Aircastle Announces Second Quarter 2014 Results

Highlights

Lease rental including finance lease revenues of $187.1 million, and Adjusted EBITDA1 of $211.7 million
Net income of $3.1 million, or $0.04 per diluted common share
Adjusted net income1 of $47.7 million, or $0.59 per diluted common share
Invested $916 million year-to-date in 2014; approximately $490 million in additional investment commitments outstanding
Sold 17 aircraft and designated for sale two 747-400 freighters; net pre-tax contribution of $8.2 million
Refinanced $450 million of 9.75% senior notes due in 2018, with 5.125% notes due in 2021
Fleet utilization of almost 100% with an aircraft portfolio yield of 13.1% and net cash interest margin of 9.7%
33rd consecutive dividend declared by Aircastle’s Board of Directors
Aircastle Limited (the “Company” or “Aircastle”) (NYSE: AYR) reported second quarter 2014 net income of $3.1 million, or $0.04 per diluted common share, and adjusted net income of $47.7 million, or $0.59 per diluted common share. The second quarter results included lease rental and finance lease revenues of $187.1 million versus $162.0 million in the second quarter of 2013.

Commenting on the results, Ron Wainshal, Aircastle’s CEO, stated, "Our second quarter 2014 results were strong as we reported 16% lease rental revenue growth versus last year. Our net interest margin was 9.7%, which was among the highest in the industry, and represented 23% year-over-year growth in dollar terms. So far in 2014, Aircastle continued to meet our high yield and profitability targets, completing $916 million of accretive investments, committing an additional $490 million to aircraft acquisitions and pursuing new opportunities. We also sold 17 aircraft and designated for sale two freighters for net pre-tax income of $8.2 million while improving the overall quality of our portfolio.

Mr. Wainshal continued, “As a flexible and value-oriented aircraft investor, Aircastle is focused on generating stable cash flow, efficiently allocating capital between investments and returning capital to shareholders at appropriate stages of the market cycle. In addition to opportunistically repurchasing shares, we have provided a regular return of capital to shareholders in the form of dividends for 33 consecutive quarters, including significant dividend growth over the past three years.”

Aircastle’s CFO, Mike Inglese, added, “We’ve made great strides improving our capital structure, enhancing the Company’s competitive position. In that regard, we are particularly pleased to have lowered our cost of capital by replacing 9.75% coupon debt with new, longer term 5.125% notes, reducing interest expense by approximately $21 million per annum and further supporting cash flow generation for years to come.”

Second Quarter Results

For the second quarter of 2014, operating and finance lease revenues were $187.1 million, up $25.1 million, or 15% year over year, due primarily to the impact of aircraft acquisitions of $51.2 million, partially offset by lower revenues due to aircraft dispositions of $20.3 million and from the effect of lease extensions, transitions and terminations totaling $5.6 million.

Total revenues for the second quarter were $226.1 million, an increase of $55.8 million, or 33% above the previous year, reflecting higher operating and finance lease revenue of $25.1 million, as discussed above, and higher maintenance revenues of $23.0 million and lower amortization of net lease discounts and incentives in the quarter, both of which were driven by several end of lease sales.

Adjusted EBITDA for the second quarter was $211.7 million, up $28.2 million, or 15% from the second quarter of 2013. The increase was primarily driven by higher lease rental and finance lease revenue of $25.1 million and higher maintenance revenue of $23.0 million, partially offset by lower net gain on the sale of flight equipment of $20.4 million. The second quarter of 2013 included a $23.6 million gain from the sale of three A330-200 freighter aircraft.

Net income for the second quarter was $3.1 million, down $29.7 million. The decrease was primarily due to bond redemption expenses of $36.6 million associated with refinancing $450 million of 9.75% senior unsecured notes due in 2018. Proceeds from the sale of 5.125% senior unsecured notes due in 2021 were used to repay the higher cost notes and will result in future interest expense savings. Lower net gains from the sale of aircraft of $20.4 million and higher aircraft impairment charges of $28.3 million were partially offset by higher total revenues of $55.8 million.

Adjusted net income for the quarter was $47.7 million, up $1.7 million year over year, and reflects higher total revenues of $55.8 million, lower maintenance expenses of $3.5 million and higher joint venture earnings of $0.5 million. Partially offsetting these improvements were lower gain on sale of $20.4 million, higher aircraft impairment charges of $28.3 million, higher depreciation of $3.7 million, higher taxes of $2.8 million, and lower other income of $2.9 million.

Aviation Assets

During the first half of the year, we acquired 11 aircraft and two engines for $915.9 million. Seven aircraft which were less than five years old accounted for $818.9 million of this total. As of June 30, 2014, we also had commitments to acquire seven additional aircraft for approximately $490 million. We expect to acquire three of these aircraft for approximately $117 million during the third quarter of 2014. The four other aircraft are Boeing 777-300ERs to be purchased from and leased back to LATAM once the existing financings are repaid. We now expect this transaction to be completed during the first half of 2015.

During the first half of the year, we sold 23 aircraft, including four freighter and eleven older aircraft, for $246.0 million and repaid $20.2 million in associated debt. Of these, 17 aircraft were sold during the second quarter. In addition to these completed sales, we also disposed of one Boeing 747-400 converted freighter early in July and designated two other 747-400 converted freighter aircraft that we intend to sell by the end of this year.

As of June 30, 2014, Aircastle owned 148 aircraft having a net book value of $5.7 billion.

Financing Update

In late March 2014, we issued $500 million of 5.125% senior unsecured notes due in 2021. On April 25, 2014, we used the proceeds from this issue to redeem $450 million of 9.75% senior unsecured notes that were due in 2018. In connection with the redemption of the 9.75% notes, we recorded a $36.6 million debt extinguishment expense, which included a $32.8 million call premium that was paid to the holders of the notes on April 25, 2014.

Common Dividend and Share Repurchases

On July 28, 2014, Aircastle’s Board of Directors declared a third quarter 2014 cash dividend on its common shares of $0.20 per share, payable on September 12, 2014 to shareholders of record on August 29, 2014.