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| AL > SEC Filings for AL > Form 10-Q on 8-Nov-2012 | All Recent SEC Filings |
8-Nov-2012
Quarterly Report
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
Our primary business is to acquire new and used popular and fuel-efficient commercial aircraft from aircraft manufacturers and other parties and to lease those aircraft to airlines around the world. We supplement our leasing revenues by providing management services to investors and/or owners of aircraft portfolios, for which we will receive fee-based revenue. These services include leasing, re-leasing, and lease management and sales services, with the goal of helping our clients maximize lease and sale revenues. In addition to our leasing activities and management services, and depending on market conditions, we expect to sell aircraft from our fleet to other leasing companies, financial services companies and airlines.
During the third quarter of 2012, we have continued to build one of the world's youngest, most fuel-efficient aircraft operating lease portfolios. During the three months ended September 30, 2012, we acquired an additional five aircraft from our new aircraft pipeline ending the quarter with a total of 142 aircraft (of which 73 were new aircraft and 69 were used aircraft), growing our fleet by 3.9% based on net book value. The weighted-average age of our fleet was 3.4 years as of September 30, 2012 compared to 3.6 years as of December 31, 2011. We also managed three aircraft as of September 30, 2012.
The Company recorded $172.9 million in rental revenue for the third quarter of 2012, an increase of $82.4 million or 91.1% compared to the third quarter of 2011. This increase is a result of the full impact on rental revenue of the fleet of 137 aircraft acquired as of June 30, 2012 in addition to rental revenue for the five aircraft acquired during the three months ended September 30, 2012, for which the full impact will be reflected in subsequent periods.
During the third quarter of 2012, the Company entered into additional debt facilities aggregating $546.4 million, which included $450.0 million in senior unsecured notes, a $90.0 million addition to our Syndicated Unsecured Revolving Credit Facility and additional unsecured term facilities aggregating $6.4 million. We ended the quarter with total unsecured debt outstanding of $2.5 billion. The Company's unsecured debt as a percentage of total debt increased to 58.6% as of September 30, 2012 from 31.7% as of December 31, 2011. We ended the third quarter of 2012 with a conservative balance sheet with low leverage and ample available liquidity of $1.47 billion. As part of our financing strategy we will continue to focus on financing the Company on an unsecured basis.
Our fleet
Portfolio metrics of our fleet as of September 30, 2012 and December 31, 2011 are as follows (dollars in thousands):
September 30, 2012 December 31, 2011
Fleet size 142 102
Weighted-average fleet age(1) 3.4 years 3.6 years
Weighted-average remaining lease term(1) 7.0 years 6.6 years
Aggregate fleet cost $ 6,158,762 $ 4,368,985
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The following table sets forth the net book value and percentage of the net book value of our aircraft portfolio operating in the indicated regions as of September 30, 2012 and December 31, 2011 (dollars in thousands):
September 30, 2012 December 31, 2011
Net book Net book
Region value % of total value % of total
Europe $ 2,266,874 38.6 % $ 1,718,550 40.6 %
Asia/Pacific 2,091,196 35.6 1,419,831 33.5
Central America, South America
and Mexico 720,085 12.3 515,145 12.2
U.S. and Canada 463,998 7.9 386,101 9.1
The Middle East and Africa 330,235 5.6 197,789 4.6
Total $ 5,872,388 100.0 % $ 4,237,416 100.0 %
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The following table sets forth the number of aircraft we leased by aircraft type as of September 30, 2012 and December 31, 2011:
September 30, 2012 December 31, 2011
Number of % of Number of
Aircraft type aircraft total aircraft % of total
Airbus A319/320/321 39 27.5 % 31 30.4 %
Airbus A330-200/300 17 12.0 11 10.8
Boeing 737-700/800 40 28.2 38 37.2
Boeing 767-300ER 3 2.1 3 2.9
Boeing 777-200/300ER 7 4.9 5 4.9
Embraer E175/190 28 19.7 12 11.8
ATR 72-600 8 5.6 2 2.0
Total 142 100.0 % 102 100.0 %
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As of September 30, 2012, we had commitments to acquire a total of 291 new and one used aircraft for delivery as follows:
Aircraft Type 2012(1) 2013 2014 2015 2016 Thereafter Total Airbus A320/321-200 3 13 13 6 - - 35 Airbus A320/321 NEO(2) - - - - 3 47 50 Airbus A330-200/300 - 3 - - - - 3 Boeing 737-800 3 12 12 17 19 15 78 Boeing 737-8/9 MAX(2) - - - - - 100 100 Boeing 777-300ER - - 2 3 - - 5 Boeing 787-9 - - - - - 12 12 Embraer E175/190 3 - - - - - 3 ATR 72-600 2 4 - - - - 6 Total 11 32 27 26 22 174 292 |
(2) As of September 30, 2012, 14 of the Airbus A320/321 NEO aircraft and 25 of the Boeing 737-8/9 MAX aircraft were subject to reconfirmation.
Our current lease placements are in line with expectations and are progressing well. As of September 30, 2012 we have entered into contracts for the lease of new aircraft scheduled to be delivered as follows:
Number of Number
Delivery year Aircraft Leased % Leased
2012 11 11 100.0 %
2013 32 32 100.0
2014 27 27 100.0
2015 26 9 34.6
2016 22 - 0.0
Thereafter 174 8 4.6
Total 292 87 29.8 %
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Aircraft industry and sources of revenues
Our revenues are principally derived from operating leases with scheduled and charter airlines and we derive more than 90% of our revenues from airlines domiciled outside of the United States. As of September 30, 2012, we had 142 aircraft leased under operating leases to 66 airlines based in 37 countries and we anticipate that most of our revenues in the future will be generated from foreign lessees.
The airline industry is cyclical, economically sensitive, and highly competitive. Airlines and related companies are affected by fuel price volatility and fuel shortages, political and economic instability, natural disasters, terrorist activities, changes in national policy, competitive pressures, labor actions, pilot shortages, insurance costs, recessions, health concerns
and other political or economic events adversely affecting world or regional trading markets. Our airline customers' ability to react to and cope with the volatile competitive environment in which they operate, as well as our own competitive environment, will affect our revenues and income.
On October 19, 2012, one of our customers filed for "judicial recuperation" under Brazilian law and is currently undergoing a restructuring. The customer operates three of our ATR 72-600 aircraft and continues to make their contracted lease payments to us.
Despite industry cyclicality and current stress, we remain optimistic about the long-term future of commercial aviation and the growing role that ALC will have in the fleet transactions which will facilitate its continued growth.
Liquidity and Capital Resources
Overview
As we grow our business, we envision funding our aircraft purchases through multiple sources, including cash on hand, cash flow from operations, the Warehouse Facilities, our unsecured revolving credit facilities, additional unsecured debt financing through banks and the capital markets, credit facilities, and through optional financings including government-sponsored export guaranty and lending programs.
Our substantial cash requirements will continue as we expand our fleet through the purchase commitments in our pipeline. However, we believe that we will have sufficient liquidity to satisfy the operating requirements of our business through the next twelve months.
Our liquidity plans are subject to a number of risks and uncertainties, including those described in the Company's Annual Report on Form 10-K for the year ended December 31, 2011. In addition, macro-economic conditions could hinder our business plans, which could, in turn, adversely affect our financing strategy.
Debt
Our debt financing was comprised of the following at September 30, 2012 and
December 31, 2011 (in thousands):
September 30, December 31,
2012 2011
Secured
Term financings $ 675,245 $ 735,285
Warehouse facilities 1,107,547 1,048,222
Total secured debt financing 1,782,792 1,783,507
Unsecured
Term financings 268,301 148,209
Convertible senior notes 200,000 200,000
Senior notes 1,725,000 120,000
Revolving credit facilities 330,000 358,000
Total unsecured debt financing 2,523,301 826,209
Total secured and unsecured debt financing 4,306,093 2,609,716
Less: Debt discount (10,017 ) (6,917 )
Total debt $ 4,296,076 $ 2,602,799
Selected interest rates and ratios:
Composite interest rate(1) 3.97 % 3.14 %
Composite interest rate on fixed rate debt(1) 5.06 % 4.28 %
Percentage of total debt at fixed rate 54.3 % 24.26 %
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Secured term financings
The Company did not enter into any additional secured term facilities during the third quarter of 2012. The outstanding balance on our secured term facilities was $675.2 million and $735.3 million at September 30, 2012 and December 31, 2011, respectively.
Warehouse facilities
In March 2012, a wholly-owned subsidiary of the Company entered into a $192.8 million senior secured warehouse facility (the "2012 Warehouse Facility") to refinance a pool of eight aircraft previously financed under the Company's non-recourse, revolving $1.25 billion credit facility (the "2010 Warehouse Facility" and together with the 2012 Warehouse Facility the "Warehouse Facilities").
As of September 30, 2012, the Company had borrowed $1.1 billion under our Warehouse Facilities and pledged 39 aircraft as collateral with a net book value of $1.6 billion. As of December 31, 2011, the Company had borrowed $1.0 billion under the 2010 Warehouse Facility and pledged 38 aircraft as collateral with a net book value of $1.6 billion. The Company had pledged cash collateral and lessee deposits of $108.5 million and $86.9 million at September 30, 2012 and December 31, 2011, respectively.
Unsecured term financings
In September 2012, the Company issued $450.0 million in aggregate principal amount of senior unsecured notes due 2016 to Qualified Institutional Buyers in reliance upon Rule 144A under the Securities Act. The notes are senior unsecured obligations of the Company and bear interest at a rate of 4.5% per annum.
In October 2012, the Company issued an additional $50.0 million aggregate principal amount of 4.5% senior unsecured notes due 2016 to Qualified Institutional Buyers in reliance upon Rule 144A under the Securities Act. The notes are senior unsecured obligations of the Company and bear interest at a rate of 4.5% per annum. With the completion of this offering, the Company has sold and issued a total of $500.0 million aggregate principal amount of senior unsecured notes due 2016.
During the third quarter of 2012, the Company entered into three additional unsecured term facilities aggregating $6.4 million with terms ranging from two to four years and bearing interest at fixed rates ranging from 3.0% to 4.0%.
Unsecured revolving credit facilities
In May 2012, the Company entered into an $853.0 million three-year senior unsecured revolving credit facility (the "Syndicated Unsecured Revolving Credit Facility"). The Syndicated Unsecured Revolving Credit Facility will mature on May 4, 2015 and contains an uncommitted accordion feature under which its aggregate principal amount can be increased by up to $500.0 million.
During the third quarter of 2012, the Company added two additional lenders to the Syndicated Unsecured Revolving Credit Facility and increased the aggregate principal amount by $90.0 million to $943.0 million.
The Company ended the third quarter of 2012 with a total of five unsecured revolving credit facilities aggregating $1.0 billion. The total amount outstanding under our unsecured revolving credit facilities was $330.0 million and $358.0 million as of September 30, 2012 and December 31, 2011, respectively.
In November 2012, the Company added an additional lender to the Syndicated Unsecured Revolving Credit Facility and increased the aggregate principal amount by $100.0 million to $1,043.0 million.
Liquidity
We finance the acquisition of our aircraft through available cash balances, internally generated funds and debt financings. As of September 30, 2012, we had available liquidity of $1.47 billion comprised of unrestricted cash of $439.7 million and undrawn balances under our Warehouse Facilities and unsecured revolving credit facilities of $1.03 billion.
During the third quarter of 2012, the Company entered into additional debt facilities aggregating $546.4 million, which included $450.0 million in senior unsecured notes, a $90.0 million addition to our Syndicated Unsecured Revolving Credit Facility and additional unsecured term facilities aggregating $6.4 million. We ended the quarter with total unsecured debt outstanding of $2.5 billion. The Company's unsecured debt as a percentage of total debt increased to 58.6% as of September 30, 2012 from 31.7% as of December 31, 2011. We ended the third quarter of 2012 with a conservative balance sheet with low leverage and ample available liquidity.
We will continue to focus our financing efforts on raising unsecured debt through the international and domestic capital markets, the global bank market, reinvesting cash flow from operations and, to a limited extent, secured financings including government guaranteed loan programs from the European Export Credit Agencies in support of our new Airbus aircraft deliveries, from Ex-Im Bank in support of our new Boeing aircraft deliveries and direct financing from BNDES/SBCE in support of our new Embraer deliveries.
Results of Operations
The following table presents our historical operating results for the three and
nine month periods ended September 30, 2012 and 2011 (in thousands):
Three Months Ended Nine Months Ended
September 30, September, 30
2012 2011 2012 2011
(unaudited) (unaudited)
Revenues
Rental of flight equipment $ 172,856 $ 90,476 $ 459,643 $ 219,092
Interest and other 2,069 1,649 6,008 2,592
Total revenues 174,925 92,125 465,651 221,684
Expenses
Interest 35,248 10,993 91,308 30,143
Amortization of discounts and
deferred debt issue costs 4,595 2,308 11,553 6,972
Extinguishment of debt - - - 3,349
Interest expense 39,843 13,301 102,861 40,464
Depreciation of flight equipment 57,932 30,657 154,805 73,431
Selling, general and
administrative 12,833 11,512 40,750 32,661
Stock-based compensation 7,124 8,314 24,548 30,974
Total expenses 117,732 63,784 322,964 177,530
Income before taxes 57,193 28,341 142,687 44,154
Income tax expense (20,182 ) (10,070 ) (50,577 ) (15,684 )
Net income $ 37,011 $ 18,271 $ 92,110 $ 28,470
Net income per share of Class A
and B Common Stock
Basic $ 0.37 $ 0.18 $ 0.91 $ 0.33
Diluted $ 0.36 $ 0.18 $ 0.90 $ 0.33
Other Financial Data
Adjusted net income(1) $ 44,602 $ 25,122 $ 115,415 $ 56,294
Adjusted EBITDA(2) $ 161,467 $ 79,954 $ 422,683 $ 188,001
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Operating Performance: Management and our board of directors use adjusted net income in a number of ways to assess our consolidated financial and operating performance, and we believe this measure is helpful in identifying trends in our performance. We use adjusted net income as a measure of our consolidated operating performance exclusive of income and expenses that relate to the financing, income taxes, and capitalization of the business. Also, adjusted net income assists us in comparing our operating performance on a consistent basis as it removes the impact of our capital structure and stock-based compensation expense from our operating results. In addition, adjusted net income helps management identify controllable expenses and make decisions designed to help us meet our current financial goals and optimize our financial performance. Accordingly, we believe this metric measures our financial performance based on operational factors that we can influence in the short term, namely the cost structure and expenses of the organization.
Liquidity: In addition to the uses described above, management and our board of directors use adjusted net income as an indicator of the amount of cash flow we have available to service our debt obligations, and we believe this measure can serve the same purpose for our investors.
Limitations: Adjusted net income has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our operating results or cash flows as reported under GAAP. Some of these limitations are as follows:
† adjusted net income does not reflect (i) our cash expenditures or future
requirements for capital expenditures or contractual commitments, or
(ii) changes in or cash requirements for our working capital needs; and
† our calculation of adjusted net income may differ from the adjusted net income or analogous calculations of other companies in our industry, limiting its usefulness as a comparative measure.
The following tables show the reconciliation of net income and cash flows from operating activities, the most directly comparable GAAP measures of performance and liquidity, to adjusted net income (in thousands):
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