AerCap Holdings N.V. Form 6-K Summary
Business Context and Reporting Period
This Form 6-K, filed on July 30, 2018, incorporates AerCap Holdings N.V.'s interim financial report for the quarter ended June 30, 2018. AerCap is a global leader in aircraft leasing, owning 955 aircraft and managing 105 as of June 30, 2018. The company operates globally with 939 of its owned aircraft on lease to 174 customers in 72 countries. The reporting period covers the three and six months ended June 30, 2018.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2018 | Six Months Ended June 30, 2017 |
|---|---|---|
| Total Revenues | $2,413.8 million | $2,500.6 million |
| Net Income | $520.1 million | $544.1 million |
| Net Income Attributable to AerCap | $519.6 million | $544.1 million |
| Diluted EPS | $3.42 | $3.15 |
| Operating Cash Flow | $1,345.2 million | $1,598.7 million |
| Total Debt (Principal) | $28.5 billion | $27.8 billion (avg) |
| Cash and Cash Equivalents | $1.6 billion | $1.6 billion |
| Adjusted Debt-to-Equity Ratio | 2.8 to 1 | 2.8 to 1 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased by 3% ($86.7 million) compared to the prior year. Basic lease rents fell by 3% due to the sale of 150 aircraft and lower utilization rates resulting from the bankruptcies of Air Berlin and Monarch Airlines. This was partially offset by the acquisition of 85 new aircraft.
- Net Income: Net income decreased by 4% ($24.0 million). Despite lower revenues, net gains on asset sales increased by 20% ($23.7 million) due to the composition of aircraft sold (51 aircraft in 2018 vs. 45 in 2017).
- Expenses: Leasing expenses decreased by 9% ($23.0 million), driven by lower maintenance rights amortization, though partially offset by higher costs related to lessee bankruptcies. Restructuring expenses were nil in 2018 compared to $14.6 million in 2017.
- Interest Expense: Interest expense remained relatively flat, decreasing slightly by 0.2%. The average cost of debt increased to 4.1% from 3.9%, but this was offset by mark-to-market gains on interest rate derivatives.
Guidance, Outlook, and Risks
- Liquidity: As of June 30, 2018, AerCap reported total available liquidity of $11.7 billion (including undrawn credit lines and unrestricted cash) and total sources of liquidity of $14.9 billion when including estimated operating cash flows. This is sufficient to cover 1.3x of debt maturities and capital requirements for the next 12 months.
- Capital Requirements: The company has 411 new aircraft on order, requiring significant capital. Management expects to fund these through committed debt facilities, capital markets transactions, and asset sales.
- Share Repurchases: The company completed a $200 million share repurchase program in May 2018 and initiated a new $200 million program in April 2018. As of July 25, 2018, $143.5 million remained available under the new program.
- Risks and Contingencies:
- Legal Proceedings: Ongoing litigation with VASP (Brazilian airline) regarding damages from a 1992 default. While the company believes recovery of damages by VASP is not probable, the outcome remains uncertain. Other litigation includes Transbrasil and Yemen Airways cases.
- Market Risk: Exposure to interest rate fluctuations and foreign currency risk, though the company utilizes derivatives to hedge these risks.
Key Facts for Investor Verification
- Verify the impact of lessee bankruptcies (Air Berlin, Monarch Airlines) on future lease rates and utilization.
- Monitor the status of the VASP litigation and potential exposure to damages.
- Track the execution of the 411 aircraft on order and the company's ability to secure financing for these deliveries.
- Review the adjusted debt-to-equity ratio and liquidity coverage for the next 12 months given the high capital intensity of the business.
- Assess the sustainability of the net interest margin (8.5% annualized for the six months ended June 30, 2018) in a rising interest rate environment.