(%)

News Release Details

Aircastle Announces Second Quarter 2019 Results

August 6, 2019 at 7:30 AM EDT
Total Revenues Rose 9.4% to $223.4 million; Book Value per Share increased 7.4% versus Q2:18
Declared Third Quarter 2019 Dividend of $0.30 per Common Share

STAMFORD, Conn., Aug. 6, 2019 /PRNewswire/ --

Key Second Quarter 2019 Financial Metrics

  • Total revenues were $223.4 million
  • Total lease rental and direct financing and sales-type lease revenues were $201.1 million
  • Net income was $31.1 million, or $0.41 per diluted common share
  • The timing of aircraft sales shifted approximately $0.05 of diluted earnings per share from the second quarter into the third quarter
  • Adjusted net income(1) was $36.2 million, or $0.48 per diluted common share
  • Adjusted EBITDA(1) was $210.9 million
  • Cash ROE(1) was 11.8%; net cash interest margin was 7.4%

Highlights

  • Successfully transitioned seventeen aircraft from Avianca Brazil and Jet Airways; lease signed for last remaining A320 aircraft
  • Acquired ten narrow-body aircraft for $325 million; committed to acquire sixteen additional narrow-bodies for $404 million; $1.2 billion of total closed and committed acquisitions for 2019
  • Raised $1.13 billion of secured and unsecured debt at an average fixed rate of 3.91%
  • Repaid $500 million of 6.25% senior unsecured notes in July
  • Declared our 53rd consecutive quarterly dividend; repurchased $12.0 million of our shares year-to-date at an average price of $18.29 per share

Aircastle Limited (the "Company" or "Aircastle") (NYSE: AYR) reported second quarter 2019 net income of $31.1 million, or $0.41 per diluted common share, and adjusted net income of $36.2 million, or $0.48 per diluted common share.  The second quarter results included total lease rental and direct financing and sales-type lease revenues of $201.1 million, versus $187.4 million in the second quarter of 2018, an increase of 7.4%.

Commenting on the results, Mike Inglese, Aircastle's Chief Executive Officer, stated, "Aircastle had an extremely active second quarter during which we delivered strong financial results for our shareholders.  The strength of our leasing platform enabled us to quickly and successfully transition the aircraft that we repossessed from Avianca Brazil and Jet Airways, and our third quarter guidance includes $8.3 million of incremental rent associated with the re-leased aircraft.  We also closed the acquisition of ten additional narrow-body aircraft during the second quarter. Presently, our 2019 acquisitions and commitments approximate $1.2 billion, and Aircastle's fleet count currently totals 268 aircraft versus 228 a year ago."

Mr. Inglese continued, "We were also very active on the financing front, raising $1.13 billion of attractively priced capital during the quarter as part of a continued effort to reduce our cost of capital.  In early June we issued our second senior unsecured investment grade note for $650 million, at a coupon of 4.25%.  In addition, in the early part of the third quarter we repaid $500 million of higher coupon, 6.25% debt.  The resulting annual expense savings on the $500 million of retired debt is approximately $0.13 per diluted share."

Mr. Inglese concluded, "Aircastle's robust leasing capabilities and disciplined capital management positions the Company well for profitable growth throughout the aviation cycle.  By focusing on the more liquid, in-demand single-aisle segment, we are further enhancing our ability to secure attractive lease terms for our fleet and minimize transition risks. This approach, combined with our strong balance sheet and commitment to a stable, growing dividend and opportunistic share repurchases, enhances our ability to create long-term value for our shareholders."

Financial Results

(In thousands, except share data)

Three Months Ended June 30,


Six Months Ended June 30,


2019


2018


2019


2018

Lease rental and direct financing and sales-type
lease revenues

$

201,144



$

187,354



$

390,821



$

374,279


Total revenues

$

223,416



$

204,276



$

437,343



$

406,956


Adjusted EBITDA(1)

$

210,900



$

192,623



$

410,247



$

383,768


Net income

$

31,112



$

50,203



$

65,922



$

107,750


   Per common share - Diluted

$

0.41



$

0.64



$

0.87



$

1.37


Adjusted net income(1)

$

36,204



$

52,378



$

75,820



$

109,129


   Per common share - Diluted

$

0.48



$

0.67



$

1.00



$

1.38



_______________

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

Second Quarter Results

Lease rental and direct financing and sales-type lease revenues rose to $201.1 million, up $13.8 million, or 7.4%, versus the second quarter of 2018.  The increase was primarily due to net year-over-year fleet growth.  Second quarter rental revenues would have been $8.3 million higher if all of the repossessed Avianca Brazil and Jet Airways aircraft had transitioned at the beginning of the quarter.  Total revenues were $223.4 million, an increase of $19.1 million, or 9.4%, from the previous year.  We recognized $26.6 million of maintenance revenue in the second quarter of 2019, driven by return compensation associated with several aircraft which transitioned, versus no maintenance revenue in the second quarter of 2018.  The second quarter of 2019 included $17.6 million of maintenance revenue associated with aircraft that were leased to Jet Airways which successfully transitioned.  This more than offset transactional impairment charges of $7.4 million associated with the transition of these aircraft.

We completed our annual fleet review during the second quarter with no additional impairment charges.

Total operating expenses increased by $33.2 million, or 21.6%.  This was due to higher depreciation of $13.4 million associated with fleet expansion, higher interest expense of $9.0 million associated with higher debt balances in the second quarter of 2019, and the $7.4 million transactional impairment charge previously referenced.

Net income in the second quarter was $31.1 million, versus net income of $50.2 million the prior year, while adjusted net income for the quarter was $36.2 million, versus $52.4 million.  Lower gains from the sale of aircraft of $19.5 million, higher depreciation of $13.4 million and higher interest expense of $9.0 million were all partially offset by higher maintenance revenue, net of transactional impairments, of $19.2 million.  We had no aircraft sales in the second quarter of 2019; several aircraft sales initially scheduled to close during the second quarter were completed early in the third quarter.  This timing difference reduced net and adjusted diluted earnings per share in the second quarter of 2019 by approximately $0.05.   Depreciation expense increased mainly due to the net addition of 40 aircraft since the second quarter of 2018, while interest expense rose due to higher average debt balances during the quarter.  We raised more than $1.1 billion of secured and unsecured debt during the second quarter of 2019.

Adjusted EBITDA for the second quarter was $210.9 million, an increase of $18.3 million, or 9.5%, from the second quarter of 2018.  Higher combined lease rental and maintenance revenue of $40.4 million were partly offset by lower year-over-year gains from flight equipment sold of $19.5 million.

Aviation Assets

During the second quarter of 2019, we acquired ten narrow-body aircraft for $325 million.  In the first half of 2019, we acquired a total of 24 narrow-body aircraft for $770 million.  We have committed to acquire another sixteen narrow-body aircraft for $404 million for a full year 2019 total of $1.2 billion.  These 40 aircraft have a weighted average age of approximately 8.7 years and a weighted average remaining lease term of 4.9 years.

We recorded no aircraft sales during the second quarter of 2019.  In the first half of 2019 we sold four aircraft for total proceeds of approximately $56.9 million.  Year-to-date gains from the sale of flight equipment totaled $12.3 million.

As of June 30, 2019, Aircastle owned and managed 283 aircraft with a net book value of $8.5 billion.

Owned Aircraft

As of
June 30, 2019(1)


As of
June 30, 2018(1)

Net Book Value of Flight Equipment ($ mils.)

$

7,842



$

6,776


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

$

5,957



$

5,419


Number of Aircraft

268



228


Number of Unencumbered Aircraft

226



199


Weighted Average Fleet Age (years)(2)

9.5



9.5


Weighted Average Remaining Lease Term (years)(2)

4.6



4.7


Weighted Average Fleet Utilization for the quarter ended(3)

94.0

%


99.5

%

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

10.7

%


11.5

%

Net Cash Interest Margin(5)

7.4

%


8.3

%





Managed Aircraft on behalf of Joint Ventures




Net Book Value of Flight Equipment ($ mils.)

$

678



$

628


Number of Aircraft

15



12



_______________

(1)

Calculated using net book value of flight equipment held for lease and net investment in direct financing and sales-type 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. The decrease from our historical utilization rate was due to the early termination of the leases for eleven aircraft from Avianca Brazil and seven aircraft from Jet Airways.

(4)

Lease rental revenue, interest income and cash collections on our net investment in direct financing and sales-type leases for the period as a percent of the average net book value for the period; quarterly information is annualized.  The decrease from our historical portfolio yield was due to the early termination of the leases for eleven aircraft from Avianca Brazil and seven aircraft from Jet Airways.  The calculation of portfolio yield includes our net investment in direct financing and sales-type leases in the average net book value, and the interest income and cash collections from our net investment in direct financing and sales-type leases in lease rentals.

(5)

Net Cash Interest Margin = Lease rental yield including direct financing and sales-type 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.

Financing Activity

During the second quarter of 2019, the Company issued $650 million of unsecured Senior Notes due 2026 bearing a coupon of 4.25%.  This was our second senior unsecured note issued with investment grade credit ratings and priced at a spread of 230 basis points over the seven year treasury.

During the quarter we raised an additional $480 million of fixed rate, secured bank financing for eleven Airbus A320neo aircraft and two Boeing 737-800 aircraft, and we increased the size of one of our unsecured revolving credit facilities to $300 million from $280 million.  The fixed rate secured bank financing was priced at a weighted average blended rate of 3.45%.

Common Dividend

On August 2, 2019, Aircastle's Board of Directors declared a third quarter 2019 cash dividend on its common shares of $0.30 per share, payable on September 16, 2019, to shareholders of record on August 30, 2019.  This is our 53rd consecutive dividend.

Share Repurchases

During the second quarter of 2019, Aircastle's Board of Directors re-authorized a $100 million share repurchase program.  There is $96.7 million currently remaining under this authorization.  Since the beginning of the year, the Company has acquired approximately 658,000 shares at an average price of $18.29 per share.  Since 2011, the Company has repurchased 18.7 million shares at an average price of $14.62 per share.

Conference Call

In connection with this earnings release, management will host an earnings conference call on Tuesday, August 6, 2019 at 10:00 A.M. Eastern time.  All interested parties are welcome to participate on the live call.  The conference call can be accessed by dialing (800) 289-0438 (from within the U.S. and Canada) or (720) 543-0214 (from outside of the U.S. and Canada) ten minutes prior to the scheduled start and referencing the passcode "9390195".

A simultaneous 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 one month following the call.  In addition to this earnings release, an accompanying power point presentation has been posted to the Investor Relations section of Aircastle's website.

For those who are not available to listen to the live call, a replay will be available until 1:00 P.M. Eastern time on Thursday, September 5, 2019 by dialing (888) 203-1112 (from within the U.S. and Canada) or (719) 457-0820  (from outside of the U.S. and Canada); please reference passcode "9390195".

About Aircastle Limited

Aircastle Limited acquires, leases and sells commercial jet aircraft to airlines throughout the world.  As of June 30, 2019, Aircastle owned and managed on behalf of its joint ventures 283 aircraft leased to 89 customers located in 47 countries.

Safe Harbor

All statements in this press release, other than characterizations of historical fact, are forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not necessarily limited to, statements relating to our proposed public offering of notes and our ability to acquire, sell, lease or finance aircraft, raise capital, pay dividends, and increase revenues, earnings, EBITDA, Adjusted EBITDA, Adjusted Net Income, Cash Return on Equity and Net Cash Interest Margin and the global aviation industry and aircraft leasing sector. Words such as "anticipates," "expects," "intends," "plans," "projects," "believes," "may," "will," "would," "could," "should," "seeks," "estimates" and variations on these words and similar expressions are intended to identify such forward-looking statements. These statements are based on our historical performance and that of our subsidiaries and on our current plans, estimates and expectations 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 can give no assurance that its expectations will be attained. Accordingly, you should not place undue reliance on any such forward-looking statements which are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this press release. These risks or uncertainties include, but are not limited to, those described from time to time in Aircastle's filings with the SEC and previously disclosed under "Risk Factors" in Item 1A of Aircastle's 2018 Annual Report on Form 10-K.  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 expressly disclaims any obligation to revise or update publicly any forward-looking statement to reflect future events or circumstances.

 

Aircastle Limited and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, except share data)



June 30,
 2019


December 31,
 2018


(Unaudited)



ASSETS




Cash and cash equivalents

$

500,373



$

152,719


Restricted cash and cash equivalents

14,751



15,134


Accounts receivable

12,841



15,091


Flight equipment held for lease, net of accumulated depreciation of $1,371,515 and
$1,221,985, respectively

7,341,097



6,935,585


Net investment in direct financing and sales-type leases

500,918



469,180


Unconsolidated equity method investments

78,793



69,111


Other assets

185,702



214,361


Total assets

$

8,634,475



$

7,871,181






LIABILITIES AND SHAREHOLDERS' EQUITY




LIABILITIES




Borrowings from secured financings, net of debt issuance costs and discounts

$

1,214,402



$

798,457


Borrowings from unsecured financings, net of debt issuance costs and discounts

4,277,731



3,962,896


Accounts payable, accrued expenses and other liabilities

164,585



153,341


Lease rentals received in advance

96,973



87,772


Security deposits

124,867



120,962


Maintenance payments

734,433



739,072


Total liabilities

6,612,991



5,862,500






Commitments and Contingencies








SHAREHOLDERS' EQUITY




Preference shares, $0.01 par value, 50,000,000 shares authorized, no shares issued
and outstanding




Common shares, $0.01 par value, 250,000,000 shares authorized, 74,983,114 shares
issued and outstanding at June 30, 2019; and 75,454,511 shares issued and
outstanding at December 31, 2018

750



754


Additional paid-in capital

1,460,534



1,468,779


Retained earnings

560,200



539,332


Accumulated other comprehensive loss



(184)


Total shareholders' equity

2,021,484



2,008,681


Total liabilities and shareholders' equity

$

8,634,475



$

7,871,181


 

Aircastle Limited and Subsidiaries

Consolidated Statements of Income

(Dollars in thousands, except per share amounts)

(Unaudited)



Three Months Ended June 30,


Six Months Ended June 30,


2019


2018


2019


2018

Revenues:








Lease rental revenue

$

192,823



$

178,486



$

374,057



$

355,969


Direct financing and sales-type lease revenue

8,321



8,868



16,764



18,310


Amortization of lease premiums, discounts and incentives

(5,345)



(3,534)



(11,056)



(6,662)


Maintenance revenue

26,567





42,968



11,991


Total lease revenue

222,366



183,820



422,733



379,608


Gain on sale of flight equipment

346



19,864



12,348



25,632


Other revenue

704



592



2,262



1,716


Total revenues

223,416



204,276



437,343



406,956


Operating expenses:








Depreciation

89,578



76,181



174,313



151,183


Interest, net

66,377



57,398



129,840



114,506


Selling, general and administrative (including non-cash share-based
payment expense of $3,177 and $3,076 for the three months ended and
$5,903 and $5,454 for the six months ended June 30, 2019 and 2018,
respectively)

18,317



18,583



36,317



36,418


Impairment of flight equipment

7,404





7,404




Maintenance and other costs

5,213



1,561



12,617



2,549


Total operating expenses

186,889



153,723



360,491



304,656










Total other income (expense)

(1,910)



901



(3,971)



4,075










Income from continuing operations before income taxes and earnings of
unconsolidated equity method investments

34,617



51,454



72,881



106,375


Income tax provision

5,992



3,132



9,090



2,288


Earnings of unconsolidated equity method investments, net of tax

2,487



1,881



2,131



3,663


Net income

$

31,112



$

50,203



$

65,922



$

107,750


Earnings per common share — Basic:








Net income per share

$

0.41



$

0.64



$

0.88



$

1.37


Earnings per common share — Diluted:








Net income per share

$

0.41



$

0.64



$

0.87



$

1.37


Dividends declared per share

$

0.30



$

0.28



$

0.60



$

0.56


 

Aircastle Limited and Subsidiaries

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)



Six Months Ended June 30,


2019


2018

Cash flows from operating activities:




Net income

$

65,922



$

107,750


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




Depreciation

174,313



151,183


Amortization of deferred financing costs

6,958



7,042


Amortization of lease premiums, discounts and incentives

11,056



6,662


Deferred income taxes

7,957



3,126


Non-cash share-based payment expense

5,903



5,454


Cash flow hedges reclassified into earnings

184



595


Collections on direct financing and sales-type leases

10,971



13,127


Security deposits and maintenance payments included in earnings

(24,162)



(554)


Gain on sale of flight equipment

(12,348)



(25,632)


Impairment of flight equipment

7,404




Other

209



(7,491)


Changes in certain assets and liabilities:




Accounts receivable

(7,899)



(7,315)


Other assets

3,582



(3,086)


Accounts payable, accrued expenses and other liabilities

(11,619)



(14,799)


Lease rentals received in advance

7,181



16,908


Net cash and restricted cash provided by operating activities

245,612



252,970


Cash flows from investing activities:




Acquisition and improvement of flight equipment

(660,723)



(365,505)


Proceeds from sale of flight equipment

56,924



178,185


Net investment in direct financing and sales-type leases



(16,256)


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

18,054



(3,965)


Unconsolidated equity method investments and associated costs

(7,551)




Other

2,241



2,956


Net cash and restricted cash used in investing activities

(591,055)



(204,585)


Cash flows from financing activities:




Repurchase of shares

(14,288)



(14,987)


Proceeds from secured and unsecured debt financings

1,841,848




Repayments of secured and unsecured debt financings

(1,105,353)



(128,342)


Deferred financing costs

(12,165)



(1,615)


Security deposits and maintenance payments received

92,514



108,653


Security deposits and maintenance payments returned

(64,788)



(38,718)


Dividends paid

(45,054)



(43,993)


Net cash and restricted cash used in financing activities

692,714



(119,002)


Net increase in cash and restricted cash

347,271



(70,617)


Cash and restricted cash at beginning of period

167,853



233,857


Cash and restricted cash at end of period

$

515,124



$

163,240






Reconciliation to Consolidated Balance Sheets:




Cash and cash equivalents

$

500,373



$

142,360


Restricted cash and cash equivalents

14,751



20,880






Unrestricted and restricted cash and cash equivalents

$

515,124



$

163,240



(1)

As part of the Company's adoption of FASB ASC 842, we classified collections on direct financing and sales-type leases within operating activities on our Consolidated Statement of Cash Flows for the six months ended June 30, 2019.  This had previously been included in investing activities.  The presentation for the six months ended June 30, 2018, has also been reclassified to conform to the current period presentation.  The standard did not have a material impact on our consolidated financial statements and related disclosures.


 

Aircastle Limited and Subsidiaries

Selected Financial Guidance Elements for the Third Quarter of 2019

($ in millions, except for percentages)

(Unaudited)


Guidance Item

Q3:19

Lease rental revenue(1)

$200 - $204

Direct financing and sales-type lease revenue

$7 - $8

Amortization of net lease discounts and lease incentives

$(5) - $(6)

Maintenance revenue

$7 - $11

Gain on sale of flight equipment

$9 - $15

Depreciation

$90 - $93

Interest, net

$65 - $68

SG&A(2)

$18 - $19

Full year effective tax rate

9% - 11%

_______________

(1)

Reflects new aircraft acquisitions and the return to service of Avianca Brazil and Jet Airways aircraft which commenced in late Q2:19.

(2)

Includes $3.4M 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 Ended June 30,


2019


2018


2019


2018

Revenues

$

223,416



$

204,276



$

437,343



$

406,956










EBITDA(1)

$

198,404



$

190,448



$

390,221



$

382,389










Adjusted EBITDA(1)

$

210,900



$

192,623



$

410,247



$

383,768










Net income

$

31,112



$

50,203



$

65,922



$

107,750


Net income allocable to common shares

$

30,895



$

49,884



$

65,501



$

107,113


Per common share - Basic

$

0.41



$

0.64



$

0.88



$

1.37


Per common share - Diluted

$

0.41



$

0.64



$

0.87



$

1.37










Adjusted net income(1)

$

36,204



$

52,378



$

75,820



$

109,129


Adjusted net income allocable to common shares

$

35,951



$

52,045



$

75,336



$

108,483


Per common share - Basic

$

0.48



$

0.67



$

1.01



$

1.39


Per common share - Diluted

$

0.48



$

0.67



$

1.00



$

1.38










Basic common shares outstanding

74,650



77,911



74,677



78,137


Diluted common shares outstanding(2)

75,442



78,248



75,357



78,420


_______________

(1)

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

(2)

For the three and six months ended June 30, 2019 and 2018, dilutive shares represented contingently issuable shares related to the Company's PSUs.


 

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,


2019


2018


2019


2018

Net income

$

31,112



$

50,203



$

65,922



$

107,750


Depreciation

89,578



76,181



174,313



151,183


Amortization of lease premiums, discounts and incentives

5,345



3,534



11,056



6,662


Interest, net

66,377



57,398



129,840



114,506


Income tax provision

5,992



3,132



9,090



2,288


EBITDA

198,404



190,448



390,221



382,389


Adjustments:








Impairment of flight equipment

7,404





7,404




Equity share of joint venture impairment





2,724




Non-cash share-based payment expense

3,177



3,076



5,903



5,454


Loss (gain) on mark-to-market of interest rate derivative contracts

1,915



(901)



3,995



(4,075)


Adjusted EBITDA

$

210,900



$

192,623



$

410,247



$

383,768


We define EBITDA as income (loss) 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-U.S. GAAP measure is helpful in identifying trends in our performance.

This measure provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieving optimal financial performance. It provides an indicator for management to determine if adjustments to current spending decisions are needed.

EBITDA provides us with a measure of operating performance because it assists us in comparing our operating performance on a consistent basis as it removes the impact of our capital structure (primarily interest charges on our outstanding debt) and asset base (primarily depreciation and amortization) from our operating results. Accordingly, this metric measures our financial performance based on operational factors that management can impact in the short-term, namely the cost structure, or expenses, of the organization. EBITDA is one of the metrics used by senior management and the Board of Directors to review the consolidated financial performance of our business.

We define Adjusted EBITDA as EBITDA (as defined above) further adjusted to give effect to adjustments required in calculating covenant ratios and compliance as that term is defined in the indenture governing our senior unsecured notes.  Adjusted EBITDA is a material component of these covenants.

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,


2019


2018


2019


2018

Net income

$

31,112



$

50,203



$

65,922



$

107,750


Loss (gain) on mark-to-market of interest rate derivative contracts(1)

1,915



(901)



3,995



(4,075)


Non-cash share-based payment expense(2)

3,177



3,076



5,903



5,454










Adjusted net income

$

36,204



$

52,378



$

75,820



$

109,129


_______________

(1)

Included in Other income (expense).

(2)

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 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)


Period

CFFO


Gain on

Sale of

Flight

Equipment


Deprec.


Cash Earnings


Average

Shareholders

Equity


Trailing

Twelve

Month

Cash ROE

Q2:15

$

503,275



$

48,507



$

301,868



$

249,914



$

1,711,152



14.6

%

Q2:16

$

523,973



$

45,667



$

318,286



$

251,354



$

1,774,568



14.2

%

Q2:17

$

509,549



$

38,405



$

310,927



$

237,027



$

1,817,414



13.0

%

Q2:18

$

511,452



$

66,515



$

292,419



$

285,548



$

1,903,097



15.0

%

Q2:19

$

545,195



$

23,482



$

333,980



$

234,697



$

1,993,041



11.8

%

Pro-forma Q2:19

$

553,458



$

23,482



$

333,980



$

242,960



$

1,993,041



12.2

%

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.

Pro-forma Q2:19 estimates the full impact of the Avianca Brazil and Jet Airways bankruptcies on Cash ROE by adding $8.3 million to Cash Flow From Operations in the second quarter of 2019.  Assumes all eighteen aircraft transitioned on the first day of Q2:19.

Aircastle Limited and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

Net Cash Interest Margin Calculation

(Dollars in thousands)

(Unaudited)


Period


Average NBV


Quarterly Rental
Revenue(1)


Cash Interest(2)


Annualized Net Cash
Interest Margin(1)(2)

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

%

Q3:17


$

5,985,908



$

184,588



$

53,457



8.8

%

Q4:17


$

6,247,581



$

187,794



$

53,035



8.6

%

Q1:18


$

6,700,223



$

193,418



$

53,978



8.3

%

Q2:18


$

6,721,360



$

193,988



$

53,979



8.3

%

Q3:18


$

6,787,206



$

200,354



$

54,521



8.6

%

Q4:18


$

7,136,627



$

200,027



$

60,348



7.8

%

Q1:19


$

7,449,957



$

195,601



$

60,279



7.3

%

Q2:19


$

7,729,676



$

205,960



$

63,639



7.4

%

Pro-forma Q2:19


$

7,729,676



$

214,223



$

63,639



7.8

%

_______________

(1)

Based on the growing level of direct financing and sales-type lease revenue, management revised the calculation of net cash interest margin to include our net investment in direct financing and sales-type leases in the average net book value and to include the interest income and cash collections on our net investment in direct financing and sales-type lease in lease rentals.  The calculation of net cash interest margin for all prior periods presented is revised to be comparable with the current period presentation.

(2)

Excludes loan termination payments of  $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 both the second and third quarters of 2017.

We define net cash interest margin as lease rentals from operating leases, interest income and cash collections from direct financing and sales-type leases minus interest on borrowings, net settlements on interest rate derivatives and other liabilities adjusted for loan termination payments divided by the average net book of flight equipment (which includes net investment on direct financing and sales-type leases) for the period calculated on a quarterly and annualized basis.

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.

Pro-forma Q2:19 estimates the full impact of the Avianca Brazil and Jet Airways bankruptcies on Cash ROE by adding $8.3 million to Cash Flow From Operations in the second quarter of 2019.  Assumes all eighteen aircraft transitioned on the first day of Q2:19.

Aircastle Limited and Subsidiaries

Presentation of Reclassification of Collections on Direct Financing and Sales-Type Leases

(Dollars in thousands)

(Unaudited)


As part of the Company's adoption of FASB ASC 842, we classified collections on direct financing and sales-type leases within operating activities on our Consolidated Statement of Cash Flows for the six months ended June 30, 2019.  This had previously been included in investing activities. The presentation for the six months ended June 30, 2018, has also been reclassified to conform to the current period presentation:



Six Months Ended
June 30, 2018

Net cash and restricted cash provided by operating activities as previously reported

$

239,843


Collections on direct financing and sales-type leases

13,127


Net cash and restricted cash provided by operating activities

$

252,970


 

Aircastle Limited and Subsidiaries

Supplemental Financial Information

(Amount in thousands, except per share amounts)

(Unaudited)




Shares Issued

and Outstanding


Shareholders'

Equity


Book Value

per share


% Change

Q2:15


81,181


1,785,558


21.99


8.6%

Q2:16


78,778


1,776,486


22.55


2.5%

Q2:17


78,714


1,835,089


23.31


3.4%

Q2:18


78,244


1,963,406


25.09


7.6%

Q2:19


74,983


2,021,484


26.96


7.4%














Q2:15 - Q2:19 CAGR


5.2%

 

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, 2019


Six Months Ended

June 30, 2019

Weighted-average shares:

Shares


Percent


Shares


Percent

Common shares outstanding – Basic

74,650



99.30

%


74,677



99.36

%

Unvested restricted common shares

524



0.70

%


480



0.64

%

Total weighted-average shares outstanding

75,175



100.00

%


75,157



100.00

%









Common shares outstanding – Basic

74,650



98.95

%


74,677



99.10

%

Effect of dilutive shares(1)

791



1.05

%


681



0.90

%

Common shares outstanding – Diluted

75,442



100.00

%


75,357



100.00

%









Net income allocation








Net income

$

31,112



100.00

%


$

65,922



100.00

%

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

(217)



(0.70)

%


(421)



(0.64)

%

Earnings available to common shares

$

30,895



99.30

%


$

65,501



99.36

%









Adjusted net income allocation








Adjusted net income

$

36,204



100.00

%


$

75,820



100.00

%

Amounts allocated to unvested restricted shares

(253)



(0.70)

%


(484)



(0.64)

%

Amounts allocated to common shares – Basic and Diluted

$

35,951



99.30

%


$

75,336



99.36

%

_______________

(1)

For the three and six months ended June 30, 2019, distributed and undistributed earnings to restricted shares were 0.70% and 0.64%, respectively, of net income and adjusted net income.  The amount of restricted share forfeitures for the periods presented are immaterial to the allocation of distributed and undistributed earnings.

(2)

For the three and six months ended June 30, 2019, dilutive shares represented contingently issuable shares.


 

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, 2018


Six Months Ended
June 30, 2018

Weighted-average shares:

Shares


Percent


Shares


Percent

Common shares outstanding – Basic

77,911



99.36

%


78,137



99.41

%

Unvested restricted common shares

498



0.64

%


465



0.59

%

Total weighted-average shares outstanding

78,409



100.00

%


78,602



100.00

%









Common shares outstanding – Basic

77,911



99.57

%


78,137



99.64

%

Effect of dilutive shares(1)

338



0.43

%


283



0.36

%

Common shares outstanding – Diluted

78,248



100.00

%


78,420



100.00

%









Net income allocation








Net income

$

50,203



100.00

%


$

107,750



100.00

%

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

(319)



(0.64)

%


(637)



(0.59)

%

Earnings available to common shares

$

49,884



99.36

%


$

107,113



99.41

%









Adjusted net income allocation








Adjusted net income

$

52,378



100.00

%


$

109,129



100.00

%

Amounts allocated to unvested restricted shares

(333)



(0.64)

%


(646)



(0.59)

%

Amounts allocated to common shares – Basic and Diluted

$

52,045



99.36

%


$

108,483



99.41

%

_______________

(1)

For the three and six months ended June 30, 2018, distributed and undistributed earnings to restricted shares were 0.64% and 0.59%, respectively, of net income and adjusted net income.  The amount of restricted share forfeitures for the periods presented are immaterial to the allocation of distributed and undistributed earnings.

(2)

For the three and six months ended June 30, 2018, dilutive shares represented contingently issuable shares.

 

Contact:


Aircastle Advisor LLC

The IGB Group

Frank Constantinople, SVP Investor Relations

Leon Berman

Tel: +1-203-504-1063

Tel: +1-212-477-8438

fconstantinople@aircastle.com

lberman@igbir.com

 

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SOURCE Aircastle Limited