Aircastle Announces Fourth Quarter and Full Year 2018 Results

Key Financial Metrics

Total revenues of $292.6 million for the fourth quarter of 2018 and $890.4 million for the year
Net income of $103.8 million, or $1.35 per diluted common share, for the fourth quarter and $247.9 million, or $3.17 per diluted common share, for the year
Adjusted net income(1) was $109.9 million, or $1.43 per diluted common share, for the fourth quarter and $257.2 million, or $3.29 per diluted common share, for the year
Adjusted EBITDA(1) was $276.8 million for the fourth quarter and $839.8 million for the year
GAAP ROE of 12.7%; Cash ROE(1) of 14.2%; net cash interest margin(1) of 7.8%

Highlights

Acquired eighteen narrow-body aircraft during the fourth quarter for $760 million and 39 aircraft in 2018, exclusively narrow-bodies, for $1.4 billion; acquisitions included ten Airbus A320neos
Closed or committed to acquire ten additional narrow-body aircraft in 2019 for $378 million
Sold three aircraft during the fourth quarter and fourteen aircraft for the full year; full year gain on sale of $36.8 million represents 10.9% of net proceeds; 2018 sales included two wide-body aircraft
Declared our 51st consecutive quarterly dividend
Returned $157.7 million of capital to shareholders during 2018; $88.7 million in dividends paid and $68.9 million of shares repurchased

Aircastle Limited (the "Company" or "Aircastle") (NYSE: AYR) reported fourth quarter 2018 net income of $103.8 million, or $1.35 per diluted common share, and adjusted net income of $109.9 million, or $1.43 per diluted common share. Net income for the year ended December 31, 2018 was $247.9 million, or $3.17 per diluted common share, and adjusted net income was $257.2 million, or $3.29 per diluted common share. The fourth quarter results included total revenues of $292.6 million versus $196.6 million in the prior year. For the full year 2018, total revenues were $890.4 million versus $851.8 million in 2017, an increase of 4.5%.

Commenting on the results, Mike Inglese, Aircastle's CEO, stated, "The successful execution of our active fleet management strategy enabled us to achieve strong financial results. We enhanced and expanded our fleet of in-demand modern aircraft and realized substantial gains from opportunistic sales throughout the year. Furthermore, the achievement of an investment grade credit rating enables us to access attractively priced capital. This places Aircastle in a strong competitive position to expand the Company's fleet and earnings and to continue to return capital to our shareholders in the form of dividends and opportunistic share repurchases."

Mr. Inglese concluded, "Narrow-body aircraft remain in high demand globally and we continue to benefit from the broad operator base and liquidity these aircraft afford. Solid air traffic growth and heightened investor interest in commercial aircraft as an asset class continue to create new opportunities for an asset manager with technical expertise, operational and financial flexibility and the ability to execute value-added transactions. Looking ahead, we have minimal forward commitments and our primary focus will continue to be on responsible capital stewardship. By maintaining investment discipline with the ability to adapt quickly to changing market conditions, we are positioned to create lasting value for our shareholders."

Full Year Results

Total revenues in 2018 were $890.4 million, an increase of $38.6 million, while lease rental and finance and sales-type lease revenues were $757.8 million, an increase of $10.8 million. The increase in total revenues was primarily driven by $49.6 million of higher maintenance revenues associated with the early termination of eleven leased aircraft with Avianca Brazil in the fourth quarter and higher lease rental and finance and sales-type lease revenues of $10.8 million associated with net fleet growth during the year. These increases were partially offset by $18.4 million of lower gains from the sale of flight equipment due to fourteen aircraft sold in 2018 versus 37 sold in 2017.

Net income for the full year was $247.9 million, up $100.0 million year-over-year, while adjusted net income was $257.2 million, an increase of $87.7 million. Higher maintenance revenues of $49.6 million and no aircraft impairment charges in 2018 versus $80.4 million the previous year, were offset by lower gains from the sale of flight equipment of $18.4 million and lower joint venture investment returns of $15.7 million.

Adjusted EBITDA for the full year was $839.8 million, up $38.2 million versus 2017, reflecting a $49.6 million increase in maintenance revenue and higher lease rental and finance and sales type lease revenue of $10.8 million, partially offset by lower gains from the sale of flight equipment of $18.4 million.

Fourth Quarter Results

Total revenues were $292.6 million, an increase of $95.9 million, or 48.8%, from the prior year. The increase was due to a $93.4 million rise in maintenance revenues, mostly reflecting the early termination of eleven aircraft leased to Avianca Brazil.

Lease rental and finance and sales-type lease revenues were $192.7 million versus $179.3 million the prior year. The 7.5% increase was mostly due to net fleet growth. Over the previous two years, the Company's aircraft fleet increased from 193 aircraft at the end of 2016 to 248 aircraft at year-end 2018.

Net income was $103.8 million, an increase of $48.7 million and adjusted net income rose by $52.8 million to $109.9 million. Higher total revenues of $95.9 million were partially offset by a $15.6 million decline in joint venture investment returns, higher depreciation from fleet growth of $10.4 million, higher interest expense of $7.0 million and higher tax expense of $4.6 million. Interest expense for the fourth quarter reflected higher debt balances which included a $400 million note that was repaid in December.

Adjusted EBITDA was $276.8 million, up 50.0%, or $92.3 million. This was primarily driven by higher maintenance revenues of $93.4 million in the fourth quarter of 2018 versus 2017.

Aviation Assets

During the fourth quarter, we acquired eighteen aircraft for $760 million and for the year ended 2018, we acquired 39 aircraft for $1.4 billion. Full year acquisitions included ten A320neo aircraft, our first investment in new technology aircraft. At the end of 2018, Aircastle's owned fleet of 248 aircraft had a weighted average age of 9.1 years and a weighted average remaining lease term of 4.5 years.

During the fourth quarter of 2018, we sold one A330 and two narrow-bodies for total sales proceeds of $62.7 million and a gain on sale of $8.2 million. This represents a 13.1% margin on net sales proceeds.

During the year ended 2018, we sold a total of fourteen aircraft for proceeds of $338.8 million and a gain on sale of $36.8 million. The average age of the aircraft sold was 13.3 years with an average remaining lease term of 4.1 years.

Our fleet utilization for the fourth quarter was 97.0% and 99.6% for the full year 2018. As of December 31, 2018, Aircastle owned 248 aircraft having a net book value of $7.4 billion. We also managed thirteen aircraft with a net book value of $602 million on behalf of our joint ventures. We are in the process of repossessing ten desirable, modern A320 aircraft from Avianca Brazil, which we expect will be placed quickly once we recover these assets.

Financing Activity

In 2018, Aircastle received investment grade credit ratings from Moody's, Standard and Poor's and Fitch Ratings. During the third quarter of 2018, the Company issued $650 million of unsecured Senior Notes due 2023 bearing a coupon of 4.40%. This was our first senior unsecured note issued with investment grade credit ratings.

Earlier this year, we increased the size of one of our unsecured revolving credit facilities from $675 million to $800 million, extended the facility maturity by more than two years to June 2022 and lowered the borrowing margin by 75 basis points.

In December, we entered into a three-year, $250 million unsecured revolving credit facility with a group of banks based in Asia that matures in December 2021. The facility replaced a $135 million Asian bank revolving credit facility that we had previously arranged in 2016. The borrowing margin on this larger facility is 75 basis points lower than the margin on the smaller facility that it replaced.

Common Dividend

On February 8, 2019, Aircastle's Board of Directors declared a first quarter 2019 cash dividend on its common shares of $0.30 per share, payable on March 15, 2019, to shareholders of record on February 28, 2019. This is our 51st consecutive dividend. Since going public in 2006, the Company has paid total dividends of $857.3 million.

Share Repurchases

In 2018, the Company acquired 3,556,091 shares at an average price of $19.38 per share. In the fourth quarter, Aircastle's Board of Directors increased the authorization to repurchase shares to $100 million from the $42 million that was remaining under the previous authorization. There is currently $76 million remaining under this current authorization. Since 2011, the Company has repurchased 18.5 million shares at an average cost of $14.57 per share, for approximately $270.3 million.