AerCap Holdings N.V. — FY2019 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone fourth-quarter filing; the supplied filing text does not provide clear Q4-only results. Figures are U.S. dollars unless noted and are generally rounded.
Business context
AerCap is an aircraft lessor and asset manager, reporting under U.S. GAAP. At year-end it owned 939 aircraft, managed 96, and had 299 new aircraft on order. Its owned fleet averaged 6.1 years of age by net book value and had 99.6% weighted average utilization during 2019. It served approximately 200 airline customers in about 80 countries.
Key financial metrics
| Metric | FY2019 | FY2018 | Change / context |
|---|---|---|---|
| Lease revenue | $4.682 billion | $4.537 billion | Up 3% |
| Total revenues and other income | $4.937 billion | $4.800 billion | Up 3% |
| Income before tax and equity-method results | $1.341 billion | $1.151 billion | Up 16% |
| Net income attributable to AerCap | $1.146 billion | $1.016 billion | Up 13% |
| Diluted EPS | $8.43 | $6.83 | Up 23% |
| Net interest margin (non-GAAP) | $3.016 billion | $2.966 billion | Up 2%; excludes mark-to-market of interest rate caps |
| Net spread less depreciation and amortization (non-GAAP) | 3.4% | 3.2% | Improved |
| Operating cash flow | $3.106 billion | $2.840 billion | Up approximately 9% |
| Cash used in investing activities | $2.955 billion | $4.053 billion | Primarily aircraft purchases, net of sale proceeds |
| Cash / restricted cash at year-end | $1.300 billion | $1.415 billion | Includes $1.121 billion unrestricted cash |
| Total assets | $43.749 billion | $43.209 billion | Up 1% |
| Debt on balance sheet | $29.486 billion | $29.508 billion | Principal debt approximately $29.5 billion |
Interest expense rose 10% to $1.295 billion; the reported average cost of debt increased to 4.2% from 4.1%. The effective tax rate was 12.5% in both years. Year-end equity attributable to AerCap was $9.315 billion. Adjusted debt-to-equity was 2.6:1, compared with 2.9:1 in 2018. The company repurchased approximately 12.0 million shares for $607.3 million in 2019; book value per ordinary share excluding unvested restricted stock was $72.08, up from $62.95.
Material changes versus FY2018
- Basic lease rents rose 3%, partly reflecting aircraft acquisitions; management cited lower rates on some re-leases and extensions as a partial offset.
- Leasing expenses declined 36% to $288 million, mainly from lower maintenance-rights amortization and lower expenses associated with airline defaults and restructurings.
- Interest expense increased by $121 million, reflecting higher average debt, a higher average borrowing cost, and less favorable interest-rate-cap mark-to-market results.
- Asset impairment increased 59% to $70 million. The filing links charges to aircraft sale transactions and lease terminations.
- AerCap sold 88 aircraft for approximately $2.1 billion, compared with 91 aircraft and approximately $2.2 billion in 2018, and purchased 65 new aircraft.
- Operating cash flow increased, while investing outflows decreased as aircraft purchase spending and pre-delivery payments were lower than in 2018.
Liquidity, commitments and outlook
- At December 31, 2019, AerCap reported approximately $6.6 billion of undrawn revolving and term-loan capacity. Total available liquidity was $8.2 billion, or $11.3 billion including estimated operating cash flow for the following 12 months; management said that represented 1.6 times the next 12 months’ debt maturities and contracted capital requirements.
- Contractual aircraft purchase obligations, adjusted for subsequent changes, totaled approximately $16.5 billion. Total contractual obligations, including debt principal, estimated interest and operating leases, were approximately $55.5 billion.
- The company had 299 aircraft on order at year-end and exercised an option in February 2020 to acquire 50 additional Airbus A320neo-family aircraft, with deliveries beginning in 2024. It also rescheduled some Boeing 737 MAX deliveries.
- Management expected to fund aircraft commitments through operating cash flow, committed facilities, and additional bank or capital-market financing; aircraft or other investments could be sold if other funding were unavailable. The filing gives no specific FY2020 earnings or EPS guidance.
- Management described medium- to long-term leased-aircraft demand as supported by passenger-traffic growth. Its December 2019 industry outlook anticipated 4.1% global passenger-traffic growth in 2020, but the filing cautioned that COVID-19 could materially undermine traffic and airline profitability.
Risks, contingencies and unusual items
- COVID-19 and aviation demand: The filing, signed March 5, 2020, discusses travel restrictions, cancellations and disruption already emerging from COVID-19, including exposure to China. The scale and duration of the effect on lessee payments, utilization, asset values and cash flows were uncertain.
- Boeing 737 MAX: Five owned MAX aircraft had been delivered and were on lease; 95 more were on order at year-end. The global grounding and Boeing’s production suspension delayed deliveries. Return-to-service timing and delivery schedules remained uncertain and could affect results and aircraft values.
- Leverage and funding: Debt was approximately 67% of total assets. Aircraft purchase commitments require substantial financing; access, cost, covenants and refinancing conditions could constrain liquidity and operations. AerCap reported compliance with its debt financial covenants at year-end.
- Customer and portfolio concentration: China accounted for 18.7% of lease revenue and 21.0% of long-lived assets. Emerging-market airlines represented approximately 58% of lease revenue. No individual lessee exceeded 10% of lease revenue; the five largest together represented 26.6%.
- Interest-rate and benchmark risk: Approximately $8.6 billion, or 29%, of principal debt was floating-rate. Management estimated a 1 percentage-point rate increase would reduce annual pretax income by less than $10 million, based on the disclosed sensitivity assumptions. LIBOR transition after 2021 could affect debt, leases and hedges.
- Asset valuation and accounting judgments: Impairment testing depends on estimates of future lease rates, cash flows, residual values and discount rates. Auditors identified impairment assessments and aircraft-sale gain recognition as critical audit matters. Older aircraft and aircraft subject to sale or repossession triggers warrant monitoring.
- Litigation: AerCap disclosed continuing VASP litigation in Brazil; the potential damages, if any, could not be reasonably estimated. It also described a remaining Transbrasil indemnity claim proceeding and Yemenia-related litigation, for which AerCap cited available insurance and defenses.
- Other exposures: Risks include lessee defaults, repossession costs and legal barriers, maintenance shortfalls, aircraft oversupply, geopolitical and regulatory changes, taxes, and cyber incidents. The company disclosed maximum exposure of $192.2 million to non-consolidated VIEs, including $68.9 million of debt guarantees.
PwC issued an unqualified opinion on the 2019 consolidated financial statements and concluded internal control over financial reporting was effective. The filing reports no defaults, dividend arrearages or delinquencies.
Important facts for investors to verify
- Subsequent financial results and cash collections from airline customers, especially in China, as COVID-19’s effect on travel and lessee liquidity became clearer.
- Actual 737 MAX return-to-service dates, delivery deferrals, contractual remedies and the resulting effects on committed spending and aircraft values.
- Liquidity availability and covenant headroom against the $16.5 billion aircraft purchase obligations, near-term maturities and debt refinancing needs.
- Realized lease rates, utilization, maintenance receipts, impairment charges and aircraft-sale gains relative to management’s estimates.
- Developments in the VASP, Transbrasil and Yemenia matters, including any changes in estimated exposure or insurance recovery.