AerCap Holdings N.V. — 2020 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2020; this is an annual report, not a standalone fourth-quarter filing. AerCap is a global aircraft lessor and manager, reporting under U.S. GAAP. It had 939 owned aircraft, 105 managed aircraft and 286 aircraft on order at year-end.
Financial results and position
| Metric | 2020 | 2019 | Change / context |
|---|---|---|---|
| Total revenue and other income | $4.494 billion | $4.937 billion | Down 9% |
| Basic lease rents | $3.762 billion | $4.281 billion | Down 12%, including $310.6 million reduction from cash-basis revenue recognition |
| Net income (loss) attributable to AerCap | $(298.6) million | $1.146 billion | Shifted to a loss; diluted loss per share was $2.34 |
| Operating cash flow | $2.130 billion | $3.106 billion | Down 31% |
| Net interest margin | $2.528 billion | $3.016 billion | Down 16%; non-GAAP measure |
| Annualized net spread less depreciation and amortization | 2.3% | 3.4% | Down 1.1 percentage points; non-GAAP measure |
| Debt principal | Approximately $28.9 billion | Approximately $29.6 billion | Debt was about 69% of total assets |
| Total assets | $42.0 billion | $43.7 billion | Down approximately 4% |
Asset impairment charges were $1.087 billion, compared with $70.1 million in 2019. Interest expense was $1.248 billion, down 4%; net interest paid was $1.196 billion. Net cash used in investing activities was $712.3 million and net cash used in financing activities was $1.225 billion. Book value per ordinary share, excluding unvested restricted stock, was $69.34 versus $72.08.
Year-end cash and cash equivalents were $1.249 billion, including $246.5 million of restricted cash reported separately. AerCap reported $5.6 billion of undrawn credit facilities and other available secured debt, subject to conditions. Total available liquidity was $6.7 billion; including estimated operating cash flows for the next 12 months, total liquidity sources were $9.1 billion. Management said liquidity was sufficient for anticipated needs over the next 12 months and covered about 2.3 times the next 12 months’ debt maturities and contracted capital requirements.
Material changes versus 2019
- Basic lease rents declined because of $310.6 million in cash-accounting adjustments, lower rates on re-leases and extensions, and aircraft sales; aircraft acquisitions partly offset the decline.
- Impairment expense rose sharply, primarily for Airbus A330 and Boeing 777 aircraft, reflecting weaker widebody demand and a slower expected recovery in international travel. The company also wrote off $58.1 million of goodwill.
- Maintenance rents and other receipts increased 39% to $559.4 million, primarily due to early lease terminations; regular maintenance rents declined.
- Aircraft sales fell to 40 aircraft for proceeds of $613.4 million, from 88 aircraft and $2.132 billion of proceeds in 2019. Net gain on asset sales decreased 53% to $89.6 million.
- AerCap recorded $118.5 million of debt-extinguishment losses from debt tender offers and a $143.5 million loss on its Norwegian Air Shuttle investment at fair value.
- It raised $8.3 billion of financing during 2020, while purchasing 36 new aircraft for approximately $2.1 billion and cancelling orders for 24 Boeing 737 MAX aircraft.
Outlook, risks and unusual items
Management expected leased-aircraft demand to remain weak in the short term, with improvement over the medium term as air traffic recovered. The filing cited IATA’s estimate that global passenger traffic fell 65.9% in 2020 and its December 2020 forecast for a 50.4% increase in 2021, while remaining well below 2019 levels. These were industry estimates, not company earnings guidance; the filing provides no specific numerical company forecast for revenue or profit.
- COVID-19 and lessee credit: Airline disruption drove rent deferrals, bankruptcies and defaults, and may further reduce collections, supplemental maintenance rents and end-of-lease compensation. Cash-basis accounting reduced 2020 basic lease rents by $310.6 million.
- Aircraft values and impairment: Further declines in demand, lease rates or residual values could cause additional impairment charges. The reported impairment estimates depend on management assumptions about future lease rates, residual values and discount rates.
- Funding and commitments: The company had 286 aircraft on order and $14.1 billion of purchase obligations, with non-refundable deposits of about $1.8 billion. It relies on debt markets, facilities, operating cash flows and asset sales; facility availability is conditional, including on covenant compliance. AerCap reported covenant compliance at year-end.
- Other exposures: Risks include substantial leverage, interest-rate and benchmark-transition exposure, customer and geographic concentration (China represented 19.3% of lease revenue), aircraft-manufacturer delivery delays, the Boeing 737 MAX, repossession difficulties, and regulatory, environmental, geopolitical and tax risks.
- Litigation: The VASP proceedings in Brazil remain uncertain; the potential damages could not be reasonably estimated. Management stated that reasonably possible losses for other matters it could estimate were immaterial in aggregate.
Additional unusual item: AerCap participated in Norwegian Air Shuttle’s 2020 recapitalization, receiving shares and convertible perpetual bonds in exchange for lease concessions. It sold approximately 83% of its shares during 2020 and its remaining shares in January 2021.
Important facts for investors to verify
- Whether rent deferrals, defaults and cash-basis accounting continue to pressure collections and reported lease revenue.
- Whether the $1.087 billion impairment charge adequately reflects aircraft-market conditions, particularly for A330 and 777 aircraft, and whether further impairments arise.
- Whether liquidity, refinancing access and covenant headroom remain adequate against debt service and the $14.1 billion of aircraft purchase obligations.
- How quickly air travel and aircraft demand recover, and how that affects lease rates, utilization, asset sales and residual values.
- The status and potential financial exposure of the VASP litigation and other lessee restructurings or bankruptcies.