AeroCentury Corp. Reports Third Quarter 2020 Results

AeroCentury Corp. (“AeroCentury” or the “Company”) (NYSE American: ACY), an independent aircraft leasing company, today reported a third quarter 2020 net loss of $4.1 million, or ($2.64) per share, compared to a net loss of $8.2 million, or ($5.32) per share, for the third quarter of 2019.

In the first nine months of 2020, the Company reported a net loss of $27.8 million, or $(17.97) per share, compared to a net loss of $9.6 million, or $(6.22) per share, in the first nine months of 2019.

Results for the quarter ended September 30, 2020 included impairment losses totaling $0.3 million, which were recognized as a result of a write-down of the fair value, based on estimated future cash flow, with respect to two regional jet aircraft that were then held for lease and which were subsequently sold in October 2020. Results also included a $0.1 million write-down of an older turboprop aircraft that is held for sale and that the Company anticipates selling during the fourth quarter of 2020.

Third Quarter 2020 Highlights and Comparative Data

Net loss was $4.1 million compared to a loss of $13.5 million in the preceding quarter and a loss of $8.2 million a year ago.
EBITDA¹(1) was $0.9 million compared to ($8.3) million in the preceding quarter and ($5.2) million a year ago.
Average portfolio utilization was 89% during the third quarter of 2020, compared to 91% in the preceding quarter and 97% in the third quarter of 2019. The year-to-year decrease was due to aircraft that were on lease in the 2019 period, but off lease in the 2020 period.
Revenues in the third quarter of 2020 and the first nine months of 2020 consisted primarily of operating lease revenue. Operating lease revenue of $3.2 million in the third quarter was 26% less than the $4.4 million in revenue recorded in the second quarter as a result of a decrease in rent revenue for two assets that were sold in October 2020 and for which proceeds received from the lessee were allocated to past due rent as of June 30, 2020 and purchase of the aircraft. The second quarter reflected reduced rent for two aircraft due to concessions granted to one of the Company’s customers as a result of the COVID-19 pandemic, for which rent returned to normal levels in the third quarter. Third quarter operating lease revenue in the current year was 52% lower than the $6.7 million in the third quarter of 2019 primarily due to reduced rent income resulting from the early termination of four aircraft leases with one of the Company’s customers in the third quarter of 2019 and the decreased rent associated with the two aircraft that were sold in October 2020. During the third quarter of 2019, the Company recorded $17.0 million of maintenance reserves revenue related to the lease terminations.
Total operating expenses decreased by 64% to $7.0 million in the third quarter of 2020 from $19.2 million in the preceding quarter, and decreased 80% from $34.5 million in the third quarter a year ago.
During the third quarter of 2020, the Company recognized asset impairments of $0.3 million, which were recognized as a result of a write-down of the fair value, based on estimated future cash flow, with respect to two regional jet aircraft that were held for lease at September 30, 2020 and which were subsequently sold in October 2020. The Company also recorded a $0.1 million write-down of an older turboprop aircraft that is held for sale and that the Company anticipates selling during the fourth quarter of 2020.
During the second quarter of 2020, the Company recognized asset impairments of $9.7 million as a result of appraised values on three regional jet aircraft held for sale and estimated sales proceeds for three aircraft, one of which is held for sale. During the third quarter of 2019, the Company recognized $23.4 million in impairments for four aircraft repossessed from one of the Company’s lessees, based on appraised values for three of the aircraft and expected sales proceeds for the fourth aircraft along with two other assets that were held for sale, based on expected sales proceeds.
Depreciation expense decreased by 33% to $1.3 million in the third quarter of 2020 from $2.0 million in the preceding quarter and decreased by 55% from $3.0 million in the third quarter a year ago, due to the reclassification of several aircraft from held for lease to held for sale during the third quarter of 2019 and because the Company did not record depreciation in the third quarter of 2020 for two aircraft that were written down to the net sale value at June 30, 2020.
Interest expense decreased by 32% to $3.0 million in the third quarter of 2020 from $4.5 million in the preceding quarter, primarily because the second quarter included a $1.5 million write-off of a portion of the Company’s unamortized debt issuance costs, which resulted from the conversion of the Company’s revolving credit facility to a term loan in May 2020. Interest expense increased 29% from $2.3 million in the third quarter of 2019, primarily as a result of a higher average interest rate, the effect of which was partially offset by a lower average outstanding balance.
The Company recorded no bad debt expense during the second or third quarters of 2020. As a result of payment delinquencies by two customers that leased three of the Company’s aircraft subject to finance leases, the Company recorded a bad debt expense of $3.9 million during the third quarter of 2019.
Salaries, employee benefits and professional fees and other expenses decreased 28% to $2.1 million in the third quarter of 2020 from $2.9 million in preceding quarter, primarily due to lower legal fees related to the May 2020 conversion of the Company revolving credit facility to a term loan in May 2020 and litigation related to an activist shareholder, as well as lower consulting expenses related to the May 2020 debt conversion and decreased amortization related to the Company’s office lease right of use. Such expenses increased by 28% from $1.6 million in the third quarter of 2019, primarily due to increased legal expenses and consulting expenses related to the debt conversion and activist shareholder.

Book value per share was $(2.35) as of September 30, 2020, compared to $0.22 at June 30, 2020 and $19.48 a year ago.

Aircraft and Engine Portfolio

AeroCentury’s portfolio currently consists of eleven aircraft, spread over five different aircraft types. Nine of the aircraft, comprised of seven regional jets and two turboprops, are held for lease. Two additional turboprops are held under sales-type leases. The Company also has three turboprop aircraft, two of which are being sold in parts, and three regional jet aircraft that are held for sale. The current customer base comprises six customers operating in four countries.