Aircastle Announces Third Quarter 2013 Results

31-Oct-2013

Highlights

Operating and finance lease rental revenue of $165.3 million and Adjusted EBITDA1 of $169.2 million
Net loss of ($74.6) million, or ($0.95) per diluted common share
Adjusted net loss1 of ($69.1) million, or ($0.88) per diluted common share
Net income1 of $21.0 million, or $0.27 per diluted share, and adjusted net income1 of $26.5 million, or $0.34 per diluted share, excluding Q3 pre-tax, non-cash impairment charges of $97.6 million related to our annual fleet review
Invested $980 million through Q3, and closed or secured $690 million of additional investments which are expected to close by the end of Q1 2014
Q3 fleet utilization of 100% and aircraft portfolio yield of approximately 13.7%
Increased the common dividend by 21% to $0.20 per common share; represents our 30th consecutive quarterly dividend
Sold 12.3 million common shares to Marubeni Corporation generating gross proceeds of $209 million during the third quarter
Aircastle Limited (the "Company" or "Aircastle") (NYSE: AYR) reported a third quarter 2013 net loss of ($74.6) million, or ($0.95) per diluted common share, and an adjusted net loss of ($69.1) million, or ($0.88) per diluted common share. The third quarter results included operating and finance lease rental revenues of $165.3 million, an increase of 1.4%, versus $163.1 million in the third quarter of 2012.

The third quarter 2013 results include $106.1 million of non-cash impairment charges consisting mostly of charges related to our annual fleet review totaling $97.6 million. These impairment charges relate to six 747-400 converted freighter aircraft and one 737-700 aircraft. Excluding these charges, third quarter net income was $21.0 million or $0.27 per diluted share, and adjusted net income was $26.5 million, or $0.34 per diluted share.

Also during the third quarter we recorded a non-cash impairment charge of $8.5 million related to the sale of one 23-year old 767-300ER. This charge was offset by end of lease maintenance revenue and early lease termination fees totaling $12.9 million.

Commenting on the results, Ron Wainshal, Aircastle's CEO, stated: "Aircastle's operating results during the third quarter were excellent as we achieved 100% utilization for our fleet while maintaining high rental yields. The Company benefitted from strong portfolio management and favorable market conditions, with the exception of the air freight sector, where stagnant demand and increasing supply has resulted in a capacity glut and depressed lease rates. Accordingly, while all of our aircraft are on lease, we wrote down the carrying values of our 747-400 converted freighters on short term leases."

Wainshal added, "Aircastle's investment activity this year has been robust. To date, we closed or secured $1.5 billion in investments for this year and an additional $210 million which we expect will close during the first quarter of 2014. These acquisitions are deploying the capital provided through our partnership with Marubeni in an accretive manner while enhancing the Company's strong and sustainable cash flows. Consistent with our philosophy to share increases in the Company's earnings base with shareholders our Board increased the quarterly dividend to $0.20 per share, an increase of 21% since last quarter and double the level since the beginning of 2011."

Third Quarter Results

Lease rental and finance lease revenues for the third quarter were $165.3 million, up $2.2 million, or 1.4%, period over period, due primarily to the impact of aircraft acquisitions net of sales of $9.8 million, partially offset by the impact of extensions, transitions and early lease terminations of $6.4 million and the conversion of operating leases to finance leases of $1.2 million.

Total revenues for the third quarter were $170.1 million, a decrease of $2.8 million, or 1.6%, versus the previous year. This decrease reflects $2.9 million of higher lease incentive amortization primarily related to acquisition of aircraft with lease premiums, and lower other revenues of $2.8 million driven by higher early lease termination payments received in the third quarter of 2012, along with $1.3 million of interest income from an aircraft-backed debt investment acquired in March of 2012 that was repaid in the first quarter of 2013. These reductions to revenues were partially offset by $2.2 million of higher lease rental and finance lease revenues and higher maintenance revenues of $2.0 million.

Adjusted EBITDA for the third quarter was $169.2 million, up $3.0 million, or 1.8%, versus the third quarter of 2012. Higher lease rental, finance lease and maintenance revenues of $4.2 million, higher gain on the sale of flight equipment of $3.1 million and lower maintenance expenses of $2.0 million were partially offset by lower interest income and lower other fees and revenues of $4.1 million and higher expenses of $2.2 million. Unrelated to the 767-300ER end of life aircraft referenced earlier, the gain on the sale of flight equipment was primarily associated with a second 767-300ER that we sold during the quarter for a gain of $3.0 million.

The net loss for the third quarter was ($74.6) million versus a net loss of ($45.8) million in the third quarter of 2012. The higher net loss was primarily driven by $27.5 million of higher aircraft impairment charges taken against the total of eight aircraft in the third quarter of 2013 versus the prior year's third quarter. In addition, total revenues declined by $2.8 million while interest expense increased $3.7 million and depreciation expense rose by $2.1 million. Offsetting this were higher gains on the sale of flight equipment of $3.1 million, and lower maintenance costs and taxes of $4.3 million. Net income was $21.0 million, or $0.27 per diluted share, excluding the non-cash impairment charge related to our annual fleet review.

The adjusted net loss for the quarter was ($69.1) million, versus an adjusted net loss of ($37.5) million the prior year. The $27.5 million increase in impairment charges, a $2.1 million increase in depreciation and an increase in adjusted interest and other expense of $6.3 million was partially offset by a $3.1 million gain on the sale of flight equipment and lower taxes of $2.3 million. Adjusted net income was $26.5 million, or $0.34 per diluted share, excluding the non-cash impairment charge related to our annual fleet review.

Aviation Assets

Thus far in 2013, we have closed or committed to acquire 25 aircraft for $1.5 billion. Approximately $525 million of these investments were closed during the third quarter and $480 million are expected to close by the end of 2013. We also secured $210 million in acquisitions which we expect to close during the first quarter of 2014. During the third quarter we sold one 767-300ER and two 757-200 aircraft and recorded gains from the sale of this flight equipment totaling $3.1 million. In addition, as discussed above, we sold a 23-year old 767-300ER, recorded an $8.5 million transactional impairment and recorded $12.9 in maintenance revenue and early termination fees.

As of September 30, 2013, Aircastle owned 161 aircraft having a net book value of $5.1 billion. Of this total, 80 aircraft with a net book value of $2.7 billion are unencumbered. Including unrestricted cash, total unencumbered assets were $3.0 billion.

Fleet Review and Asset Impairments

During the third quarter of 2013 we recorded $106.1 million of non-cash impairment charges, of which $97.6 million related to our annual fleet review. Due to sluggish market demand, increased supply, depressed lease rates and rising storage levels for large, dedicated freighter aircraft, we impaired six Boeing 747-400 converted freighter aircraft for $88.6 million to write down these aircraft to their current market value. During the quarter we also impaired one mid-age Boeing 737-700 aircraft for $8.9 million. The total net book value for these seven aircraft was $313.2 million at the end of the second quarter of 2013. All seven aircraft are currently on lease.

The impairment charges taken during the quarter reflect our current estimates of future lease rates and residual values associated with these aircraft in the current market environment. We concluded that these assets will not recover from their current market levels.

In addition, during the quarter we agreed to early terminate the lease and sell one 23-year old 767-300ER aircraft, and recorded an $8.5 million impairment which was offset by $12.1 million of maintenance revenue and $0.9 million of other early termination revenue.

Common Dividend

On October 29, 2013, Aircastle's Board of Directors declared a fourth quarter 2013 cash dividend on its common shares of $0.20 per share, payable on December 13, 2013 to shareholders of record on November 29, 2013. This is a 21% increase over the previous quarter's cash dividend.

Since early 2011, we have repurchased 11.7 million common shares at an average cost of $11.87 per share, and we continue to have $30 million remaining under the current repurchase authorization.

Financing Update

On July 12, 2013, we successfully completed the issuance to Marubeni Corporation of 12,320,000 common shares, representing 15.25% of Aircastle's issued and outstanding common shares, after giving effect to the issuance, at a price of $17.00 per share, for gross proceeds of approximately $209 million. Combined with additional subsequent purchases of Aircastle common shares in the secondary market, as of October 28, 2013, Marubeni Corporation owned a total of 14,389,100 shares, representing approximately 17.8% of Aircastle's issued and outstanding common shares as of the end of the third quarter.

In early August, we increased our unsecured revolving credit facility from $150 million to $335 million. We also expanded the bank group from four to seven global financial institutions and extended the maturity of the facility to a three year term to expire in August 2016.

In August of 2013, we also issued a fixed rate ECA bond with a face value of $78.2 million. The bond is guaranteed by COFACE and the proceeds repaid an interim floating rate bank financing associated with an A330-200 aircraft that we acquired in 2012. The bond has a fixed coupon rate of 3.488% and matures in 2024.

Refer to full documentation in attachments box, located at the top left, below the headline.