AerCap Holdings N.V. Reports Financial Results for the Second Quarter 2016

• Net income for the second quarter and first half of 2016 was:
  • $233.3 million and $456.4 million on a reported basis
  • $291.6 million and $593.3 million on an adjusted basis
• Diluted earnings per share for the second quarter and first half of 2016 were:
  • $1.22 and $2.35 on a reported basis
  • $1.53 and $3.06 on an adjusted basis

Highlights

• 68 aircraft transactions executed in the second quarter of 2016, including 27 widebody transactions.
• 99.4% fleet utilization rate for the second quarter of 2016.
• 6.0 years average remaining lease term.
• 90% of new aircraft deliveries through 2018 have been leased.
• $1 billion of sales closed in the first half of 2016 and another $1 billion of contracted sales expected to close in the second half of 2016.
• $10 billion of available liquidity.
• Adjusted debt/equity ratio of 2.8 to 1.
• Upgraded to investment grade rating (BBB-) by Fitch.
• $45.26 book value per share.
• Repurchased 7.7 million shares in the second quarter of 2016 and 15.4 million shares year to date through August 5, 2016.

Aengus Kelly, CEO of AerCap, commented: "AerCap reported another strong quarter, delivering earnings per share of $1.22 on a reported basis and $1.53 on an adjusted basis. Since completing the ILFC acquisition in May 2014, we have generated $2.3 billion of net income, reduced our net debt by $3.1 billion and returned over $1.25 billion of capital to our shareholders through share repurchases. This level of profit and cash flow generation is a testament to the robustness of our operating platform and the talent and dedication of the entire AerCap team."

Second Quarter 2016 Financial Results

• Reported net income of $233.3 million, compared with $309.1 million for the same period in 2015. Reported earnings per share of $1.22, compared with $1.46 for the same period in 2015. Reported net income and reported earnings per share were primarily impacted by sales of older aircraft during 2015 and 2016, which reduced average lease assets, as well as lower other income, lower net gain on sale of assets and slightly higher interest expense in the second quarter of 2016. Reported earnings per share was favorably impacted by a lower number of outstanding shares as a result of share repurchases completed in 2015 and the first half of 2016.
• Adjusted net income of $291.6 million, compared with $358.7 million for the same period in 2015. Adjusted earnings per share of $1.53, compared with $1.70 for the same period in 2015. Adjusted net income and earnings per share were primarily driven by the same factors as reported net income and earnings per share.

Net Income/Earnings Per Share

Set forth below are the details to reconcile reported net income to adjusted net income and reported earnings per share to adjusted earnings per share, including the specific adjustments.

Second quarter 2016 net income decreased 25% on a reported basis and 19% on an adjusted basis compared with the same period in 2015, and second quarter 2016 earnings per share decreased 16% on a reported basis and 10% on an adjusted basis over the same period in 2015. Both reported and adjusted net income and earnings per share were primarily impacted by sales of older aircraft during 2015 and 2016, which reduced average lease assets, as well as lower other income, lower net gain on sale of assets and slightly higher interest expense in the second quarter of 2016. Reported and adjusted earnings per share were favorably impacted by a lower number of outstanding shares as a result of share repurchases completed in 2015 and the first half of 2016.

Adjusted net income reflects, among other items, expensing the maintenance rights asset over the remaining economic life of the aircraft as compared to expensing this asset during the remaining lease term as reflected in reported net income. The maintenance rights asset represents the difference between the actual physical condition of the former ILFC aircraft at the acquisition date and the value based on the contractual return conditions in the lease contracts. The difference in the two methods has no economic impact as it is non-cash and equalizes over time. In addition, as a result of the downsizing at our wholly-owned subsidiary, AeroTurbine, we incurred costs relating to severance and terminations, which we recognized as restructuring related expenses, and a period loss during the second quarter of 2016. In order to present AerCap Holdings N.V. core earnings relating to aircraft leasing, adjusted net income excludes AeroTurbine-related income and losses. We believe adjusted net income may further assist investors in their understanding of our operational and financial performance. Refer to Notes Regarding Financial Information Presented in This Press Release for details relating to the adjustments.

Revenue and Net Spread

Basic lease rents were $1,106.3 million for the second quarter of 2016, compared with $1,164.6 million for the same period in 2015. The decrease was primarily due to sales of older aircraft during 2015 and 2016, which reduced average lease assets. Our average lease assets for the second quarter of 2016 were $35.1 billion, compared with $36.6 billion for the same period in 2015.

Maintenance rents and other receipts were $70.9 million for the second quarter of 2016, compared with $69.7 million for the same period in 2015.

Net gain on sale of assets for the second quarter of 2016 was $38.4 million, relating to 32 aircraft sold and three aircraft reclassified to finance leases, compared with $54.6 million for the same period in 2015, relating to 13 aircraft sold and two aircraft reclassified to finance leases. We also parted out one aircraft in the second quarter of 2015, which had no impact on net gain on sale of assets.

Other income for the second quarter of 2016 was $23.9 million, compared with $48.6 million for the same period in 2015. The decrease was primarily due to lower gross profit on engine, airframe, parts and supplies sales as a result of the AeroTurbine downsizing.

As shown in the table above, adjusted interest expense was $273.1 million in the second quarter of 2016. Interest expense increased primarily due to (i) the issuance of new longer-term bonds to replace short-term ILFC notes, which had lower reported interest expense as a result of ILFC acquisition purchase accounting, and (ii) the cost associated with holding higher amounts of liquidity for upcoming capital expenditures.

Net spread was $833.2 million in the second quarter of 2016, an 8% decrease compared with the same period in 2015. Net spread decreased due to lower basic lease rents, which resulted from a decrease in average lease assets, and higher interest expense.

Selling, General and Administrative Expenses

The decrease in selling, general, and administrative expenses quarter over quarter was primarily due to the AeroTurbine downsizing.

Other Expenses

Asset impairment was $10.5 million for the second quarter of 2016, compared to $2.7 million for the same period in 2015. Asset impairment recorded in the second quarter of 2016 related to three aircraft that are being sold at a loss but were treated as held for sale because the sale of those aircraft had not been completed as of June 30, 2016. The aircraft were part of a 37-aircraft portfolio that is being sold at an overall profit. Leasing expenses were $143.1 million for the second quarter of 2016, compared with $173.4 million for the same period in 2015. The decrease was primarily due to an approximately $20 million decrease in maintenance rights related expenses in the second quarter of 2016. Transaction, integration and restructuring related expenses were $3.5 million for the second quarter of 2016, compared with $1.1 million for the same period in 2015. Transaction, integration and restructuring related expenses in the second quarter of 2016 were related to the AeroTurbine downsizing and in the second quarter of 2015 were related to the acquisition of ILFC.

Effective Tax Rate

AerCap's effective tax rate during the second quarter of 2015 and 2016 was 13.5%. The effective tax rate for the full year 2015 was 13.9%. The effective tax rate in any year is impacted by the source and amount of earnings among AerCap's different tax jurisdictions.

Book Value Per Share

Financial Position

As of June 30, 2016, AerCap's portfolio consisted of 1,637 aircraft that were owned, on order or managed (including aircraft owned by AerDragon, a non-consolidated joint venture). The average age of our owned fleet as of June 30, 2016 was 7.7 years and the average remaining contracted lease term was 6.0 years.