AerCap Holdings N.V. — 2013 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2013. This is an annual filing; the supplied text does not provide a clear standalone fourth-quarter income statement. Financial statements are prepared under U.S. GAAP. Figures below are in U.S. dollars unless stated otherwise.
Business context
AerCap leases, finances, trades and manages commercial aircraft. At year-end it owned 236 aircraft and seven engines, managed 69 aircraft, and had 44 aircraft on order. Its owned fleet averaged 5.4 years of age; 232 of the 236 owned aircraft were on lease. Customers included 89 airlines and cargo operators in 48 countries.
Key financial metrics
| Metric | 2013 | 2012 | Change / context |
|---|---|---|---|
| Total revenue | $1,050.1 million | $972.5 million | Up 8.0% |
| Lease revenue | $976.1 million | $997.1 million | Down 2.1%; basic rents fell 3.3% |
| Net gain (loss) on asset sales | $41.9 million | $(46.4) million | 2012 included a $59.9 million ALS transaction loss |
| Income before tax and equity-method income | $310.8 million | $154.9 million | Up 100.6% |
| Net income | $295.4 million | $158.4 million | Net income attributable to AerCap was $292.4 million, versus $163.7 million |
| Basic / diluted EPS | $2.58 / $2.54 | $1.24 / $1.24 | Share repurchases reduced weighted-average basic shares to 113.5 million from 131.5 million |
| Adjusted net income (non-GAAP) | $299.9 million | $258.0 million | Adjusted basic EPS was $2.64 |
| Net spread | $663.6 million | $684.2 million | Basic rents less interest expense adjusted for specified items |
| Operating cash flow | $694.9 million | $656.7 million | Up 5.8% |
| Investing / financing cash flow | $(1,337.1) / $417.4 million | $(351.6) / $(193.9) million | Higher aircraft purchases drove investing outflow |
| Total assets / debt / equity | $9,451.1 / $6,236.9 / $2,429.2 million | $8,633.8 / $5,803.5 / $2,122.9 million | Debt was 66% of total assets, as reported |
Year-end cash and cash equivalents were $295.5 million and restricted cash was $272.8 million. Committed undrawn credit facilities were approximately $0.9 billion, excluding ILFC-related facilities. Reported interest expense was $226.3 million; the average cost of debt, excluding derivative mark-to-market and early repayment charges, declined to 3.9% from 4.1%.
Material changes versus prior periods
- Revenue increased despite lower lease revenue, principally because asset-sale results moved from a loss in 2012 to a gain in 2013.
- Attributable net income rose 78.6%. Lower debt expense and leasing expenses contributed; impairment charges increased to $26.2 million from $12.6 million.
- Operating cash flow improved, but aircraft purchases increased to $1,782.8 million from $1,038.7 million. Capital expenditures and pre-delivery payments totaled $1,996.2 million in 2013.
- Debt rose by $433.4 million, while cash and cash equivalents declined by $224.9 million. No shares were repurchased in 2013; the company had repurchased and cancelled 35.9 million shares during 2011–2012.
Outlook, risks and unusual items
- ILFC acquisition: AerCap agreed to acquire ILFC from AIG for $3.0 billion cash and 97,560,976 AerCap shares, and to assume approximately $21 billion of ILFC debt. AIG also committed a five-year $1.0 billion unsecured revolving facility. Shareholders approved the transaction in February 2014; regulatory approvals and other closing conditions remained outstanding. Closing was expected in Q2 2014. The combined portfolio was expected to exceed 1,300 aircraft, with 379 aircraft on order. Integration, financing, execution, dilution and failure-to-close risks are significant.
- Aircraft purchase commitments: Contractual aircraft purchase obligations were $3.01 billion, including $785.9 million due within one year. Management expected to use cash flows, credit facilities, additional financing and asset sales to fund commitments. Existing orders and any ILFC obligations could increase funding needs.
- Lease and credit risks: Leases representing 30.1% of 2013 lease revenue were scheduled to expire through 2016. Two lessees leasing three aircraft defaulted during 2013; related lost revenue, impairments and technical costs, net of deposits and reserves, totaled $10.5 million. Management expects further defaults or restructurings may occur.
- Impairments and estimates: The $26.2 million 2013 impairment related to older aircraft; management warned that deterioration in economic conditions or aircraft values could trigger further impairments. A change in useful-life and residual-value estimates reduced 2013 net income by $8.0 million.
- Interest-rate exposure: A 1 percentage-point rate increase was estimated to raise annualized interest expense by $34.2 million, partly offset by approximately $3.0 million higher interest revenue and $8.0 million higher lease revenue.
- Contingencies: AerCap reported ongoing VASP and Transbrasil litigation, but management, based on legal advice, did not expect either matter to materially affect consolidated results or cash flows. Transbrasil had asserted penalties of approximately $210 million against all defendants; an October 2013 Brazilian court ruling reversed most of the earlier judgment, subject to appeal.
- Other exposures: Risks include airline and aviation-market cyclicality, aircraft oversupply and residual values, lessee concentration and emerging-market exposure, refinancing and liquidity, maintenance and repossession costs, regulation, taxes and currency movements. The filing also discusses uncertainty over future lease-accounting changes and AerCap’s possible PFIC status for 2014.
Important facts for investors to verify
- ILFC closing status, final financing, regulatory conditions, integration plans and the actual debt and share dilution following completion.
- Availability and cost of funding for the $3.01 billion purchase commitments and whether reported undrawn facilities remain accessible on their stated terms.
- Lease renewals, re-leasing rates and utilization as the leases representing 30.1% of 2013 lease revenue approach expiry.
- Aircraft impairment assumptions, residual values and sensitivity of older aircraft carrying values to market changes.
- Cash generation and availability: distinguish unrestricted cash from restricted cash and consider subsidiary and financing-structure distribution limits.
- Developments in lessee defaults and the VASP and Transbrasil proceedings, including any change in management’s assessment of potential exposure.
The independent auditor gave an unqualified opinion on the consolidated financial statements and reported effective internal control over financial reporting as of December 31, 2013.