AerCap Holdings N.V. Reports Financial Results For The Third Quarter 2016 And Authorizes Share Repurchase Program Of $250 Million

AerCap (NYSE:AER):
  • Net income for the third quarter and nine months ended September 30, 2016 was:
  • $225.6 million and $682.0 million on a reported basis
  • $310.6 million and $903.9 million on an adjusted basis
  • Diluted earnings per share for the third quarter and nine months ended September 30, 2016 were:
  • $1.22 and $3.55 on a reported basis
  • $1.68 and $4.71 on an adjusted basis

Highlights
  • 143 aircraft transactions executed in the third quarter of 2016, including 26 widebody transactions.
  • 99.8% fleet utilization rate for the third quarter of 2016.
  • 6.1 years average remaining lease term.
  • 95% of new aircraft deliveries through 2018 have been leased.
  • ~$2.3 billion of sales closed in the first nine months of 2016 with a total of ~$3 billion expected for 2016.
  • $9 billion of available liquidity.
  • Adjusted debt/equity ratio of 2.7 to 1.
  • $46.91 book value per share.
  • Repurchased 6.2 million shares in the third quarter of 2016 for $234.4 million and 21.0 million shares year to date through November 4, 2016.
  • Board authorized a $250 million Share Repurchase Program, which will run through March 31, 2017.

Aengus Kelly, CEO of AerCap, commented, " We are delighted to report another quarter of strong earnings, evidencing the consistency of our earnings power and our excellent operational performance. During the third quarter, we generated $1.22 of earnings per share or $1.68 on an adjusted basis. We are on track to complete $3 billion of asset sales in 2016, which has enabled us to announce an additional share repurchase authorization of $250 million, bringing our 2016 total authorizations to $1.15 billion and our cumulative repurchase authorizations over the past 18 months to $1.9 billion. AerCap continues to generate high levels of excess capital and our approach to capital deployment is designed to maximize long-term value for shareholders."

Third Quarter 2016 Financial Results
  • Reported net income of $225.6 million, compared with $293.9 million for the same period in 2015. Reported earnings per share (diluted) of $1.22, compared with $1.48 for the same period in 2015.
    • Reported net income and reported earnings per share were primarily impacted by sales of older aircraft during 2015 and 2016, which reduced average lease assets and lease income, as well as lower net gain on sale of assets.
    • During the third quarter of 2016, we recognized non-recurring income from net insurance proceeds which was offset by non-recurring, largely non-cash charges resulting from our decision to accelerate the downsizing of AeroTurbine.
    • Reported earnings per share was favorably impacted by a lower number of outstanding shares as a result of share repurchases completed in 2015 and the first nine months of 2016.
  • Adjusted net income of $310.6 million, compared with $327.0 million for the same period in 2015. Adjusted earnings per share (diluted) of $1.68, compared with $1.64 for the same period in 2015.
    • Adjusted net income and earnings per share were primarily driven by the same factors as reported net income and earnings per share, except the pre-tax results at AeroTurbine, including restructuring related expenses.

Net Income/Earnings Per Share

Set forth below are the details to reconcile reported net income to adjusted net income and reported earnings per share to adjusted earnings per share, including the specific adjustments.
   
Three months ended

September 30,
Nine months ended

September 30,
2016   2015  

% increase/ (decrease)
2016   2015  

% increase/ (decrease)

(U.S. dollar amounts in millions except share data)

(U.S. dollar amounts in millions except share data)
 
Net income $225.6 $293.9 (23 %) $682.0 $914.5 (25 %)
 
Adjusted for:
Maintenance rights related expenses 12.0 25.7 (53 %) 107.9 64.1 68 %
AeroTurbine pre-tax results including restructuring related expenses 73.0 (1.5 ) NA 109.8 (9.3 ) NA
Mark-to-market of interest rate caps and swaps 1.6 10.6 (85 %) 20.2 18.2 11 %
ILFC transaction and integration related expenses - 2.6 NA - 8.1 NA
Income tax impact of above adjustments (1.6 ) (4.3 ) (63 %) (16.0 ) (7.8 ) 105 %
Adjusted net income $310.6   $327.0   (5 %) $903.9   $987.8   (8 %)
 
$0.0 $0.0 $0.0 $0.0
 
Reported earnings per share - diluted $1.22 $1.48 (18 %) $3.55 $4.38 (19 %)
 
Adjusted for:
Maintenance rights related expenses 0.07 0.13 (46 %) 0.56 0.31 81 %
AeroTurbine pre-tax results including restructuring related expenses 0.39 (0.01 ) NA 0.57 (0.04 ) NA
Mark-to-market of interest rate caps and swaps 0.01 0.05 (80 %) 0.11 0.09 22 %
ILFC transaction and integration related expenses - 0.01 NA - 0.04 NA
Income tax impact of above adjustments (0.01 ) (0.02 ) (50 %) (0.08 ) (0.04 ) 100 %
Adjusted earnings per share - diluted $1.68   $1.64   2 % $4.71   $4.74   (1 %)
 

Third quarter 2016 net income decreased 23% on a reported basis and 5% on an adjusted basis compared with the same period in 2015, and third quarter 2016 earnings per share decreased 18% on a reported basis and increased 2% on an adjusted basis over the same period in 2015. Both reported and adjusted net income and earnings per share were primarily impacted by sales of older aircraft during 2015 and 2016, which reduced average lease assets and lease income, as well as lower net gain on sale of assets. During the third quarter of 2016, we recognized non-recurring income from net insurance proceeds and incurred non-recurring, largely non-cash charges resulting from our decision to accelerate the downsizing of AeroTurbine. Reported and adjusted earnings per share were favorably impacted by a lower number of outstanding shares as a result of share repurchases completed in 2015 and the first nine months of 2016.

Adjusted net income reflects, among other items, expensing the maintenance rights asset over the remaining economic life of the aircraft as compared to expensing this asset during the remaining lease term as reflected in reported net income. The maintenance rights asset represents the difference between the actual physical condition of the former ILFC aircraft at the acquisition date and the value based on the contractual return conditions in the lease contracts. The difference between the two methods has no economic impact as it is non-cash and equalizes over time.

At the end of 2015, we made the decision to restructure and downsize the AeroTurbine business, after the completion of which, AeroTurbine would only provide services to support AerCap's aircraft leasing business. Following the decision to downsize AeroTurbine and in order to present AerCap Holdings N.V. earnings relating to the core aircraft leasing business, adjusted net income excludes AeroTurbine-related income and losses. We believe adjusted net income may further assist investors in their understanding of our operational and financial performance. Refer to Notes Regarding Financial Information Presented in This Press Release for details relating to the adjustments.

Revenue and Net Spread
   
Three months ended

September 30,
Nine months ended

September 30,
2016   2015  

% increase/ (decrease)
2016   2015  

% increase/ (decrease)
(U.S. dollar amounts in millions) (U.S. dollar amounts in millions)
 
Lease revenue:
Basic lease rents $1,088.0 $1,164.6 (7 %) $3,333.6 $3,487.0 (4 %)
Maintenance rents and other receipts 91.9 81.1 13 % 313.2 219.1 43 %
Lease revenue 1,179.9 1,245.7 (5 %) 3,646.8 3,706.1 (2 %)
Net gain on sale of assets 22.4 51.6 (57 %) 79.8 139.9 (43 %)
Other income 23.8 25.5 (7 %) 57.0 103.5 (45 %)
Total Revenues and other income $1,226.1 $1,322.8 (7 %) $3,783.6 $3,949.5 (4 %)
 

Basic lease rents were $1,088.0 million for the third quarter of 2016, compared with $1,164.6 million for the same period in 2015. The decrease was primarily due to sales of older aircraft during 2015 and 2016, which reduced average lease assets. Our average lease assets for the third quarter of 2016 were $34.6 billion, compared with $36.4 billion for the same period in 2015.

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