Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) August 7, 2018 (August 7, 2018)

Aircastle Limited
(Exact name of registrant as specified in its charter)

Bermuda
001-32959
98-0444035
(State or other jurisdiction of incorporation)
(Commission
File Number)
(IRS Employer
Identification No.)

c/o Aircastle Advisor LLC, 201 Tresser Blvd, Suite 400 Stamford, Connecticut
 
6901
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code (203) 504-1020    
    
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use
the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐


1


Section 2 – Financial Information
Item 2.02 Results of Operations and Financial Condition.

On August 7, 2018, Aircastle Limited announced financial results for its second quarter 2018 as described in the press release furnished hereto as Exhibit 99.1, which is incorporated herein by reference.

The information furnished pursuant to this Current Report on Form 8-K, including the exhibit hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Exchange Act, unless expressly set forth as being incorporated by reference into such filing.

Section 9 – Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits.
 
(d) Exhibits

99.1 Press Release dated August 7, 2018 which is being furnished hereto pursuant to Item 2.02.
     
SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

AIRCASTLE LIMITED
(Registrant)

/s/ Aaron Dahlke
Aaron Dahlke
Chief Financial Officer
Date: August 7, 2018

2


EXHIBIT INDEX

Exhibit Number     Exhibit     

99.1    Press Release dated August 7, 2018

3
Exhibit
Exhibit 99.1

    
FOR IMMEDIATE RELEASE
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

Aircastle Announces Second Quarter 2018 Results
Net Earnings per Diluted Share of $0.64
Declared Third Quarter 2018 Dividend of $0.28 per Common Share

Key Financial Metrics
Total revenues(1) were $204.3 million
Total lease rental and finance and sales-type lease revenues were $187.4 million
Net income was $50.2 million, or $0.64 per diluted common share
Adjusted net income(2) was $52.4 million, or $0.67 per diluted common share
Adjusted EBITDA(2) was $192.6 million
Cash ROE(2) was 14.9%; net cash interest margin was 8.3%
Second Quarter 2018 Highlights
Acquired nine narrow-body aircraft for $302 million
Sold four narrow-body aircraft for $134 million and recorded gains on sale of $19.9 million
Acquired or committed to acquire more than $1.2 billion of aviation assets in 2018
Received Investment Grade credit rating of BBB- from Standard & Poor's and Fitch Ratings
Increased Revolving Credit Facility to $800 million; extended maturity to June 2022 and reduced the borrowing margin by 75 basis points
Declared our 49th consecutive quarterly dividend; repurchased $13.7 million of our shares year-to-date at average price of $19.62 per share

Stamford, CT.  August 7, 2018 – Aircastle Limited (the “Company” or “Aircastle”) (NYSE: AYR) reported second quarter 2018 net income of $50.2 million, or $0.64 per diluted common share, and adjusted net income of $52.4 million, or $0.67 per diluted common share. The second quarter results included total lease rental and finance and sales-type lease revenues of $187.4 million, a decrease of 3.9%, versus $195.0 million in the second quarter of 2017. In the second quarter of 2017, the Company reported a net loss of

________________________________________
(1) See Appendix for an explanation of the reclassification of the Gain on Sale of Flight Equipment.
(2) Refer to the selected financial information accompanying this press release for a reconciliation of GAAP to Non-GAAP numbers.




$(7.1) million, or $(0.09) per diluted common share, and adjusted net income of $2.4 million, or $0.03 per diluted common share.
Commenting on the results, Mike Inglese, Aircastle’s Chief Executive Officer, stated, “Through the first half of the year, with over $1.2 billion of aircraft acquired or committed to be acquired in 2018, along with a steady stream of profitable aircraft sales, Aircastle remains active in the secondary market for modern, in-demand aircraft. In addition to producing excellent second quarter results, we were awarded investment grade credit ratings from two major credit ratings agencies, Standard & Poor's and Fitch. This significant milestone broadens our already strong base of liquidity and enhances our ability to access competitively priced capital to support ongoing fleet expansion.”
Mr. Inglese concluded, “Our disciplined growth strategy, solid balance sheet, strong operational capabilities and shareholder-friendly capital allocation policy place Aircastle in an excellent position to increase shareholder value both near-term and over the long-run.”
Financial Results
(In thousands, except share data)
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2018
 
2017
 
2018
 
2017
 
Lease rental and finance and sales-type lease revenues
$
187,354
 
 
$
194,976
 
 
$
374,279
 
 
$
389,635
 
 
Total revenues(1)
$
204,276
 
 
$
237,059
 
 
$
406,956
 
 
$
442,091
 
 
Adjusted EBITDA(2)
$
192,623
 
 
$
224,105
 
 
$
383,768
 
 
$
417,496
 
 
Net income (loss)
$
50,203
 
 
$
(7,116
)
 
$
107,750
 
 
$
35,323
 
 
Per common share - Diluted
$
0.64
 
 
$
(0.09
)
 
$
1.37
 
 
$
0.45
 
 
Adjusted net income(2)
$
52,378
 
 
$
2,448
 
 
$
109,129
 
 
$
48,139
 
 
Per common share - Diluted
$
0.67
 
 
$
0.03
 
 
$
1.38
 
 
$
0.61
 
 
_______________

(1)
As part of the Company’s adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), we have reclassified Gain on sale of flight equipment from Other income (expense) to Revenues on our Consolidated Statement of Income as of March 31, 2018. We believe this better reflects the sale of flight equipment as part of our ordinary activities and conforms our presentation to those of our publicly traded peers. The presentation for the three and six months ended June 30, 2017, have 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
(2)
Refer to the selected financial information accompanying this press release for a reconciliation of GAAP to Non-GAAP numbers.



Second Quarter Results
Total revenues were $204.3 million, a decline of $32.8 million, or 13.8%, from the previous year as we recognized no maintenance revenue in the second quarter of 2018. During the second quarter of 2017, we recorded $28.9 million of maintenance revenue, driven by return compensation associated with several wide-body aircraft which transitioned.

2




During the second quarter of 2018, we completed our annual fleet review with no impairment charges. As a result, total expenses declined by $90.7 million, or 37.1%. This was mainly due to $79.9 million of impairment charges that were incurred in the prior year's second quarter.
Net income in the second quarter was $50.2 million, versus a net loss of $(7.1) million the prior year, while adjusted net income for the quarter was $52.4 million, versus $2.4 million the prior year. Lower aircraft impairment charges of $79.9 million, interest expense of $4.3 million, SG&A of $3.6 million and depreciation of $2.1 million were partially offset by lower maintenance revenue of $28.9 million. Depreciation expense declined mainly due to wide-body and freighter aircraft sold over the past year, while interest expense decreased due to lower debt balances and the repayment of higher coupon debt in the prior year.
Adjusted EBITDA for the second quarter was $192.6 million, a decrease of $31.5 million, or 14.0%, from the second quarter of 2017, due primarily to lower maintenance revenue of $28.9 million, as discussed above.
Aviation Assets
During the second quarter of 2018, we acquired nine mid-aged narrow-body aircraft for approximately $302 million. In the first half of 2018, we acquired a total of 13 aircraft for approximately $412 million. These aircraft have a weighted average age of approximately 8.4 years and a weighted average remaining lease term of 5.7 years.
During the second quarter, we sold four aircraft for approximately $134 million. In the first half of 2018, we sold eight aircraft for total proceeds of approximately $178 million and recorded gains on sale of $25.6 million.
As of June 30, 2018, Aircastle owned and managed 240 aircraft with a net book value of $7.4 billion.
Owned Aircraft
As of
June 30,
2018(1)
 
As of
June 30,
2017(1)
Net Book Value of Flight Equipment ($ mils.)
$
6,776
 
 
$
6,173
 
Net Book Value of Unencumbered Flight Equipment ($ mils.)
$
5,419
 
 
$
4,497
 
Number of Aircraft
228
 
 
190
 
Number of Unencumbered Aircraft
199
 
 
157
 
Weighted Average Fleet Age (years)(2)
9.5
 
 
8.3
 
Weighted Average Remaining Lease Term (years)(2)
4.7
 
 
4.7
 
Weighted Average Fleet Utilization for the quarter ended(3)
99.5
%
 
99.3
%
Portfolio Yield for the quarter ended(2)(4)
11.5
%
 
12.3
%
Net Cash Interest Margin(5)
8.3
%
 
8.8
%
 
 
 
 
Managed Aircraft on behalf of Joint Ventures
 
 
 
Net Book Value of Flight Equipment ($ mils.)
$
628
 
 
$
675
 
Number of Aircraft
12
 
 
13
 
_______________

3




(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.

Financing Activity
In June, we increased the size of one of our unsecured revolving credit facilities to $800 million from $675 million, extended the facility maturity by more than two years, to June 2022, and lowered the borrowing margin by 75 basis points.
In May, S&P Global Ratings raised its ratings on Aircastle Ltd., including the corporate credit rating, to 'BBB-' from 'BB+' and Fitch Ratings assigned an initial 'BBB-' rating to Aircastle’s senior unsecured debt. In June, Moody’s Investors Service placed the Ba1 corporate family and Ba1 senior unsecured ratings of Aircastle on review for possible upgrade.
Common Dividend

On August 3, 2018, Aircastle’s Board of Directors declared a third quarter 2018 cash dividend on its common shares of $0.28 per share, payable on September 14, 2018, to shareholders of record on August 31, 2018. This is our 49th consecutive dividend.


4





Share Repurchases

Since the beginning of the year, the Company acquired approximately 697,000 shares at an average price of $19.62 per share. Aircastle’s Board of Directors previously authorized a $100 million share repurchase program, and there is approximately $82 million remaining under this authorization. Since 2011, the Company has repurchased 15.2 million shares at an average cost of $13.58 per share.

Conference Call

In connection with this earnings release, management will host an earnings conference call on Tuesday, August 7, 2018 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 (888) 254-3590 (from within the U.S. and Canada) or (323) 994-2093 (from outside of the U.S. and Canada) ten minutes prior to the scheduled start and referencing the passcode "5231757".

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 6, 2018 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 “1757279”.



About Aircastle Limited

Aircastle Limited acquires, leases and sells commercial jet aircraft to airlines throughout the world. As of June 30, 2018, Aircastle owned and managed on behalf of its joint ventures 240 aircraft leased to 84 customers located in 45 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

5




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 2017 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,
2018
 
December 31,
2017
 
(Unaudited)
 
 
ASSETS
 
 
 
Cash and cash equivalents
$
142,360

 
 
$
211,922

 
Restricted cash and cash equivalents
20,880
 
 
 
21,935
 
 
Accounts receivable
19,357
 
 
 
12,815
 
 
Flight equipment held for lease, net of accumulated depreciation of $1,177,448 and $1,125,594, respectively
6,249,406
 
 
 
6,188,469
 
 
Net investment in finance and sales-type leases
526,738
 
 
 
545,750
 
 
Unconsolidated equity method investments
80,100
 
 
 
76,982
 
 
Other assets
174,307
 
 
 
141,210
 
 
Total assets
$
7,213,148

 
 
$
7,199,083

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
LIABILITIES
 
 
 
Borrowings from secured financings, net of debt issuance costs
$
798,522

 
 
$
849,874

 
Borrowings from unsecured financings, net of debt issuance costs
3,392,169
 
 
 
3,463,732
 
 
Accounts payable, accrued expenses and other liabilities
131,364
 
 
 
140,221
 
 
Lease rentals received in advance
76,780
 
 
 
57,630
 
 
Security deposits
131,101
 
 
 
130,628
 
 
Maintenance payments
719,806
 
 
 
649,434
 
 
Total liabilities
5,249,742
 
 
 
5,291,519
 
 
 
 
 
 
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, 78,244,038 shares issued and outstanding at June 30, 2018; and 78,707,963 shares issued and outstanding at December 31, 2017
782
 
 
 
787
 
 
Additional paid-in capital
1,519,479
 
 
 
1,527,796
 
 
Retained earnings
443,900
 
 
 
380,331
 
 
Accumulated other comprehensive loss
(755
 
)
 
(1,350
 
)
Total shareholders’ equity
1,963,406
 
 
 
1,907,564
 
 
Total liabilities and shareholders’ equity
$
7,213,148

 
 
$
7,199,083

 


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,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Lease rental revenue
$
178,486

 
 
$
189,098
 
 
$
355,969

 
 
$
379,684
 
Finance and sales-type lease revenue
8,868
 
 
 
5,878
 
 
18,310
 
 
 
9,951
 
Amortization of lease premiums, discounts and incentives
(3,534
 
)
 
(3,280
)
 
(6,662
 
)
 
(6,392
)
Maintenance revenue
 
 
 
28,944
 
 
11,991
 
 
 
41,231
 
Total lease revenue
183,820
 
 
 
220,640
 
 
379,608
 
 
 
424,474
 
Gain on sale of flight equipment(1)
19,864
 
 
 
13,525
 
 
25,632
 
 
 
14,284
 
Other revenue
592
 
 
 
2,894
 
 
1,716
 
 
 
3,333
 
Total revenues(1)
204,276
 
 
 
237,059
 
 
406,956
 
 
 
442,091
 
Operating expenses:
 
 
 
 
 
 
 
Depreciation
76,181
 
 
 
78,254
 
 
151,183
 
 
 
157,428
 
Interest, net
57,398
 
 
 
61,672
 
 
114,506
 
 
 
124,740
 
Selling, general and administrative (including non-cash share-based payment expense of $3,076 and $6,028 for the three months ended and $5,454 and $8,130 for the six months ended June 30, 2018 and 2017, respectively)
18,583
 
 
 
22,187
 
 
36,418
 
 
 
38,354
 
Impairment of flight equipment
 
 
 
79,930
 
 
 
 
 
80,430
 
Maintenance and other costs
1,561
 
 
 
2,343
 
 
2,549
 
 
 
5,274
 
Total expenses
153,723
 
 
 
244,386
 
 
304,656
 
 
 
406,226
 
 
 
 
 
 
 
 
 
Total other income (expense)
901
 
 
 
(1,560
)
 
4,075
 
 
 
(2,709
)
 
 
 
 
 
 
 
 
Income (loss) from continuing operations before income taxes and earnings of unconsolidated equity method investments
51,454
 
 
 
(8,887
)
 
106,375
 
 
 
33,156
 
Income tax provision
3,132
 
 
 
495
 
 
2,288
 
 
 
2,341
 
Earnings of unconsolidated equity method investments, net of tax
1,881
 
 
 
2,266
 
 
3,663
 
 
 
4,508
 
Net income (loss)
$
50,203

 
 
$
(7,116
)
 
$
107,750

 
 
$
35,323
 
Earnings (loss)per common share — Basic:
 
 
 
 
 
 
 
Net income (loss) per share
$
0.64

 
 
$
(0.09
)
 
$
1.37

 
 
$
0.45
 
Earnings (loss) per common share — Diluted:
 
 
 
 
 
 
 
Net income (loss) per share
$
0.64

 
 
$
(0.09
)
 
$
1.37

 
 
$
0.45
 
Dividends declared per share
$
0.28

 
 
$
0.26
 
 
$
0.56

 
 
$
0.52
 
_______________
(1)
As part of the Company’s adoption of FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), we have reclassified Gain on sale of flight equipment from Other income (expense) to Revenues on our Consolidated Statement of Income as of March 31, 2018. We believe this better reflects the sale of flight equipment as part of our ordinary activities and conforms our presentation to those of our publicly traded peers. The presentation for the three and six months ended June 30, 2017, have 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
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)

 
Six Months Ended June 30,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
107,750

 
 
$
35,323
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
151,183
 
 
 
157,428
 
Amortization of deferred financing costs
7,042
 
 
 
9,125
 
Amortization of lease premiums, discounts and incentives
6,662
 
 
 
6,392
 
Deferred income taxes
3,126
 
 
 
(833
)
Non-cash share-based payment expense
5,454
 
 
 
8,130
 
Cash flow hedges reclassified into earnings
595
 
 
 
1,156
 
Security deposits and maintenance payments included in earnings
(554
 
)
 
(23,063
)
Gain on sale of flight equipment
(25,632
 
)
 
(14,284
)
Impairment of flight equipment
 
 
 
80,430
 
Other
(7,491
 
)
 
1,211
 
Changes in certain assets and liabilities:
 
 
 
Accounts receivable
(7,315
 
)
 
2,090
 
Other assets
(3,086
 
)
 
(11,407
)
Accounts payable, accrued expenses and other liabilities
(14,799
 
)
 
(2,194
)
Lease rentals received in advance
16,908
 
 
 
(2,115
)
Net cash and restricted cash provided by operating activities
239,843
 
 
 
247,389
 
Cash flows from investing activities:
 
 
 
Acquisition and improvement of flight equipment
(365,505
 
)
 
(148,364
)
Proceeds from sale of flight equipment
178,185
 
 
 
238,277
 
Net investment in finance and sales-type leases
(16,256
 
)
 
(119,971
)
Collections on finance and sales-type leases
13,127
 
 
 
17,185
 
Aircraft purchase deposits and progress payments, net of returned deposits and aircraft sales deposits
(3,965
 
)
 
(2,892
)
Other
2,956
 
 
 
88
 
Net cash and restricted cash used in investing activities
(191,458
 
)
 
(15,677
)
Cash flows from financing activities:
 
 
 
Repurchase of shares
(14,987
 
)
 
(2,513
)
Proceeds from secured and unsecured debt financings
 
 
 
500,000
 
Repayments of secured and unsecured debt financings
(128,342
 
)
 
(667,472
)
Deferred financing costs
(1,615
 
)
 
(8,540
)
Security deposits and maintenance payments received
108,653
 
 
 
87,185
 
Security deposits and maintenance payments returned
(38,718
 
)
 
(77,593
)
Dividends paid
(43,993
 
)
 
(40,948
)
Net cash and restricted cash used in financing activities
(119,002
 
)
 
(209,881
)
Net increase in cash and restricted cash
(70,617
 
)
 
21,831
 
Cash and restricted cash at beginning of period
233,857
 
 
 
508,817
 
Cash and restricted cash at end of period
$
163,240

 
 
$
530,648
 


Aircastle Limited and Subsidiaries
Selected Financial Guidance Elements for the Third Quarter of 2018
($ in millions, except for percentages)
(Unaudited)


Guidance Item
Q3:18
Lease rental revenue
$180 - $184
Finance lease revenue
$8 - $9
Amortization of net lease discounts and lease incentives
$(4) - $(5)
Maintenance revenue
$0 - $1
Gain on sale
$3 - $7
Depreciation
$77 - $81
Interest, net
$58 - $60
SG&A(1)
$17 - $18
Full year effective tax rate
4% - 6%

(1)
Includes ~$2.9M 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,
 
2018
 
2017
 
2018
 
2017
Revenues(1)
$
204,276
 
 
$
237,059
 
 
$
406,956
 
 
$
442,091
 
 
 
 
 
 
 
 
 
EBITDA(2)
$
190,448
 
 
$
136,585
 
 
$
382,389
 
 
$
326,224
 
 
 
 
 
 
 
 
 
Adjusted EBITDA(2)
$
192,623
 
 
$
224,105
 
 
$
383,768
 
 
$
417,496
 
 
 
 
 
 
 
 
 
Net income (loss)
$
50,203
 
 
$
(7,116
)
 
$
107,750
 
 
$
35,323
 
Net income (loss) allocable to common shares
$
49,884
 
 
$
(7,116
)
 
$
107,113
 
 
$
35,068
 
Per common share - Basic
$
0.64
 
 
$
(0.09
)
 
$
1.37
 
 
$
0.45
 
Per common share - Diluted
$
0.64
 
 
$
(0.09
)
 
$
1.37
 
 
$
0.45
 
 
 
 
 
 
 
 
 
Adjusted net income(2)
$
52,378
 
 
$
2,448
 
 
$
109,129
 
 
$
48,139
 
Adjusted net income allocable to common shares
$
52,045
 
 
$
2,428
 
 
$
108,483
 
 
$
47,791
 
Per common share - Basic
$
0.67
 
 
$
0.03
 
 
$
1.39
 
 
$
0.61
 
Per common share - Diluted
$
0.67
 
 
$
0.03
 
 
$
1.38
 
 
$
0.61
 
 
 
 
 
 
 
 
 
Basic common shares outstanding
77,911
 
 
78,177
 
 
78,137
 
 
78,177
 
Diluted common shares outstanding(3)
78,248
 
 
78,177
 
 
78,420
 
 
78,404
 
_______________

(1)
As part of the Company’s adoption of FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), we have reclassified Gain on sale of flight equipment from Other income (expense) to Revenues on our Consolidated Statements of Income as of March 31, 2018. We believe this better reflects the sale of flight equipment as part of our ordinary activities and conforms our presentation to those of our publicly traded peers. The presentation for the three and six months ended June 30, 2017, have 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.
(2)
Refer to the selected information accompanying this press release for a reconciliation of GAAP to Non-GAAP information.
(3)
For the three months ended June 30, 2018, and for the six months ended June 30, 2018 and 2017, dilutive shares represented contingently issuable shares. 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.



6




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,
 
2018
 
2017
 
2018
 
2017
Net income (loss)
$
50,203

 
 
$
(7,116
)
 
$
107,750

 
 
$
35,323
 
Depreciation
76,181
 
 
 
78,254
 
 
151,183
 
 
 
157,428
 
Amortization of lease premiums, discounts and incentives
3,534
 
 
 
3,280
 
 
6,662
 
 
 
6,392
 
Interest, net
57,398
 
 
 
61,672
 
 
114,506
 
 
 
124,740
 
Income tax provision
3,132
 
 
 
495
 
 
2,288
 
 
 
2,341
 
EBITDA
190,448
 
 
 
136,585
 
 
382,389
 
 
 
326,224
 
Adjustments:
 
 
 
 
 
 
 
Impairment of flight equipment
 
 
 
79,930
 
 
 
 
 
80,430
 
Non-cash share-based payment expense
3,076
 
 
 
6,028
 
 
5,454
 
 
 
8,130
 
(Gain) loss on mark-to-market of interest rate derivative contracts
(901
 
)
 
1,562
 
 
(4,075
 
)
 
2,712
 
Adjusted EBITDA
$
192,623

 
 
$
224,105
 
 
$
383,768

 
 
$
417,496
 

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,
 
2018
 
2017
 
2018
 
2017
Net income (loss)
$
50,203

 
 
$
(7,116
)
 
$
107,750

 
 
$
35,323
 
Loan termination fee(1)
 
 
 
988
 
 
 
 
 
988
 
(Gain) loss on mark-to-market of interest rate derivative contracts(2)
(901
 
)
 
1,562
 
 
(4,075
 
)
 
2,712
 
Write-off of deferred financing fees(1)
 
 
 
986
 
 
 
 
 
986
 
Non-cash share-based payment expense(3)
3,076
 
 
 
6,028
 
 
5,454
 
 
 
8,130
 
Adjusted net income
$
52,378

 
 
$
2,448
 
 
$
109,129

 
 
$
48,139
 
_______________
(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 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
 
Finance
Lease
Collections
 
Gain on Sale of Flt. Eqt.
 
Deprec.
 
Distributions
in excess
(less than)
Equity Earnings
 
Cash Earnings
 
Average
Shareholders
Equity
 
Trailing 12 Month Cash ROE
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
%
2017
$
490,872
 
 
$
32,184
 
 
$
55,167
 
 
$
298,664
 
 
$
(1,011

)
 
$
278,548
 
 
$
1,861,005
 
 
15.0
%
LTM Q2:18
$
483,325
 
 
$
28,126
 
 
$
66,515
 
 
$
292,419
 
 
$
(2,265

)
 
$
283,282
 
 
$
1,903,097
 
 
14.9
%


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)
Period
 
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
%
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
%
_______________
(1)
Management’s Use of Net Cash Interest Margin: Beginning with the earnings release for the three months ended September 30, 2016, based on the growing level of finance and sales-type lease revenue, management revised the calculation of net cash interest margin 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 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 $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 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 finance 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 finance 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.

Aircastle Limited and Subsidiaries
Presentation of Reclassification of Gain on Sale of Flight Equipment
(Dollars in thousands)
(Unaudited)


As part of the Company’s adoption of FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), we have reclassified Gain on sale of flight equipment from Other income (expense) to Revenues on our Consolidated Statement of Income as of March 31, 2018. We believe this better reflects the sale of flight equipment as part of our ordinary activities and conforms our presentation to those of our publicly traded peers. The presentation for the three and six months ended June 30, 2017, have 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.
 
Three Months Ended June 30, 2017
 
Six Months Ended June 30, 2017
Total revenues as previously reported
$
223,534
 
 
$
427,807
 
Gain on sale of flight equipment
13,525
 
 
14,284
 
Total revenues
$
237,059
 
 
$
442,091
 



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 period presented is immaterial to the allocation of distributed and undistributed earnings.
(2)
For both periods presented, 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, 2017
 
Six Months Ended
June 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)
 
 
 

 
 
(255
)
 
(0.72
)%
Earnings (loss) 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 any diluted shares on distributed and undistributed earnings to restricted shares would have been anti-dilutive and was excluded from the calculation. For the six months ended 2017, distributed and undistributed earnings to restricted shares were 0.72%, of net income and adjusted net income. The amount of restricted share forfeitures for the period presented is immaterial to the allocation of distributed and undistributed earnings.
(2)
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.


7