AERSALE CORP MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (kind 10-Ok)

FEDERATED HERMES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (form 10-K)

You must learn the next administration’s dialogue and evaluation along with
the monetary statements and associated notes included elsewhere on this Annual
Report. This dialogue comprises forward-looking statements about AerSale’s
enterprise, operations and trade that contain dangers and uncertainties, akin to
statements relating to AerSale’s plans, goals, expectations and intentions.
AerSale’s future outcomes and monetary situation could differ materially from
these presently anticipated by AerSale due to the elements described within the
sections entitled “Threat Elements” and “Cautionary Observe Concerning Ahead Wanting
Statements.” A dialogue of the 12 months ended December 31, 2021 in comparison with
the 12 months ended December 31, 2020 is included in our Annual Report on Type 10-Ok
for the 12 months ending December 31, 2021, filed with the SEC on March 15, 2022
below Half II, Merchandise 7, “Administration’s Dialogue and Evaluation of Monetary
Situation and Outcomes of Operations.”

The Firm

We function as a platform for serving the business aviation aftermarket sector.
Our prime executives have on common over 30 years of expertise in plane and
engine (“Flight Gear”) administration, gross sales and upkeep companies, and are
supported by an skilled administration crew. We have now established a world
function constructed and totally built-in aviation firm targeted on offering
services and products that maximize the worth of Flight Gear within the center
to finish of its working life cycle.

We’re a worldwide supplier of aftermarket business plane, engines, and
their elements to passenger and cargo airways, leasing firms, authentic
gear producers (“OEM”), authorities and protection contractors, and
upkeep, restore and overhaul (“MRO”) service suppliers. We report our
actions in two enterprise segments: Asset Administration Options, comprised of
actions that extract worth from strategic asset acquisitions both as complete
property or by disassembling for used serviceable materials (“USM”), and TechOps,
comprised of MRO actions for plane and their parts, gross sales of
internally developed engineered options and different serviceable merchandise.

We deal with mid-life Flight Gear and monetize them by way of our Asset
Administration Options phase. Asset Administration Options’ actions embrace
monetization of property by way of the lease or sale of complete property, or by way of
disassembly actions in help of our USM-related actions. Our monetizing
companies have been developed to maximise returns on mid-life Flight Gear
all through their working life, together with realizing the very best
residual worth of Flight Gear at its retirement. We accomplish this by
using deep market and technical information associated to the administration of
Flight Gear gross sales, leasing and MRO companies. To extract worth from the
remaining flight time on complete property, we offer versatile short-term (typically
lower than 5 years) leasing options of Flight Gear to passenger and
cargo operators throughout the globe. As soon as the worth from the Flight Gear’s
flight time has been extracted, Flight Gear is taken into account to be at or close to
the top of its helpful life and is analyzed for return maximization as both
complete asset gross sales or disassembled on the market as USM elements. Revenues from this
phase are segregated between Plane and Engine relying on the asset sort
that generated the income. Lease revenues and the associated depreciation from
plane and engines put in on these aircrafts is acknowledged below the
Plane class. Revenues from gross sales of complete plane and associated price of
gross sales are allotted between the Plane and Engine classes based mostly on the
allotted price foundation of the asset bought.

Our TechOps phase supplies inner and third-party aviation companies,
together with internally developed engineered options, full heavy plane
upkeep and modification, part MRO, in addition to end-of-life disassembly
companies. Our MRO enterprise additionally engages in longer-term tasks akin to plane
modifications, cargo and tanker conversions of plane, and plane storage.
The TechOps phase additionally consists of MRO companies for touchdown gear, thrust
reversers, hydraulic methods, and different plane parts.

We make the most of these capabilities to help our clients’ Flight Gear, as
effectively as to keep up and enhance our personal Flight Gear, which is subsequently
bought or leased to our clients. These processes require a excessive diploma of


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experience on every particular person plane or part that’s being serviced. Our
information of those processes permits us to help clients to adjust to
relevant regulatory and OEM necessities. A big quantity of expert
labor is required to help this course of, which the Firm has amassed
by way of its diversified choices.

Along with our plane and USM elements choices, we develop Engineered
Options consisting of Supplemental Sort Certificates (“STCs”) that may be
put in on current Flight Gear to enhance efficiency, adjust to
regulatory necessities, or enhance security. An instance of those options is the
AerSafeĀ® product line, which we designed and obtained Federal Aviation
Administration (“FAA”) approval to promote as an answer for compliance with the
FAA’s gas tank flammability rules. These merchandise are proprietary in
nature and performance as non-OEM options to regulatory necessities and different
technical challenges, usually at lowered supply time and price for operators. In
order to develop these merchandise, we have interaction in analysis and growth
actions which might be expensed as incurred.

Continued impression of COVID-19

The COVID-19 pandemic continues to negatively have an effect on the worldwide economic system, our
enterprise and operations, provide chains, inflation, the labor market and the
aviation trade. Business air journey has been considerably disrupted by the
pandemic and authorities and enterprise actions in response. Though we proceed
to see indicators of ongoing restoration, there continues to be uncertainty with respect
to when business air visitors will totally return to and/or exceed pre-COVID-19
ranges. For extra data associated to the COVID-19 pandemic, see Half I,
Merchandise 1A. “Threat Elements” of this Annual Report.

Affect of Ukraine Battle and Russia Sanctions

In February of 2022, Russia invaded Ukraine and remains to be engaged in an energetic
battle in opposition to the nation. Because of this, governments within the European Union,
the USA, the UK, Switzerland, and different nations have
enacted sanctions in opposition to Russia and Russian pursuits. These sanctions embrace
controls on the export and re-export of sure items, provides, and
applied sciences, provide of plane and plane parts to Russian individuals or
to be used in Russia, topic to sure wind-down durations, and the imposition of
restrictions on doing enterprise with sure state-owned Russian clients and
different investments and enterprise actions in Russia. So as to adjust to
these sanctions, we ceased pursuing future enterprise in Russia and terminated our
three leases with operators doing enterprise in Russia, efficiently recovering
two plane with one engine nonetheless unrecovered. Attributable to continued uncertainty in
the power to get better this engine from Russia or to gather insurance coverage protection,
we have now totally impaired this asset. Though the present sanctions prohibit the
continuation of sure enterprise actions, the three leases referenced had been
contractually scheduled to run out in 2022 and subsequently could have no materials
impression on our enterprise or 2022 monetary situation. Whereas it’s tough to
predict the quick or long run implications of this battle and sanctions on
the worldwide economic system and the aviation trade, we intend to completely adjust to all
relevant sanctions and embargoes, and don’t anticipate the present state of affairs will
have a cloth hostile impact on our outcomes of operations.

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Outcomes of Operations

Gross sales and gross revenue for AerSale’s two enterprise segments for the years ended
in December 31, 2022 and 2021 had been as follows:

12 months ended December 31, 2022 in comparison with the 12 months ended December 31, 2021


                                        12 months Ended December 31,
(in hundreds, besides percentages)        2022             2021       % Change
Income
Asset Administration Options
Plane                              $     101,511     $   87,461              16.1 %
Engines                                     176,096        144,549              21.8 %
                                            277,607        232,010              19.7 %
TechOps
MRO                                          95,258         99,899             (4.6) %
Product Gross sales                                11,942          8,528              40.0 %
Entire Asset Sale                             23,737              -             100.0 %
                                            130,937        108,427              20.8 %

Complete                                 $     408,544     $  340,437              20.0 %


                                        12 months Ended December 31,
(in hundreds, besides percentages)        2022             2021       % Change
Gross Revenue
Asset Administration Options
Plane                              $      36,156     $   30,157              19.9 %
Engines                                      82,075         59,389              38.2 %
                                            118,231         89,546              32.0 %
TechOps
MRO                                          21,111         28,133            (25.0) %
Product Gross sales                                 4,397          1,713             156.7 %
Entire Asset Sale                              7,655              -             100.0 %
                                             33,163         29,846              11.1 %

Complete                                 $     151,394     $  119,392              26.8 %

Complete revenues for the 12 months ended December 31, 2022 elevated by $68.1 million
or 20.0% in comparison with 2021, pushed by a rise of $45.6 million, or 19.7%,
inside Asset Administration Options and a rise of $22.5 million, or 20.8%,
inside TechOps.

Asset Administration Options

Gross sales within the Asset Administration Options phase elevated by $45.6 million to
$277.6 million, or 19.7%, for the 12 months ended December 31, 2022 in comparison with 2021,
resulting from a $14.1 million enhance in revenues from Plane, and a $31.5 million
enhance in revenues from Engines. The rise in Plane income is primarily
attributable to elevated exercise within the B747 product line pushed by Flight
Gear gross sales, which amounted to a complete enhance of $18.4 million in comparison with
2021, which was partly offset by decrease leasing quantity of $7.8 million pushed by
the termination of sure leases because of the Ukraine battle, in addition to the
sale of beforehand leased Flight Gear on the finish of the lease time period. The
enhance in Engines income is primarily attributable to elevated exercise in
the CF6-80, CFM56 and PW4000 product strains because of increased Flight
Gear gross sales of $23.4 million and better leasing exercise of $5.9 million.
The rise in Flight Gear gross sales is instantly associated to the sale of
beforehand leased Flight Gear and asset acquisitions of Flight Gear we
carried out throughout 2021 and 2022, as we recognized elevated demand in product
strains that served the cargo market because of the COVID-19 pandemic.


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Value of gross sales in Asset Administration Options elevated by $16.9 million to $159.4
million, or 11.9%, for the 12 months ended December 31, 2022 in comparison with 2021. The
enhance in price of gross sales was primarily pushed by the gross sales enhance mentioned
above. Gross revenue in Asset Administration Options elevated by $28.7 million to
$118.2 million, or 32.0%, for the 12 months ended December 31, 2022 in comparison with 2021.
The margin enhance is principally attributable to increased margins on Flight Gear
gross sales and USM gross sales of $29.8 million, in addition to decrease impression of stock
reserves recorded through the 12 months ended December 31, 2022, which amounted to
$1.8 million in comparison with $6.4 million in 2021.

Plane gross revenue margins elevated to 35.6% for the 12 months ended December 31,
2022, from 34.5% for the 12 months ended December 31, 2021, as a result of impression of
Flight Gear’s gross sales which generated a mean margin of 37.9%, in addition to
decrease stock reserves. Engines gross revenue margins elevated to 46.6% for
the 12 months ended December 31, 2022, from 41.1% for the 12 months ended December 31,
2021, primarily as a result of impression of Flight Gear’s gross sales which generated an
common margin of 47.6%, partly offset by the impression of USM gross sales resulting from
fluctuations within the product combine.

TechOps

AerSale’s income from the TechOps phase elevated by $22.5 million to $130.9
million, or 20.8%, for the 12 months ended December 31, 2022, in comparison with 2021. The
enhance was primarily pushed by the sale of Flight Gear, which was
bought and managed by the TechOps phase previous to its final sale,
together with improved touchdown gear and part restore actions; offset by
decrease revenues from storage and associated upkeep actions in our Roswell
facility as operators proceed to return plane into energetic standing, in addition to
a shift in sources at our Goodyear facility to help our cargo conversion
tasks on the B757 product line.

Value of gross sales in TechOps elevated by $19.2 million to $97.7 million, or 24.4%,
for the 12 months ended December 31, 2022 in comparison with 2021, pushed by prices generated
from the sale of Flight Gear of $16.1 million and price related to
income fluctuations famous above. Gross revenue in TechOps elevated $3.3 million
to $33.2 million, or 11.1%, for the 12 months ended December 31, 2022, in comparison with
2021, pushed by the revenue generated from the sale of Flight Gear of $7.6
million, offset by decrease gross revenue of $7.0 million on MRO companies. Gross
revenue margin decreased to 25.3% for the 12 months ended December 31, 2022 in contrast
to 27.5% for the 12 months ended December 31, 2021, and was largely attributable to
decrease margins generated on MRO companies of twenty-two.2% for the 12 months ended December 31,
2022 in comparison with 28.2% for the 12 months ended December 31, 2021, pushed by decrease
margin on storage associated upkeep at our Roswell facility.

Promoting, Common and Administrative Bills

Promoting, common and administrative bills elevated by $18.9 million to $96.3
million, or 24.3%, for the 12 months ended December 31, 2022, as in comparison with 2021.
The rise was principally associated to increased payroll bills of $10.7 million
related to market changes, further headcount, and better share-based
compensation expense of $3.8 million, in addition to increased price incurred on
enhancements with respect to data know-how and cybersecurity,
skilled consulting charges, and facility prices related to new services.

CARES Act Proceeds

No CARES Act Proceeds had been obtained or acknowledged for the 12 months ended December
31, 2022, as in comparison with $14.8 million acknowledged throughout 2021. The quantity
acknowledged throughout 2021 was the results of the Payroll Help Extension Legislation and
American Rescue Plan Act of 2021, which was enacted into regulation throughout 2021.

Unrealized loss on investments

AerLine Holdings, Inc. (“AerLine”) was a consolidating VIE previous to August 31,
2018. Check with Observe S for extra disclosures. On August 31, 2018, AerLine
bought the client relationships of its working firm, XTRA Airways, in
consideration for a 9.99% curiosity within the purchaser (“Purchaser”), which rolled into the
fairness curiosity of a bigger holding firm when the Purchaser was acquired. On
November 10, 2021, AerLine transferred this fairness curiosity to us in settlement
of commerce quantities due totaling $5.4 million. Based mostly on the deterioration of the
Purchaser’s monetary situation famous by the Firm within the fourth quarter of 2021,
we acknowledged an unrealized loss on the funding of $5.4 million through the
three-month interval ended December 31, 2021.


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Change in honest worth of warrant legal responsibility

We account for our personal warrants as a legal responsibility at their honest worth, with
adjustments in honest worth acknowledged in our outcomes from operations for the interval.
The honest worth of our personal warrants was decided utilizing the Black-Scholes
choice pricing mannequin. For the 12 months ended December 31, 2022, we recorded a $0.5
million loss on the change in honest worth of the warrant legal responsibility, in comparison with a
$2.9 loss within the prior 12 months.

Curiosity Expense

Curiosity expense, internet decreased by $2.1 million to $1.1 million earnings for the
12 months ended December 31, 2022, as in comparison with 2021 and was primarily associated to
increased curiosity yields on our deposits and lack of borrowings below the
Firm’s revolving credit score facility.

Different Earnings, Internet

Different Earnings for the 12 months ended December 31, 2022 elevated by $1.8 million to
$2.3 million, as in comparison with 2021 primarily as a result of assortment of insurance coverage
proceeds within the quantity $4.3 million for the complete settlement of the Air Indus
insurance coverage declare, of which $1.8 million was categorized as different earnings.

Earnings Taxes

The efficient tax price for the 12 months ended December 31, 2022 was 24.2% in contrast
to 24.4% for the 12 months ended December 31, 2021. The modest lower within the
efficient tax price was primarily a results of a lower in favorable everlasting
variations offset by a rise in credit. The distinction between the
efficient tax price and the statutory tax price of 21% for the 12 months ended December
31, 2022, was primarily as a result of impression of state earnings taxes and govt
compensation, offset by the overseas derived intangible earnings deduction. The
distinction between the efficient tax price and the statutory tax price of 21% for
the 12 months ended December 31, 2021, was primarily as a result of impression of state
earnings taxes, a valuation allowance and everlasting variations partially offset
by the overseas derived intangible earnings deduction.

Monetary Place, Liquidity and Capital Assets

As of December 31, 2022, we had $147.2 million of money and money equivalents. We
finance our progress by way of money flows generated from operations and borrowings
secured by our property. There have been no borrowings through the 12 months ended December
31, 2022. We had no excellent stability on the Amended and Restated Credit score
Settlement as of December 31, 2022, and we had $106.8 million of availability as
of the top of 2022. Money utilized in operations was $0.1 million, money generated
from investing actions was $41.4 million, and money utilized in financing
actions was $24.3 million for the 12 months ended December 31, 2022.

We imagine our fairness base, internally generated funds, and current
availability below our debt facility are ample to keep up our stage of
operations over the subsequent 12 months. Any projections of future money wants and
money flows past the subsequent 12 months are topic to substantial uncertainty, however
we imagine our sources of liquidity as mentioned above can be ample to
meet our long-term money necessities. If an occasion happens that may have an effect on our
skill to satisfy our capital necessities, our skill to proceed to develop our
asset base according to historic developments might be impaired and our future
progress restricted to that which will be funded from internally generated capital.

Money Flows-12 months ended December 31, 2022 in comparison with 12 months ended December 31, 2021

Money Flows from Working Actions

Internet money utilized in working actions was $0.1 million for the 12 months ended
December 31, 2022 in comparison with money offered of $79.1 million for a similar interval
in 2021. The lower of $79.2 million was primarily as a result of utility of
beforehand collected deposits to the sale of complete property through the interval,
together with timing of money advances to distributors.


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Money Flows from Investing Actions

Internet money offered by investing actions was $41.4 million for the 12 months ended
December 31, 2022, in comparison with money offered of $13.2 million in the identical interval
for 2021. Money offered from investing actions through the 12 months ended December
31, 2022 was primarily associated to the sale of Flight Gear totaling $52.8
million, in comparison with $17.1 million through the 12 months ended December 31, 2021.

Money Flows from Financing Actions

Internet money utilized in financing actions for the 12 months ended December 31, 2022 was
$24.3 million, in comparison with money offered of $8.6 million in the identical interval for
2021. The money utilized in financing actions for 2022 is pushed by the repurchase
of frequent inventory. The money offered by financing actions in 2021 is primarily
pushed by proceeds from the train of warrants.

Debt Obligations and Covenant Compliance

Our amended and restated revolving credit score settlement (the “Revolving Credit score
Settlement”) offered commitments for a $150.0 million revolving credit score facility
and features a $10.0 million sub facility for letters of credit score and for
borrowings on same-day discover known as “swingline loans.” The utmost
quantity of such commitments obtainable at any time for borrowings and letters of
credit score is decided in keeping with a borrowing base calculation equal to the sum
of eligible stock and eligible accounts receivable lowered by the combination
quantity, if any, of commerce payables of the mortgage events, as outlined within the
Revolving Credit score Settlement. Extensions of credit score below the Revolving Credit score
Settlement can be found for working capital and common company functions.

Efficient March 12, 2021, we amended our Revolving Credit score Settlement to extend
our commitments below the Revolving Credit score Settlement to a $150.0 million
combination quantity, topic to borrowing base limitations, and to increase the
maturity date to March 12, 2024, topic to sure situations.

As of December 31, 2022, there was no excellent stability below the Revolving
Credit score Settlement, as amended, and we had $106.8 million of availability. We had been
in compliance with our debt covenants as of December 31, 2022.

Off-Stability Sheet Preparations

We didn’t have any off-balance sheet preparations as of December 31, 2022.
Check with Observe Q – Leases inside our Consolidated Monetary Statements on this
Annual Report for a list of our non-cancelable contractual obligations below
working leases.

The Firm has entered into a purchase order dedication with Common Avionics, a
subsidiary of Elbit Methods, valued at $33.1 million for the acquisition of
technical gear for manufacturing our AerAware product. The dedication is
anticipated to be happy by the fourth quarter of 2023. The Firm has a
dedication for the acquisition of cargo conversion kits to help its B757
freighter conversion program within the quantity of $37.9 million. The dedication is
anticipated to be happy throughout 2023.

Vital Accounting Insurance policies and Estimates

The preparation of Consolidated Monetary Statements in conformity with
accounting rules typically accepted in the USA (“U.S. GAAP”)
requires our administration to make estimates and assumptions that have an effect on the
reported quantities of property and liabilities and disclosure of contingent property
and liabilities on the date of the Consolidated Monetary Statements and the
reported quantities of revenues and bills through the reporting durations. Precise
outcomes might differ from these estimates. Check with Observe A to the Consolidated
Monetary Statements in Merchandise 8 of this Annual Report, for a list of our
vital accounting insurance policies and estimates. The next is a abstract of
crucial accounting estimates and extra data on the extent of
uncertainty relating to related adjustments to the estimates and assumptions.

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Income Recognition

We measure income based mostly on the consideration laid out in a contract with a
buyer, and exclude any gross sales commissions and taxes collected and remitted to
authorities businesses. We acknowledge income when it satisfies a efficiency
obligation by transferring management over a services or products to a buyer. Our
efficiency obligations are happy over time as work progresses or at a degree
in time based mostly on switch of management of services and products to our clients.
For service income, we make the most of the enter technique of cost-to-cost to measure
progress and acknowledge income over time as this depicts when management of the
promised items or companies are transferred to the client. Income is
acknowledged based mostly on the connection of precise prices incurred up to now to the
estimated whole price at completion of the efficiency obligation. We make
sure judgments and estimates, together with estimated revenues and prices, as effectively
as inflation and the general profitability of the association. Key assumptions
concerned embrace future labor prices and efficiencies, overhead prices, and
final timing of product supply. Variations could happen between the judgments
and estimates made by administration and precise program outcomes.

Modifications in estimates and assumptions associated to our preparations are recorded
utilizing the cumulative catch-up technique of accounting. The catch-up adjustment for
the present 12 months resulting from adjustments in income estimates didn’t have a cloth
impression on our monetary statements.

Stock Value

We file stock on the decrease of price or market worth. For purchases of complete
plane and engines on the market or lease, price is decided utilizing the
particular identification technique whereby whole price is the fee paid, together with
sure asset acquisition prices that may be capitalized, to accumulate such property
as an entire.

Moreover, we buy sure complete plane and engines to disassemble and
provide materials for our engine and airframe USM stock. For plane and
engine elements that originate from such dismantled plane and engines, price is
decided utilizing a ratio calculated based mostly on the connection of the price of the
dismantled plane or engine on the time of buy to the whole estimated
gross sales worth of the dismantled plane or engine on the time of buy. On the
time of sale, this ratio is utilized to the sale value of every particular person
airframe and/or engine half to find out its allotted price. On the time of
sale, the sum of a person half’s allotted price and precise restore or
overhaul prices incurred signify the whole price for such half. Stock not
anticipated to be bought throughout the working cycle is classed as non-current
stock on the Consolidated Stability Sheets.

We consider this ratio periodically, and if needed, replace our gross sales
estimates and make potential changes to this ratio. Any quantities recognized
with an estimated gross sales worth decrease than the carrying worth is lowered to the
estimated gross sales worth on the time of the evaluation. Expenditures required for the
restore of engine and airframe elements are capitalized as stock and are
expensed as price of gross sales when related elements are bought. In the course of the 12 months ended
December 31, 2022, we adjusted the estimated return in sure product strains as
a results of new materials obtained into stock in addition to adjustments in demand
for sure product strains. In the course of the 12 months ended December 31, 2022, we recorded
a listing reserve of $1.8 million principally associated to adjustments in projected
demand for sure supplies pushed by altering market situations.

Current Accounting Pronouncements

The newest adopted and to be adopted accounting pronouncements are
described in Observe B to AerSale’s Consolidated Monetary Statements included in
this Annual Report.

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