10-Q 1 brhc10044333_10q.htm 10-Q

 UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2022
 
OR
 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____ to ____
 
Commission file number 001-37386

FTAI AVIATION LTD.
(Exact name of registrant as specified in its charter)

Cayman Islands
 
98-1420784
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

1345 Avenue of the Americas, 45th Floor
New York
NY
 
10105
(Address of principal executive offices)
 
(Zip Code)

(Registrant’s telephone number, including area code) (212) 798-6100
 
(Former name, former address and former fiscal year, if changed since last report) N/A
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
 
Trading Symbol:
 
Name of exchange on which registered:
Ordinary shares, $0.01 par value per share
 
FTAI
 
The Nasdaq Global Select Market
8.25% Fixed-to-Floating Rate Series A Cumulative Perpetual Redeemable Preferred Shares  
FTAIP
 
The Nasdaq Global Select Market
8.00% Fixed-to-Floating Rate Series B Cumulative Perpetual Redeemable Preferred Shares  
FTAIO
 
The Nasdaq Global Select Market
8.25% Fixed-Rate Reset Series C Cumulative Perpetual Redeemable Preferred Shares  
FTAIN
 
The Nasdaq Global Select Market

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer
Accelerated filer
 
 
Non-accelerated filer
Smaller reporting company

 
     
Emerging growth company

 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☑

There were 99,664,223 ordinary shares outstanding as of November 14, 2022.
 


FORWARD-LOOKING STATEMENTS AND RISK FACTORS SUMMARY

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact but instead are based on our present beliefs and assumptions and on information currently available to us. You can identify these forward-looking statements by the use of forward-looking words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” “target,” “projects,” “contemplates” or the negative version of those words or other comparable words. Any forward-looking statements contained in this report are based upon our historical performance and on our current plans, estimates and expectations in light of information currently available to us. The inclusion of this forward-looking information should not be regarded as a representation by us, that the future plans, estimates or expectations contemplated by us will be achieved.
 
Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business, prospects, growth strategy and liquidity. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. The following is a summary of the principal risk factors that make investing in our securities risky and may materially adversely affect our business, financial condition, results of operations and cash flows. This summary should be read in conjunction with the more complete discussion of the risk factors we face, which are set forth in Part II, Item 1A. “Risk Factors” of this report. We believe that these factors include, but are not limited to:
 

changes in economic conditions generally and specifically in our industry sectors, and other risks relating to the global economy, including, but not limited to, the Russia-Ukraine conflict, the ongoing COVID-19 pandemic and other public health crises, and any related responses or actions by businesses and governments;
 

reductions in cash flows received from our assets, as well as contractual limitations on the use of our aviation assets to secure debt for borrowed money;
 

our ability to take advantage of acquisition opportunities at favorable prices;
 

a lack of liquidity surrounding our assets, which could impede our ability to vary our portfolio in an appropriate manner;
 

the relative spreads between the yield on the assets we acquire and the cost of financing;
 

adverse changes in the financing markets we access affecting our ability to finance our acquisitions;
 

customer defaults on their obligations;
 

our ability to renew existing contracts and enter into new contracts with existing or potential customers;
 

the availability and cost of capital for future acquisitions;
 

concentration of a particular type of asset or in a particular sector;
 

competition within the aviation sector;
 

the competitive market for acquisition opportunities;
 

risks related to operating through joint ventures, partnerships, consortium arrangements or other collaborations with third parties;
 

our ability to successfully integrate acquired businesses;
 

obsolescence of our assets or our ability to sell, re-lease or re-charter our assets;
 

exposure to uninsurable losses and force majeure events;
 

the legislative/regulatory environment and exposure to increased economic regulation;
 

exposure to the oil and gas industry’s volatile oil and gas prices;
 

difficulties in obtaining effective legal redress in jurisdictions in which we operate with less developed legal systems;
 

our ability to maintain our exemption from registration under the Investment Company Act of 1940 and the fact that maintaining such exemption imposes limits on our operations;
 

our ability to successfully utilize leverage in connection with our investments;
 

foreign currency risk and risk management activities;
 

effectiveness of our internal control over financial reporting;

2


exposure to environmental risks, including natural disasters, increasing environmental legislation and the broader impacts of climate change;
 

changes in interest rates and/or credit spreads, as well as the success of any hedging strategy we may undertake in relation to such changes;
 

actions taken by national, state, or provincial governments, including nationalization, or the imposition of new taxes, could materially impact the financial performance or value of our assets;
 

our dependence on our Manager and its professionals and actual, potential or perceived conflicts of interest in our relationship with our Manager;
 

effects of the merger of Fortress Investment Group LLC with affiliates of SoftBank Group Corp.;
 

volatility in the market price of our shares;
 

the inability to pay dividends to our shareholders in the future; and
 

other risks described in the “Risk Factors” section of this report.
 
These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report. The forward-looking statements made in this report relate only to events as of the date on which the statements are made. We do not undertake any obligation to publicly update or review any forward-looking statement except as required by law, whether as a result of new information, future developments or otherwise.
 
If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. Furthermore, new risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us.
 
3

FTAI AVIATION LTD.
INDEX TO FORM 10-Q

     
 
PART I - FINANCIAL INFORMATION
 
     
Item 1.
5
 
5
 
6
 
7
 
8
 
10
 
10
 
11
 
15
 
16
 
16
 
17
 
18
 
18
 
19
 
21
 
21
 
24
 
31
 
31
 
31
Item 2.
32
Item 3.
46
Item 4.
46
     
 
PART II - OTHER INFORMATION
 
Item 1.
46
Item 1A.
46
Item 2.
65
Item 3.
65
Item 4.
65
Item 5.
65
Item 6.
65

4

PART I—FINANCIAL INFORMATION

Item 1.
Financial Statements

FTAI AVIATION LTD.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)
         
(Unaudited)
September 30,
    December 31,  
   
Notes
    2022    
2021
 
Assets
                 
Cash and cash equivalents
 
2
   
$
15,597
   
$
2,158
 
Accounts receivable, net
 
2
     
82,877
     
121,257
 
Leasing equipment, net
 
3
     
1,559,575
     
1,714,136
 
Finance leases, net
 
4
     
7,094
     
7,583
 
Investments
 
5
     
22,280
     
22,917
 
Intangible assets, net
 
6
     
29,416
     
30,962
 
Inventory, net
 
2
     
160,019
     
100,308
 
Other assets
 
2
     
141,294
     
97,531
 
Total assets
       
$
2,018,152
   
$
2,096,852
 
                       
Liabilities
                     
Accounts payable and accrued liabilities
       
$
26,982
   
$
32,058
 
Management fees payable to affiliate
 
11
     
46,095
     
43,477
 
Loans payable to affiliate
 
7
     
27,090
     
25,181
 
Maintenance deposits
 
2
     
51,430
     
106,164
 
Security deposits
 
2
     
25,905
     
38,639
 
Other liabilities
         
47,383
     
31,274
 
Total liabilities
       
$
224,885
   
$
276,793
 
                       
Commitments and contingencies
 
14
             
                       
Equity
                     
Ordinary shares ($1.00 par value per share; 50,000 shares authorized; 105.2 and 100.0 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively)
         
     
 
Additional paid in capital
         
1,087,534
     
1,139,628
 
Retained earnings
         
705,733
     
680,431
 
Total equity
         
1,793,267
     
1,820,059
 
Total liabilities and equity
       
$
2,018,152
   
$
2,096,852
 

See accompanying notes to consolidated financial statements.

5

FTAI AVIATION LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(Dollars in thousands, except share and per share data)

         
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
Notes
   
2022
   
2021
   
2022
   
2021
 
Revenues
 
9
   
$
218,249
   
$
93,938
   
$
412,205
   
$
228,482
 
                                       
Expenses
                                     
Operating expenses
 
2
     
14,612
     
10,130
     
83,651
     
20,641
 
Cost of sales
 
2
     
95,948
     
5,367
     
120,139
     
8,577
 
General and administrative
         
3,354
     
2,862
     
9,125
     
7,166
 
Acquisition and transaction expenses
         
2,848
     
1,132
     
5,449
     
3,710
 
Management fees and incentive allocation to affiliate
 
11
     
539
     
2,116
     
4,692
     
7,027
 
Depreciation and amortization
 
3
     
32,877
     
34,825
     
106,567
     
102,194
 
Asset impairment
 
3
     
4,495
     
859
     
128,171
     
3,048
 
Interest expense
         
644
     
584
     
1,910
     
1,734
 
Total expenses
         
155,317
     
57,875
     
459,704
     
154,097
 
                                       
Other income (expense)
                                     
Equity in losses of unconsolidated entities
 
5
     
(358
)
   
(369
)
   
(125
)
   
(1,050
)
Gain on sale of assets, net
         
     
12,685
     
79,933
     
17,467
 
Other income (expense)
         
42
     
(1,341
)
   
245
     
(717
)
Total other income (expense)
         
(316
)
   
10,975
     
80,053
     
15,700
 
Income before income taxes
         
62,616
     
47,038
     
32,554
     
90,085
 
Provision for income taxes
 
10
     
3,818
     
500
     
7,252
     
1,037
 
Net income attributable to shareholders
       
$
58,798
   
$
46,538
   
$
25,302
   
$
89,048
 
                                       
Earnings per share:
 
13
                                 
Basic
       
$
558.92
   
$
465.38
   
$
244.46
   
$
890.48
 
Diluted
       
$
558.92
   
$
465.38
   
$
244.46
   
$
890.48
 
Weighted average shares outstanding:
                                     
Basic
         
105.2
     
100.0
     
103.5
     
100.0
 
Diluted
         
105.2
     
100.0
     
103.5
     
100.0
 

See accompanying notes to consolidated financial statements.

6

FTAI AVIATION LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (unaudited)
(Dollars in thousands)

   
Three and Nine Months Ended September 30,2022
 
   
Additional Paid In
Capital
   
Retained
Earnings
   
Total Equity
 
Equity - December 31, 2021
 
$
1,139,628
   
$
680,431
   
$
1,820,059
 
Net loss
   
     
(33,496
)
   
(33,496
)
Capital contributions
   
230,766
     
     
230,766
 
Capital distributions
   
(104,821
)
   
     
(104,821
)
Equity - June 30, 2022
 
$
1,265,573
   
$
646,935
   
$
1,912,508
 
Net income
   
     
58,798
     
58,798
 
Capital contributions
   
11,365
     
     
11,365
 
Capital distributions
   
(189,404
)
   
     
(189,404
)
Equity - September 30, 2022
 
$
1,087,534
   
$
705,733
   
$
1,793,267
 

   
Three and Nine Months Ended September 30,2021
 
   
Additional Paid In
Capital
   
Retained
Earnings
   
Total Equity
 
Equity - December 31, 2020
 
$
897,089
   
$
550,560
   
$
1,447,649
 
Net income
   
     
42,510
     
42,510
 
Capital contributions
   
140,273
     
     
140,273
 
Capital distributions
   
(88,159
)
   
     
(88,159
)
Equity - June 30, 2021
 
$
949,203
   
$
593,070
   
$
1,542,273
 
Net income
   
     
46,538
     
46,538
 
Capital contributions
   
109,191
     
     
109,191
 
Capital distributions
   
(56,803
)
   
     
(56,803
)
Equity - September 30, 2021
 
$
1,001,591
   
$
639,608
   
$
1,641,199
 

See accompanying notes to consolidated financial statements.

7

FTAI AVIATION LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Dollars in thousands)

   
Nine Months Ended
September 30,
 
   
2022
   
2021
 
Cash flows from operating activities:
           
Net income
 
$
25,302
   
$
89,048
 
Adjustments to reconcile net income to cash provided by operating activities:
               
Equity in losses of unconsolidated entities
   
125
     
1,050
 
Gain on sale of assets, net
   
(106,169
)
   
(17,467
)
Security deposits and maintenance claims included in earnings
   
(31,558
)
   
(30,866
)
Depreciation and amortization
   
106,567
     
102,194
 
Payment-in-kind interest
   
1,910
     
1,734
 
Asset impairment
   
128,171
     
3,048
 
Change in deferred income taxes
   
6,614
     
(23
)
Amortization of lease intangibles and incentives
   
30,315
     
21,348
 
Provision for credit losses
   
47,128
     
821
 
Change in:
               
Accounts receivable, net
   
(25,933
)
   
(38,575
)
Inventory, net
   
(11,041
)
   
(11,918
)
Other assets
   
(1,211
)
   
972
 
Accounts payable and accrued liabilities
   
(19,659
)
   
(3,677
)
Management fees payable to affiliate
   
2,618
     
15,692
 
Other liabilities
   
(1,875
)
   
(1,553
)
Net cash provided by operating activities
   
151,304
     
131,828
 
                 
Cash flows from investing activities:
               
Distribution from unconsolidated entities
   
512
     
 
Principal collections on finance leases
   
2,165
     
1,707
 
Acquisition of leasing equipment
   
(360,642
)
   
(298,912
)
Acquisition of property, plant and equipment
   
(949
)
   
(1,121
)
Acquisition of lease intangibles
   
(6,542
)
   
(7,403
)
Purchase deposits for aircraft and engines
   
(28,621
)
   
(13,790
)
Proceeds from sale of leasing equipment
   
262,096
     
78,463
 
Proceeds from deposit of sale of aircraft and engines
   
7,801
     
600
 
Return of purchase deposits
   
     
1,010
 
Net cash used in investing activities
 
$
(124,180
)
 
$
(239,446
)

See accompanying notes to consolidated financial statements.

8

FTAI AVIATION LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Dollars in thousands)

   
Nine Months Ended
September 30,
 
   
2022
   
2021
 
Cash flows from financing activities:
           
Receipt of security deposits
 

2,636
     
1,390
 
Return of security deposits
   
(935
)
   
(1,034
)
Receipt of maintenance deposits
   
37,586
     
23,075
 
Release of maintenance deposits
   
(878
)
   
(19,615
)
Capital contributions from Parent
   
242,131
     
249,464
 
Capital distributions to Parent
   
(294,225
)
   
(144,962
)
Net cash (used in) provided by financing activities
   
(13,685
)
   
108,318
 
                 
Net increase in cash and cash equivalents
   
13,439
     
700
 
Cash and cash equivalents, beginning of period
   
2,158
     
1,388
 
Cash and cash equivalents, end of period
 
$
15,597
   
$
2,088
 
                 
Supplemental disclosure of non-cash investing and financing activities:
               
Acquisition and transfers of leasing equipment
 
$
124,932
   
$
66,988
 
Assumed and settled security deposits
   
(12,161
)
   
(1,909
)
Assumed and settled maintenance deposits
   
(73,136
)
   
(30,302
)

See accompanying notes to consolidated financial statements.

9

FTAI AVIATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollars in tables in thousands, unless otherwise noted)


1.  BACKGROUND AND BASIS OF PRESENTATION
 
Background
 
FTAI Aviation Ltd. (“we”, “us”, “our” or the “Company and formerly FTAI Finance Holdco Ltd.”) is a Cayman Islands exempted company which, through its subsidiaries, owns and leases aviation equipment. The Company was incorporated on December 8, 2017 and as of September 30, 2022, was wholly owned by Fortress Transportation and Infrastructure Investors LLC (the “Parent”). On November 10, 2022, pursuant to the Agreement and Plan of Merger dated August 12, 2022, by and among the Company, the Parent, and FTAI Aviation Merger Sub LLC, the Parent became a wholly-owned subsidiary of the Company.

In connection with the consummation of the merger, the Company’s corporate name was changed to FTAI Aviation Ltd., and the Company replaced the Parent as the publicly traded company. We consist of an equipment leasing business that owns and leases aviation equipment and also develops, manufactures, repairs and sells aftermarket components for aircraft engines. We have two reportable segments, (i) Aviation Leasing and (ii) Aerospace Products (see Note 12).
 
During the third quarter of 2021, the Parent announced its plan to spin off its infrastructure business and separate into two distinct, publicly traded companies (the ‘‘Separation’’) comprising the infrastructure business and the equipment leasing business. As part of a restructuring for the Separation, the Company, the Parent and its subsidiaries completed a series of transactions which included the contribution of remaining interests in aviation legal entities to the Company. As a result, on March 31, 2022 the Company acquired a 100% interest in FTAI CHR JV Holdings LLC, a subsidiary that owns a 25% ownership interest in the Advanced Engine Repair JV, and a 100% interest in WWTAI Aviation LLC, a subsidiary that owns aviation assets. The Parent completed the spin-off of its infrastructure business into an independent publicly traded company on August 1, 2022.
 
Basis of Presentation
 
The accompanying consolidated financial statements were prepared on a standalone legal entity basis. These financial statements reflect the consolidated historical results of operations, financial position and cash flows of FTAI Aviation Ltd. in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).
 
The transfer of a business between entities under common control that result in a change in reporting entity require retrospective combination of the entities for all periods presented as if the combination had been in effect since the inception of common control. The transfer of remaining aviation legal entities, as described above, represents a transfer of a business under a common control transaction which has been recorded at carrying value and accounted for retrospectively for all periods presented.
 
Historically, separate financial statements have not been prepared for the Company and it has not operated as a standalone business separate from the Parent. The accompanying consolidated financial statements have been prepared from Parent’s historical accounting records and are presented on a standalone basis as if the operations had been conducted independently from Parent. The historical results of operations, financial position, and cash flows of FTAI Aviation Ltd. represented in the consolidated financial statements may not be indicative of what they would have been had the Company actually been a separate standalone entity during such periods, nor are they necessarily indicative of our future results of operations, financial position, and cash flows.
 
The assets and liabilities in the consolidated financial statements have been reflected on a historical cost basis.
 
Corporate Function
 
The consolidated financial statements include all revenues and costs directly attributable to FTAI Aviation Ltd. and an allocation of certain expenses. The Parent is externally managed by Fortress Investment Group LLC (the ‘‘Manager’’), which performs the Parent’s corporate function (‘‘Corporate’’), and incurs a variety of expenses including, but not limited to, information technology, accounting, treasury, tax, legal, corporate finance and communications. For purposes of the Consolidated Statements of Operations, an allocation of these expenses is included to reflect our portion of such corporate overhead from the Parent. The charges reflected have either been specifically identified or allocated based on an estimate of time spent on the Company. These allocated costs are recorded in General and administrative, and Acquisition and transaction expenses in the Consolidated Statements of Operations. We believe the assumptions regarding allocations of the Parent’s corporate expenses are reasonable. Nevertheless, the allocations may not be indicative of the actual expense that would have been incurred had FTAI Aviation Ltd. operated as an independent, standalone public entity, nor are they indicative of FTAI Aviation Ltd.’s future expenses. Actual costs that may have been incurred if we had been a standalone company would depend on a number of factors, including the organizational structure, what functions were outsourced or performed by employees and strategic decisions made in areas such as information technology and infrastructure. The Parent funded our operating and investing activities as needed. Cash transfers to and from the Parent are reflected in the Consolidated Statements of Cash Flows as ‘‘Capital contributions from Parent” and “Capital distributions to Parent”. Refer to Note 11 for additional discussion on corporate costs allocated from the Parent that are included in these consolidated financial statements.

Unaudited interim financial information

The accompanying interim consolidated balance sheet as of September 30, 2022, the consolidated statements of operations, changes in equity and cash flows for the nine months ended September  30, 2022 and 2021 are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with U.S. GAAP. In the opinion of our management, the unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments necessary for the fair statement of our financial position as of September 30, 2022, the results of operations, changes in equity and cash flows for the nine months ended September 30, 2022 and 2021. The results of operations for the nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other period.

10

FTAI AVIATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollars in tables in thousands, unless otherwise noted)

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Accounting—The accompanying consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles and include both our accounts and those of our subsidiaries.
 
Principles of Consolidation—We consolidate all entities in which we have a controlling financial interest and control over significant operating decisions. All intercompany transactions and balances have been eliminated.
 
We use the equity method of accounting for investments in entities in which we exercise significant influence, but which do not meet the requirements for consolidation. Under the equity method, we record our proportionate share of the underlying net income (loss) of these entities.
 
Use of Estimates—The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period, including allocations from the Parent. Actual results could differ from those estimates.
 
Risks and Uncertainties—In the normal course of business, we encounter several significant types of economic risk including credit, market, and capital market risks. Credit risk is the risk of the inability or unwillingness of a lessee or customer to make contractually required payments or to fulfill its other contractual obligations. Market risk reflects the risk of a downturn or volatility in the underlying industry in which we operate, which could adversely impact the pricing of the services offered by us or a lessee’s or customer’s ability to make payments, increase the risk of unscheduled lease terminations and depress lease rates and the value of our leasing equipment or operating assets. Capital market risk is the risk that we are unable to obtain capital at reasonable rates to fund the growth of our business. We, through our subsidiaries, also conduct operations outside of the United States; such international operations are subject to the same risks as those associated with our United States operations as well as additional risks, including unexpected changes in regulatory requirements, heightened risk of political and economic instability, potentially adverse tax consequences and the burden of complying with foreign laws. We do not have significant exposure to foreign currency risk as all of our leasing and customer arrangements are denominated in U.S. dollars.
 
Cash and Cash Equivalents—We consider all highly liquid short-term investments with a maturity of 90 days or less when purchased to be cash equivalents.
 
Inventory, net—We hold aircraft engine modules, spare parts and used material inventory for trading and to support operations. Inventory, net is carried at the lower of cost or net realizable value on our Consolidated Balance Sheets.
 
Property, Plant and Equipment, Leasing Equipment and DepreciationProperty, plant and equipment and leasing equipment are stated at cost (inclusive of capitalized acquisition costs, where applicable) and depreciated using the straight-line method, over estimated useful lives, to estimated residual values which are summarized as follows:

Asset
 
Range of Estimated Useful Lives
 
Residual Value Estimates
Aircraft
 
25 years from date of manufacture
 
Generally not to exceed 15% of manufacturer’s list price when new
Aircraft engines
 
2 - 6 years, based on maintenance adjusted service life
 
Sum of engine core salvage value plus the estimated fair value of life limited parts
Aviation tooling and equipment
 
3 - 6 years from date of purchase
 
Scrap value at end of useful life
Furniture and fixtures
 
3 - 6 years from date of purchase
 
None
 
Major improvements and modifications incurred in connection with the acquisition of property, plant and equipment and leasing equipment that are required to get the asset ready for initial service are capitalized and depreciated over the remaining life of the asset. Property, plant and equipment is included in Other Assets in the Consolidated Balance Sheets.
 
We review our depreciation policies on a regular basis to determine whether changes have taken place that would suggest that a change in our depreciation policies, useful lives of our equipment or the assigned residual values is warranted.
 
For planned major maintenance or component overhaul activities for aviation equipment off lease, the cost of such major maintenance or component overhaul event is capitalized and depreciated on a straight-line basis over the period until the next maintenance or component overhaul event is required.

11

FTAI AVIATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollars in tables in thousands, unless otherwise noted)
In accounting for leasing equipment, we make estimates about the expected useful lives, residual values and the fair value of acquired in-place leases and acquired maintenance liabilities. In making these estimates, we rely upon observable market data for the same or similar types of equipment and our own estimates with respect to a lessee’s anticipated utilization of the aircraft or engine. When we acquire leasing equipment subject to an in-place lease, determining the fair value of the in-place lease requires us to make assumptions regarding the current fair values of leases for identical or similar equipment, in order to determine if the in-place lease is within a fair value range of current lease rates. If a lease is below or above the range of current lease rates, the resulting lease discount or premium is recognized as a lease intangible and amortized into lease income over the remaining term of the lease.
 
Impairment of Long-Lived Assets—We perform a recoverability assessment of each of our long-lived assets whenever events or changes in circumstances, or indicators, indicate that the carrying amount or net book value of an asset may not be recoverable. Indicators may include, but are not limited to, a significant lease restructuring or early lease termination; a significant change in market conditions; or the introduction of newer technology aircraft or engines. When performing a recoverability assessment, we measure whether the estimated future undiscounted net cash flows expected to be generated by the asset exceeds its net book value. The undiscounted cash flows consist of cash flows from currently contracted leases, future projected leases, transition costs, estimated down time and estimated residual or scrap values. In the event that an asset does not meet the recoverability test, the carrying value of the asset will be adjusted to fair value resulting in an impairment charge.
 
Management develops the assumptions used in the recoverability analysis based on its knowledge of active contracts, current and future expectations of the global demand for a particular asset and historical experience in the leasing markets, as well as information received from third party industry sources. The factors considered in estimating the undiscounted cash flows are impacted by changes in future periods due to changes in contracted lease rates, residual values, economic conditions, technology, demand for a particular asset type and other factors.
 
Security Deposits—Our operating leases generally require the lessee to pay a security deposit or provide a letter of credit. Security deposits are held until specified return dates stipulated in the lease or lease expiration.
 
Maintenance Payments—Typically, under an operating lease of aircraft, the lessee is responsible for performing all maintenance and is generally required to make maintenance payments to us for heavy maintenance, overhaul or replacement of certain high-value components of the aircraft or engine. These maintenance payments are based on hours or cycles of utilization or on calendar time, depending on the component, and are generally required to be made monthly in arrears. If a lessee is making monthly maintenance payments, we would typically be obligated to reimburse the lessee for costs they incur for heavy maintenance, overhaul or replacement of certain high-value components to the extent of maintenance payments received in respect of the specific maintenance event, usually shortly following the completion of the relevant work.
 
We record the portion of maintenance payments paid by the lessee that are expected to be reimbursed as maintenance deposit liabilities in the Consolidated Balance Sheets. Reimbursements made to the lessee upon the receipt of evidence of qualifying maintenance work are recorded against the maintenance deposit liability.
 
In certain acquired leases, we or the lessee may be obligated to make a payment to the other party at lease termination based on redelivery conditions stipulated at the inception of the lease. When the lessee is required to return the aircraft in an improved maintenance condition, we record a maintenance right asset, as a component of other assets, for the estimated value of the end-of-life maintenance payment at acquisition. We recognize payments received as end-of-lease compensation adjustments, within lease revenue or as a reduction to the maintenance right asset, when payment is received or collectability is assured. In the event we are required to make payments at the end of the lease for redelivery conditions, amounts are accrued as additional maintenance liability and expensed when we are obligated and can reasonably estimate such payment.
 
Lease Incentives and Amortization—Lease incentives, which include lease acquisition costs related to reconfiguration of the aircraft cabin, other lessee specific modifications and other direct costs, are capitalized and amortized as a reduction of lease income over the primary term of the lease, assuming no lease renewals.
 
Intangibles and Amortization—Intangibles include the value of acquired favorable and unfavorable leases.
 
In accounting for acquired leasing equipment, we make estimates about the fair value of the acquired leases. In determining the fair value of these leases, we make assumptions regarding the current fair values of leases for identical or similar equipment in order to determine if the acquired lease is within a fair value range of current lease rates. If a lease is below or above the range of current lease rates, the resulting lease discount or premium is recognized as a lease intangible and amortized into lease income over the remaining term of the lease.

12

FTAI AVIATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollars in tables in thousands, unless otherwise noted)
Revenues
 
Operating Leases—We lease equipment pursuant to operating leases. Operating leases with fixed rentals and step rentals are recognized on a straight-line basis over the term of the lease, assuming no renewals. Revenue is not recognized when collection is not reasonably assured. When collectability is not reasonably assured, the customer is placed on non-accrual status and revenue is recognized when cash payments are received.
 
Generally, under our aircraft lease and engine agreements, the lessee is required to make periodic maintenance payments calculated based on the lessee’s utilization of the leased asset or at the end of the lease. Typically, under our aircraft lease agreements, the lessee is responsible for maintenance, repairs and other operating expenses throughout the term of the lease. These periodic maintenance payments accumulate over the term of the lease to fund major maintenance events, and we are contractually obligated to return maintenance payments to the lessee up to the cost of maintenance events paid by the lessee. In the event the total cost of maintenance events over the term of a lease is less than the cumulative maintenance payments, we are not required to return any unused or excess maintenance payments to the lessee.
 
Maintenance payments received for which we expect to repay to the lessee are presented as Maintenance Deposits in our Consolidated Balance Sheets. All excess maintenance payments received that we do not expect to repay to the lessee are recorded as Maintenance revenues. Estimates in recognizing revenue include mean time between removal, projected costs for engine maintenance and forecasted utilization of aircraft which are affected by historical usage patterns and overall industry, market and economic conditions. Significant changes to these estimates could have a material effect on the amount of revenue recognized in the period.
 
For purchase and lease back transactions, we account for the transaction as a single arrangement. We allocate the consideration paid based on the relative fair value of the aircraft and lease. The fair value of the lease may include a lease premium or discount which is recorded as a favorable or unfavorable lease intangible.
 
Finance Leases—From time to time we enter into finance lease arrangements that include a lessee obligation to purchase the leased equipment at the end of the lease term, a bargain purchase option, or provides for minimum lease payments with a present value that equals or exceeds substantially all of the fair value of the leased equipment at the date of lease inception. Net investment in finance leases represents the minimum lease payments due from lessee, net of unearned income. The lease payments are segregated into principal and interest components similar to a loan. Unearned income is recognized on an effective interest method over the lease term and is recorded as finance lease income. The principal component of the lease payment is reflected as a reduction to the net investment in finance leases. Revenue is not recognized when collection is not reasonably assured. When collectability is not reasonably assured, the customer is placed on non-accrual status and revenue is recognized when cash payments are received.
 
Asset sales revenue—Asset sales revenue primarily consists of the transaction price related to the sale of aircraft and aircraft engines from our Aviation Leasing segment. From time to time, the Company may assign the related lease agreements to the customer as part of the sale of these assets. We routinely sell leasing equipment to customers and such transactions are considered recurring and ordinary in nature to our business. As such, these sales are accounted for within the scope of ASC 606. Revenue is recognized when a performance obligation is satisfied by transferring control over an asset to a customer. Revenue is recorded with corresponding costs of sales, presented on a gross basis in the Consolidated Statements of Operations. See Note 9 for additional information.
 
Aerospace Products revenue—Aerospace Products revenue primarily consists of the transaction price related to the sale of repaired CFM56-7B and CFM56-5B engines, engine modules, spare parts and used material inventory, and are accounted for within the scope of ASC 606. Revenue is recognized when a performance obligation is satisfied by transferring control over the related asset to a customer. Revenue is recorded with corresponding costs of sales, presented on a gross basis in the Consolidated Statements of Operations.
 
Leasing Arrangements—At contract inception, we evaluate whether an arrangement is or contains a lease for which we are the lessee (that is, arrangements which provide us with the right to control a physical asset for a period of time). Operating lease right-of-use (“ROU”) assets and lease liabilities are included in Other assets and Other liabilities in our Consolidated Balance Sheets.

13

FTAI AVIATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollars in tables in thousands, unless otherwise noted)
All lease liabilities are measured at the present value of the unpaid lease payments, discounted using our incremental borrowing rate based on the information available at commencement date of the lease. ROU assets, for both operating and finance leases, are initially measured based on the lease liability, adjusted for prepaid rent and lease incentives. Operating lease ROU assets are subsequently measured at the carrying amount of the lease liability adjusted for prepaid or accrued lease payments and lease incentives.
 
Operating lease expenses are recognized on a straight-line basis over the lease term. With respect to finance leases, amortization of the ROU asset is presented separately from interest expense related to the finance lease liability and is recorded in Operating expenses in the Consolidated Statements of Operations. Variable lease payments, which are primarily based on usage, are recognized when the associated activity occurs.
 
We have elected to combine lease and non-lease components for all lease contracts where we are the lessee. Additionally, for arrangements with lease terms of 12 months or less, we do not recognize ROU assets, and lease liabilities and lease payments are recognized on a straight-line basis over the lease term with variable lease payments recognized in the period in which the obligation is incurred.
 
Concentration of Credit Risk—We are subject to concentrations of credit risk with respect to amounts due from customers. We attempt to limit our credit risk by performing ongoing credit evaluations and, when deemed necessary, enter into collateral arrangements. During the three and nine months ended September 30, 2022, no customer accounted for more than 10% of total revenue. During the three and nine months ended September 30, 2021, one customer in the Aviation Leasing segment accounted for approximately 14% of total revenue in both periods.
 
As of September 30, 2022, there were two customers that represented 32% and 14% of total Accounts receivable, net. As of December 31, 2021, there were two customers that represented 52% and 19% of total Accounts receivable, net.
 
We maintain cash balances, which generally exceed federally insured limits, and subject us to credit risk, in high credit quality financial institutions. We monitor the financial condition of these institutions and have not experienced any losses associated with these accounts.
 
Allowance for Doubtful Accounts—We determine the allowance for doubtful accounts based on our assessment of the collectability of our receivables on a customer-by-customer basis. The allowance for doubtful accounts was $54.7 million and $16.0 million as of September 30, 2022 and December 31, 2021, respectively. There was no provision for credit losses and $1.5 million of provision for credit losses for the three months ended September 30, 2022 and 2021, respectively. There were provisions for credit losses of $47.1 million and $0.8 million for the nine months ended September 30, 2022 and 2021, respectively, and is included in Operating expenses in the Consolidated Statements of Operations.
 
Economic sanctions and export controls against Russia and Russia’s aviation industry have been imposed due to its invasion of Ukraine during the first quarter of 2022. As a result of the sanctions imposed on Russian airlines, we terminated all lease agreements with Russian airlines and recognized approximately $47.1 million in provision for credit losses during the nine months ended September 30, 2022. Our allowance for doubtful accounts as of September 30, 2022 includes all accounts receivable exposure to Russian and Ukrainian customers.
 
Expense Recognition—Expenses are recognized on an accrual basis as incurred.
 
Acquisition and Transaction Expenses—Acquisition and transaction expenses is comprised of indirect costs related to asset acquisitions, dispositions and terminated deal costs, including salaries, advisory, legal, accounting, valuation and other professional or consulting fees.
 
Foreign Currency—Our functional and reporting currency is the U.S. dollar. Purchases and sales of assets and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions.
 
Income Taxes—The Company is an exempted entity domiciled in the Cayman Islands where income taxes are not imposed. The Company is considered a Passive Foreign Investment Company for U.S. income tax purposes and certain income taxes are imposed on our owners. Taxable income or loss generated by our corporate subsidiaries is subject to U.S. federal, state and foreign corporate income tax in locations where they conduct business.
 
We account for these taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is established when management believes it is more likely than not that a deferred tax asset will not be realized.
 
14

FTAI AVIATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollars in tables in thousands, unless otherwise noted)
We file income tax returns in the U.S. federal jurisdiction, various state jurisdictions and in certain foreign jurisdictions. The income tax returns filed by us and our subsidiaries are subject to examination by the U.S. federal, state and foreign tax authorities. We recognize tax benefits for uncertain tax positions only if it is more likely than not that the position is sustainable based on its technical merits. Interest and penalties on uncertain tax positions are included as a component of the provision for income taxes in the Consolidated Statements of Operations.
 
Other Assets—Other assets is primarily comprised of lease incentives of $35.5 million and $46.2 million, purchase deposits of $28.6 million and $13.7 million, prepaid expenses of $0.7 million and $3.1 million, notes receivable of $56.0 million and $22.9 million, maintenance right assets of $12.4 million and $5.1 million, and operating lease right-of-use assets, net of $3.2 million and $2.3 million, as of September 30, 2022 and December 31, 2021, respectively. As a result of the sanctions imposed on Russian airlines, we terminated all lease agreements with Russian airlines and recognized approximately $7.5 million in amortization for the remaining lease incentives during the nine months ended September 30, 2022.
 
Accounts Payable and Accrued Liabilities—Accounts payable and accrued liabilities primarily include payables relating to aviation leasing equipment maintenance and aircraft engine modules, spare parts, used material inventory, accrued compensation and operating expenses.
 
Recent Accounting Pronouncements—In July 2021, the FASB issued ASU 2021-05, Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments. This ASU requires lessors to classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if (i) the lease would have been classified as a sales-type lease or a direct financing lease under Topic 842 and (ii) the lessor would have otherwise recognized a day-one loss. This standard is effective for all reporting periods beginning after December 15, 2021. We adopted this guidance in the first quarter of 2022, which did not have a material impact on our consolidated financial statements.
 
3.  LEASING EQUIPMENT, NET
 
Leasing equipment, net is summarized as follows:
   
September 30,
   
December 31,
 
   
2022
   
2021
 
Leasing equipment
   
1,990,115
   
$
2,122,428
 
Less: Accumulated depreciation
   
(430,540
)
   
(408,292
)
Leasing equipment, net
 
$
1,559,575
   
$
1,714,136
 
 
Economic sanctions and export controls against Russia and Russia’s aviation industry have been imposed due to its invasion of Ukraine during the nine months ended September 30, 2022. As a result of the sanctions imposed on Russian airlines, we terminated all lease agreements with Russian airlines. As of September 30, 2022, four aircraft and two engines were still located in Ukraine and eight aircraft and seventeen engines were still located in Russia. We determined that it is unlikely that we will regain possession of the aircraft and engines that have not yet been recovered from Ukraine and Russia. As a result, we recognized an impairment charge totaling $120.0 million, net of maintenance deposits, to write-off the entire carrying value of leasing equipment assets that we do not expect to recover from Ukraine and Russia. Additionally, we identified certain assets in our leasing equipment portfolio with indicators of impairment. As a result, we adjusted the carrying value of these assets to fair value and recognized transaction impairment charges of $8.2 million, net of redelivery compensation during the nine months ended September 30, 2022.

The following table presents information related to acquisitions and dispositions of aviation leasing equipment during the nine months ended September 30, 2022:
 
Acquisitions:
     
Aircraft
   
23
 
Engines
   
45
 
Dispositions:
       
Aircraft
   
5
 
Engines
   
50
 
 
15

FTAI AVIATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollars in tables in thousands, unless otherwise noted)
Depreciation expense for leasing equipment is summarized as follows:
 
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2022
   
2021
   
2022
   
2021
 
Depreciation expense for leasing equipment
 
$
32,728
   
$
34,718
   
$
106,180
   
$
101,992
 
 

4.  FINANCE LEASES, NET
 
Finance leases, net are summarized as follows:

   
September 30,
   
December 31,
 
   
2022
   
2021
 
Finance leases
 
$
7,697
   
$
8,358
 
Unearned revenue
   
(603
)
   
(775
)
Finance leases, net
 
$
7,094
   
$
7,583
 
 
During the three months ended September 30, 2022, we entered into a 36-month sales-type lease arrangement for two airframes.
 

5.  INVESTMENTS
 
The following table presents the ownership interests and carrying values of our investments:
 
           
Carrying Value
 

 
Investment
 
Ownership Percentage
   
September 30,
2022
   
December 31,
2021
 
Advanced Engine Repair JV
Equity method
   
25%

 
$
20,439
   
$
21,317
 
Falcon MSN 177 LLC
Equity method
   
50%

   
1,841
     
1,600
 
             
$
22,280
   
$
22,917
 
 
We did not recognize any other-than-temporary impairments for the three and nine months ended September 30, 2022 and 2021.

The following table presents our proportionate share of equity in losses:
 
   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2022
   
2021
   
2022
   
2021
 
Advanced Engine Repair JV
 
$
(314
)
 
$
(369
)
 
$
(879
)
 
$
(1,050
)
Falcon MSN 177 LLC
   
(44
)
   
     
754
     
 
Total
 
$
(358
)
 
$
(369
)
 
$
(125
)
 
$
(1,050
)
 
Advanced Engine Repair JV
 
In December 2016, we invested $15.0 million for a 25% interest in an advanced engine repair joint venture. We focus on developing new costs savings programs for engine repairs. We exercise significant influence over this investment and account for this investment as an equity method investment.
 
In August 2019, we expanded the scope of our joint venture and invested an additional $13.5 million and maintained a 25% interest.

16

FTAI AVIATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollars in tables in thousands, unless otherwise noted)
Falcon MSN 177 LLC
 
In November 2021, we invested $1.6 million for a 50% interest in Falcon MSN 177 LLC, an entity that consists of one Dassault Falcon 2000 aircraft. Falcon MSN 177 LLC leases the aircraft to charter operators on aircraft, crew maintenance, and insurance contracts. We account for our investment in Falcon as an equity method investment as we have significant influence through our interest.
 
6.  INTANGIBLE ASSETS AND LIABILITIES, NET
 
Our intangible assets and liabilities, net are summarized as follows:
 
   
September 30, 2022
   
December 31, 2021
 
Intangible assets
           
Acquired favorable lease intangibles
 
$
59,789
   
$
67,013
 
Less: Accumulated amortization
   
(30,373
)
   
(36,051
)
Total intangible assets, net
 
$
29,416
   
$
30,962
 
                 
Intangible liabilities
               
Acquired unfavorable lease intangibles
 
$
13,114
   
$
14,795
 
Less: Accumulated amortization
   
(2,216
)
   
(6,068
)
Acquired unfavorable lease intangibles, net
 
$
10,898
   
$
8,727
 
 
Intangible assets and liabilities are all held within the Aviation Leasing segment. Intangible liabilities relate to unfavorable lease intangibles and are included as a component of Other liabilities in the Consolidated Balance Sheets.
 
Amortization of intangible assets and liabilities is as follows:
 
 
Classification in Consolidated
Statements of Operations
 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
2022
   
2021
2022
   
2021
Lease intangibles
Revenues
 
$
3,291
   
$
1,266
   
$
10,259
   
$
3,216
 
 
As of September 30, 2022,  estimated net annual amortization of intangible assets and liabilities is as follows:
 
Remainder of 2022
 

3,323
 
2023
   
8,398
 
2024
   
4,848
 
2025
   
1,962
 
2026
   
519
 
Thereafter
   
(532
)
Total
 
$
18,518
 
 
17

FTAI AVIATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollars in tables in thousands, unless otherwise noted)

7.  LOANS PAYABLE TO AFFILIATE
 
FTAI CHR JV Promissory NoteOn December 28, 2016, the Company entered into a Loan Agreement (the “Loan”) with Fortress Worldwide Transportation and Infrastructure General Partnership, an affiliate, pursuant to which it borrowed an initial aggregate amount of $9.0 million in connection with its investment in the Advanced Engine Repair JV. In 2019, the Company made additional borrowings of $8.1 million. Borrowings under the Loan are unsecured and bear payment-in-kind accrued interest at a rate of 10% per year. The outstanding loan amount, including payment-in-kind accrued interest, was $27.1 million and $25.2 million as of September 30, 2022 and December 31, 2021, respectively. Interest expense on the Loan was $0.6 million, $0.6 million, $1.9 million, and $1.7 million for the three and nine months ended September 30, 2022 and 2021, respectively. The maturity date of the loan, including payment-in-kind accrued interest, is December 26, 2026.
 

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

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

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

Level 3: Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants price the asset or liability.
 
The valuation techniques that may be used to measure fair value are as follows:
 

Market approach—Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
 

Income approach—Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts.
 

Cost approach—Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).
 
Our cash and cash equivalents consist largely of demand deposit accounts with maturities of 90 days or less when purchased that are considered to be highly liquid. These instruments are valued using inputs observable in active markets for identical instruments and are therefore classified as Level 1 within the fair value hierarchy.
 
The fair value of the loan payable to affiliate cannot be objectively determined due to the nature of the affiliate transaction.
 
Except as discussed below, our financial instruments other than cash and cash equivalents consist principally of accounts receivable, note receivable, accounts payable and accrued liabilities, security deposits and maintenance deposits, whose fair value approximates their carrying value due to their short maturity profiles.
 
We measure the fair value of certain assets and liabilities on a non-recurring basis when U.S. GAAP requires the application of fair value, including events or changes in circumstances that indicate that the carrying amounts of assets may not be recoverable. Assets subject to these measurements include intangible assets, property, plant and equipment and leasing equipment. We record such assets at fair value when it is determined the carrying value may not be recoverable. Fair value measurements for assets subject to impairment tests are based on an income approach which uses Level 3 inputs, which include our assumptions as to future cash flows from operation of the leasing and eventual sale of assets.

18

FTAI AVIATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollars in tables in thousands, unless otherwise noted)
9.  REVENUES
 
We disaggregate our revenue from contracts with customers by products and services provided for each of our segments, as we believe it best depicts the nature, amount, timing and uncertainty of our revenue. Revenues are within the scope of ASC 842, Leases and ASC 606, Revenue from contracts with customers, unless otherwise noted. We have elected to exclude sales and other similar taxes from revenues.
 
During the three months ended September 30, 2022, we updated our corporate strategy based on the opportunities available in the market such that the sale of aircraft and engines is now an output of our recurring, ordinary activities. As a result of this update, the transaction price allocated to the sale of assets is included in Revenues in the Consolidated Statement of Operations for the three months ended September 30, 2022 and are accounted for in accordance with ASC 606. The corresponding net book values of the assets sold are recorded in Cost of sales in the Consolidated Statement of Operations for the three months ended September 30, 2022. Sales transactions of aircraft and engines prior to the three months ended September 30, 2022 were accounted for in accordance with ASC 610-20, Gains and losses from the derecognition of nonfinancial assets and were included in Gain on sale of assets, net on the Consolidated Statement of Operations, as we were previously only occasionally selling these assets. Generally, assets sold were under leasing arrangements with customers prior to sales and are included in Leasing equipment, net, on the Consolidated Balance Sheets.
 
   
Three Months Ended September 30, 2022
 
   
Aviation
Leasing
   
Aerospace
Products
   
Total
 
Revenues
                 
Lease income
 
$
40,273
   
$
   
$
40,273
 
Maintenance revenue
   
35,507
     
     
35,507
 
Finance lease income
   
119
     
     
119
 
Asset sales revenue
   
85,488
     
     
85,488
 
Aerospace products revenue
   
     
53,401
     
53,401
 
Other revenue
   
3,461
     
     
3,461
 
Total revenues
 
$
164,848
   
$
53,401
   
$
218,249
 
 
   
Three Months Ended September 30, 2021
 
   
Aviation
Leasing
   
Aerospace
Products
   
Total
 
Revenues
                 
Lease income
 
$
40,392
   
$
   
$
40,392
 
Maintenance revenue
   
40,252
     
     
40,252
 
Finance lease income
   
439
     
     
439
 
Aerospace products revenue
   
     
7,730
     
7,730
 
Other revenue
   
5,125
     
     
5,125
 
Total revenues
 
$
86,208
   
$
7,730
   
$
93,938
 
 
19

FTAI AVIATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollars in tables in thousands, unless otherwise noted)
   
Nine Months Ended September 30, 2022
 
   
Aviation
Leasing
   
Aerospace
Products
   
Total
 
Revenues
                 
Lease income
 
$
111,316
   
$
   
$
111,316
 
Maintenance revenue
   
112,171
     
     
112,171
 
Finance lease income
   
332
     
     
332
 
Asset sales revenue
   
85,488
     
     
85,488
 
Aerospace products revenue
   
     
94,211
     
94,211
 
Other revenue
   
8,687
     
     
8,687
 
Total revenues
 
$
317,994
   
$
94,211
   
$
412,205
 
 
   
Nine Months Ended September 30, 2021
 
   
Aviation
Leasing
   
Aerospace
Products
   
Total
 
Revenues
                 
Lease income
 
$
120,389
   
$
   
$
120,389
 
Maintenance revenue
   
87,763
     
     
87,763
 
Finance lease income
   
1,285
     
     
1,285
 
Aerospace products revenue
   
     
13,284
     
13,284
 
Other revenue
   
5,761
     
     
5,761
 
Total revenues
 
$
215,198
   
$
13,284
   
$
228,482
 
 
Presented below are the contracted minimum future annual revenues to be received under existing operating and finance leases:
 
   
September 30, 2022
 
Remainder of 2022
 
$
32,414
 
2023
   
104,995
 
2024
   
70,428
 
2025
   
43,890
 
2026
   
24,835
 
Thereafter
   
65,820
 
Total
 
$
342,382
 

20

FTAI AVIATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollars in tables in thousands, unless otherwise noted)

10.  INCOME TAXES
 
The current and deferred components of the income tax provision included in the Consolidated Statements of Operations are as follows:
 
   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2022
   
2021
   
2022
   
2021
 
Current:
                       
Cayman Islands
 
$
   
$
   
$
   
$
 
United States:
                               
Federal
   
247
     
336
     
581
     
793
 
State and local
   
(437
)
   
54
     
69
     
218
 
Non-U.S.
   
3
     
32
     
(12
)
   
49
 
Total current (benefit) provision
   
(187
)
   
422
     
638
     
1,060
 
Deferred:
                               
Cayman Islands
 
$
   
$
   
$
   
$
 
United States:
                               
Federal
   
3,029
     
45
     
4,560
     
45
 
State and local
   
346
     
14
     
608
     
14
 
Non-U.S.
   
630
     
19
     
1,446
     
(82
)
Total deferred provision (benefit)
   
4,005
     
78
     
6,614
     
(23
)
Total
 
$
3,818
   
$
500
   
$
7,252
   
$
1,037
 

The Company is an exempted entity domiciled in the Cayman Islands where income taxes are not imposed. The Company is considered a Passive Foreign Investment Company for U.S. income tax purposes and certain income taxes are imposed on our owners. Taxable income or loss generated by our corporate subsidiaries is subject to U.S. federal, state and foreign corporate income tax in locations where they conduct business.