Aircastle Announces Second Quarter 2017 Results

(in thousands, except share data)

Three Months Ended

June 30,

Six Months EndedJune 30,

2017

2016

2017

2016

Total Revenues

$

223,534

$

189,988

$

427,807

$

373,653

Lease Rental and Finance and Sales-Type Lease Revenues

$

194,976

$

180,299

$

389,635

$

363,367

Adjusted EBITDA

$

224,105

$

182,436

$

417,496

$

366,315

Net income (loss)

$

(7,116)

$

20,030

$

35,323

$

56,292

   Per common share - Diluted

$

(0.09)

$

0.25

$

0.45

$

0.71

Adjusted net income

$

2,448

$

24,205

$

48,139

$

68,296

   Per common share - Diluted

$

0.03

$

0.31

$

0.61

$

0.86

(in millions, except per share amounts)

Q2:17 Results

Freighter Sales

Executive Separation

Adjusted Q2:17 Results

Total Revenues

$

223.5

$

13.5

$

—

$

210.0

Total Operating Expenses

(244.4)

(79.2)

(5.1)

(160.1)

Total Other Income (Expense)

12.0

—

—

12.0

Pre-Tax Income (loss)

$

(8.9)

$

(65.7)

$

(5.1)

$

61.9

Owned Aircraft

As of

June 30,

2017(1)

As of

June 30,

2016(1)

Net Book Value of Flight Equipment ($ mils.)

$

6,173

$

6,168

Net Book Value of Unencumbered Flight Equipment ($ mils.)

$

4,497

$

4,499

Number of Aircraft

190

169

Number of Unencumbered Aircraft

157

142

Weighted Average Fleet Age (years)(2)

8.3

7.7

Weighted Average Remaining Lease Term (years)(2)

4.7

5.5

Weighted Average Fleet Utilization for the quarter ended(3)

99.3

%

99.0

%

Portfolio Yield for the quarter ended(2)(4)

12.3

%

12.5

%

Net Cash Interest Margin(5)

8.8

%

8.7

%

Managed Aircraft on behalf of  Joint Ventures

Net Book Value of Flight Equipment ($ mils.)

$

675

$

612

Number of Aircraft

13

10

(1)

Calculated using net book value of flight equipment held for lease and net investment in finance leases at period end.

(2)

Weighted by net book value.

(3)

Aircraft on-lease days as a percent of total days in period weighted by net book value.

(4)

Lease rental revenue, interest income and cash collections on our net investment in finance and sales-type leases for the period as a percent of the average net book value for the period; quarterly information is annualized.  Based on the growing level of finance and sales-type lease revenue management revised the calculation of portfolio yield to include our net investment in finance and sales-type leases in the average net book value and to include the interest income and cash collections on our net investment in finance and sales-type leases in lease rentals. 

(5)

Net Cash Interest Margin = Lease rental yield plus finance lease revenue and collections minus interest on borrowings, net of settlements on interest rate derivatives, and other liabilities  / average NBV of flight equipment for the period calculated on a quarterly basis, annualized.  The second quarter of 2017 excludes a non-recurring, $7.0 million accelerated collection received from a lessee in connection with a finance lease. 

Aircastle Limited and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, except share data)

June 30,

December 31,

2017

2016

ASSETS

Cash and cash equivalents

$

481,035

$

455,579

Restricted cash and cash equivalents

49,613

53,238

Accounts receivable

3,830

6,035

Flight equipment held for lease, net of accumulated depreciation of $1,278,438 and $1,224,899, respectively

5,818,821

6,247,585

Net investment in finance and sales-type leases

354,474

260,853

Unconsolidated equity method investments

76,158

72,977

Other assets

259,409

148,398

Total assets

$

7,043,340

$

7,244,665

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES

Borrowings from secured financings, net of debt issuance costs

$

1,055,610

$

1,219,034

Borrowings from unsecured financings, net of debt issuance costs

3,283,747

3,287,211

Accounts payable, accrued expenses and other liabilities

131,868

127,527

Lease rentals received in advance

59,657

62,225

Security deposits

123,107

122,597

Maintenance payments

554,262

591,757

Total liabilities

5,208,251

5,410,351

Commitments and Contingencies

SHAREHOLDERS' EQUITY

Preference shares, $.01 par value, 50,000,000 shares authorized, no shares issued and outstanding

—

—

Common shares, $0.01 par value, 250,000,000 shares authorized, 78,713,706 shares issued and outstanding at June 30, 2017; and 78,593,133 shares issued and outstanding at December 31, 2016

787

786

Additional paid-in capital

1,526,433

1,521,190

Retained earnings

310,265

315,890

Accumulated other comprehensive loss

(2,396)

(3,552)

Total shareholders' equity

1,835,089

1,834,314

Total liabilities and shareholders' equity

$

7,043,340

$

7,244,665

Aircastle Limited and Subsidiaries

Consolidated Statements of Income (Loss)

(Dollars in thousands, except per share amounts)

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2017

2016

2017

2016

Revenues:

Lease rental revenue

$

189,098

$

176,125

$

379,684

$

355,695

Finance and sales-type lease revenue

5,878

4,174

9,951

7,672

Amortization of lease premiums, discounts and incentives

(3,280)

(3,828)

(6,392)

(4,898)

Maintenance revenue

28,944

12,514

41,231

13,774

Total lease revenue

220,640

188,985

424,474

372,243

Other revenue

2,894

1,003

3,333

1,410

Total revenues

223,534

189,988

427,807

373,653

Operating expenses:

Depreciation

78,254

75,070

157,428

151,717

Interest, net

61,672

62,452

124,740

126,693

Selling, general and administrative (including non-cash share-based payment expense of $6,028 and $2,094 for the three months ended, and $8,130 and $3,737 for the six months ended June 30, 2017 and 2016, respectively)

22,187

15,406

38,354

30,898

Impairment of flight equipment

79,930

16,723

80,430

16,723

Maintenance and other costs

2,343

2,267

5,274

3,670

Total expenses

244,386

171,918

406,226

329,701

Other income (expense):

Gain on sale of flight equipment

13,525

2,172

14,284

15,005

Other

(1,560)

147

(2,709)

74

Total other income

11,965

2,319

11,575

15,079

Income (loss) from continuing operations before income taxes and earnings of unconsolidated equity method investment

(8,887)

20,389

33,156

59,031

Income tax provision

495

2,385

2,341

6,324

Earnings of unconsolidated equity method investments, net of tax

2,266

2,026

4,508

3,585

Net income (loss)

$

(7,116)

$

20,030

$

35,323

$

56,292

Earnings (loss) per common share — Basic:

Net income (loss) per share

$

(0.09)

$

0.25

$

0.45

$

0.71

Earnings (loss) per common share — Diluted:

Net income (loss) per share

$

(0.09)

$

0.25

$

0.45

$

0.71

Dividends declared per share

$

0.26

$

0.24

$

0.52

$

0.48

Aircastle Limited and Subsidiaries

Consolidated Statements of Cash Flows

(Dollars in thousands) (Unaudited)

Six Months Ended June 30,

2017

2016

Cash flows from operating activities:

Net income

$

35,323

$

56,292

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation

157,428

151,717

Amortization of deferred financing costs

9,125

9,470

Amortization of lease premiums, discounts and incentives

6,392

4,898

Deferred income taxes

(833)

2,243

Non-cash share based payment expense

8,130

3,737

Cash flow hedges reclassified into earnings

1,156

8,369

Security deposits and maintenance payments included in earnings

(23,063)

(5,651)

Gain on sale of flight equipment

(14,284)

(15,005)

Impairment of flight equipment

80,430

16,723

Other

1,211

(2,843)

Changes in certain assets and liabilities:

Accounts receivable

2,090

3,262

Other assets

(11,407)

(85)

Accounts payable, accrued expenses and other liabilities

(2,194)

4,284

Lease rentals received in advance

(2,115)

(2,714)

Net cash and restricted cash provided by operating activities

247,389

234,697

Cash flows from investing activities:

Acquisition and improvement of flight equipment

(148,364)

(478,026)

Proceeds from sale of flight equipment

238,277

339,507

Aircraft purchase deposits and progress payments, net of returned deposits and aircraft sales deposits

(2,892)

(9,801)

Net investment in finance and sales-type leases

(119,971)

(78,365)

Collections on finance and sales-type leases

17,185

7,833

Unconsolidated equity method investments and associated costs

—

(11,688)

Other

88

(509)

Net cash and restricted cash used in investing activities

(15,677)

(231,049)

Cash flows from financing activities:

Repurchase of shares

(2,513)

(33,854)

Proceeds from secured and unsecured debt financings

500,000

787,310

Repayments of secured and unsecured debt financings

(667,472)

(459,021)

Deferred financing costs

(8,540)

(16,121)

Restricted secured liquidity facility collateral

—

65,000

Secured liquidity facility collateral

—

(65,000)

Security deposits and maintenance payments received

87,185

72,572

Security deposits and maintenance payments returned

(77,593)

(26,094)

Dividends paid

(40,948)

(37,830)

Net cash and restricted cash (used in) provided by financing activities

(209,881)

286,962

Net increase in cash and restricted cash

21,831

290,610

Cash and restricted cash at beginning of period

508,817

254,041

Cash and restricted cash at end of period

$

530,648

$

544,651

Aircastle Limited and Subsidiaries

Selected Financial Guidance Elements for the Third Quarter of 2017

($ in millions, except for percentages)

(Unaudited)

Guidance Item

Q3:17

Lease rental revenue

$170 - $174

Finance lease revenue

$5 - $6

Maintenance revenue

$6 - $8

Amortization of net lease discounts and lease incentives

($2) - ($3)

SG&A(1)

$16 - $17

Depreciation

$69 - $72

Interest, net

$58 - $61

Gain on sale

$18 - $24

6% - 8%

(1)

    Includes ~$2.4M of non-cash share based payment expense.

Aircastle Limited and Subsidiaries

Supplemental Financial Information

(Amount in thousands, except per share amounts)

(Unaudited)

Three Months Ended

June 30,

Six Months EndedJune 30,

2017

2016

2017

2016

Revenues

$

223,534

$

189,988

$

427,807

$

373,653

EBITDA

$

136,585

$

163,765

$

326,224

$

345,924

Adjusted EBITDA

$

224,105

$

182,436

$

417,496

$

366,315

Net income (loss)

$

(7,116)

$

20,030

$

35,323

$

56,292

Net income (loss) allocable to common shares

$

(7,116)

$

19,856

$

35,068

$

55,844

Per common share - Basic

$

(0.09)

$

0.25

$

0.45

$

0.71

Per common share - Diluted

$

(0.09)

$

0.25

$

0.45

$

0.71

Adjusted net income

$

2,448

$

24,205

$

48,139

$

68,296

Adjusted net income allocable to common shares

$

2,428

$

23,994

$

47,791

$

67,752

Per common share - Basic

$

0.03

$

0.31

$

0.61

$

0.86

Per common share - Diluted

$

0.03

$

0.31

$

0.61

$

0.86

Basic common shares outstanding

78,177

78,159

78,177

78,351

Diluted common shares outstanding

78,177

78,159

78,404

78,351

Refer to the selected information accompanying this press release for a reconciliation of GAAP to Non-GAAP information.

Aircastle Limited and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

EBITDA and Adjusted EBITDA Reconciliation

(Dollars in thousands)

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2017

2016

2017

2016

(Dollars in thousands)

(Dollars in thousands)

Net income (loss)

$

(7,116)

$

20,030

$

35,323

$

56,292

Depreciation

78,254

75,070

157,428

151,717

Amortization of lease premiums, discounts and incentives

3,280

3,828

6,392

4,898

Interest, net

61,672

62,452

124,740

126,693

Income tax provision

495

2,385

2,341

6,324

     EBITDA

136,585

163,765

326,224

345,924

Adjustments:

Impairment of flight equipment

79,930

16,723

80,430

16,723

Non-cash share based payment expense

6,028

2,094

8,130

3,737

(Gain) loss on mark-to-market of interest rate derivative contracts

1,562

(146)

2,712

(69)

     Adjusted EBITDA

$

224,105

$

182,436

$

417,496

$

366,315

Aircastle Limited and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

Adjusted Net Income Reconciliation

(Dollars in thousands)

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2017

2016

2017

2016

(Dollars in thousands)

(Dollars in thousands)

Net income (loss)

$

(7,116)

$

20,030

$

35,323

$

56,292

Loan termination fee(1)

988

—

988

1,509

(Gain) loss on mark-to-market of interest rate derivative contracts(2)

1,562

(146)

2,712

(69)

Write-off of deferred financing fees(1)

986

—

986

1,972

Non-cash share based payment expense(3)

6,028

2,094

8,130

3,737

Securitization No. 1 hedge loss amortization charges (1)

—

2,227

—

4,855

Adjusted net income

$

2,448

$

24,205

$

48,139

$

68,296

(1)

Included in Interest, net.

(2)

Included in Other income (expense).

(3)

Included in Selling, general and administrative expenses.

Management believes that ANI, when viewed in conjunction with the Company's results under U.S. GAAP and the above reconciliation, provides useful information about operating and period-over-period performance, and provides additional information that is useful for evaluating the underlying operating performance of our business without regard to periodic reporting elements related to interest rate derivative accounting, changes related to refinancing activity and non-cash share based payment expense.

Aircastle Limited and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

Cash Return on Equity Calculation

(Dollars in thousands)

(Unaudited)

CFFO

Finance

Lease

Collections

(Gain) Loss on Sale of Eqt.

Deprec.

Distributions

in excess (less than) Equity Earnings

Cash Earnings

Average

Shareholders

Equity

12 Month Cash ROE

2011

$

359,377

$

—

$

39,092

$

242,103

$

—

$

156,366

$

1,370,513

11.4

%

2012

$

427,277

$

3,852

$

5,747

$

269,920

$

—

$

166,956

$

1,425,658

11.7

%

2013

$

424,037

$

9,508

$

37,220

$

284,924

$

—

$

185,841

$

1,513,156

12.3

%

2014

$

458,786

$

10,312

$

23,146

$

299,365

$

667

$

193,546

$

1,661,228

11.7

%

2015

$

526,285

$

9,559

$

58,017

$

318,783

$

(530)

$

274,548

$

1,759,871

15.6

%

2016

$

468,092

$

19,413

$

39,126

$

305,216

$

(1,782)

$

219,633

$

1,789,256

12.3

%

LTM Q2:17

$

480,784

$

28,765

$

38,405

$

310,927

$

(1,734)

$

235,293

$

1,817,414

12.9

%

Note:  LTM Average Shareholders' Equity is the average of the most recent five quarters period end Shareholders' Equity.  Management believes that the cash return on equity metric ("Cash ROE") when viewed in conjunction with the Company's results under U.S. GAAP and the above reconciliation, provide useful information about operating and period-over-period performance, and provide additional information that is useful for evaluating the underlying operating performance of our business without regard to periodic reporting impacts related to non-cash revenue and expense items and interest rate derivative accounting, while recognizing the depreciating nature of our assets.

Aircastle Limited and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

Net Cash Interest Margin Calculation

(Dollars in thousands)

(Unaudited)

Average NBV

Quarterly Rental Revenue(1)

Cash Interest(2)

Annualized Net Cash Interest Margin(1)(2)

Q1:12

$

4,388,008

$

152,242

$

44,969

9.8

%

Q2:12

$

4,542,477

$

156,057

$

48,798

9.4

%

Q3:12

$

4,697,802

$

163,630

$

41,373

10.4

%

Q4:12

$

4,726,457

$

163,820

$

43,461

10.2

%

Q1:13

$

4,740,161

$

162,319

$

48,591

9.6

%

Q2:13

$

4,840,396

$

164,239

$

44,915

9.9

%

Q3:13

$

4,863,444

$

167,876

$

47,682

9.9

%

Q4:13

$

5,118,601

$

176,168

$

49,080

9.9

%

Q1:14

$

5,312,651

$

181,095

$

51,685

9.7

%

Q2:14

$

5,721,521

$

190,574

$

48,172

10.0

%

Q3:14

$

5,483,958

$

182,227

$

44,820

10.0

%

Q4:14

$

5,468,637

$

181,977

$

44,459

10.1

%

Q1:15

$

5,743,035

$

181,027

$

50,235

9.1

%

Q2:15

$

5,967,898

$

189,238

$

51,413

9.2

%

Q3:15

$

6,048,330

$

191,878

$

51,428

9.3

%

Q4:15

$

5,962,874

$

188,491

$

51,250

9.2

%

Q1:16

$

5,988,076

$

186,730

$

51,815

9.0

%

Q2:16

$

5,920,030

$

184,469

$

55,779

8.7

%

Q3:16

$

6,265,175

$

193,909

$

57,589

8.7

%

Q4:16

$

6,346,361

$

196,714

$

58,631

8.7

%

Q1:17

$

6,505,355

$

200,273

$

58,839

8.7

%

Q2:17

$

6,512,100

$

199,522

$

55,871

8.8

%

(1)

Excludes loan termination payments of $3.0 million in the second quarter of 2013, $1.5 million and $3.5 million in the first quarter and fourth quarter of 2016, respectively, and loan termination payments of $1.0 million in the second quarter of 2017.  The second quarter of 2017 excludes a non-recurring, $7.0 million accelerated collection received from a lessee in connection with a finance lease.

(2)

Net Cash Interest Margin = Lease rental yield plus finance lease revenue and collections minus interest on borrowings, net of settlements on interest rate derivatives, and other liabilities  / average NBV of flight equipment for the period calculated on a quarterly basis, annualized.   Based on the growing level of finance and sales-type lease revenue, management revised the calculation of portfolio yield to include our net investment in finance and sales-type leases in the average net book value and to include the interest income and cash collections on our net investment in finance and sales-type leases in lease rentals.

Management believes that net cash interest margin, when viewed in conjunction with the Company's results under U.S. GAAP and the above reconciliation, provides useful information about the effective deployment of our capital in the context of the yield on our aircraft assets, the utilization of those assets by our lessees, and our ability to borrow efficiently.

Aircastle Limited and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

Reconciliation of Net Income Allocable to Common Shares

(In thousands)

(Unaudited)

Three Months Ended

June 30, 2017

Six Months EndedJune 30, 2017

Weighted-average shares:

Shares

Percent

Shares

Percent

Common shares outstanding – Basic

78,177

99.20

%

78,177

99.28

%

Unvested restricted common shares

634

0.80

%

569

0.72

%

Total weighted-average shares outstanding

78,811

100.00

%

78,746

100.00

%

Common shares outstanding – Basic

78,177

100.00

%

78,177

99.71

%

Effect of dilutive shares(1)

—

0.00

%

227

0.29

%

Common shares outstanding – Diluted

78,177

100.00

%

78,404

100.00

%

Net income allocation

Net income (loss)

$

(7,116)

100.00

%

$

35,323

100.00

%

Distributed and undistributed earnings allocated to unvested restricted shares(2)

—

0.00

%

(255)

(0.72)

%

Earnings available to common shares

$

(7,116)

100.00

%

$

35,068

99.28

%

Adjusted net income allocation

Adjusted net income

$

2,448

100.00

%

$

48,139

100.00

%

Amounts allocated to unvested restricted shares

(20)

(0.80)

%

(348)

(0.72)

%

Amounts allocated to common shares – Basic and Diluted

$

2,428

99.20

%

$

47,791

99.28

%

(1)

For the three months ended June 30, 2017, the effect of 170,116 contingently issuable shares related to the Company's PSUs would have been anti-dilutive and were excluded from the calculation.  For the six months ended June 30, 2017, dilutive shares represented contingently issuable shares.

(2)

For the three months ended June 30, 2017, the effect of any diluted shares on distributed and undistributed earnings to restricted shares would have been anti-dilutive and were excluded from the calculation. For the six months ended June 30, 2017 distributed and undistributed earnings to restricted shares were 0.72% of net income. The amount of restricted share forfeitures for all periods present is immaterial to the allocation of distributed and undistributed earnings.

Aircastle Limited and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

Reconciliation of Net Income Allocable to Common Shares

(In thousands)

(Unaudited)

Three Months Ended

June 30, 2016

Six Months EndedJune 30, 2016

Weighted-average shares:

Shares

Percent

Shares

Percent

Common shares outstanding – Basic

78,159

99.13

%

78,351

99.20

%

Unvested restricted common shares

686

0.87

%

629

0.80

%

Total weighted-average shares outstanding

78,845

100.00

%

78,981

100.00

%

Common shares outstanding – Basic

78,159

100.00

%

78,351

100.00

%

Effect of dilutive shares(1)

—

0.00

%

—

0.00

%

Common shares outstanding – Diluted

78,159

100.00

%

78,351

100.00

%

Net income allocation

Net income

$

20,030

100.00

%

$

56,292

100.00

%

Distributed and undistributed earnings allocated to unvested restricted shares(2)

(174)

(0.87)

%

(448)

(0.80)

%

Earnings available to common shares

$

19,856

99.13

%

$

55,844

99.20

%

Adjusted net income allocation

Adjusted net income

$

24,205

100.00

%

$

68,296

100.00

%

Amounts allocated to unvested restricted shares

(211)

(0.87)

%

(544)

(0.80)

%

Amounts allocated to common shares – Basic and Diluted

$

23,994

99.13

%

$

67,752

99.20

%

(1)

For the three and six months ended June 30, 2016 the company had no dilutive shares.

(2)

For the three and six months ended June 30, 2016, distributed and undistributed earnings to restricted shares were 0.87% and 0.80% of net income respectively. The amount of restricted share forfeitures for all periods present is immaterial to the allocation of distributed and undistributed earnings.

Contact:

Aircastle Advisor LLC                                            

The IGB Group

Frank Constantinople, SVP Investor Relations 

Leon Berman

Tel: +1-203-504-1063                 

Tel: +1-212-477-8438

[email protected]      

[email protected]