Q1 2020 Earnings Call

Good day and welcome to the Aircastle, One Q 20 earnings call today's conference is being recorded.

This time of electronic conference over to Frank Constantinople. Please go ahead.

Thank you operator.

Good morning, everyone and welcome to Aircastle Limited's first quarter 2020 conference call.

Call today is being conducted from several locations on the line or Mike Inglese, Chief Executive Officer.

Aaron Dulcie, Chief Financial Officer, and Doug Winter, Chief Commercial officer.

Well begin the presentation, shortly but I'd like to remind everyone that this call is being recorded and a replay will be available through our website at www Dot Aircastle dot com, along with our first quarter press release and Powerpoint presentation.

I would like to point out that statements today, which are not historical facts may be deemed forward looking statements.

Actual results may differ materially from the estimates or expectations expressed in those statements.

Certain factors that could cause actual results could differ materially from Aircastle limited's expectations are detailed in our FCC filings, which can also be found on our website.

I'll direct you to Aircastle Limited's press release for the full forward looking statement legend.

Now turning the call over to Mike.

Thanks, and good morning, everyone.

Let me begin by conducting our best wishes to the individual stores responders in health care professionals and others impacted by the car buyers.

Good morning, I'll provide a brief update on our response to the crisis Wong with our mitigation plan.

Eric will then briefly cover our first quarter results.

As you work through this challenging period.

We will be focused on what we can do to keep our franchise strong and well positioned in the marketplace.

Since the onset of the crisis, we've moved quickly to protect the wellbeing of our employees customers and other key stakeholders and operated in good faith to protect the interest of our capital providers and owners.

Our employees have been safety successfully working from home since mid March.

On March 27, we closed the acquisition of Aircastle by Narrowbanding Corporation and Mizuho leasing.

We're stronger company as a result about new private ownership structure with two stable and long term focused investors.

Our new owners are positively recognized by the rating agencies and our bond investors as a stabilizing factor in our private ownership structure will help US works this unique environment, which lack visibility on many fronts.

Following the closing of the acquisition Fitch upgraded aircastle to Triple B flat from Triple B minus and Moody's confirmed aircastles rating at the double H rate.

And then of course, similarly affirmed our issuer credit rating a triple B minus.

Golden 19 pandemic and its effects are unprecedented for the world and for our industry. It is difficult to see how long the current dislocation will last.

Aircastles approach has always been fundamentally different to many other leasing company.

We view our strategy as lower risk compared with other less stores and see our financial leverage a significantly lower because we do not have significant forward capex commitments.

Along with our conservative leverage we have significant liquidity and a laddered liability structure.

Aircastle entered this crisis in a strong position and we believe the majority of our customers will survive and that business and leisure travel will revert as it always has to historic longer term growth trends.

Well established lesser balance sheets are generally strong the industry will definitely see short term pressure until traveled resumed and conditions stabilize for airline customer.

We feel comfortable that the demand for air travel will eventually return to historic growth level real question is wed.

In time this crisis will create opportunities for those who are conservatively capitalized advantage and maintain a disciplined long term growth strategy with a well diversified asset and customer base.

With that in mine, we are focusing on key priorities.

Number one keeping our employees safe our longstanding disaster recovery plans, where device to allow our company to keep operating during the crisis.

And this crisis came we were prepared with our systems and processes.

We can continue effectively managing our business and keep our in place today. However, long this last.

Number two managing liquidity, we are proactively managing through the crisis working through liquidity issues with our customers and helping them where appropriate with issues. They currently face.

We have agreed to defer near term lease payments totaling approximately $70 million with 35 Airlines.

Most of which just set to be repaid by year end with interest.

We expect that we will probably have other deferrals two additional customers or extend some of the deferrals we have already made.

Number three will preserve optimize and bolster our already strong liquidity position, which Eric will cover in his remarks shortly.

And fourth we'll be prepared to take advantage of opportunities, we will seek opportunistically to deploy capital and take advantage of dislocations in the market.

As airlines seek to raise liquidity.

As in the past, we will be prudent and patient not risk our balance sheet. We will continue to pursue a conservative approach to leverage future commitments.

In closing we entered the crisis with the strong balance sheet and are well prepared for an unsettled environment that has unfolded.

The strong liquidity profile and our platform is well positioned to deal with the asset management task at hand.

Strong sponsorship about new owners are expert team of professionals modest forward commitment and a solid liquidity position.

Aircastle will emerge from the scope of 19 crisis stronger market position.

I'll now hand, the call over to Aaron to briefly discuss our first quarter result.

Thanks, Mike our first quarter results were strong after adjusting for non recurring merger related cost of 79 million.

We incurred a net loss in the first quarter of 34 million versus net income of 34 million in the prior here.

Lease rent to own financed piece revenues were 206 million up 8.4% versus Q1 19.

During the first quarter, we record gain on sales of 27 billion, an increase of 15 million.

Opportunistically sold eight narrow body aircraft during the first quarter.

Average age of the aircraft sold is 14.4 years and the net proceeds for 150 million.

This resulted in a margin on proceeds of approximately 18%.

Total revenues for 283 million up 32% for just Q1 19.

Mostly due to lease rental maintenance revenues and higher gains on sale the flight equipment.

<unk> expenses increased by 139 million or 77% versus Q1 19. This was primarily due to 79 million of non recurring merger related costs and 63 million of noncash aircraft impairment charges associated early returns for South African Thethree Thirtys.

The noncash impairments were partially offset by $53 million combine maintenance lease rental payments that we received in advance from security to Boston.

Adjusted EBITDA was 263 million, an increase of $64 million 32%.

The increase was driven primarily by combining lease rental maintenance and other revenues and gains on sale.

Our utilization was 98.9% versus 93.7% in the prior year.

For the first quarter 2020 portfolio lease rental yield was 11.2%.

Imperative to first quarter 2019 year old tough 10.5%.

Turning to our liquidity and capital structure.

Thirtyth, our estimated 12 month cash coverage ratio is in excess of 1.7 times.

Sources of liquidity exceeds 1.4 billion, which includes 348 million unrestricted cash.

$450 million unused revolving credit capacity.

And 540 million of net operating cash flows for the next 12 months.

These combined resources parsing that forget in line up well with our $814 million of contractual commitments through April Thirtyth 2021.

We also had unencumbered flight equipment with a net book value of 5.8 billion.

We agreed to 70 million of lease rental deferrals.

For an average three months, which represents 8.6% number 2019 operating and financial space revenues.

I agree to the for 2022 delivery until late 2021, and rescheduled RPP payments.

Net debt to equity ratio was 2.4 times.

Total borrowings were 5.5 billion at quarter end.

And 82% of our to defend secured at quarter end.

What do you to average debt was 3.1 years and weighted average coupon on our tech declined to 4.27%.

In closing Aircastle continues to work through cover 19 crisis as well positioned to manage through the current situation.

We have a strong professional and experienced team, but Pete asset management skills.

Pinch death.

We have a solid balance sheet with minimal capex commitments.

With our new partners Marubeni Corporation can resume leasing we remain committed to executing our long term strategy as a disciplined investor and midlife aircraft, we are optimistic about our future prospects.

With that operator, we can now opened up the called the question.

Thank you if you would like to ask a question. Please press star one on your telephone keypad Craziness Speakerphone. Please make sure any assumption is turned off to layer signal to reach the equipment.

Once again that is star one for questions.

We'll go first to Mark Streeter at JP Morgan.

Hello, gentlemen, [laughter] her holding the call wondering can your comment on what your cash collection rate was for the first quarter.

The first quarter was about 89% Mark.

And Mike how do you think that plays out for the rest of year.

But thats the.

64000 dollar question for those of us old enough to remember that quiz show.

As we said, we granted 70 million of deferral today with an expectation that those will get repaid over the balance of the year were still in discussions with menu I see for similar requests and that number isn't the final number as I've mentioned in my opening remarks.

And.

I can't give you a this is the percentage of what I would have expected I can say, we have factored in our gas on what we think that is in our expected operating cash flows over the next 12 months.

But thats the.

Not sure, where it's going and not sure how it shakes out, but there will clearly be.

Some pain, but I think we feel pretty good about where we are and with the discussions we've concluded and with the discussions will have but.

This to me is still.

The first wave.

All of what we're going to see and although we're seeing some traffic patterns reemerge in domestic China.

In other markets. It's still early days then it's hard to.

Pencil out exactly what that number could be.

Okay, Great and then so barring any obviously and if you how your partners close the deal on March 27, it's Marty if any announced the write down of the good well if I if I do the yen to dollar conversion correctly, maybe 360 ish million dollars something like that of a write down which I think is about.

Maybe 15% of sort of what they pay I'm just trying to equate that to what does that tell us about aircraft values is it is that a one to one relationship. If you will between that write down and sort of their opinion on jet aircraft values in general should we use that as a guide.

Just wondering if you can comment.

Yeah look I wish life was that simple, but it's not number one narrowband he's been investor here for seven years.

They are basis in our assets is very different because they use a different accounting standard so China extrapolate from something they record in their Japanese financials to what it implies the aircastles asset values is not that go on.

Okay.

And then just shifting gears and then I'll turn it over obviously.

Your bond spreads like your peers have blown out here, you're trading at a pretty wide unsecured.

Bond yields right now how are you thinking about funding the business you know the commitment to unsecured.

Are you just looking to sort of wait this out at this point how are you would you consider issuing secured in order to have access at.

A lower all in yield get just wondering how you can talk about kind of a go forward plan for Aircastle. You know we're hearing you owners in terms of funding in the business.

So look I think practically speaking we're going to look at all avenues, but I would.

Say as an overarching parameter our new owners are very committed to maintaining an investment grade profile for aircastle over the long term.

And so we're going to do whatever we do in the context of that.

And the implications that that might have on that and clearly the industrys spreads have blown out since the beginning of the year.

We'll have to see how that plays out over the next 12 months I don't have a need to go to the market anytime soon and if I see interesting things to buy we'll have to revisit what we think is the most cost effective way to finance them at that time.

Okay, great. Okay got it goes three I appreciate it thanks, Mike.

Thanks Mark.

And again that is still want us and would like to ask a question. We'll go next time that Glenn pay at Deutsche Bank.

Yes, good morning, gentlemen, and yes, I do remember the 64000 dollar question.

So a couple of questions you mentioned, the South Africa situation and on slide seven that says there are two athree hundred Thirtys are off lease I recall, there were four athree hundred Thirtys I'd say.

This is expected that all of them come back.

Yes. This is Doug winter. It is expected that all four work come back and in fact physically we're expecting those aircraft to transfer from South Africa to the United States.

Over the next week or two all logistics points might look like.

And then maybe a little too granular for a question, but can you say afraid where maintenance payers or yellow.

Hey, we're maintenance payers.

Great and then as you look forward what are your unplaced aircraft for the remainder of the year and into next year and what is your outlook in terms of.

Potential releasing activity and where do you expect to see leases when these things need to be remarketed.

That's a 128000 dollar question.

Oh.

All right.

Let me start by saying that it really.

Okay.

Oh.

Yeah.

Yes.

No.

Your remark.

[noise] being only eight aircraft, which we're either going to need to extend.

With existing operators or transition to.

Listing operators.

And then.

And you hear me, Okay, Yes, I can now thank you.

Okay, sorry, So I said 13 aircraft five disposition to the part out market eight will have to be extended or transition to other operators.

As it relates to Twentytwenty.

And then in 2021, we have.

15 scheduled lease Expirees at this point all of those narrow body aircraft, except with respect to become great Athree 23 21 types.

So.

That's where we sit with our fleet right now.

We are engaged with folks notwithstanding the situation that we find ourselves at the moment.

There are pockets of interest you know there are airline operations that are looking at opportunity.

You know arising from the situation, we find ourselves and as an example, AC HMI type operators. So we're engaged with a number of customers about either extending some of these aircraft or transitioning some of these aircraft.

And we'll continue that dialogue and we will get these aircraft plus.

Okay.

As the eight aircraft reflective of your general fleet mix or is it skewed towards narrower wide.

That's very reflective of our overall fleet mix.

Great. Thanks very much.

Okay.

And at this time, we have no further questions I'll turn the conference back over the management for any closing remarks.

Thanks for joining US everyone. If you have any further questions you can follow up with Frank Constantinople through IR unhappy to catch up with any of those folks who would like to.

I appreciate your time, inpatients and stay safe and stay healthy.

Thank you very much.

And that does conclude today's conference again, thank you for your participation.

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