AerCap Holdings N.V. — 2015 Form 20-F Summary
Business context and reporting period
This is an audited annual report for the year ended December 31, 2015, not a standalone fourth-quarter report. AerCap is a global aircraft lessor; its financial statements are prepared under U.S. GAAP. Results grew substantially following the May 2014 acquisition of ILFC, so year-over-year comparisons reflect a significantly larger business.
Key financial metrics
| Metric | 2015 | 2014 |
|---|---|---|
| Total revenue and other income | $5.29 billion | $3.59 billion |
| Lease revenue | $4.99 billion | $3.45 billion |
| Net income attributable to AerCap | $1.179 billion | $810.4 million |
| Basic / diluted EPS | $5.78 / $5.72 | $4.61 / $4.54 |
| Adjusted net income (non-GAAP) | $1.276 billion | $855.5 million |
| Operating cash flow | $3.360 billion | $2.314 billion |
- Revenue rose 47% and attributable net income rose 45%. Basic lease rents increased 41%; net gain on asset sales increased to $183.3 million from $37.5 million.
- Net interest margin (basic lease rents less interest expense, adjusted for derivative mark-to-market) was $3.554 billion, up 41%. Average cost of debt was 3.63%, compared with 3.56%.
- Net cash used in investing was $1.716 billion; financing activities used $728.3 million. Cash and cash equivalents at year-end were $2.403 billion, including $419.4 million of restricted cash.
- At year-end, assets were $43.9 billion, debt carrying value was $29.8 billion and equity was $8.4 billion. Principal debt excluding fair-value adjustments was approximately $29.0 billion; the reported debt-to-equity ratio was 2.9:1. Fixed-rate debt represented 70% of principal debt.
- Management reported $9.2 billion of total liquidity, including $2.4 billion unrestricted cash, $6.7 billion of undrawn credit lines and contracted asset sales. It stated liquidity covered at least 1.2 times debt maturities and contracted capital requirements for the next 12 months.
- Weighted-average owned aircraft utilization was 99.5%. AerCap owned 1,109 aircraft, managed 141, and had 447 new aircraft on order.
Material changes versus the prior comparable period
- The larger fleet following ILFC drove much of the increase in lease revenue, depreciation, interest expense and leasing costs. Average debt rose to $29.8 billion from $21.5 billion in 2014.
- Depreciation and amortization increased 44% to $1.843 billion; interest expense rose 41% to $1.100 billion; leasing expenses rose to $522.4 million from $141.6 million, mainly reflecting ILFC-related maintenance rights and aircraft transition costs.
- Transaction, integration and restructuring expenses declined to $58.9 million from $148.8 million. 2015 included $49.3 million of AeroTurbine restructuring expenses.
- In June, AerCap repurchased 15.7 million shares from AIG for $750 million in cash and junior subordinated notes; 9.7 million shares were cancelled. AIG sold its remaining shares in August and ceased to be a shareholder.
Outlook, commentary, risks and unusual items
- Management cited strong global passenger-traffic growth and expected leased-aircraft demand to remain strong. It said the fleet and order book should support future revenue growth. No specific earnings or revenue guidance was provided.
- Capital expenditures were expected to average approximately $5 billion annually over the next three years, based on the existing order book. Contractual aircraft purchase obligations totaled $26.46 billion; total disclosed contractual obligations, including debt principal, estimated interest, purchases and operating leases, were $63.44 billion.
- Funding, leverage, interest-rate exposure, aircraft residual values, lessee creditworthiness, airline-market conditions and aircraft delivery commitments are significant risks. A 1 percentage-point rate increase was estimated to raise annual interest expense by approximately $30 million over the next three years, after specified offsets.
- About 60% of 2015 lease revenue came from emerging-market countries; Russia exposure was specifically highlighted. Competition, geopolitical events, fuel-price volatility, repossession obstacles, maintenance liabilities and aircraft oversupply could adversely affect results.
- OFAC issued a subpoena in May 2015 concerning prior transactions with Al Naser Airlines that may have led to aircraft being diverted to Iran. AerCap said it was cooperating with OFAC and the U.S. Commerce Department’s BIS investigations; the filing does not state a resolution.
- Eight aircraft residual-value guarantees remained outstanding at year-end; maximum aggregate potential payments were approximately $168.4 million before offsets. Separate guarantees on four aircraft had maximum undiscounted payments of $22.4 million. Management said it recorded no asset-guarantee loss provision in 2015 or 2014.
- Notable accounting items: a $16.9 million out-of-period correction for previously capitalized interest reduced 2015 net income by $14.4 million after tax, or $0.07 per share; management concluded the current and prior financial statements were not materially misstated. AeroTurbine downsizing also resulted in $49.3 million of restructuring charges and a $38.7 million inventory valuation adjustment.
- Effective February 1, 2016, the company moved its headquarters and tax residence from the Netherlands to Ireland. In February 2016, the board authorized up to $400 million in share repurchases through June 30, 2016. Auditors issued unqualified opinions and reported effective internal control over financial reporting.
Most important facts for investors to verify
- How much of reported growth and adjusted earnings reflects recurring leasing operations versus ILFC-related scale, asset-sale gains, maintenance accounting and other adjustments.
- The refinancing plan and covenant headroom for approximately $3.98 billion of 2016 debt maturities, alongside substantial aircraft purchase commitments.
- Actual deployment and cost of the 447-aircraft order book, including delivery timing, financing needs and exposure to concentrated aircraft models.
- Developments in the OFAC/BIS investigations and the status and potential exposure of guarantees and material litigation, including the VASP and Transbrasil cases.
- Whether high utilization, lease rates and aircraft values remain sustainable amid airline credit risks, emerging-market exposure and new-aircraft supply.