AerCap Holdings N.V. Reports Second Quarter Financial Results

Amsterdam, Netherlands; August 12, 2014 – AerCap Holdings N.V. (“AerCap,” the “Company” or “us”) (NYSE: AER) today announced that its adjusted net income was $212.4 million for the second quarter of 2014. Adjusted earnings per share were $1.29 for the second quarter of 2014, an increase of 118% over the second quarter of 2013.

ILFC Acquisition
On May 14, 2014, AerCap completed the acquisition of International Lease Finance Corporation (“ILFC”) from American International Group, Inc. (“AIG”). The results of ILFC have been consolidated in AerCap Holdings N.V.’s income statement and cash flow statement for the second quarter as of May 14, 2014, the completion date.

Operational Update

ILFC integration activities are on track: smooth day one transition and end-state organization has been designed with a clear path to execution.
Net spread for the second quarter was a 5-year high of 10.1%.
As of June 30, 2014, we had committed to purchase 350 aircraft with scheduled delivery dates up to 2022. Over 90% of our committed aircraft purchases delivering 2014 through December 2016 and approximately 50% of our committed aircraft purchases delivering 2014 through 2022 are placed, either under lease contract or a letter of intent.
We executed 122 aircraft transactions during the second quarter of 2014.
Targeted aircraft sales of ~$1 billion per year on average are ahead of plan: ~$2 billion completed since the ILFC transaction announcement in December 2013.
90% of the ILFC aircraft have been transferred to our existing operations in Ireland.
Available liquidity of $6.5 billion as of June 30, 2014. Since the announcement of the transaction $7 billion of funding has been raised: unsecured revolver, term loan and ILFC acquisition related take-out financing.

Aengus Kelly, CEO of AerCap, commented: “We are very pleased with our financial results and the ongoing ILFC integration process, as evidenced by the numbers. Our net spread of 10% is running at a 5-year high with fleet utilization of approximately 99%. Further, we have placed 50% of our committed aircraft purchases through 2022. We have also far exceeded our aircraft sales target by $1 billion, resulting in a robust liquidity profile. Finally, the ILFC asset migration to our Irish operations is ahead of schedule. From these figures, I am extremely proud of the entire AerCap/ILFC team who are working diligently to integrate the combined operations which we anticipate will be completed in 2015.”

Second Quarter Highlights

The adjusted debt to equity ratio increased to 3.7 to 1 at June 30, 2014, from 2.6 to 1 for the same period in 2013, reflecting our acquisition of ILFC.
We executed $3 billion of financing transactions, including the previously announced private placement of $2.6 billion of notes for the ILFC acquisition related take-out financing.
During the second quarter of 2014, we purchased ten aircraft with a total value of $0.7 billion.
Our fleet utilization rate was 98.8% for the second quarter of 2014. The average age of the owned fleet as of June 30, 2014 was 7.6 years and the average remaining contracted lease term was 5.5 years.
We completed the sale of 100% of the class A common shares in Genesis Funding Limited (GFL), an aircraft securitization vehicle with a portfolio of 37 aircraft with an average age of 13 years valued at approximately $750 million.
Subsequent to the second quarter of 2014, we exercised an option to purchase 50 A320neo family aircraft from Airbus.
Purchase Accounting

The financial statements for AerCap Holdings N.V. reflect the fair value of the assets acquired, the liabilities assumed, and non-controlling interest from ILFC based upon preliminary valuations. The most significant areas include flight equipment, the forward order book, outstanding debt, and maintenance rights asset.

The impact on the purchase price from the significant increase in AerCap’s share price from announcement of the ILFC transaction to closing is reflected in the purchase price allocation to the assets acquired and liabilities assumed.

The fair values of the assets acquired and liabilities assumed were determined using the market and income approaches and are based upon a preliminary valuation. Our estimates and assumptions are subject to change within the measurement period. The primary areas that are not yet finalized relate to the aircraft, maintenance related assets and liabilities, the forward order book, and income taxes.

The fair value of flight equipment was determined based on their actual physical condition at the acquisition date using an income approach based on the present value of the expected cash flows over the aircraft’s remaining useful life.

The forward order book fair value was determined by discounting the difference between the estimated fair value of the aircraft and their contractual purchase price at the respective future delivery dates. The order book fair value will be included in the cost basis of the aircraft when delivered.

The fair value of debt is estimated using quoted market prices where available. The fair value of certain debt without quoted market prices is estimated using discounted cash flow analysis based on current market prices for similar debt instruments.

The maintenance rights asset represents the difference between the actual physical condition of the aircraft at the acquisition date and the value based on the contractual return conditions in the lease contracts and is reflected as a maintenance rights asset on the balance sheet.

Second Quarter 2014 Financial Results

Second quarter 2014 reported net income was $138.3 million, compared with $75.7 million for the same period in 2013. Second quarter 2014 reported basic earnings per share were $0.84, compared with $0.67 for the same period in 2013. The increase in net income and earnings per share over second quarter 2013 were driven primarily by the ILFC transaction.
Second quarter 2014 adjusted net income was $212.4 million, compared with $67.1 million for the same period in 2013. Second quarter 2014 adjusted earnings per share were $1.29, compared with $0.59 for the same period in 2013. The increase in adjusted net income and earnings per share over second quarter 2013 were driven primarily by the ILFC transaction.
Net interest margin earned on lease assets, or net spread, was $550.8 million in the second quarter of 2014 compared with $160.1 million for the same period in 2013. Net interest margin as a percentage of average lease assets was 10.1% for the second quarter 2014, compared with 8.5% for the same period in 2013. The increase was primarily attributable to the ILFC transaction.
Total assets were $43.9 billion as of June 30, 2014.
Net Income/Earnings Per Share

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

Second quarter 2014 adjusted net income increased 217% over the same period in 2013 and second quarter 2014 adjusted earnings per share increased 118% over the same period in 2013. The increases were driven primarily by the ILFC transaction.

After discussions with the staff of the Securities and Exchange Commission, we concluded that our reported net income and earnings per share should reflect expensing the maintenance rights asset during the remaining lease term. The adjustment for maintenance rights related expense is based on the difference between expensing this asset during the remaining lease term as compared to expensing this asset straight-line over the remaining economic life of the aircraft. We believe this measure may further assist investors in their understanding of our operational and financial performance. The difference in the two methods will have no economic impact as it is non-cash and equalizes over time.

Revenue and Net Spread

Basic lease rents were $716.7 million for the second quarter of 2014, compared with $219.5 million in the same period in 2013. The increase was driven primarily by the ILFC transaction and new aircraft purchases. Our average lease assets were $22.0 billion, compared with $7.6 billion for the same period in 2013.

Lease revenue for the second quarter of 2014 was $763.3 million, compared with $229.8 million for the same period in 2013.

Net gain on sale of assets for the second quarter of 2014 was $19.0 million, compared with $10.5 million for the same period in 2013.

Other income for the second quarter of 2014 was $24.5 million, compared with $6.7 million for the same period in 2013. The increase was driven by the ILFC acquisition and relates primarily to income from our AeroTurbine subsidiary.

Adjusted interest expenses for the three months ended June 30, 2014 and 2013 includes $9.8 million and $8.3 million of amortization of debt issuance costs, respectively. Adjusted interest expenses for the six months ended June 30, 2014 and 2013 includes $16.4 million and $15.9 million of amortization of debt issuance costs, respectively.

As shown in the table above, adjusted interest expenses were $165.9 million in the second quarter of 2014, a 179% increase compared with the same period in 2013. Net spread was $550.8 million in the second quarter of 2014, a 244% increase compared with the same period in 2013.

Effective Tax Rate

AerCap’s blended effective tax rate during the first six months of 2014 was 18.0% and 21.0% for the second quarter of 2014. The blended effective tax rate for the year ended December 31, 2013 was 8.4%. The increase is driven primarily by the ILFC acquisition. The blended effective tax rate in any year is impacted by the source and amount of earnings among AerCap’s different tax jurisdictions.

As of June 30, 2014, AerCap’s portfolio consisted of 1,678 aircraft that were owned (including aircraft owned by AerDragon, a non-consolidated joint venture), on order, under contract or managed. The average age of the owned fleet as of June 30, 2014 was 7.6 years and the average remaining contracted lease term was 5.5 years.