AeroCentury Corp. (“AeroCentury” or the “Company”) (NYSE American: ACY), an independent aircraft leasing company, today reported a second quarter 2019 net loss of $78,000, or $(0.05) per share, compared to a net loss of $81,000, or $(0.06) per share, for the second quarter of 2018. Second quarter 2019 results reflect the combined operations of AeroCentury and its subsidiary, JetFleet Holding Corp. (“JetFleet”), which was acquired by the Company on October 1, 2018.
In the first six months of 2019, the Company reported a net loss of $1.4 million, or $(0.90) per share, compared to net income of $236,200, or $0.17 per share, in the first six months of 2018.
The results for the second quarter included a $160,000 impairment provision, based on appraised value, for one older turboprop aircraft that is held for sale, but is on a short-term operating lease. The six months ended June 30, 2019 also included impairment provisions related to two older turboprop aircraft and a spare engine, all of which remain off lease. The sale of those three assets is expected to occur in the third quarter of 2019.
The results for the second quarter and first six months of 2019 included a $171,000 loss related to the reclassification of an asset held for lease to a finance lease receivable as a result of a lease amendment under which the customer agreed to buy the aircraft at lease expiration in November 2019.
Results for the second quarter and first six months of 2019 included $43,000 and $451,000 respectively, of non-cash charges related to interest rate swaps the Company entered into during the first quarter.
The second quarter and first six months of 2018 included $579,000 and $1.6 million, respectively, of maintenance reserves revenue resulting from payments received from a lessee that returned three leased aircraft to the Company in 2017.
“Our results are now beginning to reflect cost reductions as a result of the Company’s acquisition of its management company and our expense-cutting efforts. Salaries, employee benefits and professional and other fees for the second quarter of 2019 were $300,000 less when compared to the pre-acquisition management fees and professional and other fees incurred in the same period last year,” said Michael Magnusson, President of the Company.
“Furthermore, the Company is nearing completion of its fleet modernization program,” Magnusson continued. “We anticipate the sale of three older assets will be consummated during the third quarter. The Company’s other single remaining older aircraft is on a short-term operating lease and is being actively marketed for sale. Executing our portfolio modernization program has not only resulted in a 98% utilization rate during the first half of 2019, it is an essential element to position the Company for success going forward, as it will allow the Company to focus on growing our portfolio by acquiring newer mid-life regional aircraft types that satisfy the current and anticipated future needs of our customer base of regional airlines.”
Second Quarter 2019 Highlights and Comparative Data
Net loss was $78,000 compared to a $1.3 million loss in the preceding quarter and net loss of $81,000 a year ago.
EBITDA1 was $5.3 million compared to $4.4 million in the preceding quarter and $5.4 million a year ago.
Average portfolio utilization was 98% during the first and second quarters of 2019, compared with 91% in the second quarter of 2018. The increase was a result of the purchase of two on-lease aircraft during the second quarter of 2018 and sales of off-lease assets during the second half of 2018.
Total revenues decreased 5% to $7.2 million for the second quarter of 2019, compared to $7.6 million in the preceding quarter and decreased 8% from $7.8 million in the second quarter a year ago.
° Operating lease revenue decreased 3% in the second quarter of 2019 from $7.1 million in the first quarter of 2019 as a result of an asset sale during March 2019. Operating lease revenue increased 2% from $6.8 million in the second quarter of 2018 as a result of assets purchased during 2018, the effect of which was partially offset by the March 2019 asset sale.
° The Company recorded no maintenance reserves revenue in the first or second quarters of 2019 and $579,000 in the second quarter of 2018.
° During the second quarter of 2019, the Company recognized gains of $100,000 related to the sale of aircraft parts, compared to gains of $179,000 related to the sale of an aircraft and parts in the first quarter of 2019 and gains of $18,000 for parts sales in the second quarter of 2018.
° During the second quarter of 2019, the Company recorded a loss on sale of an aircraft of $171,000 as a result of a lease amendment that converted an operating lease to a sales-type finance lease, under which the customer agreed to purchase the aircraft at lease expiration in November 2019.
Total expenses decreased 21% to $7.3 million from $9.2 million in the preceding quarter, and decreased 8% from $7.9 million in the year-ago quarter.
° During the second quarter of 2019, the Company recognized a $160,000 asset impairment based on appraisal, compared to the first quarter of 2019, when the Company recognized $1.4 million of asset impairments on three assets held for sale, based on estimated sales proceeds. The Company expects to sell all three assets during the third quarter of 2019. During the second quarter of 2018, the Company recognized an impairment of $298,000 on an asset that was sold later in the year.
° Interest expense in the second quarter included $43,000 of non-cash charges related to interest rate swaps the Company entered into during the first quarter, compared to $408,000 of such charges in the first quarter.
° The second quarter of 2019 included a $300,000 decrease in salaries, employee benefits and professional fees and other expenses compared to the management fees and professional fees and other expenses incurred in the year-ago quarter before the Company acquired JetFleet. Such expenses were approximately the same in the first quarter of 2019.
Book value per share was $24.88 as of June 30, 2019, compared to $25.59 at March 31, 2019 and $33.60 a year ago.
Aircraft and Engine Portfolio
AeroCentury’s portfolio currently consists of twenty-two aircraft, spread over nine different aircraft types. Fifteen of the aircraft, comprised of thirteen regional jets and two turboprops, are held for lease. Three additional regional jets and four turboprops are held under sales-type or direct finance leases. The Company also has one engine and five turboprop aircraft that are held for sale, two of which are being sold in parts. The current customer base comprises nine customers operating in eight countries.