Key Second Quarter 2019 Financial Metrics
Total revenues were $223.4 million
Total lease rental and direct financing and sales-type lease revenues were $201.1 million
Net income was $31.1 million, or $0.41 per diluted common share
The timing of aircraft sales shifted approximately $0.05 of diluted earnings per share from the second quarter into the third quarter
Adjusted net income(1) was $36.2 million, or $0.48 per diluted common share
Adjusted EBITDA(1) was $210.9 million
Cash ROE(1) was 11.8%; net cash interest margin was 7.4%
Successfully transitioned seventeen aircraft from Avianca Brazil and Jet Airways; lease signed for last remaining A320 aircraft
Acquired ten narrow-body aircraft for $325 million; committed to acquire sixteen additional narrow-bodies for $404 million; $1.2 billion of total closed and committed acquisitions for 2019
Raised $1.13 billion of secured and unsecured debt at an average fixed rate of 3.91%
Repaid $500 million of 6.25% senior unsecured notes in July
Declared our 53rd consecutive quarterly dividend; repurchased $12.0 million of our shares year-to-date at an average price of $18.29 per share
Aircastle Limited (the "Company" or "Aircastle") (NYSE: AYR) reported second quarter 2019 net income of $31.1 million, or $0.41 per diluted common share, and adjusted net income of $36.2 million, or $0.48 per diluted common share. The second quarter results included total lease rental and direct financing and sales-type lease revenues of $201.1 million, versus $187.4 million in the second quarter of 2018, an increase of 7.4%.
Commenting on the results, Mike Inglese, Aircastle's Chief Executive Officer, stated, "Aircastle had an extremely active second quarter during which we delivered strong financial results for our shareholders. The strength of our leasing platform enabled us to quickly and successfully transition the aircraft that we repossessed from Avianca Brazil and Jet Airways, and our third quarter guidance includes $8.3 million of incremental rent associated with the re-leased aircraft. We also closed the acquisition of ten additional narrow-body aircraft during the second quarter. Presently, our 2019 acquisitions and commitments approximate $1.2 billion, and Aircastle's fleet count currently totals 268 aircraft versus 228 a year ago."
Mr. Inglese continued, "We were also very active on the financing front, raising $1.13 billion of attractively priced capital during the quarter as part of a continued effort to reduce our cost of capital. In early June we issued our second senior unsecured investment grade note for $650 million, at a coupon of 4.25%. In addition, in the early part of the third quarter we repaid $500 million of higher coupon, 6.25% debt. The resulting annual expense savings on the $500 million of retired debt is approximately $0.13 per diluted share."
Mr. Inglese concluded, "Aircastle's robust leasing capabilities and disciplined capital management positions the Company well for profitable growth throughout the aviation cycle. By focusing on the more liquid, in-demand single-aisle segment, we are further enhancing our ability to secure attractive lease terms for our fleet and minimize transition risks. This approach, combined with our strong balance sheet and commitment to a stable, growing dividend and opportunistic share repurchases, enhances our ability to create long-term value for our shareholders."
Lease rental and direct financing and sales-type lease revenues rose to $201.1 million, up $13.8 million, or 7.4%, versus the second quarter of 2018. The increase was primarily due to net year-over-year fleet growth. Second quarter rental revenues would have been $8.3 million higher if all of the repossessed Avianca Brazil and Jet Airways aircraft had transitioned at the beginning of the quarter. Total revenues were $223.4 million, an increase of $19.1 million, or 9.4%, from the previous year. We recognized $26.6 million of maintenance revenue in the second quarter of 2019, driven by return compensation associated with several aircraft which transitioned, versus no maintenance revenue in the second quarter of 2018. The second quarter of 2019 included $17.6 million of maintenance revenue associated with aircraft that were leased to Jet Airways which successfully transitioned. This more than offset transactional impairment charges of $7.4 million associated with the transition of these aircraft.
We completed our annual fleet review during the second quarter with no additional impairment charges.
Total operating expenses increased by $33.2 million, or 21.6%. This was due to higher depreciation of $13.4 million associated with fleet expansion, higher interest expense of $9.0 million associated with higher debt balances in the second quarter of 2019, and the $7.4 million transactional impairment charge previously referenced.
Net income in the second quarter was $31.1 million, versus net income of $50.2 million the prior year, while adjusted net income for the quarter was $36.2 million, versus $52.4 million. Lower gains from the sale of aircraft of $19.5 million, higher depreciation of $13.4 million and higher interest expense of $9.0 million were all partially offset by higher maintenance revenue, net of transactional impairments, of $19.2 million. We had no aircraft sales in the second quarter of 2019; several aircraft sales initially scheduled to close during the second quarter were completed early in the third quarter. This timing difference reduced net and adjusted diluted earnings per share in the second quarter of 2019 by approximately $0.05. Depreciation expense increased mainly due to the net addition of 40 aircraft since the second quarter of 2018, while interest expense rose due to higher average debt balances during the quarter. We raised more than $1.1 billion of secured and unsecured debt during the second quarter of 2019.
Adjusted EBITDA for the second quarter was $210.9 million, an increase of $18.3 million, or 9.5%, from the second quarter of 2018. Higher combined lease rental and maintenance revenue of $40.4 million were partly offset by lower year-over-year gains from flight equipment sold of $19.5 million.
During the second quarter of 2019, we acquired ten narrow-body aircraft for $325 million. In the first half of 2019, we acquired a total of 24 narrow-body aircraft for $770 million. We have committed to acquire another sixteen narrow-body aircraft for $404 million for a full year 2019 total of $1.2 billion. These 40 aircraft have a weighted average age of approximately 8.7 years and a weighted average remaining lease term of 4.9 years.
We recorded no aircraft sales during the second quarter of 2019. In the first half of 2019 we sold four aircraft for total proceeds of approximately $56.9 million. Year-to-date gains from the sale of flight equipment totaled $12.3 million.
As of June 30, 2019, Aircastle owned and managed 283 aircraft with a net book value of $8.5 billion.
During the second quarter of 2019, the Company issued $650 million of unsecured Senior Notes due 2026 bearing a coupon of 4.25%. This was our second senior unsecured note issued with investment grade credit ratings and priced at a spread of 230 basis points over the seven year treasury.
During the quarter we raised an additional $480 million of fixed rate, secured bank financing for eleven Airbus A320neo aircraft and two Boeing 737-800 aircraft, and we increased the size of one of our unsecured revolving credit facilities to $300 million from $280 million. The fixed rate secured bank financing was priced at a weighted average blended rate of 3.45%.
On August 2, 2019, Aircastle's Board of Directors declared a third quarter 2019 cash dividend on its common shares of $0.30 per share, payable on September 16, 2019, to shareholders of record on August 30, 2019. This is our 53rd consecutive dividend.
During the second quarter of 2019, Aircastle's Board of Directors re-authorized a $100 million share repurchase program. There is $96.7 million currently remaining under this authorization. Since the beginning of the year, the Company has acquired approximately 658,000 shares at an average price of $18.29 per share. Since 2011, the Company has repurchased 18.7 million shares at an average price of $14.62 per share.