UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2019
OR
|
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-35121
AIR LEASE CORPORATION
(Exact name of registrant as specified in its charter)
|
Delaware |
|
27-1840403 |
|
(State or other jurisdiction of
|
|
(I.R.S. Employer
|
|
2000 Avenue of the Stars, Suite 1000N
|
|
90067 |
|
(Address of principal executive offices) |
|
(Zip Code) |
Registrant’s telephone number, including area code: (310) 553-0555
Securities registered pursuant to Section 12(b) of the Act:
|
|
|
|
|
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
|
Class A Common Stock |
AL |
New York Stock Exchange |
|
6.150% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A |
AL PRA |
New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
|
|
|
|
|
Large accelerated filer ☒ |
|
Accelerated filer ☐ |
|
Non-accelerated filer ☐ |
|
Smaller reporting company ☐ |
|
Emerging growth company ☐ |
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
At November 6, 2019, there were 112,704,349 shares of Air Lease Corporation’s Class A common stock outstanding.
Air Lease Corporation and Subsidiaries
Form 10-Q
For the Quarterly Period Ended September 30, 2019
TABLE OF CONTENTS
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Page |
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3 |
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4 |
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Consolidated Balance Sheets—September 30, 2019 and December 31, 2018 (unaudited) |
4 |
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5 |
|
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6 |
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Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2019 and 2018 (unaudited) |
8 |
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9 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
19 |
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32 |
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33 |
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33 |
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34 |
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34 |
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34 |
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34 |
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34 |
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35 |
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37 |
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2
NOTE ABOUT FORWARD-LOOKING STATEMENTS
Statements in this quarterly report on Form 10-Q that are not historical facts may constitute “forward-looking statements,” including any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. These statements are only predictions and involve estimates, known and unknown risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed in such statements, including as a result of the following factors, among others:
| ● | our inability to obtain additional financing on favorable terms, if required, to complete the acquisition of sufficient aircraft as currently contemplated or to fund the operations and growth of our business; |
| ● | our inability to obtain refinancing prior to the time our debt matures; |
| ● | our inability to make acquisitions of, or lease, aircraft on favorable terms; |
| ● | our inability to sell aircraft on favorable terms or to predict the timing of such sales; |
| ● | impaired financial condition and liquidity of our lessees; |
| ● | changes in overall demand for commercial aircraft leasing and aircraft management services; |
| ● | deterioration of economic conditions in the commercial aviation industry generally; |
| ● | potential natural disasters and terrorist attacks and the amount of our insurance coverage, if any, relating thereto; |
| ● | increased maintenance, operating or other expenses or changes in the timing thereof; |
| ● | changes in the regulatory environment, including tariffs and other restrictions on trade; |
| ● | our inability to effectively oversee our managed fleet; |
| ● | the failure of any manufacturer to meet its contractual aircraft delivery obligations to us, including or as a result of technical or other difficulties with aircraft before or after delivery, resulting in our inability to deliver the aircraft to our lessees; and |
| ● | the factors discussed under “Part I — Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2018, “Part II — Item 1A. Risk Factors,” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 and other SEC filings, including future SEC filings. |
All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations. You are therefore cautioned not to place undue reliance on such statements. Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.
3
PART I—FINANCIAL INFORMATION
|
ITEM 1. |
FINANCIAL STATEMENTS |
Air Lease Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and par value amounts)
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019 |
|
December 31, 2018 |
||
|
|
|
(unaudited) |
||||
|
Assets |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
291,772 |
|
$ |
300,127 |
|
Restricted cash |
|
|
44,651 |
|
|
22,871 |
|
Flight equipment subject to operating leases |
|
|
21,601,147 |
|
|
17,985,324 |
|
Less accumulated depreciation |
|
|
(2,689,880) |
|
|
(2,278,214) |
|
|
|
|
18,911,267 |
|
|
15,707,110 |
|
Deposits on flight equipment purchases |
|
|
1,600,959 |
|
|
1,809,260 |
|
Other assets |
|
|
761,052 |
|
|
642,440 |
|
Total assets |
|
$ |
21,609,701 |
|
$ |
18,481,808 |
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
Accrued interest and other payables |
|
$ |
420,444 |
|
$ |
382,132 |
|
Debt financing, net of discounts and issuance costs |
|
|
13,751,872 |
|
|
11,538,905 |
|
Security deposits and maintenance reserves on flight equipment leases |
|
|
1,091,073 |
|
|
990,578 |
|
Rentals received in advance |
|
|
134,635 |
|
|
119,526 |
|
Deferred tax liability |
|
|
749,504 |
|
|
643,767 |
|
Total liabilities |
|
$ |
16,147,528 |
|
$ |
13,674,908 |
|
Shareholders’ Equity |
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 50,000,000 shares authorized; 10,000,000 shares of 6.150% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A (aggregate liquidation preference of $250,000) issued and outstanding at September 30, 2019 and no shares issued or outstanding at December 31, 2018 |
|
|
100 |
|
|
— |
|
Class A common stock, $0.01 par value; 500,000,000 shares authorized; 112,701,349 and 110,949,850 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively |
|
|
1,127 |
|
|
1,110 |
|
Class B non-voting common stock, $0.01 par value; authorized 10,000,000 shares; no shares issued or outstanding |
|
|
— |
|
|
— |
|
Paid-in capital |
|
|
2,758,928 |
|
|
2,474,238 |
|
Retained earnings |
|
|
2,702,018 |
|
|
2,331,552 |
|
Total shareholders’ equity |
|
$ |
5,462,173 |
|
$ |
4,806,900 |
|
Total liabilities and shareholders’ equity |
|
$ |
21,609,701 |
|
$ |
18,481,808 |
(See Notes to Consolidated Financial Statements)
4
Air Lease Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
||||
|
|
|
(unaudited) |
|
||||||||||
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental of flight equipment |
|
$ |
492,869 |
|
$ |
422,763 |
|
$ |
1,412,478 |
|
$ |
1,194,104 |
|
|
Aircraft sales, trading and other |
|
|
38,033 |
|
|
27,935 |
|
|
55,870 |
|
|
35,617 |
|
|
Total revenues |
|
|
530,902 |
|
|
450,698 |
|
|
1,468,348 |
|
|
1,229,721 |
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
104,637 |
|
|
82,189 |
|
|
290,681 |
|
|
224,584 |
|
|
Amortization of debt discounts and issuance costs |
|
|
9,078 |
|
|
8,199 |
|
|
26,330 |
|
|
24,231 |
|
|
Interest expense |
|
|
113,715 |
|
|
90,388 |
|
|
317,011 |
|
|
248,815 |
|
|
Depreciation of flight equipment |
|
|
183,788 |
|
|
149,703 |
|
|
514,948 |
|
|
428,437 |
|
|
Selling, general and administrative |
|
|
34,715 |
|
|
26,377 |
|
|
92,188 |
|
|
71,194 |
|
|
Stock-based compensation |
|
|
4,897 |
|
|
4,848 |
|
|
14,934 |
|
|
13,165 |
|
|
Total expenses |
|
|
337,115 |
|
|
271,316 |
|
|
939,081 |
|
|
761,611 |
|
|
Income before taxes |
|
|
193,787 |
|
|
179,382 |
|
|
529,267 |
|
|
468,110 |
|
|
Income tax expense |
|
|
(38,000) |
|
|
(32,808) |
|
|
(107,081) |
|
|
(95,674) |
|
|
Net income |
|
$ |
155,787 |
|
$ |
146,574 |
|
$ |
422,186 |
|
$ |
372,436 |
|
|
Preferred stock dividends |
|
|
(3,844) |
|
|
— |
|
|
(8,115) |
|
|
— |
|
|
Net income available to common stockholders |
|
$ |
151,943 |
|
$ |
146,574 |
|
$ |
414,071 |
|
$ |
372,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share of Class A and Class B common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.36 |
|
$ |
1.41 |
|
$ |
3.71 |
|
$ |
3.58 |
|
|
Diluted |
|
$ |
1.34 |
|
$ |
1.32 |
|
$ |
3.67 |
|
$ |
3.36 |
|
|
Weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
112,133,556 |
|
|
104,066,785 |
|
|
111,511,960 |
|
|
103,940,723 |
|
|
Diluted |
|
|
113,263,396 |
|
|
112,509,612 |
|
|
112,837,526 |
|
|
112,377,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share of Class A common stock |
|
$ |
0.13 |
|
$ |
0.10 |
|
$ |
0.39 |
|
$ |
0.30 |
|
(See Notes to Consolidated Financial Statements)
5
Air Lease Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B Non- |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
Class A |
|
Voting |
|
|
|
|
|
|
|
|
|
||||||
|
|
|
Preferred Stock |
|
Common Stock |
|
Common Stock |
|
Paid-in |
|
Retained |
|
|
|
|||||||||||
|
(unaudited) |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Earnings |
|
Total |
||||||
|
Balance at December 31, 2018 |
|
— |
|
$ |
— |
|
110,949,850 |
|
$ |
1,110 |
|
— |
|
$ |
— |
|
$ |
2,474,238 |
|
$ |
2,331,552 |
|
$ |
4,806,900 |
|
Issuance of common stock upon vesting of restricted stock units and upon exercise of options |
|
— |
|
|
— |
|
263,218 |
|
|
2 |
|
— |
|
|
— |
|
|
439 |
|
|
— |
|
|
441 |
|
Issuance of preferred stock |
|
10,000,000 |
|
|
100 |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
242,141 |
|
|
— |
|
|
242,241 |
|
Stock-based compensation |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
4,174 |
|
|
— |
|
|
4,174 |
|
Cash dividends (declared $0.13 per share of Class A common stock) |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(14,445) |
|
|
(14,445) |
|
Tax withholding related to vesting of restricted stock units and exercise of stock options |
|
— |
|
|
— |
|
(94,899) |
|
|
(1) |
|
— |
|
|
— |
|
|
(3,587) |
|
|
— |
|
|
(3,588) |
|
Net income |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
138,094 |
|
|
138,094 |
|
Balance at March 31, 2019 |
|
10,000,000 |
|
$ |
100 |
|
111,118,169 |
|
$ |
1,111 |
|
— |
|
$ |
— |
|
$ |
2,717,405 |
|
$ |
2,455,201 |
|
$ |
5,173,817 |
|
Issuance of common stock upon vesting of restricted stock units and upon exercise of options |
|
— |
|
|
— |
|
547,957 |
|
|
6 |
|
— |
|
|
— |
|
|
10,791 |
|
|
— |
|
|
10,797 |
|
Issuance of preferred stock |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
(111) |
|
|
— |
|
|
(111) |
|
Dividends declared on preferred stock |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(4,271) |
|
|
(4,271) |
|
Stock-based compensation |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
5,863 |
|
|
— |
|
|
5,863 |
|
Cash dividends (declared $0.13 per share of Class A common stock) |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(14,516) |
|
|
(14,516) |
|
Net income |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
128,305 |
|
|
128,305 |
|
Balance at June 30, 2019 |
|
10,000,000 |
|
$ |
100 |
|
111,666,126 |
|
$ |
1,117 |
|
— |
|
$ |
— |
|
$ |
2,733,948 |
|
$ |
2,564,719 |
|
$ |
5,299,884 |
|
Issuance of common stock upon vesting of restricted stock units and upon exercise of options |
|
— |
|
|
— |
|
1,047,695 |
|
|
11 |
|
— |
|
|
— |
|
|
20,584 |
|
|
— |
|
|
20,595 |
|
Dividends declared on preferred stock |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(3,844) |
|
|
(3,844) |
|
Stock-based compensation |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
4,897 |
|
|
— |
|
|
4,897 |
|
Cash dividends (declared $0.13 per share of Class A common stock) |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(14,644) |
|
|
(14,644) |
|
Tax withholding related to vesting of restricted stock units and exercise of stock options |
|
— |
|
|
— |
|
(12,472) |
|
|
(1) |
|
— |
|
|
— |
|
|
(501) |
|
|
— |
|
|
(502) |
|
Net income |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
155,787 |
|
|
155,787 |
|
Balance at September 30, 2019 |
|
10,000,000 |
|
$ |
100 |
|
112,701,349 |
|
$ |
1,127 |
|
— |
|
$ |
— |
|
$ |
2,758,928 |
|
$ |
2,702,018 |
|
$ |
5,462,173 |
(See Notes to Consolidated Financial Statements)
6
Air Lease Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B Non- |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
Class A |
|
Voting |
|
|
|
|
|
|
|
|
|
||||||
|
|
|
Preferred Stock |
|
Common Stock |
|
Common Stock |
|
Paid-in |
|
Retained |
|
|
|
|||||||||||
|
(unaudited) |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Earnings |
|
Total |
||||||
|
Balance at December 31, 2017 |
|
— |
|
$ |
— |
|
103,621,629 |
|
$ |
1,036 |
|
— |
|
$ |
— |
|
$ |
2,260,064 |
|
$ |
1,866,342 |
|
$ |
4,127,442 |
|
Issuance of common stock upon vesting of restricted stock units and upon exercise of options and convertible debt conversion |
|
— |
|
|
— |
|
514,773 |
|
|
4 |
|
— |
|
|
— |
|
|
2,632 |
|
|
— |
|
|
2,636 |
|
Stock-based compensation |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
3,432 |
|
|
— |
|
|
3,432 |
|
Cash dividends (declared $0.10 per share of Class A common stock) |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(10,397) |
|
|
(10,397) |
|
Tax withholding related to vesting of restricted stock units and exercise of stock options |
|
— |
|
|
— |
|
(156,568) |
|
|
— |
|
— |
|
|
— |
|
|
(7,141) |
|
|
— |
|
|
(7,141) |
|
Net income |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
110,651 |
|
|
110,651 |
|
Balance at March 31, 2018 |
|
— |
|
$ |
— |
|
103,979,834 |
|
$ |
1,040 |
|
— |
|
$ |
— |
|
$ |
2,258,987 |
|
$ |
1,966,596 |
|
$ |
4,226,623 |
|
Issuance of common stock upon vesting of restricted stock units and upon exercise of options and convertible debt conversion |
|
— |
|
|
— |
|
85,211 |
|
|
1 |
|
— |
|
|
— |
|
|
1,521 |
|
|
— |
|
|
1,522 |
|
Stock-based compensation |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
4,885 |
|
|
— |
|
|
4,885 |
|
Cash dividends (declared $0.10 per share of Class A common stock) |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(10,399) |
|
|
(10,399) |
|
Net income |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
115,211 |
|
|
115,211 |
|
Balance at June 30, 2018 |
|
— |
|
$ |
— |
|
104,065,045 |
|
$ |
1,041 |
|
— |
|
$ |
— |
|
$ |
2,265,393 |
|
$ |
2,071,408 |
|
$ |
4,337,842 |
|
Issuance of common stock upon vesting of restricted stock units and upon exercise of options and convertible debt conversion |
|
— |
|
|
— |
|
3,034 |
|
|
— |
|
— |
|
|
— |
|
|
61 |
|
|
— |
|
|
61 |
|
Stock-based compensation |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
4,848 |
|
|
— |
|
|
4,848 |
|
Cash dividends (declared $0.10 per share of Class A common stock) |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(10,407) |
|
|
(10,407) |
|
Net income |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
146,574 |
|
|
146,574 |
|
Balance at September 30, 2018 |
|
— |
|
$ |
— |
|
104,068,079 |
|
$ |
1,041 |
|
— |
|
$ |
— |
|
$ |
2,270,302 |
|
$ |
2,207,575 |
|
$ |
4,478,918 |
(See Notes to Consolidated Financial Statements)
7
Air Lease Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
||||
|
|
|
September 30, |
||||
|
|
|
2019 |
|
2018 |
||
|
|
|
(unaudited) |
||||
|
Operating Activities |
|
|
|
|
|
|
|
Net income |
|
$ |
422,186 |
|
$ |
372,436 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation of flight equipment |
|
|
514,948 |
|
|
428,437 |
|
Stock-based compensation |
|
|
14,934 |
|
|
13,165 |
|
Deferred taxes |
|
|
97,566 |
|
|
95,674 |
|
Amortization of debt discounts and issuance costs |
|
|
26,330 |
|
|
24,231 |
|
Amortization of prepaid lease costs |
|
|
24,190 |
|
|
18,713 |
|
Gain on aircraft sales, trading and other activity |
|
|
(45,123) |
|
|
(24,469) |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
Other assets |
|
|
(149,740) |
|
|
(62,528) |
|
Accrued interest and other payables |
|
|
51,156 |
|
|
110 |
|
Rentals received in advance |
|
|
15,109 |
|
|
4,335 |
|
Net cash provided by operating activities |
|
|
971,556 |
|
|
870,104 |
|
Investing Activities |
|
|
|
|
|
|
|
Acquisition of flight equipment under operating lease |
|
|
(3,021,758) |
|
|
(1,874,094) |
|
Payments for deposits on flight equipment purchases |
|
|
(727,982) |
|
|
(548,225) |
|
Proceeds from aircraft sales, trading and other activity |
|
|
426,382 |
|
|
239,067 |
|
Acquisition of aircraft furnishings, equipment and other assets |
|
|
(236,847) |
|
|
(204,449) |
|
Net cash used in investing activities |
|
|
(3,560,205) |
|
|
(2,387,701) |
|
Financing Activities |
|
|
|
|
|
|
|
Issuance of common stock upon exercise of options |
|
|
31,823 |
|
|
4,188 |
|
Cash dividends paid on Class A common stock |
|
|
(43,383) |
|
|
(31,155) |
|
Preferred dividends paid |
|
|
(8,115) |
|
|
— |
|
Tax withholdings on stock-based compensation |
|
|
(4,089) |
|
|
(7,141) |
|
Net change in unsecured revolving facility |
|
|
8,000 |
|
|
(847,000) |
|
Proceeds from debt financings |
|
|
3,135,918 |
|
|
3,358,885 |
|
Payments in reduction of debt financings |
|
|
(947,837) |
|
|
(1,131,206) |
|
Net proceeds from preferred stock issuance |
|
|
242,139 |
|
|
— |
|
Debt issuance costs |
|
|
(9,443) |
|
|
(9,327) |
|
Security deposits and maintenance reserve receipts |
|
|
230,966 |
|
|
173,754 |
|
Security deposits and maintenance reserve disbursements |
|
|
(33,905) |
|
|
(52,764) |
|
Net cash provided by financing activities |
|
|
2,602,074 |
|
|
1,458,234 |
|
Net increase/(decrease) in cash |
|
|
13,425 |
|
|
(59,363) |
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
322,998 |
|
|
308,282 |
|
Cash, cash equivalents and restricted cash at end of period |
|
$ |
336,423 |
|
$ |
248,919 |
|
Supplemental Disclosure of Cash Flow Information |
|
|
|
|
|
|
|
Cash paid during the period for interest, including capitalized interest of $46,314 and $38,947 at September 30, 2019 and 2018, respectively |
|
$ |
358,237 |
|
$ |
278,297 |
|
Cash paid for income taxes |
|
$ |
9,515 |
|
$ |
2,506 |
|
Supplemental Disclosure of Noncash Activities |
|
|
|
|
|
|
|
Buyer furnished equipment, capitalized interest and deposits on flight equipment purchases applied to acquisition of flight equipment |
|
$ |
1,161,573 |
|
$ |
663,223 |
|
Cash dividends declared on Class A common stock, not yet paid |
|
$ |
14,644 |
|
$ |
10,407 |
(See Notes to Consolidated Financial Statements)
8
Air Lease Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Company Background and Overview
Air Lease Corporation (the “Company”, “ALC”, “we”, “our” or “us”) is a leading aircraft leasing company that was founded by aircraft leasing industry pioneer, Steven F. Udvar-Házy. We are principally engaged in purchasing new commercial jet transport aircraft directly from aircraft manufacturers, such as The Boeing Company (“Boeing”) and Airbus S.A.S. (“Airbus”), and leasing those aircraft to airlines throughout the world with the intention to generate attractive returns on equity. In addition to our leasing activities, we sell aircraft from our operating lease portfolio to third parties, including other leasing companies, financial services companies, airlines and through our asset-backed securities platform. We also provide fleet management services to investors and owners of aircraft portfolios for a management fee. As of September 30, 2019, we owned a fleet of 307 aircraft, managed 64 aircraft and had 316 aircraft on order with aircraft manufacturers.
Note 2. Basis of Preparation and Critical Accounting Policies
The Company consolidates financial statements of all entities in which we have a controlling financial interest, including the accounts of any Variable Interest Entity in which we have a controlling financial interest and for which we are the primary beneficiary. All material intercompany balances are eliminated in consolidation. The accompanying Consolidated Financial Statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.
The accompanying unaudited Consolidated Financial Statements include all adjustments, consisting only of normal, recurring adjustments, which are in the opinion of management necessary to present fairly the Company’s financial position, results of operations and cash flows at September 30, 2019, and for all periods presented. The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the operating results expected for the year ending December 31, 2019. These financial statements should be read in conjunction with the Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2018.
Recently adopted accounting standards
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02 (“ASU 2016-02”), “Leases (Topic 842).” The amendments in ASU 2016-02 set out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. Subsequently, the FASB issued additional ASUs that further clarified ASU 2016-02. The Company adopted the amendments to Accounting Standards Codification (“ASC”) 842 on January 1, 2019 using the Effective Date Method. As a result, the Company continues to disclose comparative reporting periods under the previous accounting guidance, ASC 840. Based on our evaluation of the guidance, the Company noted that lessor accounting is similar to the current model, but the guidance impacted us in scenarios where we are the lessee.
For scenarios where we are the lessee, the Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use (“ROU”) lease assets under Other assets, and long-term lease obligations under Accrued interest & other payables on the Company’s Consolidated Balance Sheets. ROU lease assets represent the Company’s right to use an underlying asset for the lease term and lease obligations represent the Company’s obligation to make lease payments arising from the lease. Operating ROU lease assets and obligations are recognized at the commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company elected to exclude recognition of leases with a term of 12 months or less (short-term leases) from the Consolidated Balance Sheets.
9
As of January 1, 2019, the Company recognized operating ROU lease assets and obligations in the amounts of $44.6 million and $51.2 million, respectively, on its Consolidated Balance Sheets. The adoption of this standard did not have a material impact on the Company’s Consolidated Financial Statements.
Note 3.Recently Issued Accounting Standards
In July 2019, the FASB issued ASU No. 2019-07 ("ASU 2019-07"), Codification Updates to SEC Sections. This ASU amends various Securities and Exchange Commission ("SEC") paragraphs pursuant to the issuance of SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification. One of the changes in the ASU requires a presentation of changes in stockholders' equity in the form of a reconciliation, either as a separate financial statement or in the notes to the financial statements, for the current and comparative year-to-date interim periods. The Company presented changes in stockholders' equity as separate financial statements for the current and comparative year-to-date interim periods beginning on January 1, 2019. The additional elements of the ASU did not have a material impact on the Company's Consolidated Financial Statements. This guidance was effective immediately upon issuance.
Note 4. Debt Financing
The Company’s debt financing was comprised of the following at September 30, 2019 and December 31, 2018 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
||
|
|
|
2019 |
|
2018 |
||
|
Unsecured |
|
|
|
|
|
|
|
Senior notes |
|
$ |
12,050,000 |
|
$ |
10,043,445 |
|
Term financings |
|
|
813,150 |
|
|
607,340 |
|
Revolving credit facilities |
|
|
610,000 |
|
|
602,000 |
|
Total unsecured debt financing |
|
|
13,473,150 |
|
|
11,252,785 |
|
Secured |
|
|
|
|
|
|
|
Term financings |
|
|
392,593 |
|
|
371,203 |
|
Export credit financing |
|
|
33,274 |
|
|
38,265 |
|
Total secured debt financing |
|
|
425,867 |
|
|
409,468 |
|
|
|
|
|
|
|
|
|
Total debt financing |
|
|
13,899,017 |
|
|
11,662,253 |
|
Less: Debt discounts and issuance costs |
|
|
(147,145) |
|
|
(123,348) |
|
Debt financing, net of discounts and issuance costs |
|
$ |
13,751,872 |
|
$ |
11,538,905 |
The Company’s secured obligations as of September 30, 2019 and December 31, 2018 are summarized below (dollars in thousands):
Senior unsecured notes (including Medium-Term Note Program)
As of September 30, 2019, the Company had $12.1 billion in senior unsecured notes outstanding. As of December 31, 2018, the Company had $10.0 billion in senior unsecured notes outstanding.
During the nine months ended September 30, 2019, the Company issued $2.85 billion in aggregate principal amount of Medium-Term Notes comprised of (i) $700.0 million due 2024 at a fixed rate of 4.25%, (ii) $750.0 million due 2026 at a fixed rate of 3.75%, (iii) $300.0 million due 2021 that bear interest at a floating rate of three-month LIBOR plus 0.67%, (iv) $600.0 million due 2023 at a fixed rate of 2.25% and (v) $500.0 million due 2029 at a fixed rate of 3.25%.
10
Unsecured revolving credit facilities
As of September 30, 2019, the total outstanding balance on the Company's unsecured revolving credit facilities was approximately $610.0 million. The total outstanding balance under the Company's unsecured revolving credit facilities was approximately $602.0 million as of December 31, 2018.
In May 2019, the Company amended and extended its committed unsecured revolving credit facility whereby, among other things, the Company extended the final maturity date from May 5, 2022 to May 5, 2023 and, after giving effect to commitments that matured on May 5, 2019, increased the total revolving commitments to approximately $5.8 billion, representing an increase of 26.6% from December 31, 2018, with a 0.20% facility fee and current borrowings bearing interest at a floating rate of LIBOR plus 1.05%. On July 31, 2019, the Company executed a commitment increase to its unsecured revolving credit facility, which increased the aggregate facility capacity by an additional $58.0 million. Lenders hold revolving commitments totaling approximately $5.5 billion that mature on May 5, 2023, commitments totaling $245.0 million that mature on May 5, 2022, commitments totaling approximately $5.0 million that mature on May 5, 2021, and commitments totaling $92.7 million that mature on May 5, 2020.
Maturities
Maturities of debt outstanding as of September 30, 2019 are as follows (in thousands):
|
|
|
|
|
|
Years ending December 31, |
|
|
|
|
2019 |
|
$ |
31,189 |
|
2020 |
|
|
1,456,585 |
|
2021 |
|
|
1,993,870 |
|
2022 |
|
|
2,696,599 |
|
2023 |
|
|
2,966,461 |
|
Thereafter |
|
|
4,754,313 |
|
Total |
|
$ |
13,899,017 |
Note 5. Commitments and Contingencies
As of September 30, 2019, as adjusted for the conversion referenced in footnote 2 in the table below, the Company had commitments to acquire a total of 316 new aircraft for delivery through 2024 as follows:
| (1) | Our Airbus A320/321neo aircraft orders include 56 long-range variants. |
| (2) | The table above reflects the conversion of purchase orders for 15 Boeing 737 MAX aircraft to five Boeing 787-9 aircraft pursuant to an October 2019 agreement with Boeing. The table also reflects our estimate of future Boeing 737 MAX aircraft delivery delays based on information currently available to us. The actual delivery dates of such Boeing 737 MAX aircraft may differ from our estimate and could be further impacted by the length of the grounding and the pace at which Boeing can deliver aircraft following the lifting of the grounding, among other factors. |
| (3) | In addition to the aircraft from our order book, we have a commitment to purchase one used Airbus A330-300 aircraft from a third party, which is scheduled for delivery in 2019. |
| (4) | Excluded from the table above are memorandums of understanding (“MOU”) with Airbus, signed in June 2019, to launch the A321 XLR aircraft and to order the A220 aircraft. Through these MOUs, we have the right to purchase 100 aircraft comprised of 27 A321 XLR aircraft, 23 A321neo aircraft and 50 A220 aircraft, and we have purchase options for an additional 25 A220 aircraft. |
Pursuant to our purchase agreements with Boeing and Airbus for new aircraft, the Company and each manufacturer agrees to contractual delivery dates for each aircraft ordered. However, these dates can change for a variety of reasons.
11
In the last few years, Airbus and Boeing have had delivery delays, and these delays have significantly impacted when our aircraft have been delivered.
Our leases typically provide that the Company and our airline customers each have a cancellation right related to aircraft delivery delays. The lease cancellation rights typically parallel our cancellation rights in our purchase agreements with Boeing and Airbus, and typically provide for cancellation rights starting at one year after the original contractual delivery date, regardless of cause.
For several years, we have experienced delivery delays for certain of our Airbus orderbook aircraft, primarily the A321neo aircraft and, to a lesser extent, A330neo aircraft. Airbus has told us to continue to expect several months of delivery delays relating to such aircraft scheduled to deliver through 2021.
The worldwide grounding of the Boeing 737 MAX began on March 10, 2019, and remains in effect. As a result, Boeing has halted deliveries of all Boeing 737 MAX aircraft. Lifting of the grounding is subject to global regulatory authorities and we are unable to speculate as to when this may occur. Boeing 737 MAX deliveries may be impacted by the duration of the grounding and the speed by which Boeing can deliver aircraft following the lifting of the grounding. We expect that if the grounding continues for an extended time, or if there are significant Boeing 737 MAX delivery delays even after the grounding is lifted, some of our customers may seek to cancel their lease contracts with us. It is unclear at this point if we will cancel some of our Boeing 737 MAX delivery positions with Boeing or find replacement lessees. We are currently in discussions with Boeing regarding the mitigation of possible damages resulting from the grounding of and the delivery delays associated with the Boeing 737 MAX aircraft that we own and have on order.
Commitments for the acquisition of aircraft and other equipment, calculated at an estimated aggregate purchase price (including adjustments for inflation) was approximately $22.5 billion at September 30, 2019, as adjusted for the conversion referenced in footnote 2 in the table above, and are due as follows (in thousands):
|
|
|
|
|
|
Years ending December 31, |
|
|
|
|
2019 |
|
$ |
771,134 |
|
2020 |
|
|
6,419,215 |
|
2021 |
|
|
6,647,270 |
|
2022 |
|
|
4,750,559 |
|
2023 |
|
|
3,678,420 |
|
Thereafter |
|
|
225,142 |
|
Total |
|
$ |
22,491,740 |
In addition to the Company's commitments, as of September 30, 2019, the Company had options to acquire up to five Airbus A350-1000 aircraft and 45 Boeing 737-8 MAX aircraft. If exercised, deliveries of these aircraft are scheduled to commence in 2023 and continue through 2024.
We have made non-refundable deposits on the aircraft for which we have commitments to purchase of $1.6 billion and $1.8 billion as of September 30, 2019 and December 31, 2018, respectively, which are subject to manufacturer performance commitments. If we are unable to satisfy our purchase commitments, we may be forced to forfeit our deposits. Further, we would be exposed to breach of contract claims by our lessees and manufacturers.
12
Note 6. Rental Income
At September 30, 2019, minimum future rentals on non-cancellable operating leases of flight equipment in our fleet, which have been delivered as of September 30, 2019, are as follows (in thousands):
Note 7. Earnings Per Share
Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Preferred stock dividends are subtracted from net income in determining net income available to common stockholders. Diluted earnings per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock; however, potential common equivalent shares are excluded if the effect of including these shares would be anti-dilutive. The Company’s two classes of common stock, Class A and Class B Non-Voting, have equal rights to dividends and income, and therefore, basic and diluted earnings per share are the same for each class of common stock. As of September 30, 2019, we did not have any Class B Non-Voting common stock outstanding.
Diluted earnings per share takes into account the potential conversion of stock options, restricted stock units, and warrants using the treasury stock method and convertible notes using the if-converted method. For the three and nine months ended September 30, 2019, the Company did not exclude any potentially dilutive securities, whose effect would have been anti-dilutive, from the computation of diluted earnings per share. The Company excluded 946,406 and 950,761 shares related to restricted stock units for which the performance metric had yet to be achieved as of September 30, 2019 and 2018, respectively.
13
The following table sets forth the reconciliation of basic and diluted earnings per share (in thousands, except share and per share amounts):
14
Note 8. Fair Value Measurements
Assets and liabilities measured at fair value on a recurring and non-recurring basis
The Company had no assets or liabilities which are measured at fair value on a recurring or non-recurring basis as of September 30, 2019 or December 31, 2018.
Financial instruments not measured at fair value
The fair value of debt financing is estimated based on the quoted market prices for the same or similar issues, or on the current rates offered to the Company for debt of the same remaining maturities, which would be categorized as a Level 2 measurement in the fair value hierarchy. The estimated fair value of debt financing as of September 30, 2019 was approximately $14.2 billion compared to a book value of $13.9 billion. The estimated fair value of debt financing as of December 31, 2018 was $11.4 billion compared to a book value of $11.7 billion.
The following financial instruments are not measured at fair value on the Company’s Consolidated Balance Sheets at September 30, 2019, but require disclosure of their fair values: cash and cash equivalents and restricted cash. The estimated fair value of such instruments at September 30, 2019 and December 31, 2018 approximates their carrying value as reported on the Consolidated Balance Sheets. The fair value of all these instruments would be categorized as Level 1 in the fair value hierarchy.
Note 9. Shareholders’ Equity
The Company was authorized to issue 500,000,000 shares of Class A common stock, $0.01 par value, at September 30, 2019 and December 31, 2018. As of September 30, 2019 and December 31, 2018, the Company had 112,701,349 and 110,949,850 Class A common shares issued and outstanding, respectively. The Company did not have any shares of Class B non-voting common stock, $0.01 par value, issued or outstanding as of September 30, 2019 and December 31, 2018.
The Company was authorized to issue 50,000,000 shares of preferred stock, $0.01 par value, at September 30, 2019 and December 31, 2018. As of September 30, 2019, the Company had 10,000,000 shares of preferred stock issued and outstanding with an aggregate liquidation preference of $250.0 million. The Company did not have any shares of preferred stock issued or outstanding as of December 31, 2018.
On March 5, 2019, the Company issued 10,000,000 shares of 6.150% Fixed-to-Floating Non-Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”), $0.01 par value, with a liquidation preference of $25.00 per share. The Company will pay dividends on the preferred stock only when, as and if declared by the board of directors. Dividends will accrue, on a non-cumulative basis, on the stated amount of $25.00 per share at a rate per annum equal to: (i) 6.150% during the first five years and payable quarterly in arrears beginning on June 15, 2019, and (ii) three-month LIBOR plus a spread of 3.650% per annum from March 15, 2024, reset quarterly and payable quarterly in arrears beginning on June 15, 2024.
The Company may redeem shares of the Series A Preferred Stock at its option, in whole or in part, from time to time, on or after March 15, 2024, for cash at a redemption price equal to $25.00 per share, plus any declared and unpaid dividends to, but excluding, the redemption date, without accumulation of any undeclared dividends. The Company may also redeem shares of the Series A Preferred Stock at the Company’s option under certain other limited conditions.
15
Note 10. Stock-based Compensation
On May 7, 2014, the stockholders of the Company approved the Air Lease Corporation 2014 Equity Incentive Plan (the “2014 Plan”). Upon approval of the 2014 Plan, no new awards may be granted under the Amended and Restated 2010 Equity Incentive Plan (the “2010 Plan”). As of September 30, 2019, the number of stock options (“Stock Options”) and restricted stock units (“RSUs”) remaining under the 2014 Plan was approximately 5,282,848, which includes 282,848 shares which were previously reserved for issuance under the 2010 Plan. Stock Options are generally granted for a term of 10 years and generally vest ratably over a three-year period. The Company has issued RSUs with four different vesting criteria: those RSUs that vest based on the attainment of book value goals, those RSUs that vest based on the attainment of Total Shareholder Return (“TSR”) goals, time based RSUs that vest ratably over a time period of three years and RSUs that cliff-vest at the end of a one- or two-year period. The Company has two types of book value RSUs; those that vest ratably over a three-year period if the performance condition has been met, and those that cliff-vest at the end of a three-year period if the performance condition has been met. For the book value RSUs that cliff-vest at the end of a three-year period, the number of shares that will ultimately vest will range from 0% to 200% of the RSUs initially granted depending on the percentage change in the Company’s book value per share at the end of the vesting period. At each reporting period, the Company reassesses the probability of the performance condition being achieved and a stock-based compensation expense is recognized based upon management’s assessment. Book value RSUs for which the performance metric has not been met are forfeited. The TSR RSUs cliff-vest at the end of a three-year period. The number of TSR RSUs that will ultimately vest is based upon the percentile ranking of the Company’s TSR among a peer group. The number of shares that will ultimately vest will range from 0% to 200% of the RSUs initially granted depending on the extent to which the TSR metric is achieved.
The Company recorded $4.9 million and $4.8 million of stock-based compensation expense related to RSUs for the three months ended September 30, 2019 and 2018, respectively. The Company recorded $14.9 million and $13.2 million of stock-based compensation expense related to RSUs for the nine months ended September 30, 2019 and 2018, respectively.
Stock Options
A summary of stock option activity for the nine months ended September 30, 2019 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
Aggregate |
|
|
|
|
|
|
Exercise |
|
Contractual Term |
|
Intrinsic Value |
||
|
|
|
Shares |
|
Price |
|
(in years) |
|
(in thousands)(1) |
||
|
Balance at December 31, 2018 |
|
2,620,295 |
|
$ |
20.40 |
|
1.49 |
|
$ |
25,697 |
|
Granted |
|
— |
|
$ |
— |
|
— |
|
$ |
— |
|
Exercised |
|
(1,603,139) |
|
$ |
20.00 |
|
— |
|
$ |
29,909 |
|
Forfeited/canceled |
|
— |
|
$ |
— |
|
— |
|
$ |
— |
|
Balance at September 30, 2019 |
|
1,017,156 |
|
$ |
21.04 |
|
0.80 |
|
$ |
21,138 |
|
Vested and exercisable as of September 30, 2019 |
|
1,017,156 |
|
$ |
21.04 |
|
0.80 |
|
$ |
21,138 |
| (1) | The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of our Class A common stock as of the respective date. |
As of September 30, 2019, all of the Company’s outstanding employee stock options had fully vested and there were no unrecognized compensation costs related to outstanding stock options as of September 30, 2019. As a result, there was no stock-based compensation expense related to Stock Options for the three and nine months ended September 30, 2019 and 2018.
16
The following table summarizes additional information regarding exercisable and vested stock options at September 30, 2019:
Restricted Stock Units
Compensation cost for stock awards is measured at the grant date based on fair value and recognized over the vesting period. The fair value of time based and book value RSUs is determined based on the closing market price of the Company’s Class A common stock on the date of grant, while the fair value of TSR RSUs is determined at the grant date using a Monte Carlo simulation model. Included in the Monte Carlo simulation model were certain assumptions regarding a number of highly complex and subjective variables, such as expected volatility, risk-free interest rate and expected dividends. To appropriately value the award, the risk-free interest rate is estimated for the time period from the valuation date until the vesting date and the historical volatilities were estimated based on a historical timeframe equal to the time from the valuation date until the end date of the performance period.
During the nine months ended September 30, 2019, the Company granted 670,279 RSUs of which 139,895 are TSR RSUs. The following table summarizes the activities for our unvested RSUs for the nine months ended September 30, 2019:
As of September 30, 2019, there was $29.2 million of unrecognized compensation cost related to unvested stock-based payments granted to employees. Total unrecognized compensation cost will be recognized over a weighted-average remaining period of 1.86 years.
Note 11. Investments
The Company entered into an agreement with a co-investment vehicle arranged by Napier Park Global Capital (US) LP to participate in two joint ventures and formed Blackbird Capital I, LLC and Blackbird Capital II, LLC for the purpose of investing in commercial aircraft and leasing them to airlines throughout the world. We also provide management services to these joint ventures for a fee based upon aircraft assets under management. The Company’s non-controlling interests in each joint venture is 9.5% and are accounted for as investments under the equity method of accounting. The Company’s investment in these joint ventures was $45.9 million and $40.6 million as of September 30, 2019 and December 31, 2018, respectively, and is recorded in Other assets on the Consolidated Balance Sheets. As of September 30, 2019, the Company’s total unfunded commitment to Blackbird Capital II, LLC was $30.5 million.
17
On August 1, 2018, we entered into an agreement to sell 18 aircraft to Thunderbolt Aircraft Lease Limited II (“Thunderbolt II”), an asset-backed securities platform that will facilitate the continued management and eventual sale of the aircraft assets. The Company’s non-controlling interest in Thunderbolt II is 5.1% and it is accounted for as an investment under the cost method of accounting. The Company manages all of the aircraft in Thunderbolt II’s portfolio. During the nine months ended September 30, 2019, we completed the sale of three aircraft from our operating lease portfolio to Thunderbolt II. We expect the sale of the remaining three aircraft to be completed in 2019. The Company’s investment in Thunderbolt II was $5.4 million as of September 30, 2019 and December 31, 2018, and is recorded in Other assets on the Consolidated Balance Sheets.
Note 12. Flight Equipment Held for Sale
As of September 30, 2019, we had six aircraft, with a carrying value of $208.5 million, which were held for sale and included in Flight equipment subject to operating leases on the Consolidated Balance Sheets. We expect the sale of all six aircraft to be completed in 2019. We cease recognition of depreciation expense once an aircraft is classified as held for sale. As of December 31, 2018, we had six aircraft classified as held for sale, with a carrying value of $241.6 million.
Note 13. Subsequent Events
On October 31, 2019, we initiated a portfolio sale of 19 aircraft to Thunderbolt Aircraft Lease Limited III (“Thunderbolt III”), an asset-backed securities platform. We anticipate closing the transaction on November 8, 2019 and will continue management of these aircraft assets. The Company’s non-controlling interest in Thunderbolt III will be approximately 5.0% and will be accounted for as an investment under the cost method of accounting. We expect a majority of the aircraft transfers to be completed over the next two quarters.
On November 6, 2019, our board of directors approved a quarterly cash dividend of $0.15 per share on our outstanding Class A common stock. The dividend will be paid on January 6, 2020 to holders of record of our Class A common stock as of December 20, 2019. Our board of directors also approved a cash dividend of $0.384375 per share on our outstanding Series A Preferred Stock, which will be paid on December 15, 2019 to holders of record of our Series A Preferred Stock as of November 30, 2019.
18
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with our Consolidated Financial Statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Overview
Air Lease Corporation is a leading aircraft leasing company that was founded by aircraft leasing industry pioneer, Steven F. Udvar-Házy. We are principally engaged in purchasing new commercial jet transport aircraft directly from aircraft manufacturers, such as Boeing and Airbus, and leasing those aircraft to airlines throughout the world with the intention to generate attractive returns on equity. In addition to our leasing activities, we sell aircraft from our operating lease portfolio to third-parties, including other leasing companies, financial services companies, airlines and through our asset-backed securities platform. We also provide fleet management services to investors and owners of aircraft portfolios for a management fee. Our operating performance is driven by the growth of our owned fleet, the terms of our leases, the interest rates on our debt, and the aggregate amount of our indebtedness, supplemented by the gains from our aircraft sales, trading and other activities and our management fees.
During the nine months ended September 30, 2019, we purchased and took delivery of 42 aircraft from our new order pipeline, purchased one aircraft in the secondary market and sold 11 aircraft, ending the period with a total of 307 aircraft with a net book value of $18.9 billion. The weighted average lease term remaining on our operating lease portfolio was 7.2 years and the weighted average age of our owned fleet was 3.6 years as of September 30, 2019. Our fleet grew by 20.4% based on net book value of $18.9 billion as of September 30, 2019, compared to $15.7 billion as of December 31, 2018. In addition, we had a managed fleet of 64 aircraft as of September 30, 2019, compared to a managed fleet of 61 aircraft as of December 31, 2018. We have a globally diversified customer base comprised of 108 airlines in 59 countries. As of November 7, 2019, all aircraft in our operating lease portfolio, except for one aircraft, were subject to letters of intent or lease agreements.
In June 2019, we entered into memorandums of understanding (“MOU”) with Airbus to launch the A321 XLR aircraft and to order the A220 aircraft. Through these MOUs, we have the right to purchase 100 aircraft comprised of 27 A321 XLR aircraft, 23 A321neo aircraft and 50 A220 aircraft, and we have purchase options for an additional 25 A220 aircraft.
As of September 30, 2019, we had commitments to purchase 316 aircraft from Airbus and Boeing for delivery through 2024, with an estimated aggregate commitment of $22.5 billion. Our purchase commitments include supplemental agreements entered into with Boeing in October 2019 to convert existing purchase orders of 15 737 MAX aircraft to five 787-9 aircraft. We ended the third quarter of 2019 with $28.7 billion in committed minimum future rental payments and had placed approximately 83% of our committed order book on long-term leases for aircraft delivering through 2021. This includes $14.1 billion in contracted minimum rental payments on the aircraft in our existing fleet and $14.6 billion in minimum future rental payments related to aircraft which will be delivered during the remainder of 2019 through 2023.
On October 31, 2019, we initiated a portfolio sale of 19 aircraft to Thunderbolt Aircraft Lease Limited III (“Thunderbolt III”), an asset-backed securities platform. We anticipate closing the transaction on November 8, 2019 and will continue management of these aircraft assets. The Company’s non-controlling interest in Thunderbolt III will be approximately 5.0% and will be accounted for as an investment under the cost method of accounting. We expect a majority of the aircraft transfers to be completed over the next two quarters.
In 2019, we raised approximately $4.5 billion in debt to finance the growth of our fleet and refinance existing debt maturities, increasing our liquidity position to $5.6 billion. During the first nine months of 2019, we have issued $2.85 billion in Medium-Term Notes, with maturities ranging between 2021 and 2029 and that bear interest at fixed rates between 2.25% and 4.25%, and floating rate notes that bear interest at three-month LIBOR plus 0.67%. In May 2019, we amended and extended our unsecured revolving credit facility and increased our unsecured revolving credit facility by an aggregate of $1.3 billion to $5.8 billion and extended the final maturity date to 2023 while maintaining our pricing with a facility fee of 0.20% and current borrowings bearing interest at a floating rate of LIBOR plus 1.05%. We ended the third quarter of 2019 with total debt outstanding, net of discounts and issuance costs, of $13.8 billion, of which 84.7%
19
was at a fixed rate and 96.9% of which was unsecured. Our composite cost of funds was 3.37% as of September 30, 2019.
Our total revenues for the quarter ended September 30, 2019 increased by 17.8% to $530.9 million, compared to the quarter ended September 30, 2018. This increase was principally driven by the continued growth of our fleet and an increase in our aircraft sales, trading and other activity. Our net income available to common stockholders for the quarter ended September 30, 2019 was $151.9 million compared to $146.6 million for the quarter ended September 30, 2018. Our diluted earnings per share for the quarter ended September 30, 2019 was $1.34 compared to $1.32 for the quarter ended September 30, 2018. The increase in net income available to common stockholders in the third quarter of 2019 as compared to 2018 was primarily due to the continued growth of our fleet and an increase in our aircraft sales, trading and other activity, partially offset by increases in our interest expense and selling, general and administrative expenses.
Our adjusted net income before income taxes excludes the effects of certain non-cash items, one-time or non-recurring items, that are not expected to continue in the future and certain other items. Our adjusted net income before income taxes for the three months ended September 30, 2019 was $203.9 million or $1.80 per diluted share, compared to $192.4 million or $1.73 per diluted share for the three months ended September 30, 2018. The increase in our adjusted net income before income taxes is primarily driven by the continued growth of our fleet and an increase in our aircraft sales, trading and other activity, partially offset by increases in our interest expense and selling, general and administrative expenses. Our adjusted pre-tax profit margin for the three months ended September 30, 2019 was 38.4% compared to 42.7% for the three months ended September 30, 2018. Adjusted net income before income taxes, adjusted pre-tax profit margin and adjusted diluted earnings per share before income taxes are measures of financial and operational performance that are not defined by U.S. generally accepted accounting principles (“GAAP”). See Note 1 under the “Results of Operations” table for a discussion of adjusted net income before income taxes, adjusted pre-tax profit margin and adjusted diluted earnings per share before income taxes as non-GAAP measures and reconciliation of these measures to net income available to common stockholders.
Our Fleet
Portfolio metrics of our fleet as of September 30, 2019 and December 31, 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019 |
|
December 31, 2018 |
||
|
Aggregate fleet net book value |
|
$ |
18.9 billion |
|
$ |
15.7 billion |
|
Weighted-average fleet age(1) |
|
|
3.6 years |
|
|
3.8 years |
|
Weighted-average remaining lease term(1) |
|
|
7.2 years |
|
|
6.8 years |
|
|
|
|
|
|
|
|
|
Owned fleet |
|
|
307 |
|
|
275 |
|
Managed fleet |
|
|
64 |
|
|
61 |
|
Aircraft on order(2)(3) |
|
|
316 |
|
|
372 |
|
Aircraft purchase options(4) |
|
|
50 |
|
|
50 |
|
Total |
|
|
737 |
|
|
758 |
|
|
|
|
|
|
|
|
|
Current fleet contracted rentals |
|
$ |
14.1 billion |
|
$ |
11.8 billion |
|
Committed fleet rentals |
|
$ |
14.6 billion |
|
$ |
13.9 billion |
|
Total committed rentals |
|
$ |
28.7 billion |
|
$ |
25.7 billion |
| (1) | Weighted-average fleet age and remaining lease term calculated based on net book value. |
| (2) | Excluded from the table above are MOUs with Airbus, signed in June 2019, to launch the A321 XLR aircraft and to order the A220 aircraft. Through these MOUs, we have the right to purchase 100 aircraft comprised of 27 A321 XLR aircraft, 23 A321neo aircraft and 50 A220 aircraft and we have purchase options for an additional 25 A220 aircraft. |
| (3) | The table above reflects the conversion of purchase orders for 15 Boeing 737 MAX aircraft to five Boeing 787-9 aircraft pursuant to an October 2019 agreement with Boeing. |
| (4) | As of September 30, 2019 and December 31, 2018, we had options to acquire up to five Airbus A350-1000 aircraft and 45 Boeing 737-8 MAX aircraft. |
20
The following table sets forth the net book value and percentage of the net book value of our flight equipment subject to operating lease in the indicated regions based on each airline’s principal place of business as of September 30, 2019 and December 31, 2018 (in thousands, except percentages):
The following table sets forth the number of aircraft we owned by aircraft type as of September 30, 2019 and December 31, 2018:
| (1) | As of September 30, 2019 and December 31, 2018, we had six aircraft held for sale at the end of both periods. |
21
As of September 30, 2019, as adjusted for the conversion referenced in footnote 2 in the table below, the Company had commitments to acquire a total of 316 new aircraft for delivery through 2024 as follows:
| (1) | Our Airbus A320/321neo aircraft orders include 56 long-range variants. |
| (2) | The table above reflects the conversion of purchase orders for 15 Boeing 737 MAX aircraft to five Boeing 787-9 aircraft pursuant to an October 2019 agreement with Boeing. The table also reflects our estimate of future Boeing 737 MAX aircraft delivery delays based on information currently available to us. The actual delivery dates of such Boeing 737 MAX aircraft may differ from our estimate and could be further impacted by the length of the grounding and the pace at which Boeing can deliver aircraft following the lifting of the grounding, among other factors. |
| (3) | In addition to the aircraft from our order book, we have a commitment to purchase one used Airbus A330-300 aircraft from a third party, which is scheduled for delivery in 2019. |
| (4) | Excluded from the table above are MOUs with Airbus, signed in June 2019, to launch the A321 XLR aircraft and to order the A220 aircraft. Through these MOUs, we have the right to purchase 100 aircraft comprised of 27 A321 XLR aircraft, 23 A321neo aircraft and 50 A220 aircraft, and we have purchase options for an additional 25 A220 aircraft. |
In addition to our commitments, as of September 30, 2019, we had options to acquire up to five Airbus A350-1000 aircraft and 45 Boeing 737-8 MAX aircraft. If exercised, deliveries of these aircraft are scheduled to commence in 2023 and continue through 2024.
Pursuant to our purchase agreements with Boeing and Airbus for new aircraft, the Company and each manufacturer agrees to contractual delivery dates for each aircraft ordered. However, these dates can change for a variety of reasons. In the last few years, Airbus and Boeing have had delivery delays, and these delays have significantly impacted when our aircraft have been delivered.
Our leases typically provide that the Company and our airline customers each have a cancellation right related to aircraft delivery delays. The lease cancellation rights typically parallel our cancellation rights in our purchase agreements with Boeing and Airbus, and typically provide for cancellation rights starting at one year after the original contractual delivery date, regardless of cause.
For several years, we have experienced delivery delays for certain of our Airbus orderbook aircraft, primarily A321neo aircraft and, to a lesser extent, A330neo aircraft. Airbus has told us to continue to expect several months of delivery delays relating to such aircraft scheduled to deliver through 2021.
The worldwide grounding of the Boeing 737 MAX began on March 10, 2019, and remains in effect. As a result, Boeing has halted deliveries of all Boeing 737 MAX aircraft. Lifting of the grounding is subject to global regulatory authorities and we are unable to speculate as to when this may occur. Boeing 737 MAX deliveries may be impacted by the duration of the grounding and the speed by which Boeing can deliver aircraft following the lifting of the grounding. We expect that if the grounding continues for an extended time, or if there are significant Boeing 737 MAX delivery delays even after the grounding is lifted, some of our customers may seek to cancel their lease contracts with us. It is unclear at this point if we will cancel some of our Boeing 737 MAX delivery positions with Boeing or find replacement lessees. We are currently in discussions with Boeing regarding the mitigation of possible damages resulting from the grounding of and the delivery delays associated with the Boeing 737 MAX aircraft that we own and have on order.
22
The following table, which is subject to change based on Airbus delivery delays and the Boeing 737 MAX grounding, shows the number of new aircraft scheduled to be delivered as of September 30, 2019, as adjusted for the conversion referenced in footnote 2 in the table above, along with the lease placements of such aircraft as of November 7, 2019:
Aircraft Industry and Sources of Revenues
Our revenues are principally derived from operating leases with scheduled and charter airlines throughout the world. We have a globally diversified customer base of 108 airlines in 59 different countries, with over 95% of our business being sourced outside the U.S.
Demand for air travel has consistently grown in terms of both passenger traffic and number of aircraft in service. The International Air Transport Association (“IATA”) reported that passenger traffic for the first nine months of 2019 grew 4.5%. The number of aircraft in service has grown steadily and the number of leased aircraft in the global fleet has increased. The long-term outlook for aircraft demand remains robust due to increased passenger traffic and the need to replace aging aircraft.
From time to time, our airline customers face financial difficulties. In September 2019, Thomas Cook Airlines, a British airline, ceased all operations and filed for bankruptcy. At the time of the filing, we had seven aircraft from our owned fleet and four aircraft from our managed fleet leased to Thomas Cook Airlines. Despite the bankruptcy of Thomas Cook Airlines, we continue to see airlines globally performing well. We experienced strong demand for the aircraft that were previously leased to Thomas Cook Airlines and as of November 7, 2019, we have entered into leases or letters of intent for all of these aircraft.
The worldwide grounding of the Boeing 737 MAX began on March 10, 2019, and remains in effect. As a result, Boeing has halted deliveries of all Boeing 737 MAX aircraft. As of September 30, 2019, we owned and leased 15 Boeing 737 MAX aircraft and we have 135 Boeing 737 MAX aircraft on order. Lifting of the grounding is subject to global regulatory authorities and we are unable to speculate as to when this may occur. Because of this uncertainty, we have curtailed our leasing of our orderbook aircraft since the grounding.
With respect to the 15 Boeing 737 MAX aircraft we own and lease, our airline customers are obligated to continue to make payments under the lease, irrespective of any difficulties in which the lessees may encounter, including an aircraft fleet grounding. However, the airlines affected by this grounding have had to adjust flight schedules or cancel flights, back fill aircraft with other aircraft types or keep older aircraft in service longer. These operational changes and the uncertainty of when the Boeing 737 MAX aircraft will return to service and when Boeing will resume deliveries have impacted the profitability of certain airlines.
We expect that if the grounding continues for an extended time, or if there are significant Boeing 737 MAX delivery delays even after the grounding is lifted, some of our customers may seek to cancel their lease contracts with us. It is unclear at this point if we will cancel some of our Boeing 737 MAX delivery positions with Boeing or find replacement lessees. We are currently in discussions with Boeing regarding the mitigation of possible damages resulting from the grounding of and the delivery delays associated with the Boeing 737 MAX aircraft that we own and have on order.
For several years, Airbus has had delivery delays for certain of its aircraft, primarily the A321neo aircraft and, to a lesser extent, A330neo aircraft. Airbus has told us to continue to expect several months of delivery delays relating to such aircraft scheduled to deliver through 2021. These delays also have impacted airline operations and the profitably of certain airlines.
23
The Airbus delays and the Boeing 737 MAX grounding may impact airline growth, passenger growth and airline profitability.
The success of the commercial airline industry is linked to the strength of global economic development, which may be negatively impacted by macroeconomic conditions and geopolitical and policy risks. For example, the U.S. government has recently made statements and taken certain actions that have led to, and may lead to, further changes to U.S. and international trade policies, including recently imposed tariffs affecting certain products exported by a number of U.S. trading partners, such as Europe and China. In response, many U.S. trading partners, including Europe and China, have imposed or proposed new or higher tariffs on U.S. products. In October 2019, the Office of the U.S. Trade Representative announced a 10% tariff on new aircraft imported from Europe, including Airbus aircraft. We are currently monitoring the impact of this announcement on our future Airbus deliveries to U.S. customers. We cannot predict what further actions may ultimately be taken with respect to tariffs or trade relations between the U.S. and U.S. trading partners. Accordingly, it is difficult to predict exactly how, and to what extent, such actions may impact our business, or the business of our lessees or aircraft manufacturers. Any unfavorable government policies on international trade, such as capital controls or tariffs, may affect the demand for aircraft, increase the cost of aircraft components, further delay production, impact the competitive position of certain aircraft manufacturers or prevent aircraft manufacturers from being able to sell aircraft in certain countries. Our leases are primarily structured as triple net leases, whereby the lessee is responsible for all operating costs including taxes, insurance, and aircraft maintenance.
We believe the leasing industry has remained resilient over time across a variety of global economic conditions, and we remain optimistic about the long-term growth prospects for air transportation. We see a growing demand for aircraft leasing in the broader industry and a role for us in helping airlines modernize their fleets to support the growth of the airline industry. However, with the growth in aircraft leasing worldwide, we are witnessing an increase in competition among aircraft lessors resulting in more variation in lease rates.
Liquidity and Capital Resources
Overview
We finance the purchase of aircraft and our business with available cash balances, internally generated funds, including through aircraft sales and trading activity, and debt financings. We have structured ourselves with the goal to maintain investment-grade credit metrics and our debt financing strategy has focused on funding our business on an unsecured basis. Unsecured financing provides us with operational flexibility when selling or transitioning aircraft from one airline to another. In addition, we may, to a limited extent, utilize export credit financing or other forms of secured financing in support of our new aircraft deliveries.
We ended the third quarter of 2019 with total debt outstanding, net of discounts and issuance costs, of $13.8 billion compared to $11.5 billion as of December 31, 2018. Our unsecured debt increased to $13.5 billion as of September 30, 2019 from $11.3 billion as of December 31, 2018. Our unsecured debt as a percentage of total debt increased to 96.9% as of September 30, 2019 from 96.5% as of December 31, 2018.
We increased our cash flows provided by operating activities by 11.7% or $101.5 million, to $971.6 million for the nine months ended September 30, 2019 as compared to $870.1 million for the nine months ended September 30, 2018. The increase in our cash flow provided by operating activities is due to the increase in our net income and growth of our fleet. Our cash flow used in investing activities was $3.6 billion for the nine months ended September 30, 2019, which resulted primarily from the purchase of aircraft, partially offset by proceeds from our sales and trading activity. Our cash flow provided by financing activities was $2.6 billion for the nine months ended September 30, 2019, which resulted primarily from the issuance of unsecured notes and the issuance of preferred stock during the first nine months of 2019, partially offset by the repayment of outstanding debt.
We ended the third quarter of 2019 with available liquidity of $5.6 billion which is comprised of unrestricted cash of $291.8 million and an undrawn balance under our committed unsecured revolving credit facility of $5.3 billion. We believe that we have sufficient liquidity to satisfy the operating requirements of our business through the next twelve months.
24
Our financing plan for the next twelve months is focused on funding the purchase of aircraft, including the increased aircraft deliveries we expect in 2019, and our business with available cash balances, internally generated funds, including through aircraft sales and trading activities, and debt financings. Our debt financing plan continues to focus on raising unsecured debt in the global bank and investment grade capital markets. In addition, we may utilize, to a limited extent, export credit financing in support of our new aircraft deliveries.
We are in compliance in all material respects with the covenants in our debt agreements. While a ratings downgrade would not result in a default under any of our debt agreements, it could adversely affect our ability to issue debt and obtain new financings, or renew existing financings, and it would increase the costs of certain financings. Our liquidity plans are subject to a number of risks and uncertainties, including those described in our Annual Report on Form 10-K for the year ended December 31, 2018 and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.
Debt
Our debt financing was comprised of the following at September 30, 2019 and December 31, 2018 (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019 |
|
December 31, 2018 |
|
||
|
Unsecured |
|
|
|
|
|
|
|
|
Senior notes |
|
$ |
12,050,000 |
|
$ |
10,043,445 |
|
|
Term financings |
|
|
813,150 |
|
|
607,340 |
|
|
Revolving credit facilities |
|
|
610,000 |
|
|
602,000 |
|
|
Total unsecured debt financing |
|
|
13,473,150 |
|
|
11,252,785 |
|
|
Secured |
|
|
|
|
|
|
|
|
Term financings |
|
|
392,593 |
|
|
371,203 |
|
|
Export credit financing |
|
|
33,274 |
|
|
38,265 |
|
|
Total secured debt financing |
|
|
425,867 |
|
|
409,468 |
|
|
|
|
|
|
|
|
|
|
|
Total debt financing |
|
|
13,899,017 |
|
|
11,662,253 |
|
|
Less: Debt discounts and issuance costs |
|
|
(147,145) |
|
|
(123,348) |
|
|
Debt financing, net of discounts and issuance costs |
|
$ |
13,751,872 |
|
$ |
11,538,905 |
|
|
Selected interest rates and ratios: |
|
|
|
|
|
|
|
|
Composite interest rate(1) |
|
|
3.37 |
% |
|
3.46 |
% |
|
Composite interest rate on fixed-rate debt(1) |
|
|
3.41 |
% |
|
3.42 |
% |
|
Percentage of total debt at fixed-rate |
|
|
84.74 |
% |
|
86.41 |
% |
| (1) | This rate does not include the effect of upfront fees, facility fees, undrawn fees or amortization of debt discounts and issuance costs. |
Senior unsecured notes (including Medium-Term Note Program)
As of September 30, 2019, we had $12.1 billion in senior unsecured notes outstanding. As of December 31, 2018, we had $10.0 billion in senior unsecured notes outstanding.
During the nine months ended September 30, 2019, we issued $2.85 billion in aggregate principal amount of Medium-Term Notes comprised of (i) $700.0 million due 2024 at a fixed rate of 4.25%, (ii) $750.0 million due 2026 at a fixed rate of 3.75%, (iii) $300.0 million due 2021 that bear interest at a floating rate of three-month LIBOR plus 0.67%, (iv) $600.0 million due 2023 at a fixed rate of 2.25% and (v) $500.0 million due 2029 at a fixed rate of 3.25%.
Unsecured revolving credit facilities
As of September 30, 2019, the total outstanding balance on our unsecured revolving credit facilities was approximately $610.0 million. The total outstanding balance under our unsecured revolving credit facilities was approximately $602.0 million as of December 31, 2018.
In May 2019, we amended and extended our committed unsecured revolving credit facility whereby, among other things, we extended the final maturity date from May 5, 2022 to May 5, 2023 and, after giving effect to commitments
25
that matured on May 5, 2019, increased the total revolving commitments to approximately $5.8 billion, representing an increase of 26.6% from December 31, 2018, with a 0.20% facility fee and current borrowings bearing interest at a floating rate of LIBOR plus 1.05%. On July 31, 2019, we executed a commitment increase to our unsecured revolving credit facility, which increased the aggregate facility capacity by an additional $58.0 million. Lenders hold revolving commitments totaling approximately $5.5 billion that mature on May 5, 2023, commitments totaling $245.0 million that mature on May 5, 2022, commitments totaling approximately $5.0 million that mature on May 5, 2021, and commitments totaling $92.7 million that mature on May 5, 2020.
As of September 30, 2019, borrowings under the committed unsecured revolving credit facility will generally bear interest at either (a) LIBOR plus a margin of 1.05% per year or (b) an alternative base rate plus a margin of 0.05% per year, subject, in each case, to increases or decreases based on declines in the credit ratings for our debt. We are required to pay a facility fee of 0.20% per year (also subject to increases or decreases based on declines in the credit ratings for our debt) in respect of total commitments under the committed unsecured revolving credit facility. Borrowings under the committed unsecured revolving credit facility are used to finance our working capital needs in the ordinary course of business and for other general corporate purposes.
Preferred equity
On March 5, 2019, we issued 10,000,000 shares of 6.150% Fixed-to-Floating Non-Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”), $0.01 par value, with a liquidation preference of $25.00 per share. We will pay dividends on the preferred stock only when, as and if declared by the board of directors. Dividends will accrue, on a non-cumulative basis, on the stated amount of $25.00 per share at a rate per annum equal to: (i) 6.150% during the first five years and payable quarterly in arrears beginning on June 15, 2019, and (ii) three-month LIBOR plus a spread of 3.650% per annum from March 15, 2024, reset quarterly and payable quarterly in arrears beginning on June 15, 2024.
We may redeem shares of the Series A Preferred Stock at our option, in whole or in part, from time to time, on or after March 15, 2024, for cash at a redemption price equal to $25.00 per share, plus any declared and unpaid dividends to, but excluding, the redemption date, without accumulation of any undeclared dividends. We may also redeem shares of the Series A Preferred Stock at our option under certain other limited conditions.
On May 8, 2019, our board of directors approved a quarterly cash dividend of $0.427083 per share on our outstanding Series A Preferred Stock, which was paid on June 15, 2019 to holders of record of our Series A Preferred Stock as of May 31, 2019.
On August 7, 2019, our board of directors also approved a cash dividend of $0.384375 per share on our outstanding Series A Preferred Stock, which was paid on September 15, 2019 to holders of record of our Series A Preferred Stock as of August 31, 2019.
Credit ratings
Our investment-grade corporate and long-term debt credit ratings help us to lower our cost of funds and broaden our access to attractively priced capital. In July 2019, Fitch Ratings reaffirmed its issuer and senior unsecured debt ratings and outlook. The following table summarizes our current credit ratings:
While a ratings downgrade would not result in a default under any of our debt agreements, it could adversely affect our ability to issue debt and obtain new financings, or renew existing financings, and it would increase the cost of our financings.
26
Results of Operations
The following table presents our historical operating results for the three and nine month periods ended September 30, 2019 and 2018 (in thousands, except per share amounts and percentages):
| (1) | Adjusted net income before income taxes (defined as net income available to common stockholders excluding the effects of certain non-cash items, one-time or non-recurring items that are not expected to continue in the future and certain other items), adjusted pre-tax profit margin (defined as adjusted net income before income taxes divided by total revenues), adjusted diluted earnings per share before income taxes (defined as adjusted net income before income taxes plus assumed conversions divided by the weighted average diluted common shares outstanding) and adjusted pre-tax return on common equity (defined as adjusted net income before income taxes divided by average common shareholders’ equity) are measures of operating performance that are not defined by GAAP and should not be considered as an alternative to net income available to common stockholders, pre-tax profit margin, earnings per share, diluted earnings per share and pre-tax return on common equity, or any other performance measures derived in accordance with GAAP. Adjusted net income before income taxes, adjusted pre-tax profit margin, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity are presented as supplemental disclosure because management believes they provide useful information on our earnings from ongoing operations. |
Management and our board of directors use adjusted net income before income taxes, adjusted pre-tax profit margin, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity to assess our consolidated financial and operating performance. Management believes these measures are helpful in evaluating the operating performance of our ongoing operations and identifying trends in our performance, because they remove the effects of certain non-cash items, one-time or non-recurring items that are not expected to continue in the future and certain other items from our operating results.
27
Adjusted net income before income taxes, adjusted pre-tax profit margin, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity, however, should not be considered in isolation or as a substitute for analysis of our operating results or cash flows as reported under GAAP. Adjusted net income before income taxes, adjusted pre-tax profit margin, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity do not reflect our cash expenditures or changes in our cash requirements for our working capital needs. In addition, our calculation of adjusted net income before income taxes, adjusted pre-tax profit margin, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity may differ from the adjusted net income before income taxes, adjusted pre-tax profit margin, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity, or analogous calculations of other companies in our industry, limiting their usefulness as a comparative measure.
The following tables show the reconciliation of net income available to common stockholders to adjusted net income before income taxes and adjusted pre-tax profit margin (in thousands, except percentages):
| (1) | Adjusted pre-tax profit margin is adjusted net income before income taxes divided by total revenues |
The following table shows the reconciliation of net income available to common stockholders to adjusted diluted earnings per share before income taxes (in thousands, except share and per share amounts):
28
The following table shows the reconciliation of net income available to common stockholders to adjusted pre-tax return on common equity (in thousands, except percentages):
Three months ended September 30, 2019, compared to the three months ended September 30, 2018
Rental revenue
As of September 30, 2019, we owned 307 aircraft with a net book value of $18.9 billion and recorded $492.9 million in rental revenue for the quarter then ended, which included $4.6 million in amortization expense related to initial direct costs, which is net of overhaul revenue. In the prior year, as of September 30, 2018, we owned 268 aircraft with a net book value of $15.1 billion and recorded $422.8 million in rental revenue for the quarter ended September 30, 2018, which included overhaul revenue, net of amortization expense related to initial direct costs, of $0.3 million. The increase in rental revenue was primarily due to the increase in net book value of our operating lease portfolio to $18.9 billion as of September 30, 2019 from $15.1 billion as of September 30, 2018.
Aircraft sales, trading and other revenue
Aircraft sales, trading and other revenue totaled $38.0 million for the three months ended September 30, 2019 compared to $27.9 million for the three months ended September 30, 2018. During the quarter ended September 30, 2019, we recorded $17.3 million in gains from the sale of five aircraft from our operating lease portfolio. During the quarter ended September 30, 2018, we recorded $24.1 million in gains from the sale of 10 aircraft from our operating lease portfolio to Thunderbolt II. The increase in aircraft sales, trading and other revenue was primarily due to an increase in forfeitures of security deposits and servicing fee revenue from our managed fleet.
Interest expense
Interest expense totaled $113.7 million for the three months ended September 30, 2019 compared to $90.4 million for the three months ended September 30, 2018. The increase was primarily due to an increase in our aggregate debt balance partially offset by a decrease in our composite interest rate. We expect that our interest expense will increase as our average debt balance outstanding continues to increase. Interest expense will also be impacted by changes in our composite cost of funds.
Depreciation expense
We recorded $183.8 million in depreciation expense of flight equipment for the three months ended September 30, 2019 compared to $149.7 million for the three months ended September 30, 2018. The increase in depreciation expense for the three months ended September 30, 2019, compared to the three months ended September 30, 2018, is primarily attributable to the acquisition of additional aircraft during the last twelve months.
29
Selling, general and administrative expenses
We recorded selling, general and administrative expenses of $34.7 million for the three months ended September 30, 2019 compared to $26.4 million for the three months ended September 30, 2018. Selling, general and administrative expense as a percentage of total revenue increased to 6.5% for the three months ended September 30, 2019 compared to 5.9% for the three months ended September 30, 2018. Selling, general and administrative expenses increased due in part to increased transactional expenses incurred during the period. As we continue to add new aircraft to our portfolio, we expect over the long-term, selling, general and administrative expense to decrease as a percentage of our revenue.
Taxes
The effective tax rate was 19.6% and 18.3% for the three months ended September 30, 2019 and 2018, respectively. Changes in the tax rate were primarily driven by variances in permanent items.
Net income available to common stockholders
For the three months ended September 30, 2019, we reported consolidated net income available to common stockholders of $151.9 million, or $1.34 per diluted share, compared to a consolidated net income available to common stockholders of $146.6 million, or $1.32 per diluted share, for the three months ended September 30, 2018. Net income available to common stockholders increased in the third quarter of 2019 as compared to 2018, primarily due to the continued growth of our fleet and an increase in our aircraft sales, trading and other activity, partially offset by increases in our interest expense and selling, general and administrative expenses.
Adjusted net income before income taxes
For the three months ended September 30, 2019, we recorded adjusted net income before income taxes of $203.9 million, or $1.80 per diluted share, compared to an adjusted net income before income taxes of $192.4 million, or $1.73 per diluted share, for the three months ended September 30, 2018. Our adjusted net income before income taxes increased primarily due to the continued growth of our fleet and an increase in our aircraft sales, trading and other activity, partially offset by increases in our interest expense and selling, general and administrative expenses.
Adjusted net income before income taxes and adjusted diluted earnings per share before income taxes are measures of financial and operational performance that are not defined by GAAP. See Note 1 under the “Results of Operations” table above for a discussion of adjusted net income before income taxes and adjusted diluted earnings per share before income taxes as non-GAAP measures and reconciliation of these measures to net income available to common stockholders.
Nine months ended September 30, 2019, compared to the nine months ended September 30, 2018
Rental revenue
As of September 30, 2019, we owned 307 aircraft with a net book value of $18.9 billion and recorded $1.4 billion in rental revenue for the nine months then ended, which included overhaul revenue, net of amortization expense related to initial direct costs, of $11.3 million. In the prior year, as of September 30, 2018, we owned 268 aircraft with a net book value of $15.1 billion and recorded $1.2 billion in rental revenue for the nine months ended September 30, 2018, which included $2.4 million in amortization expense related to initial direct costs, which is net of overhaul revenue. The increase in rental revenue was primarily due to the increase in net book value of our operating lease portfolio to $18.9 billion as of September 30, 2019 from $15.1 billion as of September 30, 2018.
Aircraft sales, trading and other revenue
Aircraft sales, trading and other revenue totaled $55.9 million for the nine months ended September 30, 2019 compared to $35.6 million for the nine months ended September 30, 2018. During the nine months ended September 30, 2019, we recorded $18.9 million in gains from the sale of 11 aircraft from our operating lease portfolio. During the nine months ended September 30, 2018, we recorded $24.1 million in gains from the sale of 10 aircraft from our operating lease portfolio to Thunderbolt II. The increase in aircraft sales, trading and other revenue was primarily due to an increase in forfeitures of security deposits and servicing fee revenue from our managed fleet.
30
Interest expense
Interest expense totaled $317.0 million for the nine months ended September 30, 2019 compared to $248.8 million for the nine months ended September 30, 2018. The increase was primarily due to an increase in our aggregate debt balance partially offset by a decrease in our composite rate. We expect that our interest expense will increase as our average debt balance outstanding continues to increase. Interest expense will also be impacted by changes in our composite cost of funds.
Depreciation expense
We recorded $514.9 million in depreciation expense of flight equipment for the nine months ended September 30, 2019 compared to $428.4 million for the nine months ended September 30, 2018. The increase in depreciation expense for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, is primarily attributable to the acquisition of additional aircraft during the last twelve months.
Selling, general and administrative expenses
We recorded selling, general and administrative expenses of $92.2 million for the nine months ended September 30, 2019 compared to $71.2 million for the nine months ended September 30, 2018. Selling, general and administrative expense as a percentage of total revenue increased to 6.3% for the nine months ended September 30, 2019 compared to 5.8% for the nine months ended September 30, 2018. Selling, general and administrative expenses increased due in part to increased transactional expenses incurred during the period. As we continue to add new aircraft to our portfolio, we expect over the long-term, selling, general and administrative expense to decrease as a percentage of our revenue.
Taxes
The effective tax rate was 20.2% and 20.4% for the nine months ended September 30, 2019 and 2018, respectively. Changes in the tax rate were primarily driven by variances in permanent items.
Net income available to common stockholders
For the nine months ended September 30, 2019, we reported consolidated net income available to common stockholders of $414.1 million, or $3.67 per diluted share, compared to a consolidated net income available to common stockholders of $372.4 million, or $3.36 per diluted share, for the nine months ended September 30, 2018. Net income available to common stockholders increased in the third quarter of 2019 as compared to 2018, primarily due to the continued growth of our fleet and an increase in our aircraft sales, trading and other activity, partially offset by increases in our interest expense and selling, general and administrative expenses.
Adjusted net income before income taxes
For the nine months ended September 30, 2019, we recorded adjusted net income before income taxes of $562.4 million, or $4.98 per diluted share, compared to an adjusted net income before income taxes of $505.5 million, or $4.55 per diluted share, for the nine months ended September 30, 2018. Our adjusted net income before income taxes increased primarily due to the continued growth of our fleet and an increase in our aircraft sales, trading and other activity, partially offset by increases in our interest expense and selling, general and administrative expenses.
Adjusted net income before income taxes and adjusted diluted earnings per share before income taxes are measures of financial and operational performance that are not defined by GAAP. See Note 1 under the “Results of Operations” table above for a discussion of adjusted net income before income taxes and adjusted diluted earnings per share before income taxes as non-GAAP measures and reconciliation of these measures to net income available to common stockholders.
31
Contractual Obligations
Our contractual obligations as of September 30, 2019, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 |
|
2020 |
|
2021 |
|
2022 |
|
2023 |
|
Thereafter |
|
Total |
|||||||
|
Long-term debt obligations |
|
$ |
31,189 |
|
$ |
1,456,585 |
|
$ |
1,993,870 |
|
$ |
2,696,599 |
|
$ |
2,966,461 |
|
$ |
4,754,313 |
|
$ |
13,899,017 |
|
Interest payments on debt outstanding(1) |
|
|
84,716 |
|
|
453,489 |
|
|
400,871 |
|
|
338,513 |
|
|
247,512 |
|
|
494,986 |
|
|
2,020,087 |
|
Purchase commitments(2) |
|
|
771,134 |
|
|
6,419,215 |
|
|
6,647,270 |
|
|
4,750,559 |
|
|
3,678,420 |
|
|
225,142 |
|
|
22,491,740 |
|
Operating leases |
|
|
1,472 |
|
|
6,879 |
|
|
7,050 |
|
|
6,506 |
|
|
6,386 |
|
|
37,582 |
|
|
65,875 |
|
Total |
|
$ |
888,511 |
|
$ |
8,336,168 |
|
$ |
9,049,061 |
|
$ |
7,792,177 |
|
$ |
6,898,779 |
|
$ |
5,512,023 |
|
$ |
38,476,719 |
The above table does not include any dividends we may pay on our Series A Preferred Stock or common stock.
Off-Balance Sheet Arrangements
We have not established any unconsolidated entities for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. We have, however, from time to time established subsidiaries and created partnership arrangements or trusts for the purpose of leasing aircraft or facilitating borrowing arrangements, all of which are consolidated. We have investments in two joint ventures in which we own 9.5% of the equity of each joint venture. We account for our investment in these joint ventures using the equity method of accounting due to our level of influence and involvement in the joint ventures. We also have a non-controlling interest in Thunderbolt Aircraft Lease Limited II of 5.1% and it is accounted for as an investment under the cost method of accounting.
Critical Accounting Policies
Our critical accounting policies reflecting management’s estimates and judgments are described in our Annual Report on Form 10-K for the year ended December 31, 2018. We have reviewed recently adopted accounting pronouncements and determined that the adoption of such pronouncements is not expected to have a material impact, if any, on our Consolidated Financial Statements. Accordingly, there have been no material changes to critical accounting policies in the nine months ended September 30, 2019.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of changes in value of a financial instrument, caused by fluctuations in interest rates and foreign exchange rates. Changes in these factors could cause fluctuations in our results of operations and cash flows. We are exposed to the market risks described below.
Interest Rate Risk
The nature of our business exposes us to market risk arising from changes in interest rates. Changes, both increases and decreases, in our cost of borrowing, as reflected in our composite interest rate, directly impact our net income. Our lease rental stream is generally fixed over the life of our leases, whereas we have used floating-rate debt to finance a significant portion of our aircraft acquisitions. As of September 30, 2019 and December 31, 2018, we had $2.1 billion and $1.6 billion in floating-rate debt outstanding, respectively. If interest rates increase, we would be obligated to make higher interest payments to our lenders. If we incur significant fixed-rate debt in the future, increased interest rates prevailing in the market at the time of the incurrence of such debt would also increase our interest expense. If our composite interest rate were to increase by 1.0%, we would expect to incur additional interest expense on our existing indebtedness of approximately $21.2 million and $15.9 million as of September 30, 2019 and December 31, 2018,
32
respectively, each on an annualized basis, which would put downward pressure on our operating margins. Further, as of September 30, 2019, 84.7% of our total debt incurred interest at a fixed rate.
We also have interest rate risk on our forward lease placements. This is caused by us setting a fixed lease rate in advance of the delivery date of an aircraft. The delivery date is when a majority of the financing for an aircraft is arranged. We partially mitigate the risk of an increasing interest rate environment between the lease signing date and the delivery date of the aircraft by having interest rate adjusters in a majority of our forward lease contracts which would adjust the final lease rate upward if certain benchmark interest rates are higher at the time of delivery of the aircraft than at the lease signing date.
Foreign Exchange Rate Risk
We attempt to minimize currency and exchange risks by entering into aircraft purchase agreements and a majority of lease agreements and debt agreements with U.S. dollars as the designated payment currency. Thus, most of our revenue and expenses are denominated in U.S. dollars. Approximately 0.6% and 0.7% of our lease revenues were denominated in foreign currency as of September 30, 2019 and December 31, 2018, respectively. As our principal currency is the U.S. dollar, fluctuations in the U.S. dollar as compared to other major currencies should not have a significant impact on our future operating results.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”), and such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer (collectively, the “Certifying Officers”), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives as the Company’s controls are designed to do, and management necessarily was required to apply its judgment in evaluating the risk related to controls and procedures.
We have evaluated, under the supervision and with the participation of management, including the Certifying Officers, the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, as of September 30, 2019. Based on that evaluation, our Certifying Officers have concluded that our disclosure controls and procedures were effective at September 30, 2019.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be involved in litigation and claims incidental to the conduct of our business in the ordinary course. Our industry is also subject to scrutiny by government regulators, which could result in enforcement proceedings or litigation related to regulatory compliance matters. We are not presently a party to any enforcement proceedings or litigation related to regulatory compliance matters or material legal proceedings. We maintain insurance policies in amounts and with the coverage and deductibles we believe are adequate, based on the nature and risks of our business, historical experience and industry standards.
33
ITEM 1A. RISK FACTORS
There have been no material changes in our risk factors from those discussed under “Part I—Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2018 and “Part II—Item 1A. Risk Factors,” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
34
ITEM 6. EXHIBITS
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|---|---|---|---|---|---|---|---|---|---|---|
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Incorporated by Reference |
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Exhibit
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Exhibit Description |
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Form |
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File No. |
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Exhibit |
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Filing Date |
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3.1 |
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Restated Certificate of Incorporation of Air Lease Corporation. |
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S-1 |
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333-171734 |
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3.1 |
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January 14, 2011 |
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3.2 |
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Fourth Amended and Restated Bylaws of Air Lease Corporation. |
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8-K |
|
001-35121 |
|
3.1 |
|
March 27, 2018 |
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3.3 |
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8-A |
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001-35121 |
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3.2 |
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March 4, 2019 |
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10.1 |
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10-Q |
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001-35121 |
|
10.3 |
|
August 8, 2019 |
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10.2† |
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Filed herewith |
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31.1 |
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Filed herewith |
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31.2 |
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Filed herewith |
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32.1 |
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Furnished herewith |
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32.2 |
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Furnished herewith |
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101.INS |
|
XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
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101.SCH |
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XBRL Taxonomy Extension Schema |
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101.CAL |
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XBRL Taxonomy Extension Calculation Linkbase |
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101.DEF |
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XBRL Taxonomy Extension Definition Linkbase |
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101.LAB |
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XBRL Taxonomy Extension Label Linkbase |
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35
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Incorporated by Reference |
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Exhibit
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Exhibit Description |
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Form |
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File No. |
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Exhibit |
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Filing Date |
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101.PRE |
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XBRL Taxonomy Extension Presentation Linkbase |
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104 |
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The cover page from Air Lease Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline XBRL |
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† |
Portions of the referenced exhibit have been omitted pursuant to Item 601(b) of Regulation S-K because it (i) is not material and (ii) would be competitively harmful if publicly disclosed. |
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§ |
Management contract or compensatory plan or arrangement. |
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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AIR LEASE CORPORATION |
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November 7, 2019 |
/s/ John L. Plueger |
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John L. Plueger |
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Chief Executive Officer and President |
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(Principal Executive Officer) |
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November 7, 2019 |
/s/ Gregory B. Willis |
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Gregory B. Willis |
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Executive Vice President and Chief Financial Officer |
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(Principal Financial Officer and Principal Accounting Officer) |
37
Exhibit 10.2
CERTAIN IDENTIFIED INFORMATION MARKED BY [*] HAS BEEN EXCLUDED FROM THIS EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED
AMENDMENT N°7
TO THE
A330-900neo PURCHASE AGREEMENT
BETWEEN
AIRBUS S.A.S.
as Seller
and
AIR LEASE CORPORATION
as Buyer
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Amendment Nº7 to the ALC A330-900neo Purchase Agreement |
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Ref. CLC - CT1902127 |
Page 1/5 |
AMENDMENT N° 7 TO THE
A330-900neo PURCHASE AGREEMENT
This Amendment N°7 (the “Amendment N°7”) dated 8 August 2019 is made
BETWEEN:
AIRBUS S.A.S., a French société par actions simplifiée, with its registered office at 2, rond-point Emile Dewoitine, 31700 Blagnac, France, registered with the Commercial and Companies Register of Toulouse under number 383 474 814 (the “Seller”),
and
AIR LEASE CORPORATION, a corporation organised and existing under the laws of the State of Delaware, U.S.A., having its principal place of business at 2000 Avenue of the Stars, Suite 1000N, Los Angeles, California 90067, U.S.A. (the “Buyer”).
The Buyer and Seller together are referred to as the “Parties”.
WHEREAS:
A. The Buyer and the Seller have signed on 03 March 2015 a purchase agreement with reference CLC-CT1405166 for the manufacture and sale by the Seller and purchase by the Buyer of twenty-five (25) A330-900neo aircraft hereinafter together with its Exhibits and Letter Agreements and as further amended from time to time referred to as the “Agreement”.
B. The Buyer and the Seller have signed an amendment n°1 dated 31 May 2016 with reference CLC-CT1614983 (“Amendment N°1”) whereby the Buyer [*].
C. The Buyer and the Seller have signed an amendment n°2 dated 19 June 2017 with reference CLC-CT1702508 (“Amendment N°2”) for the manufacture and sale by the Seller and purchase by the Buyer of two (2) incremental A330-900neo aircraft.
D. The Buyer and the Seller have signed an amendment n°3 dated 02 October 2017 with reference CLC-CT1705177 (“Amendment N°3”) in order to [*].
E. The Buyer and the Seller have signed an Amendment n°4 dated 27 December 2017 with reference CLC-CT1709653 (“Amendment N°4”) for the manufacture and sale by the Seller and purchase by the Buyer of two (2) incremental A330-900neo aircraft.
F. The Buyer and the Seller have signed an amendment n°5 dated 31 December 2018 with reference CLC-CT1709653 (“Amendment N°5”) in order [*].
G. The Buyer and the Seller have signed an amendment n°6 dated 27 February 2019 with reference CLC-CT1901550 (“Amendment N°6”) in order to [*].
H. The Buyer and the Seller now wish to enter into this Amendment N°7 in order to [*].
The terms “herein”, “hereof” and “hereunder” and words of similar import refer to this Amendment N°7. Capitalized terms used herein and not otherwise defined herein will have the meanings assigned thereto in the Agreement.
NOW IT IS HEREBY AGREED AS FOLLOWS:
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Amendment Nº7 to the ALC A330-900neo Purchase Agreement |
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Ref. CLC - CT1902127 |
Page 2/5 |
1 [*]
2 [*]
3 [*]
4 [*]
5 [*]
6 INCONSISTENCY AND CONFIDENTIALITY
6.1 In the event of any inconsistency between the terms and conditions of the Agreement and those of this Amendment N°7, the latter shall prevail to the extent of such inconsistency, whereas the part of the Agreement not concerned by such inconsistency shall remain in full force and effect.
6.2 This Amendment N°7 reflects the understandings, commitments, agreements, representations and negotiations related to the matters set forth herein whatsoever, oral and written, and may not be varied except by an instrument in writing of even date herewith or subsequent hereto executed by the duly authorised representatives of both Parties.
6.3 This Amendment N°7 shall be treated by both Parties as confidential and shall not be released in whole or in part to any third party without the prior consent of the other Party except as may be required by law, or to professional advisors for the implementation hereof.
7 COUNTERPARTS
This Amendment N°7 may be executed by the Parties in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument.
8 LAW AND JURISDICTION
This Amendment N°7 will be governed by and construed and the performance thereof will be determined in accordance with the laws of the State of New York, without giving effect to its conflicts of laws provisions that would result in the application of the law of any other jurisdiction.
The other provisions of Clause 22.6 of the Purchase Agreement shall apply to this Amendment N°7 as if the same were set out in full herein, mutatis mutandis.
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Amendment Nº7 to the ALC A330-900neo Purchase Agreement |
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Ref. CLC - CT1902127 |
Page 3/5 |
IN WITNESS WHEREOF this Amendment N°7 was entered into the day and year first above written.
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For and on behalf of |
For and on behalf of |
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AIR LEASE CORPORATION |
AIRBUS S.A.S. |
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/s/ Steven F. Udvar-Hazy |
/s/ Benoît de Saint-Exupéry |
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By: Steven F. Udvar-Hazy |
By: Benoît de Saint-Exupéry |
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Its: Executive Chairman |
Its: Senior Vice President, Contracts |
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Amendment Nº7 to the ALC A330-900neo Purchase Agreement |
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Ref. CLC - CT1902127 |
Page 4/5 |
APPENDIX 1
DELIVERY SCHEDULE
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CAC ID |
Aircraft Rank |
Scheduled Delivery Month |
Aircraft Type |
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[*] |
[*] |
[*]-18 |
[*] |
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[*] |
[*] |
[*] |
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[*] |
[*] |
[*] |
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[*] |
[*] |
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[*] |
[*]-23 |
[*] |
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Amendment Nº7 to the ALC A330-900neo Purchase Agreement |
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Ref. CLC - CT1902127 |
Page 5/5 |
EXHIBIT 31.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND PRESIDENT
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John L. Plueger, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Air Lease Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 7, 2019
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/s/ John L. Plueger |
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John L. Plueger |
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Chief Executive Officer and President (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION OF THE EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gregory B. Willis, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Air Lease Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 7, 2019
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/s/ Gregory B. Willis |
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Gregory B. Willis |
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Executive Vice President and Chief Financial Officer
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EXHIBIT 32.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND PRESIDENT PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Air Lease Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2019 (the “Report”), I, John L. Plueger, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(i)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(ii)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: November 7, 2019 |
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/s/ John L. Plueger |
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John L. Plueger |
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Chief Executive Officer and President (Principal Executive Officer) |
EXHIBIT 32.2
CERTIFICATION OF THE EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Air Lease Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2019 (the “Report”), I, Gregory B. Willis, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(i)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(ii)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: November 7, 2019 |
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/s/ Gregory B. Willis |
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Gregory B. Willis |
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Executive Vice President and Chief Financial Officer |
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(Principal Financial Officer and Principal Accounting Officer) |