Key Financial Metrics
- Total revenues were $223.5 million for the second quarter of 2017, up 18%
- Total lease rental and finance and sales-type lease revenues were $195.0 million, up 8%
- Net loss was $(7.1) million, or $(0.09) per diluted common share; includes $65.7 million of net aircraft impairment charges related to freighter aircraft sales, and $5.1 million of separation and disability compensation paid to our former Chief Executive
- Adjusted net income was $2.4 million, or $0.03 per diluted common share
- Adjusted EBITDA was $224.1 million for the second quarter, up 23%
- Cash ROE was 12.9%; net cash interest margin was 8.8%
- Acquired seven mid-aged narrow-body aircraft for approximately $86 million during the quarter
- Sold thirteen aircraft during the second quarter for proceeds of $221.5 million and a gain on sale of $13.5 million
- Further reduced our exposure to freighter aircraft by agreeing to sell two 747-400 production freighters and one converted freighter
- Repaid $500 million of 6.75% coupon debt and borrowed $500 million of 4.125% coupon debt; $13.1 million of annual interest expense savings, or approximately $0.17 per share
- Declared our 45th consecutive quarterly dividend
Aircastle Limited (the "Company" or "Aircastle") (NYSE: AYR) reported a second quarter 2017 net loss of $(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. The second quarter results included total lease rental and finance and sales-type lease revenues of $195.0 million, an increase of 8%, as compared to $180.3 million in the second quarter of 2016. The results also include $65.7 million of net aircraft impairment charges, including $13.5 million of related maintenance payments, and $5.1 million of separation and disability compensation paid to a former executive.
Commenting on the results, Mike Inglese, Aircastle's CEO, stated, "Our strong core results in the second quarter highlight the portfolio de-risking that we have pursued since the beginning of 2015. Over the past two and a half years, we have taken advantage of market conditions to sell 75 aircraft, generating $111 million in gains on sale, while also enhancing the quality of our fleet. During that time, we also acquired 121 aircraft for $3.3 billion."
Mr. Inglese continued, "In addition to our solid operating performance, during the first six months of 2017, we opportunistically sold fourteen aircraft and realized gains of more than $14 million. During the second quarter, we also reduced our freighter exposure by more than 45% by taking the opportunity to sell two younger production freighters to a carrier in Asia. Our three remaining production freighters are on longer term leases, and our orderly exit from the cargo market, which began several years ago, is nearing completion."
Concluding, Mr. Inglese added, "Aircastle's core business is strong, and we are poised for accretive growth in the second half of 2017. Our limited long-term capital commitments, significant financial flexibility, and proven value investment approach position us to continue to grow the business in a disciplined and profitable manner."
Second Quarter Results
Total revenues were $223.5 million, an increase of $33.5 million, or 18%, from the previous year. An increase in lease rental and finance and sales-type lease revenue of $14.7 million and a $16.4 million rise in maintenance revenues accounted for most of the change. The increase in lease rental and finance lease revenue in the second quarter was due to net fleet growth over the past year. During the second quarter of 2017, we recorded $28.9 million of maintenance revenue versus $12.5 million in the prior year, primarily driven by return compensation associated with several wide-body aircraft which transitioned during the quarter, and $13.5 million associated with one of the production freighter aircraft that we agreed to sell.
During the quarter, we took the opportunity to sell two ten-year old 747-400 production freighters scheduled to come off lease within the next twelve months, and we recorded non-cash, transactional impairment charges of $76.2 million in connection with this sale, partially offset by $13.5 million of maintenance revenue. We also recorded transactional impairment charges in connection with the sale of a converted freighter in the amount of $3.1 million. During the quarter, we completed our annual fleet review with no additional impairment charges.
The net loss in the second quarter was $(7.1) million, versus net income of $20.0 million in the prior year. Higher aircraft impairment charges of $63.2 million and higher SG&A of $6.8 million were partially offset by higher total revenues of $33.5 million and higher gains from the sale of flight equipment of $11.4 million. SG&A increased due to separation and disability compensation paid to our former CEO under the terms of his employment and share-based award agreements.
Adjusted EBITDA for the second quarter was $224.1 million, up $41.7 million, or 23%, from the second quarter of 2016, primarily due to higher revenues of $33.5 million and higher gains from the sale of flight equipment of $11.4 million.
Adjusted net income for the quarter was $2.4 million, down $21.8 million compared to the prior year period. Higher aircraft impairment charges of $63.2 million and higher SG&A excluding stock-based compensation of $2.8 million were partially offset by higher total revenues and gain on sales from the sale of flight equipment of $44.9 million.
During the second quarter of 2017, we acquired seven mid-aged narrow-body aircraft for approximately $86 million. In the first half of 2017, we acquired a total of fifteen aircraft for approximately $275.7 million. These aircraft have a weighted average age of approximately twelve years and a weighted average remaining lease term of 5.9 years.
During the second quarter, we sold thirteen aircraft for approximately $221.5 million. In the first half of 2017, we sold fourteen aircraft for total proceeds of $238.3 million and recorded a gain on sale of $14.3 million. The weighted average age of the aircraft sold was approximately twelve years with a weighted average remaining lease term of 7.0 years.
During the second quarter, we also completed the transition of three A330 aircraft that were previously leased with Singapore Airlines. These aircraft are now leased to a European airline. The fourth Singapore A330 transitioned in the third quarter, and at quarter-end we had no remaining scheduled lease placements for the balance of 2017.
As of June 30, 2017, Aircastle owned and managed 203 aircraft with a net book value of $6.8 billion. Of this total, 190 aircraft having a net book value of $6.2 billion are owned, while we manage an additional thirteen aircraft with a net book value of approximately $675 million on behalf of our joint ventures with Ontario Teachers' Pension Plan and IBJL Leasing. For the second half of 2017, we have closed or committed to close approximately $950 million of additional aircraft investments, and expect to sell approximately $600 million.
Year-to-date, we've secured $500 million of new financing. During the first quarter of 2017, we issued $500 million in unsecured Senior Notes due 2024 bearing a coupon of 4.125%. On April 17, 2017, we repaid $500 million of maturing, unsecured Senior Notes bearing a coupon of 6.75%. The associated annual interest expense savings is approximately $13.1 million.
On August 4, 2017, Aircastle's Board of Directors declared a third quarter 2017 cash dividend on its common shares of $0.26 per share, payable on September 15, 2017 to shareholders of record on August 31, 2017. This is our 45th consecutive dividend.