Aircastle Limited
Aug 8, 2008
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Aircastle Announces Second Quarter 2008 Results

Second Quarter Highlights

 

Financial Results

STAMFORD, Conn., Aug. 8 /PRNewswire-FirstCall/ -- Aircastle Limited (the "Company" or "Aircastle") (NYSE: AYR) reported second quarter total revenues of $145.4 million and net income of $35.3 million, or $0.45 per diluted share. Income from continuing operations for the second quarter was also $35.3 million, or $0.45 per diluted share.

"By many measures, the second quarter was our best to date," said Aircastle CEO Ron Wainshal. "Our cash earnings, or adjusted net income plus depreciation, came in at an annualized rate of $4.40 per share. With $77 million in cash and strong cash flow, we have the flexibility to acquire undervalued assets or repurchase our securities. We remain focused on operational execution and since the end of Q1 2008 we firmed up 16 lease placements and extensions on attractive terms, helping push the weighted average remaining lease term to five and a half years. Portfolio performance remains very strong with fleet utilization of over 99% for the second quarter. Finally, we have built-in growth for the next few years through our Airbus A330 program."

Second quarter total revenues of $145.4 million increased 70.8% over second quarter 2007. Lease rental revenue was up 76.1%, driven by growth in flight equipment held for lease, and includes $4.1 million of maintenance revenues related to lease expirations during the quarter. This was partially offset by lower interest income on our debt investments of $2.1 million, primarily resulting from the sale of two debt investments during the first quarter of 2008. Income from continuing operations grew 30.1% year over year and again reflects the growth in our flight equipment held for lease and includes a gain of $5.1 million on the sale of aircraft during the second quarter of 2008 offset by $4.1 million of charges related to certain interest rate swap agreements and the write-off of deferred financing costs.

Year to date total revenues were $280.4 million and net income was $67.0 million, or $0.86 per diluted share, increases of 80.7% and 12.4%, respectively over the first six months of 2007. Income from continuing operations for the six months ended June 30, 2008 was also $67.0 million, or $0.86 per diluted share, and included approximately $7.4 million of charges related to certain interest rate swap agreements, a loss on the sale of two debt investments and the write-off of deferred financing costs.

CFO Mike Inglese added, "During the second quarter we completed a $786 million term financing, demonstrating our continued ability to access the capital markets on attractive terms. Additionally, the Company's strong operating results have allowed us to build our unrestricted cash balance to $77 million at the end of June."

Aviation Assets

As of June 30, 2008 Aircastle owned aviation assets having a net book value of $4.1 billion, including 135 aircraft.

                                                        Owned Aircraft as of
                                                           June 30, 2008(A)
    118 Passenger Aircraft                                        73%
    17 Freighter Aircraft                                         27%
    Number of Lessees                                             58
    Number of Countries                                           30
    Weighted Average Remaining Lease Term (years)                5.5
    Percentage of Aircraft Leased Outside U.S.                    91%
    Percentage of "Latest Generation" Aircraft - Portfolio        86%
    Percentage of "Latest Generation" Aircraft - Freighters       92%
    Weighted Average Fleet Utilization during Q2 2008             99%

    (A) Calculated using net book value.

During the second quarter, Aircastle acquired two aircraft with an aggregate purchase price of $157.1 million, completing our purchase obligations under the GAIF contract. In addition, we took delivery of a 747-400 converted freighter from Israel Aerospace Industries, which immediately went on long-term lease. Aircastle sold three Boeing 737-500 aircraft during the second quarter and also completed the sale of a Boeing 757-200 during July that had previously been subject to a forward sales agreement.

Additionally, since the end of the second quarter we executed long-term lease commitments for three of our early Airbus A330 freighter delivery positions in 2010. We also amended the Airbus A330 purchase agreement to reduce the overall number of aircraft to be acquired from fifteen to twelve and to change the order to provide a more flexible mix of freighter and passenger aircraft.

Capital Markets Activity

On May 2, 2008, Aircastle announced that two of its subsidiaries entered into and funded a $786.1 million, seven year term debt facility on a portfolio of 28 aircraft. The facility was arranged by Calyon New York Branch acting as Sole Bookrunner with HSH Nordbank AG, New York Branch, KfW Ipex-Bank GmbH and DVB Bank AG acting as Joint Lead Arrangers. Proceeds from the financing were used to repay related outstanding amounts for the aircraft under Aircastle's existing credit facilities and all 28 aircraft were transferred into the new facility during June 2008. The loans will bear interest on a floating rate basis at a rate of one-month LIBOR plus 1.75%.

Non-GAAP Information

Aircastle discloses certain non-GAAP financial information, which management believes provides a meaningful basis for comparison among present and future periods. The following are non-GAAP measures used in the accompanying financial information:

    -- EBITDA
    -- Adjusted net income
    -- Adjusted net income plus depreciation

We urge you to read the reconciliation of such data to the related GAAP measures appearing later in this release.

Conference Call

In connection with this earnings release, management will host an earnings conference call on Friday, August 8, 2008 at 12:00 P.M. Eastern time. A copy of the earnings release will be posted to the Investors section of the Aircastle Limited website provided below. Presentation slides for the conference call will also be posted to the Investors section of the Aircastle Limited website in advance of the call. All interested parties are welcome to participate on the live call. The conference call can be accessed by dialing (866) 510-4578 (from within the U.S.) or (706) 634-9537 (from outside of the U.S.) ten minutes prior to the scheduled start and referencing the "Aircastle Second Quarter Earnings Call."

A webcast of the conference call will be available to the public on a listen-only basis at www.aircastle.com. Please allow extra time prior to the call to visit the site and download the necessary software required to listen to the internet broadcast. A replay of the webcast will be available for three months following the call.

For those who are not available to listen to the live call, a replay will be available until 11:59 P.M. Eastern time on Friday, August 15, 2008 by dialing (800) 642-1687 (from within the U.S.) or (706) 645-9291 (from outside of the U.S.); please reference passcode "57141497."

About Aircastle Limited

Aircastle Limited is a global company that acquires and leases high-utility commercial jet aircraft to airlines throughout the world. As of August 5, 2008 Aircastle's aircraft portfolio consisted of 134 aircraft comprising a variety of passenger and freighter aircraft types that were leased to 58 lessees located in 30 countries.

Safe Harbor

Certain items in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, but not necessarily limited to, statements relating to our ability to acquire, sell and lease aircraft, issue aircraft lease-backed securities or raise other long-term debt, pay and grow dividends, extend, modify or replace existing financing and increase revenues, earnings and EBITDA. Words such as "anticipate(s)," "expect(s)," "intend(s)," "plan(s)," "target(s)," "project(s)," "predict(s)," "believe(s)," "may," "will," "would," "could," "should," "seek(s)," "estimate(s)" and similar expressions are intended to identify such forward-looking statements. These statements are based on management's current expectations and beliefs and are subject to a number of factors that could lead to actual results materially different from those described in the forward-looking statements; Aircastle Limited can give no assurance that its expectations will be attained. Accordingly, you should not place undue reliance on any forward-looking statements contained in this press release. Factors that could have a material adverse effect on our operations and future prospects or that could cause actual results to differ materially from Aircastle Limited's expectations include, but are not limited to, our continued ability to obtain additional capital to finance our working capital needs and our growth and to refinance our short-term debt financings with longer-term debt financings; our ability to acquire aircraft at attractive prices; our ability to find new ways to raise capital, including managing investment funds; our continued ability to obtain favorable tax treatment in Bermuda, Ireland and other jurisdictions; our ability to pay or maintain dividends; our ability to lease aircraft at favorable rates; an adverse change in the value of our aircraft; the possibility that conditions to closing of certain transactions will not be satisfied; general economic conditions and economic conditions in the markets in which we operate; competitive pressures within the industry and/or markets in which we operate; high fuel prices and other factors affecting the creditworthiness of our airline customers; interest rate fluctuations; margin calls and termination payments on our interest rate hedges; our ability to obtain certain required licenses and approvals; the impact of future terrorist attacks or wars on the airline industry; our concentration of customers, including geographical concentration; and other risks detailed from time to time in Aircastle Limited's filings with the Securities and Exchange Commission ( the "SEC"), including "Risk Factors" as previously disclosed in Aircastle's 2007 Annual Report on Form 10-K, and in our other filings with the SEC, press releases and other communications. In addition, new risks and uncertainties emerge from time to time, and it is not possible for Aircastle to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements. Such forward-looking statements speak only as of the date of this press release. Aircastle Limited expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.

(1) Refer to the selected financial information accompanying this press release for a reconciliation of GAAP to Non-GAAP numbers.

                      Aircastle Limited and Subsidiaries
                         Consolidated Balance Sheets
                  (Dollars in thousands, except share data)

                                                   December 31,  June 30,
                                                   2007          2008
                                                                 (unaudited)
    ASSETS
    Cash and cash equivalents                        $13,546        $76,947
    Accounts receivable                                4,957          6,688
    Debt investments                                 113,015         20,664
    Restricted cash and cash equivalents             161,317        188,141
    Flight equipment held for lease,
     net of accumulated depreciation
     of $189,737 and $285,570                      3,807,116      4,080,903
    Aircraft purchase deposits
     and progress payments                           245,331         82,258
    Leasehold improvements, furnishings
     and equipment, net of accumulated
     depreciation of $1,335 and $1,709                 1,391          1,351
    Fair value of derivative assets                        -          2,490
    Other assets                                      80,969         57,052
      Total assets                                $4,427,642     $4,516,494

    LIABILITIES AND SHAREHOLDERS' EQUITY
    LIABILITIES
    Borrowings under credit facilities              $798,186       $255,189
    Borrowings from securitizations
     and term debt financings                      1,677,736      2,414,367
    Accounts payable, accrued
     expenses and other liabilities                   65,967         66,866
    Dividends payable                                 55,004         19,647
    Lease rentals received in advance                 31,016         26,698
    Repurchase agreements                             67,744              -
    Security deposits                                 74,661         72,912
    Maintenance payments                             208,363        244,550
    Fair value of derivative liabilities             154,388         99,465
      Total liabilities                            3,133,065      3,199,694

    Commitments and Contingencies

    SHAREHOLDERS' EQUITY
    Preference shares, $.01 par value,
     50,000,000 shares authorized, no
     shares issued and outstanding                         -              -
    Common shares, $.01 par value,
     250,000,000 shares authorized, 78,574,657
     shares issued and outstanding at December 31,
     2007; and 78,587,011 shares issued and
     outstanding at June 30, 2008                        786            786
    Additional paid-in capital                     1,468,140      1,470,090
    Dividends in excess of earnings                  (48,960)       (21,269)
    Accumulated other comprehensive loss            (125,389)      (132,807)
      Total shareholders' equity                   1,294,577      1,316,800
      Total liabilities and shareholders' equity  $4,427,642     $4,516,494



                      Aircastle Limited and Subsidiaries
                      Consolidated Statements of Income
               (Dollars in thousands, except per share amounts)
                                 (Unaudited)

                           Three Months Ended       Six Months Ended
                           June 30,                 June 30,
                             2007         2008         2007         2008
    Revenues:
      Lease rentals        $81,926     $144,291     $149,284     $277,918
      Interest income        2,728          614        5,316        1,905
      Other revenue            460          490          519          528
        Total revenues      85,114      145,395      155,119      280,351

    Expenses:
      Depreciation          27,764       51,605       49,398       99,820
      Interest, net         19,345       51,319       36,077       92,330
      Selling, general and
       administrative       10,448       11,354       18,944       22,843
      Other expense            380          597          761        1,242
        Total operating
         expenses           57,937      114,875      105,180      216,235

    Other income:
      Gain on sale
       of aircraft               -        5,126            -        5,126
      Other                  1,154        1,328        1,154        1,083
        Total other income   1,154        6,454        1,154        6,209

    Income from continuing
     operations before
     income taxes           28,331       36,974       51,093       70,325
    Income tax provision     1,173        1,633        3,078        3,347
    Income from
     continuing operations  27,158       35,341       48,015       66,978
    Earnings from
     discontinued
     operations, net of
     income taxes           10,910            -       11,594            -
    Net income             $38,068      $35,341      $59,609      $66,978

    Basic earnings per share:
      Income from
       continuing
       operations            $0.41        $0.45        $0.77        $0.86
      Earnings from
       discontinued
       operations,
       net of income taxes    0.16            -         0.18            -
      Net income per share   $0.57        $0.45        $0.95        $0.86

    Diluted earnings
     per share:
      Income from
       continuing operations $0.41        $0.45        $0.77        $0.86
      Earnings from
       discontinued
       operations, net
       of income taxes        0.16            -         0.18            -
      Net income per share   $0.57        $0.45        $0.95        $0.86

    Dividends declared
     per share               $0.60        $0.25        $1.10        $0.50



                      Aircastle Limited and Subsidiaries
                    Consolidated Statements of Cash Flows
                            (Dollars in thousands)
                                 (Unaudited)

                                                        Six Months Ended
                                                        June 30,
                                                        2007        2008
    Cash flows from operating activities:
    Net income                                          $59,609     $66,978
      Adjustments to reconcile net income to net
       cash provided by operating activities
       (inclusive of amounts related
       to discontinued operations):
        Depreciation                                     50,158      99,712
        Amortization of deferred financing costs          3,166       6,787
        Amortization of lease premiums and
         discounts, and other related lease items        (3,493)     (5,216)
        Deferred income taxes                            (3,109)      2,604
        Accretion of purchase discounts
         on debt investments                               (405)       (277)
        Non-cash share based payment expense              4,046       3,213
        Cash flow hedges reclassified into earnings      (2,110)        595
        Ineffective portion of cash flow hedges            (418)      6,027
        Gain on sale of flight equipment                (10,219)     (5,126)
        Loss on sale of investments                           -         245
        Other                                            (1,154)       (918)
        Changes in certain assets and liabilities:
          Accounts receivable                             2,222      (1,731)
          Restricted cash and cash equivalents          (22,872)    (26,686)
          Other assets                                   (2,269)      1,318
          Accounts payable, accrued expenses
           and other liabilities                          5,187      (2,705)
          Payable to affiliates                               -        (200)
          Lease rentals received in advance               3,604      (4,110)
          Security deposits and maintenance payments     67,790      39,110
            Net cash provided by operating activities   149,733     179,620
    Cash flows from investing activities:
      Acquisition and improvement
       of flight equipment                           (1,070,216)   (221,310)
      Aircraft purchase deposits and
       progress payments, net of returned deposits      (88,413)      8,974
      Proceeds from sale of flight equipment             34,946      21,366
      Purchase of debt investments                      (15,251)          -
      Proceeds from sale of debt investments                  -      65,335
      Principal repayments on debt investments           13,372      11,467
      Margin call payments on derivatives
       and repurchase agreements                         (5,694)   (296,605)
      Margin call receipts on derivatives
       and repurchase agreements                          9,382     330,943
      Leasehold improvements,
       furnishings and equipment                           (259)       (334)
        Net cash used in investing activities        (1,122,133)    (80,164)
    Cash flows from financing activities:
      Issuance of common shares in
       public offerings, net                            493,056           -
      Issuance, net of repurchases, of
       common shares to directors and employees             852      (1,263)
      Proceeds from securitizations
       and term debt financings                       1,170,000     786,135
      Securitization and term debt
       financing repayments                             (10,866)    (49,504)
      Restricted cash and cash equivalents
       related to unreleased securitization
       and credit facility borrowings                  (500,565)       (138)
      Deferred financing costs                          (11,552)    (17,568)
      Credit facility borrowings                      1,009,779     482,723
      Credit facility repayments                     (1,112,902) (1,025,720)
      Proceeds from terminated cash flow hedges           8,936           -
      Payments for terminated cash flow hedges                -     (68,332)
      Proceeds from repurchase agreements                   894           -
      Principal repayments on repurchase agreements      (9,425)    (67,744)
      Dividends paid                                    (56,211)    (74,644)
        Net cash provided by (used in)
         financing activities                           981,996    (36,055)
    Net increase in cash and cash equivalents             9,596      63,401
    Cash and cash equivalents at beginning of period     58,118      13,546
    Cash and cash equivalents at end of period          $67,714     $76,947



                      Aircastle Limited and Subsidiaries
                      Supplemental Financial Information
               (Amount in thousands, except per share amounts)
                                 (Unaudited)

                    Three Months Ended           Six Months Ended
                          June 30,      Percent      June 30,      Percent
                       2007      2008  Increase   2007      2008  Increase

    Revenues         $85,114  $145,395   70.8% $155,119  $280,351   80.7%

    Annualized month
     end lease rental
     run rate at
     period end     $379,016  $546,020   44.1% $379,016  $546,020   44.1%

    EBITDA           $73,667  $137,396   86.5% $133,136  $257,327   93.3%

    Adjusted net
     income          $26,235   $34,309   30.8%  $47,818   $69,210   44.7%
      Basic earnings
       per share       $0.39     $0.44   12.8%    $0.76     $0.89   17.1%
      Diluted earnings
       per share       $0.39     $0.44   12.8%    $0.76     $0.89   17.1%

    Adjusted net
     income plus
     depreciation    $53,999   $85,914   59.1%  $97,977  $169,030   72.5%
      Basic earnings
       per share       $0.81     $1.11   37.0%    $1.56     $2.17   39.1%
      Diluted earnings
       per share       $0.81     $1.10   35.8%    $1.56     $2.17   39.1%

    Basic shares
     outstanding      66,554    77,743   16.8%   62,730    77,732   23.9%
    Diluted shares
     outstanding      66,823    77,826   16.5%   62,958    77,788   23.6%


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 Reconciliation
                            (Dollars in thousands)
                                 (Unaudited)

                           Three Months Ended        Six Months Ended
                           June 30,                  June 30,
                             2007         2008         2007         2008
    Net income             $38,068      $35,341      $59,609      $66,978
    Depreciation            27,764       51,605       49,398       99,820
    Amortization of lease
     premiums (discounts)   (1,773)      (2,502)      (3,432)      (5,148)
    Interest, net           19,345       51,319       36,077       92,330
    Income tax provision     1,173        1,633        3,078        3,347
    Earnings from
     discontinued
     operations, net of
     income taxes          (10,910)           -      (11,594)           -
    EBITDA                 $73,667     $137,396     $133,136     $257,327


We define EBITDA as income from continuing operations before income taxes, interest expense, and depreciation and amortization. We use EBITDA to assess our consolidated financial and operating performance, and we believe this non-GAAP measure is helpful in identifying trends in our performance. Using EBITDA assists us in comparing our operating performance on a consistent basis by removing the impact of our capital structure (primarily interest charges on our outstanding debt) and asset base (primarily depreciation and amortization) from our operating results.

                        Aircastle Limited and Subsidiaries
                   Reconciliation of GAAP to Non-GAAP Measures
               Adjusted Net Income plus Depreciation Reconciliation
                              (Dollars in thousands)
                                   (Unaudited)

                           Three Months Ended        Six Months Ended
                           June 30,                  June 30,
                             2007         2008         2007         2008
    Net income             $38,068      $35,341      $59,609      $66,978
    Ineffective portion
     and termination of
     cash flow hedges(1)      (460)       4,011         (418)       7,030
    Write-off of deferred
     financing fees(1)           -          813            -          813
    Mark to market and
     termination of
     interest
     rate swaps(2)          (1,154)        (730)      (1,154)        (730)
    Loss on sale of
     debt investments(2)         -            -            -          245
    Gain on sale of
     flight equipment(3)   (10,219)      (5,126)     (10,219)      (5,126)
    Adjusted net income     26,235       34,309       47,818       69,210

    Depreciation            27,764       51,605       49,398       99,820
    Depreciation included
     in discontinued
     operations                  -            -          761            -
    Adjusted net income
     plus depreciation     $53,999      $85,914      $97,977     $169,030


    (1) Included in Interest, net
    (2) Included in Other income
    (3) 2008 amounts included in Other income; 2007 amounts included in
        Discontinued Operations

We adjust net income for ineffective portion and termination of cash flow hedges, write-off of deferred financing fees, mark to market and termination of interest rate swaps, loss on sale of debt investments and gain on sale of flight equipment. We use adjusted net income to assess our consolidated financial and operating performance, and we believe this non-GAAP measure is helpful in identifying trends in our performance net of non-recurring items.

We use adjusted net income plus depreciation to assess our consolidated financial and operating performance, and we believe this non-GAAP measure is helpful in identifying trends in our performance on an operating cash flow basis after taking into account interest expense on our outstanding indebtedness.

SOURCE Aircastle Limited

CONTACT: Julia Hallisey, Investor Relations of Aircastle Limited, +1-203-504-1063