Aircastle Announces Third Quarter 2014 Results

Highlights

Lease rental and finance lease revenues of $180.3 million, and Adjusted EBITDA1 of $177.4 million
Net income of $19.2 million, or $0.24 per diluted common share
Adjusted net income1 of $26.5 million, or $0.33 per diluted common share
Completed more than $1 billion of aircraft investments through the third quarter of 2014; more than $750 million of additional acquisitions expected to close by the end of Q1 2015
Sold eleven aircraft to third parties during the third quarter for proceeds of $201 million and a net pre-tax contribution of $11.4 million; also sold a 777-300ER on lease with LATAM to our joint venture with Ontario Teachers’ Pension Plan
Fleet utilization of 100% with an aircraft portfolio yield of 13.2% and net cash interest margin of 9.9%
Increased the common dividend by 10%, to $0.22 per share; our 34th consecutive quarterly dividend declared
Board of Directors approved a $100 million share repurchase authorization
Aircastle Limited (the “Company” or “Aircastle”) (NYSE: AYR) reported third quarter 2014 net income of $19.2 million, or $0.24 per diluted common share, and adjusted net income of $26.5 million, or $0.33 per diluted common share. The third quarter results included lease rental and finance lease revenues of $180.3 million versus $165.3 million in the third quarter of 2013.

Commenting on the results, Ron Wainshal, Aircastle’s CEO, stated, “During the third quarter, we recorded 9% lease rental revenue growth while increasing our net cash interest margin to 9.9%, among the highest in the industry. This strong performance demonstrates our success in improving Aircastle’s portfolio through an active mix of acquisitions, sales and lease placements. Aircastle completed more than $1 billion of aircraft acquisitions in the first three quarters of 2014, and we’ve built a substantial new investment pipeline to support strong and accretive growth. We also sold 35 aircraft and designated two 747 freighters for sale for a net contribution of over $23 million as we exit older technology models.”

Mr. Wainshal continued, “We’ve been taking advantage of favorable market conditions to position the company for profitable growth and on a path towards obtaining investment grade ratings. As market conditions evolve, we intend to remain disciplined investors with a flexible and nimble approach to aircraft acquisitions, focusing on situations that provide our shareholders with stable and attractive returns. We remain committed to generating sustainable cash flow and allocating capital efficiently between value-enhancing investments and returning capital to shareholders. To that end, our Board increased the quarterly dividend by 10%, to $0.22 per share, and authorized a $100 million repurchase program.”

Third Quarter Results

Third quarter of 2014 lease rental and finance lease revenues were $180.3 million, up $15.1 million, or 9% year over year, due primarily to the $43.3 million impact of aircraft acquisitions, offset by $21.1 million of lower revenues due to aircraft dispositions.

Total revenues for the third quarter were $177.6 million, an increase of $7.5 million, or 4% above the previous year. This increase was driven by $15.1 million in higher lease rental and finance lease revenue and $8.7 million in lower amortization of net lease discounts and incentives.1 These improvements were offset by lower maintenance revenue of $17.1 million.2

During the third quarter of 2014, in connection with our annual fleet review, we shortened the expected lives and reduced the residual values of two MD-11 freighter aircraft and recorded impairment charges of $20.4 million, or $0.25 per diluted common share.

Adjusted EBITDA for the third quarter was $177.4 million, up $8.2 million, or 5% from the third quarter of 2013. The increase was driven by higher lease rental and finance lease revenue of $15.1 million, and higher gain on sale of flight equipment of $8.3 million and other revenue and joint venture income of $1.8 million. These improvements were offset by lower maintenance revenue of $17.1 million.

Net income for the third quarter was $19.2 million, up $93.7 million. The improvement was due primarily to non-cash aircraft impairment charges associated with our annual fleet review decreasing by $85.7 million in the third quarter of 2014 versus the prior year. In addition, total revenues increased $7.5 million, while gains from the sale of flight equipment were $8.3 million higher. These improvements were offset by higher depreciation expense of $5.1 million from fleet net book value growth, and higher income tax expense of $4.1 million.

Adjusted net income for the quarter was $26.5 million, up $95.6 million year over year, and reflects lower aircraft impairment charges of $85.7 million, higher total revenues of $7.5 million, higher gains on sale of flight equipment of $8.3 million and lower adjusted interest and maintenance expenses of $4.3 million. These improvements were offset by higher depreciation of $5.1 million, higher taxes of $4.1 million and lower other income of $0.9 million.

Aviation Assets

During the first nine months of the year, we acquired 14 aircraft for more than $1.0 billion. Since the end of the third quarter, we have acquired or expect to acquire, prior to the end of the first quarter of 2015, three wide-body and 18 narrow-body aircraft for more than $750 million.

During the first nine months of 2014, we sold 34 aircraft to third parties for total proceeds of $447 million. These sold aircraft had a weighted average age of approximately 17 years and included five freighter and eleven older technology aircraft. During the third quarter of 2014, we sold eleven aircraft to third parties and one 777-300ER aircraft on lease with LATAM to our joint venture with Ontario Teachers’ Pension Plan. As with the prior transactions with our joint venture, this sale allows us to manage exposures and pursue larger transactions while also enhancing our return on equity.

As of September 30, 2014, Aircastle owned 140 aircraft having a net book value of $5.3 billion.

Common Dividend

On October 31, 2014, Aircastle’s Board of Directors declared a fourth quarter 2014 cash dividend on its common shares of $0.22 per share, payable on December 15, 2014 to shareholders of record on November 28, 2014. This is a 10% increase over the previous quarter’s cash dividend and represents the fifth dividend increase since 2010.

Share Repurchase Authorization

On October 31, 2014, the Company’s Board of Directors authorized the repurchase of up to $100 million of the Company’s common shares. Under the program, the Company may purchase its common shares from time to time in the open market or in privately negotiated transactions. The amount and timing of the purchases will depend on a number of factors including the price and availability of the Company’s common shares, trading volume and general market conditions.

Conference Call

In connection with this earnings release, management will host an earnings conference call on Tuesday, November 4, 2014 at 10:00AM Eastern time. All interested parties are welcome to participate on the live call. The conference call can be accessed by dialing (800) 768-6563 (from within the U.S. and Canada) or (785) 830-7991 (from outside of the U.S. and Canada) ten minutes prior to the scheduled start and referencing the passcode “1608678”.

A simultaneous webcast of the conference call will be available to the public on a listen-only basis at www.aircastle.com. Please allow extra time prior to the call to visit the site and download the necessary software required to listen to the internet broadcast. A replay of the webcast will be available for one month following the call. In addition to this earnings release, an accompanying power point presentation has been posted to the Investor Relations section of Aircastle’s website.

For those who are not available to listen to the live call, a replay will be available until 12:00PM Eastern time on Thursday, December 4, 2014 by dialing (888) 203-1112 (from within the U.S. and Canada) or (719) 457-0820 (from outside of the U.S. and Canada); please reference passcode “1608678”.