AerCap Holdings N.V. (NYSE: AER), the global leader in aircraft leasing, today reported financial results for the third quarter of 2020 ended September 30, 2020.

  • Net loss for the third quarter of 2020, which includes special items, was $850 million, or $6.66 per share. This compares to net income of $270 million, or earnings per share of $2.01, for the same period in 2019.
  • Excluding special items, net income for the third quarter of 2020 was $158 million, or $1.24 per share.
  • Special items in the third quarter of 2020 included a non-cash write-down of $973 million of flight equipment and goodwill, a non-cash charge of $128 million related to mark-to-market on investment, and $43 million of debt extinguishment costs.

Aengus Kelly, Chief Executive Officer of AerCap, said "While the aviation industry continues to face challenges, we are seeing a steady recovery in air travel and in AerCap's cash flows from the lows of April. The positive developments announced yesterday regarding the near-term availability for a Covid-19 vaccine, as well as the planned roll-out of rapid pre-departure testing, should provide a further boost to the industry.

"Throughout this pandemic, AerCap has taken numerous proactive steps to manage through this environment, including executing over $12 billion of liquidity initiatives, which resulted in the company ending the quarter with our strongest ever liquidity position. As we look forward, we are confident that there will be significant attractive opportunities for AerCap to deploy its capital as the recovery continues.

"We are seeing an acceleration of the pre-pandemic trend of airlines transitioning into new technology aircraft, of which AerCap is the largest owner in the world," continued Mr. Kelly. "We have reviewed each aircraft in our portfolio to ensure that our assumptions are reflective not only of conditions today, but, importantly, of those we believe are likely to prevail for the remaining useful life of each aircraft. After this comprehensive review of our entire fleet, in the third quarter we have taken a non-cash impairment charge that is focused primarily on current technology widebody aircraft."

Highlights

Cash Flow Recovery:

  • Cash flow from operating activities was $541 million, an increase of 76% from the second quarter of 2020.
  • New deferral requests in the third quarter were lower than in the second quarter, with deferral notes receivable increasing by only $56 million during the third quarter.

Strong Balance Sheet:

  • AerCap ended the third quarter with over $11 billion in total sources of liquidity, representing a record next 12 months' sources-to-uses coverage ratio of 2.9x.
  • Adjusted debt/equity ratio of 2.67 to 1, below the company's target of 2.7x to 1.
  • Secured debt-to-total assets ratio of 24%.
  • Approximately $26 billion of unencumbered assets, providing a high degree of flexibility.

Attractive Aircraft Fleet:

  • AerCap is the world's largest owner of new technology aircraft, which comprise 62% of the company's fleet, compared with approximately 12% of the global in-service passenger fleet as of January 2020.
  • AerCap's average current lease expires in 2028, and only 7% of the company's aircraft by book value are scheduled to come off lease through the end of 2022.

Third Quarter 2020 Financial Results

  • Net loss was $850 million, compared with net income of $270 million for the same period in 2019. Loss per share was $6.66, compared with earnings per share of $2.01 for the same period in 2019.
  • The decrease in net income was primarily driven by a non-cash write-down of flight equipment and goodwill, a non-cash charge related to mark-to-market on investment, and debt extinguishment costs.
  • Excluding special items, net income was $158 million, or $1.24 per share.

Revenue and Net Spread



Three months ended September 30,


Nine months ended September 30,



2020


2019


% increase/  
(decrease)


2020


2019


% increase/
(decrease)



(U.S. Dollars in millions)


(U.S. Dollars in millions)

Lease revenue:









   Basic lease rents


$897


$1,067


(16%)


$2,876


$3,219


(11%)

   Maintenance rents and other receipts


91


73


25%


449


269


67%

Total lease revenue


988


1,139


(13%)


3,326


3,487


(5%)

Net gain on sale of assets


7


41


(82%)


76


140


(46%)

Other income


31


14


117%


61


53


16%

Total Revenues and other income


$1,027


$1,194


(14%)


$3,462


$3,680


(6%)


Basic lease rents were $897 million for the third quarter of 2020, compared with $1,067 million for the same period in 2019. The decrease was primarily due to lease restructurings, transitions and the impact of airline bankruptcies.

Maintenance rents and other receipts were $91 million for the third quarter of 2020, compared with $73 million for the same period in 2019. The increase was primarily due to higher maintenance revenue recognized as a result of lease terminations during the third quarter of 2020.

Net gain on sale of assets for the third quarter of 2020 was $7 million, relating to seven aircraft sold for $63 million, compared with $41 million for the same period in 2019, relating to 19 aircraft sold for $561 million. The decrease was primarily due to the lower volume and composition of asset sales.

Other income for the third quarter of 2020 was $31 million, compared with $14 million for the same period in 2019. The increase was primarily driven by higher interest income.



Three months ended September 30,


Nine months ended September 30,



2020


2019


% increase/ 
(decrease)


2020


2019


% increase/
(decrease)



(U.S. Dollars in millions)


(U.S. Dollars in millions)










Basic lease rents


$897


$1,067


(16%)


$2,876


$3,219


(11%)














Interest expense


307


312


(2%)


938


979


(4%)

Adjusted for:













   Mark-to-market of interest rate caps and swaps


0


(3)


(100%)


(15)


(29)


(49%)

Interest expense excluding mark-to-market of interest rate caps and swaps


307


309


(1%)


923


950


(3%)

Net interest margin (*)


$590


$758


(22%)


$1,953


$2,269


(14%)

Depreciation and amortization, including maintenance rights expense


(428)


(429)



(1,283)


(1,312)


(2%)

Net interest margin, less depreciation and amortization


$163


$329


(51%)


$670


$957


(30%)














Average lease assets (*)


$36,926


$37,663


(2%)


$37,313


$37,524


(1%)














Annualized net spread (*)


6.4%


8.0%




7.0%


8.1%



Annualized net spread less depreciation and amortization (*)


1.8%


3.5%




2.4%


3.4%





(*) Refer to "Notes Regarding Financial Information Presented in This Press Release" for details relating to these non-GAAP measures

Interest expense excluding mark-to-market of interest rate caps and swaps was $307 million for the third quarter of 2020, compared with $309 million for the same period in 2019. AerCap's average cost of debt was 4.0% for the third quarter of 2020, compared with 4.2% for the same period in 2019. The company's average cost of debt includes debt issuance costs, upfront fees and other impacts of approximately 0.3% to 0.4%.

Selling, General and Administrative Expenses



Three months ended September 30,


Nine months ended September 30,



2020


2019


% increase/ 
(decrease)


2020


2019


% increase/
(decrease)



(U.S. Dollars in millions)


(U.S. Dollars in millions)










Selling, general and administrative expenses


$44


$49


(10%)


$129


$144


(11%)

Share-based compensation expenses


17


16


8%


50


52


(4%)

Total selling, general and administrative expenses


$61


$65


(6%)


$178


$196


(9%)


Asset Impairment

Asset impairment charges were $973 million for the third quarter of 2020, compared to $31 million for the same period in 2019. Asset impairment charges recorded in the third quarter of 2020 included $915 million of impairment of flight equipment, related primarily to current technology widebody aircraft, in particular Airbus A330 and Boeing 777 aircraft, as well as the write-off of $58 million of goodwill. Current technology widebody aircraft now represent less than 10% of the net book value of AerCap's fleet.

Other Expenses

Leasing expenses were $51 million for the third quarter of 2020, compared with $44 million for the same period in 2019. The increase was primarily due to higher leasing expenses as a result of lease terminations, partially offset by a decrease in maintenance rights expense as a result of lower maintenance activity during the period and the lower maintenance rights asset balance.

Effective Tax Rate

AerCap’s effective tax rate for the full year 2020 is expected to be 7%, compared with the effective tax rate of 12.5% for the full year 2019. The effective tax rate is impacted by the source and amount of earnings among our different tax jurisdictions as well as the amount of permanent tax differences relative to pre-tax income.

The company's effective tax rate was 11.1% for the third quarter of 2020, compared to 13.0% for the third quarter of 2019. Our effective tax rate in any quarter can be impacted by revisions to the estimated full year rate.

Book Value Per Share



September 30, 2020


September 30, 2019



(U.S. Dollars in millions,
except share and per share data)






Total AerCap Holdings N.V. shareholders' equity


$8,811



$9,175







Ordinary shares outstanding


129,756,613



134,742,482


Unvested restricted stock


(2,163,670)



(2,229,371)


Ordinary shares outstanding (excl. unvested restricted stock)


127,592,943



132,513,111







Book value per ordinary share outstanding (excl. unvested restricted stock)


$69.06



$69.24


Financial Position



September 30, 
2020


December 31, 
2019


% increase/
(decrease) over
December 31, 2019



(U.S. Dollars in millions)






Total cash, cash equivalents and restricted cash


$3,526


$1,300


171%

Total lease assets (*)


36,252


37,930


(4%)

Total assets


44,421


43,749


2%

Debt


31,087


29,486


5%

Total liabilities


35,542


34,367


3%

Total AerCap Holdings N.V. shareholders' equity


8,811


9,315


(5%)

Total equity


8,879


9,382


(5%)



(*) Refer to "Notes Regarding Financial Information Presented in This Press Release" for details relating to this non-GAAP measure

Boeing 737 MAX

Following the fatal accidents of two Boeing 737 MAX aircraft, the worldwide fleet of these aircraft was grounded by aviation authorities in March 2019 and production was temporarily suspended by Boeing in January 2020, resulting in ongoing delays in the delivery of AerCap's aircraft on order from Boeing. As of September 30, 2020, we had five Boeing 737 MAX aircraft delivered and on lease. During the third quarter of 2020, AerCap cancelled its orders for 24 Boeing 737 MAX aircraft.

Aircraft Portfolio

As of September 30, 2020, AerCap's portfolio consisted of 1,342 aircraft that were owned, on order or managed. The average age of the company's owned fleet as of September 30, 2020 was 6.3 years (2.9 years for new technology aircraft, 11.9 years for current technology aircraft) and the average remaining contracted lease term was 7.3 years.

Notes Regarding Financial Information Presented in This Press Release

The financial information presented in this press release is not audited.

Due to rounding, numbers presented throughout this document may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures.

The following are definitions of non-GAAP measures used in this press release. We believe these measures may further assist investors in their understanding of our operational performance.

Net income / earnings per share excluding special items
Net income excluding special items is calculated as net loss excluding the after-tax impact of a non-cash write-down of $973 million of flight equipment and goodwill, a non-cash charge of $128 million related to mark-to-market on investment and $43 million of debt extinguishment costs. Earnings per share excluding special items is calculated by dividing net income excluding special items by the weighted average of our ordinary shares outstanding. Given the relative significance of these items during the third quarter of 2020, we have chosen to present these measures in order to assist investors in their understanding of the changes and trends related to our earnings.



Three months ended September 30, 2020



Net (loss) income


(Loss) earnings

per share



(U.S. Dollars in millions, except per share data)






Net loss / loss per share


($ 850)


($6.66)






Special items:





Asset impairment


973


7.63

Unrealized loss on investment


128


1.01

Loss on debt extinguishment


43


0.34

Income tax effect


(136)


(1.06)






Net income / earnings per share excluding special items


$158


$1.24

Adjusted debt/equity ratio
This measure is the ratio obtained by dividing adjusted debt by adjusted equity.

  • Adjusted debt means consolidated total debt less cash and cash equivalents, and less a 50% equity credit with respect to certain long-term subordinated debt.
  • Adjusted equity means total equity, plus the 50% equity credit relating to the long-term subordinated debt.

Adjusted debt and adjusted equity are adjusted by the 50% equity credit to reflect the equity nature of those financing arrangements and to provide information that is consistent with definitions under certain of our debt covenants. We believe this measure may further assist investors in their understanding of our capital structure and leverage.



September 30, 2020


December 31, 2019



(U.S. Dollars in millions,

except debt/equity ratio)






Debt


$31,087



$29,486







Adjusted for:





   Cash and cash equivalents


(3,244)



(1,121)


   50% credit for long-term subordinated debt


(1,125)



(1,125)


Adjusted debt


$26,718



$27,240












Equity


$8,879



$9,382







Adjusted for:





   50% credit for long-term subordinated debt


1,125



1,125


Adjusted equity


$10,004



$10,507







Adjusted debt/equity ratio


2.67 to 1



2.59 to 1


Net interest margin, annualized net spread, annualized net spread less depreciation and amortization and average cost of debt
Net interest margin is calculated as the difference between basic lease rents and interest expense, excluding the impact of the mark-to-market of interest rate caps and swaps. Annualized net spread is net interest margin expressed as a percentage of average lease assets. Annualized net spread less depreciation and amortization is net interest margin less depreciation and amortization, including maintenance rights expense, expressed as a percentage of average lease assets. Average cost of debt is calculated as interest expense, excluding mark-to-market on interest rate caps and swaps, divided by average debt balance. We believe these measures may further assist investors in their understanding of the changes and trends related to the earnings of our leasing activities. These measures reflect the impact from changes in the number of aircraft leased, lease rates and utilization rates, as well as the impact from changes in the amount of debt and interest rates.

Lease assets
Lease assets include flight equipment held for operating leases, flight equipment held for sale, net investment in finance and sales-type leases and maintenance rights assets.