AerCap Holdings N.V. — 2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021. The filing is an annual report, not a standalone fourth-quarter report. Financial statements are prepared under U.S. GAAP. AerCap completed its acquisition of GE Capital Aviation Services (GECAS) on November 1, 2021; GECAS results are included only from that date, limiting year-over-year comparability.
Business context
AerCap leases and manages aircraft, engines and helicopters globally. At year-end it reported 1,756 owned aircraft, 196 managed aircraft and 417 aircraft on order, alongside more than 900 owned and managed engines and over 300 owned helicopters. Total assets were $74.6 billion. GE received 111.5 million newly issued AerCap shares, approximately $23 billion cash and $1 billion of AerCap notes for GECAS; it held approximately 46% of AerCap shares immediately after closing.
Financial and operating results
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue and other income | $5.224 billion | $4.494 billion |
| Lease revenue | $4.412 billion | $4.321 billion |
| Net income (loss) attributable to AerCap | $1.001 billion | $(299) million |
| Diluted EPS | $6.71 | $(2.34) |
| Net cash from operating activities | $3.694 billion | $2.130 billion |
| Net cash used in investing activities | $(23.459) billion | $(712) million |
| Net cash from (used in) financing activities | $20.184 billion | $(1.225) billion |
- Basic lease rents increased 3% to $3.891 billion; maintenance rents and other receipts decreased 7% to $521 million.
- Other income rose to $723 million, including $635 million of proceeds from unsecured claims, primarily related to LATAM claims sales.
- Asset impairment charges fell to $128 million from $1.087 billion in 2020. Depreciation and amortization was $1.738 billion; interest expense was $1.230 billion.
- GECAS contributed $400 million of revenue and other income and $49 million of net income in November–December 2021. AerCap recorded $335 million of GECAS transaction and integration expenses.
- Net interest margin, a non-GAAP measure, was $2.641 billion; annualized net spread was 6.5% and annualized net spread less depreciation and amortization was 2.2% (2.3% in 2020). Weighted average owned-aircraft utilization was 94%.
Debt, liquidity and commitments
- Year-end debt principal was $50.5 billion, excluding $344 million of debt issuance costs, discounts and premium; balance-sheet debt was $50.2 billion. Debt was approximately 68% of total assets. Adjusted debt-to-equity was 2.66:1, versus 2.62:1 in 2020.
- Unrestricted cash was $1.7 billion; undrawn credit lines and other available secured debt totaled $10.6 billion. The company reported $13 billion of available liquidity, or $18 billion including estimated operating cash flow for the next 12 months, and said liquidity covered about 2.2 times the next 12 months’ debt maturities and contracted capital requirements.
- Cash interest paid, net of capitalized amounts, was $1.110 billion. Average cost of debt was 3.6%, compared with 3.8% in 2020.
- Contractual obligations totaled $84.5 billion, including $22.4 billion of purchase obligations and $11.4 billion of estimated interest payments. The company had orders for 417 aircraft, 30 engines and 16 helicopters.
Material changes and outlook
- The GECAS acquisition expanded AerCap’s assets, revenue base and debt substantially. The acquisition was financed in part with $21 billion of senior unsecured notes, alongside other financing and consideration issued to GE.
- Reported net income returned to profit from a loss in 2020, while 2020 impairment charges were substantially higher. The 2021 result also included the sizeable unsecured-claims proceeds; reported revenue and earnings comparisons are affected by GECAS being consolidated for only two months.
- Management said air travel remained below pre-pandemic levels: IATA estimated 2021 global passenger traffic at 42% of 2019 levels and forecast recovery to 83% in 2022, subject to downside risk. AerCap expected leased-aircraft demand to remain subdued in the short term and improve over the medium term as traffic recovered. No specific earnings or revenue guidance was provided.
- COVID-related cash-basis lease accounting reduced 2021 basic lease rents by $296 million, compared with $311 million in 2020. Management said liquidity was sufficient for anticipated needs over the following 12 months, while acknowledging risks from further rent deferrals and payment defaults.
- Russia/Ukraine subsequent event: Following Russia’s February 2022 invasion of Ukraine and resulting sanctions, AerCap terminated leases to Russian airlines and sought to repossess 135 aircraft and 14 engines. At March 30, 2022, it had recovered 22 aircraft and three engines outside Russia. The year-end carrying value of assets leased to Russian airlines was approximately $3.1 billion; the company said impairment on unrecovered assets could be as much as their full net carrying value. It filed an approximately $3.5 billion insurance claim and had received $175 million of approximately $260 million in letters-of-credit proceeds by March 30; further recovery timing and amounts were uncertain.
Key risks and unusual items
- High leverage and debt service needs; access to financing depends partly on market conditions and covenant compliance. AerCap reported compliance with debt covenants at year-end.
- Airline lessee credit stress, bankruptcies, rent deferrals, repossession challenges and reduced lease rates or aircraft values could pressure cash flow and asset values.
- Integration and realization of GECAS synergies remain uncertain; the transaction also diluted existing shareholders’ ownership and voting influence. GE’s staged share lock-up expirations could affect the share price.
- Concentration risks include China, which represented 17.7% of 2021 lease revenue, and emerging markets, which represented approximately 54% of lease revenue. Pandemic recovery, fuel prices, sanctions, geopolitical developments and environmental regulation may affect demand and asset values.
- The company’s impairment and acquired-asset valuations rely on significant estimates, including follow-on lease rates, residual values, maintenance cash flows and discount rates. KPMG identified acquired GECAS asset valuation and flight-equipment impairment assessment as critical audit matters.
- The 2021 internal-control audit excluded GECAS, which represented 44% of year-end assets and 8% of annual revenue; management and the auditor reported effective controls for the assessed company.
Important facts for investors to verify
- How the Russian aircraft and engine exposure, insurance claim, letters of credit and potential impairments developed after the March 2022 disclosures.
- Post-acquisition debt maturities, liquidity, covenant headroom and the cost and availability of refinancing.
- Whether AerCap realizes GECAS integration benefits and how the combined company’s results compare on a full-year, like-for-like basis.
- Collection of rent and maintenance obligations, cash-basis accounting exposure, lessee credit quality and utilization as aviation markets recover.
- Assumptions supporting aircraft residual values, impairment tests and acquisition-date fair values, particularly for older and widebody aircraft.