Aircastle Announces First Quarter 2014 Results

Highlights
Operating and finance lease revenues of $178.3 million and Adjusted EBITDA1 of $170.0 million
Net income of $5.8 million, or $0.07 per diluted common share
Adjusted net income1 of $13.3 million, or $0.16 per diluted common share
Fleet utilization of 99% with an aircraft portfolio yield of 13.5%
Purchased eight aircraft for $715 million during the first quarter
Issued $500 million of 5.125% unsecured senior notes due 2021 during the first quarter; proceeds used to repay $450 million of 9.75% unsecured senior notes in April 2014
Increased bank revolver to $450 million from $335 million; extended the facility to four years and expanded the size of the bank group to nine from seven
32nd consecutive quarterly dividend declared by Aircastle’s Board of Directors

Aircastle Limited (the “Company” or “Aircastle”) (NYSE: AYR) reported first quarter 2014 net income of $5.8 million, or $0.07 per diluted common share, and adjusted net income of $13.3 million, or $0.16 per diluted common share. The first quarter results included operating and finance lease revenues of $178.3 million versus $160.5 million in the first quarter of 2013.

Commenting on the results, Ron Wainshal, Aircastle’s CEO, stated: “During the first quarter of 2014, the Company completed several large new investments totaling $715 million, including the first part of our purchase and leaseback deal with LATAM. We also took several important steps to improve our capital structure, including issuing $500 million in new unsecured notes to repay our first and most expensive bond, completing more than $300 million in well priced bank debt financings, repaying our first securitization and enlarging and enhancing our unsecured revolving credit facility. This work, along with many other actions during the quarter improved our portfolio and should increase Aircastle’s core profitability.”

First Quarter Results
Operating and finance lease revenues for the first quarter were $178.3 million, up $17.8 million or 11% year over year, due primarily to the revenue impact of aircraft acquisitions of $38.0 million, partially offset by lower revenues from aircraft sold of $16.9 million and the effect of lease extensions, transitions and terminations of $3.4 million.

Total revenues for the first quarter were $176.6 million, essentially flat versus the previous year. The $17.8 million increase in operating and finance lease revenues were partially offset by $13.8 million of lower maintenance revenues compared to the first quarter of 2013. Maintenance revenue in the first quarter of 2014 was reduced by $16.4 million of contra maintenance revenue, reflecting engine restoration work completed by a lessee prior to the scheduled return of three 737-800 aircraft. Other revenue was lower by $4.1 million in the first quarter of 2014 versus 2013, due primarily to the repayment of a debt investment in the first quarter of 2013 and revenues earned during the first quarter of 2013 related to aircraft returned to us early.

During the first quarter of 2014, we recorded non-cash transactional impairment charges for one 737-400 aircraft which was returned to us as scheduled by the lessee, and one Boeing 747-400 converted freighter for which we agreed to an early lease termination with our customer. For these two aircraft, we recorded impairment charges totaling $18.3 million and maintenance revenue of $17.2 million. We expect both aircraft will be sold at close to breakeven prices.

Adjusted EBITDA for the first quarter was $170.0 million, up $1.4 million from the first quarter of 2013. Operating and finance lease revenues were $17.8 million higher and maintenance expenses were $1.5 million lower. These improvements were partially offset by lower maintenance revenues and lower other revenues which decreased $17.9 million.

Net income for the first quarter was $5.8 million, down $17.3 million. Total revenues were flat as higher operating and finance lease revenues were offset by lower maintenance and other revenues. Higher interest expense of $5.1 million, higher depreciation of $4.0 million and higher non-cash aircraft impairment charges of $12.1 million were partially offset by a lower income tax provision of $2.7 million and lower maintenance costs of $1.5 million.

Adjusted net income for the quarter was $13.3 million, down $14.2 million year over year, and reflects flat total revenues as higher lease revenues were offset by lower maintenance and other revenues in the first quarter of 2014 versus the prior year. Higher non-cash impairment charges of $12.1 million, higher depreciation of $4.0 million and higher adjusted interest expense of $2.2 million were partially offset by a lower income tax provision of $2.7 million and lower maintenance costs of $1.5 million.

Aviation Assets
Thus far in 2014, we acquired or have committed to acquire thirteen aircraft for more than $1.1 billion. During the first quarter, we closed on the purchase of four 777-300ER aircraft built in 2012 leased to LATAM Airlines. We also completed the purchase of two A330-300 aircraft leased to Singapore Airlines and two 737-800 aircraft leased to Alaska Airlines.

During the first quarter of 2014, we sold six 737 “classic” aircraft, four of which were in a freighter configuration. Aircraft sales and dispositions during the quarter totaled $28.0 million, which resulted in a net gain on the sale of aircraft of $1.1 million.

As of March 31, 2014, Aircastle owned 164 aircraft having a net book value of $5.8 billion, and our unencumbered aircraft totaled 104 with a net book value of $3.3 billion. Including unrestricted cash, total unencumbered assets were $3.9 billion at the end of the first quarter of 2014 versus $3.3 billion at year-end 2013. The increase in unencumbered assets was primarily due to the repayment of our Securitization No. 1 financing in February of 2014. At year-end 2013, this financing was secured with a pool of 26 aircraft which were unencumbered after the repayment.

Financing Update
In late March, we increased our unsecured revolving credit facility from $335 million to $450 million. We also expanded the bank group from seven to nine global financial institutions, to include Deutsche Bank and BNP Paribas, and extended the maturity date to March 2018.

In March 2014, we issued $500 million of 5.125% senior unsecured notes due in 2021. The bonds were issued at par, and Aircastle used the net proceeds from the offering to repay $450 million par value 9.75% senior notes due in 2018, plus accrued interest and fees in April 2014.

In February 2014, we repaid the outstanding amount, plus accrued interest and fees, due under Securitization No. 1 and terminated the related swap for a total cash payment of $255 million. In February 2014, we also raised $303 million in secured financing for two B777-300ER and one A330-200 aircraft acquired in 2013.

Common Dividend
On May 5, 2014, Aircastle’s Board of Directors declared a second quarter 2014 cash dividend on its common shares of $0.20 per share, payable on June 13, 2014 to shareholders of record on May 30, 2014.