AerSale Corporation 2020 Form 10-K Summary
Business context and reporting period
This annual report covers the fiscal year ended December 31, 2020. AerSale provides aftermarket commercial aviation products and services through two segments: Asset Management Solutions, which leases, sells, and disassembles mid-life aircraft and engines, and TechOps, which provides aircraft, component, and modification maintenance services.
On December 22, 2020, AerSale completed its business combination with Monocle Acquisition Corporation. The transaction was accounted for as a reverse recapitalization; AerSale Aviation is treated as the accounting acquirer and the historical financial statements reflect AerSale Aviation’s operations. AerSale began trading on Nasdaq under ASLE on December 23, 2020.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $208.9 million | $304.2 million | Down 31.3% |
| Gross profit | $52.8 million | $85.0 million | Down 37.9% |
| Gross margin | 25.3% | 28.0% | Down 270 bps |
| Income from operations | $11.3 million | $22.1 million | Down 48.9% |
| Net income | $8.5 million | $15.5 million | Down 45.3% |
| Net margin | 4.1% | 5.1% | Down 100 bps |
| Basic diluted EPS | $8.09 / $7.61 | $(516.98) / $(516.98) | Not comparable due to recapitalization and share-count changes |
| Cash flow from operations | $(12.2) million | $45.5 million | Declined $57.7 million |
| Cash and cash equivalents | $29.3 million | $17.5 million | Increased $11.8 million |
| Total debt | None | $3.4 million | Debt fully repaid |
Asset Management Solutions revenue declined 55.5% to $98.7 million, representing 47% of total revenue versus 73% in 2019. TechOps revenue increased 33.8% to $110.2 million, representing 53% of total revenue versus 27% in 2019. TechOps gross margin was 21.3%, compared with 21.1% in 2019; Asset Management Solutions gross margin was approximately 29.7%, compared with 30.5% in 2019.
SG&A expense, excluding transaction costs, decreased 7.0% to $55.6 million. The company recognized $12.7 million of CARES Act Payroll Support Program proceeds in 2020. Capital expenditures were $7.3 million, including $5.1 million for aircraft and engines held for lease and $2.1 million for property and equipment.
Material changes versus the prior comparable period
- COVID-19 sharply reduced passenger air travel, flight hours, aircraft trading, leasing activity, and USM demand.
- Asset Management Solutions aircraft revenue decreased 45.7% and engine revenue decreased 63.4%, primarily because of lower A320, B737, CF6-80, CFM56, and V2500 activity.
- TechOps MRO revenue increased 49.7%, driven by aircraft preservation, storage, and maintenance programs associated with fleet groundings. Product sales declined 51.3%.
- The company recorded a $13.1 million inventory reserve, primarily related to the early discontinuation of an aircraft platform by its largest operator, and a $3.0 million impairment of flight equipment.
- Aircraft storage increased from just over 100 aircraft before COVID-19 to more than 450 aircraft at year-end, against capacity of up to 650 aircraft.
- AerSale acquired Aircraft Component Technologies for $17.0 million in January 2020. ACT contributed approximately $6.5 million of revenue and $0.7 million of operating income during the period included in the financial statements.
- Operating cash flow turned negative, largely because of $55.3 million of inventory purchases and lower collections and operating results.
- The merger generated approximately $48.6 million of additional paid-in capital. AerSale also settled its remaining senior secured notes and had no outstanding debt at year-end.
Outlook, management commentary, risks, and unusual items
Management expects passenger air travel demand to recover gradually beginning in the first half of 2021 and accelerate thereafter, but assumes for planning purposes that demand will not return to 2019 levels until 2023. Management believes the second quarter of 2020 was the trough for revenue and Adjusted EBITDA, although the filing does not provide a formal 2021 revenue or EBITDA forecast.
Management expects continued demand for aircraft storage and preservation in 2021, followed by increased demand for de-preservation, return-to-service work, interior modifications, cargo conversions, and equipment upgrades as aircraft are reactivated. It also expects opportunities in cargo, defense, government, USM, aircraft retirements, and acquisitions of distressed or less-integrated competitors.
Liquidity at December 31, 2020 consisted of $29.3 million of cash and $83.7 million of availability under the $110.0 million revolving credit facility. The company had a $45.9 million purchase commitment for Boeing 757-200 passenger aircraft and related engines, to be fulfilled in the first quarter of 2021. On March 12, 2021, the revolving facility was amended to increase commitments to $150.0 million and extend maturity to March 12, 2024.
The company received $16.4 million under PSP1, including $12.7 million received and recognized in 2020, and entered into a $5.5 million PSP2 agreement in March 2021. CARES Act funding imposes restrictions on employee actions and compensation, stock repurchases, and dividends; noncompliance could require repayment of up to 100% of received relief funds. Dividends are prohibited through March 31, 2022.
Principal risks include prolonged weakness in commercial aviation, declining aircraft and engine values, inventory and flight-equipment impairment, lessee defaults and repossession costs, dependence on skilled labor and airline outsourcing, regulatory and environmental compliance, supply-chain disruption, international operations, government-contracting requirements, cybersecurity, litigation, and dependence on financing. The company also carries a $5.9 million unsecured receivable from inactive AerLine; recoverability is uncertain and a future impairment charge is possible.
Most important facts for investors to verify
- Whether passenger and cargo aviation recovery supports the expected rebound in Asset Management Solutions activity and aircraft utilization.
- Whether aircraft storage demand converts into profitable return-to-service MRO work and sustained TechOps growth.
- The recoverability of the $140.7 million inventory balance, including whole assets, work-in-process, and USM, after the 2020 reserves.
- The company’s ability to fund the $45.9 million aircraft purchase commitment while operating cash flow remains negative.
- Availability and borrowing-base capacity under the amended $150.0 million revolving credit facility, together with covenant compliance.
- Potential additional impairments from aircraft, engine, inventory, goodwill, intangible assets, or the AerLine receivable.
- The effect of CARES Act restrictions on compensation, dividends, capital allocation, and employee retention.
- The comparability of per-share results following the December 2020 reverse recapitalization, share issuance, warrants, earn-out shares, and subsequent issuance of 1,855,634 earn-out shares.
- Management’s internal-control reporting limitation: the company did not provide management’s assessment of internal control over financial reporting because of the timing of the business combination; the auditor provided no Section 404(b) attestation.