AeroCentury Corp. (“AeroCentury” or the “Company”) (NYSE American: ACY), an independent aircraft leasing company, today reported a fourth quarter net loss of $3.8 million, or $(2.48) per share, compared to a net loss of $4.5 million, or $(3.16) per share, for the third quarter of 2018 and net income of $6.0 million, or $4.25 per share, for the fourth quarter of 2017. Fourth quarter 2018 results reflect the combined operations of AeroCentury and its newly acquired subsidiary, JetFleet Holding Corp. (“JetFleet”), which was acquired on October 1, 2018. Fourth quarter 2017 results included a $5.4 million tax benefit from the revaluation of the Company’s deferred tax liability caused by the passage of the Tax Cuts and Jobs Act of 2017.
Net loss for the year ended December 31, 2018, was $8.1 million, or ($5.58) per share, as compared to net income of $7.4 million, or $5.10 per share, in 2017.
The results for the fourth quarter and the year ended December 31, 2018, included a settlement loss of $2.5 million in connection with the acquisition of JetFleet., the parent of the management company for the Company, which closed on October 1, 2018. The 2018 fourth quarter and full year results also included $1.0 million and $3.4 million, respectively, of net losses related to the sale of off-lease, older turboprop aircraft. The 2018 full year results also included impairment provisions totaling $3.0 million on five off-lease turboprop aircraft that were identified for sale, two of which were sold during the year, as well as $1.6 million of maintenance reserves revenue resulting from payments received from a lessee that returned three leased aircraft to the Company in 2017 which payments the Company has recorded as they were received.
“While the acquisition of JetFleet resulted in a $2.5 million settlement loss being recorded in the fourth quarter, we believe the acquisition provides the potential to lower overall management costs, and consequently is expected to be accretive to shareholders in the long term,” stated Michael Magnusson, AeroCentury’s President. “Furthermore, the structure of a private company managing the business of a public company was a concern of potential equity investors, and bringing management in-house should help to eliminate those concerns and facilitate improved transparency of our business. In 2018, we continued to implement our strategy of selling off older assets in favor of acquiring newer ones, and this also had a substantial impact on earnings. As a result of our continuing portfolio modernization efforts, our portfolio of leased aircraft now has an average age of 11 years. The average aircraft value is $10.7 million, approximately double what it was 10 years ago. While the JetFleet acquisition and actions taken under our portfolio modernization program had a significant impact on our 2018 earnings, we believe they represent significant steps to better position AeroCentury for the future.
“Another major accomplishment was the restructuring of our acquisition financing, which started in 2018 and was completed in February 2019. We renewed and modified our revolving credit facility, which was previously due to expire at the end of May 2019, and extended its term to February 2023,” Magnusson continued. “Working with our credit facility lenders, who recognized the value of the JetFleet acquisition and our portfolio modernization efforts, we were able to obtain modifications to our credit facility agreement that helped minimize the negative impact of those actions on the credit facility’s financial ratio covenants. In the same month, in order to free up capacity on our credit facility, we refinanced six of our aircraft with new non-recourse term loans.”
Fourth Quarter 2018 Highlights and Comparative Data
Net loss was $3.8 million compared to the $4.5 million loss in the preceding quarter and net income of $6.0 million a year ago.
EBITDA1 was $1.9 million compared to $0.1 million in the preceding quarter and $6.4 million a year ago.
Average portfolio utilization was 95% during the fourth quarter of 2018, compared with 93% in the preceding quarter. The increase was a result of the acquisition of two aircraft during the second quarter and the sale of off-lease aircraft during 2018. Average portfolio usage was 91% during the fourth quarter of 2017. The year-over-year increase was a result of the net effect of the acquisition of two aircraft during the second quarter of 2018, asset sales during late 2017 and 2018, as well as the return of several aircraft at lease-end in 2017.
Total revenue and other income increased 27% to $6.4 million for the fourth quarter of 2018, compared to $5.1 million in the preceding quarter, and decreased 43% from $11.2 million in the fourth quarter a year ago. The increase from the preceding quarter was a result of decreased losses on sales of aircraft. The decrease from the fourth quarter of 2017 was primarily a result of maintenance reserves revenue of $2.9 million in the 2017 period versus $0 in 2018, as well as a loss on sale of aircraft during the fourth quarter of 2018 versus gains on sales of two aircraft in the 2017 period.
— Operating lease revenue was $7.2 million in each of the third and fourth quarters of 2018 and increased 2% from $7.0 million in the fourth quarter of 2017. The year-to-year change reflects assets purchases during 2018, the effect of which was only partially offset by sales of aircraft in late 2017 and the return of several aircraft at lease-end in 2017.
— The Company recorded no maintenance reserves revenue in the third or fourth quarters of 2018 and $2.9 million in the fourth quarter of 2017.
— During the fourth quarter of 2018, the Company recognized a $1.0 million loss on sale of an aircraft, compared to $2.4 million in losses from disposal of assets during the preceding quarter, and $0.9 million of net gains in the fourth quarter of 2017.
Total expenses decreased 6% to $10.1 million from $10.8 million in the preceding quarter, primarily due to lower management fees and impairment provisions, the effects of which were partially offset by increased salaries, benefits and general and administrative expenses, as well as a settlement loss recorded in connection with the acquisition of JetFleet on October 1, 2018. Total expenses increased 1% from $10.0 million in the year-ago quarter, primarily as a result of increases in depreciation, interest, salaries, benefits and general and administrative expenses, as well as the settlement loss discussed above. These increases were partially offset by decreases in management fees, maintenance expense and impairment provisions.
Book value per share was $26.71 as of December 31, 2018, compared to $30.44 at September 30, 2018 and $33.43 a year ago.
Aircraft and Engine Portfolio
AeroCentury’s portfolio currently consists of seventeen aircraft, spread over ten different aircraft types, and one engine that are held for lease and six aircraft that are held under sales-type or direct finance leases. The Company also has five turboprop aircraft that are held for sale, two of which are being sold in parts. The current customer base comprises eleven customers operating in nine countries.
The following table shows the status of the Company's portfolio of aircraft and engines held for lease as of December 31, 2018, September 30, 2018, and December 31, 2017.