AerCap Holdings N.V. (together with its subsidiaries, “AerCap,” “we,” “us” or the “Company”) was incorporated in the Netherlands as a public limited liability company (“naamloze vennootschap” or “N.V.”) on July 10, 2006. AerCap is the global leader in aircraft leasing with 1,330 aircraft owned, managed or on order, and total assets of $42.0 billion as of December 31, 2020. Our ordinary shares are listed on the New York Stock Exchange (the “NYSE”) under the ticker symbol AER. Our headquarters is located in Dublin, and we have offices in Shannon, Los Angeles, Singapore, Amsterdam, Shanghai and Abu Dhabi. We also have representative offices at the world’s largest aircraft manufacturers, Boeing in Seattle and Airbus in Toulouse.
As of December 31, 2020, we had 138,847,345 ordinary shares issued, including 130,398,538 ordinary shares issued and outstanding, and 8,448,807 ordinary shares held as treasury shares. Our issued and outstanding ordinary shares included 2,552,346 shares of unvested restricted stock.
The address of our headquarters in Dublin is AerCap House, 65 St. Stephen’s Green, Dublin D02 YX20, Ireland, and our general telephone number is +353 1 819 2010. Our website address is www.aercap.com. Information contained on our website does not constitute a part of this annual report. Puglisi & Associates is our authorized representative in the United States. The address of Puglisi & Associates is 850 Liberty Avenue, Suite 204, Newark, DE 19711 and their general telephone number is +1 (302) 738-6680. The U.S. Securities and Exchange Commission (“SEC”) maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. You can review our SEC filings, including this annual report, by accessing the SEC’s Internet website at www.sec.gov.
Our primary capital expenditure is the purchase of aircraft under aircraft purchase agreements with Airbus, Boeing and Embraer. Please refer to “Item 5. Operating and Financial Review and Prospects—Liquidity and capital resources” for a detailed discussion of our capital expenditures. The following table presents our capital expenditures for the years ended December 31, 2020, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(U.S. Dollars in thousands)
|
Purchase of flight equipment
|
$
|
778,547
|
|
|
$
|
3,359,092
|
|
|
$
|
4,036,194
|
|
Prepayments on flight equipment
|
405,178
|
|
|
1,369,400
|
|
|
1,912,215
|
|
Business overview
Aircraft leasing
We are the global leader in aircraft leasing. We focus on acquiring in-demand aircraft at attractive prices, funding them efficiently, hedging interest rate risk prudently and using our platform to deploy these assets with the objective of delivering superior risk-adjusted returns. We believe that by applying our expertise, we will be able to identify and execute on a broad range of market opportunities that we expect will generate attractive returns for our shareholders. We are an independent aircraft lessor, and, as such, we are not affiliated with any airframe or engine manufacturer. This independence provides us with purchasing flexibility to acquire aircraft or engine models regardless of the manufacturer.
We operate our business on a global basis, leasing aircraft to customers in every major geographical region. As of December 31, 2020, we owned 939 aircraft and we managed 105 aircraft. As of December 31, 2020, we also had 286 new aircraft on order, including 157 Airbus A320neo Family aircraft, 71 Boeing 737 MAX aircraft, 35 Embraer E-Jets E2 aircraft, and 23 Boeing 787 aircraft. As of December 31, 2020, the average age of our 939 owned aircraft fleet, weighted by net book value, was 6.4 years and as of December 31, 2019, the average age of our 939 owned aircraft fleet, weighted by net book value, was 6.1 years.
We have the infrastructure, expertise and resources to execute a large number of diverse aircraft transactions in a variety of market conditions. During the year ended December 31, 2020, we executed 179 aircraft transactions. Our teams of dedicated marketing and asset trading professionals have been successful in leasing and managing our aircraft portfolio. During the year ended December 31, 2020, our weighted average owned aircraft utilization rate was 97.5%, calculated based on the number of days each aircraft was on lease during the year, weighted by the net book value of the aircraft.
Aircraft leases and transactions
We lease most of our aircraft to airlines under operating leases. Under these leases, the lessee is responsible for the maintenance and servicing of the equipment during the lease term and we receive the benefit, and assume the risks, of the residual value of the equipment at the end of the lease. Many airlines lease aircraft under operating leases as this reduces their capital requirements and costs and affords them flexibility to manage their fleet more efficiently as aircraft are returned over time. Since the 1970’s and the creation of aircraft leasing pioneers Guinness Peat Aviation (“GPA”) and International Lease Finance Corporation (“ILFC”), the world’s airlines have increasingly turned to operating leases to meet their aircraft needs. We have active customer relationships with approximately 200 airlines in approximately 80 countries. These customer relationships are either with existing customers or airlines with which we maintain regular dialogue in relation to potential transaction opportunities. Our relationships with these airlines help us place new aircraft and remarket existing aircraft.
Over the life of our aircraft, we seek to increase the returns on our investments by managing the lease rates, time off-lease and financing and maintenance costs, and by carefully timing their sale. Our current operating aircraft leases have initial terms ranging in length up to approximately 16 years. By varying our lease terms, we mitigate the effects of changes in cyclical market conditions at the time aircraft become eligible for re-lease.
Well in advance of the expiration of an operating lease, we prioritize entering into a lease extension with the then-current operator. This reduces our risk of aircraft downtime as well as aircraft transition costs. The terms of our lease extensions reflect the market conditions at the time and typically contain different terms from the original lease. Should a lessee not be interested in extending a lease, or if we believe we can obtain a more favorable return on the aircraft, we will explore other options, including the sale of the aircraft. If we enter into a lease agreement for the same aircraft with a different lessee, we generally do so well in advance of the scheduled return date of the aircraft. When the aircraft is returned, maintenance work may be required before the aircraft transitions to the next lessee.
Our extensive experience, global reach and operating capabilities allow us to rapidly complete numerous aircraft transactions, which enables us to increase the returns on our aircraft investments by minimizing any time that our aircraft are not generating revenue for us.
The following table provides details regarding the aircraft transactions we executed during the years ended December 31, 2020, 2019 and 2018. The trends shown in the table reflect the execution of the various elements of our leasing strategy for our owned and managed portfolio, as described further below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Total
|
Owned portfolio
|
|
|
|
|
|
|
|
New leases on new aircraft
|
10
|
|
|
54
|
|
|
115
|
|
|
179
|
|
New leases on used aircraft
|
12
|
|
|
37
|
|
|
43
|
|
|
92
|
|
Extensions of lease contracts
|
67
|
|
|
92
|
|
|
85
|
|
|
244
|
|
New aircraft purchases
|
36
|
|
|
65
|
|
|
76
|
|
|
177
|
|
Aircraft sales and part-outs (a)
|
40
|
|
|
88
|
|
|
91
|
|
|
219
|
|
Managed portfolio
|
|
|
|
|
|
|
|
New leases on used aircraft
|
6
|
|
|
5
|
|
|
5
|
|
|
16
|
|
Extensions of lease contracts
|
2
|
|
|
4
|
|
|
9
|
|
|
15
|
|
Aircraft sales and part-outs
|
6
|
|
|
8
|
|
|
12
|
|
|
26
|
|
Total aircraft transactions
|
179
|
|
|
353
|
|
|
436
|
|
|
968
|
|
(a)Disassembly of an aircraft for the sale of its parts (“part-out”)
We perform a review of all of our prospective lessees, which generally includes reviewing financial statements, business plans, cash flow projections, maintenance capabilities, operational performance histories, hedging arrangements for fuel, foreign currency and interest rates and relevant regulatory approvals and documentation. We perform on-site credit reviews for new lessees, which typically include extensive discussions with the prospective lessee’s management before we enter into a new lease. We also evaluate the jurisdiction in which the lessee operates to ensure we are in compliance with any regulations and evaluate our ability to repossess our assets in the event of a lessee default. Depending on the credit quality and financial condition of the lessee, we may require the lessee to obtain guarantees or other financial support from an acceptable financial institution or other third parties.
We typically require our lessees to provide a security deposit for their performance under a lease, including the return of the aircraft in the specified maintenance condition at the expiration of the lease.
All of our lessees are responsible for the maintenance and repair of the leased aircraft as well as other operating costs during the lease term. Based on the credit quality of the lessee, we require some of our lessees to pay supplemental maintenance rents to cover major scheduled maintenance costs. If a lessee pays supplemental maintenance rents, we reimburse them for their maintenance events (as defined in the lease) up to the amount of their supplemental maintenance rent payments. Under the terms of our leases, at lease expiration, we retain excess maintenance rents to the extent that a lessee has paid us more supplemental maintenance rents than we have reimbursed them for their maintenance events. In most lease contracts that do not require the payment of supplemental maintenance rents, the lessee is generally required to redeliver the aircraft in a similar maintenance condition (normal wear and tear excepted) as when accepted under the lease. To the extent that the redelivery condition is different from the acceptance condition, we generally receive cash compensation for the value difference at the time of redelivery. As of December 31, 2020 and 2019, approximately 35% and 39%, respectively, of our owned aircraft leases provided for supplemental maintenance rental payments.
We require the lessee to compensate us if the aircraft is not in the required condition upon redelivery. All of our leases contain provisions regarding our remedies and rights in the event of default by the lessee, and also include specific provisions regarding the required condition of the aircraft upon its redelivery.
Our lessees are also responsible for compliance with all applicable laws and regulations governing the leased aircraft and all related costs. We require our lessees to comply with either the FAA, EASA or their equivalent standards in other jurisdictions.
During the term of our leases, some of our lessees may experience financial difficulties resulting in the need to restructure their leases. Generally, our restructurings can involve a number of possible changes to the lease terms, including the voluntary termination of leases prior to their scheduled expiration, the arrangement of subleases from the primary lessee to a sublessee, the rescheduling of lease payments and the exchange of lease payments for other consideration. In some cases, we may repossess a leased aircraft and, in those cases, we usually export the aircraft from the lessee’s jurisdiction to prepare it for remarketing. In the majority of repossessions, we obtain the lessee’s cooperation and the return and export of the aircraft are completed without significant delay, generally within two months. In some repossessions, however, our lessees may not cooperate in returning aircraft and we may be required to take legal action. In connection with the repossession of an aircraft, we may be required to settle claims on the aircraft or to which the lessee is subject, including outstanding liens on the repossessed aircraft. See “Item 3. Key Information—Risk Factors—Risks related to our relationship with our lessees—If our lessees fail to cooperate in returning our aircraft following lease terminations, we may encounter obstacles and are likely to incur significant costs and expenses conducting repossessions” for a discussion of how repossessions may affect our financial results.
Scheduled lease expirations
The following table presents the scheduled lease expirations (for the minimum non-cancelable period) for our owned aircraft under operating leases by aircraft type as of December 31, 2020. The table does not give effect to contracted unexercised lease extension options, lease extensions or re-leases that are subject to a letter of intent, aircraft sales that have been contracted or are subject to a letter of intent, or designations of a certain aircraft for sale or part-out.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft type
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
2026
|
|
2027
|
|
2028
|
|
2029
|
|
2030
|
|
Thereafter
|
|
|
|
Total
|
Airbus A320 Family
|
|
45
|
|
|
34
|
|
|
37
|
|
|
41
|
|
|
25
|
|
|
23
|
|
|
18
|
|
|
13
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
|
|
237
|
|
Airbus A320neo Family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
2
|
|
|
7
|
|
|
27
|
|
|
34
|
|
|
87
|
|
|
|
|
159
|
|
Airbus A330
|
|
3
|
|
|
11
|
|
|
9
|
|
|
13
|
|
|
3
|
|
|
4
|
|
|
5
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
50
|
|
Airbus A350
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
6
|
|
|
4
|
|
|
7
|
|
|
8
|
|
|
|
|
27
|
|
Boeing 737NG
|
|
10
|
|
|
6
|
|
|
14
|
|
|
34
|
|
|
31
|
|
|
40
|
|
|
25
|
|
|
6
|
|
|
—
|
|
|
4
|
|
|
5
|
|
|
|
|
175
|
|
Boeing 737 MAX
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
|
|
5
|
|
Boeing 767
|
|
6
|
|
|
4
|
|
|
1
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
13
|
|
Boeing 777-200ER
|
|
1
|
|
|
3
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
8
|
|
Boeing 777-300/300ER
|
|
1
|
|
|
3
|
|
|
3
|
|
|
2
|
|
|
3
|
|
|
2
|
|
|
4
|
|
|
2
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
|
|
21
|
|
Boeing 787
|
|
2
|
|
|
—
|
|
|
3
|
|
|
6
|
|
|
5
|
|
|
9
|
|
|
9
|
|
|
6
|
|
|
13
|
|
|
13
|
|
|
22
|
|
|
|
|
88
|
|
Embraer E190/195-E2
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
|
|
15
|
|
Other
|
|
4
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
7
|
|
Total (a) (b)
|
|
72
|
|
|
64
|
|
|
68
|
|
|
99
|
|
|
72
|
|
|
81
|
|
|
66
|
|
|
42
|
|
|
46
|
|
|
63
|
|
|
132
|
|
|
|
|
805
|
|
(a)Includes aircraft that have been re-leased or for which the lease has been extended as of December 31, 2020. As of December 31, 2020, scheduled lease expirations through the end of 2022 represented less than 7% of the aggregate net book value of our fleet. As of February 25, 2021, 43 of the 72 aircraft with leases expiring in 2021 have been re-leased, have had leases extended, or have been designated for sale or part-out.
(b)Includes one aircraft that was off-lease and under commitment for re-lease as of December 31, 2020.
Principal markets and customers
The following table presents the percentage of basic lease rents of our owned portfolio from our top five lessees for the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
Lessee
|
|
Percentage of 2020 basic lease rents
|
American Airlines
|
|
8.7
|
%
|
China Southern Airlines
|
|
8.3
|
%
|
Air France
|
|
5.2
|
%
|
Azul Airlines
|
|
3.9
|
%
|
Ethiopian Airlines
|
|
3.4
|
%
|
Total
|
|
29.5
|
%
|
We lease our aircraft to lessees located in every major geographical region. The following table presents the percentage of our total lease revenue by region based on our lessee’s principal place of business for the years ended December 31, 2020, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Asia/Pacific/Russia
|
38
|
%
|
|
38
|
%
|
|
36
|
%
|
Europe
|
27
|
%
|
|
28
|
%
|
|
30
|
%
|
United States/Canada/Caribbean
|
14
|
%
|
|
13
|
%
|
|
13
|
%
|
Latin America
|
11
|
%
|
|
11
|
%
|
|
11
|
%
|
Africa/Middle East
|
10
|
%
|
|
10
|
%
|
|
10
|
%
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
For further geographic information on our total lease revenue and long-lived assets, refer to Note 18—Geographic information to our Consolidated Financial Statements included in this annual report.
Aircraft services
We provide aircraft asset management and corporate services to securitization vehicles, joint ventures and other third parties. As of December 31, 2020, we had aircraft management and corporate administration and/or cash management service contracts with eight parties that owned 105 aircraft. We categorize our aircraft services into aircraft asset management, corporate administrative services and cash management services. Since we have an established operating system to manage our own aircraft, the incremental cost of providing aircraft management services to securitization vehicles, joint ventures and third parties is limited. Our primary aircraft asset management activities include:
•remarketing aircraft for lease or sale;
•collecting rental and supplemental maintenance rent payments, monitoring aircraft maintenance, monitoring and enforcing contract compliance and accepting delivery and redelivery of aircraft;
•conducting ongoing lessee financial performance reviews;
•periodically inspecting the leased aircraft;
•coordinating technical modifications to aircraft to meet new lessee requirements;
•conducting restructuring negotiations in connection with lease defaults;
•repossessing aircraft;
•arranging and monitoring insurance coverage;
•registering and de-registering aircraft;
•arranging for aircraft and aircraft engine valuations; and
•providing market research.
We charge fees for our aircraft management services based on a mixture of fixed and rental-based amounts, and we also receive performance-based fees related to the managed aircraft lease revenues or sale proceeds.
We also provide cash management and administrative services to securitization vehicles and joint ventures. Cash management services consist primarily of treasury services such as the financing, refinancing, hedging and ongoing cash management of these vehicles. Our administrative services consist primarily of accounting and corporate secretarial services, including the preparation of budgets and financial statements.
Our business strategy
We develop and grow our aircraft leasing business by executing on our focused business strategy, the key components of which are as follows:
Manage the profitability of our aircraft portfolio
Our ability to profitably manage aircraft throughout their lifecycle depends, in part, on our ability to successfully source acquisition opportunities of new and used aircraft at favorable terms, as well as our ability to secure long-term funding for such acquisitions, lease aircraft at profitable rates, minimize downtime between leases and associated maintenance expenses and opportunistically sell aircraft. We manage the long-term profitability of our aircraft portfolio by:
•purchasing aircraft directly from manufacturers;
•entering into purchase and leaseback transactions with airlines;
•using our global customer relationships to obtain favorable lease terms for aircraft and maximizing aircraft utilization;
•maintaining diverse sources of global funding;
•optimizing our portfolio by selling aircraft; and
•providing management services to securitization vehicles, our joint ventures and other aircraft owners at limited incremental cost to us.
Efficiently manage our liquidity
We analyze sources of financing based on pricing and other terms and conditions in order to optimize the return on our investments. We have the ability to access a broad range of liquidity sources globally. In 2020, we raised $8.3 billion of financing, including bank debt, revolving credit facilities and note issuances in the capital markets.
We have access to liquidity in the form of our revolving credit facilities and our term loan facilities, which provide us with flexibility in raising capital and enable us to deploy capital rapidly to accretive aircraft purchase opportunities that may arise. As of December 31, 2020, we had $5.6 billion of undrawn lines of credit available under our revolving credit and term loan facilities and other available secured debt and $1.2 billion of unrestricted cash. We strive to maintain a diverse financing strategy, both in terms of capital providers and structure, through the use of bank debt, note issuance and export credit, including ECA-guaranteed loans, in order to maximize our financial flexibility. We also leverage our longstanding relationships with major aircraft financiers and lenders to secure access to capital. In addition, we attempt to maximize our operating cash flows and continue to pursue the sale of aircraft to generate additional cash flows. Please refer to Note 13—Debt to our Consolidated Financial Statements included in this annual report for a detailed description of our outstanding indebtedness.
Manage our aircraft portfolio
We intend to maintain an attractive portfolio of in-demand aircraft by acquiring new aircraft directly from aircraft manufacturers, executing purchase and leasebacks with airlines, assisting airlines with refleetings and pursuing other opportunistic transactions. We rely on our experienced team of portfolio management professionals to identify and purchase assets we believe are being offered at attractive prices or that we believe will experience an increase in demand over a prolonged period of time. In addition, we intend to continue to rebalance our aircraft portfolio through sales to maintain the appropriate mix of aviation assets by customer concentration, age and aircraft type.
Maintain a diversified and satisfied customer base
We operate our business on a global basis, leasing aircraft to customers in every major geographical region. We have active customer relationships with approximately 200 airlines in approximately 80 countries. These customer relationships are either with existing customers or airlines with which we maintain regular dialogue in relation to potential transaction opportunities. Our relationships with these airlines help us place new aircraft and remarket existing aircraft. We monitor our lessee exposure concentrations by both customer and country jurisdiction and intend to maintain a well-diversified customer base. We believe we offer a quality product, both in terms of assets and service, to all of our customers. We have successfully worked with many airline customers to find mutually beneficial solutions to operational and financial challenges. We believe we maintain excellent relations with our customers. We have been able to achieve a high utilization rate on our aircraft assets as a result of our customer reach, quality product offering and strong portfolio management capabilities.
Joint ventures
We conduct some of our business through joint ventures. The joint venture arrangements allow us to obtain stable servicing revenues and diversify our exposure to the economic risks related to aircraft.
Please refer to Note 25—Variable interest entities to our Consolidated Financial Statements included in this annual report for a detailed description of our joint ventures.
Relationship with Airbus, Boeing and other manufacturers
We are one of the largest customers of Airbus and Boeing measured by deliveries of aircraft through 2020 and our order backlog. We were also the launch customer of the Embraer E2 program. We are also among the largest purchasers of engines from each of CFM International, GE Aviation, International Aero Engines, Pratt & Whitney and Rolls-Royce. These extensive manufacturer relationships and the scale of our business enable us to place large orders with favorable pricing and delivery terms. In addition, these strategic relationships with manufacturers and market knowledge allow us to participate in new aircraft designs, which gives us increased confidence in our airframe and engine selections. AerCap cooperates broadly with manufacturers seeking mutually beneficial opportunities.
Competition
The aircraft leasing and sales business is highly competitive, and we face competition from other aircraft leasing companies, airlines, aircraft manufacturers, aircraft brokers and financial institutions. Competition for a leasing transaction is based on a number of factors, including delivery dates, lease rates, term of lease, other lease provisions, aircraft condition and the availability in the market place of the types of aircraft that can meet customer requirements. As a result of our geographical reach, diverse aircraft portfolio and success in remarketing our aircraft, we believe we are a strong competitor in all of these areas.
Insurance
Our lessees are required under our leases to bear responsibility, through an operational indemnity subject to customary exclusions, and to carry insurance for any liabilities arising out of the operation of our aircraft or engines, including any liabilities for death or injury to persons and damage to property that ordinarily would attach to the operator of the aircraft.
In addition, our lessees are required to carry other types of insurance that are customary in the air transportation industry, including hull all risks insurance for both the aircraft and each engine whether or not installed on our aircraft, hull war risks insurance covering risks such as hijacking and terrorism and, where permitted, including confiscation, expropriation, nationalization and seizure (in each case at a value stipulated in the relevant lease which typically exceeds the net book value by 10%, subject to adjustment or fleet aggregate limits in certain circumstances). Our lessees are also required to carry aircraft spares insurance and aircraft third party liability insurance, in each case subject to customary deductibles and exclusions. We are named as an additional insured on liability insurance policies carried by our lessees, and we or our lenders are designated as a loss payee in the event of a total loss of an aircraft. We monitor the compliance by our lessees with the insurance provisions of our leases by securing confirmation of coverage from the lessees’ insurance brokers.
We also purchase insurance which provides us with coverage when our aircraft or engines are not subject to a lease or where a lessee’s policy fails to indemnify us. In addition, we carry customary insurance for our property, which is subject to customary deductibles and exclusions. Insurance experts advise and make recommendations to us as to the appropriate amount of insurance coverage that we should obtain.
Regulation
While the air transportation industry is highly regulated we generally are not directly subject to most of these regulations, as we do not operate our aircraft. Our lessees are subject, however, to extensive regulation under the laws of the jurisdictions in which they are registered and in which they operate. These regulations, among other things, govern the registration, operation and maintenance of our aircraft and engines. Most of our aircraft are registered in the jurisdiction in which the lessee of the aircraft is certified as an air operator. Both our aircraft and engines are subject to the airworthiness and other standards imposed by our lessees’ jurisdictions of operation. Laws affecting the airworthiness of aviation assets are generally designed to ensure that all aircraft, engines and related equipment are continuously maintained in proper condition to enable safe operation of the aircraft. Most countries’ aviation laws require aircraft and engines to be maintained under an approved maintenance program with defined procedures and intervals for inspection, maintenance and repair.
In addition, under our leases, we may be required in some instances to obtain specific licenses, consents or approvals for different aspects of the leases. These required items include consents from governmental or regulatory authorities for certain payments under the leases and for the import, re-export or deregistration of the aircraft and engines. Also, to perform some of our cash management services and insurance services from Ireland under our management arrangements with our joint ventures and securitization entities, we are required to have a license from the Irish regulatory authorities, which we have obtained.
Please refer to “Item 3. Key Information—Risk Factors—Risks related to the geopolitical, regulatory and legal exposure of our business—We are subject to various risks and requirements associated with transacting business in many countries” and “Item 3. Key Information—Risk Factors—Risks related to the geopolitical, regulatory and legal exposure of our business—Our aircraft are subject to various environmental regulations and concerns,” for a detailed discussion of government sanctions, export controls and other regulations that could affect our business.
Litigation
Please refer to Note 27—Commitments and contingencies to our Consolidated Financial Statements included in this annual report for a detailed description of material litigation to which we are a party.
Trademarks
We have registered the “AerCap” name with the European Union Intellectual Property Office and the United States Patent and Trademark Office, as well as filed the “AerCap” trademark with the World Intellectual Property Organization International (Madrid) Registry and various local trademark authorities.
Culture and values
We strive to conduct our business with integrity and in an honest and responsible manner and to build and maintain long-term, mutually beneficial relationships with our customers, suppliers, shareholders, employees and other stakeholders. These values are further specified in our code of conduct and our ethics-related compliance policies, procedures, trainings and programs. Ethical behavior is strongly promoted by the management team. The Company has an excellent track record in relation to ethics and compliance. These ethical values are reflected in the Company’s long-term strategy and our way of doing business.
Sustainability and community
During 2020, the Board discussed and reviewed our approach to environmental, social and governance (“ESG”) related topics and other values that contribute to a culture focused on long-term value creation. In July 2020, we published a new ESG report, which is publicly available on our website. The report sets forth in detail our commitment to growing our business in a responsible and sustainable way.
Renewing our aircraft portfolio through the acquisition of new, modern technology aircraft while disposing of older aircraft has a positive impact on the environment, as these new technology aircraft produce significantly lower emissions than older aircraft and engines, thus helping our airline customers to reduce their environmental footprint. AerCap is committed to the efficient use of resources and the reduction of unnecessary waste. Our head office in Dublin has been certified for sustainability in the areas of building materials, energy and water use and accessibility. Our office buildings in Los Angeles and Singapore hold similar green building certifications. The Company has invested resources to improve greenhouse gas emissions and corresponding mitigating initiatives.
We participate in a number of charitable events and industry-related educational programs. Through our social responsibility program, we encourage employees to support local and national organizations that strengthen the communities in which they live and operate. Our ESG Steering Committee oversees the selection of charitable themes and charity partners and the implementation of charitable donations. A number of charitable donations involve the matching of funds raised through employee team efforts for the benefit of local community projects. We, along with other major aircraft leasing companies, are a founder and sponsor of a prestigious master’s degree in aviation finance program at a renowned university. In addition to the sponsorship, this program involves lectures by some of our key employees and internships provided by the Company to a number of international students from the program, in line with the global nature and identity of the Company and our business.
Flight equipment
Aircraft portfolio
The following table presents our aircraft portfolio by type of aircraft as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft type
|
|
Number of
owned
aircraft
|
|
Percentage of
total
net book value
|
|
Number of
managed
aircraft
|
|
Number of on
order aircraft
|
|
Total owned,
managed and on
order aircraft
|
Airbus A320 Family
|
|
274
|
|
|
13
|
%
|
|
44
|
|
|
—
|
|
|
318
|
|
Airbus A320neo Family
|
|
165
|
|
|
23
|
%
|
|
5
|
|
|
157
|
|
|
327
|
|
Airbus A330
|
|
60
|
|
|
4
|
%
|
|
9
|
|
|
—
|
|
|
69
|
|
Airbus A350
|
|
27
|
|
|
10
|
%
|
|
—
|
|
|
—
|
|
|
27
|
|
Boeing 737NG
|
|
228
|
|
|
15
|
%
|
|
43
|
|
|
—
|
|
|
271
|
|
Boeing 737 MAX
|
|
5
|
|
|
1
|
%
|
|
—
|
|
|
71
|
|
|
76
|
|
Boeing 767
|
|
22
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22
|
|
Boeing 777-200ER
|
|
16
|
|
|
1
|
%
|
|
2
|
|
|
—
|
|
|
18
|
|
Boeing 777-300/300ER
|
|
21
|
|
|
3
|
%
|
|
1
|
|
|
—
|
|
|
22
|
|
Boeing 787
|
|
91
|
|
|
29
|
%
|
|
1
|
|
|
23
|
|
|
115
|
|
Embraer E190/195-E2
|
|
15
|
|
|
1
|
%
|
|
—
|
|
|
35
|
|
|
50
|
|
Other
|
|
15
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15
|
|
Total
|
|
939
|
|
|
100
|
%
|
|
105
|
|
|
286
|
|
|
1,330
|
|
The following table presents our owned aircraft portfolio by type of aircraft as a percentage of total net book value as of each of the five years ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
Aircraft type
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
Airbus A320 Family
|
|
13
|
%
|
|
14
|
%
|
|
16
|
%
|
|
21
|
%
|
|
25
|
%
|
Airbus A320neo Family
|
|
23
|
%
|
|
18
|
%
|
|
14
|
%
|
|
7
|
%
|
|
2
|
%
|
Airbus A330
|
|
4
|
%
|
|
7
|
%
|
|
9
|
%
|
|
11
|
%
|
|
14
|
%
|
Airbus A350
|
|
10
|
%
|
|
10
|
%
|
|
10
|
%
|
|
7
|
%
|
|
5
|
%
|
Boeing 737NG
|
|
15
|
%
|
|
16
|
%
|
|
19
|
%
|
|
22
|
%
|
|
25
|
%
|
Boeing 737 MAX
|
|
1
|
%
|
|
1
|
%
|
|
1
|
%
|
|
—
|
|
|
—
|
|
Boeing 767
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
%
|
|
1
|
%
|
Boeing 777-200ER
|
|
1
|
%
|
|
1
|
%
|
|
1
|
%
|
|
2
|
%
|
|
3
|
%
|
Boeing 777-300/300ER
|
|
3
|
%
|
|
4
|
%
|
|
5
|
%
|
|
6
|
%
|
|
8
|
%
|
Boeing 787
|
|
29
|
%
|
|
28
|
%
|
|
25
|
%
|
|
22
|
%
|
|
16
|
%
|
Embraer E190/195-E2
|
|
1
|
%
|
|
1
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
%
|
|
1
|
%
|
Total
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
New technology aircraft (a)
|
|
63
|
%
|
|
58
|
%
|
|
49
|
%
|
|
37
|
%
|
|
23
|
%
|
(a)New technology aircraft include Airbus A320neo Family, Airbus A350, Boeing 737 MAX, Boeing 787 and Embraer E2 aircraft.
Following the fatal accidents of two Boeing 737 MAX aircraft, the worldwide fleet of these aircraft was grounded by aviation authorities in March 2019 and production was temporarily suspended by Boeing in January 2020, resulting in ongoing delays in the delivery of our aircraft on order from Boeing. As of December 31, 2020, we had five Boeing 737 MAX aircraft delivered and on lease. It is uncertain when and under what conditions our Boeing 737 MAX aircraft will return to service and when Boeing will resume making deliveries of our Boeing 737 MAX aircraft on order. During the year ended December 31, 2020, we cancelled our orders for 24 Boeing 737 MAX aircraft. See “Item 3. Key Information—Risk Factors—Risks related to competition and the aviation industry—The financial instability of an aircraft or engine manufacturer could impact delivery of our aircraft on order and negatively affect our cash flow and results of operations” for a discussion of the uncertainty surrounding the return to service and resumption of deliveries for Boeing 737 MAX aircraft.
During the year ended December 31, 2020, we had the following activity related to flight equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held for operating leases
|
|
Investment in finance and sales-type leases, net
|
|
Held for sale
|
|
Total owned aircraft
|
Number of owned aircraft at beginning of period
|
848
|
|
|
77
|
|
|
14
|
|
|
939
|
|
Aircraft purchases (a)
|
40
|
|
|
—
|
|
|
—
|
|
|
40
|
|
Aircraft reclassified to held for sale
|
(4)
|
|
|
—
|
|
|
4
|
|
|
—
|
|
Aircraft sold or designated for part-out
|
(22)
|
|
|
—
|
|
|
(18)
|
|
|
(40)
|
|
Aircraft reclassified from investment in finance and sales-type leases, net
|
1
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Number of owned aircraft at end of period
|
863
|
|
|
76
|
|
|
—
|
|
|
939
|
|
(a)During the year ended December 31, 2020, we purchased 36 new aircraft and four used aircraft.
Aircraft on order
The following table details our 286 aircraft on order as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft type
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
Thereafter
|
|
Total
|
Airbus A320neo Family
|
|
23
|
|
|
30
|
|
|
37
|
|
|
29
|
|
|
25
|
|
|
13
|
|
|
157
|
|
Boeing 737 MAX (a)
|
|
—
|
|
|
2
|
|
|
17
|
|
|
18
|
|
|
19
|
|
|
15
|
|
|
71
|
|
Boeing 787
|
|
6
|
|
|
1
|
|
|
1
|
|
|
4
|
|
|
4
|
|
|
7
|
|
|
23
|
|
Embraer E190/195-E2
|
|
2
|
|
|
—
|
|
|
—
|
|
|
11
|
|
|
18
|
|
|
4
|
|
|
35
|
|
Total
|
|
31
|
|
|
33
|
|
|
55
|
|
|
62
|
|
|
66
|
|
|
39
|
|
|
286
|
|
(a)The delivery positions of our Boeing 737 MAX aircraft are based on our best estimates and incorporate the information currently available to us. Our estimates may be different from the actual delivery dates, and will depend on the speed at which Boeing is able to deliver our aircraft on order to us.
Aircraft acquisitions and dispositions
We purchase new and used aircraft directly from aircraft manufacturers, airlines and financial investors. The aircraft we purchase are both on-lease and off-lease, depending on market conditions and the composition of our portfolio. The buyers of our aircraft include airlines, financial investors and other aircraft leasing companies. We acquire aircraft at attractive prices in three primary ways: by purchasing large quantities of aircraft directly from manufacturers to take advantage of volume discounts, by purchasing portfolios consisting of aircraft of varying types and ages and by entering into purchase and leaseback transactions with airlines. In addition, we also opportunistically purchase individual aircraft that we believe are being offered at attractive prices. Through our marketing team, which is in frequent contact with airlines worldwide, we are also able to identify attractive acquisition and disposition opportunities. We sell aircraft when we believe the market price for the type of aircraft has reached its peak or to rebalance the composition of our aircraft portfolio.
Prior to a purchase or disposition, our dedicated portfolio management group analyzes the aircraft’s price, fit in our aircraft portfolio, specification and configuration, maintenance history and condition, the existing lease terms, financial condition and creditworthiness of the existing lessee, the jurisdiction of the lessee, industry trends, financing arrangements and the aircraft’s redeployment potential and value, among other factors. During the year ended December 31, 2020, we purchased 36 new aircraft and four used aircraft and sold 40 aircraft from our owned portfolio.
Facilities
We lease our Dublin, Ireland headquarters office facility under a 25-year lease (61,000 square feet) that began in December 2015, which has a termination right, at our option, in 2031. We lease our Shannon, Ireland office facility (21,000 square feet) under three separate leases that expire in 2029 with options to terminate in 2024. We occupy space in Los Angeles, California (21,000 square feet) under a lease that expires in August 2025. We lease our Singapore office facility under two leases that expire in February 2024 (33,000 square feet). In addition to the above facilities, we also lease small offices in New York, New York, Amsterdam, The Netherlands, Shanghai, China and Abu Dhabi, United Arab Emirates.
Organizational structure
AerCap Holdings N.V. is a holding company that holds directly and indirectly consolidated subsidiaries, which in turn own our aircraft assets. As of December 31, 2020, AerCap Holdings N.V. did not own significant assets other than its direct and indirect investments in its subsidiaries. As of December 31, 2020, our major operating subsidiaries, each of which is ultimately 100%-owned by AerCap Holdings N.V., are AerCap Ireland Limited (Ireland) (“AerCap Ireland”) and AerCap Global Aviation Trust (United States) (“AerCap Trust”). See Exhibit 8.1—List of Subsidiaries of AerCap Holdings N.V. for a complete list of all our subsidiaries.
Item 4A. Unresolved Staff Comments
Not applicable.
Item 5. Operating and Financial Review and Prospects
You should read this discussion in conjunction with our audited Consolidated Financial Statements and the related notes included in this annual report. Our financial statements are presented in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. The discussion below contains forward looking statements that are based upon our current expectations and are subject to uncertainty and changes of circumstances. See “Item 3. Key Information—Risk Factors” and “Special Note About Forward Looking Statements.”
Overview
Net loss attributable to AerCap Holdings N.V. for the year ended December 31, 2020 was $298.6 million, as compared to net income of $1,145.7 million for the year ended December 31, 2019. For the year ended December 31, 2020, diluted loss per share was $2.34 and the weighted average number of diluted shares outstanding was 127,743,828. Net interest margin, the difference between basic lease rents and interest expense, excluding the mark-to-market of interest rate caps and swaps, was $2,528 million for the year ended December 31, 2020. Annualized net spread less depreciation and amortization was 2.3% for the year ended December 31, 2020. Please refer to “Item 5. Operating and Financial Review and Prospects—Non-GAAP measures” for a reconciliation of net interest margin, annualized net spread and annualized net spread less depreciation and amortization to the most closely related U.S. GAAP measure for the years ended December 31, 2020 and 2019.
Major developments in 2020
The Covid-19 pandemic and responsive government actions have caused significant economic disruption and a dramatic reduction in commercial airline traffic, resulting in a broad adverse impact on air travel, the aviation industry and the demand for commercial aircraft globally. Despite the challenges of the Covid-19 pandemic, in 2020 AerCap:
•Completed purchases of 36 new technology aircraft for approximately $2.1 billion;
•Completed sales of 40 owned aircraft, with an average age of 17 years, for aggregate proceeds of approximately $0.6 billion;
•Executed a total of 179 aircraft transactions, including 40 widebody aircraft transactions; and
•Raised $8.3 billion of financing, including bank debt, revolving credit facilities and note issuances in the capital markets.
Aviation assets
During the year ended December 31, 2020, we purchased 36 new aircraft for approximately $2.1 billion. As of December 31, 2020, we owned 939 aircraft and we managed 105 aircraft. As of December 31, 2020, we also had 286 new aircraft on order. The average age of our fleet of 939 owned aircraft, weighted by net book value, was 6.4 years as of December 31, 2020.
Significant components of revenues and expenses
Revenues and other income
Our revenues and other income consist primarily of basic lease rents, maintenance rents and other receipts, net gain on sale of assets and other income.
Basic lease rents and maintenance rents and other receipts
Nearly all of our aircraft lease agreements provide for the periodic payment of a fixed or a floating amount of rent. Floating rents are tied to interest rates during the terms of the respective leases. During the year ended December 31, 2020, approximately 3% of our basic lease rents from aircraft under operating leases was attributable to leases with lease rates tied to floating interest rates. In addition, our leases require the payment of supplemental maintenance rent based on aircraft utilization during the lease term, or EOL compensation calculated with reference to the condition of the aircraft at lease expiration. The amount of basic lease rents and maintenance rents and other receipts (together, “lease revenue”) we recognize is primarily influenced by the following five factors:
•the contracted lease rate, which is highly dependent on the age, condition and type of the leased aircraft;
•for leases with rates tied to floating interest rates, interest rates during the term of the lease;
•the number of aircraft currently subject to lease contracts;
•the lessee’s performance of its lease obligations; and
•the amount of EOL compensation payments we receive, maintenance revenue and other receipts recognized during the lease and accrued maintenance liabilities recognized as revenue at the end of a lease.
In addition to aircraft-specific factors such as the type, condition and age of the aircraft, the lease rates for our leases with fixed rental payments are initially determined in part by reference to the prevailing interest rate for a debt instrument with a term similar to the lease term and with a similar credit quality as the lessee at the time we enter into the lease. Many of the factors described above are influenced by global and regional economic trends, airline market conditions, the supply and demand balance for the type of aircraft we own and our ability to remarket our aircraft subject to expiring lease contracts under favorable economic terms.
As of December 31, 2020, 880 of our 939 owned aircraft were on lease to 131 customers in 60 countries, with no lessee accounting for more than 10% of total lease revenue for the year ended December 31, 2020. As of December 31, 2020, our owned aircraft portfolio included 59 aircraft that were off-lease. As of February 25, 2021, of the 59 aircraft, 28 aircraft were designated for sale or part-out (which represented less than 1% of the aggregate net book value of our fleet), 21 aircraft were being marketed for re-lease (which represented approximately 2% of the aggregate net book value of our fleet), five were re-leased or under commitments for re-lease, and five aircraft were sold or under commitments to be sold.
Net gain on sale of assets
Our net gain on sale of assets is generated from the sale of our aircraft and is largely dependent on the condition of the asset being sold, prevailing interest rates, airline market conditions and the supply and demand balance for the type of asset we are selling. The timing of aircraft sale closings is often uncertain, as a sale may be concluded swiftly or negotiations may extend over several weeks or months. As a result, even if net gain on sale of assets is comparable over a long period of time, during any particular reporting period we may close significantly more or fewer sale transactions than in other reporting periods. Accordingly, net gain on sale of assets recorded in one reporting period may not be comparable to net gain on sale of assets in other reporting periods.
Other income
Other income consists of interest revenue, management fee revenue, lease termination fees, insurance proceeds, and income related to other miscellaneous activities.
Our interest revenue is derived primarily from interest on unrestricted and restricted cash balances and on financial instruments we hold, such as notes receivable and subordinated debt investments in unconsolidated securitization vehicles or affiliates. The amount of interest revenue we recognize in any period is influenced by our unrestricted or restricted cash balances, the principal balance of financial instruments we hold, contracted or effective interest rates, and movements in provisions for financial instruments which can affect adjustments to valuations or provisions.
We generate management fee revenue by providing management services to non-consolidated aircraft securitization vehicles, joint ventures, and other third parties. Our management services include aircraft asset management services, such as leasing, remarketing and technical advisory services, cash management and treasury services, and accounting and administrative services.
Operating expenses
Our operating expenses consist primarily of depreciation and amortization, interest expense, leasing expenses and selling, general and administrative expenses.
Depreciation and amortization
Our depreciation expense is influenced by the adjusted gross book values, depreciable lives and estimated residual values of our flight equipment. Adjusted gross book value is the original cost of our flight equipment, adjusted for subsequent capitalized improvements, impairments and accounting basis adjustments associated with a business combination or a purchase and leaseback transaction. In addition, we have definite-lived intangible assets which are amortized over the period which we expect to derive economic benefits from such assets.
Interest expense
Our interest expense arises from a variety of debt funding structures and related derivative financial instruments as described in “Item 11—Quantitative and Qualitative Disclosures About Market Risk,” Note 10—Derivative financial instruments and Note 13—Debt to our Consolidated Financial Statements included in this annual report. Interest expense in any period is primarily affected by contracted interest rates, amortization of fair value adjustments, amortization of debt issuance costs and debt discounts and premiums, principal amounts of indebtedness and unrealized mark-to-market gains or losses on derivative financial instruments for which we do not achieve cash flow hedge accounting treatment.
Leasing expenses
Our leasing expenses consist primarily of maintenance rights asset amortization expense, maintenance expenses on our flight equipment, which we incur during the lease through lessor maintenance contributions or when we perform maintenance on our off-lease aircraft, expenses we incur to monitor the maintenance condition of our flight equipment during a lease, expenses to transition flight equipment from an expired lease to a new lease contract, non-capitalizable flight equipment expenses, and provisions for credit losses on notes receivable, trade receivables and receivables from investment in finance and sales-type leases, net.
Maintenance rights assets are recognized when we acquire aircraft subject to existing leases. These assets represent the contractual right to receive the aircraft in a specified maintenance condition at the end of the lease under lease contracts with EOL payment provisions, or our right to receive the aircraft in better maintenance condition due to our obligation to contribute towards the cost of the maintenance events performed by the lessee either through reimbursement of maintenance deposit rents held under lease contracts with maintenance reserve (“MR”) provisions, or through a lessor contribution to the lessee.
For leases with EOL maintenance provisions, upon lease termination, we recognize receipt of EOL cash compensation as lease revenue to the extent those receipts exceed the EOL maintenance rights asset, and we recognize leasing expenses when the EOL maintenance rights asset exceeds the EOL cash received. For leases with maintenance reserve payment provisions, we recognize maintenance rights expense at the time the lessee submits a reimbursement claim and provides the required documentation related to the cost of a qualifying maintenance event that relates to pre-acquisition usage.
Selling, general and administrative expenses
Our selling, general and administrative expenses consist primarily of personnel expenses, including salaries, benefits and severance compensation, share-based compensation expense, professional and advisory costs, office facility expenses and travel expenses, as summarized in Note 19—Selling, general and administrative expenses to our Consolidated Financial Statements included in this annual report. The level of our selling, general and administrative expenses is influenced primarily by the number of our employees and the extent of transactions or ventures we pursue that require the assistance of outside professionals or advisors.
Income tax benefit (expense)
Our operations are taxable primarily in the two main jurisdictions in which we manage our business: Ireland and the United States. Deferred income taxes are provided to reflect the impact of temporary differences between our income before income taxes and our taxable income. Our effective tax rate has varied from year to year. The primary source of temporary differences is the availability of tax depreciation in our primary operating jurisdictions. Our effective tax rate in any year depends on the tax rates in the jurisdictions from which our income is derived, along with the extent of permanent differences between income or loss before income taxes and taxable income.
We have tax losses in certain jurisdictions that can be carried forward, which we recognize as deferred income tax assets. We evaluate the recoverability of deferred income tax assets in each jurisdiction in each period based upon our estimates of future taxable income in these jurisdictions. If we determine that we are not likely to generate sufficient taxable income in a jurisdiction prior to expiration, if any, of the availability of tax losses, we establish a valuation allowance against the tax loss to reduce the deferred income tax asset to its recoverable value. We evaluate the appropriate level of valuation allowances annually and make adjustments as necessary. Increases or decreases to valuation allowances can affect our income tax benefit (expense) in our Consolidated Income Statements and consequently may affect our effective tax rate in a given year.
Factors affecting our results
Our results of operations have also been affected by a variety of other factors, primarily:
•the severity, extent and duration of the Covid-19 pandemic and the rate of recovery in air travel, the aviation industry and global economic conditions, and the potential impacts of the pandemic and responsive government actions on our business and results of operations, financial condition and cash flows;
•the number, type, age and condition of the aircraft we own;
•aviation industry market conditions, including general economic and political conditions;
•the demand for our aircraft and the resulting lease rates we are able to obtain for our aircraft;
•the availability and cost of debt capital to finance purchases of aircraft;
•the purchase price we pay for our aircraft;
•the number, type and sale price of aircraft, or parts in the event of a part-out of an aircraft, we sell in a period;
•the ability of our lessees to meet their lease obligations, and the timing thereof, and maintain our aircraft in airworthy and marketable condition;
•the utilization rate of our aircraft;
•the recognition of non-cash share-based compensation expense related to the issuance of restricted stock units or restricted stock;
•our expectations of future maintenance reimbursements and lessee maintenance contributions;
•interest rates, which affect our aircraft lease revenues, our interest expense and the market value of our interest rate derivatives; and
•our ability to fund our business.
Factors affecting the comparability of our results
Asset impairment charges
During 2020, we recognized impairment charges of $1.1 billion related primarily to current technology widebody aircraft, in particular Airbus A330 and Boeing 777 aircraft. In addition, we recognized impairment charges related to sales transactions and lease terminations. We also assessed our indefinite-lived goodwill assets for impairment and recognized impairment charges related to goodwill.
During 2019, we recognized impairment charges of $70.1 million related to sales transactions and lease terminations.
Cash accounting
When we determine that the collection of rental payments is no longer probable, we cease accrual-based revenue recognition on an operating lease contract and we instead recognize lease revenues using a cash accounting method (“Cash Accounting”). During 2020, we recognized a reduction in basic lease rents of $310.6 million due to the application of Cash Accounting.
During 2019, we did not recognize a reduction in basic lease rents due to Cash Accounting.
Losses on debt extinguishment
During 2020, we recognized losses on debt extinguishment of $118.5 million, primarily related to the premium paid on the repurchase of debt pursuant to the July, October and December Tender Offers.
During 2019, we did not recognize losses on debt extinguishment.
Loss on investment at fair value
During 2020, we recognized a loss on investment at fair value of $143.5 million. Please refer to Note 9 —Investments to our Consolidated Financial Statements included in this annual report for further details on our investment at fair value.
During 2019, we did not hold an investment at fair value.
Sales transactions
During 2020, we completed sales of 40 owned aircraft, with an average age of 17 years, for aggregate proceeds of approximately $0.6 billion.
During 2019, we completed sales of 88 owned aircraft, with an average age of 15 years, for aggregate proceeds of approximately $2.1 billion.
Share repurchases
During 2020, we repurchased an aggregate of 2.1 million of our ordinary shares under share repurchase programs authorized in 2020 and 2019, at an average price, including commissions, of $55.06 per ordinary share, for approximately $117.3 million.
During 2019, we repurchased an aggregate of 12.0 million of our ordinary shares under share repurchase programs authorized in 2019 and 2018, at an average price, including commissions, of $50.82 per ordinary share, for approximately $607.3 million.
Trends in our business
The impact of the Covid-19 pandemic has had a dramatic impact on aviation in 2020. Overall global passenger traffic, measured in revenue passenger kilometers, fell by 65.9% in 2020, according to IATA. In December 2020, IATA estimated that global air passenger traffic would recover significantly in 2021 and increase by 50.4%, but would nonetheless remain well below 2019 levels. This forecast is subject to downside risk if continued or more severe travel restrictions are imposed.
Passenger air traffic and airlines’ losses have reduced demand for commercial passenger aircraft, including demand for leased aircraft in 2020. We expect demand for leased aircraft will remain weak in the short term and over the medium term we expect improvements in leased aircraft demand as air traffic recovers from the lows observed in 2020.
Critical accounting policies and estimates
Our Consolidated Financial Statements are prepared in accordance with U.S. GAAP, and require us to make estimates and assumptions that affect the amounts reported in our Consolidated Financial Statements and accompanying notes. The use of estimates is or could be a significant factor affecting the reported amounts of assets, liabilities, revenues, expenses, and related disclosures of contingent assets and liabilities. We evaluate our estimates and assumptions, including those related to flight equipment, lease revenue, net gain on sales of assets, fair value estimates, and income taxes, on a recurring and non-recurring basis. Our estimates and assumptions are based on historical experiences and currently available information that management believes to be reasonable under the circumstances. Actual results may differ from our estimates under different conditions, sometimes materially. A summary of our significant accounting policies is presented in Note 3—Summary of significant accounting policies to our Consolidated Financial Statements included in this annual report. Critical accounting policies and estimates are defined as those that are both most important to the portrayal of our financial condition and results of operations and that require our judgments, estimates and assumptions. Our critical accounting policies and estimates are described below.
Flight equipment held for operating leases, net
Flight equipment held for operating leases is stated at cost less accumulated depreciation and impairment. Flight equipment is depreciated to its estimated residual value on a straight-line basis over the useful life of the aircraft, which is generally 25 years from the date of manufacture, or a different period depending on the disposition strategy. The costs of improvements to flight equipment are normally recorded as leasing expenses unless the improvement increases the long-term value of the flight equipment. In that case, the capitalized improvement cost is depreciated over the estimated remaining useful life of the aircraft. The residual value of our flight equipment is generally 15% of estimated industry price, except where more relevant information indicates that a different residual value is more appropriate.
We periodically review the estimated useful lives and residual values of our flight equipment based on our industry knowledge, external factors, such as current market conditions, and changes in our disposition strategies, to determine if they are appropriate, and record adjustments to depreciation rates prospectively on an individual aircraft basis, as necessary.
Event-driven impairment and impairment calculation charges
We test long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The quantitative impairment test is performed at the lowest level for which identifiable cash flows are largely independent of other groups of assets, which is the individual aircraft, including the lease-related assets and liabilities of that aircraft, such as the maintenance rights assets, lease incentives, and maintenance liabilities (the “Asset Group”). If the sum of the expected undiscounted future cash flows is less than the Asset Group, an impairment loss is recognized. The loss is measured as the excess of the carrying value of the Asset Group over its estimated fair value.
Fair value reflects the present value of future cash flows expected to be generated from the aircraft, including its expected residual value, discounted at a rate commensurate with the associated risk. Future cash flows are assumed to occur under current market conditions and assume adequate time for a sale between a willing buyer and a willing seller. Expected future lease rates are based on all relevant information available, including current contracted rates for similar aircraft and industry trends.
We perform event-driven impairment assessments of our aircraft held for operating leases each quarter. These quarterly impairment assessments are primarily triggered by potential sale transactions, early terminated leases, credit events impacting lessees or forecasted significant and permanent declines in the demand for aircraft types. On an annual basis, we also perform an assessment of all aircraft held for operating leases to identify potential impairment by reference to estimated future cash flows at the Asset Group level, and perform a quantitative impairment test. We apply significant judgment in assessing whether an impairment is necessary and in estimating significant assumptions including the future lease rates, the residual value and the discount rate when performing quantitative impairment tests.
Due to the Covid-19 pandemic, many of our airline customers have significantly curtailed their commercial operations and are under significant financial stress, which could result in lease defaults, lease terminations and related aircraft repossessions. The future cash flows supporting the carrying value of our aircraft are based on current lease contracts and our estimates of future lease rates, useful lives and residual values for these aircraft. As a result of the Covid-19 pandemic and its impact on the aviation industry and the global economic environment, there is more uncertainty regarding the future cash flows relating to our aircraft. A reduction in the future expected cash flows relating to our aircraft could result in impairment losses that could be material to our financial results.
The Covid-19 pandemic and responsive government actions have had a significant impact on both domestic and international travel. While both domestic and international air travel have increased since the low points experienced in early 2020, in general domestic travel has been faster to recover, and the timeframe for the recovery of domestic travel is generally expected to be more rapid than for international travel. During the year ended December 31, 2020, the Covid-19 pandemic led governments in many countries to impose new restrictions on international travel or to delay the relaxation of existing restrictions. As a result, the expected recovery time for international air traffic has become longer. In addition, we have observed an increased number of airlines shifting away from current technology widebody aircraft in favor of new technology widebody aircraft such as the Boeing 787 and Airbus A350. We expect these factors to impact the future lease rates and long-term values of our Boeing 777 and Airbus A330 aircraft. During the year ended December 31, 2020 we recognized impairment charges of $1.1 billion, primarily related to Boeing 777 and Airbus A330 aircraft.
Due to the significant uncertainties associated with potential sales transactions, we use our judgment to evaluate whether a sale or other disposal is more likely than not. The factors we consider in our assessment include (i) the progress of the potential sales transactions through a review and evaluation of the sales-related documents and other communications, including, but not limited to, letters of intent or sales agreements that have been negotiated or executed; (ii) our general or specific fleet strategies and other business needs and how those requirements bear on the likelihood of sale or other disposal; and (iii) the evaluation of potential execution risks, including the source of potential purchaser funding and other execution risks.
The future cash flows supporting the carrying value of aircraft that are 15 years of age or older are more dependent upon current lease contracts, and these leases are generally more sensitive to weaknesses in the global economic environment. Deterioration of the global economic environment and a decrease in aircraft values might have a negative effect on the undiscounted cash flows of older aircraft and might cause an impairment loss. As of December 31, 2020, 185 aircraft with an aggregate Asset Group value of approximately $2.1 billion were 15 years of age or older, which represented approximately 6% of our total flight equipment and lease-related assets and liabilities. The estimated undiscounted future cash flows of these 185 aircraft were $3.3 billion, which measured on a weighted average basis was 45% in excess of the aggregate carrying value. As of December 31, 2020, all of these aircraft passed the recoverability test. The following assumptions drive the undiscounted cash flows: contracted lease rents through current lease expiry; subsequent re-lease rates based on current marketing information; maintenance cash flow forecasts; and residual values. We review and stress-test our key assumptions to reflect any observed weakness in the global economic environment.
Aircraft that are between five and 15 years of age where future cash flows do not exceed the aircraft carrying value by at least 10% are more susceptible to impairment risk. As of December 31, 2020, 12 aircraft with an Asset Group carrying value of $594.5 million did not exceed our 10% threshold, which represented less than 1.75% of our total flight equipment held for operating leases and lease-related assets and liabilities. The 12 aircraft that were below the 10% threshold did, however, pass the impairment test as of December 31, 2020, and as such no impairment was recognized.
Revenues and other income
We lease flight equipment principally under operating leases and recognize basic lease rents income on a straight-line basis over the life of the lease. At lease inception, we review all necessary criteria to determine proper lease classification. We account for lease agreements that include uneven rental payments on a straight-line basis. The amount of the difference between basic lease rents recognized and cash received is included in other assets, or in the event it is a liability, in accounts payable, accrued expenses and other liabilities.
We periodically evaluate the collectability of our operating lease contracts to determine the appropriate revenue recognition and measurement model to apply to each lessee. Accrual-based revenue recognition ceases on an operating lease contract when the collection of payments is no longer probable and thereafter rental revenues are recognized using a cash receipts basis “Cash Accounting.” In the period where collection of lease payments is no longer probable, any difference between revenue amounts recognized to date under the accrual method and payments that have been collected from the lessee, including security deposit amounts held, is recognized as a current period adjustment to lease revenue. Subsequently, revenues are recognized based on the lesser of the straight-line rental income or the payments collected from the lessee until such time that collection is probable. We apply significant judgment in assessing at each reporting date whether operating rental payments are probable of collection by reference to the credit status of the each lessee, including lessees in bankruptcy-type arrangements, the extent of overdue balances and other relevant factors. During the year ended December 31, 2020, we concluded that collection of basic lease rents payments was not probable from a number of our lessees, resulting in a reduction of basic lease rents of approximately $310.6 million.
Revenue from investment in finance and sales-type leases is recognized using the interest method to produce a constant yield over the life of the lease and is included in basic lease rents. Expected unguaranteed residual values are based on our assessment of the values of the flight equipment and, if applicable, the estimated end of lease payments expected at the expiration of the lease.
Under our aircraft leases, the lessee is responsible for maintenance, repairs and other operating expenses during the term of the lease. Under the provisions of many of our leases, the lessee is required to make payments of supplemental maintenance rents which are calculated with reference to the utilization of the airframe, engines and other major life-limited components during the lease. We record as lease revenue all supplemental maintenance rent receipts not expected to be reimbursed to the lessee. We estimate the total amount of maintenance reimbursements for the lease term and only record maintenance revenue after we have received sufficient maintenance rents to cover the total amount of estimated maintenance reimbursements during the remaining lease term.
In most lease contracts not requiring the payment of supplemental maintenance rents, and to the extent that the aircraft is redelivered in a different condition than at acceptance, we generally receive EOL cash compensation for the difference at redelivery. Upon lease termination, we recognize receipt of EOL cash compensation as lease revenue to the extent those receipts exceed the EOL maintenance rights asset, and we recognize leasing expenses when the EOL maintenance rights asset exceeds the EOL cash received.
When flight equipment is sold, the portion of the accrued maintenance liability not specifically assigned to the buyer is released net of any maintenance rights asset balance and is included in net gain on sale of assets.
Recent accounting standards adopted during the year ended December 31, 2020
Please refer to Note 3—Summary of significant accounting policies to our Consolidated Financial Statements included in this annual report.
Future application of accounting standards
Please refer to Note 3—Summary of significant accounting policies to our Consolidated Financial Statements included in this annual report.
Comparative results of operations
Results of operations for the year ended December 31, 2020 as compared to the year ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
Increase/ (Decrease)
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
(U.S. Dollars in thousands)
|
|
|
Revenues and other income
|
|
|
|
|
|
|
|
Lease revenue:
|
|
|
|
|
|
|
|
Basic lease rents
|
$
|
3,761,611
|
|
|
$
|
4,281,260
|
|
|
$
|
(519,649)
|
|
|
|
Maintenance rents and other receipts
|
559,395
|
|
|
401,006
|
|
|
158,389
|
|
|
|
Lease revenue
|
4,321,006
|
|
|
4,682,266
|
|
|
(361,260)
|
|
|
|
Net gain on sale of assets
|
89,618
|
|
|
188,835
|
|
|
(99,217)
|
|
|
|
Other income
|
83,005
|
|
|
66,239
|
|
|
16,766
|
|
|
|
Total Revenues and other income
|
4,493,629
|
|
|
4,937,340
|
|
|
(443,711)
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
Depreciation and amortization
|
1,645,373
|
|
|
1,676,121
|
|
|
(30,748)
|
|
|
|
Asset impairment
|
1,086,983
|
|
|
70,149
|
|
|
1,016,834
|
|
|
|
Interest expense
|
1,248,225
|
|
|
1,295,020
|
|
|
(46,795)
|
|
|
|
Loss on debt extinguishment
|
118,460
|
|
|
—
|
|
|
118,460
|
|
|
|
Leasing expenses
|
323,535
|
|
|
287,950
|
|
|
35,585
|
|
|
|
Selling, general and administrative expenses
|
242,161
|
|
|
267,458
|
|
|
(25,297)
|
|
|
|
Total Expenses
|
4,664,737
|
|
|
3,596,698
|
|
|
1,068,039
|
|
|
|
Loss on investment at fair value
|
(143,510)
|
|
|
—
|
|
|
(143,510)
|
|
|
|
(Loss) income before income taxes and income of
investments accounted for under the equity method
|
(314,618)
|
|
|
1,340,642
|
|
|
(1,655,260)
|
|
|
|
Income tax benefit (expense)
|
17,231
|
|
|
(167,714)
|
|
|
184,945
|
|
|
|
Equity in net earnings of investments accounted for under
the equity method
|
2,464
|
|
|
(6,151)
|
|
|
8,615
|
|
|
|
Net (loss) income
|
$
|
(294,923)
|
|
|
$
|
1,166,777
|
|
|
$
|
(1,461,700)
|
|
|
|
Net income attributable to non-controlling interest
|
(3,643)
|
|
|
(21,083)
|
|
|
17,440
|
|
|
|
Net (loss) income attributable to AerCap Holdings N.V.
|
$
|
(298,566)
|
|
|
$
|
1,145,694
|
|
|
$
|
(1,444,260)
|
|
|
|
|
|
|
|
|
|
|
|
Basic lease rents. The decrease in basic lease rents of $519.6 million, or 12%, was attributable to:
•a decrease in basic lease rents of $310.6 million due to the application of Cash Accounting;
•a decrease in basic lease rents of $282.7 million primarily due to re-leases and extensions at lower rates. The accounting for the extensions requires the remaining rental payments to be recorded on a straight-line basis over the remaining term of the original lease plus the extension period; and
•the sale of 128 aircraft between January 1, 2019 and December 31, 2020 with an aggregate net book value of $2.4 billion on their respective sale dates, resulting in a decrease in basic lease rents of $209.2 million;
partially offset by
•the acquisition of 105 aircraft between January 1, 2019 and December 31, 2020, with an aggregate net book value of $6.7 billion on their respective acquisition dates, resulting in an increase in basic lease rents of $282.9 million.
Maintenance rents and other receipts. The increase in maintenance rents and other receipts of $158.4 million, or 39%, was attributable to:
•an increase of $231.8 million in maintenance revenue and other receipts from early lease terminations;
partially offset by
•a decrease of $73.4 million in regular maintenance rents.
Net gain on sale of assets. The decrease in net gain on sale of assets of $99.2 million, or 53%, was primarily due to the lower volume and composition of asset sales. During the year ended December 31, 2020, we sold 40 aircraft for proceeds of $613.4 million and during the year ended December 31, 2019, we sold 88 aircraft for proceeds of $2,132.4 million.
Other Income. The increase in other income of $16.8 million, or 25%, was primarily driven by higher interest income.
Depreciation and amortization. The decrease in depreciation and amortization of $30.7 million, or 2%, was primarily due to aircraft sales, partially offset by aircraft purchases.
Asset impairment. During the year ended December 31, 2020, we recognized impairment charges of $1.1 billion related primarily to current technology widebody aircraft, in particular Airbus A330 and Boeing 777 aircraft, as well as to the write-off of goodwill. Please refer to “Item 5. Operating and Financial Review and Prospects—Critical accounting policies and estimates” for further information on our event-driven impairment assessments. During the year ended December 31, 2019, we recognized impairment charges of $70.1 million related to sales transactions and lease terminations.
Interest expense. The decrease in interest expense of $46.8 million, or 4%, was primarily attributable to:
•a decrease in the average cost of debt to 4.1% for the year ended December 31, 2020 as compared to 4.2% for the year ended December 31, 2019. The average cost of debt excludes the effect of mark-to-market movements on interest rate caps and swaps. Please refer to “Item 5. Operating and Financial Review and Prospects—Non-GAAP measures” for further information on the average cost of debt. The decrease in the average cost of debt resulted in a $45.2 million decrease in interest expense; and
•a $15.3 million decrease in interest expense attributable to a decrease in mark-to-market losses on interest rate caps and swaps. For the year ended December 31, 2020, we recognized a loss of $14.4 million related to mark-to-market movements on interest rate caps and swaps, compared to a corresponding loss of $29.7 million recognized during the year ended December 31, 2019;
partially offset by
•a $0.3 billion increase in the average outstanding debt balance to $30.2 billion during the year ended December 31, 2020 from $29.9 billion during the year ended December 31, 2019, resulting in a $13.7 million increase in interest expense.
Loss on debt extinguishment. During the year ended December 31, 2020, we recognized loss on debt extinguishment of $118.5 million, primarily related to the premium paid on the repurchase of debt pursuant to the July, October and December Tender Offers.
Leasing expenses. The increase in leasing expenses of $35.6 million, or 12%, was primarily due to $52.2 million of higher aircraft transition costs, lessor maintenance contributions and other leasing expenses and $14.3 million related to airline defaults and restructuring, partially offset by $30.9 million of lower maintenance rights asset amortization.
Selling, general and administrative expenses. The decrease in selling, general and administrative expenses of $25.3 million, or 9%, was primarily due to lower compensation-related expenses.
Loss on investment at fair value. During the year ended December 31, 2020, we recognized a loss on investment at fair value of $143.5 million. Please refer to Note 9 —Investments to our Consolidated Financial Statements included in this annual report for further details on our investment at fair value.
Income tax benefit (expense). The effective tax rate was 5.5% for the year ended December 31, 2020, compared to the effective tax rate of 12.5% for the year ended 2019. The effective tax rate is impacted by the source and amount of earnings among our various tax jurisdictions as well as permanent tax differences relative to pre-tax income or loss. Please refer to Note 14—Income taxes to our Consolidated Financial Statements included in this annual report for a detailed description of income taxes.
For Results of Operations for the year ended December 31, 2019, as compared to the year ended December 31, 2018, refer to “Item 5. Operating and Financial Review and Prospects—Comparative results of operations” in our annual report on Form 20-F for the year ended December 31, 2019, filed with the SEC on March 5, 2020.
Liquidity and capital resources
The following table presents our consolidated cash flows for the years ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
(U.S. Dollars in millions)
|
Net cash provided by operating activities
|
$
|
2,130.4
|
|
|
$
|
3,105.7
|
|
Net cash used in investing activities
|
(712.3)
|
|
|
(2,954.7)
|
|
Net cash used in financing activities
|
(1,225.3)
|
|
|
(265.0)
|
|
Cash flows provided by operating activities. During the year ended December 31, 2020, our cash provided by operating activities of $2,130.4 million was the result of a net loss of $294.9 million, other adjustments to net loss of $3,011.9 million and collections of finance and sales-type leases of $68.1 million, partially offset by the net change in operating assets and liabilities of $654.7 million. During the year ended December 31, 2019, our cash provided by operating activities of $3,105.7 million was the result of net income of $1,166.8 million, other adjustments to net income of $1,922.9 million and collections of finance and sales-type leases of $98.4 million, partially offset by the net change in operating assets and liabilities of $82.4 million.
Cash flows used in investing activities. During the year ended December 31, 2020, our cash used in investing activities of $712.3 million primarily consisted of cash used for the purchase of aircraft of $1,183.7 million, partially offset by cash provided by asset sale proceeds of $471.4 million. During the year ended December 31, 2019, our cash used in investing activities of $2,954.7 million primarily consisted of cash used for the purchase of aircraft of $4,728.5 million, partially offset by cash provided by asset sale proceeds of $1,773.8 million.
Cash flows used in financing activities. During the year ended December 31, 2020, our cash used in financing activities of $1,225.3 million primarily consisted of cash used for new financing proceeds, net of debt repayments and debt issuance costs, of $867.5 million, net receipts of maintenance and security deposits of $227.1 million, the repurchase of shares and payments of tax withholdings on share-based compensation of $127.8 million and cash used for the payment of dividends to our non-controlling interest holders of $2.9 million. During the year ended December 31, 2019, our cash used in financing activities of $265.0 million primarily consisted of cash used for the repurchase of shares and payments of tax withholdings on share-based compensation of $639.9 million, cash used for the payment of dividends to our non-controlling interest holders of $6.3 million and new financing proceeds, net of debt repayments and debt issuance costs, of $2.1 million partially offset by cash provided by net receipts of maintenance and security deposits of $383.3 million.
We have significant capital requirements, including making pre-delivery payments and paying the balance of the purchase price for aircraft on delivery. As of December 31, 2020, we had commitments to purchase 286 new aircraft scheduled for delivery through 2027. As a result, we will need to raise additional funds to satisfy these requirements, which we expect to do through a combination of accessing committed debt facilities and securing additional financing, if needed, from capital markets transactions or other sources of capital. If other sources of capital are not available to us, we may need to raise additional funds through selling aircraft or other aircraft investments, including participations in our joint ventures.
As of December 31, 2020, our cash balance was $1.5 billion, including unrestricted cash of $1.2 billion, and we had $5.6 billion of undrawn lines of credit available under our revolving credit and term loan facilities and other available secured debt. As of December 31, 2020, our total available liquidity, including undrawn lines of credit, unrestricted cash, cash flows from contracted asset sales and other sources of funding, was $6.7 billion, and including estimated operating cash flows for the next 12 months, our total sources of liquidity were $9.1 billion. As of December 31, 2020, our existing sources of liquidity were sufficient to operate our business and cover approximately 2.3x of our debt maturities and contracted capital requirements for the next 12 months. As of December 31, 2020, the principal amount of our outstanding indebtedness, which excludes fair value adjustments of $19.7 million and debt issuance costs, debt discounts and debt premium of $192.8 million, totaled $28.9 billion and consisted of senior unsecured, subordinated and senior secured notes, export credit facilities, commercial bank debt, revolving credit debt, securitization debt and capital lease structures.
In order to satisfy our contractual purchase obligations, we expect to source new debt financing through access to the capital markets, including the unsecured and secured bond markets, the commercial bank market, export credit and the asset-backed securities market.
In the longer term, we expect to fund the growth of our business, including acquiring aircraft, through internally generated cash flows, the incurrence of new bank debt, the refinancing of existing bank debt and other capital-raising initiatives.
During the year ended December 31, 2020, our average cost of debt, excluding the effect of mark-to-market movements on our interest rate caps and swaps, was 4.1%. As of December 31, 2020, our adjusted debt to equity ratio was 2.6 to 1. Please refer to “Item 5. Operating and Financial Review and Prospects—Non-GAAP measures” for further information on our average cost of debt and reconciliations of adjusted debt and adjusted equity to the most closely related U.S. GAAP measures as of December 31, 2020 and 2019.
Please refer to Note 13—Debt to our Consolidated Financial Statements included in this annual report for a detailed description of our outstanding indebtedness.
AerCap Holdings N.V. is incorporated in the Netherlands and headquartered in Ireland, and is not directly engaged in business within, nor has a permanent establishment in, the United States. Only our U.S. subsidiaries are subject to U.S. net income tax or would potentially have to withhold U.S. taxes upon a distribution of our earnings.
While we were tax resident in the Netherlands, we did not accrue or pay taxes as a result of repatriation of earnings from any of our foreign subsidiaries to the Netherlands. Effective February 1, 2016, we became tax resident in Ireland and we would typically expect that the repatriation of earnings from our foreign subsidiaries should not, except where recognized in our financial statements, give rise to material additional Irish taxation due to the availability of foreign tax credits. As of December 31, 2020, $108.1 million out of $1,248.8 million of cash and short-term investments was held by our foreign subsidiaries outside of Ireland. Additionally, legal restrictions in relation to dividend payments from our subsidiaries to us are described in “Item 10. Additional Information—Taxation—Withholding tax.”
Contractual obligations
Our contractual obligations consist of principal and interest payments on debt (excluding fair value adjustments, debt issuance costs, debt discounts and debt premium), executed purchase agreements to purchase aircraft and rent payments pursuant to our office and facility leases. We intend to fund our contractual obligations through unrestricted cash, lines-of-credit and other borrowings, operating cash flows and cash flows from asset sales. We believe that our sources of liquidity will be sufficient to meet our contractual obligations.
The following table provides details regarding our contractual obligations and their payment dates as of December 31, 2020, as adjusted to reflect the developments described in footnotes (b) and (c) below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
Thereafter
|
|
Total
|
|
(U.S. Dollars in millions)
|
Unsecured debt
facilities
|
$
|
1,379.8
|
|
|
$
|
3,405.1
|
|
|
$
|
3,120.1
|
|
|
$
|
2,550.0
|
|
|
$
|
2,650.0
|
|
|
$
|
2,650.0
|
|
|
$
|
15,755.0
|
|
Secured debt
facilities
|
993.6
|
|
|
1,397.0
|
|
|
2,023.3
|
|
|
1,715.3
|
|
|
3,207.3
|
|
|
1,530.2
|
|
|
10,866.7
|
|
Subordinated debt
facilities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,293.5
|
|
|
2,293.5
|
|
Estimated interest
payments (a)
|
1,123.2
|
|
|
995.5
|
|
|
795.6
|
|
|
604.7
|
|
|
419.5
|
|
|
4,111.0
|
|
|
8,049.5
|
|
Purchase obligations
(b) (c)
|
1,511.4
|
|
|
2,519.3
|
|
|
3,099.7
|
|
|
2,962.1
|
|
|
2,525.2
|
|
|
1,508.0
|
|
|
14,125.7
|
|
Operating leases (d)
|
9.7
|
|
|
9.1
|
|
|
9.1
|
|
|
6.8
|
|
|
5.7
|
|
|
24.3
|
|
|
64.7
|
|
Total
|
$
|
5,017.7
|
|
|
$
|
8,326.0
|
|
|
$
|
9,047.8
|
|
|
$
|
7,838.9
|
|
|
$
|
8,807.7
|
|
|
$
|
12,117.0
|
|
|
$
|
51,155.1
|
|
(a)Estimated interest payments for floating rate debt are based on rates as of December 31, 2020 and include the estimated impact of our interest rate swap agreements.
(b)As of December 31, 2020, we had commitments to purchase 284 aircraft and two purchase and leaseback transactions. The timing of our purchase obligations is based on current estimates. Due to the current Covid-19 pandemic, we expect that the delivery of many of our aircraft on order will be delayed to future periods. We have incorporated expected delivery delays into the table above. In addition, we have the right to reschedule the delivery dates of certain of our aircraft to future dates. See Note 27—Commitments and contingencies to our Consolidated Financial Statements included in this annual report for further details on our purchase obligations.
(c)The delivery positions of our Boeing 737 MAX aircraft are based on our best estimates and incorporate the information currently available to us. Our estimates may be different from the actual delivery dates, and will depend on the speed at which Boeing is able to deliver our aircraft on order to us.
(d)Represents contractual payments on our office and facility leases. See Note 15—Leases to our Consolidated Financial Statements included in this annual report for further details on our operating lease obligations.
Off-balance sheet arrangements
We have interests in variable interest entities, some of which are not consolidated into our Consolidated Financial Statements. Please refer to Note 25—Variable interest entities to our Consolidated Financial Statements included in this annual report for a detailed description of these interests and our other off-balance sheet arrangements.
Book value per share
The following table presents our book value per share as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2020
|
|
2019
|
|
(U.S. Dollars in millions,
except share and per share data)
|
Total AerCap Holdings N.V. shareholders’ equity
|
$
|
8,864
|
|
|
$
|
9,315
|
|
|
|
|
|
Ordinary shares issued
|
138,847,345
|
|
|
141,847,345
|
|
Treasury shares
|
(8,448,807)
|
|
|
(10,263,856)
|
|
Ordinary shares outstanding
|
130,398,538
|
|
|
131,583,489
|
|
Shares of unvested restricted stock
|
(2,552,346)
|
|
|
(2,354,318)
|
|
Ordinary shares outstanding, excluding shares of unvested restricted stock
|
127,846,192
|
|
|
129,229,171
|
|
|
|
|
|
Book value per ordinary share outstanding, excluding shares of unvested restricted
stock
|
$
|
69.34
|
|
|
$
|
72.08
|
|
Non-GAAP measures
The following are definitions of non-GAAP measures used in this report on Form 20-F and a reconciliation of such measures to the most closely related U.S. GAAP measures.
Net interest margin, annualized net spread, annualized net spread less depreciation and amortization and average cost of debt
Net interest margin is calculated as the difference between basic lease rents and interest expense, excluding the impact of the mark-to-market of interest rate caps and swaps. Annualized net spread is net interest margin expressed as a percentage of average lease assets. Annualized net spread less depreciation and amortization is net interest margin less depreciation and amortization, including maintenance rights expense, expressed as a percentage of average lease assets. Average cost of debt is calculated as interest expense, excluding mark-to-market on interest rate caps and swaps, divided by the average debt balance. We believe these measures may further assist investors in their understanding of the changes and trends related to the earnings of our leasing activities. These measures reflect the impact from changes in the number of aircraft leased, lease rates and utilization rates, as well as the impact from changes in the amount of debt and interest rates.
The following is a reconciliation of basic lease rents to net interest margin, annualized net spread and annualized net spread less depreciation and amortization for the years ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Percentage
Difference
|
|
2020
|
|
2019
|
|
|
(U.S. Dollars in millions)
|
|
|
Basic lease rents
|
$
|
3,762
|
|
|
$
|
4,281
|
|
|
(12
|
%)
|
Interest expense
|
1,248
|
|
|
1,295
|
|
|
(4
|
%)
|
Adjusted for:
|
|
|
|
|
|
Mark-to-market of interest rate caps and swaps
|
(14)
|
|
|
(30)
|
|
|
(52
|
%)
|
Interest expense excluding mark-to-market on interest rate caps and swaps
|
1,234
|
|
|
1,265
|
|
|
(3
|
%)
|
Net interest margin
|
$
|
2,528
|
|
|
$
|
3,016
|
|
|
(16
|
%)
|
Depreciation and amortization, including maintenance rights expense
|
(1,691)
|
|
|
(1,753)
|
|
|
(4
|
%)
|
Net interest margin less depreciation and amortization
|
$
|
837
|
|
|
$
|
1,263
|
|
|
(34
|
%)
|
|
|
|
|
|
|
Average lease assets
|
$
|
37,145
|
|
|
$
|
37,590
|
|
|
(1
|
%)
|
|
|
|
|
|
|
Annualized net spread
|
6.8
|
%
|
|
8.0
|
%
|
|
|
Annualized net spread less depreciation and amortization
|
2.3
|
%
|
|
3.4
|
%
|
|
|
Adjusted debt to equity ratio
This measure is the ratio obtained by dividing adjusted debt by adjusted equity. Adjusted debt represents consolidated total debt less cash and cash equivalents, and less a 50% equity credit with respect to certain long-term subordinated debt. Adjusted equity represents total equity, plus the 50% equity credit with respect to the long-term subordinated debt. Adjusted debt and adjusted equity are adjusted by the 50% equity credit to reflect the equity nature of those financing arrangements and to provide information that is consistent with definitions under certain of our debt covenants. We believe this measure may further assist investors in their understanding of our capital structure and leverage.
The following is a reconciliation of debt to adjusted debt and equity to adjusted equity as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2020
|
|
2019
|
|
(U.S. Dollars in millions
except debt/equity ratio)
|
Debt
|
$
|
28,742
|
|
|
$
|
29,486
|
|
Adjusted for:
|
|
|
|
Cash and cash equivalents
|
(1,249)
|
|
|
(1,121)
|
|
50% credit for long-term subordinated debt
|
(1,125)
|
|
|
(1,125)
|
|
Adjusted debt
|
$
|
26,368
|
|
|
$
|
27,240
|
|
|
|
|
|
Equity
|
$
|
8,932
|
|
|
$
|
9,382
|
|
Adjusted for:
|
|
|
|
50% credit for long-term subordinated debt
|
1,125
|
|
|
1,125
|
|
Adjusted equity
|
$
|
10,057
|
|
|
$
|
10,507
|
|
|
|
|
|
Adjusted debt/equity ratio
|
2.6 to 1
|
|
2.6 to 1
|
Summarized financial information of issuers and guarantors
Historically, in accordance with Rule 3-10 of Regulation S-X, AerCap has presented separate financial statements and other disclosures with respect to the entities that issue and guarantee its registered debt securities in a note to its consolidated financial statements.
In March 2020, the SEC adopted amendments to reduce and simplify the financial disclosure requirements for guarantors and issuers of guaranteed registered securities. The amendments became effective on January 4, 2021, but voluntary compliance in advance of January 4, 2021 was permitted. We elected to comply with the amended regulation starting with our Interim Report on Form 6-K for the quarter ended March 31, 2020, filed with the SEC on May 5, 2020.
AerCap Trust & AerCap Ireland Capital Designated Activity Company Notes
From time to time since the completion of the acquisition of ILFC, AerCap Trust and AerCap Ireland Capital Designated Activity Company (“AICDC”) have co-issued senior unsecured notes (the “AGAT/AICDC Notes”). Please refer to Note 13—Debt to our Consolidated Financial Statements included in this annual report for further details on the AGAT/AICDC Notes. The AGAT/AICDC Notes are jointly and severally and fully and unconditionally guaranteed by AerCap Holdings N.V. (the “Parent Guarantor”) and by AerCap Ireland, AerCap Aviation Solutions B.V., ILFC and AerCap U.S. Global Aviation LLC (the “Subsidiary Guarantors” and, together with the Parent Guarantor, the “AGAT/AICDC Guarantors”).
Subject to the provisions of the indenture governing the AGAT/AICDC Notes (the “AGAT/AICDC Indenture”), a Subsidiary Guarantor will be automatically and unconditionally released from its guarantee with respect to a series of AGAT/AICDC Notes under the following circumstances: (1) the sale, disposition or other transfer of (i) the capital stock of a Subsidiary Guarantor after which such Subsidiary Guarantor is no longer a Restricted Subsidiary (as defined in the AGAT/AICDC Indenture) or (ii) all or substantially all of the assets of a Subsidiary Guarantor; (2) the permitted designation of the Subsidiary Guarantor as an Unrestricted Subsidiary as defined in and pursuant to the AGAT/AICDC Indenture; (3) the consolidation, amalgamation or merger of a Subsidiary Guarantor with and into AerCap Trust, AICDC or another AGAT/AICDC Guarantor with such person being the surviving entity, or upon the liquidation of a Subsidiary Guarantor following the transfer of all of its assets to AerCap Trust, AICDC or another AGAT/AICDC Guarantor; or (4) legal defeasance or covenant defeasance with respect to such series, each as described in the AGAT/AICDC Indenture, or if the obligations of AerCap Trust and AICDC with respect to such series under the AGAT/AICDC Indenture are discharged.
The guarantee obligations of each Subsidiary Guarantor are limited (i) to an amount not to exceed the maximum amount that can be guaranteed by a Subsidiary Guarantor (after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of all other AGAT/AICDC Guarantors in respect of the obligations under their respective guarantees) without rendering the guarantee, as it relates to such Subsidiary Guarantor, voidable under applicable fraudulent conveyance or transfer laws, and (ii) as necessary to recognize certain defenses generally available to guarantors, including voidable preference, financial assistance, corporate purpose, capital maintenance or similar laws, regulations or defenses affecting the rights of creditors generally or other considerations under applicable law. In addition, given that some of the AGAT/AICDC Guarantors are Irish and Dutch companies, it may be more difficult for holders of the AGAT/AICDC Notes to obtain or enforce judgments against such guarantors.
Because AICDC and certain AGAT/AICDC Guarantors are holding companies with very limited operations, their only significant assets are the equity interests of their directly held subsidiaries. As a result, AICDC and certain AGAT/AICDC Guarantors are dependent primarily upon dividends and other payments from their subsidiaries to generate the funds necessary to meet their outstanding debt service and other obligations, and such dividends or other payments will in turn depend on factors, such as their subsidiaries’ earnings, covenants in instruments governing their subsidiaries’ indebtedness, other contractual restrictions and applicable laws (including local law restricting payments of dividends).
Junior Subordinated Notes
In October 2019, AerCap Holdings N.V. issued $750.0 million aggregate principal amount of 5.875% fixed-rate reset junior subordinated notes due 2079 (the “Junior Subordinated Notes”). See Note 13—Debt to our Consolidated Financial Statements included in this annual report. The Junior Subordinated Notes are jointly and severally and fully and unconditionally guaranteed by AerCap Trust, AICDC, AerCap Ireland, AerCap Aviation Solutions B.V., ILFC and AerCap U.S. Global Aviation LLC (the “Subordinated Notes Guarantors”).
Subject to the provisions of the indenture governing the Junior Subordinated Notes (the “Subordinated Notes Indenture”), a Subordinated Notes Guarantor will be automatically and unconditionally released from its guarantee under the following circumstances: (1) the sale, disposition or other transfer of all or substantially all of the assets of a Subordinated Notes Guarantor; (2) the consolidation, amalgamation or merger of a Subordinated Notes Guarantor with and into AerCap Holdings N.V. or another Subordinated Notes Guarantor with such person being the surviving entity, or upon the liquidation of a Subordinated Notes Guarantor following the transfer of all of its assets to AerCap Holdings N.V. or another Subordinated Notes Guarantor; or (3) legal defeasance or covenant defeasance, each as described in the Subordinated Notes Indenture, or if the obligations of AerCap Holdings N.V. under the Subordinated Notes Indenture are discharged.
The guarantee obligations of each Subordinated Notes Guarantor are limited (i) to an amount not to exceed the maximum amount that can be guaranteed by a Subordinated Notes Guarantor (after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of all other Subordinated Notes Guarantors in respect of the obligations under their respective guarantees) without rendering the guarantee, as it relates to such Subordinated Notes Guarantor, voidable under applicable fraudulent conveyance or transfer laws, and (ii) as necessary to recognize certain defenses generally available to guarantors, including voidable preference, financial assistance, corporate purpose, capital maintenance or similar laws, regulations or defenses affecting the rights of creditors generally or other considerations under applicable law. In addition, given that some of the Subordinated Notes Guarantors are Irish and Dutch companies, it may be more difficult for holders of the Junior Subordinated Notes to obtain or enforce judgments against such guarantors.
Because AerCap Holdings N.V. and certain Subordinated Notes Guarantors are holding companies with very limited operations, their only significant assets are the equity interests of their directly held subsidiaries. As a result, AerCap Holdings N.V. and certain Subordinated Notes Guarantors are dependent primarily upon dividends and other payments from their subsidiaries to generate the funds necessary to meet their outstanding debt service and other obligations, and such dividends or other payments will in turn depend on their subsidiaries’ earnings, covenants in instruments governing their subsidiaries’ indebtedness, other contractual restrictions and applicable laws (including local law restricting payments of dividends).
Summarized Combined Financial Information
Summarized financial information (the “SFI”), as defined under Rule 1-02(bb) of Regulation S-X, is provided below for the issuers and the guarantor entities and includes AerCap Holdings N.V., AerCap Trust, AICDC, AerCap U.S. Global Aviation LLC, AerCap Aviation Solutions B.V., AerCap Ireland and ILFC (collectively, the “Obligor Group”) as of December 31, 2020, and for the year ended December 31, 2020. The SFI is presented on a combined basis with intercompany transactions and balances among the entities included in the Obligor Group eliminated. The Obligor Group SFI excludes investments in non-obligor entities.
|
|
|
|
|
|
|
|
|
|
|
Summarized combined financial information of issuers and guarantors
|
|
|
|
|
December 31, 2020
|
|
|
|
|
(U.S. Dollars in millions)
|
Flight equipment held for operating leases, net
|
|
$
|
9,607
|
|
|
|
Intercompany receivables
|
|
15,155
|
|
|
|
Total assets
|
|
28,913
|
|
|
|
|
|
|
|
|
Debt
|
|
17,557
|
|
|
|
Intercompany payables
|
|
4,154
|
|
|
|
Total liabilities
|
|
24,661
|
|
|
|
Non-controlling interest
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31, 2020
|
|
|
(U.S. Dollars in millions)
|
Total revenues and other income (a)
|
|
$
|
2,323
|
|
Total expenses (b)
|
|
2,538
|
|
Income before income taxes and income of investments accounted for under the equity method
|
|
(215)
|
|
Net income
|
|
(180)
|
|
Net income attributable to AerCap Holdings N.V.
|
|
(182)
|
|
(a)Total revenues include interest income from non-obligor entities of $605 million.
(b)Total expenses include interest expense to non-obligor entities of $55 million.