Highlights
New technology aircraft now comprise 53% of our owned fleet.
Order book approximately 90% placed through 2021.
Over $40 billion of contracted future lease revenues.
Approximately 95% of lease rents through 2021 already contracted.
Average current lease expires in the fourth quarter of 2026.
99.4% fleet utilization rate for the second quarter of 2019.
$2.7 billion increase in average lease assets year over year.
2.0x ratio of liquidity sources to uses for next 12 months.
13% increase in book value per share since June 30, 2018.
Repurchased 3.5 million shares in the second quarter of 2019 for $169 million and 7.2 million shares year to date through July 24, 2019 for $337 million.
Aengus Kelly, CEO of AerCap, commented: “I am very pleased to announce record earnings per share of $2.42 for the second quarter. This outstanding result is the product of our unrivaled platform capabilities and our disciplined approach to capital allocation. Our focus on acquiring only the most in-demand, new technology aircraft types rather than end-of-the-line current technology aircraft and on selling large numbers of older aircraft at a considerable premium has produced an excellent portfolio and enabled us to repurchase over 40% of the outstanding shares at a discount to book value, while reducing our leverage and maintaining the highest liquidity levels in our industry.”
Second Quarter 2019 Financial Results
Lease revenue was $1,186.2 million, compared with $1,131.0 million for the same period in 2018, primarily due to the delivery of new technology aircraft from April 2018 through June 2019, resulting in a $2.7 billion increase in average lease assets.
Net income was $331.5 million, compared with $254.2 million for the same period in 2018. Diluted earnings per share was $2.42, compared with $1.70 for the same period in 2018.
Net income increased 30%, primarily driven by higher lease rents resulting from the increase in average lease assets as well as higher net gain on sale of assets.
Diluted earnings per share increased 42%, driven by the same factors as net income and the repurchase of 14.6 million shares from April 2018 through June 2019.
Revenue and Net Spread
Basic lease rents were $1,077.1 million for the second quarter of 2019, compared with $1,023.1 million for the same period in 2018. The increase was primarily due to the increase in average lease assets.
Net gain on sale of assets for the second quarter of 2019 was $78.2 million, relating to 22 aircraft sold for $502.4 million, compared with $51.2 million for the same period in 2018, relating to 30 aircraft sold for $737.7 million. The increase was primarily due to the composition of asset sales.
Other income for the second quarter of 2019 was $17.0 million, compared with $12.4 million for the same period in 2018. The increase was primarily the result of higher interest income recognized during the second quarter of 2019.
Interest expense excluding mark-to-market of interest rate caps of $9.8 million was $322.6 million for the second quarter of 2019, compared with $289.4 million for the same period in 2018. Our average cost of debt was 4.3% for the second quarter of 2019, compared with 4.1% for the same period in 2018. Our average cost of debt includes debt issuance costs, upfront fees, undrawn fees, commitment fees and original issuance discount fees of 0.34% for the second quarter of 2019, compared with 0.31% for the same period in 2018.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $64.5 million for the second quarter of 2019, compared with $85.3 million for the same period in 2018. The decrease was primarily due to a decrease in compensation-related expenses.
Other Expenses
Leasing expenses were $65.2 million for the second quarter of 2019, compared with $103.3 million for the same period in 2018. The decrease was primarily due to a decrease in maintenance rights expense as a result of the lower maintenance rights asset balance as well as a decrease in other leasing expenses recognized as a result of lease terminations. Asset impairment charges were $17.8 million for the second quarter of 2019, compared to $14.0 million recorded for the same period in 2018. Asset impairment charges recorded in the second quarter of 2019 related to lease terminations and sales transactions. The maintenance revenue recognized with respect to the impaired aircraft more than offset the asset impairment charges.
Effective Tax Rate
Our effective tax rate for the second quarter of 2019 was 13.0%, the same as for the second quarter of 2018. The effective tax rate for the full year 2018 was 12.5%. The effective tax rate is impacted by the source and amount of earnings among our different tax jurisdictions.
Financial Position
As of June 30, 2019, AerCap’s portfolio consisted of 1,373 aircraft that were owned, on order or managed. The average age of our owned fleet as of June 30, 2019 was 6.2 years (2.0 years for new technology aircraft, 10.9 years for current technology aircraft) and the average remaining contracted lease term was 7.4 years.
Boeing 737 MAX Delays
On March 13, 2019, the Federal Aviation Administration issued an order to suspend operations of all Boeing 737 MAX aircraft in the U.S. and by U.S. aircraft operators following two recent fatal accidents involving Boeing 737 MAX aircraft. Non-U.S. civil aviation authorities have also issued directives to similar effect. Boeing has suspended deliveries of the Boeing 737 MAX until clearance is granted by the appropriate regulatory authorities. Prior to the grounding, we had delivered five Boeing 737 MAX aircraft that are currently on lease to an airline customer, and we currently have 95 Boeing 737 MAX aircraft on order. It is uncertain when and under what conditions the Boeing 737 MAX will return to service and when Boeing will resume making deliveries of these aircraft. As a result, we have incurred delays and expect to incur future delays on our scheduled Boeing 737 MAX deliveries.