reduce their operating costs and conserve financial resources, taking into account the increased costs incurred as a consequence of such events;
special charges recognized by some operators, such as those related to the impairment of aircraft and engines and other long-lived assets stemming from the grounding of aircraft as a result of terrorist attacks, economic conditions and airline reorganizations; and
an airline becoming insolvent and/or ceasing operations.
Such events are likely to cause our lessees to incur higher costs and to generate lower revenues, which could result in a material adverse effect on their financial condition and liquidity, including their ability to make rental and other lease payments to us or to obtain the types and amounts of insurance we require. This in turn could lead to aircraft groundings or additional lease restructurings and repossessions, increase our cost of re-leasing or selling aircraft, impair our ability to re-lease or otherwise dispose of aircraft on favorable terms or at all, or reduce the proceeds we receive for our aircraft in a disposition.

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Risks relating to our funding and liquidity
We require significant capital to fund our business.
As of December 31, 2020, we had 286 new aircraft on order, which will require substantial aircraft purchase contract payments. In order to meet these commitments and to maintain an adequate level of unrestricted cash, we will need to raise additional funds by accessing committed debt facilities, securing additional financing from banks or through capital markets transactions, or possibly by selling aircraft.
If we are unable to meet our aircraft purchase commitments as they come due, we will be subject to several risks, including:
forfeiting deposits and progress payments to manufacturers and having to pay certain significant costs related to these commitments such as actual damages and legal, accounting and financial advisory expenses;
defaulting on our lease commitments, 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.
Any of these events could materially and adversely affect our financial results.
To service our debt and meet our other cash needs, we will require a significant amount of cash, which may not be available.
Our ability to make payments on, and to repay or refinance, our debt, depends largely upon our operating performance, which is in part subject to factors beyond our control. In addition, our ability to borrow funds to make payments on our debt depends on our maintaining specified financial ratios and satisfying financial condition tests and other covenants in certain of the agreements governing our debt. Our business may not generate sufficient cash flow from operations and future borrowings may not be available in amounts sufficient to pay our debt and to satisfy our other liquidity needs.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to seek alternatives, such as to reduce or delay investments and aircraft purchases, sell assets, restructure or refinance our indebtedness, or seek additional capital, including through new types of debt, equity or hybrid securities. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and might require us to comply with more onerous covenants, which could further restrict our business operations. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations or to meet our aircraft purchase commitments as they come due. Failure to make payments on our debt would result in a default under those agreements and could result in a default under other agreements containing cross default provisions. Moreover, the issuance of additional equity may be dilutive to existing shareholders or otherwise may be on terms not favorable to us or existing shareholders.
Despite our substantial indebtedness, we might incur significantly more debt.
Despite our current indebtedness levels, we may increase our levels of debt in the future to finance our operations, including to purchase aircraft or to meet our contractual obligations, or for any other purpose. The agreements relating to our debt, including our indentures, term loan facilities, Export Credit Agency (“ECA”)-guaranteed financings, revolving credit facilities, securitizations, other commercial bank financings, and other financings do not prohibit us from incurring additional debt. As of December 31, 2020, we had approximately $5.6 billion of undrawn lines of credit available under our revolving credit and term loan facilities and other available secured debt, subject to certain conditions, including compliance with certain financial covenants. If we increase our total indebtedness, our debt service obligations will increase, and we will become more exposed to the risks arising from our substantial level of indebtedness.
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Our level of indebtedness, which requires significant debt service payments, could adversely impact our operating flexibility and financial results.
The principal amount of our outstanding indebtedness, which excludes fair value adjustments of $19.7 million and debt issuance costs, debt discounts and debt premium of $192.8 million, was approximately $28.9 billion as of December 31, 2020 (approximately 69% of our total assets as of December 31, 2020), and our interest payments, net of amounts capitalized, were $1.2 billion for the year ended December 31, 2020. Due to the capital-intensive nature of our business, we expect that we will incur additional indebtedness in the future and continue to maintain significant levels of indebtedness.
Our level of indebtedness:
requires a substantial portion of our cash flows from operations to be dedicated to interest and principal payments and therefore not available to fund our operations, working capital, capital expenditures, expansion, acquisitions or general corporate or other purposes;
may impair our ability to obtain additional financing on favorable terms or at all in the future;
may limit our flexibility in planning for, or reacting to, changes in our business and industry; and
may make us more vulnerable to downturns in our business, our industry or the economy in general.
The agreements governing our debt contain various covenants that impose restrictions on us that may affect our ability to operate our business.
Certain of our indentures, term loan facilities, ECA-guaranteed financings, revolving credit facilities, securitizations, other commercial bank financings, and other agreements governing our debt impose operating and financial restrictions on our activities that limit our operational flexibility. Among other negative covenants customary for such financings, certain of these restrictions limit our ability to incur additional indebtedness, create liens on, sell or access certain assets, declare or pay certain dividends and distributions or enter into certain transactions, investments, acquisitions, loans, guarantees or advances. Additionally, a substantial portion of our owned aircraft are held through SPEs or finance structures that finance or refinance the aircraft through funding agreements that place restrictions on distributions of funds to us.
Agreements governing certain of our indebtedness also contain financial covenants, including requirements that we comply with certain loan-to-value, interest coverage and leverage ratios. These restrictions could impede our ability to operate our business by, among other things, limiting our ability to take advantage of financing, merger and acquisition and other corporate opportunities. Our ability to comply with these covenants may be affected by events beyond our control. Failure to comply with any of the covenants in our financing agreements would result in a default under those agreements and could result in a default under other agreements containing cross default provisions. Under these circumstances, we may have insufficient funds or other resources to satisfy all our obligations.
Changes in interest rates may increase our cost of borrowing or otherwise adversely affect our net income.
We use a mix of fixed rate and floating rate debt to finance our business. Any increase in our cost of borrowing directly impacts our net income. Our cost of borrowing is affected by the interest rates that we obtain on our debt financings, which can fluctuate based on, among other things, general market conditions, the market’s assessment of our credit risk, prevailing interest rates in the market, fluctuations in U.S. Treasury rates and other benchmark rates, changes in credit spreads or swap spreads, and the duration of the debt we issue. If interest rates increase, we will be obligated to make higher interest payments to the lenders of our floating rate debt to the extent that it is not hedged. Please refer to “Item 11—Quantitative and Qualitative Disclosures About Market Risk—Interest rate risk” for further details on our interest rate risk. In addition, we are exposed to the credit risk that the counterparties to our derivative contracts will default on their obligations.
Decreases in interest rates may adversely affect our interest revenue on cash deposits and our lease revenue. During the year ended December 31, 2020, approximately 3% of our basic lease rents from aircraft under operating leases was attributable to leases with lease rates tied to floating interest rates and approximately 97% was derived from leases with fixed lease rates. A decrease in interest rates would cause a decrease in our lease revenue from leases with lease rates tied to floating interest rates. We could also experience reduced lease revenue from our fixed rate leases if interest rates decrease because these are based, in part, on prevailing interest rates at the time we enter into the lease. As a result, new fixed rate leases we enter into at a time of lower interest rates may be at lower lease rates than had no such interest rate decrease occurred, adversely affecting our lease revenue.
Moreover, if interest rates were to rise sharply, we would not immediately be able to fully offset the negative impact on our net income by increasing lease rates, even if the market were able to bear the increased lease rates. Our leases are generally for multiple years with fixed lease rates over the life of the lease and, therefore, lags will exist because our lease rates with respect to a particular aircraft cannot generally be increased until the expiration of the lease.
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Negative changes in our credit ratings may limit our ability to obtain financing or increase our borrowing costs
Our cost of borrowing and access to the capital markets are affected by our credit ratings.
We are currently subject to periodic review by independent credit rating agencies S&P, Moody’s and Fitch, each of which currently maintains an investment grade rating with respect to us.
We cannot assure you that these credit ratings will remain in effect for any given period of time or that a rating will not be lowered, suspended or withdrawn. Any actual or anticipated changes in our credit ratings, could negatively impact our ability to obtain secured or unsecured financing, increase our borrowing costs or limit our access to the capital markets, which could adversely impact our financial results.
The discontinuation, reform or replacement of benchmark indices may negatively affect our interest rate exposure.
Interest rate benchmarks, including the London Interbank Offered Rates (“LIBOR”) and the Euro Overnight Index Average (“EONIA”), are the subject of ongoing reform and, in some cases, discontinuation. The discontinuation or replacement of such benchmarks may disrupt the broader financial markets or could negatively impact our interest expense, and hedging transactions that we use in respect of floating rate instruments based on such benchmarks may not be effective to protect us against any such negative impact. On July 27, 2017, the Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021. In addition, the European Money Markets Institute, which regulates and administers EONIA, is set to discontinue administration of EONIA on January 3, 2022. We are party to certain debt instruments, derivative contracts and leases that use benchmark rates, such as LIBOR, which will require us to transition these instruments, contracts and leases to alternative reference rates in the event of their discontinuation. We cannot guarantee that we will be able to reach agreement with our lenders and other counterparties with respect to any such amendments and the replacement of an existing benchmark rate with an alternate benchmark rate may negatively impact the value of those contracts to us, expose us to additional financial, tax, legal, operational or other costs, or expose us to additional interest rate-related risks, such as different alternative reference rates applying to our assets compared to our liabilities.
Risks relating to market demand for, and lease rates and value of, aircraft in our fleet
We may be unable to generate sufficient returns on our aircraft investments.
Our results depend on our ability to consistently acquire strategically attractive aircraft, continually and profitably lease and re-lease them, and finally sell or otherwise dispose of them, in order to generate returns on the investments we have made, provide cash to finance our growth and operations, and service our existing debt. Upon acquiring new aircraft, we may not be able to enter into leases that generate sufficient cash flow to justify the cost of purchase. When our leases expire or our aircraft are returned prior to the date contemplated in the lease, we bear the risk of re-leasing, selling or parting-out the aircraft. Because our leases are predominantly operating leases, only a portion of an aircraft’s value is recovered by the revenues generated from the lease and we may not be able to realize the aircraft’s residual value after lease expiration.
Our ability to profitably purchase, lease, re-lease, sell or otherwise dispose of our aircraft will depend in part on conditions in the airline industry and general market and competitive conditions at the time of purchase, lease and disposition, which are outside of our control.
Our business depends heavily on the level of demand for aircraft in our fleet, which may decline as a result of changes in market conditions and the overall health of air travel.
Aircraft are long-lived assets and aircraft demand can change over time as a result of changes in market conditions outside of our control. Customer demand for our aircraft is primarily driven by long-term trends in passenger air travel and air cargo demand, and is limited by airport and air traffic control infrastructure constraints. Demand is also influenced by changes in economic growth, regulation, airline profitability, fuel prices, the availability of aircraft financing, pricing and other competitive factors. For example, the Covid-19 pandemic has significantly affected passenger air travel worldwide, and the extent, duration and severity of the pandemic and the rate of recovery in air travel, the aviation industry and global economic conditions will impact demand for our aircraft. In addition, the imposition of more stringent regulation on air travel, including travel restrictions imposed in reaction to the Covid-19 pandemic, may adversely impact the profitability of air travel and reduce demand for our aircraft and engines. Types of regulation that could impact aircraft demand include environmental rules, noise or emissions limitations, aircraft age constraints, trade and import and export controls, tariffs and other trade barriers. If aircraft demand declines, lease rates and residual values of aircraft could be negatively impacted and we may be unable to lease our aircraft on favorable terms, if at all. Aircraft values and lease rates have occasionally experienced sharp decreases in response to market conditions or otherwise.
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Demand for an aircraft can also be affected by factors unique to that aircraft, including the maintenance and operating history of the airframe and engines, the compatibility of aircraft configurations and specifications with other aircraft owned by operators of that type, the number of operators using the particular type of aircraft, the availability of documentary records for the aircraft and aircraft age. The desirability of an aircraft may also be impacted by factors pertinent to the model of an aircraft, such as the performance and reliability of the specific engine type installed on a particular aircraft model, technical limitations and technical problems associated with an aircraft model or the operating histories of an aircraft model. For example, the 2019 grounding of the Boeing 737 MAX has affected demand and our ability to lease these aircraft, which, together with potential reputational damage pertaining to the aircraft model, may affect our future lease rates and residual values for these aircraft.
In addition, new aircraft types that are introduced to the market could be more attractive for the target lessees of our aircraft, increasing the supply of older aircraft in the marketplace. This may cause the retirement and obsolescence of aircraft models, decrease comparative values of aircraft based on newly competitive aircraft and reduce the availability of spare parts for older aircraft. For instance, Airbus S.A.S. (“Airbus”), The Boeing Company (“Boeing”) and Embraer S.A. (“Embraer”) have launched several new aircraft types in recent years, including the Boeing 787 Family, the Boeing 737 MAX Family, the Boeing 777X, the Airbus A320neo Family, the Airbus A330neo Family, the Airbus A350 Family, the Airbus A220 Family and the Embraer E-Jet E2 Family. These new aircraft types, and potential variants of these types, may reduce the desirability of, and have an adverse effect on residual value and future lease rates of, older aircraft types and variants. Additionally, new manufacturers may develop a narrowbody aircraft that competes with established aircraft types from Airbus, Boeing and Embraer, putting downward price pressure on, and decreasing the marketability of, aircraft from these manufacturers. The development of more fuel-efficient engines could make aircraft in our portfolio with engines that are not as fuel-efficient less attractive to potential lessees.
A decrease in demand for our aircraft as a result of any of these factors could materially and adversely affect lease rates and residual values for our aircraft, our ability to lease our aircraft on favorable terms, if at all, and our financial results.
Manufacturer behavior may adversely affect the lease rates and value of aircraft in our fleet or our results of operations more broadly.
The manufacture and supply of commercial aircraft is concentrated among a limited number of manufacturers. Aircraft also have long delivery cycles. We rely, as a result, on these manufacturers responding early and appropriately to changes in the market environment, delivering aircraft that meet our lessees’ expectations and fulfilling contractual obligations they have to us. Failure on the part of manufacturers in relation to any of these requirements may cause us to experience:
missed or late delivery of aircraft and engines ordered by us and an inability to meet our contractual obligations to our customers, resulting in lost or delayed revenues, lower growth rates and strained customer relationships;
an inability to acquire aircraft and engines and related components on terms that will allow us to lease those aircraft and engines to customers at a profit, resulting in lower growth rates or a contraction in our aircraft portfolio;
a market environment with too many aircraft and engines available, creating downward pressure on demand for the aircraft and engines in our fleet and reduced market lease rates and sale prices;
reduced demand for a manufacturer’s aircraft due to poor customer support or reputational damage to such manufacturer, thereby reducing the demand for those aircraft or engines in our fleet and reduced market lease rates and residual aircraft values for those aircraft and engines;
a reduction in our competitiveness due to deep discounting by the aircraft or engine manufacturers, which may lead to reduced market lease rates and aircraft values and may affect our ability to remarket for lease or sell at a profit, some of the aircraft in our fleet; and
technical or other difficulties with aircraft or engines after delivery that subject aircraft to operating restrictions or groundings, reducing value and lease rates of such aircraft and our ability to lease or dispose of such aircraft on favorable terms.
For example, the market is currently experiencing oversupply due to the impacts of the Covid-19 pandemic. In the years preceding the Covid-19 pandemic, the airline industry committed to a significant number of aircraft deliveries through order placements with manufacturers, and in response, aircraft manufacturers raised their production output. In response to the Covid-19 pandemic, manufacturers have significantly reduced their production output. Considering the significant decrease in demand for air travel, these production cuts may not be sufficient to prevent continuing overcapacity. Uncertainty regarding air travel demand may also lead to a reduction in the availability of debt financing for aircraft purchases, which could increase the gap between aircraft production and demand. Any such decrease in aircraft values and lease rates, or increase in the cost or availability of funding, could materially and adversely affect our financial results.
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Additionally, the reintroduction into service of the grounded Boeing 737 MAX aircraft upon regulators recertifying the model for flight has the potential to cause or exacerbate conditions of oversupply, especially in light of the backlog of parked inventory. This may put downward pressure on our aircraft lease rates, values and results of operations.
Risks related to the financial strength of our lessees
Our financial condition is dependent, in part, on the financial strength of our lessees.
We generate our revenue primarily from leases to airlines, and as a result we are exposed to many of the risks that airlines face. The ability of our lessees to perform their obligations depends primarily on their financial condition and cash flows, which are affected by factors outside our control. In addition to general economic and market conditions, airlines are affected by overall changes in passenger and air cargo demand. the price and availability of jet fuel, labor difficulties and costs, the availability of financial or other governmental support and governmental regulation and associated fees, including travel restrictions, restrictions on carbon emissions, environmental regulations and fly-over restrictions.
Generally, airlines with high financial leverage are more likely than airlines with stronger balance sheets to be affected, and are affected more quickly, by these factors. Such airlines are also more likely to seek operating leases.
A deterioration in the financial condition and cash flows of our lessees, including from the ongoing impacts of the Covid-19 pandemic, would increase the risk that they will delay, reduce or fail to make rental payments when due. At any point in time, our lessees may be significantly in arrears. Some lessees encountering financial difficulties may seek a reduction in their lease rates or other concessions, such as a deferral of their obligations to make rent or supplemental maintenance rent payments or a decrease in their contribution toward maintenance obligations. Moreover, we may not correctly assess the credit risk of each lessee or charge lease rates that incorrectly reflect related risks. Many of our lessees are not rated investment grade by the principal U.S. rating agencies and may be more likely to suffer liquidity problems than those that are so rated.
Our financial condition, financial results and cash flows may be materially and adversely affected by any events adversely affecting the financial strength of our lessees.
Increases in fuel prices and fuel price volatility could affect our lessees’ ability to meet their lease payment obligations to us.
The cost of fuel represents a major expense to airlines that is not within their control, and significant increases in fuel costs or hedges that inaccurately assess the direction of fuel costs can materially and adversely affect their operating results. Historically, fuel prices have fluctuated widely depending primarily on international market conditions, geopolitical and environmental events and currency exchange rates, including events, such as natural disasters, that affect fuel supply. Due to the competitive nature of the aviation industry, operators may be unable to increase airfares in a manner that fully offsets increases in fuel costs. In addition, they may not be able to enter appropriate hedging positions to manage their exposure to fuel price fluctuations. Airlines that hedge their fuel costs may suffer adverse impacts to their profitability and liquidity from swift movements in fuel prices, if their hedge agreements require them to post cash collateral. Therefore, if for any reason fuel prices return to historically high levels or show significant volatility, our lessees are likely to incur higher costs or generate lower revenues, which may affect their ability to meet their obligations to us.
Instability in the banking system or financial markets could impair our lessees’ ability to finance their operations, which could affect their ability to comply with payment obligations to us.
Adverse changes in the global banking system or the global financial markets may have a material adverse effect on our business. Many of our lessees have expanded their airline operations through borrowings and some are highly leveraged. These lessees depend on banks and the capital markets to provide working capital and to refinance existing indebtedness. Global financial markets can be highly volatile and the availability of credit from financial markets and financial institutions can vary substantially. Events that adversely impact capital markets could lead to the imposition of stricter capital requirements on borrowers, reduce the general availability of credit or otherwise result in higher borrowing costs, limiting our lessees’ abilities to finance their operations, which could affect their ability to meet payment obligations to us.
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If our lessees encounter financial difficulties and we restructure or terminate our leases, including as a result of airline reorganizations or bankruptcies, we are likely to obtain less favorable lease terms.
If a lessee delays, reduces, or fails to make rental payments when due, or has advised us that it will do so in the future, we may elect or be required to restructure or terminate the lease. In addition, in recent years, several airlines, including several of our lessees, have filed for protection under their local bankruptcy and insolvency laws, and certain airlines have gone into liquidation, and the impact of the Covid-19 pandemic on air travel has caused an increase in the number of airlines filing for such protection. For example, on May 26, 2020, LATAM Airlines Group S.A., one of our significant lessees, filed for Chapter 11 bankruptcy, and other lessees have also commenced Chapter 11 or similar proceedings as a result of the Covid-19 pandemic. A restructured lease will likely contain terms that are less favorable to us. If we are unable to agree on a restructuring and we terminate the lease, we may not receive all or any payments still outstanding, and we may be unable to re-lease the aircraft promptly and at favorable rates, if at all. Moreover, airline bankruptcies historically have led to the grounding of significant numbers of aircraft, rejection of leases and negotiated reductions in aircraft lease rentals, with the effect of depressing aircraft market values. As such, further reorganizations would adversely affect our ability to re-lease or sell aircraft at favorable rates, if at all. We have conducted restructurings and terminations in the ordinary course of our business, and we expect more will occur in the future. If we are obligated to perform a significant number of restructurings and terminations, the associated reduction in lease revenue could materially and adversely affect our financial results and cash flows.
Risks related to our relationship with our lessees
We have limited control over the operation of our aircraft and engine assets while they are under lease and depend on our lessees to properly maintain and insure our aircraft.
While our aircraft are on lease, we do not directly control their operation. Under our leases, our lessees are primarily responsible for maintaining our aircraft, obtaining adequate levels of insurance and complying with all governmental requirements applicable to the lessee and the aircraft, including operational, maintenance, government agency oversight, registration requirements and airworthiness directives. We also require many of our lessees to pay us supplemental maintenance rents. Nevertheless, because we still own and hold title to the aircraft we could be exposed to costs resulting from a lessee’s failure to properly maintain an aircraft under lease or be held liable for losses resulting from its operation while under lease. If a lessee fails to perform required maintenance on our aircraft during the term of the lease, the aircraft’s market value may decline or we might be required to incur maintenance and modification costs, which would result in lower revenues from its subsequent lease or sale, or the aircraft might be grounded. Additionally, if our lessees fail to maintain adequate insurance coverage, default in their indemnification or insurance obligations to us, or are exposed losses for which they do not have coverage, we could face increased costs from pursuing corrective action or face reductions in insurance proceeds that would otherwise be payable to us in the case of loss. If our lessees fail to meet their obligations to pay supplemental maintenance rents or end of lease (“EOL”) compensation, fail to perform required scheduled maintenance, fail to obtain and maintain insurance coverage for losses to which they are exposed, or if we are required to incur unexpected costs associated with any of the above, our financial results may be materially and adversely affected.
If our lessees fail to cooperate in returning our aircraft following lease terminations, we may encounter obstacles and are likely to incur significant costs and expenses conducting repossessions.
Our legal rights and the relative difficulty of repossession vary significantly depending on the jurisdiction in which an aircraft is located and the applicable law. We may need to obtain a court order or consents for deregistration or re-export, a process that can differ substantially in different countries. Where a lessee or other operator flies only domestic routes in the jurisdiction in which the aircraft is registered, repossessing and exporting the aircraft may be challenging, especially if the jurisdiction permits the lessee or the other operator to resist deregistration. When a defaulting lessee is in bankruptcy, protective administration, insolvency or similar proceedings, additional limitations may apply. For example, certain jurisdictions entitle the lessee or another third party to retain possession of the aircraft without paying lease rent or performing all or some of the obligations under the relevant lease. Certain of our lessees are partially or wholly owned by government-related entities, which can complicate our efforts to repossess our aircraft in that government’s jurisdiction. If we encounter any of these difficulties, we may be delayed in, or prevented from, enforcing certain of our rights under a lease and in re-leasing the affected aircraft.
When conducting a repossession, we are likely to incur significant costs and expenses that are unlikely to be recouped, including, for example, legal and regulatory expenses, taxes, lost revenue, aircraft maintenance and refurbishment and repair costs necessary to put the aircraft in suitable condition for re-lease or sale. We may also make payments to discharge liens placed on our aircraft by lessees and, until these liens are discharged, be restricted in our ability to repossess, release or sell our aircraft and engines. Although the financial obligations relating to these liens are the contractual responsibility of our lessees, if they fail to fulfill these obligations, such liens may ultimately become our responsibility and impose additional repossession costs on us. If we incur significant costs in repossessing our aircraft, our financial results may be materially and adversely affected.
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In certain countries, an engine affixed to an aircraft may become an accession to the aircraft and we may not be able to exercise our ownership rights over the engine.
Under some legal principles, an engine affixed to an aircraft may become an accession to the aircraft, whereby the ownership rights of the owner of the airframe supersede those of the owner of the engine. In such cases, where an aircraft is security for the owner’s obligations to a third party, the security interest in the aircraft may supersede our rights as owner of the engine. As a substantial part of the value of an aircraft derives from its engines, we would suffer a substantial loss if our ability to repossess a leased engine was limited in the event of a lease default, which could materially and adversely affect our financial results.
Risks related to competition and the aviation industry
Competition and changes in market participants, including lessors, manufacturers and aircraft lessees, may adversely affect our business operations.
The aircraft leasing industry is highly competitive. Our competitors are primarily other major aircraft leasing companies, but we may also encounter competition from emerging aircraft leasing companies that we do not currently consider our main competitors. We may also face competition from other market participants, such as airlines, aircraft manufacturers, aircraft brokers, financial institutions, including those seeking to dispose of repossessed aircraft at distressed prices and other entities that invest in aircraft and engines. Some of these competitors may have greater operating and financial resources than we do and we may not always be able to compete successfully, which could materially and adversely affect our financial results.
Over the past several years, market participants in the aviation industry have changed as a result of restructuring or bankruptcies, mergers and acquisitions, entities entering or exiting the industry or entities entering into new or different market segments. We expect similar transitions to continue to take place into the future. Changes in market participants may affect our business by, for instance, reducing competition amongst manufacturers, changing the offering of aircraft types and models in the market, reducing demand for our aircraft from lessees or increasing the competition we face for new lessees or favorable terms on our transactions. New aircraft manufacturers, such as Mitsubishi Aircraft Corporation in Japan, JSC United Aircraft Corporation in Russia and Commercial Aircraft Corporation of China, Ltd. in China could produce aircraft that compete with current offerings from Airbus, Boeing and Embraer. These changes may materially affect our business.
The financial instability of an aircraft or engine manufacturer could impact delivery of our aircraft on order and negatively affect our cash flow and results of operations.
The supply of commercial aircraft is dominated by Airbus and Boeing and a limited number of engine manufacturers. As a result, we are dependent on these manufacturers remaining in existence and financially stable to fulfill contractual obligations they have to us. Any disruption to these manufacturers’ operating abilities may cause us to experience delivery delays on our aircraft orders. Our leases contain lessee cancellation clauses related to aircraft delivery delays, typically for aircraft delays greater than one year, and our purchase agreements contain similar provisions. If there are manufacturing delays for aircraft for which we have made future lease commitments, some or all of our affected lessees could elect to terminate their lease arrangements with respect to such delayed aircraft. Any such termination could negatively affect our cash flow and results of operations.
Further, we may experience additional delivery delays and associated costs if aircraft manufacturers deliver aircraft that fail to meet our lessees’ expectations or the requirements of air travel regulators. Following the fatal accidents of two Boeing 737 MAX aircraft, the worldwide fleet of these aircraft was grounded by aviation authorities in March 2019 and production was temporarily suspended by Boeing in January 2020, resulting in ongoing delays in the delivery of our aircraft on order from Boeing. During the year ended December 31, 2020 we cancelled our orders for 24 Boeing 737 MAX aircraft. In November 2020, the U.S. Federal Aviation Administration (“FAA”) rescinded the order that halted commercial operations of Boeing 737 MAX aircraft, thus allowing airlines that are under the FAA’s jurisdiction to take the steps necessary to resume service and Boeing to begin making deliveries. In January 2021, the European Union Aviation Safety Agency (“EASA”) also approved the return to service. As of December 31, 2020, we had five Boeing 737 MAX aircraft delivered and on lease. It is uncertain when and under what conditions our Boeing 737 MAX aircraft will return to service and when Boeing will resume making deliveries of our Boeing 737 MAX aircraft on order. As a result, we may incur future delays on our scheduled Boeing 737 MAX deliveries, and any such future delays could have an impact on our financial results. The grounding and its effects continue to present a number of the risks to our business, including risks associated with the financial stability of aircraft and engine manufacturers. See “Item 3. Key Information—Risk Factors—Risks relating to market demand for, and lease rates and value of, aircraft in our fleet—Manufacturer behavior may adversely affect the lease rates and value of aircraft in our fleet or our results of operations more broadly.”
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Risks related to the geopolitical, regulatory and legal exposure of our business
The international operations of our business and those of our lessees expose us to geopolitical, economic and legal risks associated with a global business, including many of the economic and political risks associated with emerging markets.
We and our lessees conduct business in many countries and, as a result, we are exposed to a large number of regulatory and legal regimes. We also face uncertainty from changes in political regimes globally, including from the current transition to a new presidential administration in the United States. Volatility in the political and economic environments associated with international markets could adversely affect our operations. Changes in international regulations, laws, taxes, export controls, tariffs, embargoes, sanctions or other restrictions on trade or travel could adversely affect the profitability of our lessees’ businesses, the operations of aircraft manufacturers or the results of our operations. For example, tensions with Russia, the situation in Syria and Venezuela, the Israeli/Palestinian conflict, tension over the nuclear programs of North Korea and Iran, political instability in the Middle East and North Africa, the territorial disputes between Japan and China and the tensions in the South China Sea could lead to further instability in these regions and negative impacts on our lessees’ businesses and our results of operations. Additionally, the international distribution of our assets exposes us to risks associated with limitations on the repatriation of our assets or the expropriation of our international assets. These factors may have a material and adverse effect on our financial results.
Furthermore, we derive substantial lease revenue (approximately 53% in 2020, 58% in 2019 and 58% in 2018) from airlines in emerging market countries. Emerging market countries have less developed economies and are more vulnerable to economic and political problems and may experience significant fluctuations in gross domestic product, interest rates and currency exchange rates, as well as civil disturbances, government instability, nationalization and expropriation of private assets and the imposition of taxes or other charges by government authorities. The occurrence of any of these events could result in economic instability that adversely affects the value of our ownership interest in aircraft subject to lease in such countries, or the ability of our lessees that serve such markets to meet their lease obligations. As a result, lessees that operate in emerging market countries may be more likely to default than lessees that operate in developed countries. In addition, legal systems in emerging market countries may be less developed, which could make it more difficult for us to enforce our legal rights in such countries. For these and other reasons, our financial results may be materially and adversely affected by economic and political developments in emerging market countries.
Existing and future litigation against us could materially and adversely affect our business, financial position, liquidity or results of operations.
We are, and from time to time in the future may be, a defendant in lawsuits relating to our business. We cannot accurately predict the ultimate outcome of any litigation due to its inherent uncertainties. These uncertainties may be increased by our exposure to different liability standards and legal systems internationally, including some that may be less developed and less predictable than those in advanced economies. An unfavorable outcome could materially and adversely affect our business, financial position, liquidity or results of operations. In addition, regardless of the outcome of any litigation, we may be required to devote substantial resources and executive time to the defense of such actions. For a description of certain pending litigation involving our business, please refer to Note 27—Commitments and contingencies to our Consolidated Financial Statements included in this annual report.
Because our lessees are concentrated in certain geographical regions, we have concentrated exposure to the political and economic risks associated with those regions, particularly China.
Through our lessees and the countries in which they operate, we are exposed to the specific economic and political conditions and associated risks of those jurisdictions, including the regional impacts of the Covid-19 pandemic. These risks can include economic recessions, burdensome local regulations or, in extreme cases, increased risks of requisition of our aircraft. An adverse political or economic event in any region or country in which our lessees or our aircraft are concentrated could affect the ability of our lessees to meet their obligations to us, or expose us to various legal or political risks associated with the affected jurisdictions, all of which could have a material and adverse effect on our financial results.
We have a large concentration of lessees in China and therefore have increased exposure to the economic and political conditions in that country and from the increasingly adversarial relationship between China and the West. Recent and future political developments, including the trade dispute between the U.S. and China and other evolving policies pursued in Europe, could result in increased and unexpected regulations on trade, which could adversely impact the results of our operations. Further deterioration in China’s relationship with the West could result in the imposition of more stringent trade or travel restrictions, which would harm the operations of our lessees and could materially affect our financial results.
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We are subject to various risks and requirements associated with transacting business in many countries.
Our international operations expose us to trade and economic sanctions, export controls and other restrictions imposed by the United States, the United Kingdom, or other governments or organizations. For example, the U.S. Departments of Justice, Commerce, State and Treasury and other U.S. federal agencies and authorities have a broad range of civil and criminal penalties they may seek to impose against corporations and individuals for violations of economic sanctions laws, export control laws, the Foreign Corrupt Practices Act, and other U.S. federal statutes and regulations, including those established by the Office of Foreign Asset Control. Under these laws and regulations, the U.S. government may require export licenses, may seek to impose modifications to business practices, including cessation of business activities in sanctioned countries, and modifications to compliance programs, which may increase compliance costs, and may subject us to fines, penalties and other sanctions. A violation of any of these laws or regulations could materially and adversely impact our business, operating results, and financial condition.
We have implemented and maintain in effect policies and procedures designed to ensure compliance by us, our subsidiaries and our directors, officers, employees, consultants and agents with respect to various export control, anti-corruption, anti-terrorism and anti-money laundering laws and regulations. However, such personnel could engage in unauthorized conduct for which we may be held responsible. Violations of such laws and regulations may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could materially and adversely affect our financial results.
The General Data Protection Regulation (“GDPR”), which became law in the EU on May 25, 2018, regulates the ways in which businesses process personal data in Europe. There are extensive documentation obligations and transparency requirements, which may impose significant costs on us. Failure to comply with the GDPR may subject us to significant litigation or enforcement actions, fines, claims for compensation by customers and other affected individuals, damage to our reputation, orders to remedy breaches or criminal prosecutions, any of which could have a material adverse impact on our business, operating results, and financial condition. For example, under the GDPR, we could incur significant fines of up to 4% of our annual global revenue.
Our aircraft are subject to various environmental regulations and concerns.
Governmental regulations regarding aircraft and engine noise and emissions levels apply based on where the relevant airframe is registered and where the aircraft is operated. For example, jurisdictions throughout the world have adopted noise regulations that require all aircraft to comply with noise level standards. In addition, the United States and the International Civil Aviation Organization (“ICAO”) have adopted a more stringent set of standards for noise levels that apply to engines manufactured or certified beginning in 2006, as well as a more stringent set of standards in respect of aircraft with a maximum certificated takeoff weight greater than or equal to 55,000 kg and aircraft with a maximum certificated takeoff weight less than 55,000 kg, effective December 31, 2017 and December 31, 2020, respectively. Currently, United States regulations do not require any phase-out of aircraft that qualify with the older standards, but the EU has established a framework for the imposition of operating limitations on aircraft that do not comply with the newer standards. These regulations could limit the economic life of certain of our aircraft and engines, reduce their value, limit our ability to lease or sell the 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 more stringent noise restrictions, the United States, EU and other jurisdictions are moving towards imposing more stringent limits on greenhouse gas emissions from aircraft engines. Although current emissions control laws generally apply to newer engines, new laws could be passed in the future that also impose limits on older engines, thereby subjecting our older engines to existing or new emissions limitations or indirect taxation. For example, the EU issued a directive in January 2009 to include aviation within the scope of its greenhouse gas emissions trading scheme (“ETS”) beginning on January 1, 2012, regardless of the engine type or age. However, the EU subsequently suspended ETS application to flights from or to non-EU countries through 2023. In October 2016, ICAO adopted the Carbon Offset and Reduction Scheme for International Aviation (“CORSIA”), a global market-based scheme aimed at reducing carbon dioxide emission from international aviation that will become mandatory in 2027. At least 77 countries, including the United States, have indicated that they will participate in the voluntary phase-in of CORSIA which begins in 2021, although the United States subsequently indicated that it is reviewing its commitment to CORSIA. Limitations on emissions such as ETS and CORSIA could favor younger, more fuel-efficient aircraft since they generally produce lower levels of emissions per passenger, which could adversely affect our ability to re-lease or otherwise dispose of less efficient aircraft on a timely basis, on favorable terms, or at all. This is an area of law that is rapidly changing and as of yet remains specific to certain jurisdictions. While we do not know at this time whether new emissions restrictions will be passed, and if passed what impact such laws might have on our business, any future emissions limitations could adversely affect us.
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The airline industry has come under increased scrutiny by the press, the public and investors regarding the impact of air travel on the environment, including emissions to the air, discharges to surface and subsurface waters, safe drinking water, aircraft noise, the management of hazardous substances, oils and waste materials and other environmental impacts related to aircraft operations. If such scrutiny results in reduced air travel, it may affect demand for our aircraft, lessees’ ability to make rental and other lease payments and reduce the value we receive for our aircraft upon any disposition, which would negatively affect our financial condition, cash flow and results of operations.
Risks related to accounting and impairments
If a decline in demand for certain aircraft causes a decline in its projected lease rates, or if we dispose of an aircraft for a price that is less than its depreciated book value on our balance sheet, then we will recognize impairments or make fair value adjustments.
We test long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable from their undiscounted cash flows. If the gross cash flow test fails, the difference between the fair value and the carrying amount of the aircraft is recognized as an impairment loss. Factors that may contribute to impairment charges include, but are not limited to, unfavorable airline industry trends affecting the residual values of certain aircraft types, high fuel prices and development of more fuel-efficient aircraft shortening the useful lives of certain aircraft, management’s expectations that certain aircraft are more likely than not to be parted-out or otherwise disposed of sooner than their expected life, and new technological developments. Cash flows supporting carrying values of older aircraft are more dependent upon current lease contracts. In addition, we believe that residual values of older aircraft are more exposed to non-recoverable declines in value in the current economic environment.
If economic conditions deteriorate, we may be required to recognize impairment losses. In that event, our estimates and assumptions regarding forecasted cash flows from our long-lived assets would need to be reassessed, including the duration of the economic downturn and the timing and strength of the pending recovery, both of which are important variables for purposes of our long-lived asset impairment tests. Any of our assumptions may prove to be inaccurate, which could adversely impact forecasted cash flows of certain long-lived assets, especially for older aircraft. If so, it is possible that there may be an event-driven impairment for other long-lived assets in the future and that any such impairment amounts may be material.
During the year ended December 31, 2020, we recognized impairment charges of $1.1 billion primarily related to current technology widebody aircraft, in particular Airbus A330 and Boeing 777 aircraft. These aircraft represented approximately 8.5% of our total flight equipment by net book value as of December 31, 2020.
As of December 31, 2020, 185 of our owned aircraft under operating leases were 15 years of age or older. These aircraft represented approximately 6% of our total flight equipment and lease-related assets and liabilities as of December 31, 2020. Please refer to “Item 5. Operating and Financial Review and Prospects—Critical accounting policies and estimates—Impairment charges” for a detailed description of our impairment policy.
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Risks related to information technology
A cyberattack could lead to a material disruption of our IT systems or the IT systems of our third party providers and the loss of business information, which may hinder our ability to conduct our business effectively and may result in lost revenues and additional costs.
Parts of our business depend on the secure operation of our information technology, or IT, systems and the IT systems of our third party providers to manage, process, store and transmit information associated with aircraft leasing. Like other global companies, we have, from time to time, experienced threats to our data and systems, including malware and computer virus attacks, internet network scans, systems failures and disruptions. A cyberattack that bypasses our IT security systems or the IT security systems of our third party providers, causing an IT security breach, could lead to a material disruption of our IT systems or the IT systems of our third party providers, as applicable, and adversely impact our daily operations and cause the loss of sensitive information, including our own proprietary information and that of our customers, suppliers and employees. Such losses could harm our reputation and result in competitive disadvantages, litigation, regulatory enforcement actions, lost revenues, additional costs and liability. While we devote substantial resources to maintaining adequate levels of cybersecurity, our resources and technical sophistication may not be adequate to prevent all types of cyberattacks.
We could suffer material damage to, or interruptions in, our IT systems or the IT systems of our third party providers as a result of external factors, staffing shortages or difficulties in updating our existing software or developing or implementing new software.
We depend largely upon our IT systems and the IT systems of our third party providers in the conduct of all aspects of our operations. Such systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches, fire and natural disasters. Damage or interruption to these IT systems may require a significant investment to fix or replace them, and we may suffer interruptions in our operations in the interim. In addition, we are currently pursuing a number of IT-related projects that will require ongoing IT-related development and conversion of existing systems. Costs and potential problems or interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or support of existing systems could also disrupt or reduce the efficiency of our operations. Any material interruptions or failures in our IT systems may have a material adverse effect on our business or results of operations.
Risks related to our structure and taxation
We are a public limited liability company incorporated in the Netherlands (“naamloze vennootschap” or “N.V.”) and it may be difficult to obtain or enforce judgments against us or our executive officers, some of our directors and some of our named experts in the United States.
We were incorporated under the laws of the Netherlands and, as such, the rights of holders of our ordinary shares and the civil liability of our directors will be governed by the laws of the Netherlands and our articles of association. The rights of shareholders under the laws of the Netherlands may differ from the rights of shareholders of companies incorporated in other jurisdictions. Many of our directors and executive officers and most of our assets and the assets of many of our directors are located outside the United States. In addition, our articles of association do not provide for U.S. courts as a venue for, or for the application of U.S. law to, lawsuits against us, our directors and executive officers. As a result, you may not be able to serve process on us or on such persons in the United States or obtain or enforce judgments from U.S. courts against us or them based on the civil liability provisions of the securities laws of the United States. There is doubt as to whether the Dutch courts would enforce certain civil liabilities under U.S. securities laws in original actions and enforce claims for punitive damages.
Under our articles of association, we indemnify and hold our directors, officers and employees harmless against all claims and suits brought against them, subject to limited exceptions. Under our articles of association, to the extent allowed by law, the rights and obligations among or between us, any of our current or former directors, officers and employees and any current or former shareholder shall be governed exclusively by the laws of the Netherlands and subject to the jurisdiction of the Dutch courts, unless such rights or obligations do not relate to or arise out of their capacities listed above. Although there is doubt as to whether U.S. courts would enforce such provision in an action brought in the United States under U.S. securities laws, such provision could make judgments obtained outside of the Netherlands more difficult to enforce against our assets in the Netherlands or jurisdictions that would apply Dutch law.
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We may become a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes.
We do not believe we will be classified as a PFIC for 2020. We cannot yet make a determination as to whether we will be classified as a PFIC for 2021 or subsequent years. The determination as to whether a foreign corporation is a PFIC is a complex determination based on all of the relevant facts and circumstances and depends on the classification of various assets and income under PFIC rules. In our case, the determination is further complicated by the application of the PFIC rules to leasing companies and to joint ventures and financing structures common in the aircraft leasing industry. It is unclear how some of these rules apply to us. Further, this determination must be tested annually and our circumstances may change in any given year. We do not intend to make decisions regarding the purchase and sale of aircraft with the specific purpose of reducing the likelihood of our becoming a PFIC. Accordingly, our business plan may result in our engaging in activities that could cause us to become a PFIC. If we are or become a PFIC, U.S. shareholders may be subject to increased U.S. federal income taxes on a sale or other disposition of our ordinary shares and on the receipt of certain distributions and will be subject to increased U.S. federal income tax reporting requirements. See “Item 10. Additional Information—Taxation—U.S. tax considerations” for a more detailed discussion of the consequences to you if we are treated as a PFIC and a discussion of certain elections that may be available to mitigate the effects of that treatment. We urge you to consult your own tax advisors regarding the application of the PFIC rules to your particular circumstances.
We may become subject to income or other taxes in jurisdictions which would adversely affect our financial results.
We and our subsidiaries are subject to the income tax laws of Ireland, the Netherlands, the United States and other jurisdictions in which our subsidiaries are incorporated or based. Our effective tax rate in any period is impacted by the source and the amount of earnings among our different tax jurisdictions. Our ability to defer the payment of some level of income taxes to future periods is dependent upon the continued benefit of accelerated tax depreciation on our flight equipment in some jurisdictions, the continued deductibility of external and intercompany financing arrangements and the application of tax losses prior to their expiration in certain tax jurisdictions, among other factors. A change in the division of our earnings among our tax jurisdictions could have a material impact on our effective tax rate and our financial results. In addition, we or our subsidiaries may be subject to additional income or other taxes in these and other jurisdictions by reason of the management and control of our subsidiaries, our activities and operations, where our aircraft operate, where the lessees of our aircraft (or others in possession of our aircraft) are located or changes in tax laws or practices, regulations or accounting principles. Although we have adopted guidelines and operating procedures to ensure our subsidiaries are appropriately managed and controlled, we may be subject to such taxes in the future and such taxes may be substantial. The imposition of such taxes could have a material adverse effect on our financial results.
We may become subject to additional taxes in Ireland based on the extent of our operations carried on in Ireland.
Our Irish tax resident group companies are currently subject to Irish corporate income tax on trading income at a rate of 12.5%, on capital gains at 33% and on other income at 25%. We expect that substantially all of our Irish income will be treated as trading income for tax purposes in future periods. As of December 31, 2020, we had significant Irish tax losses available to carry forward against our trading income. The continued application of the 12.5% tax rate to trading income generated in our Irish tax resident group companies and the ability to carry forward Irish tax losses to offset future taxable trading income depends in part on the extent and nature of activities carried on in Ireland both in the past and in the future.
We may fail to qualify for benefits under one or more tax treaties.
We do not expect that our subsidiaries located outside of the United States will have any material U.S. federal income tax liability by reason of activities we carry out in the United States and the lease of assets to lessees that operate in the United States. This conclusion will depend, in part, on continued qualification for the benefits of income tax treaties between the United States and other countries in which we are subject to tax (particularly Ireland). That in turn may depend on, among others, the nature and level of activities carried on by us and our subsidiaries in each jurisdiction, the identity of the owners of equity interests in subsidiaries that are not wholly owned and the identities of the direct and indirect owners of our indebtedness.
The nature of our activities may be such that our subsidiaries may not continue to qualify for the benefits under income tax treaties with the United States and that may not otherwise qualify for treaty benefits. Failure to so qualify could result in the imposition of U.S. federal and state taxes, which could have a material adverse effect on our financial results.
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The introduction of Base Erosion and Profit Shifting (“BEPS”) by the Organization for Economic Cooperation and Development’s (“OECD”) may impact our effective rate of tax in future periods.
In line with the OECD’s BEPS Action Plan, since June 7, 2017, representatives from 95 jurisdictions have signed up to the Multilateral Instrument (“MLI”). The MLI implements agreed tax treaty-related measures combating tax avoidance into bilateral existing tax treaties without the need to renegotiate a new treaty. The MLI took effect on May 1, 2019 in Ireland, with measures relating to withholding taxes taking effect from January 1, 2020.
One of the measures of the MLI is the concept of a “Principal Purpose Test” (“PPT”), which disallows treaty benefits where the main purpose or one of the main purposes of structuring the transaction is to obtain the benefits of the relevant treaty.
Given the nature and substance of our Irish operations, we are satisfied that the PPT should not have a material impact on any of our payments which are reliant on Irish tax treaty positions. However, given the subjective nature of the PPT, there is a risk that a tax authority may take an alternate view and seek to deny the benefits of a double tax treaty based on the interpretation to the PPT in that jurisdiction.
In addition, the OECD announced a further initiative on January 29, 2019, to create an international consensus on new rules for the framework governing international taxation, which was supported by the publication of the Pillar One and Pillar Two Blueprint Reports on October 12, 2020. It is difficult to predict what, if any, changes to international taxation may be introduced as a result of this initiative or to determine whether it may result in an increase in our effective tax rate and cash tax liabilities in future periods.
The EU Anti-tax Avoidance proposals may impact our effective rate of tax in future periods.
Irish tax law will be subject to changes as a result of the implementation of the EU Anti-Tax Avoidance Directive (“EU ATAD”) and the amending Directive (“EU ATAD 2”). One such change will be the implementation of a restriction on the tax deductibility of interest payments. As currently proposed, the EU ATAD would restrict the tax deductibility of net interest expense to 30% of earnings before interest, tax, depreciation and amortization (“EBITDA”) or possibly higher if the third party group interest expense ratio to group EBITDA is higher. This measure could impact our ability to claim a tax deduction for interest payments on debt instruments. The implementation date is expected to be January 1, 2022.

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Item 4.    Information on the Company
History and development of the Company
AerCap Holdings N.V. (together with its subsidiaries, “AerCap,” “we,” “us” or the “Company”) was incorporated in the Netherlands as a public limited liability company (“naamloze vennootschaporN.V.”) on July 10, 2006. AerCap is the global leader in aircraft leasing with 1,330 aircraft owned, managed or on order, and total assets of $42.0 billion as of December 31, 2020. Our ordinary shares are listed on the New York Stock Exchange (the “NYSE”) under the ticker symbol AER. Our headquarters is located in Dublin, and we have offices in Shannon, Los Angeles, Singapore, Amsterdam, Shanghai and Abu Dhabi. We also have representative offices at the world’s largest aircraft manufacturers, Boeing in Seattle and Airbus in Toulouse.
As of December 31, 2020, we had 138,847,345 ordinary shares issued, including 130,398,538 ordinary shares issued and outstanding, and 8,448,807 ordinary shares held as treasury shares. Our issued and outstanding ordinary shares included 2,552,346 shares of unvested restricted stock.
The address of our headquarters in Dublin is AerCap House, 65 St. Stephen’s Green, Dublin D02 YX20, Ireland, and our general telephone number is +353 1 819 2010. Our website address is www.aercap.com. Information contained on our website does not constitute a part of this annual report. Puglisi & Associates is our authorized representative in the United States. The address of Puglisi & Associates is 850 Liberty Avenue, Suite 204, Newark, DE 19711 and their general telephone number is +1 (302) 738-6680. The U.S. Securities and Exchange Commission (“SEC”) maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. You can review our SEC filings, including this annual report, by accessing the SEC’s Internet website at www.sec.gov.
Our primary capital expenditure is the purchase of aircraft under aircraft purchase agreements with Airbus, Boeing and Embraer. Please refer to “Item 5. Operating and Financial Review and Prospects—Liquidity and capital resources” for a detailed discussion of our capital expenditures. The following table presents our capital expenditures for the years ended December 31, 2020, 2019 and 2018:
Year Ended December 31,
202020192018
(U.S. Dollars in thousands)
Purchase of flight equipment$778,547 $3,359,092 $4,036,194 
Prepayments on flight equipment405,178 1,369,400 1,912,215 
Business overview
Aircraft leasing
We are the global leader in aircraft leasing. We focus on acquiring in-demand aircraft at attractive prices, funding them efficiently, hedging interest rate risk prudently and using our platform to deploy these assets with the objective of delivering superior risk-adjusted returns. We believe that by applying our expertise, we will be able to identify and execute on a broad range of market opportunities that we expect will generate attractive returns for our shareholders. We are an independent aircraft lessor, and, as such, we are not affiliated with any airframe or engine manufacturer. This independence provides us with purchasing flexibility to acquire aircraft or engine models regardless of the manufacturer.
We operate our business on a global basis, leasing aircraft to customers in every major geographical region. As of December 31, 2020, we owned 939 aircraft and we managed 105 aircraft. As of December 31, 2020, we also had 286 new aircraft on order, including 157 Airbus A320neo Family aircraft, 71 Boeing 737 MAX aircraft, 35 Embraer E-Jets E2 aircraft, and 23 Boeing 787 aircraft. As of December 31, 2020, the average age of our 939 owned aircraft fleet, weighted by net book value, was 6.4 years and as of December 31, 2019, the average age of our 939 owned aircraft fleet, weighted by net book value, was 6.1 years.
We have the infrastructure, expertise and resources to execute a large number of diverse aircraft transactions in a variety of market conditions. During the year ended December 31, 2020, we executed 179 aircraft transactions. Our teams of dedicated marketing and asset trading professionals have been successful in leasing and managing our aircraft portfolio. During the year ended December 31, 2020, our weighted average owned aircraft utilization rate was 97.5%, calculated based on the number of days each aircraft was on lease during the year, weighted by the net book value of the aircraft.
22


Aircraft leases and transactions
We lease most of our aircraft to airlines under operating leases. Under these leases, the lessee is responsible for the maintenance and servicing of the equipment during the lease term and we receive the benefit, and assume the risks, of the residual value of the equipment at the end of the lease. Many airlines lease aircraft under operating leases as this reduces their capital requirements and costs and affords them flexibility to manage their fleet more efficiently as aircraft are returned over time. Since the 1970’s and the creation of aircraft leasing pioneers Guinness Peat Aviation (“GPA”) and International Lease Finance Corporation (“ILFC”), the world’s airlines have increasingly turned to operating leases to meet their aircraft needs. We have active customer relationships with approximately 200 airlines in approximately 80 countries. These customer relationships are either with existing customers or airlines with which we maintain regular dialogue in relation to potential transaction opportunities. Our relationships with these airlines help us place new aircraft and remarket existing aircraft.
Over the life of our aircraft, we seek to increase the returns on our investments by managing the lease rates, time off-lease and financing and maintenance costs, and by carefully timing their sale. Our current operating aircraft leases have initial terms ranging in length up to approximately 16 years. By varying our lease terms, we mitigate the effects of changes in cyclical market conditions at the time aircraft become eligible for re-lease.
Well in advance of the expiration of an operating lease, we prioritize entering into a lease extension with the then-current operator. This reduces our risk of aircraft downtime as well as aircraft transition costs. The terms of our lease extensions reflect the market conditions at the time and typically contain different terms from the original lease. Should a lessee not be interested in extending a lease, or if we believe we can obtain a more favorable return on the aircraft, we will explore other options, including the sale of the aircraft. If we enter into a lease agreement for the same aircraft with a different lessee, we generally do so well in advance of the scheduled return date of the aircraft. When the aircraft is returned, maintenance work may be required before the aircraft transitions to the next lessee.
Our extensive experience, global reach and operating capabilities allow us to rapidly complete numerous aircraft transactions, which enables us to increase the returns on our aircraft investments by minimizing any time that our aircraft are not generating revenue for us.
The following table provides details regarding the aircraft transactions we executed during the years ended December 31, 2020, 2019 and 2018. The trends shown in the table reflect the execution of the various elements of our leasing strategy for our owned and managed portfolio, as described further below:
Year Ended December 31,
202020192018Total
Owned portfolio
New leases on new aircraft10 54 115 179 
New leases on used aircraft12 37 43 92 
Extensions of lease contracts67 92 85 244 
New aircraft purchases36 65 76 177 
Aircraft sales and part-outs (a)40 88 91 219 
Managed portfolio
New leases on used aircraft16 
Extensions of lease contracts15 
Aircraft sales and part-outs12 26 
Total aircraft transactions179 353 436 968 

(a)Disassembly of an aircraft for the sale of its parts (“part-out”)
23


We perform a review of all of our prospective lessees, which generally includes reviewing financial statements, business plans, cash flow projections, maintenance capabilities, operational performance histories, hedging arrangements for fuel, foreign currency and interest rates and relevant regulatory approvals and documentation. We perform on-site credit reviews for new lessees, which typically include extensive discussions with the prospective lessee’s management before we enter into a new lease. We also evaluate the jurisdiction in which the lessee operates to ensure we are in compliance with any regulations and evaluate our ability to repossess our assets in the event of a lessee default. Depending on the credit quality and financial condition of the lessee, we may require the lessee to obtain guarantees or other financial support from an acceptable financial institution or other third parties.
We typically require our lessees to provide a security deposit for their performance under a lease, including the return of the aircraft in the specified maintenance condition at the expiration of the lease.
All of our lessees are responsible for the maintenance and repair of the leased aircraft as well as other operating costs during the lease term. Based on the credit quality of the lessee, we require some of our lessees to pay supplemental maintenance rents to cover major scheduled maintenance costs. If a lessee pays supplemental maintenance rents, we reimburse them for their maintenance events (as defined in the lease) up to the amount of their supplemental maintenance rent payments. Under the terms of our leases, at lease expiration, we retain excess maintenance rents to the extent that a lessee has paid us more supplemental maintenance rents than we have reimbursed them for their maintenance events. In most lease contracts that do not require the payment of supplemental maintenance rents, the lessee is generally required to redeliver the aircraft in a similar maintenance condition (normal wear and tear excepted) as when accepted under the lease. To the extent that the redelivery condition is different from the acceptance condition, we generally receive cash compensation for the value difference at the time of redelivery. As of December 31, 2020 and 2019, approximately 35% and 39%, respectively, of our owned aircraft leases provided for supplemental maintenance rental payments.
We require the lessee to compensate us if the aircraft is not in the required condition upon redelivery. All of our leases contain provisions regarding our remedies and rights in the event of default by the lessee, and also include specific provisions regarding the required condition of the aircraft upon its redelivery.
Our lessees are also responsible for compliance with all applicable laws and regulations governing the leased aircraft and all related costs. We require our lessees to comply with either the FAA, EASA or their equivalent standards in other jurisdictions.
During the term of our leases, some of our lessees may experience financial difficulties resulting in the need to restructure their leases. Generally, our restructurings can involve a number of possible changes to the lease terms, including the voluntary termination of leases prior to their scheduled expiration, the arrangement of subleases from the primary lessee to a sublessee, the rescheduling of lease payments and the exchange of lease payments for other consideration. In some cases, we may repossess a leased aircraft and, in those cases, we usually export the aircraft from the lessee’s jurisdiction to prepare it for remarketing. In the majority of repossessions, we obtain the lessee’s cooperation and the return and export of the aircraft are completed without significant delay, generally within two months. In some repossessions, however, our lessees may not cooperate in returning aircraft and we may be required to take legal action. In connection with the repossession of an aircraft, we may be required to settle claims on the aircraft or to which the lessee is subject, including outstanding liens on the repossessed aircraft. See “Item 3. Key Information—Risk Factors—Risks related to our relationship with our lessees—If our lessees fail to cooperate in returning our aircraft following lease terminations, we may encounter obstacles and are likely to incur significant costs and expenses conducting repossessions” for a discussion of how repossessions may affect our financial results.
24


Scheduled lease expirations
The following table presents the scheduled lease expirations (for the minimum non-cancelable period) for our owned aircraft under operating leases by aircraft type as of December 31, 2020. The table does not give effect to contracted unexercised lease extension options, lease extensions or re-leases that are subject to a letter of intent, aircraft sales that have been contracted or are subject to a letter of intent, or designations of a certain aircraft for sale or part-out.
Aircraft type2021202220232024202520262027202820292030ThereafterTotal
Airbus A320 Family45 34 37 41 25 23 18 13 — — 237 
Airbus A320neo Family— — — — 27 34 87 159 
Airbus A33011 13 — — — 50 
Airbus A350— — — — — — 27 
Boeing 737NG10 14 34 31 40 25 — 175 
Boeing 737 MAX— — — — — — — — — — 
Boeing 767— — — — — — — 13 
Boeing 777-200ER— — — — — — 
Boeing 777-300/300ER— — 21 
Boeing 787— 13 13 22 88 
Embraer E190/195-E2— — — — — — — — 10 15 
Other— — — — — — — — — 
Total (a) (b)72 64 68 99 72 81 66 42 46 63 132 805 

(a)Includes aircraft that have been re-leased or for which the lease has been extended as of December 31, 2020. As of December 31, 2020, scheduled lease expirations through the end of 2022 represented less than 7% of the aggregate net book value of our fleet. As of February 25, 2021, 43 of the 72 aircraft with leases expiring in 2021 have been re-leased, have had leases extended, or have been designated for sale or part-out.
(b)Includes one aircraft that was off-lease and under commitment for re-lease as of December 31, 2020.
Principal markets and customers
The following table presents the percentage of basic lease rents of our owned portfolio from our top five lessees for the year ended December 31, 2020:
LesseePercentage of 2020 basic lease rents
American Airlines8.7 %
China Southern Airlines8.3 %
Air France5.2 %
Azul Airlines3.9 %
Ethiopian Airlines3.4 %
Total29.5 %



25


We lease our aircraft to lessees located in every major geographical region. The following table presents the percentage of our total lease revenue by region based on our lessee’s principal place of business for the years ended December 31, 2020, 2019 and 2018:
Year Ended December 31,
202020192018
Asia/Pacific/Russia38 %38 %36 %
Europe27 %28 %30 %
United States/Canada/Caribbean14 %13 %13 %
Latin America11 %11 %11 %
Africa/Middle East10 %10 %10 %
Total100 %100 %100 %
For further geographic information on our total lease revenue and long-lived assets, refer to Note 18—Geographic information to our Consolidated Financial Statements included in this annual report.
Aircraft services
We provide aircraft asset management and corporate services to securitization vehicles, joint ventures and other third parties. As of December 31, 2020, we had aircraft management and corporate administration and/or cash management service contracts with eight parties that owned 105 aircraft. We categorize our aircraft services into aircraft asset management, corporate administrative services and cash management services. Since we have an established operating system to manage our own aircraft, the incremental cost of providing aircraft management services to securitization vehicles, joint ventures and third parties is limited. Our primary aircraft asset management activities include:
remarketing aircraft for lease or sale;
collecting rental and supplemental maintenance rent payments, monitoring aircraft maintenance, monitoring and enforcing contract compliance and accepting delivery and redelivery of aircraft;
conducting ongoing lessee financial performance reviews;
periodically inspecting the leased aircraft;
coordinating technical modifications to aircraft to meet new lessee requirements;
conducting restructuring negotiations in connection with lease defaults;
repossessing aircraft;
arranging and monitoring insurance coverage;
registering and de-registering aircraft;
arranging for aircraft and aircraft engine valuations; and
providing market research.
We charge fees for our aircraft management services based on a mixture of fixed and rental-based amounts, and we also receive performance-based fees related to the managed aircraft lease revenues or sale proceeds.
We also provide cash management and administrative services to securitization vehicles and joint ventures. Cash management services consist primarily of treasury services such as the financing, refinancing, hedging and ongoing cash management of these vehicles. Our administrative services consist primarily of accounting and corporate secretarial services, including the preparation of budgets and financial statements.
26


Our business strategy
We develop and grow our aircraft leasing business by executing on our focused business strategy, the key components of which are as follows:
Manage the profitability of our aircraft portfolio
Our ability to profitably manage aircraft throughout their lifecycle depends, in part, on our ability to successfully source acquisition opportunities of new and used aircraft at favorable terms, as well as our ability to secure long-term funding for such acquisitions, lease aircraft at profitable rates, minimize downtime between leases and associated maintenance expenses and opportunistically sell aircraft. We manage the long-term profitability of our aircraft portfolio by:
purchasing aircraft directly from manufacturers;
entering into purchase and leaseback transactions with airlines;
using our global customer relationships to obtain favorable lease terms for aircraft and maximizing aircraft utilization;
maintaining diverse sources of global funding;
optimizing our portfolio by selling aircraft; and
providing management services to securitization vehicles, our joint ventures and other aircraft owners at limited incremental cost to us.
Efficiently manage our liquidity
We analyze sources of financing based on pricing and other terms and conditions in order to optimize the return on our investments. We have the ability to access a broad range of liquidity sources globally. In 2020, we raised $8.3 billion of financing, including bank debt, revolving credit facilities and note issuances in the capital markets.
We have access to liquidity in the form of our revolving credit facilities and our term loan facilities, which provide us with flexibility in raising capital and enable us to deploy capital rapidly to accretive aircraft purchase opportunities that may arise. As of December 31, 2020, we had $5.6 billion of undrawn lines of credit available under our revolving credit and term loan facilities and other available secured debt and $1.2 billion of unrestricted cash. We strive to maintain a diverse financing strategy, both in terms of capital providers and structure, through the use of bank debt, note issuance and export credit, including ECA-guaranteed loans, in order to maximize our financial flexibility. We also leverage our longstanding relationships with major aircraft financiers and lenders to secure access to capital. In addition, we attempt to maximize our operating cash flows and continue to pursue the sale of aircraft to generate additional cash flows. Please refer to Note 13—Debt to our Consolidated Financial Statements included in this annual report for a detailed description of our outstanding indebtedness.
Manage our aircraft portfolio
We intend to maintain an attractive portfolio of in-demand aircraft by acquiring new aircraft directly from aircraft manufacturers, executing purchase and leasebacks with airlines, assisting airlines with refleetings and pursuing other opportunistic transactions. We rely on our experienced team of portfolio management professionals to identify and purchase assets we believe are being offered at attractive prices or that we believe will experience an increase in demand over a prolonged period of time. In addition, we intend to continue to rebalance our aircraft portfolio through sales to maintain the appropriate mix of aviation assets by customer concentration, age and aircraft type.
Maintain a diversified and satisfied customer base
We operate our business on a global basis, leasing aircraft to customers in every major geographical region. We have active customer relationships with approximately 200 airlines in approximately 80 countries. These customer relationships are either with existing customers or airlines with which we maintain regular dialogue in relation to potential transaction opportunities. Our relationships with these airlines help us place new aircraft and remarket existing aircraft. We monitor our lessee exposure concentrations by both customer and country jurisdiction and intend to maintain a well-diversified customer base. We believe we offer a quality product, both in terms of assets and service, to all of our customers. We have successfully worked with many airline customers to find mutually beneficial solutions to operational and financial challenges. We believe we maintain excellent relations with our customers. We have been able to achieve a high utilization rate on our aircraft assets as a result of our customer reach, quality product offering and strong portfolio management capabilities.
27


Joint ventures
We conduct some of our business through joint ventures. The joint venture arrangements allow us to obtain stable servicing revenues and diversify our exposure to the economic risks related to aircraft.
Please refer to Note 25—Variable interest entities to our Consolidated Financial Statements included in this annual report for a detailed description of our joint ventures.
Relationship with Airbus, Boeing and other manufacturers
We are one of the largest customers of Airbus and Boeing measured by deliveries of aircraft through 2020 and our order backlog. We were also the launch customer of the Embraer E2 program. We are also among the largest purchasers of engines from each of CFM International, GE Aviation, International Aero Engines, Pratt & Whitney and Rolls-Royce. These extensive manufacturer relationships and the scale of our business enable us to place large orders with favorable pricing and delivery terms. In addition, these strategic relationships with manufacturers and market knowledge allow us to participate in new aircraft designs, which gives us increased confidence in our airframe and engine selections. AerCap cooperates broadly with manufacturers seeking mutually beneficial opportunities.
Competition
The aircraft leasing and sales business is highly competitive, and we face competition from other aircraft leasing companies, airlines, aircraft manufacturers, aircraft brokers and financial institutions. Competition for a leasing transaction is based on a number of factors, including delivery dates, lease rates, term of lease, other lease provisions, aircraft condition and the availability in the market place of the types of aircraft that can meet customer requirements. As a result of our geographical reach, diverse aircraft portfolio and success in remarketing our aircraft, we believe we are a strong competitor in all of these areas.
Insurance
Our lessees are required under our leases to bear responsibility, through an operational indemnity subject to customary exclusions, and to carry insurance for any liabilities arising out of the operation of our aircraft or engines, including any liabilities for death or injury to persons and damage to property that ordinarily would attach to the operator of the aircraft.
In addition, our lessees are required to carry other types of insurance that are customary in the air transportation industry, including hull all risks insurance for both the aircraft and each engine whether or not installed on our aircraft, hull war risks insurance covering risks such as hijacking and terrorism and, where permitted, including confiscation, expropriation, nationalization and seizure (in each case at a value stipulated in the relevant lease which typically exceeds the net book value by 10%, subject to adjustment or fleet aggregate limits in certain circumstances). Our lessees are also required to carry aircraft spares insurance and aircraft third party liability insurance, in each case subject to customary deductibles and exclusions. We are named as an additional insured on liability insurance policies carried by our lessees, and we or our lenders are designated as a loss payee in the event of a total loss of an aircraft. We monitor the compliance by our lessees with the insurance provisions of our leases by securing confirmation of coverage from the lessees’ insurance brokers.
We also purchase insurance which provides us with coverage when our aircraft or engines are not subject to a lease or where a lessee’s policy fails to indemnify us. In addition, we carry customary insurance for our property, which is subject to customary deductibles and exclusions. Insurance experts advise and make recommendations to us as to the appropriate amount of insurance coverage that we should obtain.
28


Regulation
While the air transportation industry is highly regulated we generally are not directly subject to most of these regulations, as we do not operate our aircraft. Our lessees are subject, however, to extensive regulation under the laws of the jurisdictions in which they are registered and in which they operate. These regulations, among other things, govern the registration, operation and maintenance of our aircraft and engines. Most of our aircraft are registered in the jurisdiction in which the lessee of the aircraft is certified as an air operator. Both our aircraft and engines are subject to the airworthiness and other standards imposed by our lessees’ jurisdictions of operation. Laws affecting the airworthiness of aviation assets are generally designed to ensure that all aircraft, engines and related equipment are continuously maintained in proper condition to enable safe operation of the aircraft. Most countries’ aviation laws require aircraft and engines to be maintained under an approved maintenance program with defined procedures and intervals for inspection, maintenance and repair.
In addition, under our leases, we may be required in some instances to obtain specific licenses, consents or approvals for different aspects of the leases. These required items include consents from governmental or regulatory authorities for certain payments under the leases and for the import, re-export or deregistration of the aircraft and engines. Also, to perform some of our cash management services and insurance services from Ireland under our management arrangements with our joint ventures and securitization entities, we are required to have a license from the Irish regulatory authorities, which we have obtained.
Please refer to “Item 3. Key Information—Risk Factors—Risks related to the geopolitical, regulatory and legal exposure of our business—We are subject to various risks and requirements associated with transacting business in many countries” and “Item 3. Key Information—Risk Factors—Risks related to the geopolitical, regulatory and legal exposure of our business—Our aircraft are subject to various environmental regulations and concerns,” for a detailed discussion of government sanctions, export controls and other regulations that could affect our business.
Litigation
Please refer to Note 27—Commitments and contingencies to our Consolidated Financial Statements included in this annual report for a detailed description of material litigation to which we are a party.
Trademarks
We have registered the “AerCap” name with the European Union Intellectual Property Office and the United States Patent and Trademark Office, as well as filed the “AerCap” trademark with the World Intellectual Property Organization International (Madrid) Registry and various local trademark authorities.
Culture and values
We strive to conduct our business with integrity and in an honest and responsible manner and to build and maintain long-term, mutually beneficial relationships with our customers, suppliers, shareholders, employees and other stakeholders. These values are further specified in our code of conduct and our ethics-related compliance policies, procedures, trainings and programs. Ethical behavior is strongly promoted by the management team. The Company has an excellent track record in relation to ethics and compliance. These ethical values are reflected in the Company’s long-term strategy and our way of doing business.

29


Sustainability and community
During 2020, the Board discussed and reviewed our approach to environmental, social and governance (“ESG”) related topics and other values that contribute to a culture focused on long-term value creation. In July 2020, we published a new ESG report, which is publicly available on our website. The report sets forth in detail our commitment to growing our business in a responsible and sustainable way.
Renewing our aircraft portfolio through the acquisition of new, modern technology aircraft while disposing of older aircraft has a positive impact on the environment, as these new technology aircraft produce significantly lower emissions than older aircraft and engines, thus helping our airline customers to reduce their environmental footprint. AerCap is committed to the efficient use of resources and the reduction of unnecessary waste. Our head office in Dublin has been certified for sustainability in the areas of building materials, energy and water use and accessibility. Our office buildings in Los Angeles and Singapore hold similar green building certifications. The Company has invested resources to improve greenhouse gas emissions and corresponding mitigating initiatives.
We participate in a number of charitable events and industry-related educational programs. Through our social responsibility program, we encourage employees to support local and national organizations that strengthen the communities in which they live and operate. Our ESG Steering Committee oversees the selection of charitable themes and charity partners and the implementation of charitable donations. A number of charitable donations involve the matching of funds raised through employee team efforts for the benefit of local community projects. We, along with other major aircraft leasing companies, are a founder and sponsor of a prestigious master’s degree in aviation finance program at a renowned university. In addition to the sponsorship, this program involves lectures by some of our key employees and internships provided by the Company to a number of international students from the program, in line with the global nature and identity of the Company and our business.
Flight equipment
Aircraft portfolio
The following table presents our aircraft portfolio by type of aircraft as of December 31, 2020:
Aircraft typeNumber of
owned
aircraft
Percentage of
total
net book value
Number of
managed
aircraft
Number of on
order aircraft
Total owned,
managed and on
order aircraft
Airbus A320 Family274 13 %44 — 318 
Airbus A320neo Family165 23 %157 327 
Airbus A33060 %— 69 
Airbus A35027 10 %— — 27 
Boeing 737NG228 15 %43 — 271 
Boeing 737 MAX%— 71 76 
Boeing 76722 — — — 22 
Boeing 777-200ER16 %— 18 
Boeing 777-300/300ER21 %— 22 
Boeing 78791 29 %23 115 
Embraer E190/195-E215 %— 35 50 
Other15 — — — 15 
Total939 100 %105 286 1,330 

30


The following table presents our owned aircraft portfolio by type of aircraft as a percentage of total net book value as of each of the five years ended December 31, 2020:
As of December 31,
Aircraft type20202019201820172016
Airbus A320 Family
13 %14 %16 %21 %25 %
Airbus A320neo Family
23 %18 %14 %%%
Airbus A330
%%%11 %14 %
Airbus A350
10 %10 %10 %%%
Boeing 737NG
15 %16 %19 %22 %25 %
Boeing 737 MAX
%%%— — 
Boeing 767
— — — %%
Boeing 777-200ER
%%%%%
Boeing 777-300/300ER
%%%%%
Boeing 787
29 %28 %25 %22 %16 %
Embraer E190/195-E2%%— — — 
Other— — — %%
Total
100 %100 %100 %100 %100 %
New technology aircraft (a)63 %58 %49 %37 %23 %

(a)New technology aircraft include Airbus A320neo Family, Airbus A350, Boeing 737 MAX, Boeing 787 and Embraer E2 aircraft.
Following the fatal accidents of two Boeing 737 MAX aircraft, the worldwide fleet of these aircraft was grounded by aviation authorities in March 2019 and production was temporarily suspended by Boeing in January 2020, resulting in ongoing delays in the delivery of our aircraft on order from Boeing. As of December 31, 2020, we had five Boeing 737 MAX aircraft delivered and on lease. It is uncertain when and under what conditions our Boeing 737 MAX aircraft will return to service and when Boeing will resume making deliveries of our Boeing 737 MAX aircraft on order. During the year ended December 31, 2020, we cancelled our orders for 24 Boeing 737 MAX aircraft. See “Item 3. Key Information—Risk Factors—Risks related to competition and the aviation industry—The financial instability of an aircraft or engine manufacturer could impact delivery of our aircraft on order and negatively affect our cash flow and results of operations” for a discussion of the uncertainty surrounding the return to service and resumption of deliveries for Boeing 737 MAX aircraft.

31


During the year ended December 31, 2020, we had the following activity related to flight equipment:
Held for operating leasesInvestment in finance and sales-type leases, netHeld for saleTotal owned aircraft
Number of owned aircraft at beginning of period848 77 14 939 
Aircraft purchases (a)40 — — 40 
Aircraft reclassified to held for sale(4)— — 
Aircraft sold or designated for part-out(22)— (18)(40)
Aircraft reclassified from investment in finance and sales-type leases, net
(1)— — 
Number of owned aircraft at end of period863 76  939 

(a)During the year ended December 31, 2020, we purchased 36 new aircraft and four used aircraft.
Aircraft on order
The following table details our 286 aircraft on order as of December 31, 2020:
Aircraft type20212022202320242025ThereafterTotal
Airbus A320neo Family23 30 37 29 25 13 157 
Boeing 737 MAX (a)— 17 18 19 15 71 
Boeing 78723 
Embraer E190/195-E2— — 11 18 35 
Total31 33 55 62 66 39 286 

(a)The delivery positions of our Boeing 737 MAX aircraft are based on our best estimates and incorporate the information currently available to us. Our estimates may be different from the actual delivery dates, and will depend on the speed at which Boeing is able to deliver our aircraft on order to us.
Aircraft acquisitions and dispositions
We purchase new and used aircraft directly from aircraft manufacturers, airlines and financial investors. The aircraft we purchase are both on-lease and off-lease, depending on market conditions and the composition of our portfolio. The buyers of our aircraft include airlines, financial investors and other aircraft leasing companies. We acquire aircraft at attractive prices in three primary ways: by purchasing large quantities of aircraft directly from manufacturers to take advantage of volume discounts, by purchasing portfolios consisting of aircraft of varying types and ages and by entering into purchase and leaseback transactions with airlines. In addition, we also opportunistically purchase individual aircraft that we believe are being offered at attractive prices. Through our marketing team, which is in frequent contact with airlines worldwide, we are also able to identify attractive acquisition and disposition opportunities. We sell aircraft when we believe the market price for the type of aircraft has reached its peak or to rebalance the composition of our aircraft portfolio.
Prior to a purchase or disposition, our dedicated portfolio management group analyzes the aircraft’s price, fit in our aircraft portfolio, specification and configuration, maintenance history and condition, the existing lease terms, financial condition and creditworthiness of the existing lessee, the jurisdiction of the lessee, industry trends, financing arrangements and the aircraft’s redeployment potential and value, among other factors. During the year ended December 31, 2020, we purchased 36 new aircraft and four used aircraft and sold 40 aircraft from our owned portfolio.
Facilities
We lease our Dublin, Ireland headquarters office facility under a 25-year lease (61,000 square feet) that began in December 2015, which has a termination right, at our option, in 2031. We lease our Shannon, Ireland office facility (21,000 square feet) under three separate leases that expire in 2029 with options to terminate in 2024. We occupy space in Los Angeles, California (21,000 square feet) under a lease that expires in August 2025. We lease our Singapore office facility under two leases that expire in February 2024 (33,000 square feet). In addition to the above facilities, we also lease small offices in New York, New York, Amsterdam, The Netherlands, Shanghai, China and Abu Dhabi, United Arab Emirates.
32


Organizational structure
AerCap Holdings N.V. is a holding company that holds directly and indirectly consolidated subsidiaries, which in turn own our aircraft assets. As of December 31, 2020, AerCap Holdings N.V. did not own significant assets other than its direct and indirect investments in its subsidiaries. As of December 31, 2020, our major operating subsidiaries, each of which is ultimately 100%-owned by AerCap Holdings N.V., are AerCap Ireland Limited (Ireland) (“AerCap Ireland”) and AerCap Global Aviation Trust (United States) (“AerCap Trust”). See Exhibit 8.1—List of Subsidiaries of AerCap Holdings N.V. for a complete list of all our subsidiaries.
Item 4A.    Unresolved Staff Comments
Not applicable.
Item 5.    Operating and Financial Review and Prospects
        You should read this discussion in conjunction with our audited Consolidated Financial Statements and the related notes included in this annual report. Our financial statements are presented in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. The discussion below contains forward looking statements that are based upon our current expectations and are subject to uncertainty and changes of circumstances. See “Item 3. Key Information—Risk Factors” and “Special Note About Forward Looking Statements.”
Overview
Net loss attributable to AerCap Holdings N.V. for the year ended December 31, 2020 was $298.6 million, as compared to net income of $1,145.7 million for the year ended December 31, 2019. For the year ended December 31, 2020, diluted loss per share was $2.34 and the weighted average number of diluted shares outstanding was 127,743,828. Net interest margin, the difference between basic lease rents and interest expense, excluding the mark-to-market of interest rate caps and swaps, was $2,528 million for the year ended December 31, 2020. Annualized net spread less depreciation and amortization was 2.3% for the year ended December 31, 2020. Please refer to “Item 5. Operating and Financial Review and Prospects—Non-GAAP measures” for a reconciliation of net interest margin, annualized net spread and annualized net spread less depreciation and amortization to the most closely related U.S. GAAP measure for the years ended December 31, 2020 and 2019.
Major developments in 2020
The Covid-19 pandemic and responsive government actions have caused significant economic disruption and a dramatic reduction in commercial airline traffic, resulting in a broad adverse impact on air travel, the aviation industry and the demand for commercial aircraft globally. Despite the challenges of the Covid-19 pandemic, in 2020 AerCap:
Completed purchases of 36 new technology aircraft for approximately $2.1 billion;
Completed sales of 40 owned aircraft, with an average age of 17 years, for aggregate proceeds of approximately $0.6 billion;
Executed a total of 179 aircraft transactions, including 40 widebody aircraft transactions; and
Raised $8.3 billion of financing, including bank debt, revolving credit facilities and note issuances in the capital markets.
Aviation assets
During the year ended December 31, 2020, we purchased 36 new aircraft for approximately $2.1 billion. As of December 31, 2020, we owned 939 aircraft and we managed 105 aircraft. As of December 31, 2020, we also had 286 new aircraft on order. The average age of our fleet of 939 owned aircraft, weighted by net book value, was 6.4 years as of December 31, 2020.
Significant components of revenues and expenses
Revenues and other income
Our revenues and other income consist primarily of basic lease rents, maintenance rents and other receipts, net gain on sale of assets and other income.
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Basic lease rents and maintenance rents and other receipts
Nearly all of our aircraft lease agreements provide for the periodic payment of a fixed or a floating amount of rent. Floating rents are tied to interest rates during the terms of the respective leases. During the year ended December 31, 2020, approximately 3% of our basic lease rents from aircraft under operating leases was attributable to leases with lease rates tied to floating interest rates. In addition, our leases require the payment of supplemental maintenance rent based on aircraft utilization during the lease term, or EOL compensation calculated with reference to the condition of the aircraft at lease expiration. The amount of basic lease rents and maintenance rents and other receipts (together, “lease revenue”) we recognize is primarily influenced by the following five factors:
the contracted lease rate, which is highly dependent on the age, condition and type of the leased aircraft;
for leases with rates tied to floating interest rates, interest rates during the term of the lease;
the number of aircraft currently subject to lease contracts;
the lessee’s performance of its lease obligations; and
the amount of EOL compensation payments we receive, maintenance revenue and other receipts recognized during the lease and accrued maintenance liabilities recognized as revenue at the end of a lease.
In addition to aircraft-specific factors such as the type, condition and age of the aircraft, the lease rates for our leases with fixed rental payments are initially determined in part by reference to the prevailing interest rate for a debt instrument with a term similar to the lease term and with a similar credit quality as the lessee at the time we enter into the lease. Many of the factors described above are influenced by global and regional economic trends, airline market conditions, the supply and demand balance for the type of aircraft we own and our ability to remarket our aircraft subject to expiring lease contracts under favorable economic terms.
As of December 31, 2020, 880 of our 939 owned aircraft were on lease to 131 customers in 60 countries, with no lessee accounting for more than 10% of total lease revenue for the year ended December 31, 2020. As of December 31, 2020, our owned aircraft portfolio included 59 aircraft that were off-lease. As of February 25, 2021, of the 59 aircraft, 28 aircraft were designated for sale or part-out (which represented less than 1% of the aggregate net book value of our fleet), 21 aircraft were being marketed for re-lease (which represented approximately 2% of the aggregate net book value of our fleet), five were re-leased or under commitments for re-lease, and five aircraft were sold or under commitments to be sold.
Net gain on sale of assets
Our net gain on sale of assets is generated from the sale of our aircraft and is largely dependent on the condition of the asset being sold, prevailing interest rates, airline market conditions and the supply and demand balance for the type of asset we are selling. The timing of aircraft sale closings is often uncertain, as a sale may be concluded swiftly or negotiations may extend over several weeks or months. As a result, even if net gain on sale of assets is comparable over a long period of time, during any particular reporting period we may close significantly more or fewer sale transactions than in other reporting periods. Accordingly, net gain on sale of assets recorded in one reporting period may not be comparable to net gain on sale of assets in other reporting periods.
Other income
Other income consists of interest revenue, management fee revenue, lease termination fees, insurance proceeds, and income related to other miscellaneous activities.
Our interest revenue is derived primarily from interest on unrestricted and restricted cash balances and on financial instruments we hold, such as notes receivable and subordinated debt investments in unconsolidated securitization vehicles or affiliates. The amount of interest revenue we recognize in any period is influenced by our unrestricted or restricted cash balances, the principal balance of financial instruments we hold, contracted or effective interest rates, and movements in provisions for financial instruments which can affect adjustments to valuations or provisions.
We generate management fee revenue by providing management services to non-consolidated aircraft securitization vehicles, joint ventures, and other third parties. Our management services include aircraft asset management services, such as leasing, remarketing and technical advisory services, cash management and treasury services, and accounting and administrative services.
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Operating expenses
Our operating expenses consist primarily of depreciation and amortization, interest expense, leasing expenses and selling, general and administrative expenses.
Depreciation and amortization
Our depreciation expense is influenced by the adjusted gross book values, depreciable lives and estimated residual values of our flight equipment. Adjusted gross book value is the original cost of our flight equipment, adjusted for subsequent capitalized improvements, impairments and accounting basis adjustments associated with a business combination or a purchase and leaseback transaction. In addition, we have definite-lived intangible assets which are amortized over the period which we expect to derive economic benefits from such assets.
Interest expense
Our interest expense arises from a variety of debt funding structures and related derivative financial instruments as described in “Item 11—Quantitative and Qualitative Disclosures About Market Risk,” Note 10—Derivative financial instruments and Note 13—Debt to our Consolidated Financial Statements included in this annual report. Interest expense in any period is primarily affected by contracted interest rates, amortization of fair value adjustments, amortization of debt issuance costs and debt discounts and premiums, principal amounts of indebtedness and unrealized mark-to-market gains or losses on derivative financial instruments for which we do not achieve cash flow hedge accounting treatment.
Leasing expenses
Our leasing expenses consist primarily of maintenance rights asset amortization expense, maintenance expenses on our flight equipment, which we incur during the lease through lessor maintenance contributions or when we perform maintenance on our off-lease aircraft, expenses we incur to monitor the maintenance condition of our flight equipment during a lease, expenses to transition flight equipment from an expired lease to a new lease contract, non-capitalizable flight equipment expenses, and provisions for credit losses on notes receivable, trade receivables and receivables from investment in finance and sales-type leases, net.
Maintenance rights assets are recognized when we acquire aircraft subject to existing leases. These assets represent the contractual right to receive the aircraft in a specified maintenance condition at the end of the lease under lease contracts with EOL payment provisions, or our right to receive the aircraft in better maintenance condition due to our obligation to contribute towards the cost of the maintenance events performed by the lessee either through reimbursement of maintenance deposit rents held under lease contracts with maintenance reserve (“MR”) provisions, or through a lessor contribution to the lessee.
For leases with EOL maintenance provisions, upon lease termination, we recognize receipt of EOL cash compensation as lease revenue to the extent those receipts exceed the EOL maintenance rights asset, and we recognize leasing expenses when the EOL maintenance rights asset exceeds the EOL cash received. For leases with maintenance reserve payment provisions, we recognize maintenance rights expense at the time the lessee submits a reimbursement claim and provides the required documentation related to the cost of a qualifying maintenance event that relates to pre-acquisition usage.
Selling, general and administrative expenses
Our selling, general and administrative expenses consist primarily of personnel expenses, including salaries, benefits and severance compensation, share-based compensation expense, professional and advisory costs, office facility expenses and travel expenses, as summarized in Note 19—Selling, general and administrative expenses to our Consolidated Financial Statements included in this annual report. The level of our selling, general and administrative expenses is influenced primarily by the number of our employees and the extent of transactions or ventures we pursue that require the assistance of outside professionals or advisors.
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Income tax benefit (expense)
Our operations are taxable primarily in the two main jurisdictions in which we manage our business: Ireland and the United States. Deferred income taxes are provided to reflect the impact of temporary differences between our income before income taxes and our taxable income. Our effective tax rate has varied from year to year. The primary source of temporary differences is the availability of tax depreciation in our primary operating jurisdictions. Our effective tax rate in any year depends on the tax rates in the jurisdictions from which our income is derived, along with the extent of permanent differences between income or loss before income taxes and taxable income.
We have tax losses in certain jurisdictions that can be carried forward, which we recognize as deferred income tax assets. We evaluate the recoverability of deferred income tax assets in each jurisdiction in each period based upon our estimates of future taxable income in these jurisdictions. If we determine that we are not likely to generate sufficient taxable income in a jurisdiction prior to expiration, if any, of the availability of tax losses, we establish a valuation allowance against the tax loss to reduce the deferred income tax asset to its recoverable value. We evaluate the appropriate level of valuation allowances annually and make adjustments as necessary. Increases or decreases to valuation allowances can affect our income tax benefit (expense) in our Consolidated Income Statements and consequently may affect our effective tax rate in a given year.
Factors affecting our results
Our results of operations have also been affected by a variety of other factors, primarily:
the severity, extent and duration of the Covid-19 pandemic and the rate of recovery in air travel, the aviation industry and global economic conditions, and the potential impacts of the pandemic and responsive government actions on our business and results of operations, financial condition and cash flows;
the number, type, age and condition of the aircraft we own;
aviation industry market conditions, including general economic and political conditions;
the demand for our aircraft and the resulting lease rates we are able to obtain for our aircraft;
the availability and cost of debt capital to finance purchases of aircraft;
the purchase price we pay for our aircraft;
the number, type and sale price of aircraft, or parts in the event of a part-out of an aircraft, we sell in a period;
the ability of our lessees to meet their lease obligations, and the timing thereof, and maintain our aircraft in airworthy and marketable condition;
the utilization rate of our aircraft;
the recognition of non-cash share-based compensation expense related to the issuance of restricted stock units or restricted stock;
our expectations of future maintenance reimbursements and lessee maintenance contributions;
interest rates, which affect our aircraft lease revenues, our interest expense and the market value of our interest rate derivatives; and
our ability to fund our business.
Factors affecting the comparability of our results
Asset impairment charges
During 2020, we recognized impairment charges of $1.1 billion related primarily to current technology widebody aircraft, in particular Airbus A330 and Boeing 777 aircraft. In addition, we recognized impairment charges related to sales transactions and lease terminations. We also assessed our indefinite-lived goodwill assets for impairment and recognized impairment charges related to goodwill.
During 2019, we recognized impairment charges of $70.1 million related to sales transactions and lease terminations.

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Cash accounting
When we determine that the collection of rental payments is no longer probable, we cease accrual-based revenue recognition on an operating lease contract and we instead recognize lease revenues using a cash accounting method (“Cash Accounting”). During 2020, we recognized a reduction in basic lease rents of $310.6 million due to the application of Cash Accounting.
During 2019, we did not recognize a reduction in basic lease rents due to Cash Accounting.
Losses on debt extinguishment
During 2020, we recognized losses on debt extinguishment of $118.5 million, primarily related to the premium paid on the repurchase of debt pursuant to the July, October and December Tender Offers.
During 2019, we did not recognize losses on debt extinguishment.
Loss on investment at fair value
During 2020, we recognized a loss on investment at fair value of $143.5 million. Please refer to Note 9 —Investments to our Consolidated Financial Statements included in this annual report for further details on our investment at fair value.
During 2019, we did not hold an investment at fair value.
Sales transactions
During 2020, we completed sales of 40 owned aircraft, with an average age of 17 years, for aggregate proceeds of approximately $0.6 billion.
During 2019, we completed sales of 88 owned aircraft, with an average age of 15 years, for aggregate proceeds of approximately $2.1 billion.
Share repurchases
During 2020, we repurchased an aggregate of 2.1 million of our ordinary shares under share repurchase programs authorized in 2020 and 2019, at an average price, including commissions, of $55.06 per ordinary share, for approximately $117.3 million.
During 2019, we repurchased an aggregate of 12.0 million of our ordinary shares under share repurchase programs authorized in 2019 and 2018, at an average price, including commissions, of $50.82 per ordinary share, for approximately $607.3 million.
Trends in our business
The impact of the Covid-19 pandemic has had a dramatic impact on aviation in 2020. Overall global passenger traffic, measured in revenue passenger kilometers, fell by 65.9% in 2020, according to IATA. In December 2020, IATA estimated that global air passenger traffic would recover significantly in 2021 and increase by 50.4%, but would nonetheless remain well below 2019 levels. This forecast is subject to downside risk if continued or more severe travel restrictions are imposed.
Passenger air traffic and airlines’ losses have reduced demand for commercial passenger aircraft, including demand for leased aircraft in 2020. We expect demand for leased aircraft will remain weak in the short term and over the medium term we expect improvements in leased aircraft demand as air traffic recovers from the lows observed in 2020.




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Critical accounting policies and estimates
Our Consolidated Financial Statements are prepared in accordance with U.S. GAAP, and require us to make estimates and assumptions that affect the amounts reported in our Consolidated Financial Statements and accompanying notes. The use of estimates is or could be a significant factor affecting the reported amounts of assets, liabilities, revenues, expenses, and related disclosures of contingent assets and liabilities. We evaluate our estimates and assumptions, including those related to flight equipment, lease revenue, net gain on sales of assets, fair value estimates, and income taxes, on a recurring and non-recurring basis. Our estimates and assumptions are based on historical experiences and currently available information that management believes to be reasonable under the circumstances. Actual results may differ from our estimates under different conditions, sometimes materially. A summary of our significant accounting policies is presented in Note 3—Summary of significant accounting policies to our Consolidated Financial Statements included 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 of operations and that require our judgments, estimates and assumptions. Our critical accounting policies and estimates are described below.
Flight equipment held for operating leases, net
Flight equipment held for operating leases is stated at cost less accumulated depreciation and impairment. Flight equipment is depreciated to its estimated residual value on a straight-line basis over the useful life of the aircraft, which is generally 25 years from the date of manufacture, or a different period depending on the disposition strategy. The costs of improvements to flight equipment are normally recorded as leasing expenses unless the improvement increases the long-term value of the flight equipment. In that case, the capitalized improvement cost is depreciated over the estimated remaining useful life of the aircraft. The residual value of our flight equipment is generally 15% of estimated industry price, except where more relevant information indicates that a different residual value is more appropriate.
We periodically review the estimated useful lives and residual values of our flight equipment based on our industry knowledge, external factors, such as current market conditions, and changes in our disposition strategies, to determine if they are appropriate, and record adjustments to depreciation rates prospectively on an individual aircraft basis, as necessary.
Event-driven impairment and impairment calculation charges
We test long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The quantitative impairment test is performed at the lowest level for which identifiable cash flows are largely independent of other groups of assets, which is the individual aircraft, including the lease-related assets and liabilities of that aircraft, such as the maintenance rights assets, lease incentives, and maintenance liabilities (the “Asset Group”). If the sum of the expected undiscounted future cash flows is less than the Asset Group, an impairment loss is recognized. The loss is measured as the excess of the carrying value of the Asset Group over its estimated fair value.
Fair value reflects the present value of future cash flows expected to be generated from the aircraft, including its expected residual value, discounted at a rate commensurate with the associated risk. Future cash flows are assumed to occur under current market conditions and assume adequate time for a sale between a willing buyer and a willing seller. Expected future lease rates are based on all relevant information available, including current contracted rates for similar aircraft and industry trends.
We perform event-driven impairment assessments of our aircraft held for operating leases each quarter. These quarterly impairment assessments are primarily triggered by potential sale transactions, early terminated leases, credit events impacting lessees or forecasted significant and permanent declines in the demand for aircraft types. On an annual basis, we also perform an assessment of all aircraft held for operating leases to identify potential impairment by reference to estimated future cash flows at the Asset Group level, and perform a quantitative impairment test. We apply significant judgment in assessing whether an impairment is necessary and in estimating significant assumptions including the future lease rates, the residual value and the discount rate when performing quantitative impairment tests.
Due to the Covid-19 pandemic, many of our airline customers have significantly curtailed their commercial operations and are under significant financial stress, which could result in lease defaults, lease terminations and related aircraft repossessions. The future cash flows supporting the carrying value of our aircraft are based on current lease contracts and our estimates of future lease rates, useful lives and residual values for these aircraft. As a result of the Covid-19 pandemic and its impact on the aviation industry and the global economic environment, there is more uncertainty regarding the future cash flows relating to our aircraft. A reduction in the future expected cash flows relating to our aircraft could result in impairment losses that could be material to our financial results.
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The Covid-19 pandemic and responsive government actions have had a significant impact on both domestic and international travel. While both domestic and international air travel have increased since the low points experienced in early 2020, in general domestic travel has been faster to recover, and the timeframe for the recovery of domestic travel is generally expected to be more rapid than for international travel. During the year ended December 31, 2020, the Covid-19 pandemic led governments in many countries to impose new restrictions on international travel or to delay the relaxation of existing restrictions. As a result, the expected recovery time for international air traffic has become longer. In addition, we have observed an increased number of airlines shifting away from current technology widebody aircraft in favor of new technology widebody aircraft such as the Boeing 787 and Airbus A350. We expect these factors to impact the future lease rates and long-term values of our Boeing 777 and Airbus A330 aircraft. During the year ended December 31, 2020 we recognized impairment charges of $1.1 billion, primarily related to Boeing 777 and Airbus A330 aircraft.
Due to the significant uncertainties associated with potential sales transactions, we use our judgment to evaluate whether a sale or other disposal is more likely than not. The factors we consider in our assessment include (i) the progress of the potential sales transactions through a review and evaluation of the sales-related documents and other communications, including, but not limited to, letters of intent or sales agreements that have been negotiated or executed; (ii) our general or specific fleet strategies and other business needs and how those requirements bear on the likelihood of sale or other disposal; and (iii) the evaluation of potential execution risks, including the source of potential purchaser funding and other execution risks.
The future cash flows supporting the carrying value of aircraft that are 15 years of age or older are more dependent upon current lease contracts, and these leases are generally more sensitive to weaknesses in the global economic environment. Deterioration of the global economic environment and a decrease in aircraft values might have a negative effect on the undiscounted cash flows of older aircraft and might cause an impairment loss. As of December 31, 2020, 185 aircraft with an aggregate Asset Group value of approximately $2.1 billion were 15 years of age or older, which represented approximately 6% of our total flight equipment and lease-related assets and liabilities. The estimated undiscounted future cash flows of these 185 aircraft were $3.3 billion, which measured on a weighted average basis was 45% in excess of the aggregate carrying value. As of December 31, 2020, all of these aircraft passed the recoverability test. The following assumptions drive the undiscounted cash flows: contracted lease rents through current lease expiry; subsequent re-lease rates based on current marketing information; maintenance cash flow forecasts; and residual values. We review and stress-test our key assumptions to reflect any observed weakness in the global economic environment.
Aircraft that are between five and 15 years of age where future cash flows do not exceed the aircraft carrying value by at least 10% are more susceptible to impairment risk. As of December 31, 2020, 12 aircraft with an Asset Group carrying value of $594.5 million did not exceed our 10% threshold, which represented less than 1.75% of our total flight equipment held for operating leases and lease-related assets and liabilities. The 12 aircraft that were below the 10% threshold did, however, pass the impairment test as of December 31, 2020, and as such no impairment was recognized.
Revenues and other income
We lease flight equipment principally under operating leases and recognize basic lease rents income on a straight-line basis over the life of the lease. At lease inception, we review all necessary criteria to determine proper lease classification. We account for lease agreements that include uneven rental payments on a straight-line basis. The amount of the difference between basic lease rents recognized and cash received is included in other assets, or in the event it is a liability, in accounts payable, accrued expenses and other liabilities.
We periodically evaluate the collectability of our operating lease contracts to determine the appropriate revenue recognition and measurement model to apply to each lessee. Accrual-based revenue recognition ceases on an operating lease contract when the collection of payments is no longer probable and thereafter rental revenues are recognized using a cash receipts basis “Cash Accounting.” In the period where collection of lease payments is no longer probable, any difference between revenue amounts recognized to date under the accrual method and payments that have been collected from the lessee, including security deposit amounts held, is recognized as a current period adjustment to lease revenue. Subsequently, revenues are recognized based on the lesser of the straight-line rental income or the payments collected from the lessee until such time that collection is probable. We apply significant judgment in assessing at each reporting date whether operating rental payments are probable of collection by reference to the credit status of the each lessee, including lessees in bankruptcy-type arrangements, the extent of overdue balances and other relevant factors. During the year ended December 31, 2020, we concluded that collection of basic lease rents payments was not probable from a number of our lessees, resulting in a reduction of basic lease rents of approximately $310.6 million.
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Revenue from investment in finance and sales-type leases is recognized using the interest method to produce a constant yield over the life of the lease and is included in basic lease rents. Expected unguaranteed residual values are based on our assessment of the values of the flight equipment and, if applicable, the estimated end of lease payments expected at the expiration of the lease.
Under our aircraft leases, the lessee is responsible for maintenance, repairs and other operating expenses during the term of the lease. Under the provisions of many of our leases, the lessee is required to make payments of supplemental maintenance rents which are calculated with reference to the utilization of the airframe, engines and other major life-limited components during the lease. We record as lease revenue all supplemental maintenance rent receipts not expected to be reimbursed to the lessee. We estimate the total amount of maintenance reimbursements for the lease term and only record maintenance revenue after we have received sufficient maintenance rents to cover the total amount of estimated maintenance reimbursements during the remaining lease term.
In most lease contracts not requiring the payment of supplemental maintenance rents, and to the extent that the aircraft is redelivered in a different condition than at acceptance, we generally receive EOL cash compensation for the difference at redelivery. Upon lease termination, we recognize receipt of EOL cash compensation as lease revenue to the extent those receipts exceed the EOL maintenance rights asset, and we recognize leasing expenses when the EOL maintenance rights asset exceeds the EOL cash received.
When flight equipment is sold, the portion of the accrued maintenance liability not specifically assigned to the buyer is released net of any maintenance rights asset balance and is included in net gain on sale of assets.
Recent accounting standards adopted during the year ended December 31, 2020
Please refer to Note 3—Summary of significant accounting policies to our Consolidated Financial Statements included in this annual report.
Future application of accounting standards
Please refer to Note 3—Summary of significant accounting policies to our Consolidated Financial Statements included in this annual report.

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Comparative results of operations
Results of operations for the year ended December 31, 2020 as compared to the year ended December 31, 2019
Year Ended
December 31,
Increase/ (Decrease)
20202019
(U.S. Dollars in thousands)
Revenues and other income
Lease revenue:
   Basic lease rents
$3,761,611 $4,281,260 $(519,649)
   Maintenance rents and other receipts
559,395 401,006 158,389 
Lease revenue
4,321,006 4,682,266 (361,260)
Net gain on sale of assets89,618 188,835 (99,217)
Other income83,005 66,239 16,766 
Total Revenues and other income4,493,629 4,937,340 (443,711)
Expenses
Depreciation and amortization1,645,373 1,676,121 (30,748)
Asset impairment1,086,983 70,149 1,016,834 
Interest expense1,248,225 1,295,020 (46,795)
Loss on debt extinguishment118,460 — 118,460 
Leasing expenses323,535 287,950 35,585 
Selling, general and administrative expenses242,161 267,458 (25,297)
Total Expenses4,664,737 3,596,698 1,068,039 
Loss on investment at fair value(143,510) (143,510)
(Loss) income before income taxes and income of
investments accounted for under the equity method
(314,618)1,340,642 (1,655,260)
Income tax benefit (expense)17,231 (167,714)184,945 
Equity in net earnings of investments accounted for under
the equity method
2,464 (6,151)8,615 
Net (loss) income$(294,923)$1,166,777 $(1,461,700)
Net income attributable to non-controlling interest
(3,643)(21,083)17,440 
Net (loss) income attributable to AerCap Holdings N.V.$(298,566)$1,145,694 $(1,444,260)
Basic lease rents.    The decrease in basic lease rents of $519.6 million, or 12%, was attributable to:
a decrease in basic lease rents of $310.6 million due to the application of Cash Accounting;
a decrease in basic lease rents of $282.7 million primarily due to re-leases and extensions at lower rates. The accounting for the extensions requires the remaining rental payments to be recorded on a straight-line basis over the remaining term of the original lease plus the extension period; and
the sale of 128 aircraft between January 1, 2019 and December 31, 2020 with an aggregate net book value of $2.4 billion on their respective sale dates, resulting in a decrease in basic lease rents of $209.2 million;
partially offset by
the acquisition of 105 aircraft between January 1, 2019 and December 31, 2020, with an aggregate net book value of $6.7 billion on their respective acquisition dates, resulting in an increase in basic lease rents of $282.9 million.
Maintenance rents and other receipts.    The increase in maintenance rents and other receipts of $158.4 million, or 39%, was attributable to:
an increase of $231.8 million in maintenance revenue and other receipts from early lease terminations;
partially offset by
a decrease of $73.4 million in regular maintenance rents.
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Net gain on sale of assets.    The decrease in net gain on sale of assets of $99.2 million, or 53%, was primarily due to the lower volume and composition of asset sales. During the year ended December 31, 2020, we sold 40 aircraft for proceeds of $613.4 million and during the year ended December 31, 2019, we sold 88 aircraft for proceeds of $2,132.4 million.
Other Income.    The increase in other income of $16.8 million, or 25%, was primarily driven by higher interest income.
Depreciation and amortization.    The decrease in depreciation and amortization of $30.7 million, or 2%, was primarily due to aircraft sales, partially offset by aircraft purchases.
Asset impairment.    During the year ended December 31, 2020, we recognized impairment charges of $1.1 billion related primarily to current technology widebody aircraft, in particular Airbus A330 and Boeing 777 aircraft, as well as to the write-off of goodwill. Please refer to “Item 5. Operating and Financial Review and Prospects—Critical accounting policies and estimates” for further information on our event-driven impairment assessments. During the year ended December 31, 2019, we recognized impairment charges of $70.1 million related to sales transactions and lease terminations.
Interest expense.    The decrease in interest expense of $46.8 million, or 4%, was primarily attributable to:
a decrease in the average cost of debt to 4.1% for the year ended December 31, 2020 as compared to 4.2% for the year ended December 31, 2019. The average cost of debt excludes the effect of mark-to-market movements on interest rate caps and swaps. Please refer to “Item 5. Operating and Financial Review and Prospects—Non-GAAP measures” for further information on the average cost of debt. The decrease in the average cost of debt resulted in a $45.2 million decrease in interest expense; and
a $15.3 million decrease in interest expense attributable to a decrease in mark-to-market losses on interest rate caps and swaps. For the year ended December 31, 2020, we recognized a loss of $14.4 million related to mark-to-market movements on interest rate caps and swaps, compared to a corresponding loss of $29.7 million recognized during the year ended December 31, 2019;
partially offset by
a $0.3 billion increase in the average outstanding debt balance to $30.2 billion during the year ended December 31, 2020 from $29.9 billion during the year ended December 31, 2019, resulting in a $13.7 million increase in interest expense.
Loss on debt extinguishment.    During the year ended December 31, 2020, we recognized loss on debt extinguishment of $118.5 million, primarily related to the premium paid on the repurchase of debt pursuant to the July, October and December Tender Offers.
Leasing expenses.    The increase in leasing expenses of $35.6 million, or 12%, was primarily due to $52.2 million of higher aircraft transition costs, lessor maintenance contributions and other leasing expenses and $14.3 million related to airline defaults and restructuring, partially offset by $30.9 million of lower maintenance rights asset amortization.
Selling, general and administrative expenses.   The decrease in selling, general and administrative expenses of $25.3 million, or 9%, was primarily due to lower compensation-related expenses.
Loss on investment at fair value. During the year ended December 31, 2020, we recognized a loss on investment at fair value of $143.5 million. Please refer to Note 9 —Investments to our Consolidated Financial Statements included in this annual report for further details on our investment at fair value.
Income tax benefit (expense).    The effective tax rate was 5.5% for the year ended December 31, 2020, compared to the effective tax rate of 12.5% for the year ended 2019. The effective tax rate is impacted by the source and amount of earnings among our various tax jurisdictions as well as permanent tax differences relative to pre-tax income or loss. Please refer to Note 14—Income taxes to our Consolidated Financial Statements included in this annual report for a detailed description of income taxes.
For Results of Operations for the year ended December 31, 2019, as compared to the year ended December 31, 2018, refer to “Item 5. Operating and Financial Review and Prospects—Comparative results of operations” in our annual report on Form 20-F for the year ended December 31, 2019, filed with the SEC on March 5, 2020.
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Liquidity and capital resources
The following table presents our consolidated cash flows for the years ended December 31, 2020 and 2019:
Year Ended December 31,
20202019
(U.S. Dollars in millions)
Net cash provided by operating activities
$2,130.4 $3,105.7 
Net cash used in investing activities
(712.3)(2,954.7)
Net cash used in financing activities(1,225.3)(265.0)
Cash flows provided by operating activities.    During the year ended December 31, 2020, our cash provided by operating activities of $2,130.4 million was the result of a net loss of $294.9 million, other adjustments to net loss of $3,011.9 million and collections of finance and sales-type leases of $68.1 million, partially offset by the net change in operating assets and liabilities of $654.7 million. During the year ended December 31, 2019, our cash provided by operating activities of $3,105.7 million was the result of net income of $1,166.8 million, other adjustments to net income of $1,922.9 million and collections of finance and sales-type leases of $98.4 million, partially offset by the net change in operating assets and liabilities of $82.4 million.
Cash flows used in investing activities.    During the year ended December 31, 2020, our cash used in investing activities of $712.3 million primarily consisted of cash used for the purchase of aircraft of $1,183.7 million, partially offset by cash provided by asset sale proceeds of $471.4 million. During the year ended December 31, 2019, our cash used in investing activities of $2,954.7 million primarily consisted of cash used for the purchase of aircraft of $4,728.5 million, partially offset by cash provided by asset sale proceeds of $1,773.8 million.
Cash flows used in financing activities.    During the year ended December 31, 2020, our cash used in financing activities of $1,225.3 million primarily consisted of cash used for new financing proceeds, net of debt repayments and debt issuance costs, of $867.5 million, net receipts of maintenance and security deposits of $227.1 million, the repurchase of shares and payments of tax withholdings on share-based compensation of $127.8 million and cash used for the payment of dividends to our non-controlling interest holders of $2.9 million. During the year ended December 31, 2019, our cash used in financing activities of $265.0 million primarily consisted of cash used for the repurchase of shares and payments of tax withholdings on share-based compensation of $639.9 million, cash used for the payment of dividends to our non-controlling interest holders of $6.3 million and new financing proceeds, net of debt repayments and debt issuance costs, of $2.1 million partially offset by cash provided by net receipts of maintenance and security deposits of $383.3 million.
We have significant capital requirements, including making pre-delivery payments and paying the balance of the purchase price for aircraft on delivery. As of December 31, 2020, we had commitments to purchase 286 new aircraft scheduled for delivery through 2027. As a result, we will need to raise additional funds to satisfy these requirements, which we expect to do through a combination of accessing committed debt facilities and securing additional financing, if needed, from capital markets transactions or other sources of capital. If other sources of capital are not available to us, we may need to raise additional funds through selling aircraft or other aircraft investments, including participations in our joint ventures.
As of December 31, 2020, our cash balance was $1.5 billion, including unrestricted cash of $1.2 billion, and we had $5.6 billion of undrawn lines of credit available under our revolving credit and term loan facilities and other available secured debt. As of December 31, 2020, our total available liquidity, including undrawn lines of credit, unrestricted cash, cash flows from contracted asset sales and other sources of funding, was $6.7 billion, and including estimated operating cash flows for the next 12 months, our total sources of liquidity were $9.1 billion. As of December 31, 2020, our existing sources of liquidity were sufficient to operate our business and cover approximately 2.3x of our debt maturities and contracted capital requirements for the next 12 months. As of December 31, 2020, the principal amount of our outstanding indebtedness, which excludes fair value adjustments of $19.7 million and debt issuance costs, debt discounts and debt premium of $192.8 million, totaled $28.9 billion and consisted of senior unsecured, subordinated and senior secured notes, export credit facilities, commercial bank debt, revolving credit debt, securitization debt and capital lease structures.
In order to satisfy our contractual purchase obligations, we expect to source new debt financing through access to the capital markets, including the unsecured and secured bond markets, the commercial bank market, export credit and the asset-backed securities market.
In the longer term, we expect to fund the growth of our business, including acquiring aircraft, through internally generated cash flows, the incurrence of new bank debt, the refinancing of existing bank debt and other capital-raising initiatives.
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During the year ended December 31, 2020, our average cost of debt, excluding the effect of mark-to-market movements on our interest rate caps and swaps, was 4.1%. As of December 31, 2020, our adjusted debt to equity ratio was 2.6 to 1. Please refer to “Item 5. Operating and Financial Review and Prospects—Non-GAAP measures” for further information on our average cost of debt and reconciliations of adjusted debt and adjusted equity to the most closely related U.S. GAAP measures as of December 31, 2020 and 2019.
Please refer to Note 13—Debt to our Consolidated Financial Statements included in this annual report for a detailed description of our outstanding indebtedness.
AerCap Holdings N.V. is incorporated in the Netherlands and headquartered in Ireland, and is not directly engaged in business within, nor has a permanent establishment in, the United States. Only our U.S. subsidiaries are subject to U.S. net income tax or would potentially have to withhold U.S. taxes upon a distribution of our earnings.
While we were tax resident in the Netherlands, we did not accrue or pay taxes as a result of repatriation of earnings from any of our foreign subsidiaries to the Netherlands. Effective February 1, 2016, we became tax resident in Ireland and we would typically expect that the repatriation of earnings from our foreign subsidiaries should not, except where recognized in our financial statements, give rise to material additional Irish taxation due to the availability of foreign tax credits. As of December 31, 2020, $108.1 million out of $1,248.8 million of cash and short-term investments was held by our foreign subsidiaries outside of Ireland. Additionally, legal restrictions in relation to dividend payments from our subsidiaries to us are described in “Item 10. Additional Information—Taxation—Withholding tax.”
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Contractual obligations
Our contractual obligations consist of principal and interest payments on debt (excluding fair value adjustments, debt issuance costs, debt discounts and debt premium), executed purchase agreements to purchase aircraft and rent payments pursuant to our office and facility leases. We intend to fund our contractual obligations through unrestricted cash, lines-of-credit and other borrowings, operating cash flows and cash flows from asset sales. We believe that our sources of liquidity will be sufficient to meet our contractual obligations.
The following table provides details regarding our contractual obligations and their payment dates as of December 31, 2020, as adjusted to reflect the developments described in footnotes (b) and (c) below:
20212022202320242025ThereafterTotal
(U.S. Dollars in millions)
Unsecured debt
facilities
$1,379.8 $3,405.1 $3,120.1 $2,550.0 $2,650.0 $2,650.0 $15,755.0 
Secured debt
facilities
993.6 1,397.0 2,023.3 1,715.3 3,207.3 1,530.2 10,866.7 
Subordinated debt
facilities
— — — — — 2,293.5 2,293.5 
Estimated interest
payments (a)
1,123.2 995.5