UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 
FORM 6-K

 
Report of Foreign Private Issuer
 Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
 
Date of Report: August 23, 2019
 
Commission File Number: 001-33701

 
Fly Leasing Limited
(Exact Name of registrant as specified in its charter)

 
West Pier Business Campus
Dun Laoghaire
County Dublin, A96 N6T7, Ireland
(Address of principal executive office)

 
Indicate by check mark whether registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F  ☒
Form 40-F  ☐
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

Exhibits
 
The following documents, which are attached as exhibits hereto, are incorporated by reference herein.

Exhibit
Title
99.1
Fly Leasing Limited’s interim report for the three and six months ended June 30, 2019.
4.1
Purchase Agreement dated July 2, 2019 among the sellers identified therein, Horizon Aircraft Finance II Limited, Horizon Aircraft Finance II LLC and the other purchasers identified therein.
 
This report on Form 6-K is hereby incorporated by reference into Fly Leasing Limited’s Registration Statement on Form F-3, as amended (Reg. No. 333-157817), first filed with the Securities and Exchange Commission on March 10, 2009; Registration Statement on Form F-3, as amended (Reg. No. 333-187305), first filed with the Securities and Exchange Commission on March 15, 2013; and Registration Statement on Form F-3, as amended (Reg. No. 333-219933), first filed with the Securities and Exchange Commission on August 11, 2017.

i
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
Fly Leasing Limited
(Registrant)
     
Date: August 23, 2019
By:
 /s/ Colm Barrington
  
   
Colm Barrington
  
   
Chief Executive Officer and Director
 
ii
EXHIBIT INDEX

Exhibit
Title
Fly Leasing Limited’s interim report for the three and six months ended June 30, 2019.
Purchase Agreement dated July 2, 2019 among the sellers identified therein, Horizon Aircraft Finance II Limited, Horizon Aircraft Finance II LLC and the other purchasers identified therein.


iii
Exhibit 99.1
 
PRELIMINARY NOTE

This Interim Report should be read in conjunction with the consolidated financial statements and accompanying notes included elsewhere in this Interim Report and with our Annual Report on Form 20-F, for the year ended December 31, 2018.

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and are presented in U.S. Dollars. These statements and discussion below contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, objectives, expectations and intentions and other statements contained in this Interim Report that are not historical facts, as well as statements identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” or words of similar meaning. Such statements address future events and conditions concerning matters such as, but not limited to, our earnings, cash flow, liquidity and capital resources, compliance with debt and other restrictive financial and operating covenants, interest rates, dividends, and acquisitions and dispositions of aircraft and other aviation assets. These statements are based on current beliefs or expectations and are inherently subject to significant uncertainties and changes in circumstances, many of which are beyond our control. Actual results may differ materially from these expectations due to changes in political, economic, business, competitive, market and regulatory factors. We believe that these factors include, but are not limited to those described under Item 3 “Key Information — Risk Factors” and elsewhere in our Annual Report on Form 20-F, for the year ended December 31, 2018.

Except to the extent required by applicable law or regulation, we undertake no obligation to update these forward looking statements to reflect events, developments or circumstances after the date of this document, a change in our views or expectations, or to reflect the occurrence of future events.

Unless the context requires otherwise, when used in this Interim Report, (1) the term “Fly” refers to Fly Leasing Limited; (2) the terms “Company,” “we,” “our” and “us” refer to Fly and its subsidiaries; (3) the term “B&B Air Funding” refers to our subsidiary, Babcock & Brown Air Funding I Limited; (4) all references to our shares refer to our common shares held in the form of American Depositary Shares, or ADSs; (5) the term “BBAM LP” refers to BBAM Limited Partnership and its subsidiaries and affiliates; (6) the term “BBAM” refers to BBAM Aircraft Management LP, BBAM Aircraft Management (Europe) Limited, BBAM Aviation Services Limited and BBAM US LP, collectively; and (7) the term “Manager” refers to Fly Leasing Management Co. Limited, the Company’s manager.

All percentages and weighted average characteristics of the aircraft in our portfolio have been calculated using net book values as of the date specified.

1
INDEX
 
 
Page
PART I FINANCIAL INFORMATION
  
3
27
36
37
   
PART II OTHER INFORMATION
  
37
37
38
38
38
38
38

2
PART I — FINANCIAL INFORMATION
 
Item 1.
Financial Statements
 
Fly Leasing Limited
Consolidated Balance Sheets
 
AT JUNE 30, 2019 (UNAUDITED) AND DECEMBER 31, 2018 (AUDITED)
(Dollars in thousands, except par value data)
 
   
June 30, 2019
    
December 31, 2018
  
Assets
            
Cash and cash equivalents
  
$
351,892
    
$
180,211
  
Restricted cash and cash equivalents
    
63,161
      
100,869
  
Rent receivables
    
5,864
      
9,307
  
Investment in finance lease, net
    
12,238
      
12,822
  
Flight equipment held for sale, net
    
320,359
      
259,644
  
Flight equipment held for operating lease, net
    
2,788,459
      
3,228,018
  
Maintenance rights
    
251,797
      
298,207
  
Deferred tax asset, net
    
16,740
      
6,505
  
Fair value of derivative assets
    
4,540
      
5,929
  
Other assets, net
    
130,170
      
124,960
  
Total assets
  
$
3,945,220
    
$
4,226,472
  
                 
Liabilities
                
Accounts payable and accrued liabilities
  
$
23,232
    
$
23,146
  
Rentals received in advance
    
16,431
      
21,322
  
Payable to related parties
    
6,593
      
4,462
  
Security deposits
    
47,991
      
60,097
  
Maintenance payment liability, net
    
267,006
      
292,586
  
Unsecured borrowings, net
    
618,535
      
617,664
  
Secured borrowings, net
    
2,062,047
      
2,379,869
  
Deferred tax liability, net
    
52,711
      
36,256
  
Fair value of derivative liabilities
    
31,621
      
8,558
  
Other liabilities
    
65,390
      
80,402
  
Total liabilities
    
3,191,557
      
3,524,362
  
                 
Shareholders’ equity
                
Common shares, $0.001 par value; 499,999,900 shares authorized; 31,038,292 and  32,650,019 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively
    
31
      
33
  
Manager shares, $0.001 par value; 100 shares authorized, issued and outstanding
    
—
      
—
  
Additional paid-in capital
    
522,050
      
549,123
  
Retained earnings
    
253,530
      
154,347
  
Accumulated other comprehensive loss, net
    
(21,948
)
    
(1,393
)
Total shareholders’ equity
    
753,663
      
702,110
  
Total liabilities and shareholders’ equity
  
$
3,945,220
    
$
4,226,472
  

The accompanying notes are an integral part of these consolidated financial statements.
Fly Leasing Limited
Consolidated Statements of Income
 
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018 (UNAUDITED)
(Dollars in thousands, except per share data)
 
   
Three months
ended
June 30, 2019
    
Three months
ended
June 30, 2018
    
Six months
ended
June 30, 2019
    
Six months
ended
June 30, 2018
  
                         
Revenues
                        
Operating lease revenue
  
$
128,623
    
$
99,324
    
$
233,875
    
$
186,400
  
Finance lease revenue
    
156
      
171
      
316
      
345
  
Equity earnings (loss) from unconsolidated subsidiary
    
54
      
(358
)
    
110
      
(246
)
Gain on sale of aircraft
    
16,078
      
2,945
      
43,698
      
2,945
  
Interest and other income
    
2,122
      
591
      
3,737
      
1,984
  
Total revenues
    
147,033
      
102,673
      
281,736
      
191,428
  
Expenses
                                
Depreciation
    
37,303
      
33,895
      
74,888
      
67,628
  
Interest expense
    
35,439
      
33,644
      
73,618
      
66,567
  
Selling, general and administrative
    
9,438
      
6,369
      
18,160
      
14,979
  
Loss (gain) on derivatives
    
255
      
(1,309
)
    
272
      
(520
)
Loss on extinguishment of debt
    
1,541
      
898
      
3,710
      
898
  
Maintenance and other costs
    
1,625
      
936
      
2,223
      
1,714
  
Total expenses
    
85,601
      
74,433
      
172,871
      
151,266
  
Net income before provision for income taxes
    
61,432
      
28,240
      
108,865
      
40,162
  
Provision for income taxes
    
7,382
      
3,896
      
9,850
      
6,188
  
Net income
  
$
54,050
    
$
24,344
    
$
99,015
    
$
33,974
  
                                 
Weighted average number of shares:
                                
Basic
    
32,053,830
      
27,983,352
      
32,341,674
      
27,983,352
  
Diluted
    
32,187,115
      
28,045,890
      
32,396,717
      
28,023,419
  
Earnings per share:
                                
Basic
  
$
1.69
    
$
0.87
    
$
3.06
    
$
1.21
  
Diluted
  
$
1.68
    
$
0.87
    
$
3.06
    
$
1.21
  
 
The accompanying notes are an integral part of these consolidated financial statements.

Fly Leasing Limited
Consolidated Statements of Comprehensive Income
 
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018 (UNAUDITED)
(Dollars in thousands)

   
Three months
ended
June 30, 2019
    
Three months
ended
June 30, 2018
    
Six months
ended
June 30, 2019
    
Six months
ended
June 30, 2018
  
                         
Net income
  
$
54,050
    
$
24,344
    
$
99,015
    
$
33,974
  
Other comprehensive income, net of tax
                                
Change in fair value of derivatives, net of deferred tax (1)
    
(14,113
)
    
7,350
      
(21,051
)
    
8,801
  
Reclassification from other comprehensive loss into earnings due to derivatives that no longer qualified for hedge accounting treatment, net of deferred tax (2)
    
203
      
1,042
      
664
      
1,764
  
Comprehensive income
  
$
40,140
    
$
32,736
    
$
78,628
    
$
44,539
  


(1)
The associated deferred tax expense was $2.5 million and $3.9 million for the three and six months ended June 30, 2019, respectively. The associated deferred tax expense was $1.0 million and $1.3 million for the three and six months ended June 30, 2018, respectively.

(2)
The associated deferred tax expense was $0.1 million for each of the three and six months ended June 30, 2019 and 2018.

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

Fly Leasing Limited
Consolidated Statement of Shareholders’ Equity

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 (UNAUDITED)
(Dollars in thousands)
Manager
Shares

Common Shares


Additional
Paid-in
Capital

 
Retained
Earnings

Accumulated
Other
Comprehensive
Loss, net


Total
Shareholders’
Equity
Shares
    
Amount
Shares
    
Amount
Balance December 31, 2018
    
100
    
$
—
      
32,650,019
    
$
33
    
$
549,123
    
$
154,347
    
$
(1,393
)
  
$
702,110
  
Reclassification from prior period losses into other comprehensive loss due to adoption of new accounting guidance, net of deferred tax of $0.1 million
    
—
      
—
      
—
      
—
      
—
      
168
      
(168
)
    
—
  
Adjusted balance January 1, 2019
    
100
      
—
      
32,650,019
      
33
      
549,123
      
154,515
      
(1,561
)
    
702,110
  
Shares repurchased
    
—
      
—
      
(197,592
)
    
(1
)
    
(2,694
)
    
—
      
—
      
(2,695
)
Net income
    
—
      
—
      
—
      
—
      
—
      
44,965
      
—
      
44,965
  
Net change in the fair value of derivatives, net of deferred tax of $1.3 million (1)
    
—
      
—
      
—
      
—
      
—
      
—
      
(6,938
)
    
(6,938
)
Reclassification from other comprehensive loss into earnings due to derivatives that no longer qualified for hedge accounting treatment, net of deferred tax of $37,000 (1)
    
—
      
—
      
—
      
—
      
—
      
—
      
461
      
461
  
Balance March 31, 2019
    
100
      
—
      
32,452,427
      
32
      
546,429
      
199,480
      
(8,038
)
    
737,903
  
Shares issued in connection with SARs exercised
    
—
      
—
      
56,218
      
—
      
—
      
—
      
—
      
—
  
Shares repurchased
    
—
      
—
      
(1,470,353
)
    
(1
)
    
(24,379
)
    
—
      
—
      
(24,380
)
Net income
    
—
      
—
      
—
      
—
      
—
      
54,050
      
—
      
54,050
  
Net change in the fair value of derivatives, net of deferred tax of $2.5 million (1)
    
—
      
—
      
—
      
—
      
—
      
—
      
(14,113
)
    
(14,113
)
Reclassification from other comprehensive loss into earnings due to derivatives that no longer qualified for hedge accounting treatment, net of deferred tax of $0.1 million (1)
    
—
      
—
      
—
      
—
      
—
      
—
      
203
      
203
  
Balance June 30, 2019
    
100
    
$
—
      
31,038,292
    
$
31
    
$
522,050
    
$
253,530
    
$
(21,948
)
  
$
753,663
  


(1)
See Note 10 to Notes to Consolidated Financial Statements.

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

Fly Leasing Limited
Consolidated Statement of Shareholders’ Equity

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 (UNAUDITED)
(Dollars in thousands)

  
Manager
Shares

Common Shares


Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income
(Loss), net


Total
Shareholders’
Equity
Shares
    
Amount
Shares
    
Amount
Balance December 31, 2017
    
100
    
$
—
      
27,983,352
    
$
28
    
$
479,637
    
$
68,624
    
$
(4,580
)
  
$
543,709
  
Net income
    
—
      
—
      
—
      
—
      
—
      
9,630
      
—
      
9,630
  
Net change in the fair value of derivatives, net of deferred tax of $0.2 million (1)
    
—
      
—
      
—
      
—
      
—
      
—
      
1,451
      
1,451
  
Reclassification from other comprehensive loss into earnings due to derivatives that no longer qualified for hedge accounting treatment, net of deferred tax of $0.1 million (1)
    
—
      
—
      
—
      
—
      
—
      
—
      
722
      
722
  
Balance March 31, 2018
    
100
      
—
      
27,983,352
      
28
      
479,637
      
78,254
      
(2,407
)
    
555,512
  
Net income
    
—
      
—
      
—
      
—
      
—
      
24,344
      
—
      
24,344
  
Net change in the fair value of derivatives, net of deferred tax of $1.0 million (1)
    
—
      
—
      
—
      
—
      
—
      
—
      
7,350
      
7,350
  
Reclassification from other comprehensive loss into earnings due to derivatives that no longer qualified for hedge accounting treatment, net of deferred tax of $0.1 million (1)
    
—
      
—
      
—
      
—
      
—
      
—
      
1,042
      
1,042
  
Balance June 30, 2018
    
100
    
$
—
      
27,983,352
    
$
28
    
$
479,637
    
$
102,598
    
$
5,985
    
$
588,248
  


(1)
See Note 10 to Notes to Consolidated Financial Statements.

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

Fly Leasing Limited
Consolidated Statements of Cash Flows
 
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018 (UNAUDITED)
(Dollars in thousands)

   
Six months ended
  
   
June 30, 2019
    
June 30, 2018
  
Cash Flows from Operating Activities
            
Net income
  
$
99,015
    
$
33,974
  
Adjustments to reconcile net income to net cash flows provided by operating activities:
                
Finance lease revenue
    
(316
)
    
(345
)
Equity (earnings) loss from unconsolidated subsidiary
    
(110
)
    
246
  
Gain on sale of aircraft
    
(43,698
)
    
(2,945
)
Depreciation
    
74,888
      
67,628
  
Amortization of debt discounts and debt issuance costs
    
5,369
      
3,961
  
Amortization of lease incentives and other items
    
3,324
      
5,453
  
Loss on extinguishment of debt
    
3,710
      
898
  
Unrealized foreign exchange gain
    
(104
)
    
(456
)
Provision for deferred income taxes
    
9,991
      
6,327
  
Loss (gain) on derivative instruments
    
198
      
(74
)
Security deposits and maintenance payment liability recognized into earnings
    
(26,145
)
    
(9,965
)
Distributions from unconsolidated subsidiary
    
109
      
2,212
  
Cash receipts from maintenance rights
    
1,741
      
3,013
  
Changes in operating assets and liabilities:
                
Rent receivables
    
(2,011
)
    
(2,766
)
Other assets
    
(3,250
)
    
(2,212
)
Payable to related parties
    
2,131
      
(2,168
)
Accounts payable, accrued liabilities and other liabilities
    
(2,054
)
    
2,005
  
Net cash flows provided by operating activities
    
122,788
      
104,786
  
Cash Flows from Investing Activities
                
Distributions from unconsolidated subsidiary
    
205
      
1,275
  
Rent received from finance lease
    
900
      
900
  
Swap termination proceeds
    
114
      
—
  
Investment income from Horizon I Limited equity certificates
    
571
      
—
  
Purchase of flight equipment
    
(61,381
)
    
(69,258
)
Deposit on aircraft purchases
    
—
      
(30,000
)
Proceeds from sale of aircraft, net
    
410,939
      
99,339
  
Capitalized interest on Portfolio B orderbook
    
(2,433
)
    
—
  
Payments for aircraft improvement
    
(2,832
)
    
(170
)
Payments for lessor maintenance obligations
    
(1,461
)
    
(817
)
Net cash flows provided by investing activities
    
344,622
      
1,269
  
Cash Flows from Financing Activities
                
Security deposits received
    
—
      
1,417
  
Security deposits returned
    
(1,546
)
    
(3,549
)
Maintenance payment liability receipts
    
33,633
      
38,830
  
Maintenance payment liability disbursements
    
(12,738
)
    
(2,104
)
Debt extinguishment costs
    
(74
)
    
(12
)
Debt issuance costs
    
(342
)
    
(5,534
)
Proceeds from secured borrowings
    
—
      
49,288
  
Repayment of secured borrowings
    
(325,317
)
    
(175,035
)
Shares repurchased
    
(27,025
)
    
—
  
Net cash flows used in financing activities
    
(333,409
)
    
(96,699
)

   
Six months ended
  
   
June 30, 2019
    
June 30, 2018
  
Effect of exchange rate changes on unrestricted and restricted cash and cash equivalents
  
$
(28
)
  
$
(47
)
Net increase in unrestricted and restricted cash and cash equivalents
    
133,973
      
9,309
  
Unrestricted and restricted cash and cash equivalents at beginning of period
    
281,080
      
456,815
  
Unrestricted and restricted cash and cash equivalents at end of period
  
$
415,053
    
$
466,124
  
                 
Reconciliation to Consolidated Balance Sheets:
                
Cash and cash equivalents
  
$
351,892
    
$
406,508
  
Restricted cash and cash equivalents
    
63,161
      
59,616
  
Unrestricted and restricted cash and cash equivalents
  
$
415,053
    
$
466,124
  

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

Fly Leasing Limited
 
Notes to Consolidated Financial Statements
For the three and six months ended June 30, 2019 (unaudited)
 
1. ORGANIZATION

Fly Leasing Limited (“Fly”) is a Bermuda exempted company that was incorporated on May 3, 2007, under the provisions of Section 14 of the Companies Act 1981 of Bermuda. Fly was formed to acquire, finance, lease and sell commercial jet aircraft directly or indirectly through its subsidiaries (Fly and its subsidiaries collectively, the “Company”).

Although Fly is organized under the laws of Bermuda, it is a resident of Ireland for tax purposes and is subject to Irish corporation tax on its income in the same way, and to the same extent, as if it were organized under the laws of Ireland.

In accordance with Fly’s amended and restated bye-laws, Fly issued 100 shares (“Manager Shares”) with a par value of $0.001 to Fly Leasing Management Co. Limited (the “Manager”) for no consideration. Subject to the provisions of Fly’s amended and restated bye-laws, the Manager Shares have the right to appoint the nearest whole number of directors to Fly which is not more than 3/7th of the number of directors comprising the board of directors. The Manager Shares are not entitled to receive any dividends, are not convertible into common shares and, except as provided for in Fly’s amended and restated bye-laws, have no voting rights.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PREPARATION

Fly is a holding company that conducts its business through its subsidiaries. Fly directly or indirectly owns all of the common shares of its consolidated subsidiaries. The consolidated financial statements presented are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The consolidated financial statements include the accounts of Fly and all of its subsidiaries. In instances where it is the primary beneficiary, the Company consolidates a Variable Interest Entity (“VIE”). Fly is deemed the primary beneficiary when it has both the power to direct the activities of the VIE that most significantly impact the economic performance of such VIE, and it bears the significant risk of loss and participates in gains of the VIE. All intercompany transactions and balances have been eliminated. The consolidated financial statements are stated in U.S. Dollars, which is the principal operating currency of the Company.

The Company’s interim financial statements reflect all normally recurring adjustments that are necessary to fairly state the results for the interim periods presented. Certain information and footnote disclosures required by U.S. GAAP for complete annual financial statements have been omitted and, therefore, the Company’s interim financial statements should be read in conjunction with its Annual Report on Form 20-F for the year ended December 31, 2018, filed with the SEC on March 12, 2019 (the "2018 Annual Report"). The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of those for a full fiscal year.

The Company has one operating and reportable segment which is aircraft and aircraft equipment leasing.

Certain amounts in prior period consolidated financial statements have been reclassified to conform to the current period presentation.

USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The use of estimates is or could be a significant factor affecting the reported carrying values of flight equipment, deferred tax assets, liabilities and reserves. To the extent available, the Company utilizes industry specific resources, third-party appraisers and other materials to support management’s estimates, particularly with respect to flight equipment. Despite management’s best efforts to accurately estimate such amounts, actual results could differ from those estimates.

NEW ACCOUNTING PRONOUNCEMENTS

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued its new lease guidance, ASU 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. FASB has decided that lessors will be precluded from recognizing selling profit and revenue at lease commencement for any finance lease that does not transfer control of the underlying asset to the lessee. In addition, the new guidance will require lessors to capitalize, as initial direct costs, only those costs that are incurred in connection with the execution of a lease. Any other costs incurred, including allocated indirect costs, will no longer be capitalized and instead will be expensed as incurred.

10
In July 2018, FASB issued new guidance to provide entities with relief from the costs of implementing certain aspects of ASU 2016-02, Leases (Topic 842). Under a new transition method, entities can elect to not restate comparative periods presented in financial statements in the period of adoption. The FASB also issued new practical expedients that allow lessors to elect not to separate lease and associated non-lease components within a contract if the following conditions are met:


 •
The timing and pattern of transfer for the non-lease component and the associated lease component are the same; and


•
The stand-alone lease component would be classified as an operating lease if accounted for separately.

The Company adopted the guidance effective January 1, 2019 and elected the practical expedients and transition relief, which does not require the Company to restate comparative periods. Accordingly, the adoption did not result in any adjustment to the Company’s consolidated balance sheets, results of operations or cash flows.

In August 2017, FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815). ASU 2017-12 is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. Under the guidance, if a cash flow hedge is highly effective, all changes in the fair value of the derivative hedging instrument will be recorded in other comprehensive income and reclassified to earnings when the hedged item impacts earnings. After initial qualification, the new guidance permits a qualitative effectiveness assessment for certain hedges instead of a quantitative test, such as a regression analysis, if the company can reasonably support an expectation of high effectiveness throughout the term of the hedge. An initial quantitative test to establish that the hedge relationship is highly effective is still required. Additional disclosures include cumulative basis adjustments for fair value hedges and the effect of hedging on individual income statement line items. The Company adopted the guidance effective January 1, 2019. The adoption of the standard did not have a material effect on the Company’s consolidated balance sheets, results of operations or cash flows.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which amends its guidance on the impairment of financial instruments. The standard adds to U.S. GAAP an impairment model, known as the current expected credit loss model, that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of lifetime expected credit losses for most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, investment in finance leases and off-balance sheet credit exposures. The FASB believes the new accounting standard will result in more timely recognition of losses. The standard is applied on a modified retrospective approach. ASU 2016-13 does not apply to operating lease receivables. The standard will be effective for annual reporting periods beginning after December 15, 2019. The Company is evaluating the impact that will result from adopting ASU 2016-13.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 removes the following disclosure requirements from Topic 820:


 •
The amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy;


•
The policy for timing of transfers between levels; and


•
The valuation processes for Level 3 fair value measurements.

The following disclosure requirements were added to Topic 820:


 •
The changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements at the end of the reporting period; and


•
The range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

ASU 2018-13 will be effective for annual reporting periods (including interim periods) beginning after December 15, 2019, and early adoption will be permitted. The Company is currently evaluating the impact of ASU 2018-13 and plans to adopt the guidance effective January 1, 2020.

11
3. SUPPLEMENTAL DISCLOSURE TO CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended
June 30, 2019
    
June 30, 2018
   
(Dollars in thousands)
  
Cash paid during the period for:
            
Interest
  
$
68,624
    
$
59,620
  
Taxes
    
120
      
3,880
  
Noncash Activities:
                
Security deposits applied to rent receivables
    
3,224
      
—
  
Maintenance payment liability applied to rent receivables and other liabilities
    
2,511
      
2,475
  
Other liabilities applied to maintenance payment liability, security deposits, and rent receivables
    
2,396
      
1,140
  
Noncash investing activities:
                
Aircraft improvement
    
3,662
      
8,257
  
Noncash activities in connection with purchase of flight equipment
    
470
      
3,578
  
Noncash activities in connection with sale of flight equipment
    
13,338
      
1,893
  

4. INVESTMENT IN FINANCE LEASE

At June 30, 2019 and December 31, 2018, the Company had one investment in finance lease, which had an implicit interest rate of 5%. During each of the three months ended June 30, 2019 and 2018, the Company recognized finance lease revenue totaling $0.2 million. During each of the six months ended June 30, 2019 and 2018, the Company recognized finance lease revenue totaling $0.3 million.

The Company’s net investment in finance lease consisted of the following (dollars in thousands):

   
June 30, 2019
    
December 31, 2018
  
Total minimum lease payments receivable
  
$
10,500
    
$
11,400
  
Estimated unguaranteed residual value of leased asset
    
4,227
      
4,227
  
Unearned finance income
    
(2,489
)
    
(2,805
)
Net Investment in Finance Lease
  
$
12,238
    
$
12,822
  

Presented below are the contracted future minimum rental payments due under the non-cancellable finance lease, as of June 30, 2019.

   
(Dollars in
thousands)
  
July 1 through December 31, 2019
  
$
900
  
Year ending December 31,
        
2020
    
1,800
  
2021
    
1,800
  
2022
    
1,800
  
2023
    
1,800
  
2024
    
1,800
  
Thereafter
    
600
  
Future minimum rental payments under finance lease
  
$
10,500
  

Presented below are the contracted future minimum rental payments due under the non-cancellable finance lease, as of December 31, 2018.

Year ending December 31,
  
(Dollars in
thousands)
  
2019
  
$
1,800
  
2020
    
1,800
  
2021
    
1,800
  
2022
    
1,800
  
2023
    
1,800
  
Thereafter
    
2,400
  
Future minimum rental payments under finance lease
  
$
11,400
  

12
5. FLIGHT EQUIPMENT HELD FOR SALE

At December 31, 2018, the Company had 12 aircraft classified as flight equipment held for sale, including nine aircraft contracted to be sold to Horizon Aircraft Finance I Limited and Horizon Aircraft Finance I LLC (together, “Horizon I”) and three aircraft contracted to be sold to another third party. The Company sold these aircraft during the six months ended June 30, 2019 and recognized a gain of $33.6 million.

On July 2, 2019, the Company agreed to sell 12 aircraft to Horizon Aircraft Finance II Limited and Horizon Aircraft Finance II LLC (together, “Horizon II”) for an aggregate base purchase price of approximately $359.6 million, subject to adjustment based on rents and maintenance reserves in respect of the aircraft (the “Horizon II Transaction”). The Company classified these aircraft as flight equipment held for sale as of June 30, 2019. The Company delivered four of these aircraft to Horizon II subsequent to June 30, 2019 and expects to deliver the remaining eight aircraft in the third and fourth quarters of 2019.

6. FLIGHT EQUIPMENT HELD FOR OPERATING LEASE, NET

As of June 30, 2019, the Company had 84 aircraft and seven engines held for operating lease on lease to 39 lessees in 20 countries, and one aircraft off-lease. As of December 31, 2018, the Company had 100 aircraft and seven engines held for operating lease on lease to 43 lessees in 24 countries.

During the six months ended June 30, 2019, the Company capitalized $41.7 million of flight equipment purchased. During the six months ended June 30, 2018, the Company capitalized $65.7 million of flight equipment purchased.

In addition to the 12 aircraft that were held for sale as of December 31, 2018 and sold as indicated in Note 5, during the six months ended June 30, 2019, the Company sold five other aircraft held for operating lease and recognized a gain on sale of aircraft of $10.1 million. During the six months ended June 30, 2018, the Company sold two aircraft held for operating lease and recognized a gain on sale of aircraft of $2.9 million.

No aircraft impairment was recognized during the six months ended June 30, 2019 or 2018.

Flight equipment held for operating lease, net, consists of the following (dollars in thousands):

   
June 30, 2019
    
December 31, 2018
  
Cost
  
$
3,441,321
    
$
3,900,938
  
Accumulated depreciation
    
(652,862
)
    
(672,920
)
Flight equipment held for operating lease, net
  
$
2,788,459
    
$
3,228,018
  

The Company capitalized $6.5 million and $8.4 million of major maintenance expenditures for the six months ended June 30, 2019 and 2018, respectively.

The classification of the net book value of flight equipment held for operating lease, net and operating lease revenue by geographic region in the tables and discussion below is based on the principal operating location of the lessees.

13
The distribution of the net book value of flight equipment held for operating lease by geographic region is as follows (dollars in thousands):

   
June 30, 2019
    
December 31, 2018
  
Europe:
                        
Spain
  
$
165,033
      
6
%
  
$
168,534
      
5
%
United Kingdom
    
142,809
      
5
%
    
169,763
      
5
%
Other
    
223,757
      
8
%
    
265,554
      
9
%
Europe — Total
    
531,599
      
19
%
    
603,851
      
19
%
                                 
Asia and South Pacific:
                                
India
    
580,363
      
21
%
    
690,193
      
21
%
Malaysia
    
408,483
      
15
%
    
394,441
      
12
%
Philippines
    
270,573
      
10
%
    
276,237
      
9
%
Indonesia
    
224,711
      
8
%
    
296,390
      
9
%
China
    
173,083
      
6
%
    
177,393
      
5
%
Other
    
45,516
      
1
%
    
161,330
      
6
%
Asia and South Pacific — Total
    
1,702,729
      
61
%
    
1,995,984
      
62
%
                                 
Mexico, South and Central America — Total
    
38,942
      
2
%
    
58,202
      
2
%
                                 
North America:
                                
United States
    
122,651
      
4
%
    
126,498
      
4
%
Other
    
24,978
      
1
%
    
49,320
      
1
%
North America — Total
    
147,629
      
5
%
    
175,818
      
5
%
                                 
Middle East and Africa:
                                
Ethiopia
    
308,057
      
11
%
    
312,977
      
10
%
Other
    
22,251
      
1
%
    
81,186
      
2
%
Middle East and Africa — Total
    
330,308
      
12
%
    
394,163
      
12
%
Off-lease
    
37,252
      
1
%
    
—
      
—
  
Total flight equipment held for operating lease, net
  
$
2,788,459
      
100
%
  
$
3,228,018
      
100
%

14
The distribution of operating lease revenue by geographic region for the three months ended June 30, 2019 and 2018 is as follows (dollars in thousands):
 
   
Three months ended
  
   
June 30, 2019
    
June 30, 2018
  
Europe:
                        
Spain
  
$
4,345
      
3
%
  
$
4,345
      
4
%
United Kingdom
    
9,884
      
8
%
    
7,848
      
8
%
Other
    
8,789
      
7
%
    
10,401
      
11
%
Europe — Total
    
23,018
      
18
%
    
22,594
      
23
%
                                 
Asia and South Pacific:
                                
India
    
44,246
      
34
%
    
30,721
      
31
%
Malaysia
    
13,256
      
10
%
    
3,275
      
3
%
Philippines
    
8,599
      
7
%
    
7,768
      
8
%
Indonesia
    
8,562
      
7
%
    
7,244
      
7
%
China
    
7,500
      
6
%
    
5,653
      
6
%
Other
    
5,720
      
4
%
    
2,004
      
2
%
Asia and South Pacific — Total
    
87,883
      
68
%
    
56,665
      
57
%
                                 
Mexico, South and Central America — Total
    
1,776
      
1
%
    
2,777
      
3
%
                                 
North America:
                                
United States
    
4,084
      
3
%
    
4,415
      
4
%
Other
    
1,561
      
2
%
    
1,561
      
2
%
North America — Total
    
5,645
      
5
%
    
5,976
      
6
%
                                 
Middle East and Africa:
                                
Ethiopia
    
7,505
      
6
%
    
7,505
      
7
%
Other
    
2,796
      
2
%
    
3,807
      
4
%
Middle East and Africa — Total
    
10,301
      
8
%
    
11,312
      
11
%
Total Operating Lease Revenue
  
$
128,623
      
100
%
  
$
99,324
      
100
%

15
The distribution of operating lease revenue by geographic region for the six months ended June 30, 2019 and 2018 is as follows (dollars in thousands):
 
   
Six months ended
  
   
June 30, 2019
    
June 30, 2018
  
Europe:
                        
Spain
  
$
8,689
      
4
%
  
$
8,578
      
5
%
United Kingdom
    
19,313
      
8
%
    
15,124
      
8
%
Other
    
17,758
      
8
%
    
22,153
      
12
%
Europe — Total
    
45,760
      
20
%
    
45,855
      
25
%
                                 
Asia and South Pacific:
                                
India
    
65,355
      
28
%
    
47,805
      
26
%
Malaysia
    
27,132
      
12
%
    
6,154
      
3
%
Philippines
    
17,299
      
7
%
    
15,384
      
8
%
Indonesia
    
18,555
      
8
%
    
14,165
      
8
%
China
    
12,571
      
5
%
    
11,305
      
6
%
Other
    
11,962
      
5
%
    
4,013
      
2
%
Asia and South Pacific — Total
    
152,874
      
65
%
    
98,826
      
53
%
 
                                
Mexico, South and Central America — Total
    
3,356
      
1
%
    
7,169
      
4
%
                                 
North America:
                                
United States
    
8,160
      
4
%
    
8,809
      
5
%
Other
    
3,122
      
1
%
    
3,123
      
1
%
North America — Total
    
11,282
      
5
%
    
11,932
      
6
%
                                 
Middle East and Africa:
                                
Ethiopia
    
15,009
      
6
%
    
15,009
      
8
%
Other
    
5,594
      
3
%
    
7,609
      
4
%
Middle East and Africa — Total
    
20,603
      
9
%
    
22,618
      
12
%
Total Operating Lease Revenue
  
$
233,875
      
100
%
  
$
186,400
      
100
%

In each of the three and six months ended June 30, 2019, the Company had one customer (Jet Airways) that accounted for 10% or more of total operating lease revenue, primarily from end of lease income. In each of the three and six months ended June 30, 2018, the Company had one customer (Air India) that accounted for 10% or more of total operating lease revenue.

At June 30, 2019, the Company had three lessees, which leased a total of four aircraft, on non-accrual status, as the Company had determined that it was not probable that the Company would receive the economic benefits of the leases, principally due to (i) the lessees’ failure to pay rent and overhaul payments and (ii) the Company’s evaluation of the lessees’ payment history. During the three and six months ended June 30, 2019, the Company recognized $5.7 million and $8.3 million, respectively, of operating lease revenue from these lessees. At June 30, 2018, there were no lessees on non-accrual status.

End of lease income and amortization of lease incentives recognized during the three and six months ended June 30, 2019 and 2018 are as follows (dollars in thousands):


 
Three months ended

Six months ended
June 30, 2019
    
June 30, 2018
June 30, 2019
    
June 30, 2018
   
(Dollars in thousands)
  
End of lease income
  
$
28,823
    
$
12,612
    
$
30,387
    
$
12,997
  
Amortization of lease incentives
    
(1,319
)
    
(2,361
)
    
(2,951
)
    
(4,644
)

As of June 30, 2019 and December 31, 2018, the weighted average remaining lease term of the Company’s aircraft held for operating lease was 5.3 years and 5.9 years, respectively.

Leases are entered into with specified lease terms and may provide the lessee with an option to extend the lease term. The Company’s leases do not typically provide for early termination or purchase options.

16
The Company receives lease revenue from flight equipment under operating leases. Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. If the revenue amounts do not meet these criteria, recognition is delayed until the criteria is met. Contingent rents are recognized as revenue when the contingency is resolved. Revenue is not recognized when collection is not reasonably assured.

For the three months ended June 30, 2019, the Company recognized $101.1 million of operating lease rental revenue, $17.2 million of which was from leases with variable rates. For the six months ended June 30, 2019, the Company recognized $206.4 million of operating lease rental revenue, $38.1 million of which was from leases with variable rates. Variable rates are rents that reset based on changes in LIBOR. Presented below are the contracted future minimum rental payments due under non-cancellable operating leases for flight equipment held for operating lease, as of June 30, 2019. For leases that have floating rental rates, the future minimum rental payments assume that LIBOR as of June 30, 2019 is held constant for the duration of the lease.

   
(Dollars in
thousands)
  
July 1 through December 31, 2019
  
$
168,765
  
Year ending December 31,
        
2020
    
310,734
  
2021
    
273,059
  
2022
    
227,952
  
2023
    
188,774
  
2024
    
176,372
  
Thereafter
    
385,455
  
Future minimum rental payments under operating leases
  
$
1,731,111
  

Presented below are the contracted future minimum rental payments due under non-cancellable operating leases for flight equipment held for operating lease, as of December 31, 2018. For leases that have floating rental rates, the future minimum rental payments assume that LIBOR as of December 31, 2018 is held constant for the duration of the lease.

Year ending December 31,
  
(Dollars in
thousands)
  
2019
  
$
403,535
  
2020
    
372,432
  
2021
    
323,232
  
2022
    
272,427
  
2023
    
227,535
  
Thereafter
    
661,006
  
Future minimum rental payments under operating leases
  
$
2,260,167
  

7. MAINTENANCE RIGHTS

Changes in maintenance right assets during the six months ended June 30, 2019 and 2018 are as follows (dollars in thousands):

   
Six months ended
  
   
June 30, 2019
    
June 30, 2018
  
Maintenance rights, beginning balance
  
$
298,207
    
$
131,299
  
Acquisitions
    
20,178
      
6,216
  
Capitalized to aircraft improvements
    
(3,662
)
    
(8,209
)
Maintenance rights settled with retained maintenance payments
    
—
      
(2,159
)
Cash receipts from maintenance rights
    
(1,741
)
    
(3,013
)
Maintenance rights associated with aircraft sold
    
(61,185
)
    
—
  
Maintenance rights, ending balance
  
$
251,797
    
$
124,134
  

17
8. UNSECURED BORROWINGS


 
Balance as of
June 30, 2019
    
December 31, 2018
   
(dollars in thousands)
  
Outstanding principal balance:
            
2021 Notes
  
$
325,000
    
$
325,000
  
2024 Notes
    
300,000
      
300,000
  
Total outstanding principal balance
    
625,000
      
625,000
  
Unamortized debt discounts and loan costs
    
(6,465
)
    
(7,336
)
Unsecured borrowings, net
  
$
618,535
    
$
617,664
  

On October 3, 2014, Fly sold $325.0 million aggregate principal amount of 6.375% Senior Notes due 2021 (the “2021 Notes”). On October 16, 2017, Fly sold $300.0 million aggregate principal amount of 5.250% Senior Notes due 2024 (the “2024 Notes”).

The 2021 Notes and 2024 Notes are senior unsecured obligations of Fly and rank pari passu in right of payment with any existing and future senior unsecured indebtedness of Fly. The 2021 Notes have a maturity date of October 15, 2021 and the 2024 Notes have a maturity date of October 15, 2024.

Interest on the 2021 Notes and 2024 Notes is payable semi-annually on April 15 and October 15 of each year. As of each of June 30, 2019 and December 31, 2018, accrued interest on unsecured borrowings totaled $7.7 million.

Pursuant to the indentures governing the 2021 Notes and 2024 Notes, the Company is subject to restrictive covenants which relate to dividend payments, incurrence of debt and issuance of guarantees, incurrence of liens, repurchases of common shares, investments, disposition of aircraft, consolidation, merger or sale of the Company and transactions with affiliates. The Company is also subject to certain operating covenants, including reporting requirements. The Company’s failure to comply with any of the covenants under the indentures governing the 2021 Notes or 2024 Notes could result in an event of default which, if not cured or waived, may result in the acceleration of the indebtedness thereunder and other indebtedness containing cross-default or cross-acceleration provisions. Certain of these covenants will be suspended if the 2021 Notes or 2024 Notes obtain an investment grade rating. As of June 30, 2019, the Company was not in default under the indentures governing the 2021 Notes or the 2024 Notes.

For more information about Fly's unsecured borrowings, refer to Note 9 of the 2018 Annual Report.

9. SECURED BORROWINGS

The Company’s secured borrowings, net as of June 30, 2019 and December 31, 2018 are presented below (dollars in thousands):

   
Outstanding principal balance
as of
    
Weighted average
interest rate(1) as of
         
   
June 30,
2019(2)
    
December 31,
2018(2)
    
June 30,
2019
    
December 31,
2018
    
Maturity
date
  
Securitization Notes
  
$
—
    
$
85,584
      
—
      
3.08
%
    
N/A
  
Nord LB Facility
    
101,185
      
108,882
      
4.25
%
    
4.29
%
    
January 2020
  
Term Loan
    
396,566
      
407,768
      
4.62
%
    
5.17
%
    
February 2023
  
Magellan Acquisition Limited Facility
    
291,955
      
305,226
      
4.17
%
    
4.18
%
    
December 2025
  
Fly Acquisition III Facility
    
159,586
      
190,457
      
4.53
%
    
4.10
%
    
February 2022
  
Fly Aladdin Acquisition Facility
    
352,777
      
467,179
      
4.75
%
    
4.59
%
    
June 2023
  
Fly Aladdin Engine Funding Facility
    
43,093
      
43,829
      
4.95
%
    
4.95
%
    
December 2021 – April 2022
  
Other Aircraft Secured Borrowings
    
746,189
      
807,882
      
4.44
%
    
4.44
%
    
December 2020 – June 2028
  
Total outstanding principal balance
    
2,091,351
      
2,416,807
                      
 
Unamortized debt discounts and loan costs
    
(29,304
)
    
(36,938
)
                    
 
Total secured borrowings, net
  
$
2,062,047
    
$
2,379,869
                      
 


(1)
Represents the contractual interest rates and effect of derivative instruments and excludes the amortization of debt discounts and debt issuance costs.
(2)
As of June 30, 2019 and December 31, 2018, accrued interest on secured borrowings totaled $9.4 million and $10.9 million, respectively.

18
The Company is subject to restrictive covenants under its secured borrowings which relate to the incurrence of debt, issuance of guarantees, incurrence of liens or other encumbrances, the acquisition, substitution, disposition and re-lease of aircraft, maintenance, registration and insurance of its aircraft, restrictions on modification of aircraft and capital expenditures, and requirements to maintain concentration limits.

The Company’s loan agreements include events of default that are customary for these types of secured borrowings. The Company’s failure to comply with any restrictive covenants, or any other operating covenants, may trigger an event of default under the relevant loan agreement. In addition, certain of the Company’s loan agreements contain cross-default provisions that could be triggered by a default under another loan agreement.

As of June 30, 2019, the Company was not in default under any of its secured borrowings.

For more information about the Company's secured borrowings, refer to Note 10 of the 2018 Annual Report.

Securitization Notes

On March 14, 2019, B&B Air Funding redeemed in full its outstanding aircraft lease-backed Class G-1 notes (the “Securitization Notes”) issued on October 2, 2007 and with an original maturity date of November 14, 2033, in the aggregate principal amount of $63.8 million. The redemption price and accrued interest on the Securitization Notes were paid in full satisfaction thereof. In connection with the redemption, the Company expensed approximately $1.9 million of debt extinguishment costs.

Nord LB Facility

As of June 30, 2019, the Company had $101.2 million principal amount outstanding under its non-recourse debt facility with Norddeutsche Landesbank Gironzentrale (the “Nord LB Facility”), which was secured by five aircraft. The Nord LB Facility is structured with loans secured by each aircraft individually. The loans are cross-collateralized and contain cross-default provisions. Borrowings are secured by Fly’s equity interests in the aircraft owning subsidiaries, the related leases, and certain deposits. The loans under the Nord LB Facility bear interest at one-month LIBOR plus a margin of 1.85% until the final maturity date of January 14, 2020.

Under the terms of the Nord LB Facility, the Company applies 95% of lease rentals collected towards interest and principal. If no lease rental payments are collected in the applicable period for any financed aircraft, then no payment is due under the loan associated with that aircraft during such period. Any unpaid interest increases the principal amount of the associated loan.

In the event the Company sells any of the financed aircraft, substantially all sale proceeds (after payment of certain expenses) must first be used to repay the debt associated with such aircraft and then to repay the outstanding amounts which finance the remaining aircraft. In addition, any maintenance reserve amounts retained by the Company will be used to prepay the Nord LB Facility, provided such reserves are not required for future maintenance of such aircraft.

Term Loan

As of June 30, 2019, the Company had $396.6 million principal amount outstanding under its senior secured term loan (the “Term Loan”), which was secured by 31 aircraft. Fly has guaranteed all payments under the Term Loan. The final maturity date of the Term Loan is February 9, 2023.

The Term Loan bears interest at three-month LIBOR plus a margin of 2.00%. The Term Loan can be prepaid in whole or in part at par.

The Term Loan requires that the Company maintain a maximum loan-to-value ratio of 70.0% based on the lower of the mean or median of half-life adjusted base values of the financed aircraft as determined by three independent appraisers. The Term Loan also includes other customary covenants, including reporting requirements and maintenance of credit ratings.

19
Magellan Acquisition Limited Facility

As of June 30, 2019, the Company had $292.0 million principal amount outstanding in loans and notes under its term loan facility (the “Magellan Acquisition Limited Facility”), which was secured by nine aircraft. Fly has guaranteed all payments under this facility. The Magellan Acquisition Limited Facility has a maturity date of December 8, 2025.

The interest rate on the loans is based on one-month LIBOR plus an applicable margin of 1.65% per annum. The interest rate on the notes is a fixed rate of 3.93% per annum.

The facility contains financial and operating covenants, including a covenant that Fly maintain a tangible net worth of at least $325.0 million, as well as customary reporting requirements. The borrower is required to maintain an initial loan-to-value ratio of less than or equal to 75% based on the lower of the average half-life adjusted current market value and base value of all aircraft financed under the facility as determined by three independent appraisers. A violation of any of these covenants could result in a default under the Magellan Acquisition Limited Facility. In addition, upon the occurrence of certain conditions, including a failure by Fly to maintain a minimum liquidity of at least $25.0 million, the borrower will be required to deposit certain amounts of maintenance reserves and security deposits received into accounts pledged to the security trustee.

Fly Acquisition III Facility

As of June 30, 2019, the Company had $159.6 million principal amount outstanding under its credit facility (the “Fly Acquisition III Facility”), which was secured by eight aircraft. The availability period under the Fly Acquisition III Facility expired on February 26, 2019. The Company paid commitment fees of 0.50% to 0.75% per annum to the lenders on the undrawn amount of their commitments from February 26, 2016 until February 26, 2019. The facility has a maturity date of February 26, 2022 and all payments are guaranteed by Fly.

The interest rate under the facility is based on one-month LIBOR plus an applicable margin of (i) 2.00%, from February 26, 2016 through February 26, 2019, (ii) 2.50%, from February 27, 2019 through February 26, 2020 and (iii) 3.00% thereafter.

The facility contains financial and operating covenants, including covenants that Fly maintain a tangible net worth of at least $325.0 million and that the borrower maintains a specified interest coverage ratio, as well as customary reporting requirements. Violation of any of these covenants could result in an event of default under the facility. Also, upon the occurrence of certain conditions, including a failure by Fly to maintain a minimum liquidity of at least $25.0 million, the borrower will be required to deposit maintenance reserves and security deposits received from lessees into accounts pledged to the security trustee.

Fly Aladdin Acquisition Facility

As of June 30, 2019, the Company had an aggregate of $352.8 million principal amount outstanding of Series B loans under its term loan facility (the “Fly Aladdin Acquisition Facility”), which were secured by 19 aircraft. Series B loans have a final maturity date of June 15, 2023. During the second quarter of 2019, the Company repaid Series A loans in full and a portion of Series B loans and expensed approximately $1.1 million of debt extinguishment costs.

The interest rate on Series A loans was based on three-month LIBOR, plus an applicable margin of 1.50% per annum. The interest rate on Series B loans is based on three-month LIBOR, plus an applicable margin of 1.80% per annum. The Company makes scheduled quarterly payments of principal and interest on the loans in accordance with a fixed amortization schedule.

Borrowings are secured by the aircraft and related leases, and the equity and beneficial interests in the aircraft owning and leasing subsidiaries. In addition, Fly has provided a guaranty of certain of the representations, warranties and covenants under the Fly Aladdin Acquisition Facility (including, without limitation, the borrowers’ special purpose covenants), as well as the obligations, upon the occurrence of certain conditions, to deposit maintenance reserves and security deposits received into pledged accounts.

The facility contains operating covenants, including covenants that the borrowers maintain a specified debt service coverage ratio, and an initial loan-to-value ratio equal to 72.5% based on the average of the half-life adjusted current market value of all financed aircraft as determined by three independent appraisers. A violation of any of these covenants could result in an event of default under the facility. Upon the occurrence of certain events, including a breach of the debt service coverage ratio continuing for two consecutive payment dates, Fly will be required to deposit, or cause the borrowers to deposit, all maintenance reserves and security deposits received into pledged accounts. Also, upon the occurrence of a breach of the loan-to-value ratio and certain other events, all cash collected will be applied to repay the outstanding principal balance of Series B loans until such breach is cured.

20
Fly Aladdin Engine Funding Facility

As of June 30, 2019, the Company had $43.1 million principal amount outstanding under the Fly Aladdin Engine Funding Facility, which was secured by seven engines. Fly has guaranteed all payments under this facility. The loans have maturity dates ranging from December 31, 2021 to April 30, 2022.

The interest rates for the borrowings range from 4.94% to 4.96% per annum, per engine. The Company is required to make scheduled monthly payments of principal and interest in accordance with an amortization schedule.

The loans are secured by the engines and related leases and the Company’s equity and beneficial interests in the engine owning entities. The Fly Aladdin Engine Funding Facility contains customary covenants, including various reporting requirements. A violation of any of these covenants could result in a default under the facility.

Other Aircraft Secured Borrowings

The Company has entered into other aircraft secured borrowings to finance the acquisition of aircraft, one of which is denominated in Euros. As of June 30, 2019, the Company had $746.2 million principal amount outstanding of other aircraft secured borrowings, which were secured by 16 aircraft. Of this amount, $433.9 million was recourse to the Company.

These borrowings are structured as individual loans secured by pledges of the Company’s rights, title and interests in the financed aircraft and leases. In addition, Fly may provide guarantees of its subsidiaries’ obligations under certain of these loans and may be subject to financial and operating covenants in connection therewith. The maturity dates of these loans range from December 2020 to June 2028.

10. DERIVATIVES

Derivatives are used by the Company to manage its exposure to identified risks, such as interest rate and foreign currency exchange fluctuations. The Company uses interest rate swap contracts to hedge variable interest payments due on borrowings associated with aircraft with fixed rate rentals. As of June 30, 2019, the Company had $1.4 billion of floating rate debt associated with aircraft with fixed rate rentals.

Interest rate swap contracts allow the Company to pay fixed interest rates and receive variable interest rates with the swap counterparty based on either the one-month or three-month LIBOR applied to the notional amounts over the life of the contracts. As of June 30, 2019 and December 31, 2018, the Company had interest rate swap contracts with notional amounts aggregating $1.0 billion and $1.1 billion, respectively. The unrealized fair value gain on the interest rate swap contracts, reflected as derivative assets, was $0.7 million and $3.2 million as of June 30, 2019 and December 31, 2018, respectively. The unrealized fair value loss on the interest rate swap contracts, reflected as derivative liabilities, was $31.6 million and $8.6 million as of June 30, 2019 and December 31, 2018, respectively.

To mitigate its exposure to foreign currency exchange fluctuations, the Company entered into a cross currency swap contract in 2018 in conjunction with a lease in which a portion of the lease rental is denominated in Euros. Pursuant to such cross currency swap, the Company receives U.S. dollars based on a fixed conversion rate through the maturity date of the swap contract. Over the remaining life of the cross currency swap contract, the Company expects to receive $63.5 million in U.S. dollars. The unrealized fair value gain, reflected as a derivative asset, was $3.8 million and $2.7 million as of June 30, 2019 and December 31, 2018, respectively.

The Company determines the fair value of derivative instruments using a discounted cash flow model. The model incorporates an assessment of the risk of non-performance by the swap counterparty in valuing derivative assets and an evaluation of the Company’s credit risk in valuing derivative liabilities.

The Company considers in its assessment of non-performance risk, if applicable, netting arrangements under master netting agreements, any collateral requirement, and the derivative payment priority in the Company’s debt agreements. The valuation model uses various inputs including contractual terms, interest rate curves and credit spreads.

Effective January 1, 2019, the Company adopted ASU 2017-12, Derivatives and Hedging (Topic 815), which is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. Under the guidance, if a cash flow hedge is highly effective, all changes in the fair value of the derivative hedging instrument will be recorded in other comprehensive income and reclassified to earnings when the hedged item impacts earnings. After initial qualification, the new guidance permits a qualitative effectiveness assessment for certain hedges instead of a quantitative test, such as a regression analysis, if the company can reasonably support an expectation of high effectiveness throughout the term of the hedge. An initial quantitative test to establish that the hedge relationship is highly effective is still required. Additional disclosures include cumulative basis adjustments for fair value hedges and the effect of hedging on individual income statement line items. As a result of the adoption, the Company reclassified $0.2 million of prior year losses into accumulated other comprehensive loss, net.

21
The Company recognized $0.2 million and $0.7 million of interest expense, included in interest expense in the consolidated statements of income, under its interest rate swap contracts during the three and six months ended June 30, 2019, respectively. The Company also recognized $0.3 million and $0.7 million of rental revenue, included in operating lease revenue in the consolidated statements of income, under its cross currency swap contract during the three and six months ended June 30, 2019, respectively.

The Company recognized $1.5 million and $3.1 million of interest expense, included in interest expense in the consolidated statements of income, under its interest rate swap contracts during the three and six months ended June 30, 2018, respectively.  The Company also recognized $0.2 million of rental revenue, included in operating lease revenue in the consolidated statements of income, under its cross currency swap contract during each of the three and six months ended June 30, 2018.

Designated Derivatives

The Company’s cross currency swap and certain of its interest rate derivatives have been designated as cash flow hedges. Changes in fair value of these derivatives are recorded as a component of accumulated other comprehensive income, net of a provision for income taxes. Changes in the fair value of these derivatives are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.

As of June 30, 2019, the Company had the following designated derivative instruments classified as derivative assets on its balance sheet (dollars in thousands):

Type
  
Quantity
  
Maturity Date
  
Hedge
Interest
Rate
    
Swap
Contract
Notional
Amount
    
Credit Risk
Adjusted
Fair Value
    
Gain Recognized in
Accumulated
Comprehensive
Loss
  
Interest rate swap contracts
    
2
  
2/15/2022
    
0.99%-1.07
%
  
$
49,482
    
$
690
    
$
604
  
Accrued interest
                      
—
      
26
      
—
  
Sub-total
    
2
              
$
49,482
    
$
716
    
$
604
  

Type
  
Quantity
  
Maturity Date
  
Contracted
Fixed
Conversion
Rate to U.S.
Dollar
    
Total
Contracted
USD to be
Received
    
Credit Risk
Adjusted
Fair Value
    
Gain Recognized in
Accumulated
Comprehensive
Loss
  
Cross currency swap contract
    
1
  
11/26/25
   1 EURO to $1.3068    
$
63,543
    
$
3,806
    
$
3,331
  
Accrued rent
                      
—
      
18
      
—
  
Sub-total
    
1
                
63,543
      
3,824
      
3,331
  
Total - designated derivative assets
    
3
                      
$
4,540
    
$
3,935
  

As of June 30, 2019, the Company had the following designated derivative instruments classified as derivative liabilities on its balance sheet (dollars in thousands):

Type
  
Quantity
  
Maturity Date
  
Hedge
Interest
Rate
    
Swap
Contract
Notional
Amount
    
Credit Risk
Adjusted Fair
Value
    
Loss Recognized
in Accumulated
Comprehensive
Loss
  
Interest rate swap contracts
    
39
  
11/9/21-12/8/25
    
1.93%-3.13
%
  
$
934,735
    
$
(30,939
)
  
$
(26,330
)
Accrued interest
                      
—
      
(297
)
    
—
  
Total – designated derivative liabilities
    
39
              
$
934,735
    
$
(31,236
)
  
$
(26,330
)

During the six months ended June 30, 2019, one interest rate swap contract matured and the Company terminated one other interest rate swap contract.

22
Dedesignated Derivatives

Certain of the Company’s interest rate swap contracts no longer qualify for hedge accounting and have been dedesignated. At June 30, 2019, the Company had an accumulated other comprehensive loss, net of tax, of $0.1 million, which will be amortized over the remaining term of the interest rate swap contracts. During the six months ended June 30, 2019, the Company amortized $0.5 million from accumulated other comprehensive loss, net of tax, into interest expense.

As of June 30, 2019, the Company had the following dedesignated and undesignated derivative instruments classified as derivative liabilities on its balance sheet (dollars in thousands):

Type
  
Quantity
  
Maturity Date
  
Hedge
Interest
Rate
    
Swap
Contract
Notional
Amount
    
Credit Risk
Adjusted Fair
Value
    
Loss Recognized
in Accumulated
Comprehensive
Loss
  
Interest rate swap contracts
    
7
  
1/11/23-6/15/23
    
2.44%-4.30
%
  
$
31,174
    
$
(386
)
  
$
(98
)
Accrued interest
                      
—
      
1
      
—
  
Total – dedesignated derivative liabilities
    
7
              
$
31,174
    
$
(385
)
  
$
(98
)

11. INCOME TAXES

Fly is a tax resident of Ireland and has wholly-owned subsidiaries in Ireland, France, Luxembourg, Australia and Malta that are tax residents in those jurisdictions. In general, Irish resident companies pay corporation tax at the rate of 12.5% on trading income and 25.0% on non-trading income. Historically, most of the Company’s operating income has been trading income in Ireland.

The Company's effective tax rates were 12.0% and 9.0% for the three and six months ended June 30, 2019, respectively, and 13.8% and 15.4% for the three and six months ended June 30, 2018, respectively. The difference between the statutory and effective tax rate in each period is primarily attributable to changes in valuation allowances and the amount of income earned by the Company in different tax jurisdictions. During the six months ended June 30, 2019, the Company also recorded a benefit for an interest payment made by a subsidiary that previously did not meet the recognition threshold. The Company intends to utilize this benefit as group relief to offset income tax on repatriated earnings for which a deferred tax liability was previously recorded.

The Company recognizes a valuation allowance if, based on the weight of available evidence, it is more-likely-than-not (likelihood of more than 50 percent) that some portion, or all, of its deferred tax asset will not be realized. Future realization of a deferred tax asset depends on the existence of sufficient taxable income of the appropriate character in the carryforward period under the tax law.

The Company had no unrecognized tax benefits as of June 30, 2019 or December 31, 2018.

12. SHARE-BASED COMPENSATION

On April 29, 2010, the Company adopted the 2010 Omnibus Incentive Plan (“2010 Plan”) permitting the issuance of up to 1,500,000 share grants in the form of (i) stock appreciation rights (“SARs”); (ii) restricted stock units ("RSUs"); (iii) nonqualified stock options; and (iv) other stock-based awards. The Company has issued all shares available under the 2010 Plan. Since June 30, 2015, all SARs and RSUs granted under the 2010 Plan have vested. During the six months ended June 30, 2019, 227,386 SARs were exercised at a weighted average price of $12.49 per share. At June 30, 2019, there were 569,594 SARs outstanding and exercisable at a weighted average exercise price of $12.84 per share.

13. SHAREHOLDERS’ EQUITY

In November 2018, the Company’s board of directors approved a $50.0 million share repurchase program expiring in December 2019. Under this program, the Company may make share repurchases from time to time in the open market or in privately negotiated transactions. As of June 30, 2019, there was $23.0 million remaining under this authorization.

During the three months ended June 30, 2019, Fly repurchased 1,470,353 shares at an average price of $16.53 per share, or $24.3 million, before commissions and fees. During the six months ended June 30, 2019, Fly repurchased 1,667,945 shares at an average price of $16.18 per share, or $27.0 million, before commissions and fees. During the three and six months ended June 30, 2018, Fly did not repurchase any shares.

No dividends were declared or paid during the three and six months ended June 30, 2019 or 2018.

23
During the six months ended June 30, 2019, the Company issued 56,218 shares in connection with SARs that were exercised.

14. EARNINGS PER SHARE

The following table sets forth the calculation of basic and diluted earnings per common share using the two-class method, in which dividends attributable to SARs are deducted from net income in determining net income attributable to common shareholders (dollars in thousands, except per share data):
Three months ended June 30,

Six months ended June 30,
2019
    
2018
2019
    
2018
                         
Numerator
                        
Net income attributable to common shareholders
  
$
54,050
    
$
24,344
    
$
99,015
    
$
33,974
  
Denominator
                                
Weighted average shares outstanding-Basic
    
32,053,830
      
27,983,352
      
32,341,674
      
27,983,352
  
Dilutive common equivalent shares:
                                
SARs
    
133,285
      
62,538
      
55,043
      
40,067
  
Weighted average shares outstanding-Diluted
    
32,187,115
      
28,045,890
      
32,396,717
      
28,023,419
  
Earnings per share:
                                
Basic
                                
Distributed earnings
  
$
—
    
$
—
    
$
—
    
$
—
  
Undistributed income
  
$
1.69
    
$
0.87
    
$
3.06
    
$
1.21
  
Basic earnings per share
  
$
1.69
    
$
0.87
    
$
3.06
    
$
1.21
  
Diluted
                                
Distributed earnings
  
$
—
    
$
—
    
$
—
    
$
—
  
Undistributed income
  
$
1.68
    
$
0.87
    
$
3.06
    
$
1.21
  
Diluted earnings per share
  
$
1.68
    
$
0.87
    
$
3.06
    
$
1.21
  

Basic earnings per share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing net income available to common shareholders by the sum of the weighted average number of common shares outstanding and the potential number of dilutive common shares outstanding during the period, excluding the effect of any anti-dilutive securities.

SARs granted by the Company that contain non-forfeitable rights to receive dividend equivalents are deemed participating securities (see Note 13). Net income available to common shareholders is determined by reducing the Company’s net income for the period by dividend equivalents paid on vested SARs during the period.

15. COMMITMENTS AND CONTINGENCIES

From time to time, the Company contracts with third-party service providers to perform maintenance or overhaul activities on its off-lease aircraft.

On February 28, 2018, the Company agreed to acquire 21 Airbus A320neo family aircraft to be leased to AirAsia Group Berhad (“AirAsia”) and its affiliated airlines as the aircraft deliver from the manufacturer beginning in 2019 (“Portfolio B”). The first of these aircraft is expected to deliver in the fourth quarter of 2019. The Company also acquired options to purchase up to 20 Airbus A320neo family aircraft, not subject to lease, delivering from the manufacturer between 2019 and 2025 (“Portfolio C”). The Company did not exercise its options with respect to any of the Portfolio C aircraft delivering in 2019. In August 2019, the Company exercised options with respect to eight Portfolio C aircraft to be delivered in 2020 and 2021. The Company has options remaining to purchase up to nine Portfolio C aircraft delivering between 2021 and 2025.

On July 2, 2019, the Company agreed to sell 12 aircraft to Horizon II (See Note 5). The Company also purchased $7.4 million, or 6%, of the equity certificates issued by Horizon II Limited in connection with the Horizon II Transaction, which are subject to a seven-year lock-up agreement. The investment initially will be accounted for at cost and changes in fair value will be recognized into income.

16. RELATED PARTY TRANSACTIONS

With respect to aircraft financed by the Securitization Notes, BBAM was entitled to receive (i) a rent fee equal to 3.5% of the aggregate amount of rents actually collected, plus $1,000 per aircraft per month and (ii) a sales fee of 1.5% of the aggregate gross proceeds in respect of any aircraft sold. BBAM also was entitled to an administrative agency fee from B&B Air Funding of $20,000 per month, subject to an annual CPI adjustment. In connection with the redemption of the Securitization Notes in March 2019, these contracts were terminated.

24
BBAM is entitled to receive a servicing fee equal to 3.5% of the aggregate amount of rents actually collected, plus an administrative fee of $1,000 per aircraft per month. Under the Term Loan, the Fly Acquisition III Facility, the Magellan Acquisition Limited Facility and the Fly Aladdin Acquisition Facility, BBAM is also entitled to an administrative fee of $10,000 per month. Under the Fly Aladdin Engine Funding Facility, BBAM is entitled to receive a servicing fee equal to 3.5% of monthly rents actually collected and an administrative fee equal to $1,000 per month.

For the three and six months ended June 30, 2019, BBAM received servicing and administrative fees totaling $3.9 million and $8.0 million, respectively. For the three and six months ended June 30, 2018, BBAM received servicing and administrative fees totaling $3.7 million and $7.3 million, respectively.

BBAM also is entitled to receive an acquisition fee of 1.5% of the gross acquisition cost for any aviation asset purchased by the Company, and a disposition fee of 1.5% of the gross proceeds for any aviation asset sold by the Company. During the three and six months ended June 30, 2019, the Company incurred $0.9 million of acquisition fees, payable to BBAM. During the three and six months ended June 30, 2018, the Company incurred $0.4 million and $1.0 million of acquisition fees, respectively, payable to BBAM. During the three and six months ended June 30, 2019, the Company incurred disposition fees of $3.1 million and $7.1 million, respectively, payable to BBAM. During the three and six months ended June 30, 2018, the Company incurred disposition fees of $1.7 million, payable to BBAM.

In addition, Fly pays an annual management fee to the Manager as compensation for providing the services of the chief executive officer, the chief financial officer and other personnel, and for certain corporate overhead costs related to the Company. The management fee is adjusted each calendar year by (i) 0.3% of the change in the book value of the Company’s aircraft portfolio during the preceding year, up to a $2.0 billion increase over $2.7 billion and (ii) 0.25% of the change in the book value of the Company’s aircraft portfolio in excess of $2.0 billion, with a minimum management fee of $5.0 million. The management fee is also subject to an annual CPI adjustment applicable to the prior calendar year. For the three and six months ended June 30, 2019, the Company incurred management fees of $2.4 million and $4.8 million, respectively. For the three and six months ended June 30, 2018, the Company incurred management fees of $1.9 million and $3.7 million, respectively.

17. FAIR VALUE OF FINANCIAL INSTRUMENTS

Assets and liabilities recorded at fair value on a recurring basis in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. The hierarchy levels give the highest priority to quoted prices in active markets and the lowest priority to unobservable data. Fair value measurements are disclosed by level within the following fair value hierarchy:

Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 — Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level 3 — Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

The Company’s financial instruments consist principally of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, derivative instruments, accounts payable and borrowings. Fair value of an asset is defined as the price a seller would receive in a current transaction between knowledgeable, willing and able parties. A liability’s fair value is defined as the amount that an obligor would pay to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor.

Where available, the fair value of the Company’s investment in equity certificates, notes payable and debt facilities is based on observable market prices or parameters or derived from such prices or parameters (Level 2). Where observable prices or inputs are not available, valuation models are applied, using the net present value of cash flow streams over the term using estimated market rates for similar instruments and remaining terms (Level 3). These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. The Company determines the fair value of its derivative instruments using a discounted cash flow model which incorporates an assessment of the risk of non-performance by the swap counterparty and an evaluation of its credit risk in valuing derivative liabilities. The valuation model uses various inputs including contractual terms, interest rate curves, credit spreads and measures of volatility.

25
The Company also measures the fair value for certain assets and liabilities on a non-recurring basis, when 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 Fly’s investment in an unconsolidated subsidiary and flight equipment held for operating lease, net. Fly accounts for its investment in an unconsolidated subsidiary under the equity method and records impairment when its fair value is less than its carrying value and the Company determines that the decline is other-than-temporary (Level 3).

The Company records flight equipment at fair value when the carrying value may not be recoverable. Such fair value measurements are based on management’s best estimates and judgment and use Level 3 inputs which include assumptions as to future cash flows associated with the use of an aircraft and eventual disposition of such aircraft. The Company will record an impairment charge if the expected sale proceeds of an aircraft are less than its carrying value. The Company did not record any impairment during the three and six months ended June 30, 2019 or 2018.

The carrying amounts and fair values of certain of the Company’s debt instruments are as follows (dollars in thousands):

   
As of June 30, 2019
    
As of December 31, 2018
  
   
Principal
Amount
Outstanding
    
Fair Value
    
Principal
Amount
Outstanding
    
Fair Value
  
Securitization Notes
  
$
—
    
$
—
    
$
85,584
    
$
80,770
  
Term Loan
    
396,566
      
395,099
      
407,768
      
396,554
  
2021 Notes
    
325,000
      
333,125
      
325,000
      
329,875
  
2024 Notes
    
300,000
      
307,890
      
300,000
      
279,390
  

The principal amount outstanding on the Company's remaining debt instruments approximates fair value at June 30, 2019 and December 31, 2018.

As of June 30, 2019 and December 31, 2018, the categorized assets and liabilities measured at fair value on a recurring basis, based upon the lowest level of significant inputs to the valuations are as follows (dollars in thousands):

   
Level 1
    
Level 2
    
Level 3
    
Total
  
June 30, 2019:
                        
Derivative assets
    
—
    
$
4,540
      
—
    
$
4,540
  
Derivative liabilities
    
—
      
31,621
      
—
      
31,621
  
Investment in equity certificates
    
—
      
5,711
      
—
      
5,711
  
December 31, 2018:
                                
Derivative assets
    
—
    
$
5,929
      
—
    
$
5,929
  
Derivative liabilities
    
—
      
8,558
      
—
      
8,558
  
Investment in equity certificates
    
—
      
5,747
      
—
      
5,747
  

18. SUBSEQUENT EVENTS

On July 2, 2019, the Company agreed to sell 12 aircraft to Horizon II (See Note 5). The Company delivered four of these aircraft to Horizon II subsequent to June 30, 2019 and expects to deliver the remaining eight aircraft in the third and fourth quarters of 2019. The Company also purchased $7.4 million, or 6%, of the equity certificates issued by Horizon II Limited in connection with the Horizon II Transaction, which are subject to a seven-year lock-up agreement.

Subsequent to June 30, 2019, the Company sold one other aircraft to a third party.

In August 2019, the Company exercised options with respect to eight Portfolio C aircraft to be delivered in 2020 and 2021 in connection with the AirAsia transactions.

On August 21, 2019, the Company's board of directors approved a new $50 million share repurchase program to replace its current program.

26
Item 2.
Management’s Discussion & Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our (i) consolidated financial statements and related notes included elsewhere in this Interim Report and (ii) Annual Report on Form 20-F for the year ended December 31, 2018. The consolidated financial statements have been prepared in accordance with U.S. GAAP and are presented in U.S. dollars. The discussion below contains forward-looking statements that are based upon our current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in global, regional or local political, economic, business, competitive, market, regulatory and other factors, many of which are beyond our control. See “Preliminary Note.”

Overview

Fly Leasing Limited is a Bermuda exempted company that was incorporated on May 3, 2007, under the provisions of Section 14 of the Companies Act 1981 of Bermuda. We are principally engaged in purchasing commercial aircraft, which we lease under multi-year contracts to a diverse group of airlines throughout the world.

Although we are organized under the laws of Bermuda, we are a resident of Ireland for tax purposes and are subject to Irish corporation tax on our income in the same way, and to the same extent, as if we were organized under the laws of Ireland.

For the three and six months ended June 30, 2019, we had net income of $54.1 million and $99.0 million or diluted earnings per share of $1.68 and $3.06, respectively. Net cash flows provided by operating activities for the six months ended June 30, 2019 totaled $122.8 million. Net cash flows provided by investing activities totaled $344.6 million and net cash flows used in financing activities totaled $333.4 million for the six months ended June 30, 2019.

Sale of 12 Aircraft to Horizon I

On November 30, 2018, we agreed to sell 12 aircraft to Horizon Aircraft Finance I Limited and Horizon Aircraft Finance I LLC (together, “Horizon I”). As of June 30, 2019, all of these aircraft had been delivered to Horizon I. The aircraft in Horizon I’s portfolio are serviced and managed by affiliates of BBAM LP, whose affiliates also manage and service our aircraft portfolio.

Sale of 12 Aircraft to Horizon II

On July 2, 2019, we agreed to sell 12 aircraft to Horizon Aircraft Finance II Limited and Horizon Aircraft Finance II LLC (together, “Horizon II”) for an aggregate base purchase price of approximately $359.6 million, subject to adjustment based on rents and maintenance reserves in respect of the aircraft (the “Horizon II Transaction”). We delivered four of these aircraft to Horizon II subsequent to June 30, 2019 and expect to deliver the remaining eight aircraft in the third and fourth quarters of 2019. The aircraft in Horizon II's portfolio are serviced and managed by affiliates of BBAM LP, whose affiliates also manage and service our aircraft portfolio. We also purchased $7.4 million, or 6%, of the equity certificates issued by Horizon II Limited in connection with the Horizon II Transaction, which are subject to a seven-year lock-up agreement.

AirAsia Transactions

On February 28, 2018, we agreed to acquire 21 Airbus A320neo family aircraft to be leased to AirAsia Group Berhad (“AirAsia”) and its affiliated airlines as the aircraft deliver from the manufacturer beginning in 2019 (“Portfolio B”). The first of these aircraft is expected to deliver in the fourth quarter of 2019. We also acquired options to purchase up to 20 Airbus A320neo family aircraft, not subject to lease, delivering from the manufacturer between 2019 and 2025 (“Portfolio C”). We did not exercise our options with respect to any of the Portfolio C aircraft delivering in 2019. In August 2019, we exercised options with respect to eight Portfolio C aircraft to be delivered in 2020 and 2021. We have options remaining to purchase up to nine Portfolio C aircraft delivering between 2021 and 2025.

Market Conditions

The airline industry has been profitable every year since 2012 and airline profitability is expected to continue in 2019. Global passenger air traffic grew by 7.4% in 2018 and load factors were at record levels for the year. The upward trend in passenger volume is expected to continue in 2019 at a projected growth rate of 5%. Further, utilization remains strong and the parked fleet, excluding the Boeing 737 MAX family of aircraft, is steady at well under 4% for aircraft under 20 years old. Competition remains strong in the sale-leaseback market and aircraft values generally remain stable. Long term, we believe the overall positive trends in world air traffic and demand for commercial aircraft will continue to drive growth in the aircraft leasing market.

27
Despite the current overall favorable market conditions, the airline industry is cyclical, and macroeconomic, geopolitical and other risks may negatively impact airline profitability or create unexpected volatility in the aircraft leasing market. For instance, the grounding of the B737 MAX aircraft by the Federal Aviation Administration (the "FAA") in the United States and by civil aviation authorities in other countries has impacted operations of certain airlines especially during a peak travel season. The airlines affected by this grounding have had to adjust flight schedules or cancel flights, back fill aircraft with B737-800s or other aircraft types or keep older aircraft in service longer. Boeing has suspended deliveries of the B737 MAX aircraft until cleared by the FAA and other regulatory authorities. These operational changes and the uncertainty of when the B737 MAX aircraft will return to service and when Boeing will resume deliveries have impacted the profitability of certain airlines. Also, uncertainty about geopolitical events such as Brexit as well as ongoing U.S.-China trade tensions could impact airlines in the near term. Although we expect the overall airline industry to remain profitable, profits are not uniformly distributed among airlines, and certain airlines, particularly airlines operating in highly competitive jurisdictions, smaller airlines and start-up carriers, may struggle financially or become insolvent. These lessees may be unable to make lease rental and other payments on a timely basis, and we may be required to repossess aircraft from insolvent lessees prior to the end of contractual lease terms. In addition, production of newer model aircraft by manufacturers may reduce the demand for used aircraft, leading to a reduction in the lease rates and the values of used aircraft, or may create a condition of oversupply should demand falter.
 
Critical Accounting Policies and Estimates
 
Fly prepares its consolidated financial statements in accordance with U.S. GAAP, which requires the use of estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The use of estimates is a significant factor affecting the reported carrying values of flight equipment, investments, deferred assets, accruals and reserves. We utilize third party appraisers and industry valuation professionals, where possible, to support estimates, particularly with respect to flight equipment. Despite our best efforts to accurately estimate such amounts, actual results could differ from those estimates. We have made no significant changes in our critical accounting policies and significant estimates from those disclosed in our Annual Report on Form 20-F for the year ended December 31, 2018.
 
Operating Results

As of June 30, 2019, we had 98 aircraft and seven engines in our portfolio. Of the 98 aircraft, 84 were held for operating lease, one was classified as an investment in finance lease, 12 were classified as held for sale and one aircraft was off-lease. As of June 30, 2018, we had 85 aircraft in our portfolio, 84 of which were held for operating lease and one was classified as an investment in finance lease.

As of June 30, 2019, we had three lessees, which leased a total of four aircraft, on non-accrual status, as we had determined that it was not probable that we would receive the economic benefits of the leases, principally due to (i) the lessees’ failure to pay rent and overhaul payments and (ii) our evaluation of the lessees’ payment history. During the three and six months ended June 30, 2019, we recognized $5.7 million and $8.3 million, respectively, of operating lease revenue from these lessees. As of June 30, 2018, there were no lessees on non-accrual status.

We classify flight equipment as held for sale when we commit to and commence a plan of sale that is reasonably expected to be completed within one year and satisfies certain other criteria. We recognize revenue from each aircraft until the date that such aircraft is delivered to the purchaser and cease to recognize depreciation as of the date the aircraft is classified as flight equipment held for sale.

During the six months ended June 30, 2019, we sold 12 aircraft classified as flight equipment held for sale.

In July 2019, we contracted to sell 12 additional aircraft, which were classified as flight equipment held for sale at June 30, 2019.
 
Management’s discussion and analysis of operating results presented below pertain to the consolidated statements of income of Fly for the three and six months ended June 30, 2019 and 2018.
 
28
Consolidated Statements of Income for the three months ended June 30, 2019 and 2018
Three months ended
June 30, 2019
    
June 30, 2018
   
(Dollars in thousands)
  
Revenues
            
Operating lease revenue
  
$
128,623
    
$
99,324
  
Finance lease revenue
    
156
      
171
  
Equity earnings (loss) from unconsolidated subsidiary
    
54
      
(358
)
Gain on sale of aircraft
    
16,078
      
2,945
  
Interest and other income
    
2,122
      
591
  
Total revenues
    
147,033
      
102,673
  
Expenses
                
Depreciation
    
37,303
      
33,895
  
Interest expense
    
35,439
      
33,644
  
Selling, general and administrative
    
9,438
      
6,369
  
Loss (gain) on derivatives
    
255
      
(1,309
)
Loss on extinguishment of debt
    
1,541
      
898
  
Maintenance and other costs
    
1,625
      
936
  
Total expenses
    
85,601
      
74,433
  
Net income before provision for income taxes
    
61,432
      
28,240
  
Provision for income taxes
    
7,382
      
3,896
  
Net income
  
$
54,050
    
$
24,344
  


 		   
Three months ended
      
Increase/
(Decrease)
   
June 30, 2019
    
June 30, 2018
   
(Dollars in thousands)
  
Operating lease revenue:
                  
Operating lease rental revenue
  
$
101,108
    
$
89,215
    
$
11,893
  
End of lease income
    
28,823
      
12,612
      
16,211
  
Amortization of lease incentives
    
(1,319
)
    
(2,361
)
    
1,042
  
Amortization of lease discounts and other
    
11
      
(142
)
    
153
  
Total operating lease revenue
  
$
128,623
    
$
99,324
    
$
29,299
  

For the three months ended June 30, 2019, operating lease revenue totaled $128.6 million, an increase of $29.3 million compared to the three months ended June 30, 2018. The increase was primarily due to (i) an increase of $20.2 million from aircraft and engines purchased in 2018 and 2019, (ii) an increase of $16.2 million in end of lease income, (iii) an increase of $2.2 million from lessees on non-accrual status, (iv) a decrease of $1.0 million in lease incentive amortization and (v) an increase of $0.4 million related to leases with floating rate rents. The increase was partially offset by (i) $7.1 million in decreased lease revenue from aircraft sold in 2018 and 2019 and (ii) $3.7 million from lower lease rates on lease extensions and remarketings.

During the three months ended June 30, 2019, we sold seven aircraft and recognized an aggregate gain on sale of aircraft of $16.1 million. During the three months ended June 30, 2018, we sold two aircraft and recognized an aggregate gain on sale of aircraft of $2.9 million.

During the three months ended June 30, 2019 and 2018, interest and other income totaled $2.1 million and $0.6 million, respectively. The increase was primarily due to higher interest earned on deposits in bank accounts and income recognized from equity certificates.

Depreciation expense during the three months ended June 30, 2019 was $37.3 million, compared to $33.9 million for the three months ended June 30, 2018, an increase of $3.4 million. The increase was primarily due to depreciation on aircraft acquired in 2019 and 2018. This increase was partially offset by a reduction in depreciation on aircraft sold in 2018 and 2019 and stoppage of depreciation on aircraft classified as held for sale.

Interest expense totaled $35.4 million and $33.6 million for the three months ended June 30, 2019 and 2018, respectively. The increase of $1.8 million was primarily due to additional secured borrowings. This increase was partially offset by a reduction in interest due to debt repayments.

29
Selling, general and administrative expenses were $9.4 million and $6.4 million for the three months ended June 30, 2019 and 2018, respectively. The increase of $3.0 million was primarily due to (i) an increase of $1.0 million in legal fees, primarily due to lease costs that are being expensed which were previously deferred and amortized as well as repossession and remarketing of aircraft, (ii) an unrealized foreign exchange loss of $0.1 million during the three months ended June 30, 2019, compared to an unrealized foreign exchange gain of $0.9 million during the three months ended June 30, 2018 and (iii) an increase in servicing and management fees paid to BBAM of $0.9 million due to fleet growth.

For the three months ended June 30, 2019, we recognized a loss on derivatives of $0.3 million, compared to a gain on derivatives of $1.3 million for the three months ended June 30, 2018. During the three months ended June 30, 2018, we recognized a gain of $1.2 million associated with the mark-to-market of interest rate swaps that were not designated as accounting hedges. The interest rate swaps were used to partially lock-in the interest rate on anticipated future borrowings associated with the AirAsia transactions.

Debt extinguishment costs incurred during the three months ended June 30, 2019 and 2018 were $1.5 million and $0.9 million, respectively, due to debt repayments associated with aircraft sales.

Provision for income taxes was $7.4 million and $3.9 million for the three months ended June 30, 2019 and 2018, respectively. We are tax resident in Ireland and expect to pay the corporation tax rate of 12.5% on trading income and 25.0% on non-trading income. Our effective tax rates were 12.0% and 13.8% for the three months ended June 30, 2019 and 2018, respectively. The difference between the statutory and effective tax rate in each period is primarily attributable to changes in valuation allowances and the amount of income earned by us in different tax jurisdictions.
 
Consolidated Statements of Income for the six months ended June 30, 2019 and 2018
Six months ended
June 30, 2019
    
June 30, 2018
   
(Dollars in thousands)
  
Revenues
            
Operating lease revenue
  
$
233,875
    
$
186,400
  
Finance lease revenue
    
316
      
345
  
Equity earnings (loss) from unconsolidated subsidiary
    
110
      
(246
)
Gain on sale of aircraft
    
43,698
      
2,945
  
Interest and other income
    
3,737
      
1,984
  
Total revenues
    
281,736
      
191,428
  
Expenses
                
Depreciation
    
74,888
      
67,628
  
Interest expense
    
73,618
      
66,567
  
Selling, general and administrative
    
18,160
      
14,979
  
Loss (gain) on derivatives
    
272
      
(520
)
Loss on extinguishment of debt
    
3,710
      
898
  
Maintenance and other costs
    
2,223
      
1,714
  
Total expenses
    
172,871
      
151,266
  
Net income before provision for income taxes
    
108,865
      
40,162
  
Provision for income taxes
    
9,850
      
6,188
  
Net income
  
$
99,015
    
$
33,974
  

30

 		   
Six months ended
      
Increase/
(Decrease)
   
June 30, 2019
    
June 30, 2018
   
(Dollars in thousands)
  
Operating lease revenue:
                  
Operating lease rental revenue
  
$
206,436
    
$
178,328
    
$
28,108
  
End of lease income
    
30,387
      
12,997
      
17,390
  
Amortization of lease incentives
    
(2,951
)
    
(4,644
)
    
1,693
  
Amortization of lease discounts and other
    
3
      
(281
)
    
284
  
Total operating lease revenue
  
$
233,875
    
$
186,400
    
$
47,475
  

For the six months ended June 30, 2019, operating lease revenue totaled $233.9 million, an increase of $47.5 million compared to the six months ended June 30, 2018. The increase was primarily due to (i) an increase of $43.1 million from aircraft and engines purchased in 2019 and 2018, (ii) an increase of $17.4 million in end of lease income, (iii) a decrease of $1.7 million in lease incentive amortization, (iv) an increase of $1.5 million related to leases with floating rate rents and (v) and increase of $1.2 million from lessees on non-accrual status. The increase was partially offset by (i) $13.4 million in decreased lease revenue from aircraft sold in 2018 and 2019 and (ii) $4.4 million from lower lease rates on lease extensions and remarketings.

During the six months ended June 30, 2019, we sold 17 aircraft and recognized an aggregate gain on sale of aircraft of $43.7 million. During the six months ended June 30, 2018, we sold two aircraft and recognized an aggregate gain on sale of aircraft of $2.9 million.

During the six months ended June 30, 2019 and 2018, interest and other income totaled $3.7 million and $2.0 million, respectively. The increase was primarily due to (i) higher interest earned on funds held in an escrow account and deposits in bank accounts and (ii) income recognized from equity certificates.

Depreciation expense during the six months ended June 30, 2019 was $74.9 million, compared to $67.6 million for the six months ended June 30, 2018, an increase of $7.3 million. The increase was primarily due to depreciation on aircraft acquired in 2019 and 2018. This increase was partially offset by a reduction in depreciation on aircraft sold in 2018 and 2019 and stoppage of depreciation on aircraft classified as held for sale.

Interest expense totaled $73.6 million and $66.6 million for the six months ended June 30, 2019 and 2018, respectively. The increase of $7.0 million was primarily due to additional secured borrowings. This increase was partially offset by a reduction in interest due to debt repayments.

Selling, general and administrative expenses were $18.2 million and $15.0 million for the six months ended June 30, 2019 and 2018, respectively. The increase of $3.2 million was primarily due to (i) an increase in servicing and management fees paid to BBAM of $1.9 million due to fleet growth, (ii) an increase of $0.8 million in legal fees, primarily due to lease costs that are being expensed which were previously deferred and amortized as well as repossession and remarketing of aircraft and (i) a decrease in unrealized foreign exchange gains of $0.4 million.

For the six months ended June 30, 2019, we recognized a loss on derivatives of $0.3 million, compared to a gain on derivatives of $0.5 million for the six months ended June 30, 2018. During the six months ended June 30, 2018, we recognized a gain of $0.9 million associated with the mark-to-market of interest rate swaps that were not designated as accounting hedges. The interest rate swaps were used to partially lock-in the interest rate on anticipated future borrowings associated with the transactions with the AirAsia Group. This loss was partially offset by gains recognized on dedesignated derivative contracts.

During the six months ended June 30, 2019, we incurred debt extinguishment costs totaling $3.7 million due to (i) the redemption of the Securitization Notes and (ii) debt repayments associated with aircraft sales. During the six months ended June 30, 2018, we incurred debt extinguishment costs totaling $0.9 million due to debt repayments associated with aircraft sales.

Provision for income taxes was $9.9 million and $6.2 million for the six months ended June 30, 2019 and 2018, respectively. We are tax resident in Ireland and expect to pay the corporation tax rate of 12.5% on trading income and 25.0% on non-trading income. Our effective tax rates were 9.0% and 15.4% for the six months ended June 30, 2019 and 2018, respectively. The difference between the statutory and effective tax rate in each period is primarily attributable to changes in valuation allowances and the amount of income earned by us in different tax jurisdictions. During the six months ended June 30, 2019, we also recorded a benefit for an interest payment made by a subsidiary that previously did not meet the recognition threshold. We intend to utilize this benefit as group relief to offset income tax on repatriated earnings for which a deferred tax liability was previously recorded.

31
Liquidity and Capital Resources

Overview

Our business is very capital intensive, requiring significant investment to maintain and expand our fleet. We have pursued a strategy of disciplined fleet growth. In 2018, we spent approximately $1.1 billion to acquire 34 aircraft and seven engines. During the six months ended June 30, 2019, we spent $60.9 million to acquire flight equipment.

We also have pursued opportunistic aircraft sales to rejuvenate our fleet. In 2018, we sold six aircraft. During the six months ended June 30, 2019, we sold 17 aircraft.

On July 2, 2019, we agreed to sell 12 aircraft to Horizon II for an aggregate base purchase price of approximately $359.6 million, subject to adjustment based on rents and maintenance reserves in respect of the aircraft. We delivered four of these aircraft to Horizon II subsequent to June 30, 2019 and expect to deliver the remaining eight aircraft in the third and fourth quarters of 2019. We also purchased $7.4 million, or 6%, of the equity certificates issued by Horizon II Limited in connection with the Horizon II Transaction, which are subject to a seven-year lock-up agreement.

We finance our business with unrestricted cash, cash generated from operating leases, aircraft sales and debt financings. At June 30, 2019, we had $351.9 million of unrestricted cash. We also had 10 unencumbered aircraft with an aggregate book value of $288.4 million.

In recent years, our debt financing strategy has been to diversify our lending sources and to utilize both secured and unsecured debt financing. Unsecured borrowings provide us with greater operational flexibility. Secured, recourse debt financing enables us to take advantage of favorable pricing and other terms compared to secured non-recourse debt, which we also continue to utilize.

Our sources of operating cash flows are principally distributions and interest payments made to us by our subsidiaries. These payments by our subsidiaries may be restricted by applicable local laws and debt covenants.

We expect that these funds, together with our cash on hand, cash from operations, and cash from other financing activities, including aircraft sales, will satisfy our liquidity needs through at least the next twelve months.

Our liquidity plans are subject to a number of risks and uncertainties, including those described under Item 3 “Risk Factors” in our Annual Report on Form 20-F for the year ended December 31, 2018, filed with the SEC on March 12, 2019 (the "2018 Annual Report").

Cash Flows for the six months ended June 30, 2019 and 2018

We generated cash from operations of $122.8 million and $104.8 million for the six months ended June 30, 2019 and 2018, respectively, an increase of $18.0 million.

Cash provided by investing activities was $344.6 million and $1.3 million for the six months ended June 30, 2019 and 2018, respectively. During the six months ended June 30, 2019, we used $61.4 million of cash to purchase flight equipment. During the six months ended June 30, 2018, we used $69.3 million of cash to purchase flight equipment and paid a deposit of $30.0 million on aircraft purchases. During the six months ended June 30, 2019, we sold 17 aircraft for net cash proceeds of $410.9 million. During the six months ended June 30, 2018, we sold two aircraft for net cash proceeds of $99.3 million.

Cash used in financing activities for the six months ended June 30, 2019 and 2018 totaled $333.4 million and $96.7 million, respectively. During the six months ended June 30, 2019, we (i) made repayments on our secured borrowings totaling $325.3 million, (ii) used $27.0 million to repurchase 1,667,945 shares and (iii) returned security deposits of $1.5 million to lessees. These payments were partially offset by net maintenance reserve receipts of $20.9 million. During the six months ended June 30, 2018, we (i) made repayments on our secured borrowings totaling $175.0 million, (ii) paid $5.5 million of debt issuance costs and (iii) returned net security deposits to lessees totaling $2.1 million. These were partially offset by receipts of (i) net proceeds from secured borrowings of $49.3 million and (ii) net maintenance reserves receipts of $36.7 million.

Maintenance Cash Flows

Under our leases, the lessee is generally responsible for maintenance and repairs, airframe and engine overhauls, and compliance with return conditions of aircraft on lease. In connection with the lease of a used aircraft we may agree to contribute additional amounts to the cost of certain major overhauls or modifications, which usually reflect the usage of the aircraft prior to the commencement of the lease. In many cases, we also agree to share with our lessees the cost of compliance with airworthiness directives.

32
We expect that the aggregate maintenance reserve and lease end adjustment payments we receive from lessees will meet the aggregate maintenance contributions and lease end adjustment payments that we will be required to make. During the six months ended June 30, 2019, we received $33.6 million of maintenance payments from lessees and made maintenance payment disbursements of $12.7 million.

Share Repurchases

In November 2018, our board of directors approved a $50.0 million share repurchase program expiring in December 2019. During the three months ended June 30, 2019, we repurchased 1,470,353 shares at an average price of $16.53 per share, or $24.3 million, before commissions and fees. During the six months ended June 30, 2019, we repurchased 1,667,945 shares at an average price of $16.18 per share, or $27.0 million, before commissions and fees. On August 21, 2019, our board of directors approved a new $50 million share repurchase program to replace its current program. Under this program, Fly may make share repurchases from time to time in the open market or in privately negotiated transactions.

Financing

We finance our business with unsecured and secured borrowings. As of June 30, 2019, we were not in default under any of our borrowings.

Unsecured Borrowings

On October 3, 2014, we sold $325.0 million aggregate principal amount of 6.375% Senior Notes due 2021 (the “2021 Notes”). On October 16, 2017, we sold $300.0 million aggregate principal amount of 5.250% Senior Notes due 2024 (the “2024 Notes”).

The 2021 Notes and 2024 Notes are senior unsecured obligations of ours and rank pari passu in right of payment with any existing and future senior unsecured indebtedness of ours. The 2021 Notes have a maturity date of October 15, 2021 and the 2024 Notes have a maturity date of October 15, 2024.

Pursuant to the indentures governing the 2021 Notes and 2024 Notes, we are subject to restrictive covenants which relate to dividend payments, incurrence of debt and issuance of guarantees, incurrence of liens, repurchases of common shares, investments, disposition of aircraft, consolidation, merger or sale of our company and transactions with affiliates. We are also subject to certain operating covenants, including reporting requirements. Our failure to comply with any of the covenants under the indentures governing the 2021 Notes or 2024 Notes could result in an event of default which, if not cured or waived, may result in the acceleration of the indebtedness thereunder and other indebtedness containing cross-default or cross-acceleration provisions. Certain of these covenants will be suspended if the 2021 Notes or 2024 Notes obtain an investment grade rating.

For more information about our unsecured borrowings, refer to "Item 5. Operating and Financial Review and Prospects" of our 2018 Annual Report.

Secured Borrowings

As of June 30, 2019, we had $2.1 billion principal amount outstanding on our secured borrowings.

We are subject to restrictive covenants under our secured borrowings which relate to the incurrence of debt, issuance of guarantees, incurrence of liens or other encumbrances, the acquisition, substitution, disposition and re-lease of aircraft, maintenance, registration and insurance of our aircraft, restrictions on modification of aircraft and capital expenditures, and requirements to maintain concentration limits.

Our loan agreements include events of default that are customary for these types of secured borrowings. Our failure to comply with any restrictive covenants, or any other operating covenants, may trigger an event of default under the relevant loan agreement. In addition, certain of our loan agreements contain cross-default provisions that could be triggered by a default under another loan agreement.

For more information about our secured borrowings, refer to "Item 5. Operating and Financial Review and Prospects" of our 2018 Annual Report.

33
Securitization Notes

On March 14, 2019, B&B Air Funding redeemed in full its outstanding aircraft lease-backed Class G-1 notes (the “Securitization Notes”) issued on October 2, 2007 and with an original maturity date of November 14, 2033, in the aggregate principal amount of $63.8 million. The redemption price and accrued interest on the Securitization Notes were paid in full satisfaction thereof. In connection with the redemption, we expensed approximately $1.9 million of debt extinguishment costs.

Nord LB Facility

As of June 30, 2019, we had $101.2 million principal amount outstanding under its non-recourse debt facility with Norddeutsche Landesbank Gironzentrale (the “Nord LB Facility”), which was secured by five aircraft. The Nord LB Facility is structured with loans secured by each aircraft individually. The loans are cross-collateralized and contain cross-default provisions. Borrowings are secured by our equity interests in the aircraft owning subsidiaries, the related leases, and certain deposits.

The loans under the Nord LB Facility bear interest at one-month LIBOR plus a margin of 1.85% until the final maturity date of January 14, 2020. As of June 30, 2019 and December 31, 2018, the blended weighted average interest rate for the facility was 4.25% and 4.29%, respectively, excluding the amortization of debt discounts and debt issuance costs.

Under the terms of the Nord LB Facility, we apply 95% of lease rentals collected towards interest and principal. If no lease rental payments are collected in the applicable period for any financed aircraft, then no payment is due under the loan associated with that aircraft during such period. Any unpaid interest increases the principal amount of the associated loan.

In the event we sell any of the financed aircraft, substantially all sale proceeds (after payment of certain expenses) must first be used to repay the debt associated with such aircraft and then to repay the outstanding amounts which finance the remaining aircraft. In addition, any maintenance reserve amounts retained by us will be used to prepay the Nord LB Facility, provided such reserves are not required for future maintenance of such aircraft.
 
Term Loan
 
As of June 30, 2019, we had $396.6 million principal amount outstanding under our senior secured term loan (the “Term Loan”), which was secured by 31 aircraft. Fly has guaranteed all payments under the Term Loan. The final maturity date of the Term Loan is February 9, 2023.

The Term Loan bears interest at three-month LIBOR plus a margin of 2.00%. The weighted average interest rate on all outstanding amounts was 4.62% and 5.17% as of June 30, 2019 and December 31, 2018, respectively, excluding the amortization of debt discounts and debt issuance costs. The Term Loan can be prepaid in whole or in part at par.

The Term Loan requires us to maintain a maximum loan-to-value ratio of 70.0% based on the lower of the mean or median of half-life adjusted base values of the financed aircraft as determined by three independent appraisers. The Term Loan also includes other customary covenants, including reporting requirements and maintenance of credit ratings.

Magellan Acquisition Limited Facility

As of June 30, 2019, we had $292.0 million principal amount outstanding in loans and notes under its term loan facility (the “Magellan Acquisition Limited Facility”), which was secured by nine aircraft. Fly has guaranteed all payments under this facility. The Magellan Acquisition Limited Facility has a maturity date of December 8, 2025.

The interest rate on the loans is based on one-month LIBOR plus an applicable margin of 1.65% per annum. The interest rate on the notes is a fixed rate of 3.93% per annum. The weighted average interest rate on all outstanding amounts was 4.17% and 4.18% as of June 30, 2019 and December 31, 2018, excluding the amortization of debt discounts and debt issuance costs.

The facility contains financial and operating covenants, including a covenant that Fly maintain a tangible net worth of at least $325.0 million, as well as customary reporting requirements. The borrower is required to maintain an initial loan-to-value ratio of less than or equal to 75% based on the lower of the average half-life adjusted current market value and base value of all aircraft financed under the facility as determined by three independent appraisers. A violation of any of these covenants could result in a default under the Magellan Acquisition Limited Facility. In addition, upon the occurrence of certain conditions, including a failure by Fly to maintain a minimum liquidity of at least $25.0 million, the borrower will be required to deposit certain amounts of maintenance reserves and security deposits received into accounts pledged to the security trustee.

34
Fly Acquisition III Facility

As of June 30, 2019, we had $159.6 million principal amount outstanding under our credit facility (the “Fly Acquisition III Facility”), which was secured by eight aircraft. The availability period under the Fly Acquisition III Facility expired on February 26, 2019. We paid commitment fees of 0.50% to 0.75% per annum to the lenders on the undrawn amount of their commitments from February 26, 2016 until February 26, 2019. The facility has a maturity date of February 26, 2022 and all payments are guaranteed by Fly.

The interest rate under the facility is based on one-month LIBOR plus an applicable margin of (i) 2.00%, from February 26, 2016 through February 26, 2019, (ii) 2.50%, from February 27, 2019 through February 26, 2020 and (iii) 3.00% thereafter. The weighted average interest rate on all outstanding amounts was 4.53% and 4.10% as of June 30, 2019 and December 31, 2018, respectively, excluding the amortization of debt discounts and debt issuance costs.

The facility contains financial and operating covenants, including covenants that Fly maintain a tangible net worth of at least $325.0 million and that the borrower maintains a specified interest coverage ratio, as well as customary reporting requirements. Violation of any of these covenants could result in an event of default under the facility. Also, upon the occurrence of certain conditions, including a failure by Fly to maintain a minimum liquidity of at least $25.0 million, the borrower will be required to deposit maintenance reserves and security deposits received from lessees into accounts pledged to the security trustee.

Fly Aladdin Acquisition Facility

As of June 30, 2019, we had an aggregate of $352.8 million principal amount outstanding of Series B loans under our term loan facility (the “Fly Aladdin Acquisition Facility”), which were secured by 19 aircraft. Series B loans have a final maturity date of June 15, 2023. During the second quarter of 2019, we repaid Series A loans in full and a portion of Series B loans and expensed approximately $1.1 million of debt extinguishment costs.

The interest rate on Series A loans was based on three-month LIBOR, plus an applicable margin of 1.50% per annum. The interest rate on Series B loans is based on three-month LIBOR, plus an applicable margin of 1.80% per annum. The weighted average interest rate on all outstanding amounts was 4.75% and 4.59% as of June 30, 2019 and December 31, 2018, respectively, excluding the amortization of debt discounts and debt issuance costs. We make scheduled quarterly payments of principal and interest on the loans in accordance with a fixed amortization schedule.

Borrowings are secured by the aircraft and related leases, and the equity and beneficial interests in the aircraft owning and leasing subsidiaries. In addition, Fly has provided a guaranty of certain of the representations, warranties and covenants under the Fly Aladdin Acquisition Facility (including, without limitation, the borrowers’ special purpose covenants), as well as the obligations, upon the occurrence of certain conditions, to deposit maintenance reserves and security deposits received into pledged accounts.

The facility contains operating covenants, including covenants that the borrowers maintain a specified debt service coverage ratio, and an initial loan-to-value ratio equal to 72.5% based on the average of the half-life adjusted current market value of all financed aircraft as determined by three independent appraisers. A violation of any of these covenants could result in an event of default under the facility. Upon the occurrence of certain events, including a breach of the debt service coverage ratio continuing for two consecutive payment dates, Fly will be required to deposit, or cause the borrowers to deposit, all maintenance reserves and security deposits received into pledged accounts. Also, upon the occurrence of a breach of the loan-to-value ratio and certain other events, all cash collected will be applied to repay the outstanding principal balance of Series B loans until such breach is cured.

Fly Aladdin Engine Funding Facility

As of June 30, 2019, we had $43.1 million principal amount outstanding under the Fly Aladdin Engine Funding Facility, which was secured by seven engines. Fly has guaranteed all payments under this facility. The loans have maturity dates ranging from December 31, 2021 to April 30, 2022.

The interest rates for the borrowings range from 4.94% to 4.96% per annum, per engine. The weighted average interest rate on all outstanding amounts was 4.95% as of each of June 30, 2019 and December 31, 2018, excluding the amortization of debt discounts and debt issuance costs. We are required to make scheduled monthly payments of principal and interest in accordance with an amortization schedule.

The loans are secured by the engines and related leases and our equity and beneficial interests in the engine owning entities. The Fly Aladdin Engine Funding Facility contains customary covenants, including various reporting requirements. A violation of any of these covenants could result in a default under the facility.

35
Other Aircraft Secured Borrowings

We have entered into other aircraft secured borrowings to finance the acquisition of aircraft, one of which is denominated in Euros. As of June 30, 2019, we had $746.2 million principal amount outstanding of other aircraft secured borrowings, which were secured by 16 aircraft. Of this amount, $433.9 million was recourse to us. The weighted average interest rate on all outstanding amounts was 4.44%  as of each of June 30, 2019 and December 31, 2018, respectively, excluding the amortization of debt discounts and debt issuance costs.

These borrowings are structured as individual loans secured by pledges of our rights, title and interests in the financed aircraft and leases. In addition, Fly may provide guarantees of its subsidiaries’ obligations under certain of these loans and may be subject to financial and operating covenants in connection therewith. The maturity dates of these loans range from December 2020 to June 2028.

Capital Expenditures

During the six months ended June 30, 2019, we purchased flight equipment for $61.4 million.

We expect to make capital expenditures from time to time in connection with improvements to our aircraft. These expenditures include the cost of major overhauls and modifications. In general, the costs of operating an aircraft, including capital expenditures, increase with the age of the aircraft. As of June 30, 2019, the weighted average age of our portfolio (excluding aircraft held for sale) was 7.4 years.

Inflation

The effects of inflation on our operating expenses have been minimal. We do not consider inflation to be a significant risk to direct expenses in the current economic environment.

Item 3.
Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Interest rate risk is the exposure to loss resulting from changes in the level of interest rates and the spread between different interest rates. Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control. We are exposed to changes in the level of interest rates and to changes in the relationship or spread between interest rates. Our primary interest rate exposures relate to our lease agreements and our floating rate debt obligations. As of June 30, 2019, we had 92 lease agreements (excluding lease agreements associated with aircraft classified as held for sale), 86 of which require the payment of a fixed rent amount during the lease term, and the remaining 6 require a floating rent amount based on LIBOR. Our floating rate indebtedness requires payments based on a variable interest rate index such as LIBOR. Therefore, increases in interest rates may reduce our net income by increasing the cost of our debt without any corresponding proportional increase in rents or cash flow from our leases.

We have entered into interest rate swap contracts to mitigate the interest rate fluctuation risk associated with our debt. We expect that these interest rate swap contracts will significantly reduce the additional interest expense that would be caused by an increase in variable interest rates.

Sensitivity Analysis

The following discussion about the potential effects of changes in interest rates is based on a sensitivity analysis, which models the effects of hypothetical interest rate shifts on our financial condition and results of operations. A sensitivity analysis is constrained by several factors, including the necessity to conduct the analysis based on a single point in time and by the inability to include the complex market reactions that normally would arise from the market shifts. Although the following results of a sensitivity analysis for changes in interest rates may have some limited use as a benchmark, they should not be viewed as a forecast. This hypothetical disclosure also is selective in nature and addresses only the potential impacts on our financial instruments and our variable rate leases. It does not include a variety of other potential factors that could affect our business as a result of changes in interest rates.

Assuming we do not hedge our exposure to interest rate fluctuations, a hypothetical 100 basis-point increase or decrease in our variable interest rates would have increased or decreased our interest expense by $18.3 million, and would have increased or decreased our revenues by $4.5 million on an annualized basis.

36
The fair value of our interest rate swap contracts is affected by changes in interest rates and credit risk of the parties to the swap. We determine the fair value of our derivative instruments using a discounted cash flow model which incorporates an assessment of the risk of non-performance by the swap counterparty and an evaluation of Fly’s credit risk in valuing derivative liabilities. The valuation model uses various inputs including contractual terms, interest rate curves, credit spreads, and measures of volatility. Changes in the fair value of a derivative that is designated and qualifies as an effective cash flow hedge are recorded in accumulated other comprehensive income, net of tax, until earnings are affected by the variability of cash flows of the hedged item. Any derivative gains and losses that do not qualify for hedge accounting treatment are recognized directly into income. As of June 30, 2019, the fair value of our interest rate swap derivative liabilities, excluding accrued interest, was $31.3 million. A 100 basis-point increase in the interest rate would reduce the fair value of our derivative liabilities by approximately $31.5 million. A 100 basis-point decrease in the interest rate would increase the fair value of our derivative liabilities by approximately $33.3 million. As of June 30, 2019, the fair market value of our interest rate swap derivative assets, excluding accrued interest, was $0.7 million. A 100 basis-point increase in the interest rate would increase the fair market value of our derivative assets by approximately $1.1 million. A 100 basis-point decrease in the interest rate would reduce the fair market value of our derivative assets by approximately $1.1 million.

Foreign Currency Exchange Risk

We receive substantially all of our revenue in U.S. Dollars. We have two leases pursuant to which we receive a portion of the rent amount in Euros. In 2018, we entered into a cross currency swap contract to mitigate our exposure to foreign currency exchange fluctuations in conjunction with one of these leases. As of June 30, 2019, the fair value of our cross currency swap derivative asset, excluding accrued rent, was $3.8 million. A 10% increase or decrease in the Euro to U.S. Dollar exchange rate would decrease or increase the fair value of our derivative asset by approximately $5.6 million, respectively. For the other Euro denominated lease, a 10% increase or decrease in the Euro to U.S. Dollar exchange rate would increase or decrease the annual rental revenue by $0.3 million, respectively.

As of June 30, 2019, we had one aircraft secured borrowing denominated in Euros. During the six months ended June 30, 2019, we recorded an unrealized foreign currency exchange gain of $0.1 million associated with this borrowing, resulting primarily from an increase in value of the U.S. Dollar relative to the Euro. A 10% increase or decrease in the Euro to U.S. Dollar exchange rate on the Euro denominated borrowing at June 30, 2019 would have resulted in a $1.8 million unrealized foreign exchange loss or gain, respectively.

We pay substantially all of our expenses in U.S. Dollars. However, we incur some of our expenses in other currencies, primarily the Euro. Changes in the value of the U.S. Dollar relative to the Euro and other currencies may increase the U.S. Dollar cost to us to pay such expenses. The portion of our business conducted in other currencies could increase in the future, which could expand our exposure to losses arising from currency fluctuations. Volatility in foreign exchange rates could have a material impact on our results of operations.

Item 4.
Controls and Procedures

Not applicable.

PART II — OTHER INFORMATION

Item 1.
Legal Proceedings

We are not currently a party to any litigation or other legal proceeding that may have a material adverse impact on our business or operations. However, we are and may continue to be subject to various claims and legal actions arising in the ordinary course of business.

Item 1A.
Risk Factors

For a discussion of our potential risks and uncertainties, see the information under “Risk Factors” under the heading Item 3. “Key Information” in our Annual Report on Form 20-F for the year ended December 31, 2018, filed with the SEC on March 12, 2019 which is accessible on the SEC’s website at www.sec.gov as well as our website at www.flyleasing.com. The information on our website or that can be accessed through our website neither constitutes a part of this interim report nor is incorporated by reference herein.

37
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds

Period
  
Total Number
of Shares
Purchased
    
Average Price
Paid Per Share
    
Total Number of Shares
Purchased as Part of a
Publicly Announced
Repurchase Plan
    
Approximate Dollar
Value of Shares that
may yet be Purchased
Under the Plans or
Programs (1)(2)
April 1-30, 2019
    
29,597
    
$
13.97
      
29,597
  
$
46.9 million
May 1-31, 2019
    
502,954
    
$
16.27
      
502,954
  
$
38.7 million
June 1-30, 2019
    
937,802
    
$
16.75
      
937,802
  
$
23.0 million

(1)
In November 2018, our board of directors approved a $50.0 million share repurchase program expiring in December 2019.
(2)
On August 21, 2019, our board of directors approved a new $50 million share repurchase program to replace its current program. Under this program, we may make share repurchases from time to time in the open market or in privately negotiated transactions.
 
Item 3.
Defaults Upon Senior Securities

None.

Item 4.
Mine Safety Disclosures

None.

Item 5.
Other Information

None.

Item 6.
Exhibits

Purchase Agreement dated July 2, 2019 among the sellers identified therein, Horizon Aircraft Finance II Limited, Horizon Aircraft Finance II LLC and the other purchasers identified therein.


38
Exhibit 4.1
 
DATED AS OF JULY 2, 2019
 
THE SELLERS IDENTIFIED HEREIN

HORIZON AIRCRAFT FINANCE II LIMITED
 
and
 
HORIZON AIRCRAFT FINANCE II LLC
 
and
 
THE OTHER PURCHASERS IDENTIFIED HEREIN

PURCHASE AGREEMENT
 
TABLE OF CONTENTS
 
1.
INTERPRETATION
1
     
2.
PURCHASE AND SALE
13
     
3.
CLOSING
17
     
4.
RELIANCE; PAYMENTS
21
     
5.
ADDITIONAL OBLIGATIONS WITH RESPECT TO REMAINING AIRCRAFT
22
     
6.
SUBSTITUTION AND TERMINATION
23
     
7.
NON-DELIVERY EVENTS
25
     
8.
REPRESENTATIONS AND WARRANTIES OF SELLERS
25
     
9.
INDEMNITIES
27
     
10.
TAXES
31
     
11.
LIMITATIONS ON WARRANTIES AND INDEMNITIES
32
     
12.
REPRESENTATIONS AND WARRANTIES OF THE ISSUER GROUP
33
     
13.
ADDITIONAL COVENANTS AND AGREEMENTS
34
     
14.
CONDITIONS
34
     
15.
MISCELLANEOUS
40

i
CONTENTS
 
EXHIBIT A SELLERS AND ASSETS
 
SCHEDULE 1 REPRESENTATIONS AND WARRANTIES OF SELLERS
 
SCHEDULE 2 THE ISSUER GROUP REPRESENTATIONS AND WARRANTIES
 
SCHEDULE 3 PARTICULARS OF THE AIRCRAFT
 
SCHEDULE 4 FORM OF BILL OF SALE
 
SCHEDULE 5 RENT TRANSFER AMOUNTS
 
SCHEDULE 6 THE TRANSFERRING COMPANIES
 
SCHEDULE 7 THE TRANSFERRING TRUSTS
 
SCHEDULE 8 THE TRANSFERRING SUBSIDIARIES
 
SCHEDULE 9 UNOWNED AIRCRAFT
 
SCHEDULE 10 FORM OF SHARE TRANSFER
 
SCHEDULE 11 FORM OF ASSIGNMENT OF BENEFICIAL INTEREST
 
ANNEX 1 DISCLOSURE LETTER

ii
THIS AGREEMENT is dated as of July 2, 2019
 
AMONG:
 
(1)
THE SELLERS LISTED ON EXHIBIT A HERETO;
 
(2)
HORIZON AIRCRAFT FINANCE II LIMITED, an exempted company incorporated with limited liability under the laws of the Cayman Islands (the Cayman Issuer); and
 
(3)
HORIZON AIRCRAFT FINANCE II LLC, a Delaware limited liability company (the US Issuer and, together with the Cayman Issuer, the Issuers).
 
RECITALS:
 
A.
The Issuer Group has agreed to acquire from the Sellers, as applicable, the Aircraft Interests or the Aircraft (as hereinafter defined) on the terms and conditions set out in this Agreement, including the provisions contained in Clause 4.
 
B.
Amounts payable by the Issuer Group for the acquisition by way of sale and purchase from the Sellers of the Aircraft Interests and the Aircraft will be financed, directly or indirectly, in whole or in part, through the issue of financial instruments (including the Initial Notes and the E Note).
 
NOW IT IS AGREED as follows:
 
1.
INTERPRETATION
 
1.1
Definitions:
 
In this Agreement unless the context requires otherwise:
 
Action means any claim, action, suit, arbitration, inquiry, proceeding or investigation by or before any Governmental Authority;
 
Affiliate means, with respect to any person, any body corporate which is (a) a subsidiary or a holding company of such person or (b) a subsidiary of any body corporate of which that person is also a subsidiary, except that neither any share trustee nor any special purpose company whose shares are owned by any such share trustee shall be regarded as an Affiliate of any person;
 
Agreed Form means, when used in relation to any draft certificate, document, agreement or opinion referred to in this Agreement, substantially in the form agreed between the applicable Seller and the Issuers (including as was agreed to prior to the Initial Closing Date);
 
Aircraft means the 20 aircraft listed or referred to in Exhibit A and any Substitute Aircraft agreed to by the Issuer Group in accordance with Clause 6 of this Agreement, together with, unless otherwise specified, all Engines, Parts and Aircraft Documents related thereto, unless a Termination Notice has been delivered with respect to such aircraft or this Agreement has been terminated in relation to such aircraft pursuant to Clause 6.3;
 
1
Aircraft Documents means, in respect of any Aircraft, all manuals, log books, technical data and other records and documents relating to such Aircraft which are defined as “Aircraft Documents” (by way of a similar definition) in the relevant Lease;
 
Aircraft Interests means, together, the Beneficial Interests in each Transferring Trust and the Shares of each Transferring Company. For the purposes of this definition, the Aircraft to which an Aircraft Interest relates is the Aircraft, legal title to which (where the Aircraft Interest is a Beneficial Interest) is held by, or which is leased by (or which is to be held by or leased by), the relevant Transferring Trust or a Transferring Subsidiary of that Transferring Trust or (where the Aircraft Interest is comprised of the Shares of any Transferring Company) any Aircraft which is legally and beneficially owned by, or leased by (or which is to be owned by or leased by), that Transferring Company or a Transferring Subsidiary of that Transferring Company;
 
Aircraft Non-Delivery Amount means, with respect to any Remaining Aircraft to which the payment provisions of Clause 4.3 apply, an amount (which may be positive or negative) equal to the sum of:
 

 (i)
an amount (which may be positive or negative) equal to (A) the aggregate amount of all Lease Expenses in respect of such Remaining Aircraft paid by the Issuers pursuant to Clause 5.1 (or, in the case of a Substitute Aircraft, all such Lease Expenses paid by the Issuers in respect of the relevant replaced Remaining Aircraft through the date of substitution and all Lease Expenses paid in respect of the Substitute Aircraft thereafter) less (B) the aggregate of all amounts corresponding to Rental Payments and Maintenance Rent transferred to the Collections Account with respect to such Remaining Aircraft pursuant to Section 3.08(f) of the Indenture; plus
 

 (ii)
an amount equal to (A) the portion of the Outstanding Principal Balance of the Initial Notes to be redeemed in an Acquisition Balance Redemption on the applicable Redemption Date in respect of such Remaining Aircraft in accordance with Section 3.10(b) of the Indenture less (B) the balance on deposit in the sub-account in the Aircraft Acquisition Account in respect of such Remaining Aircraft on such Redemption Date; plus
 

 (iii)
an amount equal to (A) interest at the rate of 4.13% per annum for the period from the Initial Closing Date to such Redemption Date on the Allocable Repayment Amount in respect of such Remaining Aircraft calculated as of the applicable Redemption Date less (B) the sum of (1) any Interest Amount previously paid by or on behalf of the Issuers with respect to the Initial Notes to be redeemed in the Acquisition Balance Redemption on or prior to such Redemption Date and (2) the amount of all Investment Earnings on the amounts on deposit in the sub-account in the Aircraft Acquisition Account relating to such Remaining Aircraft on such Redemption Date; plus
 
2

 (iv)
an amount equal to interest at the rate of 12.00% per annum for the period from the Initial Closing Date to such Redemption Date on the Allocable E Note Amount for such Remaining Aircraft less any amounts distributed to the E Note Account pursuant to Section 3.09 of the Indenture during such period that is allocable to such Remaining Aircraft (such allocation to be based on the Designated Percentage of such Remaining Aircraft);
 
Aircraft Owner means, in respect of any Aircraft, the Person which immediately prior to the Closing of such Aircraft (or the Aircraft Interest which relates to such Aircraft) holds title to such Aircraft;
 
Aircraft Purchase Agreements means the aircraft purchase agreements or equivalent agreements (including assignment agreements in respect of aircraft purchase agreements and any Bills of Sale) relating to the Aircraft together with any other agreements, in each case, entered into by the relevant Seller, Transferring Trusts, Transferring Companies or Transferring Subsidiaries which effects the acquisition of one or more Aircraft by such Seller, Transferring Trusts, Transferring Companies or Transferring Subsidiaries, as applicable;
 
Allocable E Note Account means, for each Remaining Aircraft, the amount set forth on Exhibit A for such Remaining Aircraft under the heading “Allocable E Note Amount”;
 
Base Purchase Price means the “Purchase Price Balance” as defined in the Indenture, and as set forth on Exhibit A;
 
Beneficial Interests means the 100 percent beneficial interests held by the relevant Trustors in the Transferring Trusts and Transferring Trust Estate;
 
Bills of Sale means (i) with respect to each Aircraft that is owned by, or is to be owned by, a Transferring Company, a Transferring Subsidiary or a Transferring Trust, the bills of sale relating to such Aircraft, showing that title to such Aircraft is held by such Transferring Company, Transferring Subsidiary or Transferring Trust, as applicable and (ii) for any Aircraft to be directly transferred from an Aircraft Owner to an Issuer Group Member pursuant to this Agreement, an executed bill of sale from the relevant Aircraft Owner thereof to the relevant Issuer Group Member substantially in the form of Schedule 4 (with such modifications as counsel to any Seller in any delivery location may advise as necessary or desirable) and, as necessary, any FAA bill of sale executed by the relevant Aircraft Owner thereof;
 
Closing means, in relation to any Aircraft or Aircraft Interest, the transfer of the legal and/or beneficial title (as applicable) of that Aircraft or Aircraft Interest to an Issuer or the applicable Issuer Group Member in accordance with Clause 3;
 
Closing Date means, in relation to an Aircraft or Aircraft Interest, the date upon which the Closing of the sale of that Aircraft or Aircraft Interest to an Issuer or applicable Issuer Group Member hereunder takes place;
 
Delivery Expiry Date has the meaning given to such term in Clause 4.1 hereof;
 
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Delivery Notice has the meaning given to such term in Clause 3.1.1(2) hereof;
 
directors and secretary, in relation to a Transferring Company or a Transferring Subsidiary, means the persons described in a Delivery Notice as directors and secretary thereof respectively;
 
Disclosure Letter means the disclosure letter of even date herewith between the applicable Seller(s) and the Issuers (or the applicable Issuer Group Member(s)), a copy of which is annexed hereto as Annex 1, together with any further disclosure letters required under Clause 13.1 in relation to an Aircraft or Aircraft Interest delivered by a Seller to the Issuers or an Issuer Group Member on or before the Closing of the sale of that Aircraft or Aircraft Interest;
 
Dollars or $ or US$ means the lawful currency of the United States of America;
 
Engine means each engine listed or referred to in Schedule 3 or as otherwise identified in a Delivery Notice and, in the case of a Substitute Aircraft, each engine owned by the applicable Aircraft Owner and attached to that Substitute Aircraft or, where any such engine has been replaced under the terms of the relevant Lease, and title to the replacement engine has passed to the relevant Aircraft Owner, such replacement engine, and including any and all Parts incorporated in, installed on or attached to such engine or replacement engine;
 
Event of Loss means, in respect of any Aircraft, an “Event of Loss” or “Total Loss” as such term or similar term is defined under the applicable Lease;
 
Governmental Authority means any governmental, regulatory or administrative authority, agency or commission or any court, tribunal, or judicial or arbitral body;
 
Governmental Order means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority;
 
Guarantor means, with respect to any Guaranty, the provider of such Guaranty as set forth in Exhibit A hereto for each Aircraft;
 
Guaranty means, with respect to each Seller and the obligations of such Seller hereunder, the guaranty in respect of such obligations executed and delivered by the relevant Guarantor on or prior to the Closing Date with respect to each Aircraft hereof in favor of the relevant Issuer Group Member in form and substance reasonably acceptable to such Issuer Group Member;
 
Indenture means the Trust Indenture dated as of the date hereof between the Issuers, UMB Bank, N.A., as trustee and as operating bank, Maples Fiduciary Services (Ireland) Limited, as managing agent, and MUFG Union Bank, N.A., as liquidity facility provider;
 
Initial Aircraft means the Aircraft delivered on the Initial Closing Date, if any;
 
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Initial Aircraft Interests means the Aircraft Interests delivered on the Initial Closing Date, if any;
 
Initial Closing Date Appraised Value is, for an Aircraft, specified in Exhibit A hereto;
 
Investment Earnings means investment earnings on funds on deposit in the Aircraft Acquisition Account (or the applicable Aircraft Acquisition Sub-Account) established pursuant to section 3.01(a) of the Indenture net of losses realized and investment expenses in making such investments;
 
Issuer Encumbrance means any Lien which is created by or results from debts or liabilities or actions or omissions of any Issuer Group Member, including Liens created pursuant to the Related Documents;
 
Issuer Group means the Issuers and each Transferring Trust, each Transferring Company and each Transferring Subsidiary (in each case, once it has been acquired directly or indirectly by an Issuer pursuant to this Agreement) and any other companies or trusts which are, or which on or after the date of this Agreement become, direct or indirect subsidiaries of an Issuer;
 
Issuer Group Member means a member of the Issuer Group;
 
Issuer Indemnified Party has the meaning given to such term in Clause 9.1.2;
 
Issuer Indemnity has the meaning given to such term in Clause 9.1.1;
 
Issuer Warranties means, the warranties and undertakings of the Issuer Group contained in Schedule 2;
 
Law means and includes (a) any statute, decree, constitution, regulation, order, judgment or other directive of any Governmental Authority; (b) any treaty, pact, compact or other agreement to which any Governmental Authority is a signatory or party; (c) any judicial or administrative interpretation or application of any Law described in (a) or (b) above; and (d) any amendment or revision of any Law described in (a), (b) or (c) above;
 
Lease means, (i) for each Aircraft other than a Substitute Aircraft, the aircraft lease agreement (including any sublease) described in the “Lease Documents” section of the table in Schedule 3 to this Agreement which relates to the relevant aircraft and (ii), with respect to a Substitute Aircraft, each aircraft lease agreement, conditional sale agreement, hire purchase agreement or other similar arrangement with respect to such Substitute Aircraft, which is identified in the relevant Delivery Notice and effective on the relevant Closing Date;
 
Lease Documents means, (i) for each Aircraft other than a Substitute Aircraft, the documents described in the “Lease Documents” section of the table in Schedule 3 to this Agreement which relates to the relevant aircraft and is, or is expected to be, effective on the relevant Closing Date and (ii), with respect to a Substitute Aircraft, each lease document with respect to such Substitute Aircraft, which is identified in the relevant Delivery Notice and effective on the relevant Closing Date;
 
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Lease Expenses means, with respect to the Lease relating to a Remaining Aircraft, all costs and expenses relating to the management of such Lease actually incurred by the Sellers (including costs and expenses that would be payable or reimbursable under Section 3.04(b) of the Indenture were they paid or incurred by an Issuer Group Member) from and including the Initial Closing Date to, but excluding, the earlier of (a) the Closing Date on which the Remaining Aircraft or Aircraft Interests of the relevant Remaining Entity to which the Remaining Aircraft relates are transferred to an Issuer or applicable Issuer Group Member and (b) the Non-Delivery Date with respect to such Remaining Aircraft (provided that any such obligations due and owing after such Non-Delivery Date shall be for the sole account of the applicable Seller); provided that, Lease Expenses will be deemed to relate to the period from and including the Initial Closing Date if, and to the extent that, such Lease Expenses become due and owing by the relevant Seller from and after the Initial Closing Date or where the underlying maintenance event occurs on or after the Initial Closing Date; provided further, that, notwithstanding anything herein or any Other Transaction Document to the contrary Lease Expenses shall include certain expenses which the relevant Seller and the Issuers agree in a Disclosure Letter constitute Lease Expenses regardless of when such Lease Expenses became due and owing or when the underlying maintenance event occurred;
 
Lessee means the lessee under a Lease;
 
Lessor means the lessor under a Lease;
 
Liabilities means any and all debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured or determined or determinable, including, without limitation, those arising under any law (including, without limitation, any environmental law), Action or Governmental Order and those arising under any contract, agreement, arrangement, commitment or undertaking;
 
Lien means any security interest, pledge, mortgage, lien (including, without limitation, environmental and Tax liens), charge, encumbrance, adverse claim, preferential arrangement or restriction of any kind, including, in the case of shares or membership interests, without limitation, any restriction on the use, voting, transfer, receipt of income or other exercise of any attributes of ownership of such shares or membership interests;
 
Losses has the meaning given to such term in Clause 9.1;
 
Maintenance Rent means any lease payments (whether called maintenance reserves, additional rent, supplemental rent, utilization rent or any similar term in the applicable Lease) that are in addition to a base rent for an Aircraft (regardless of how such base rent is calculated) payable under a Lease based on usage, including hours or cycles of operation of the airframe, engines, life-limited engine parts, landing gear and/or auxiliary power unit of such Aircraft, provided that, if any Aircraft is a Non-Owned Aircraft, until the earliest to occur of (i) the date such Non-Owned Aircraft is actually acquired by a Seller, a Transferring Company, any Transferring Subsidiary or a Transferring Trust (or any of their respective Affiliates), (ii) the Closing Date for such Aircraft and (iii) the Termination Date for such Aircraft, if applicable, Maintenance Rent shall be deemed to have been paid to the relevant Seller in the amounts and on the dates set forth in the relevant Lease, without regard to whether such amounts were actually so received by or for the benefit of such Seller;
 
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Material Adverse Effect means, in respect of any person, any material adverse effect on the business condition (financial or otherwise), operations, performance or properties of the relevant person or persons and its/their subsidiaries, taken as a whole;
 
Material Damage means, for any Aircraft, damage to such Aircraft in excess of ten percent (10%) of the Initial Closing Date Appraised Value of such Aircraft;
 
Net Cash Flow Amount means, in respect of any substitution of one or more Substitute Aircraft for a Remaining Aircraft as of any date of determination, an amount, which may be a negative number, determined with respect to such Remaining Aircraft and in the aggregate with respect to all Substitute Aircraft that are replacing such Remaining Aircraft in accordance with the following formula:
 
LR – (LE + S)
 
where:
 
LR = aggregate Rental Payments and Maintenance Rent received (or deemed received) in respect of the Remaining Aircraft, or all such Substitute Aircraft, as applicable, from the Initial Closing Date to such date of determination
 
LE = aggregate Lease Expenses paid in respect of the Remaining Aircraft, or all such Substitute Aircraft, as applicable, from the Initial Closing Date to such date of determination, and
 
S = aggregate Servicing Fees (as defined in both Servicing Agreements) paid and accrued but not yet paid in respect of the Remaining Aircraft, or which would have been paid and accrued but not yet paid in respect of the Substitute Aircraft had all such Substitute Aircraft been “Aircraft” from the Initial Closing Date to such date;
 
Non-Delivery Date means the date of occurrence of a Non-Delivery Event;
 
Non-Delivery Event has the meaning given to such term in Clause 7.1 hereof;
 
Non-Owned Aircraft means an Aircraft which, as of the Initial Closing Date and/or the relevant Closing Date, is not owned by a Seller, a Transferring Company, any Transferring Subsidiary or a Transferring Trust;
 
Non-Owned Transferring Trust means a Transferring Trust which, as of the Initial Closing Date and/or the relevant Closing Date, is not owned by a Seller, a Transferring Company, any Transferring Subsidiary or a Transferring Trust;
 
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Notice and Acknowledgments means the lease amendment, acknowledgment and consent agreements in respect of each Lease with a Lessee, in substantially Agreed Form, regarding the assignment by way of security of such Lease by the Lessor and the obligations of the Lessor with respect to such Lease, in each case, pursuant to the Related Documents;
 
Novation Agreements means the novation agreements or assignment, assumption and amendment agreements to which a Lessor and an Issuer Group Member is or will be a party, together with any other agreements entered into by a Lessor and an Issuer Group Member, in each case, for the purpose of novating and/or transferring to such Issuer Group Member the rights, benefits and obligations of the relevant Lessor under the relevant Lease, in each case, in Agreed Form;
 
Other Transaction Documents means the Guarantees, the Bills of Sale referred to in clause (ii) of the definition thereof, the Novation Agreements, the Trust Assignment Agreements, the Notices and Acknowledgments and the Indenture;
 
Part means any part, component, appliance, accessory, instrument or other item of equipment (other than any of the Engines) incorporated in, installed on or attached to any Aircraft or Engine;
 
Permitted Aircraft Type means aircraft (i) of each of the following types: (x) Airbus A320 ceo or A320 neo family aircraft or (y) Boeing 737 NG or 737 MAX family aircraft or (ii) of any sub-variant of the aircraft in the foregoing clause (i) or any improved version of any such aircraft, or of any new technology program established by Airbus or Boeing;
 
Permitted Liens, in respect of any Aircraft, means:
 
 
(a)
any Issuer Encumbrance;
 

 (b)
any “Permitted Lien” (or other similar term) as defined under the relevant Lease (other than liens created by the relevant Lessor);
 

 (c)
any liens created by or through or arising from debt or liabilities or any act or omission of any Lessee, in each case in contravention of the relevant Lease (whether or not such Lease has been terminated) or without the consent of the relevant Lessor;
 

 (d)
any head lease, lease, conditional sale agreement or option permitted under the Leases or purchase options relating to the Aircraft which would constitute a “Permitted Lien” as defined in the Indenture; and
 

 (e)
any lien for Taxes, assessments or government charges which are not yet due or payable or which are being contested in good faith and for which an adequate reserve has been established in accordance with U.S. GAAP;
 
Purchase Price has (i) in the case of a Transferring Company, the meaning given to it in Clause 2.2.1(1), (ii) in the case of a Transferring Trust, has the meaning given to it in Clause 2.2.2(1), and (iii) in the case of a Transferring Title Aircraft, has the meaning given to it in Clause 2.2.3(1);
 
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Relevant Solvency Acts means (i) in respect of a company incorporated in, or having its center of main interests in, Ireland, Sections 508, 509 and 570 of the Companies Act, 2014 and (ii) in respect of a company incorporated or formed outside Ireland, any analogous provisions of applicable laws and/or regulations;
 
Remaining Aircraft means, at any time after the Initial Closing Date, the Aircraft for which the Closing Date has not occurred, including any Substitute Aircraft, but does not include any Aircraft with respect to which the applicable Seller has delivered a Termination Notice or in respect of which this Agreement has been terminated pursuant to Clause 6.3;
 
Remaining Entities means the Remaining Companies and the Remaining Trusts, and Remaining Entity means any of them;
 
Remaining Company means, at any time after the Initial Closing Date, and provided that this Agreement shall not have been terminated pursuant to Clause 6.3, any Transferring Company which:
 
 
(a)
owns, leases or is to acquire or lease any of the Aircraft; or
 

 (b)
owns or is to acquire any Transferring Subsidiary which owns, leases or is to acquire or lease any of the Aircraft,
 
and in respect of which the relevant Aircraft or Shares, as the case may be, at that time have not been (a) transferred to an Issuer Group Member, or (b) the subject of a Termination Notice;
 
Remaining Trust means, at any time after the Initial Closing Date, and provided that this Agreement shall not have been terminated pursuant to Clause 6.3, any Transferring Trust which (i) owns or is to acquire, or leases or is to lease, or (ii) owns or is to acquire any Transferring Subsidiary which owns, leases or is to acquire or lease, any of the Aircraft, and the Beneficial Interests in which at that time have not been (a) transferred to the applicable Issuer; or (b) the subject of a Termination Notice;
 
Rental Payment means, for any Lease, any scheduled rent thereunder, whether denominated as “Basic Rent”, “Rent” or otherwise, including any rent based on hours or cycles of operation of an Aircraft or Engine such as “power-by-the-hour amounts” and any payments for “excess hour or cycle amounts”, whether or not in addition to a base rent, but which does not constitute Maintenance Rent provided that, if any Aircraft is a Non-Owned Aircraft, until the earliest to occur of (i) the date such Non-Owned Aircraft is actually acquired by a Seller, a Transferring Company, any Transferring Subsidiary or a Transferring Trust (or any of their respective Affiliates), (ii) the Closing Date for such Non-Owned Aircraft and (iii) the Termination Date for such Aircraft, Rental Payments shall be deemed to have been paid to the relevant Seller in the amounts and on the dates set forth in Schedule 9 hereto, without regard to whether such amounts were actually so received by or for the benefit of such Seller;
 
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Security Deposit means, in relation to a Lease, such part of any amounts (whether in the form of cash, a letter of credit or otherwise, and whether described as commitment fee or security deposit) paid by the Lessee to the Lessor to secure the obligations of the Lessee to the Lessor under the Lease in respect of which, at the relevant Closing Date, the relevant Lessee would or might have a claim to repayment, including any interest accrued thereon for the benefit of the relevant Lessee pursuant to the terms of the relevant Lease;
 
Security Trust Agreement means the Security Trust Agreement dated on or about the date hereof among the Issuers, UMB Bank, N.A., as security trustee and operating bank and the additional grantors identified therein, as supplemented, amended and otherwise modified from time to time;
 
Security Trustee has the meaning given to such term in the Security Trust Agreement;
 
Sellers means each of the entities specified on Exhibit A, each a Seller;
 
Seller Indemnified Party has the meaning given to such term in Clause 9.1.1;
 
Seller Indemnity has the meaning given to such term in Clause 9.1.2;
 
Servicer means, collectively, BBAM Aviation Services Limited and BBAM US LP;
 
Servicing Agreement means the Servicing Agreement dated on or about the date hereof between, inter alios, the Servicer and the Issuers, as amended from time to time, or any replacement servicing agreement;
 
Shares means in the case of any Transferring Company or any Transferring Subsidiary that is a company, all of the issued and outstanding shares in the capital of such Transferring Company or Transferring Subsidiary, as the case may be, details of which are set out in a Delivery Notice;
 
Solvent means in respect of a company at any date and on the assumption that the transactions contemplated by this Agreement, the Other Transaction Documents and the Related Documents have been completed or will be completed (as the case may be) on the terms and conditions set out therein that such company on such date:
 

 (a)
is not unable to pay its debts as such debts fall due nor would it be deemed to be unable to pay its debts as such debts fall due within the meaning of the Relevant Solvency Acts; and
 

 (b)
would not become unable to pay its debts as such debts fall due nor would be deemed to be unable to pay its debts as such debts fall due within the meaning of the Relevant Solvency Acts; and the word solvency shall be construed accordingly;
 
subsidiary shall be construed in accordance with section 7 of the Irish Companies Act 2014;
 
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Substitute Aircraft means each Aircraft which the Issuers agree to accept in substitution for a Remaining Aircraft in accordance with Clause 6.1;
 
Taxes means any and all present and future sales, use, personal property, customs, ad valorem, value added, turnover, franchise, windfall or other profits, payroll, capital stock, employment, social security, workers’ compensation, unemployment compensation, stamp, transfer, excise, interest equalization, income, gross receipts, limited liability company minimum, limited partnership minimum, corporation, advanced corporation, capital gains, wealth, dividend, deposit interest, import and export, capital or other taxes, fees, withholdings, imposts, duties, deductions, levies, or other charges of any nature, together with any penalties, fines, or interest thereon, imposed, levied, or assessed by, or otherwise payable to, any Governmental Authority;
 
Tax Indemnifying Party has the meaning set forth in Clause 10.3;
 
Termination Date has the meaning given to such term in Clause 6.3;
 
Termination Notice has the meaning given to such term in Clause 6.3;
 
Transferring Companies means the companies identified in Schedule 6 hereto;
 
Transferring Subsidiary means any company or trust owned by, or to be acquired by, a Transferring Company or Transferring Trust identified in Schedule 8 hereto or in any relevant Delivery Notice;
 
Transferring Subsidiary Company means any Transferring Subsidiary which is a company;
 
Transferring Subsidiary Trust means any Transferring Subsidiary which is a trust;
 
Transferring Title Aircraft means the Aircraft identified in lines 1-5, 8-11, 13, 15 and 17-20 of the table set forth in Exhibit A hereto and any Aircraft that becomes a Transferring Title Aircraft pursuant to Clause 15.5;
 
Transferring Trust Estate has, in respect of a Transferring Trust, the meaning given to it in the relevant Trust Agreement;
 
Transferring Trusts means the trusts identified in Schedule 7 hereto;
 
Trust Agreement means, in respect of any Transferring Trust, the trust agreement or similar document constituting such trust;
 
Trust Assignment Agreements means the trust assignment and assumption agreements to which any Trustor will be a party, together with any other agreements entered into by any Trustor, in each case, for the purpose of transferring to any Issuer Group Member the rights, benefits and obligations of the owner participants in the Transferring Trusts, in each case, in the Agreed Form;
 
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Trustor means, in respect of any Transferring Trust, the Person which immediately prior to the Closing in respect of such Transferring Trust owns the Beneficial Interests in such Transferring Trust;

VAT means value added Tax and any goods and services, sales or turnover Tax, consumption Tax (including for the avoidance of doubt, Japanese consumption Tax) or charges of a similar kind; and
 
Warranties means the warranties and undertakings of the Sellers contained in Schedule 1.
 
1.2
Computation of Time Periods:
 
In this Agreement, in the computation of periods of time from a specified date to a later specified date, the word from means from and including and the words to and until each mean to but excluding.
 
1.3
Statutes:
 
Any reference in this Agreement and/or in the Schedules hereto to any statute or statutory provision shall be deemed to include any statute or statutory provision which amends, extends, consolidates or replaces the same, or which has been amended, extended, consolidated or replaced by the same and shall include any orders, regulations, instruments or other subordinate legislation made under the relevant statute.
 
1.4
Number, Persons:
 
Unless the context otherwise requires, words importing the singular number shall include the plural number and vice versa and words importing persons shall include corporations.
 
1.5
Indenture Definitions:
 
Capitalized terms used in this Agreement and not otherwise defined herein have the meanings specified in the Indenture.
 
1.6
Internal References:
 

 (1)
Words such as hereunder, hereto, hereof and herein and other words commencing with here shall unless the context clearly indicates the contrary refer to the whole of this Agreement and not to any particular Clause, sub Clause, paragraph or sub paragraph hereof.
 

 (2)
References to this Agreement include the schedules, annexes and exhibits hereto and the Disclosure Letter and any amendments made in accordance with Clause 15.5.
 

 (3)
Any reference to any Clause, sub Clause, paragraph or sub paragraph shall be a reference to the Clause, sub Clause, paragraph or sub paragraph of this Agreement in which the reference occurs unless it is indicated that reference to some other provision is intended.
 
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 (4)
All references to Schedules, Exhibits and Annexes refer to Schedules, Exhibits and Annexes to this Agreement.
 
1.7
Headings:
 
The headings contained in this Agreement and the Schedules are inserted for convenience of reference only and shall not in any way form part of nor affect or be taken into account in the construction or interpretation of any provisions of this Agreement or the Schedules.
 
2.
PURCHASE AND SALE
 
2.1
Purchase and Sale:
 
Upon the terms and subject to the conditions of this Agreement, the applicable Seller (in the case of the transfer of any Transferring Title Aircraft, as legal and beneficial owner (or, in the case of any Transferring Title Aircraft which is a Non-Owned Aircraft, as the Person which, upon valid tender by the relevant Aircraft Owner pursuant to the terms of the relevant Aircraft Purchase Agreement, has the right to take title (or nominate another Person to take title) to such Aircraft), in the case of any Shares in any Transferring Company, as legal and beneficial owner and as registered shareholder, and in the case of any Beneficial Interest in any Transferring Trust, as beneficial owner (or, in the case of any Transferring Trust which is a Non-Owned Transferring Trust, as the Person which, upon valid tender by the relevant Trustor pursuant to the terms of the relevant purchase agreement between such Seller and such Trustor, has the right to acquire the beneficial ownership of (or nominate another Person to acquire the beneficial ownership of) such Transferring Trust), as the case may be) shall sell (or cause to be sold), and the applicable Issuer or the applicable Issuer Group Member shall purchase, in each case, in exchange for the applicable Purchase Price set forth herein:
 

 2.1.1
title to the Transferring Title Aircraft;
 

 2.1.2
the Shares in the Transferring Companies; and/or
 

 2.1.3
the Beneficial Interests in the Transferring Trusts.
 
2.2
Purchase Price and Other Payments
 
Where the Aircraft Interest being transferred comprises of Shares in a Transferring Company
 
2.2.1
 

 (1)
The consideration for the Shares in each Transferring Company to be transferred on the applicable Closing Date shall be calculated based on the aggregate Base Purchase Price of the Aircraft owned by such Transferring Company or, if applicable, a Transferring Subsidiary of such Transferring Company (including for the avoidance of doubt, any Aircraft the Beneficial Interest in which is held by such Transferring Company or a Transferring Subsidiary of such Transferring Company), on such Closing Date less:
 
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 (a)
the amount equivalent to Rental Payments (if any) paid prior to such Closing Date pursuant to the Lease of the Aircraft owned by such Transferring Company (or where applicable, a Transferring Subsidiary of such Transferring Company) which relates to the period on and after the Initial Closing Date;
 

 (b)
the amount equivalent to Maintenance Rent (if any) paid prior to such Closing Date pursuant to the Lease of the Aircraft owned by such Transferring Company (or where applicable, a Transferring Subsidiary of such Transferring Company) which relates to the period on and after the Initial Closing Date; and
 

 (c)
any deduction required under Clause 6.2 in respect of the relevant Aircraft;
 
such amount being the Purchase Price for such Transferring Company and shall be settled only in the manner set out in Clause 2.2.1(2) hereof.
 

 (2)
The obligation of the Issuers or the applicable Issuer Group Member to pay the Purchase Price shall be satisfied and discharged by the payment to or at the direction of the applicable Seller of the Purchase Price for such Transferring Company in accordance with Clause 4.2.
 
All amounts payable under this Clause 2.2.1 shall be paid on the relevant Closing Date. Any intra-company receivables referenced on the balance sheet of the applicable Seller in respect of such Transferring Company shall be paid in full on or immediately prior to the relevant Closing Date.
 
Where the Aircraft Interest being transferred is a Beneficial Interest
 
2.2.2
 

 (1)
The consideration for the Beneficial Interests to be transferred on the applicable Closing Date shall be calculated based on the aggregate Base Purchase Price of the Aircraft owned by the relevant Transferring Trust (or any Transferring Subsidiary of that Transferring Trust) on such Closing Date less:
 

 (a)
the amount equivalent to Rental Payments (if any) paid prior to such Closing Date pursuant to the Lease of the Aircraft owned by such Transferring Trust (or any Transferring Subsidiary of that Transferring Trust) which relates to the period on and after the Initial Closing Date;
 
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 (b)
the amount equivalent to Maintenance Rent (if any) paid prior to such Closing Date pursuant to the Lease of the Aircraft owned by such Transferring Trust (or any Transferring Subsidiary of that Transferring Trust) which relates to the period on and after the Initial Closing Date;
 

 (c)
any deduction required under Clause 6.2 in respect of the relevant Aircraft;
 
(such amount being the Purchase Price for such Beneficial Interest) and shall be settled only in the manner set out in Clause 2.2.2(2).
 

 (2)
The obligation of the applicable Issuer or the applicable Issuer Group Member to pay the Purchase Price for a Transferring Trust on the Closing Date shall be satisfied and discharged by the payment to or at the direction of the applicable Seller of the Purchase Price for such Transferring Trust, in each case in accordance with Clause 4.2.
 
All amounts payable under this Clause 2.2.2 shall be paid on the relevant Closing Date.
 
Where title to an Aircraft is being transferred
 
2.2.3
 

 (1)
The consideration for the Transferring Title Aircraft to be transferred on the applicable Closing Date shall be calculated based on the aggregate Base Purchase Price of the Transferring Title Aircraft on such Closing Date less:
 

 (a)
the amount equivalent to Rental Payments (if any) paid prior to such Closing Date pursuant to the Lease of the Transferring Title Aircraft which relates to the period on and after the Initial Closing Date;
 

 (b)
the amount equivalent to Maintenance Rent (if any) paid prior to such Closing Date pursuant to the Lease of the Transferring Title Aircraft which relates to the period on and after the Initial Closing Date;
 

 (c)
any deduction required under Clause 6.2 in respect of the relevant Transferring Title Aircraft;
 
(such amount being the Purchase Price for such Transferring Title Aircraft) and shall be settled only in the manner set out in Clause 2.2.3(3) hereof.
 

 (2)
The obligation of the applicable Issuer or the applicable Issuer Group Member to pay the Purchase Price for a Transferring Title Aircraft on the Closing Date shall be satisfied and discharged by the payment to or at the direction of the applicable Seller of the Purchase Price for such Transferring Title Aircraft, in each case in accordance with Clause 4.2.
 
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 (3)
The applicable Issuer shall have received a written confirmation of the applicable Servicer, with respect to the insurances maintained in respect of the Transferring Title Aircraft.
 
All amounts payable under this Clause 2.2.3 shall be paid on the relevant Closing Date.
 

 2.2.4
Schedule 5 sets forth the amount of Rental Payments and Maintenance Rent (if any) received by (or deemed received by) a Seller on or prior to the Initial Closing Date in respect of each Aircraft (set out on an Aircraft-by-Aircraft basis), in each case, which relates to any period on and after the Initial Closing Date. On the Initial Closing Date, pursuant to the Funds Flow, the Managing Agent shall transfer from the Aircraft Acquisition Account to the applicable Collections Account (or retain in the applicable Collections Account in accordance with the Funds Flow) an amount equal to the aggregate amounts set forth on such Schedule 5. Within five Business Days after each Determination Date on or prior to the end of the Delivery Period, each Seller shall (or shall cause the Servicer to) deliver a certificate (which may be included in the monthly report delivered to the Issuers pursuant to Section 9.01 of Schedule 2.02(a) of the Servicing Agreement (the Monthly Services Report) in lieu of a separate certificate) to the applicable Issuer and the Managing Agent with respect to each Aircraft for which a Closing Date (or Non-Delivery Date) has, at the time of such Determination Date, not yet occurred, certifying (on an Aircraft-by-Aircraft basis) the amount of Rental Payments and Maintenance Rent (if any) received by (or deemed received by) a Seller on or prior to such Determination Date pursuant to the Lease of each such Aircraft (other than any amount that was previously set forth on Schedule 5 or in a certificate (or Monthly Services Report) previously delivered pursuant to this Clause 2.2.4). After receipt of each such certificate, the Managing Agent shall, pursuant to Section 3.08(f) of the Indenture, transfer from the relevant sub-accounts in the Aircraft Acquisition Account for such Aircraft to the applicable Collections Account (or in the case of any such amount constituting Segregated Funds, the Lessee-Funded Account) an amount equal to the amount set forth therein.
 
2.2.5
 

 (1)
If at any time following the transfer of an Aircraft or Aircraft Interest to an Issuer or the applicable Issuer Group Member, a Seller receives any Rent Payment or any Maintenance Rent in respect of such Aircraft or the Aircraft Interests to which such Aircraft relates, it shall, to the extent that such payments relate to any period commencing on or after the Initial Closing Date, promptly pay such amounts to the Issuer Group.
 
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 (2)
If at any time following the transfer of an Aircraft or Aircraft Interest to an Issuer or the applicable Issuer Group Member, an Issuer Group Member receives any Rent Payment, any Maintenance Rent or any other amount in respect of such Aircraft or the Aircraft Interests to which such Aircraft relates (including, without limitation, any such amount which an Issuer or the applicable Issuer Group Member may have received as a result of (i) any cash or equity held by Transferring Company or Transferring Trust as of the relevant Closing Date being transferred with such Transferring Company or Transferring Trust on such Closing Date and/or (ii) certain funds and/or bank accounts held by a Transferring Company or Transferring Trust as of the relevant Closing Date remaining with such Transferring Company or Transferring Trust following the relevant Closing), it shall, to the extent that such amounts relate to any period prior to the Initial Closing Date, promptly pay such amounts to the applicable Seller.
 
2.3
No Liens
 

 2.3.1
The Shares in each Transferring Company shall be sold free from all Liens (other than Permitted Liens) and with the benefit of all rights attached or accruing thereto.
 

 2.3.2
The Beneficial Interests in each Transferring Trust shall be sold free from all Liens (other than Permitted Liens) and with the benefit of all rights attached or accruing thereto.
 

 2.3.3
Each Transferring Title Aircraft shall be sold free from all Liens (other than Permitted Liens) and with the benefit of all rights attached or accruing thereto.
 
3.
CLOSING
 
Where the Aircraft Interest being transferred is comprised of Shares in a Transferring Company
 
3.1
Closing of the sale and purchase of the Shares in each Remaining Company shall take place on each Closing Date on or by which the conditions specified in this Clause 3.1 and in Clause 14 are or have been satisfied (or waived) in relation to that Remaining Company. On the Initial Closing Date, the Initial Aircraft and Initial Aircraft Interests shall be tendered by the applicable Seller to an Issuer for delivery hereunder by the sale of the relevant Aircraft and Aircraft Interests. Closing of the sale and purchase of the Shares in each Transferring Company to be delivered on the Initial Closing Date shall be subject to the conditions in Clause 14 and to the following conditions in relation to that Transferring Company:
 

 3.1.1
such Seller shall deliver to the applicable Issuer Group Member the following insofar as they relate either to the sale and purchase of the Shares in that Transferring Company:
 
(1)
 

 (a)
a duly executed transfer instrument (in substantially the form appended at Schedule 10 or such other form as may be agreed between such Seller and the applicable Issuer Group Member) in favor of such Issuer or the applicable Issuer Group Member in respect of all the Shares in that Transferring Company together with all existing share certificates issued in respect of such Transferring Company, or in the case of any lost share certificate an indemnity in lieu thereof in terms reasonably satisfactory to such Issuer;
 
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 (b)
a duly certified copy of the Register of Members of such Transferring Company, showing such Issuer or the applicable Issuer Group Member as the sole holder of the Shares of such Transferring Company;
 

 (c)
a duly certified copy of the Register of Members of any relevant Transferring Subsidiary Company, showing the relevant Transferring Company as the sole holder of the Shares of such Transferring Subsidiary Company; and
 

 (d)
a copy of the trust agreement in respect of any relevant Transferring Subsidiary Trust, showing that the relevant Transferring Company is the sole beneficiary of such Transferring Subsidiary Trust;
 

 (2)
written notification by such Seller to the Issuers (with a copy to the Managing Agent) in respect of the Aircraft, if any, owned or leased by the relevant Transferring Company (or, where relevant, any Transferring Subsidiary of such Transferring Company), which shall be delivered no less than one Business Day prior to the relevant Closing Date (the Delivery Notice) and shall contain the information described in Warranty 8.1 in Part 1 of Schedule 1 hereto with respect to such Aircraft;
 

 (3)
a copy of any power of attorney under which any document required to be delivered to the applicable Issuer Group Member under this Clause has been executed and such other documents including any waivers or consents as the applicable Issuer Group Member may require to enable such Issuer Group Member to be registered as holders of the Shares of the relevant Transferring Company;
 

 (4)
the copies of the certificate of incorporation or formation or registration and certificates of incorporation or formation or registration on change of name and the seals, statutory books (duly written up to date), books of account, and all other constitutional documents, books, documents or records and papers of the relevant Transferring Company or evidence satisfactory to the applicable Issuer Group Member that they are held by or to the order of the relevant Transferring Company;
 

 (5)
the written resignations of the directors and the other officers (if any) from their respective offices in the Transferring Company, with written acknowledgments from each of them in a form reasonably acceptable to the applicable Issuer Group Member;
 
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 (6)
resolutions of the members of the Transferring Company to change the Constitution (or equivalent constitutional and organizational documents) of such Transferring Company, each of the said Constitution (or equivalent constitutional and organizational documents) to conform with those as agreed with the applicable Issuer;
 

 (7)
insofar as not already provided to the applicable Issuer Group Member, a copy of each Lease (and, where applicable, head lease and intermediate lease) to which the relevant Transferring Company (and, where relevant, any Transferring Subsidiary of such Transferring Company) is party (or to which such Transferring Company or Transferring Subsidiary, as the case may be, will become party on such Closing) which, in each case, shall be in compliance with the requirements of the Indenture; and
 

 (8)
insofar as not already provided to the applicable Issuer Group Member, a copy of delivery acknowledgments or Bills of Sale in the possession of the relevant Seller evidencing the title of the relevant Aircraft.
 
Where the Aircraft Interest being transferred is a Beneficial Interest in a Transferring Trust
 
3.2
Closing of the sale and purchase of the Beneficial Interest in each Remaining Trust shall take place on each Closing Date on or by which the conditions specified in this Clause 3.2 and in Clause 14 are or have been satisfied in relation to that Remaining Trust. Closing of the sale and purchase of each Transferring Trust to be delivered on the Initial Closing Date shall be subject to the conditions in Clause 14 and to the following conditions in relation to that Transferring Trust:
 

 3.2.1
the applicable Seller shall deliver to the applicable Issuer Group Member the following insofar as they relate either to the sale and purchase of the Beneficial Interest in that Transferring Trust:
 

 (1)
with respect to each Transferring Trust, a Trust Assignment Agreement (in the form appended at Schedule 11 in respect of the Irish Transferring Trusts) in respect of the relevant Beneficial Interest, duly executed by the relevant Trustor, the relevant Issuer Group Member and, if applicable, the owner trustee of such Transferring Trust;
 

 (2)
a copy of the relevant Trust Agreement;
 

 (3)
a duly certified copy of the Register of Members of any relevant Transferring Subsidiary Company, showing the relevant Transferring Trust as the sole holder of the Shares of such Transferring Subsidiary Company;
 
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 (4)
a copy of the trust agreement in respect of any relevant Transferring Subsidiary Trust, showing that the relevant Transferring Trust is the sole beneficiary of such Transferring Subsidiary Trust;
 

 (5)
with respect to each Transferring Trust, a Delivery Notice by such Seller to the Issuers (with a copy to the Managing Agent) in respect of the Aircraft owned by the Transferring Trust (or any Transferring Subsidiary of that Transferring Trust) to be transferred which shall be delivered no less than one Business Day prior to the relevant Closing Date and shall contain the information described in Warranty 8.1 in Part 1 of Schedule 1 hereto with respect to such Transferring Trust, any relevant Transferring Subsidiary and the relevant Aircraft;
 

 (6)
a certificate of a duly authorized officer of the owner trustee of the Transferring Trust attaching copies of the constitutive documents of such owner trustee and certifying the signatures of each of the directors or other officers of such owner trustee authorized to sign the Other Transaction Documents to which it is a party;
 

 (7)
insofar as not already provided to the applicable Issuer or applicable Issuer Group Member, a copy of each Lease (and, where applicable, head lease and intermediate lease) to which the relevant Transferring Trust (and any Transferring Subsidiary of that Transferring Trust) is party (or to which such Transferring Trust (or any Transferring Subsidiary of that Transferring Trust) will become party on such Closing) which, in each case, shall be in compliance with the requirements of the Indenture; and
 

 (8)
insofar as not already provided to the applicable Issuer Group Member, a copy of delivery acknowledgments or Bills of Sale in the possession of the relevant Seller evidencing the title of the relevant Aircraft.
 
Where title to an Aircraft is being transferred
 
3.3
Closing of the sale and purchase of a Transferring Title Aircraft shall take place on each Closing Date on or by which the conditions specified in this Clause 3.3 and in Clause 14 are or have been satisfied. Closing of the sale and purchase of the Transferring Title Aircraft to be delivered on the Initial Closing Date shall be subject to the conditions in Clause 14 and to the following conditions:
 

 3.3.1
the applicable Seller shall deliver to the applicable Issuer Group Member the following insofar as they relate to the sale and purchase of the relevant Transferring Title Aircraft:
 

 (1)
a copy of the relevant Bill of Sale transferring title to the relevant Transferring Title Aircraft from the relevant Aircraft Owner to the relevant Issuer Group Member duly executed by the relevant Aircraft Owner in a form reasonably satisfactory to the applicable Issuer Group Member, and, insofar as not already provided to the applicable Issuer Group Member, copies of bills of sale in the possession of the relevant Seller for such Transferring Title Aircraft (including each applicable Engine) showing the chain of title from the relevant manufacturer;
 
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 (2)
copies of the assignments of warranty in relation to the relevant airframe and engines referred to in Clause 13.2 duly consented to by the relevant manufacturer, but only to the extent unexpired assignable warranties from the airframe and engine manufacturers having material value exist with respect to the applicable Transferring Title Aircraft (provided that any such consents may be obtained within 90 days after such Closing Date);
 

 (3)
the conditions precedent to the effectiveness of the Novation Agreement, as applicable, for the applicable Transferring Title Aircraft which are expressed to be for the benefit of the relevant Issuer Group Member shall have been satisfied in all material respects (or waived by the relevant Issuer Group Member);
 

 (4)
a copy of a Delivery Notice by such Seller to the Issuers (with a copy to the Managing Agent) in respect of the relevant Transferring Title Aircraft to be transferred, which shall be delivered no less than one Business Day prior to the relevant Closing Date and shall contain the information described in Warranty 8.1 in Part 1 of Schedule 1 hereto with respect to such Transferring Title Aircraft; and
 

 (5)
insofar as not already provided to the applicable Issuer Group Member, a copy of each Lease (and, where applicable, head lease and/or sublease) relating to such Transferring Title Aircraft, together with all amendments thereto, which, in each case, shall be in compliance with the requirements of the Indenture.
 
4.
RELIANCE; PAYMENTS
 
4.1
The applicable Seller acknowledges and agrees with the Issuers that the applicable Issuer Group Member has relied on such Seller’s representations and agreements set forth in Clause 8 that it will use its reasonable commercial efforts to meet all conditions precedent to the transfer of the Remaining Aircraft or the Transferring Companies and Transferring Trusts with respect to such Remaining Aircraft to the applicable Issuer Group Member prior to two hundred and seventy (270) days after the Initial Closing Date (or, for no more than five (5) of the Remaining Aircraft, three hundred and sixty five (365) days after the Initial Closing Date) (the Delivery Expiry Date), and that the Issuers have obtained financing for the purpose of purchasing all of the Remaining Aircraft or the Remaining Entities with the Remaining Aircraft.
 
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4.2
Following the Initial Closing Date, at any time and from time to time, until the full amount of the Purchase Price in respect of all Aircraft has been paid, subject to receipt by the Issuers (with a copy to the Managing Agent) of a Delivery Notice specifying a date and time for payment (which shall be a Business Day and a time during normal banking hours in New York City) from or on behalf of the applicable Sellers at least one (1) Business Day prior to the proposed date of payment and the satisfaction of the other relevant conditions precedent to Closing set out in this Agreement, the Issuers shall, on such proposed payment date, for the account of the relevant Issuer Group Member, pay to the applicable Seller thereof the Purchase Price for each Aircraft and/or Aircraft Interest listed in the applicable notice as being sold by such Seller.
 
4.3
With respect to each Remaining Aircraft, upon the occurrence of the Non-Delivery Date with respect to such Remaining Aircraft, the relevant Seller shall pay to the Issuers, for the account of the relevant Issuer Group Member, the Aircraft Non-Delivery Amount (if a positive number) for such Remaining Aircraft on such date.
 
4.4
Except as otherwise provided in this Agreement, neither the applicable Seller nor the Issuers nor the applicable Issuer Group Member shall have any obligation to make any payments with respect to an Aircraft to the extent such payments relate to any period following the earlier of the Closing Date of the sale of the Aircraft or the Aircraft Interest relating to such Aircraft and the Non-Delivery Date for such Aircraft or Aircraft Interest.
 
5.
ADDITIONAL OBLIGATIONS WITH RESPECT TO REMAINING AIRCRAFT
 
5.1
Notwithstanding that the Issuers do not own the Remaining Aircraft, the Issuers (acting jointly and severally) shall pay all Lease Expenses incurred and relating to events that occurred after the Initial Closing Date with respect to each Remaining Aircraft as notified by the Sellers. All Lease Expenses described in this Section shall be paid as “Expenses” or “Maintenance and Modification Expenses” or directly from the Maintenance Reserve Account to the extent permitted under Section 3.04(b) of the Indenture (as applicable) in respect of the relevant Remaining Aircraft in accordance with the terms of the Indenture.
 
5.2
Each Seller agrees to transfer each Remaining Aircraft, Remaining Trust and Remaining Company and to notify the Issuers immediately if such Seller reasonably believes that it will have to deliver a Termination Notice with respect to any Remaining Aircraft, Remaining Trust or Remaining Company or proposed delivery of a Substitute Aircraft.
 
5.3
No Seller will be responsible for legal fees and expenses of the E Note Holder (or any Equity Certificate Investor) incurred in connection with the transactions contemplated by this Agreement; provided that, the applicable Seller shall pay for all costs and expenses of the parties as specified below herein incurred in connection with the acquisition of the Aircraft and the Aircraft Interests pursuant hereto: (i) all costs and expenses of such Seller, the Issuers and any relevant Issuer Group Member for the purpose of purchasing such Aircraft or Aircraft Interest, exclusive of any amounts payable in respect of the shares, equity or other capital of such Issuer Group Member, (ii) reasonable legal fees of such Seller, such Issuer Group Member, the Security Trustee and the Initial Purchasers incurred in connection with the drafting, negotiating and delivering, as applicable, any relevant Trust Assignment, Novation Agreement, Notice and Acknowledgement and other conditions precedent to the occurrence of the relevant Closing hereunder, and any other related documentation and advice and for the legal fees and other costs and expenses of the relevant Lessee that are payable or reimbursable to the relevant Lessee under the applicable Lease in connection therewith, (iii) its own legal fees (including those of its local counsel) and the costs of any required filings or registrations incurred in connection with the applicable transfer of an Aircraft or Aircraft Interest, (iv) its own legal fees (including those of their local counsel) and the costs and expenses of all filings and registrations (including with respect to the relevant Aircraft or Lease ownership and security interests under the Uniform Commercial Code or under the Cape Town Convention) and any other security interest relating to the relevant Aircraft or Aircraft Interest or related Lease and other collateral granted under the Security Trust Agreement in connection with the relevant Closing, and any costs and expenses incurred in connection with obtaining each legal opinion required to be delivered in connection with the relevant Closing and (v) the fees of each Appraiser charged in connection with obtaining each appraisal required to be delivered hereunder in respect of the relevant Aircraft.

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6.
SUBSTITUTION AND TERMINATION
 
6.1
Substitution:
 
The applicable Issuer may in its sole discretion pursuant to a unanimous board resolution accept one or more Substitute Aircraft proposed by a Seller in lieu of one or more Remaining Aircraft provided that:
 

 6.1.1
such Substitute Aircraft is subject to a Lease having aggregate Rental Payments for the remaining term of such Lease (aggregated across the Leases in respect of each Substitute Aircraft replacing such Remaining Aircraft) with a present value that is no less than 90% of the present value of the aggregate Rental Payments for the remaining term of the Lease for the Remaining Aircraft subject to substitution (aggregated across such Leases) (with an applied discount rate of 2% for purposes of both such present value calculations);
 

 6.1.2
the average age of each such Substitute Aircraft is not greater than the average age of the Remaining Aircraft subject to substitution, plus twelve (12) months;
 

 6.1.3
the aggregate Base Purchase Price of the Substitute Aircraft replacing a Remaining Aircraft subject to substitution is equal to or less than the Base Purchase Price for the Remaining Aircraft subject to substitution unless an amount equal to the excess has been funded to the Aircraft Acquisition Account using the proceeds of Additional Advances, and shall otherwise be mutually acceptable to the applicable Seller and the Issuers;
 

 6.1.4
each Substitute Aircraft is, at the time of the substitution thereof, subject to a Lease containing the Core Lease Provisions;
 

 6.1.5
the weighted average remaining term of each Lease of each Substitute Aircraft is, at the time of substitution thereof, greater than or equal to the weighted average remaining term of the Lease of the Remaining Aircraft subject to substitution;
 

 6.1.6
the addition of such Substitute Aircraft shall not result in a breach of the Concentration Limits;
 
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 6.1.7
not more than five (5) Remaining Aircraft may be replaced for Substitute Aircraft;
 

 6.1.8
prior written notice of such Substitute Aircraft shall be provided to the Rating Agencies; and
 

 6.1.9
such Substitute Aircraft must be of a Permitted Aircraft Type.
 
6.2
Effect of Substitution
 
On agreement by the applicable Issuer to accept one or more aircraft as Substitute Aircraft for one or more Remaining Aircraft, the applicable Seller and the Issuers will execute a supplement to this Agreement (the “Substitute Aircraft Supplement”) containing a supplement to Schedule 3 with information concerning the relevant Substitute Aircraft in the form of the other tables set forth in Schedule 3, containing such other information as is required by this Clause 6.2 and addressing such other matters as the Issuers and such Seller may agree. Each Substitute Aircraft Supplement shall contain a certification in reasonable detail by such Seller of the Net Cash Flow Amount in respect of the relevant Remaining Aircraft and in respect of the related Substitute Aircraft, in each case as of the date of such Substitute Aircraft Supplement. If the aggregate Net Cash Flow Amount for each relevant Substitute Aircraft is greater than such amount for the relevant Remaining Aircraft on such date, an amount equal to the difference shall be deducted from the Purchase Price payable to the applicable Seller in respect of the Substitute Aircraft on the Closing Date in respect thereof (with such amount being applied to the Purchase Price for the first such Substitute Aircraft to be delivered hereunder and thereafter to each other Substitute Aircraft until applied in full). If the Net Cash Flow Amount for such Remaining Aircraft is greater than such aggregate amount for each such Substitute Aircraft on such date, the Issuers shall pay an amount equal to the difference to the Seller as an “Expense” (as defined in the Indenture) on the earlier of (x) the Payment Date relating to the next following Determination Date and (y) the first Closing Date for any such Substitute Aircraft. Upon delivery of a Substitute Aircraft Supplement, (A) each applicable Substitute Aircraft shall become an Aircraft and a Remaining Aircraft for all purposes of this Agreement and any company or trust that is identified in the Substitute Aircraft Supplement as transferring together with such Substitute Aircraft shall become an Aircraft Interest for all purposes of this Agreement and (B) the Remaining Aircraft that has been subjected to substitution shall cease to be an Aircraft or a Remaining Aircraft for purposes of this Agreement and any related company or trust shall cease to be an Aircraft Interest for purposes of this Agreement.
 
6.3
Termination:
 
If a Seller determines with respect to any Aircraft or Aircraft Interest that, using its reasonable commercial efforts, it will not be able to meet the conditions set forth in Clause 14 hereto with respect to the transfer of such Aircraft or Aircraft Interest and will not be able to provide a Substitute Aircraft acceptable to the Issuers, such Seller may (subject to first consulting with the Issuers) give written notice to the Issuers to that effect (each such notice a Termination Notice), specifying the Aircraft or Aircraft Interest to which such Termination Notice applies and the reasons for its inability to meet such conditions. Upon the delivery of such Termination Notice, the obligations of such Seller to transfer such Aircraft or to sell that Aircraft Interest to the applicable Issuer (or an Issuer Group Member, as the case may be) shall terminate (the date of such termination the Termination Date in respect of such Aircraft or Aircraft Interest) and no party shall have any liability to any other party, whether under this Agreement or any Other Transaction Document, in relation to such Aircraft or Aircraft Interest except to the extent of any obligation accruing prior to such date and except as provided in Clauses 4, 5, 7 and 9.
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7.
NON-DELIVERY EVENTS
 
7.1
Definition:
 
A Non-Delivery Event shall occur:
 

 7.1.1
with respect to a particular Aircraft or Aircraft Interest, upon delivery of a Termination Notice, or upon termination of this Agreement pursuant to Clause 6.3, in each case with respect to such Aircraft or Aircraft Interest;
 

 7.1.2
with respect to all Aircraft or Aircraft Interests with respect to which the Closing Date has not yet occurred at such time, upon the earlier to occur of:
 

 (1)
the applicable Seller becoming or being declared insolvent, or an examiner or receiver or liquidator or similar officer being appointed over such Seller or over all or a substantial part of its assets, or such Seller making an arrangement for the benefit of its creditors generally or such Seller taking steps (or steps being taken and not discharged within 21 days) for the winding up or dissolution of such Seller or for the appointment of an examiner to it;
 

 (2)
an Event of Default has occurred under the Indenture; and
 

 (3)
the Delivery Expiry Date.
 
7.2
Effect of Non-Delivery Event:
 
This Agreement shall terminate automatically upon the occurrence of a Non-Delivery Event described in Clauses 7.1.1, 7.1.2(1) and 7.1.2(3) and upon written notice by the Issuers after Non-Delivery Event described in Clause 7.1.2(2). Upon such termination, the applicable Seller shall make all payments required by Clause 4 and such Seller and the Issuers shall have no further obligations hereunder except to the extent of any obligation accruing prior to such date and except as provided in Clause 9.
 
8.
REPRESENTATIONS AND WARRANTIES OF SELLERS
 
8.1
Subject to Clause 8.2, each relevant Seller hereby represents and warrants with respect to such Seller and the relevant Aircraft or Aircraft Interest being transferred by such Seller in the terms of Schedule 1.
 
25
8.2
Each relevant Seller hereby warrants and represents to the applicable Issuer and the applicable Issuer Group Member that, save as disclosed in the Disclosure Letter (as updated and supplemented from time to time pursuant to Clause 13.1):
 

 8.2.1
each of the Warranties is true, correct and not misleading in all material respects on the Initial Closing Date with respect to the facts and circumstances existing at such time (and to the extent only that such Warranties relate to the relevant Seller and any Aircraft, Transferring Company (including, where relevant, any Transferring Subsidiary of such Transferring Company) and/or Transferring Trust (including, where relevant, any Transferring Subsidiary of that Transferring Trust), the Aircraft Interests which are being transferred on the Initial Closing Date by such Seller); and
 

 8.2.2
each of the Warranties is true, correct and not misleading in all material respects on each Closing Date with respect to the facts and circumstances existing at such time (and to the extent only that such Warranties relate to the relevant Seller and any Aircraft, Transferring Company (including, where relevant, any Transferring Subsidiary of such Transferring Company) and/or Transferring Trust (including, where relevant, any Transferring Subsidiary of such Transferring Trust) or the Aircraft Interests which are being transferred on such Closing Date by such Seller).
 
Each Seller acknowledges that the Issuers have entered into this Agreement and the Related Documents to which it is a party and the Other Transaction Documents to which it is a party in reliance upon (inter alia) the accuracy of each of the Warranties.
 
8.3
Separate and Independent:
 
Each of the Warranties shall be construed as a separate and independent representation and warranty and shall not be limited or restricted by reference to the terms of any other provision of this Agreement or any other Warranty.
 
8.4
Notice and Remedy for Breach:
 

 8.4.1
At any time after the Closing of any Aircraft or Aircraft Interest, upon becoming aware of any breach of Warranty, the relevant Seller shall notify the Issuers or the Issuers shall be entitled to deliver to such Seller a notice specifying the Warranty or Warranties which is or are untrue or incorrect by reference to the facts and circumstances subsisting at the relevant Closing Date with details of such facts or circumstances (a Breach Notice).
 

 8.4.2
The relevant Seller shall, on receipt or delivery by such Seller or applicable Issuer of a Breach Notice, have a period of 30 days (or such longer period as the Issuers may agree in writing) from the date of receipt by such Seller or the Issuer, as applicable, of the Breach Notice to remedy the matter giving rise to the breach of Warranty (if capable of remedy) specified in such Breach Notice.
 
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8.5
Disclaimer:
 
SAVE AS EXPRESSLY PROVIDED IN CLAUSE 8, SCHEDULE 1 AND THE OTHER TRANSACTION DOCUMENTS, NO SELLER MAKES ANY WARRANTIES, GUARANTEES OR REPRESENTATIONS, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO THE AIRCRAFT, AIRCRAFT INTERESTS OR SHARES OR ANY OF THEM. EACH ISSUER HEREBY WAIVES RELEASES AND RENOUNCES ALL WARRANTIES, OBLIGATIONS AND LIABILITIES OF EACH SELLER NOT EXPRESSLY PROVIDED IN CLAUSE 8, SCHEDULE 1 AND THE OTHER TRANSACTION DOCUMENTS INCLUDING BUT NOT LIMITED TO (1) ANY IMPLIED WARRANTY AS TO THE DESCRIPTION, AIRWORTHINESS, MERCHANTABILITY, FITNESS FOR ANY PURPOSE, VALUE, CONDITION, DESIGN, USE OR OPERATION OF THE AIRCRAFT OR ANY PAST PERFORMANCE, COURSE OF DEALING, USAGE OR TRADE OR OTHERWISE, (2) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT (INCLUDING STRICT LIABILITY), AND (3) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS OF OR DAMAGE TO THE AIRCRAFT, FOR LOSS OF USE, REVENUE OR PROFIT WITH RESPECT TO THE AIRCRAFT, FOR ANY LIABILITY OF ANY LESSEE TO ANY THIRD PARTY, FOR ANY LIABILITY OF THE ISSUERS TO ANY THIRD PARTY, OR FOR ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES; AND ALL SUCH WARRANTIES, GUARANTEES, REPRESENTATIONS, OBLIGATIONS, LIABILITIES, RIGHTS, CLAIMS OR REMEDIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, ARE EXPRESSLY EXCLUDED.
 
9.
INDEMNITIES
 
9.1
Indemnities
 

 9.1.1
The Issuers hereby jointly and severally agree to indemnify each Seller and their respective Affiliates, and any of their successors and assigns, officers, directors, servants, agents and employees (each a Seller Indemnified Party) from and against any claims, damages, losses, costs, expenses, fees (including reasonable counsel’s fees), payments, demands, liabilities, actions, proceedings, penalties or fines (together, the Losses) which any Seller Indemnified Party may incur or suffer, (i) in relation to any Aircraft or Aircraft Interest to the extent it is attributable to the period from and after the Closing for the relevant Aircraft or Aircraft Interest (subject to the provisions of Section 5.1 hereof) or (ii) in relation to any misrepresentation or breach of warranty, covenant or agreement made or to be performed by the Issuer Group pursuant to this Agreement (together the Issuer Indemnity), provided that the Issuer Indemnity provided pursuant to this Clause 9.1.1 shall not extend to any claim on account of any Taxes (which shall be subject to Clause 10.1) and provided further that the Issuer Indemnity shall not extend to Losses arising from (x) the gross negligence, fraud or willful misconduct of any Seller Indemnified Party or (y) any misrepresentation or breach of warranty, covenant or agreement made by or to be performed by any Seller Indemnified Party pursuant to this Agreement.
 
27

 9.1.2
Each Seller, severally and not jointly, hereby agrees to indemnify the Issuers, each Issuer Group Member and their respective Affiliates, and any of their successors and assigns, officers, directors, servants, agents and employees (each an Issuer Indemnified Party) from and against any Losses which any Issuer Indemnified Party may incur or suffer, (i) in relation to any Aircraft or Aircraft Interest such Seller sells hereunder to the extent it is attributable to the period prior to the Closing for such Aircraft or Aircraft Interest (subject to the provisions of Section 5.1 hereof) or (ii) in relation to any misrepresentation or breach of warranty, covenant or agreement made or to be performed by such Seller pursuant to this Agreement (together the Seller Indemnity), provided that the Seller Indemnity provided pursuant to this Clause 9.1.2 shall not extend to any claim on account of any Taxes (which shall be subject to Clause 10.1) and provided further that the Seller Indemnity shall not extend to Losses arising from (x) the gross negligence, fraud or willful misconduct of any Issuer Indemnified Party or (y) any misrepresentation or breach of warranty, covenant or agreement made by or to be performed by any Issuer Indemnified Party pursuant to this Agreement.
 
9.2
Notice of Claims:
 

 9.2.1
Subject to Section 9.2.2, a Seller Indemnified Party or an Issuer Indemnified Party (each an Indemnified Party), as the case may be, shall give the Issuers and any relevant Seller (as the case may be) (the Indemnifying Party) notice of any matter which such Indemnified Party has determined has given, or could give, rise to a right of indemnification under this Agreement, within ninety (90) days of such determination. The notice shall state the amount of the Loss, if known, and the method of its calculation and shall contain a reference to the provisions of this Agreement in respect of which such right of indemnification is claimed or arises.
 

 9.2.2
If an Indemnified Party receives written notice of any third party claim or potential claim (Third Party Claim) against it which is or may be the subject of a claim by it under the Issuer Indemnity or the Seller Indemnity (as the case may be), the obligations and liabilities of the Indemnifying Party under this Clause 9 shall be subject to the following terms and conditions:
 

 (1)
the Indemnified Party shall give written notice thereof to the Indemnifying Party within sixty (60) days of receipt of such notice provided that failure to give such notice shall not release the Indemnifying Party from any of its obligations under this Clause 9 except to the extent it has been materially prejudiced by such failure;
 

 (2)
the Indemnifying Party shall be entitled to assume and control the defense of such Third Party Claim and take such further action to contest, resist or appeal the validity, applicability and amount of such claim in appropriate administrative or judicial proceedings either:
 

 (a)
in the name of the Indemnified Party (provided that the Indemnifying Party shall indemnify and secure the Indemnified Party to its reasonable satisfaction against all losses costs damages and expenses which may be incurred thereby), or
 
28

 (b)
in its own name,
 
in either case, at its own expense and through retaining legal advisers of its choice provided that it gives notice of its intention to do so to the Indemnified Party within five (5) Business Days of receipt of the notice of such Third Party Claim from the Indemnified Party; provided however, that if there exists or is reasonably likely to exist a conflict of interest that would make it inappropriate in the judgment of the Indemnified Party, in its sole and absolute discretion, for the same legal advisers to represent both the Indemnified Party and the Indemnifying Party, then the Indemnified Party shall be entitled to retain its own legal advisers, in each jurisdiction for which the Indemnified Party reasonably determines counsel is required, at the expense of the Indemnifying Party. In the event that the Indemnifying Party exercises its right hereunder to undertake the defense of any such Third Party Claim, the Indemnified Party shall co-operate with the Indemnifying Party in such defense as is reasonably required by the Indemnifying Party. In the event that the Indemnified Party is, directly or indirectly, conducting the defense against any such Third Party Claim, the Indemnifying Party shall co-operate with the Indemnified Party in such defense as is reasonably required by the Indemnified Party. No such Third Party Claim may be settled by the Indemnifying Party without the prior written consent of the Indemnified Party and no such Third Party Claims may be settled by the Indemnified Party without the prior written consent of the Indemnifying Party, in each case not to be unreasonably withheld or delayed, unless such settlement will not result in (a) any judgment or finding of liability, guilt or wrongdoing (whether civil, criminal or regulatory) in respect of the Indemnified Party, (b) any penalty, fine or other payment by the Indemnified Party, or the imposition of any Lien on, or any risk of forfeiture of the assets of, the Indemnified Party and (c) any commercial, legal, regulatory or competitive disadvantage for the Indemnified Party.
 
9.3
To Be Made Free From Deductions:
 
All sums payable under or pursuant to the Issuer Indemnity or the Seller Indemnity shall be paid free and clear of all deductions or withholdings whatsoever save only as may be required by law. If any such deductions or withholdings are required by law the Indemnifying Party shall be obliged to pay to the Indemnified Party such sums as will after such deduction or withholding have been made leave the Indemnified Party (including any deduction or withholding applicable to additional sums payable under this clause) with the same amount as it would have been entitled to receive in the absence of any such requirement to make a deduction or withholding together with interest on the amount payable by the Indemnifying Party under this Clause at a rate equal to the weighted average rate of interest in respect of the Initial Notes at such time until payment by the Indemnifying Party of such amount is made (both before and after judgment). If any sum payable by the Indemnifying Party under or pursuant to the Issuer Indemnity or the Seller Indemnity is subject to Tax (other than any tax imposed or measured by net income or profits by a jurisdiction in which the recipient is organized or incorporated or resident for tax purposes) in the hands of the Indemnified Party the same obligation to make an increased payment shall apply in relation to such Tax liability as if it were a deduction or withholding required by law. For the avoidance of doubt, the parties hereby agree and confirm that any Indemnifying Party shall not be under any obligation to make any payment to any Indemnified Party under this Clause 9.3 to the extent that the Indemnified Party would be in a better position than if no payment by way of indemnity was required to be made.
 
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9.4
Recovery From Third Parties:
 
If an Indemnified Party recovers any sum from a third party in respect of or relating to a Tax liability which has been the subject of a successful claim by such Indemnified Party against an Indemnifying Party, such Indemnified Party shall, as soon as reasonably practicable thereafter reimburse to the Indemnifying Party an amount equal to the sum recovered in respect of that claim (less any withholding applicable).
 
9.5
VAT / Consumption Tax:
 

 9.5.1
Each amount that the Issuer Group must pay under this Agreement is stated inclusive of VAT. If VAT is payable in respect of any amount payable under this Agreement, the applicable Seller shall pay (and bear the cost of) any such VAT to the relevant tax authority and such Seller shall only be entitled to recover any such VAT from the Issuer Group in accordance with Clauses 9.5.2 and 9.5.3 below.
 

 9.5.2
The applicable Seller’s entitlement to recover from the Issuer Group any VAT arising pursuant to this Clause 9.5 shall be limited to the VAT amount in respect of which the Issuer Group has received a corresponding refund or other form of credit from the relevant Governmental Authority.
 

 9.5.3
To the extent that it is necessary to obtain a refund of VAT arising in respect of an amount payable under this Agreement, the applicable Issuer Group Member shall register for VAT in the relevant jurisdiction and take all reasonable steps to recover such VAT, except, in the case of any VAT, to the extent that, in the Issuer Group Member’s reasonable judgment any such action would subject such Issuer Group Member to any material unreimbursed cost or expense (which such Issuer Group Member would not have otherwise being required to bear) or would materially prejudice the legal or commercial position of such Issuer Group Member.

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10.
TAXES
 
10.1
Tax Indemnity
 
Each Seller hereby severally and not jointly agrees to pay all, and hereby agrees to indemnify the relevant Issuer Group Member for (i) any Taxes imposed on or with respect to such Issuer Group Member and the Aircraft and/or Aircraft Interest being sold by such Seller to such Issuer Group Member or that is otherwise payable by such Issuer Group Member for any period (or portion thereof) ending on or before the Closing of the sale of such Aircraft or Aircraft Interest (together with any Taxes resulting as a consequence of an event occurring on or before such a date), other than Taxes addressed by clause (iii) below, (ii) any Taxes imposed on or with respect to net income or gain resulting from such Seller’s sale of the related Aircraft or Aircraft Interest and (iii) any cost, loss or expense incurred as a result of any Taxes imposed on such Issuer Group Member (or any assignee or successor thereto) or on the relevant Aircraft, Aircraft Interest, this Agreement or Other Transaction Documents as a result of (A) the execution of, delivery of or performance under this Agreement (including, without limitation, any Taxes incurred in connection with the transfer of title to any Aircraft or Aircraft Interest), (B) the delivery of such Aircraft or Aircraft Interest, (C) any required re-registration of title to or the lease of such Aircraft with any Government Entity that is necessary or advisable to reflect or record the Operative Documents or the events occurring pursuant to the this Agreement or Other Transaction Documents, (D) the sale by such Seller of the applicable Aircraft or Aircraft Interest hereunder, in each case, other than (x) Taxes that the relevant Lessee is liable to pay or reimburse such Issuer Group Member under the relevant Lease and/or the Other Transaction Documents or (y) Taxes resulting from the gross negligence or willful misconduct of such Issuer Group Member.
 
10.2
If any Seller or Issuer Group Member is notified of the commencement of any audit or other administrative or judicial proceeding in respect of Taxes for which an indemnity may be sought pursuant to this Clause 10, then such receiving party shall inform the other party and the Issuers (unless the Issuers received the relevant notice) in writing of such proceeding within forty five (45) days after the relevant notice was received by the receiving party, and the receiving party shall give the other party such information with respect thereto as the other party may reasonably request; provided that the failure of an Issuer Group Member to so inform another party shall not limit such Issuer Group Member’s rights to indemnification under this Clause 10, except as provided in the last sentence of this Clause 10.3. The party required to indemnify the other party for such Taxes pursuant to this Clause 10 (the Tax Indemnifying Party) may discharge, at any time, its indemnification obligation under this Clause 10 by paying to the other party or the relevant taxing authority, as the case may be, the amount payable pursuant to this Clause 10. Except in cases where the Tax Indemnifying Party have discharged their obligations pursuant to the preceding sentence, the Tax Indemnifying Party may, at its own expense, take control of the conduct of any such audit or other administrative or judicial proceeding unless otherwise prohibited by applicable law (in which case, the Tax Indemnifying Party shall be entitled to participate in the conduct of such audit or other administrative or judicial proceeding); provided, however, that if the Tax Indemnifying Party enters into any settlement of such audit or other administrative or judicial proceeding, and such settlement results in an increase in Taxes under this Clause 10, then the Tax Indemnifying Party shall indemnify and hold harmless the relevant Issuer Indemnified Party against such increase. If the Tax Indemnifying Party takes control of the conduct of such audit or other administrative or judicial proceeding, the Tax Indemnifying Party shall have the sole discretion as to the conduct of such audit or other proceeding; provided that the relevant Seller at its request may participate in (but no control) such proceeding. Whether or not the Tax Indemnifying Party chooses to defend or prosecute any claim, the applicable Seller and Issuer Group Member shall cooperate in the defense or prosecution thereof. No Tax Indemnifying Party shall be liable under this Clause 10 for any settlements effected without its consent (not to be unreasonably withheld), or resulting from any audit or other administrative or judicial proceeding to the extent (but only to the extent) any failure to notify the Tax Indemnifying Party of such audit or other administrative or judicial proceeding materially prejudices such Tax Indemnifying Party from contesting the Tax in which the Tax Indemnifying Party is responsible under this Clause 10.
 
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10.3
Each Seller and each Issuer Group Member agree to treat sales with respect to each Aircraft and Aircraft Interest hereunder as occurring on the relevant Closing Date for U.S. and Irish corporate income tax purposes.
 
10.4
The applicable Seller and Issuer Group Member of any Aircraft or Aircraft Interest shall act reasonably in agreeing to the delivery location for the relevant Aircraft, which shall be in a jurisdiction where both such Seller and Issuer Group Member have determined, in each of their sole but reasonable discretion, that there are no material Taxes (other than net or overall gross income Taxes imposed on such Seller) that would be imposed upon either or both Issuers, such Issuer Group Member, such Seller (including by application of this Clause 10) or such Aircraft as a result of the transfer of title to, or the beneficial interest in, the applicable Aircraft or Aircraft Interest to such Issuer Group Member. Notwithstanding anything to the contrary herein, such Issuer Group Member’s agreement (or lack of objection) to any delivery location shall not prejudice, impair, limit or otherwise modify such Issuer Group Member’s rights to indemnification under this Clause 10. The Issuers and the relevant Issuer Group Member both covenant that they shall timely pay (or shall cause the timely payment of) all Transfer Taxes.
 
10.5
Each Seller hereby covenants that any tax sharing agreements, tax settlement agreements, arrangements, policies or guidelines, formal or informal, express or implied that may exist between any relevant Transferring Company (including, where relevant, any Transferring Subsidiary of such Transferring Company) or Transferring Trust (including, where relevant, any Transferring Subsidiary of such Transferring Trust) and such Seller or any Affiliate thereof (a Tax Sharing Agreement) shall terminate as of the Closing Date and, except as specifically provided herein, any obligation to make payments by any party under any Tax Sharing Agreement shall be cancelled as of the Closing Date.
 
11.
LIMITATIONS ON WARRANTIES AND INDEMNITIES
 
11.1
Time Limit on Claims:
 
No claim arising out of the sale of the Aircraft, the Beneficial Interests in any Transferring Trust or the Shares in any Transferring Company shall be brought by the Issuers in respect of any breach of the Warranties unless the notice in writing of such claim (specifying in reasonable detail (a) the event matter or default which gives rise to the claim, (b) the breach that results and (c) the amount claimed) has been given to or delivered by the Issuers to the relevant Seller not later than one (1) year after the applicable Closing Date, after which period no claim in respect thereof, pursuant to an indemnity contained herein or otherwise, may be brought against a party hereto, unless notice of a claim of inaccuracy thereof was given prior to the close of such period; provided that no such time limit shall apply in respect of any breach of any Warranty contained in paragraphs 4 and 8.2 of Part 1 of Schedule 1 (collectively, the “Unlimited Warranties”) and; provided further that the applicable time limit in respect of the breach of any Warranty contained in paragraph 6.3 of Part 2 of Schedule 1 or paragraph 1.3 of Part 3 of Schedule 1 shall be the later of (x) one year after the applicable Closing Date and (y) the expiration of the Lease in effect on the date hereof entered into by such Transferring Trust or Transferring Company.
 
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11.2
Financial Limit on Claims:
 
Notwithstanding anything to the contrary contained in this Agreement or any Other Transaction Document the maximum aggregate liability of:
 

 11.2.1
all Sellers and their respective Affiliates arising out of or resulting from or by reason of any claims under or pursuant to (i) the Warranties, and/or (ii) this Agreement shall not exceed $250,000,000 in the aggregate; provided that no financial limit shall apply to any claim in respect of any Unlimited Warranty;
 

 11.2.2
the Issuer Group arising out of or resulting from or by reason of any claims under or pursuant to (i) the Issuer Warranties, (ii) the Issuer Indemnity and/or (iii) this Agreement shall not exceed the sum of the Base Purchase Prices of all Aircraft.  Each Seller hereby agrees and acknowledges, on behalf of itself and each other Seller Indemnified Party, that any Seller Indemnified Party shall be entitled to payment of a claim under the Issuer Indemnity only to the extent there are sufficient funds available therefor in accordance with the provisions of Section 3.09(a) or (b) (as applicable) of the Indenture and only after payment of any Prior Ranking Amounts; and
 

 11.2.3
the Sellers and their respective Affiliates shall only be liable in respect of any claims under or pursuant to (i) the Warranties, and/or (ii) this Agreement, in each case if the aggregate liability of such Persons for any individual claim would exceed in aggregate $100,000. In the event that such claim exceeds $100,000, such Persons shall be liable (subject to Sections 9, 10 and 11) for the full amount of such claim.
 
12.
REPRESENTATIONS AND WARRANTIES OF THE ISSUER GROUP
 
Warranties in Terms of Schedule 2: the Issuer Group hereby represents, warrants and undertakes to each Seller in the terms of the Issuer Warranties.
 
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13.
ADDITIONAL COVENANTS AND AGREEMENTS
 
13.1
Further Action:
 
At the request of the Issuers, the applicable Seller shall undertake commercially reasonable efforts to (and shall undertake commercially reasonable efforts to procure that any other necessary parties shall) execute all such documents, and do all such acts and things as may reasonably be required by the Issuers subsequent to the date hereof and to any Closing of the sale of an Aircraft or an Aircraft Interest in order to perfect the right, title and interest of the applicable Issuer Group Member to and in such Aircraft or Aircraft Interest and, in the case of the sale of Shares in any Transferring Company, to procure the registration of the applicable Issuer Group Member as the registered holder(s) of the relevant Shares in such Transferring Company. The applicable Seller shall deliver supplements to the Disclosure Letter for approval by the applicable Issuer as and when necessary to ensure that information therein relating to the Remaining Aircraft and related Aircraft Interests, if any, is accurate and current.
 
13.2
Manufacturers’ Warranties/ Further Assurance:
 
In connection with a transfer under Clause 2.2.3, the applicable Seller agrees to assign, or, to procure that its Affiliates or the relevant Aircraft Owner assign, as the case may be, to the relevant Transferring Company (or any relevant Transferring Subsidiary of such Transferring Company) or Transferring Trust (or any relevant Transferring Subsidiary of such Transferring Trust) or to the applicable Issuer or applicable Issuer Group Member, to the extent permitted by law, any of its rights and benefits under any manufacturers’ warranties, engine restoration agreements and service life policies still in effect to the extent that they (a) relate to the Aircraft (both Airframe and Engines relating to such Aircraft) that is the subject of such transfer, (b) have not already been assigned to any relevant Transferring Company (or any relevant Transferring Subsidiary of such Transferring Company) or Transferring Trust  (or any relevant Transferring Subsidiary of such Transferring Trust) or Issuer or such Issuer Group Member, as the case may be and (c) have material value remaining. Within 90 days of the applicable Closing Date, each Seller agrees to obtain the consent from the relevant manufacturer to the assignments referred to above and to take all appropriate action which may be reasonably necessary or advisable to carry out any of the provisions hereof in respect of the relevant Aircraft.
 
14.
CONDITIONS
 
14.1
Conditions To Obligations of Sellers:
 
The obligations of the relevant Seller under this Agreement in relation to the sale of any Aircraft or Aircraft Interest are conditional upon satisfaction or waiver by the relevant Seller of the following conditions on or prior to the applicable Closing of the sale and purchase of that Aircraft or Aircraft Interest:
 

 14.1.1
the conditions set forth in Clause 3 with respect to such Aircraft or Aircraft Interest shall have been satisfied;
 

 14.1.2
in the case of a Transferring Company (or any relevant Transferring Subsidiary of such Transferring Company) compliance with rules regarding provision of financial assistance, if any, in the jurisdiction of incorporation of such Transferring Company (or any relevant Transferring Subsidiary of such Transferring Company), to include in the case of any Transferring Company (or any relevant Transferring Subsidiary of such Transferring Company) which is incorporated in Ireland compliance with the procedure set out in section 82 of the Irish Companies Act 2014;
 
34

 14.1.3
unless consented to by the applicable Issuer, no enactment, amendment or modification to a statute, order or statutory instrument passed after the date of this Agreement shall have caused any Warranty of the applicable Seller to be untrue or incorrect;
 

 14.1.4
all authorizations, consents, orders and approvals of Government Authorities and officials listed in the Disclosure Letter (as updated pursuant to Clause 13.1) having been obtained in form and substance reasonably satisfactory to the applicable Seller;
 

 14.1.5
the representations and warranties of the Issuer Group contained in Schedule 2 being true and correct in all material respects when made and on the applicable Closing Date, other than such representations and warranties as are made on another date, and the covenants and agreements contained in this Agreement to be complied with by the Issuer Group on or before Closing having been complied with in all material respects, and such Seller having received a duly executed certificate of the applicable Issuer Group Member to such effect on the date of such Closing;
 

 14.1.6
no Action having been commenced by or before any Governmental Authority against any Seller, the Issuer Group, such Transferring Trust (or any relevant Transferring Subsidiary of such Transferring Trust) or Transferring Company (or any relevant Transferring Subsidiary of such Transferring Company) or any of them seeking to restrain or materially and adversely alter the transactions contemplated by this Agreement which, in the reasonable, good faith determination of the applicable Seller, is likely to render it impossible or unlawful for any of the parties to perform their obligations hereunder, provided however that this condition shall not apply to any Action directly or indirectly solicited or encouraged by such Seller;
 

 14.1.7
the applicable Issuer or applicable Issuer Group Member having performed or having satisfied in all material respects all covenants, agreements and conditions on its part to be performed or satisfied by it under this Agreement and no material default on the part of the applicable Issuer Group Member having occurred and being still in existence, or resulting from the execution, delivery or performance of this Agreement under any Other Transaction Document;
 

 14.1.8
receipt of a copy of the resolution of the board of directors of the applicable Issuer or applicable Issuer Group Member duly authorizing the execution, delivery and performance by the such Issuer or such Issuer Group Member of this Agreement  and the transactions contemplated hereby and thereby;
 

 14.1.9
receipt of a certificate of a director or of the secretary of the applicable Issuer or applicable Issuer Group Member certifying the names and signatures of each of the directors or other officers of such Issuer or such Issuer Group Member authorized to sign this Agreement and the documents to be delivered hereunder and thereunder;
 
35

 14.1.10
in the case of any Aircraft that is a Substitute Aircraft, receipt by the applicable Seller of any amounts owing to it pursuant to Clause 6.2; and
 

 14.1.11
receipt of an insurance and, if applicable, reinsurance certificate in respect of the relevant Aircraft evidencing that the relevant Seller and such other persons as such Seller shall specify are named as an additional insureds for liability insurances for the tail period set forth in the relevant Lease.
 
14.2
Conditions To Obligations of The Issuer Group:
 
The obligations of the Issuer Group under this Agreement in relation to the purchase of any Aircraft or Aircraft Interest are conditional upon satisfaction or waiver by the Issuers of the following conditions with respect to that Aircraft or Aircraft Interest on or prior to the Closing of the sale and purchase of that Aircraft or Aircraft Interests, provided that none of such conditions may be waived unless the Issuers have provided prior written notification to the Rating Agencies provided further that the Warranties of the relevant Seller shall only be made with respect to each Aircraft and related Lease, Seller, Transferring Trust (and, where relevant, any Transferring Subsidiary of such Transferring Trust) or Transferring Company (and, where relevant, any Transferring Subsidiary of such Transferring Company) which is being transferred by such Seller to an Issuer Group Member on such Closing Date:
 

 14.2.1
the conditions set forth in Clause 3 with respect to such Aircraft or Aircraft Interest shall have been satisfied;
 

 14.2.2
in the case of a Transferring Company and any Transferring Subsidiary of such Transferring Company, compliance with rules regarding provision of financial assistance, if any, in the jurisdiction of incorporation of such Transferring Company and Transferring Subsidiary;
 

 14.2.3
the relevant Seller, Transferring Trust (or any relevant Transferring Subsidiary of such Transferring Trust) or Transferring Company (or any relevant Transferring Subsidiary of such Transferring Company) being the owner of the Aircraft specified in the applicable Delivery Notice (or, in the case of a Transferring Title Aircraft which is a Non-Owned Aircraft, having the right upon valid tender by the relevant Aircraft Owner pursuant to the terms of the relevant Aircraft Purchase Agreement to take title (or nominate another Person to take title) to such Aircraft);
 

 14.2.4
all authorizations, consents, orders and approvals of Government Authorities and officials listed in the Disclosure Letter (as updated pursuant to Clause 13.1 hereof) having been obtained in form and substance reasonably satisfactory to the Issuers;
 

 14.2.5
subject to such matters as may be disclosed in the Disclosure Letter (as updated pursuant to Clause 13.1 hereof), the Warranties being true and correct in all material respects on the applicable Closing Date, other than such Warranties as are made on another date, and the covenants and agreements contained in this Agreement to be complied with by the Sellers on or before the relevant Closing having been complied with in all material respects in relation to such Aircraft, Seller, Transferring Trust (and any relevant Transferring Subsidiary of such Transferring Trust) or Transferring Company (and any relevant Transferring Subsidiary of such Transferring Company) and the applicable Issuer Group Member having received a duly executed certificate from the relevant Seller to such effect on the date of such Closing;
 
36

 14.2.6
no Action having been commenced or threatened by or before any Governmental Authority against the relevant Seller, the Issuer Group, any relevant Transferring Trust (or any relevant Transferring Subsidiary of such Transferring Trust) or Transferring Company (or any relevant Transferring Subsidiary of such Transferring Company) or any of them seeking to restrain or materially and adversely alter the transactions contemplated hereby which the Issuers reasonably believe is likely to render it impossible or unlawful for any of the parties to perform their obligations hereunder; provided however that this condition shall not apply to any Action solicited or encouraged by the Issuers or any other Issuer Group Member;
 

 14.2.7
the Other Transaction Documents relating to such Aircraft, Transferring Company (and any relevant Transferring Subsidiary of such Transferring Company) or Transferring Trust (and any relevant Transferring Subsidiary of such Transferring Trust) or the relevant Seller having been duly entered into and having become unconditional in all respects save for any conditions relating to this Agreement or the satisfaction of the conditions precedent hereunder;
 

 14.2.8
receipt of copies of the reports of the Appraisers (including, if applicable, with respect to Substitute Aircraft);
 

 14.2.9
receipt of the Disclosure Letter, if any, (including any updated and/or supplements to the applicable Closing Date) in form and substance reasonably satisfactory to the Issuers;
 

 14.2.10
receipt of a broker’s letter and insurance certificate with respect to the relevant Aircraft, if any, owned by such Seller (or, in the case of a Transferring Title Aircraft which is a Non-Owned Aircraft, which the Seller has the right upon valid tender by the relevant Aircraft Owner pursuant to the terms of the relevant Aircraft Purchase Agreement to take title (or nominate another Person to take title) to such Aircraft), Transferring Trust (or any relevant Transferring Subsidiary of such Transferring Trust) or Transferring Company (or any relevant Transferring Subsidiary of such Transferring Company) evidencing compliance with the requirements set forth in Exhibit D of the Indenture and the related Lease;
 

 14.2.11
receipt of evidence (including the results of any applicable customary lien search) satisfactory to the applicable Issuer Group Member that there are is no mortgage, charge, pledge of or other security over the Aircraft or over the Shares in such Transferring Company (or any relevant Transferring Subsidiary of such Transferring Company) or the Beneficial Interest in such Transferring Trust (or any relevant Transferring Subsidiary of such Transferring Trust) (as the case may be), or that any such security has been released (or will be released after Closing in a manner reasonably satisfactory to the Issuers);
 
37

 14.2.12
a copy of the organizational or constitutional documents of each relevant Transferring Company (and any Transferring Subsidiary of such Transferring Company) or Transferring Trust (and any relevant Transferring Subsidiary of such Transferring Trust), if any, certified as of such Closing Date to be a true, complete and up-to-date copy by a director, manager, secretary or other officer of such Transferring Company (or any Transferring Subsidiary of such Transferring Company) or Transferring Trust (or any relevant Transferring Subsidiary of such Transferring Trust), as applicable, and in a form satisfying the requirements of the Indenture;
 

 14.2.13
a copy of resolutions of the directors and/or board of managers or other applicable governing body of the relevant Seller (and, if different, any applicable Aircraft Owner and/or Trustor), in each case certified as of such Closing Date to be a true, complete and up to date copy and as being in full force and effect and not amended or rescinded by a director, manager, secretary or other officer of the relevant Seller (and, if different, any applicable Aircraft Owner and/or Trustor), approving or authorizing the transactions contemplated by this Agreement, including an incumbency certificate (or equivalent document) of the Person or Persons authorized to execute and deliver on behalf of such relevant Seller (and, if different, any applicable Aircraft Owner and/or Trustor) this Agreement and any notices or other documents to be given pursuant hereto or thereto;
 

 14.2.14
The following legal opinions in the Agreed Form shall be delivered dated as of the applicable Closing Date:
 

 (a)
an opinion of counsel as to the laws of the jurisdiction of such Person in respect of the applicable Seller (and, if different, any applicable Aircraft Owner and/or Trustor) as to its incorporation, formation or registration and its execution, delivery and performance of the documents to which it is a party contemplated by this Agreement and related matters;
 

 (b)
an opinion of counsel as to the laws of the jurisdiction of such Person in respect of any relevant Transferring Company (and any Transferring Subsidiary of such Transferring Company), Transferring Trust (and any relevant Transferring Subsidiary of such Transferring Trust) or the applicable Issuer Group Member (and as applicable, an Issuer) as to its incorporation, formation or registration and its execution, delivery and performance of the documents to which it is a party contemplated by this Agreement and related matters;
 

 (c)
an opinion of independent or in-house counsel, as applicable, to the relevant Guarantor as to such Guarantor’s incorporation, formation or registration and such Guarantor’s execution, delivery and performance of the relevant Guaranty;
 
38

 (d)
an opinion of New York counsel as to the enforceability of the documents governed by New York law entered into in connection with the Closing and related matters;
 

 (e)
an opinion of counsel as to any applicable filings or registrations with the FAA and/or the International Registry as required under the Security Trust Agreement in connection with the Closing; and
 

 (f)
an opinion of counsel as to the laws of the jurisdiction of the Lessee and the jurisdiction of registration of the Aircraft (if different) as to such matters in such jurisdiction as are contemplated in the Agreed Form thereof;
 

 14.2.15
if, on the relevant Closing Date, any  Security Deposit or Maintenance Rent held or supported under the Lease for the relevant Aircraft is in the form of a letter of credit, guarantee, promissory note or other instrument, and not already issued in the name of the Servicer or any relevant Transferring Company, Transferring Trust or Transferring Subsidiary, the applicable Seller shall cause such letter of credit, guarantee or other instrument to be duly endorsed, amended or reissued in favor of the relevant Issuer Group Member within ninety (90) days of the relevant Closing Date;
 

 14.2.16
any relevant Transferring Company (and any Transferring Subsidiary of such Transferring Company) or Transferring Trust (and any relevant Transferring Subsidiary of such Transferring Trust), or if none, the applicable Issuer Group Member, and the applicable Issuer shall have duly executed and delivered each document required by an Issuer Group Member under the Related Documents in connection with the Closing, including a Collateral Supplement or Grantor Supplement (as applicable), accession agreements and guaranties in the forms set forth in the Security Trust Agreement and agreements with the Service Providers, any powers of attorney in favor of a Service Provider required thereunder, an FAA security document (if applicable) and any local law security document required to be provided pursuant to the Security Trust Agreement;
 

 14.2.17
in the case of a Transferring Company, the applicable Seller having delivered to the applicable Issuer Group Member a solvency certificate in respect of such Transferring Company and a solvency certificate in respect of such Seller, in each case in a form agreed with the applicable Issuer on the date hereof and on each Closing Date;
 

 14.2.18
insofar as it has not been already provided to the applicable Issuer or applicable Issuer Group Member or is not held by a Transferring Company or Transferring Trust (or a subsidiary of it), receipt by the applicable Issuer or applicable Issuer Group Member of a copy of the applicable Lease relating to the Aircraft owned by or leased by (as applicable) the relevant Aircraft Owner, Transferring Trust or Transferring Company (or its subsidiaries), along with the tangible chattel paper original of such Lease (or if an original was never so designated or such original has been lost, a certificate from the applicable Seller to such effect) on the applicable Closing Date; and
 
39

 14.2.19
all the conditions precedent to the effectiveness of the Novation Agreement, as applicable, for the applicable Aircraft which are expressed to be for the benefit of the Issuer Group Member shall have been satisfied.
 
14.3
Legal Opinions:
 
On the Initial Closing Date, the applicable Sellers shall deliver to the Issuers one or more legal opinions, in form and substance satisfactory to the Issuers and in the Agreed Form, in relation to, the true sale and valid contribution and valid transfer of title from the relevant Aircraft Owners, Trustors and Sellers in respect of the Aircraft or Aircraft Interests to be sold during the Delivery Period and other matters relating to consolidation under applicable laws, from local counsel to such Sellers.
 
14.4
Further Condition and Agreement:
 
The obligations of the relevant Sellers and the Issuer Group under this Agreement are further conditional upon no change having occurred after the date of this Agreement in any applicable law which would make it illegal for any party to this Agreement or the Other Transaction Documents or Related Documents to perform any of their respective obligations under this Agreement or such Other Transaction Documents or Related Documents; provided, however, that if any such change has occurred in relation to this Agreement, the parties shall co-operate and for such purposes use all reasonable endeavors to restructure their respective obligations under this Agreement so as to avoid the aforementioned illegality.
 
15.
MISCELLANEOUS
 
15.1
Waiver:
 
Any Seller or the Issuers may extend the time for the performance of any of the obligations or other acts of the other parties. Any such extension shall be valid only if set forth in an instrument in writing signed by the party or parties to be bound thereby. Any Seller may waive any inaccuracies in the representations and warranties of the Issuer Group or any condition in Clause 14.1 hereof to the Closing of the sale of any Aircraft or Aircraft Interest. The Issuers may waive any inaccuracies in the representations and warranties of the Sellers made on any Closing Date or any condition to the Closing of the sale of any of the Aircraft or Aircraft Interests in Clause 14.2 hereof only after having provided prior written notification to the Rating Agencies. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any other term or condition, of this Agreement. The failure by any party to assert any of its rights hereunder shall not constitute a waiver of any of such rights.
 
40
15.2
Notices:
 
Every notice, request, demand or other communication under this Agreement shall:
 

 15.2.1
be in writing delivered personally, or by prepaid courier delivery services such as Federal Express, DHL or other similar services, or facsimile (confirmed, in the case of facsimile, by prepaid airmail letter sent within 24 hours of dispatch but so that non-receipt of such confirmation shall not affect in any way the validity of the facsimile in question). Notices may be sent by e-mail (including pdf or other attachment to e-mail) if the receiving party has provided the sending party an e-mail address in the address information at 15.2.3 below (as such address information may have been updated in accordance with this Clause 15);
 

 15.2.2
be deemed to have been received, subject as otherwise provided in this Agreement in the case of an e-mail, upon the date the sender’s receipt of an acknowledgment from the intended recipient (such as by the return receipt requested function, return e-mail or other written acknowledgment), in the case of a facsimile, at the time of dispatch with confirmed answerback of the addressee appearing at the beginning and end of the communication, (provided, however, that, in the case of a facsimile or an e-mail, if the date of dispatch is not a Business Day in the country of the addressee it shall be deemed to have been received at the opening of business on the next such Business Day and provided further that such notice or communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient), and in the case of a letter, when delivered personally; provided, however, that if personal delivery or delivery by courier of a notice is tendered but refused, such notice shall be effective upon such tender; and
 

 15.2.3
be sent:
 
if to the Sellers, to:
 
BBAM Aviation Services Limited
West Pier Business Campus
Dun Laoghaire
County Dublin A96 N6T7
Ireland
Attention:  Company Secretary
Fax:  (353) 1-231-1901
Telephone:  (353) 1-231-1900
 
and to:
 
BBAM US LP
50 California Street, 14th Floor
San Francisco, California 94111
Attention:  Senior Vice President, Corporate Legal
Fax:  (415) 512-1515
Telephone: (415) 267-1500
 
41
If to the Issuer Group, to:
 
Horizon Aircraft Finance II Limited
Maples Fiduciary Services (Ireland) Limited
32 Molesworth Street
Dublin 2 D02 Y512
Ireland
Attention: The Directors
Email: HorizonIIABS@maples.com

and

Horizon Aircraft Finance II LLC
c/o Maples Fiduciary Services (Delaware) Inc.
4001 Kennett Pike
Suite 302
Wilmington, DE 19807

15.3
Severability:
 
If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon any determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated by this Agreement are effected as originally contemplated to the greatest extent possible.
 
15.4
Assignment; Third Party Beneficiary:
 
This Agreement shall be binding upon and inure to the benefit of the successors of the parties but shall not be assignable by any Seller or the Issuers without the express written consent of the other parties (which consent may be granted or withheld in the sole discretion of such other parties provided however that the Issuers may assign this Agreement to the Security Trustee for the benefit of the Secured Parties (as defined in the Security Trust Agreement) and each Seller hereby acknowledges such assignment. Each Indemnified Party not party to this Agreement shall be an express third-party beneficiary of this Agreement and shall be entitled to enforce the provisions hereof in its favor.
 
42
15.5
Amendment:
 
This Agreement may not be amended except (a) by an instrument in writing signed by or on behalf of the Sellers and the Issuers or (b) by a waiver in accordance with Clause 15.1 hereof; provided that any Seller may by notice to the other parties hereto notify such other parties that, in lieu of the transfer of a Transferring Company or Transferring Trust, it shall effect a title transfer of the relevant Aircraft, whereupon such Aircraft shall become a Transferring Title Aircraft and this Agreement shall be deemed amended accordingly.
 
15.6
Applicable Law and Jurisdiction:
 

 15.6.1
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
 

 15.6.2
Each party hereto hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York County for the purposes of all legal proceedings arising out of or relating to this Agreement and each other Transaction Document or the transactions contemplated hereby or thereby. Each of the parties hereto irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. Each Issuer agrees that the process by which any suit, action or proceeding in any such court is begun may be served on it by being delivered to Corporation Service Company (the “Agent”), 1180 Avenue of the Americas, Suite 210, New York, New York 10036 U.S.A., its designee, appointee and agent to receive, accept and acknowledge for and on its behalf such service of legal process. Without limiting the effect of the immediately preceding sentence, each of the parties hereto hereby irrevocably consents to the service of any and all process in any such action or proceeding by the mailing of copies to it or in any other manner permitted by Applicable Law.
 

 15.6.3
TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES THE RIGHT TO DEMAND A TRIAL BY JURY, IN ANY SUCH SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS, OR THE SUBJECT MATTER HEREOF OR THEREOF OR THE OVERALL TRANSACTION BROUGHT BY ANY OF THE PARTIES HERETO OR THEIR SUCCESSORS OR ASSIGNS.
 

 15.6.4
Nothing in this Clause 15.6 limits the right of each of the parties hereto to bring proceedings against another party hereto in connection with this Agreement (i) in any other court of competent jurisdiction; or (ii) concurrently in more than one jurisdiction.
 
15.7
Survival After Closing:
 
The provisions of this Agreement in so far as the same shall not have been performed at any Closing shall remain in full force and effect notwithstanding such Closing.
 
43
15.8
Entire Agreement; Counterparts:
 
This Agreement, together with the Other Transaction Documents, and the other documents described herein or therein, including the Disclosure Letter, constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all previous proposals, negotiations, representations, and other communications between or among the parties, both oral and written, with respect thereto. This Agreement may be executed in one or more counterparts and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.
 
15.9
Issuer Limited Recourse:
 
Notwithstanding any provision of this Agreement to the contrary, the recourse of the Sellers to the Issuers and the Issuer Group hereunder shall be limited to the assets of the Issuers and the Issuer Group which form part of the Collateral (as defined in the Security Trust Agreement). If the proceeds derived from the enforcement of its rights hereunder (subject to at all times the security interests granted by the Issuers in favor of the Security Trustee and the enforcement and realization of such interests by the Security Trustee) are insufficient to discharge in full the claims of the relevant Seller (as applicable) hereunder, then the claims of such Seller (as applicable) hereunder in respect of any outstanding amounts and obligations shall be extinguished and shall not revive and such Seller shall not take any further action against the Issuers or any member of the Issuer Group to recover any sum in respect of such amounts and obligations and no debt shall be owed by any Issuer or any member of the Issuer Group to such Seller in respect of such amounts or obligations. In particular, no Seller or any other party acting on their behalf may institute, or join with any other person in bringing, instituting or joining, insolvency proceedings (whether court based or otherwise) or for the appointment of an examiner, liquidator or analogous person in relation to the Issuers or any member of the Issuer Group or seek before any court or government agency to have any shareholder, director or officer of any Issuer or any member of the Issuer Group held liable for any action or inaction of the Issuers or any member of the Issuer Group under this Agreement. The provisions of this Clause 15.9 shall survive termination of this Agreement.
 
[signature pages follow]
 
44
IN WITNESS WHEREOF the parties have executed this Agreement on the date written above.
 
 
FLY AIRCRAFT HOLDINGS TWENTY LIMITED
     
 
By:
/s/ Declan Cotter
   
Name: Declan Cotter
  
   
Title:   Director

 
JUPITER AVIATION 2 LLC
     
 
By:
/s/ Michael Blumenthal
  
   
Name: Michael Blumenthal
  
   
Title:   Manager

 
FLY AIRCRAFT HOLDINGS THIRTY-TWO LIMITED
     
 
By:
/s/ Declan Cotter
  
   
Name: Declan Cotter
  
   
Title:   Director

 
FLY AIRCRAFT HOLDINGS THIRTY-ONE LIMITED
     
 
By:
/s/ Declan Cotter
  
   
Name: Declan Cotter
  
   
Title:   Director

 
SAP MERIDIAN 17 LP
     
 
By:
/s/ Vincent Cannon
  
   
Name: Vincent Cannon
  
   
Title:   Vice President

 
MERAH AIRCRAFT 5 LIMITED
     
 
By:
/s/ Declan Cotter
  
   
Name: Declan Cotter
  
   
Title:   Director

 
WELLS FARGO TRUST COMPANY, NATIONAL ASSOCIATION, NOT IN ITS INDIVIDUAL CAPACITY BUT SOLELY AS OWNER TRUSTEE OF THE 737 MSN 34596 TRUST
     
 
By:
/s/ J. Brent Allen
  
   
Name: J. Brent Allen
  
   
Title:   Vice President

 
FLY AIRCRAFT HOLDINGS ONE LIMITED
     
 
By:
/s/ Declan Cotter
  
   
Name: Declan Cotter
  
   
Title:   Director

 
FLY AIRCRAFT HOLDINGS TWENTY-FOUR LIMITED
     
 
By:
/s/ Declan Cotter
  
   
Name: Declan Cotter
  
   
Title:   Director

 
WELLS FARGO TRUST COMPANY, NATIONAL ASSOCIATION, NOT IN ITS INDIVIDUAL CAPACITY BUT SOLELY AS OWNER TRUSTEE OF THE B&B AIR ACQUISITION 34953 TRUST
     
 
By:
/s/ J. Brent Allen
  
   
Name: J. Brent Allen
  
   
Title:   Vice President

 
AMETHYST AIRCRAFT LEASING LIMITED
     
 
By:
/s/ Declan Cotter
  
   
Name: Declan Cotter
  
   
Title:   Director
 
 
JUPITER AVIATION 1 LLC
     
 
By:
/s/ Michael Blumenthal
  
   
Name: Michael Blumenthal
  
   
Title:   Manager

 
CARNELIAN AIRCRAFT LEASING LIMITED
     
 
By:
/s/ Declan Cotter
  
   
Name: Declan Cotter
  
   
Title:   Director

 
SAP MERIDIAN AVIATION 25 LIMITED
     
 
By:
/s/ Maurice Prendergast
  
   
Name: Maurice Prendergast
  
   
Title:   Director

 
HORIZON AIRCRAFT FINANCE II LIMITED
     
 
By:
/s/ Colm Davis
  
   
Name: Colm Davis
  
   
Title:   Director

 
HORIZON AIRCRAFT FINANCE II LLC
     
 
By:
/s/ Edward L. Truitt Jr.
  
   
Name: Edward L. Truitt Jr.
  
   
Title:   Independent Manager