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12: EX-32.2 Certification -- §906 - SOA'02 HTML 21K
19: R1 Cover Page HTML 78K
20: R2 Consolidated Balance Sheets HTML 96K
21: R3 Consolidated Balance Sheets (Parenthetical) HTML 42K
22: R4 Consolidated Statements of Income and HTML 133K
Comprehensive Income
23: R5 Consolidated Statements of Shareholders' Equity HTML 121K
24: R6 Consolidated Statements of Shareholders' Equity HTML 22K
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25: R7 Consolidated Statements of Cash Flows HTML 119K
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27: R9 Company Background and Overview HTML 22K
28: R10 Basis of Preparation and Critical Accounting HTML 24K
Policies
29: R11 Debt Financing HTML 48K
30: R12 Commitments and Contingencies HTML 58K
31: R13 Rental Income HTML 26K
32: R14 Earnings Per Share HTML 53K
33: R15 Fair Value Measurements HTML 25K
34: R16 Shareholders' Equity HTML 40K
35: R17 Stock-based Compensation HTML 48K
36: R18 Aircraft Under Management HTML 23K
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38: R20 Subsequent Events HTML 30K
39: R21 Basis of Preparation and Critical Accounting HTML 24K
Policies (Policies)
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Acquisition (Details)
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(Details)
53: R35 Commitments and Contingencies -Aircraft HTML 36K
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(Exact name of registrant as specified in its charter)
iDelaware
i27-1840403
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
i2000 Avenue of the Stars,
iSuite
1000N
i90067
iLos Angeles,
iCalifornia
(Address
of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (i310) i553-0555
Securities registered pursuant to Section 12(b)
of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iClass A Common Stock
iAL
iNew
York Stock Exchange
i6.150% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A
iAL PRA
iNew
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. iYes☒ 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). iYes☒ 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:
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 i☒
At
November 3, 2021, there were i113,987,154 shares of Air Lease Corporation’s Class A common stock outstanding.
This Quarterly Report on Form 10-Q contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those statements appear in a number of places in this Form 10-Q and include statements regarding, among other matters, the state of the airline industry, the impact of the coronavirus (“COVID-19”) pandemic on us, our lessees and aircraft manufacturers, our anticipated capital expenditures and aircraft sales, our access to the capital markets, aircraft delivery delays and other factors affecting our financial condition or results of operations. Words such as “can,”“could,”“may,”“predicts,”“potential,”“will,”“projects,”“continuing,”“ongoing,”“expects,”“anticipates,”“intends,”“plans,”“believes,”“seeks,”“estimates” and “should,” and variations of these words and similar expressions, are used in many cases to identify these forward-looking statements. Any such forward-looking statements are not guarantees of future performance and involve risks, uncertainties, and other factors that may cause our actual results, performance or achievements, or industry results to vary materially from our future results, performance or achievements, or those of our industry, expressed or implied in such forward-looking statements. Such factors include, among others:
• the extent to which the COVID-19 pandemic and measures taken to contain its spread ultimately impact our business, results of operation and financial condition;
• our inability to
obtain additional capital on favorable terms, or at all, to acquire aircraft, service our debt obligations and refinance maturing debt obligations;
• increases in our cost of borrowing or changes in interest rates;
• our inability to generate sufficient returns on our aircraft investments through strategic acquisition and profitable leasing;
• the failure of an aircraft or engine manufacturers to meet its delivery obligations to us, including or as a result of technical or other difficulties with aircraft before or after delivery;
• obsolescence of, or changes in overall demand for, our aircraft;
• changes in the value of, and lease rates for, our aircraft, including as a result of aircraft oversupply, manufacturer production levels, our
lessees’ failure to maintain our aircraft, and other factors outside of our control;
• impaired financial condition and liquidity of our lessees, including due to lessee defaults and reorganizations, bankruptcies or similar proceedings;
• increased competition from other aircraft lessors;
• the failure by our lessees to adequately insure our aircraft or fulfill their contractual indemnity obligations to us;
• increased tariffs and other restrictions on trade;
• changes in the regulatory environment, including changes in tax laws and environmental regulations;
• other events affecting our business or the business of our lessees and aircraft manufacturers or their suppliers that are beyond
our or their control, such as the threat or realization of epidemic diseases in addition to COVID-19, natural disasters, terrorist attacks, war or armed hostilities between countries or non-state actors; and
• any additional factors discussed under “Part I — Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2020 and other SEC filings, including future SEC filings.
The factors noted above and the risks included in our other SEC filings may be increased or intensified as a result of the COVID-19 pandemic, including as a result of ongoing resurgences of the COVID-19 virus and its variants. The extent to which the COVID-19 pandemic ultimately impacts our business, results of operations and financial condition will depend on future developments, which are highly
uncertain and cannot be predicted. 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.
Debt
financing, net of discounts and issuance costs
i17,616,880
i16,518,338
Security
deposits and maintenance reserves on flight equipment leases
i1,151,876
i1,072,704
Rentals
received in advance
i138,716
i142,915
Deferred
tax liability
i980,775
i916,404
Total
liabilities
$
i20,430,778
$
i19,142,834
Shareholders’
Equity
Preferred Stock, $ii0.01/
par value; ii50,000,000/ shares authorized;
ii10,300,000/ (aggregate liquidation preference
of $i550,000) and ii10,000,000/
(aggregate liquidation preference of $i250,000) shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
$
i103
$
i100
Class A
common stock, $ii0.01/ par value; ii500,000,000/
shares authorized; ii113,987,154/ and ii113,852,896/
shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
i1,140
i1,139
Class B
non-voting common stock, $ii0.01/ par value; authorized
ii10,000,000/ shares; iiiino/// shares
issued or outstanding
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. The Company is principally engaged in purchasing new commercial jet aircraft directly from manufacturers, such as The Boeing Company (“Boeing”) and Airbus S.A.S. (“Airbus”). The
Company leases these aircraft to airlines throughout the world with the intention to generate attractive returns on equity. As of September 30, 2021, the Company owned a fleet of i370 aircraft in its operating lease portfolio, managed i89
aircraft and had i320 aircraft on order with aircraft manufacturers and i24 aircraft purchase options. In addition to its leasing activities, the
Company sells aircraft from its operating lease portfolio to third parties, including other leasing companies, financial services companies, airlines and other investors. The Company also provides fleet management services to investors and owners of aircraft portfolios for a management fee.
Note 2. iBasis
of Preparation and Critical Accounting Policies
iThe Company consolidates financial statements of all entities in which the Company has a controlling financial interest, including the accounts of any Variable Interest Entity in which the Company has a controlling financial interest and for which it is the
primary beneficiary. All material intercompany balances are eliminated in consolidation.iThe 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, 2021, and for all periods presented. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the operating results expected for the year ending December 31, 2021. These financial statements and related notes should be read in conjunction with the Consolidated Financial Statements and related notes included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2020.
Reclassifications
Certain reclassifications have been made in the prior year’s consolidated financial statements to conform to the classifications in 2021.
During the nine months ended September 30, 2021, the Company issued approximately
$i3.7 billion in aggregate principal amount of Medium-Term Notes comprised of (i) $i750.0 million in aggregate principal amount of i0.70%
Medium-Term Notes due 2024, (ii) $i1.2 billion in aggregate principal amount of i1.875% Medium-Term Notes due 2026, (iii) $i600.0 million
in aggregate principal amount of Medium-Term Notes due 2022 bearing interest at a floating rate of three-month LIBOR plus i0.35%, (iv) $i600.0 million in aggregate principal amount
of i0.800% Medium-Term Notes due 2024, and (v) $i500.0 million in aggregate principal amount of i2.100%
Medium-Term Notes due 2028.
Borrowings under the Revolving Credit Facility accrue interest at either (a) LIBOR plus a margin of i1.05% per year or (b) an alternative base rate plus a margin of i0.05%
per year, subject, in each case, to increases or decreases based on declines or improvements in the credit ratings for the Company’s debt. The Company is required to pay a facility fee of i0.20% per year (also subject to increases or decreases based on declines or improvements in the credit ratings for the Company’s
debt) in respect of total commitments under the Revolving Credit Facility. Borrowings under the Revolving Credit Facility are used to finance the Company’s working capital needs in the ordinary course of business and for other general corporate purposes.
In April 2021, the Company amended and extended its Revolving Credit Facility through an amendment that, among other things, extended the final maturity date from May 5, 2023 to May 5, 2025 and, after giving effect to commitments that matured on May 5, 2021, increased the total revolving commitments to approximately
$i6.4 billion, representing an increase of i6.7% from December
31, 2020. In September 2021, the Company executed a new lender supplement to the Revolving Credit Facility, which increased the aggregate facility capacity by an additional $i50.0 million and increased total revolving commitments to $i6.5 billion.
As of November 4, 2021, lenders held revolving commitments totaling approximately $i5.8 billion that mature on May 5, 2025, commitments totaling $i575.0 million
that mature on May 5, 2023 and commitments totaling $i105.0 million that mature on May 5, 2022. The amended Revolving Credit Facility also added benchmark replacement language with respect to LIBOR largely based on Alternative Reference Rates Committee LIBOR fallback language and amended certain financial maintenance covenants, including removing the maximum consolidated leverage ratio covenant, increasing the required level for minimum consolidated shareholders’ equity and removing the
mechanism for suspending the minimum interest coverage ratio if certain debt ratings are met.
In September 2021, the Company entered into an uncommitted unsecured revolving credit facility with a total borrowing capacity of $i75.0 million and a maturity date of June 22, 2022, bearing interest at a rate of LIBOR plus
i0.90%. As of September 30, 2021, the Company did inot have
any amounts outstanding under this facility.
Secured debt financing
As of September 30, 2021, the outstanding balance on the Company’s secured debt financings, including its export credit financing, was $i149.8 million and it had pledged ithree
aircraft as collateral with a net book value of $i224.7 million. As of December 31, 2020, the outstanding balance on the Company’s secured debt financings, including its secured warehouse facility and its export credit financing, was $i301.0
million and it had pledged i12 aircraft as collateral with a net book value of $i628.7 million. As of September 30, 2021 and December
31, 2020, all of the Company’s secured obligations are recourse in nature.
As of September 30,
2021, the Company had contractual commitments to acquire a total of i320 new aircraft for delivery through 2027 as follows:
Estimated
Delivery Years
Aircraft Type
2021
2022
2023
2024
2025
Thereafter
Total
Airbus A220-300(1)
i—
i3
i9
i16
i12
i11
i51
Airbus
A320/321neo(2)
i12
i24
i22
i26
i19
i21
i124
Airbus
A330-900neo
i1
i8
i4
i—
i—
i—
i13
Airbus
A350-900/1000
i3
i3
i4
i5
i1
i—
i16
Boeing
737-7/8/9 MAX
i8
i29
i16
i28
i7
i—
i88
Boeing
787-9/10
i1
i10
i4
i10
i3
i—
i28
Total
i25
i77
i59
i85
i42
i32
i320
(1) In
addition to the Company’s commitments, as of September 30, 2021, the Company had options to acquire up to i24 Airbus A220 aircraft. If exercised, deliveries of these aircraft are scheduled to commence in 2026 and continue through 2028.
(2) The
Company’s Airbus A320/321neo aircraft orders include i31 long-range variants and i29 extra long-range variants.
/
Pursuant
to the Company's purchase agreements with Boeing and Airbus for new aircraft, the Company and each manufacturer agree to contractual delivery dates for each aircraft ordered. These dates can change for a variety of reasons, and in the last several years manufacturing delays have significantly impacted the Company’s actual delivery dates.
The Company has experienced delivery delays for certain of its Airbus orderbook aircraft, including the A320neo family aircraft and the A330neo aircraft. The worldwide grounding of the Boeing 737 MAX aircraft
(“737 MAX”) beginning in March 2019 has also resulted in material delivery delays of those aircraft from the Company’s orderbook. The Federal Aviation Administration (“FAA”) and the European Union Aviation Safety Agency (“EASA”) lifted their grounding order on November 18, 2020 and January 27, 2021, respectively. Although many additional countries and regulatory entities have approved return to service of the aircraft, the 737 MAX still remains grounded in several jurisdictions. While deliveries of the 737 MAX have resumed, Boeing continues to have a significant number of 737 MAX aircraft completed and stored in its inventory and delays are likely to continue as the aircraft are prepared for delivery.
During
the fourth quarter of 2020, Boeing identified manufacturing related issues on its 787 aircraft. As a result, Boeing suspended deliveries of 787 aircraft between October 2020 and March 2021. Boeing temporarily resumed 787 aircraft deliveries in March 2021; however, in May 2021, deliveries were once again halted while the FAA completes its evaluation of Boeing’s inspection process. Manufacturing related issues in some 787 aircraft will require further modifications in order to resume deliveries. Boeing expects to maintain 787 production at a reduced rate of less than five per month until deliveries resume, and the timing for resumption of deliveries remains uncertain.
As discussed in further detail in Note 11, “Update on COVID-19 Pandemic Impact,” the ongoing COVID-19 pandemic has continued to cause delivery delays of aircraft in the Company’s orderbook.
The aircraft purchase commitments discussed above could also be impacted by lease cancellations. The
Company's leases typically provide that the Company and the airline customer each have a cancellation right related to certain aircraft delivery delays. The Company’s purchase agreements with Boeing and Airbus also generally provide that the Company and the manufacturer each have cancellation rights that typically parallel the Company’s cancellation rights in its leases. The Company’s leases and its purchase agreements with Boeing and Airbus generally provide for cancellation rights starting at iione
year/ after the original contractual delivery date, regardless of cause. As of November 4, 2021, the Company has canceled its orders for i23 737 MAX aircraft and ithree
787 aircraft with Boeing.
i
The Company had contractual commitments for the acquisition of i320
aircraft for delivery through 2027, calculated at an estimated aggregate purchase price (including adjustments for anticipated inflation) of approximately $i21.2 billion at September 30, 2021, which are due as follows (in thousands):
The
Company has made non-refundable deposits on the aircraft for which the Company has commitments to purchase of approximately $i1.6 billion and $i1.8
billion as of September 30, 2021 and December 31, 2020, respectively, which are subject to manufacturer performance commitments. If the Company is unable to satisfy its purchase commitments, the Company may be forced to forfeit its deposits. Further, the Company would be exposed to breach of contract claims by its lessees and manufacturers.
Note
5. iRental Income
i
At September 30,
2021, minimum future rentals on non-cancellable operating leases of flight equipment in the Company’s fleet are as follows (in thousands):
Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding for the period. 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 itwo 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, 2021, the Company did inot
have any Class B Non-Voting common stock outstanding.
Diluted earnings per share takes into account the potential conversion of stock options and restricted stock units using the treasury
stock method and convertible notes using the if-converted method. For the three and nine months ended September 30, 2021, 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 i1,083,635
and i1,032,305 shares related to restricted stock units for which the performance metric had yet to be achieved as of September 30, 2021 and 2020, respectively.
iThe
following table sets forth the reconciliation of basic and diluted earnings per share (in thousands, except share and per share amounts):
Assets and Liabilities Measured at Fair Value on a Recurring and Non-recurring Basis
The Company has a cross-currency swap related to its Canadian dollar Medium-Term Notes which were issued in December 2019. The fair value of the swap as a foreign currency exchange derivative is categorized as a Level 2 measurement in the fair
value hierarchy and is measured on a recurring basis. As of September 30, 2021 and December 31, 2020, the estimated fair value of the foreign currency exchange derivative asset was $i12.8 million and $i14.4 million,
respectively.
Financial Instruments Not Measured at Fair Values
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, 2021 was approximately $i18.4
billion compared to a book value of $i17.8 billion. The estimated fair value of debt financing as of December 31, 2020 was $i17.6 billion compared
to a book value of $i16.7 billion.
The following financial instruments are not measured at fair value on the Company’s Consolidated Balance Sheets at September 30, 2021, but require disclosure of their fair values: cash and cash equivalents and restricted cash. The estimated fair value
of such instruments at September 30, 2021 and December 31, 2020 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.
The Company was authorized to issue ii50,000,000/
shares of preferred stock, $ii0.01/ par value,
at September 30, 2021 and December 31, 2020. As of September 30, 2021, the Company had ii10,000,000/
shares of i6.15% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”) issued and outstanding with an aggregate liquidation preference of $i250.0 million
($i25.00 per share) and ii300,000/
shares of i4.65% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series B (the “Series B Preferred Stock”) with an aggregate liquidation preference of $i300.0
million ($i1,000 per share). As of December 31, 2020, the Company had ii10,000,000/
shares of Series A Preferred Stock issued and outstanding with an aggregate liquidation preference of $i250.0 million.
On March 2, 2021, the Company issued i300,000
shares of Series B Preferred Stock, $i0.01 par value, with a liquidation preference of $i1,000 per share. The
Company will pay dividends on the Series B 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 $i1,000 per share at a rate per annum equal to: (i) i4.65%
through June 15, 2026, and payable quarterly in arrears beginning on June 15, 2021, and (ii) the Five-year U.S. Treasury Rate as of the applicable reset dividend determination date plus a spread of i4.076% per reset period from June 15, 2026 and reset every ifive
years and payable quarterly in arrears.
The Company may redeem shares of the Series B Preferred Stock at its option, in whole or in part, from time to time, on any dividend payment date on or after June 15, 2026, for cash at a redemption price equal to $i1,000 per share, plus any declared and unpaid dividends, without accumulation
of any undeclared dividends. The Company may also redeem shares of the Series B Preferred Stock at the Company’s option under certain other limited conditions. The Series B Preferred Stock ranks on a parity with the Series A Preferred Stock.
i
The following table summarizes the Company’s preferred stock
issued and outstanding as of September 30, 2021 (in thousands, except for share and per share amounts and percentages):
During
the three months ended September 30, 2021, the Company repurchased i153,949 shares of its Class A common stock under its previously announced stock repurchase program at an average purchase price of $i37.55
per share.
Note 9. iStock-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, ino new awards may be granted under the Amended and Restated 2010 Equity Incentive Plan (the “2010 Plan”). As of September 30, 2021, the number of stock options (“Stock Options”) and restricted stock units (“RSUs”) authorized under the 2014 Plan is
approximately i4,494,268.
The Company recorded $i6.7 million and $i6.6
million of stock-based compensation expense for the three months ended September 30, 2021 and 2020, respectively. The Company recorded $i18.8 million and $i15.0
million of stock-based compensation expense for the nine months ended September 30, 2021 and 2020, respectively.
Stock Options
iA summary of stock option activity for the nine months ended September 30, 2021 follows:
(1) The
aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of the Company’s Class A common stock as of the respective date.
/
As of September 30, 2021, there were ino
unrecognized compensation costs related to outstanding stock options. For the three and nine months ended September 30, 2021 and 2020, there were iiiino///
stock-based compensation expenses related to Stock Options.
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 book value and time based 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 RSUs that vest based on the attainment of Total Shareholder Return (“TSR”) goals 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, 2021, the Company granted i597,728
RSUs of which i116,599 are TSR RSUs. iThe
following table summarizes the activities for the Company’s unvested RSUs for the nine months ended September 30, 2021:
As
of September 30, 2021, there was $i29.7 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 i1.86
years.
As of September 30, 2021, the Company managed i89 aircraft across ithree
aircraft management platforms. The Company managed i51 aircraft through ithree separate entities under
its Thunderbolt platform, i34 aircraft through the Blackbird investment funds and ifour on behalf of two financial institutions.
The
Company managed i34 aircraft on behalf of third-party investors, through itwo investment funds,
Blackbird Capital I, LLC and Blackbird Capital II, LLC (“Blackbird II”). These funds invest in commercial aircraft and lease them to airlines throughout the world. The Company provides management services to these funds for a fee. As of September 30, 2021, the Company's non-controlling interests in each fund are i9.5% and are accounted for under the
equity method of accounting. The Company’s investment in these funds aggregated $i72.9 million and $i52.6
million as of September 30, 2021 and December 31, 2020, respectively, and is included in Other assets on the Consolidated Balance Sheets. The Company continues to source aircraft investment opportunities for Blackbird II. As of November 4, 2021, Blackbird II has remaining equity capital commitments to acquire up to approximately $i363.1 million
in aircraft assets, for which the Company has committed to fund up to $i10.3 million related to these potential investments.
Additionally, the Company continues to manage aircraft that it sells through its Thunderbolt platform. The Thunderbolt platform facilitates the sale of mid-life aircraft to investors
while allowing the Company to continue the management of these aircraft for a fee. As of September 30, 2021, the Company managed i51 aircraft through its Thunderbolt platform across ithree
separate transactions. The Company has non-controlling interests in itwo of these entities of approximately i5.0%,
which are accounted for under the cost method of accounting. The Company’s total investment in aircraft sold through its Thunderbolt platform was $ii9.3/
million as of each of September 30, 2021 and December 31, 2020 and is included in Other assets on the Consolidated Balance Sheets.
Note 11. iUpdate on COVID-19 Pandemic Impact
In response to the
COVID-19 pandemic, governments around the world have implemented numerous measures to try to contain the virus, including travel restrictions. These measures, coupled with a significant decrease in spending on travel as a result of COVID-19, have materially impacted airline traffic and operations throughout the world, including the Company's airline customers.
While domestic and regional airline traffic have improved since the industry low in April 2020, passenger traffic remains challenged, especially with respect to international and business air travel demand, due to ongoing cases of the virus, the emergence of new variants of the virus, vaccine availability and acceptance, and continuing travel restrictions.
On a case-by-case
basis, the Company has agreed to accommodations, such as deferrals of lease payments or other lease concessions, with approximately i64% of its lessees since the pandemic began in the first quarter of 2020. The majority of these accommodations have been in the form of partial lease deferrals which, in many cases, include lease extensions. The Company has also entered into some lease restructurings.
The impact of these restructurings decreased the Company’s total revenues by $i26.6 million for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. The
Company remains in active discussions with its airline customers and may continue to provide accommodations on a case-by-case basis.
While lease deferrals may delay the Company's receipt of cash, the Company generally recognizes lease revenue during the period even if a deferral is provided to the lessee, unless it determines collection is not reasonably assured. The Company monitors all lessees with past due lease payments and discusses relevant operational and financial issues facing those lessees in order to determine an appropriate course of action. In addition, if collection is not reasonably assured, the
Company will not recognize rental income for amounts due under the Company’s lease contracts and will recognize revenue for such lessees on a cash basis. For a lessee whose revenue the Company recognizes on a cash basis, the Company will not recognize revenue from the lessee if the lease receivables from such lessee exceed the lease security package held by the Company. For those lessees whose revenue the Company recognizes on a cash basis, the
Company recorded $i5.4 million in incremental revenue during the three months ended September 30, 2021, primarily due to cash payments received from Vietnam Airlines. During the three months ended September 30, 2020, the Company was not able to recognize $i25.3 million
in rental revenue from lessees on a cash basis of accounting because collection was not reasonably assured.
In October 2021, the Company issued i300,000 shares of i4.125%
Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series C (the “Series C Preferred Stock”), with an aggregate liquidation preference of $i300.0 million ($i1,000
per share). The Company will pay dividends on the Series C 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 $i1,000 per share at a rate per annum equal to: (i) i4.125%
through December 15, 2026, and payable quarterly in arrears beginning on December 15, 2021, and (ii) the Five-year U.S. Treasury Rate as of the applicable reset dividend determination date plus a spread of i3.149% per reset period from December 15, 2026 and reset every ifive
years and payable quarterly in arrears.
The Company may redeem shares of the Series C Preferred Stock at its option, in whole or in part, from time to time, on any dividend payment date on or after December 15, 2026, for cash at a redemption price equal to $i1,000 per share, plus any declared and unpaid dividends, without accumulation
of any undeclared dividends. The Company may also redeem shares of the Series C Preferred Stock at the Company’s option under certain other limited conditions. The Series C Preferred Stock ranks on a parity with the Series A and Series B Preferred Stock.
On November 3, 2021, the Company’s board of directors approved quarterly dividends for the Company’s Class A common stock and Series A, Series B and Series C Preferred Stock. iThe
following table summarizes the details of the dividends that were declared:
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
(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 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 other investors. 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 fleet, the terms of our leases, the interest rates on our debt, and the aggregate amount of our indebtedness,
supplemented by the gains from aircraft sales and our management fees.
Third Quarter Overview
During the three months ended September 30, 2021, we purchased and took delivery of 16 aircraft from our new order pipeline ending the period with a total of 370 aircraft in our operating lease portfolio with a net book value of $22.1 billion. The weighted average lease term remaining on our operating lease portfolio was 7.0 years and the weighted average age of our fleet was 4.4 years as of September 30, 2021. Our fleet grew by 8.5% based on net book value of $22.1 billion as of September 30, 2021, compared to $20.4 billion as of December 31,
2020. In addition, we had a managed fleet of 89 aircraft as of September 30, 2021, compared to a managed fleet of 81 aircraft as of December 31, 2020. We have a globally diversified customer base comprised of 115 airlines in 59 countries as of September 30, 2021. As of November 4, 2021, all aircraft in our operating lease portfolio, except for one aircraft, were subject to letters of intent or lease agreements.
As of September 30, 2021, we had contractual commitments to purchase 320 aircraft from Airbus and Boeing for delivery through 2027, with an estimated aggregate commitment of $21.2 billion. We ended the third quarter of 2021 with
$29.1 billion in committed minimum future rental payments and placed approximately 96% of our committed orderbook on long-term leases for aircraft delivering through the end of 2023 and have placed 67% of our entire orderbook. This includes $14.6 billion in contracted minimum rental payments on the aircraft in our existing fleet and $14.5 billion in minimum future rental payments related to aircraft which will be delivered during the remainder of 2021 through 2025.
During the three months ended September 30, 2021, we issued $600.0 million of 0.80% Medium-Term Notes due 2024, and $500.0 million of 2.10% Medium-Term Notes due 2028. In addition, we ended the third quarter of 2021 with an aggregate borrowing capacity under our Revolving Credit Facility of $6.5 billion and total liquidity of $8.4 billion. We had total debt outstanding of $17.8
billion at the end of the third quarter of 2021, of which 95.0% was at a fixed rate and 99.2% was unsecured. Our composite cost of funds decreased to 2.82% as of September 30, 2021 compared to 3.13% as of December 31, 2020.
Our total revenues for the quarter ended September 30, 2021 increased by 6.3% to $524.5 million, compared to the quarter ended September 30, 2020. The increase in total revenues was primarily driven by the continued growth in our fleet and an increase in our cash collections. During the three months ended September 30, 2021, we recorded $5.4 million in incremental revenue
from our lessees on cash basis accounting, primarily due to cash payments received from Vietnam Airlines. During the three months ended September 30, 2020, we were not able to recognize $25.3 million in rental revenue from lessees on a cash basis of accounting because the collection was not reasonably assured. In addition, the impact of lease restructurings decreased total revenues by approximately $26.6 million during the three months ended September 30, 2021as compared to the three months ended September 30, 2020. Our net income available to common stockholders for the quarter ended September 30, 2021 was $100.0
million compared to $116.6 million for the quarter ended September 30, 2020. Our diluted earnings per share for the quarter ended September 30, 2021 was $0.87 compared to $1.02 for the quarter ended September 30, 2020. Despite the growth in our fleet and the increase in our collections across our fleet, our net income available to common stockholders and diluted earnings per share decreased due to lower aircraft sales, trading and other revenue during the period.
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, 2021 was $146.5 million or $1.28 per diluted share, compared to $166.9 million or $1.47 per diluted share for the three months ended September 30, 2020. Despite the growth in our fleet and the increase in our collections, our adjusted net income before income taxes and adjusted diluted earnings per share before income taxes decreased due to lower aircraft sales, trading and other revenue during the period. 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.
Update on COVID-19 Pandemic Impact
While air travel has begun to recover and travel restrictions are easing in certain locations where vaccination rates are rising, passenger traffic remains challenged, especially with respect to international and business air travel demand, due to ongoing cases of the virus, the emergence of new variants of the virus, vaccine availability and acceptance, and continuing travel restrictions. It is unclear
how long and to what extent travel restrictions will remain in place and they may remain in place in some form for an extended period of time. As a result of these challenges and impacts, we have experienced weakened lease rates. However, we are beginning to witness increased lease rates and demand for our narrowbody and widebody aircraft. We anticipate that the long-term recovery of domestic and international air travel will occur in phases and vary by region and be driven by rising vaccination rates, and the efforts of countries working independently and collectively to develop new ways to reduce travel restrictions.
During the three months ended September 30, 2021, we continued to receive requests from our customers for accommodations such as deferrals of lease payments or other lease concessions. On a case-by-case basis, we have agreed
to accommodations, such as deferrals of lease payments or other lease concessions, with approximately 64% of our lessees since the pandemic began in the first quarter of 2020. The majority of these accommodations have been in the form of partial lease deferrals which, in many cases, include lease extensions. As of November 4, 2021, $138.0 million or 54% of the total deferral amount has been repaid. As a result, as of November 4, 2021, our total deferrals, net of repayments, was $117.5 million. By the end of 2022, we expect approximately 77% of our total deferrals granted to date, including those that have already been repaid, will be repaid. Our net deferrals represented approximately 1.4% of our total available liquidity as of September 30, 2021. We have also entered into some lease restructurings. The impact of these
restructurings decreased the Company’s total revenues by $26.6 million for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. We remain in active discussions with our airline customers and may continue to provide accommodations on a case-by-case basis.
Our collection rate for the three and nine months ended September 30, 2021was 94% and 89%, respectively. Our collection rate was higher for the three months ended September 30, 2021 because of cash payments received from Vietnam Airlines.
Although our collection rate continues to improve, ongoing resurgences of the COVID-19 virus and its variants may continue to have an impact on our collection rate. Collection rate is defined as the sum of cash collected from lease rentals and maintenance reserves, and includes cash recovered from outstanding receivables from previous periods, as a percentage of the total contracted receivables due for the period. The collection rate is calculated after giving effect to lease deferral arrangements made as of September 30, 2021. If collection from a lessee is not reasonably assured, we will not recognize rental income for the amounts due under our lease contracts and will recognize revenue for such lessees on a cash basis. During the three months September 30,
2021, we recorded $5.4 million in incremental revenue from our lessees on cash basis accounting, primarily due to cash payments received from Vietnam Airlines. During the three months ended September 30, 2020, we were not able to recognize $25.3 million in rental revenue from lessees on a cash basis of accounting because collection was not reasonably assured. In the aggregate, aircraft on lease that we accounted for on a cash basis represented approximately 10.6% of our fleet by net book value as of September 30, 2021. Depending on the future impact of the COVID-19 pandemic, we could experience increased requests for lease deferrals or restructurings, declines in our collection rate and additional lease revenue that will not be recognized in future quarters because collection will not be reasonably assured for certain
lessees.
Our lease utilization rate for each of the quarters ended September 30, 2021 and June 30, 2021 was 99.7%. The lease utilization rate is calculated based on the number of days each aircraft was subject to a lease or letter of intent during the period, weighted by the net book value of the aircraft. The severity and longevity of the COVID-19 pandemic on our airline customers could result in a decline in our lease utilization rate if our lessees return aircraft to us before the return date in their lease agreement or experience insolvency or initiate bankruptcy or similar proceedings that result in aircraft being returned to us. If this occurs, we may not be able to reposition
the aircraft with other airlines as quickly as we have historically been able to do and we may incur increased costs in repositioning such aircraft. A decline in our lease utilization rate would adversely impact our financial results, including our revenue and profitability.
Although the pace of aircraft deliveries has improved during 2021 as compared to 2020, we continue to experience aircraft delivery delays related to supply chain disruptions resulting from COVID-19. While the commitment table in Note 4, “Commitments and Contingencies” above and the discussion of “Our Fleet” below reflect our contractual commitments, we are in ongoing discussions with Boeing and Airbus to determine the extent and duration of delivery delays. The delays could result in a cancellation of leases for those aircraft. While we have planned
our capital expenditures for the remainder of 2021 and beyond based on currently expected delivery schedules, given the current industry circumstances, our aircraft delivery schedule could continue to be subject to material changes. In any case, our capital expenditures will be less than what we planned prior to the pandemic, which will slow our revenue growth, but will further improve our strong liquidity position. Accordingly, we had scaled back our aircraft sales activity during the first nine months of 2021, however, assuming aircraft deliveries continue to improve, we expect to resume selling aircraft in the fourth quarter.
The COVID-19 pandemic, including its impact on our industry, our customers and suppliers and our company, remains dynamic. Our business, results of operations and financial
condition may continue to be negatively impacted by the COVID-19 pandemic and no assurance can be made regarding the ultimate impact of the COVID-19 pandemic.
We believe, however, that the airline industry will eventually recover and aircraft travel will return to historical levels over the long term. See “Aircraft Industry and Sources of Revenues” below. Further, we believe we are well positioned to offer solutions for airlines, because we can offer the ability to lease younger, more fuel-efficient aircraft at a time when airlines will be focused on reducing capital requirements and managing costs.
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, 2021 and December 31, 2020:
As of September 30, 2021, we had contractual commitments to acquire a total of 320 new aircraft for delivery through 2027 as follows:
Estimated
Delivery Years
Aircraft Type
2021
2022
2023
2024
2025
Thereafter
Total
Airbus A220-300(1)
—
3
9
16
12
11
51
Airbus
A320/321neo(2)
12
24
22
26
19
21
124
Airbus A330-900neo
1
8
4
—
—
—
13
Airbus
A350-900/1000
3
3
4
5
1
—
16
Boeing 737-7/8/9 MAX
8
29
16
28
7
—
88
Boeing
787-9/10
1
10
4
10
3
—
28
Total
25
77
59
85
42
32
320
(1) In
addition to our commitments, as of September 30, 2021, we had options to acquire up to 24 Airbus A220 aircraft. If exercised, deliveries of these aircraft are scheduled to commence in 2026 and continue through 2028.
(2) Our Airbus A320/321neo aircraft orders include 31 long-range variants and 29 extra long-range variants.
Aircraft Delivery Delays
Pursuant to our purchase agreements with Boeing and Airbus for new aircraft, we and each manufacturer agree to contractual delivery dates for each aircraft ordered. These dates can change for a variety of reasons, and in the last several years manufacturing delays have significantly impacted our actual delivery
dates.
The worldwide grounding of the 737 MAX beginning in March 2019 has resulted in material delivery delays of those aircraft from our orderbook. The FAA and EASA lifted their grounding order on November 18, 2020 and January 27, 2021, respectively. While the majority of the 737 MAX in our owned fleet have resumed service, the 737 MAX still remains grounded in several jurisdictions. The grounding of the aircraft has caused airlines to adjust flight schedules, cancel flights, or keep older aircraft in service longer. We are unable to speculate as to when the grounding of the 737 MAX in the remaining countries and jurisdictions will be lifted.
Boeing continues to have a significant number of 737 MAX aircraft
completed and stored in its inventory and delays are likely to continue as the aircraft are prepared for delivery.
As of September 30, 2021, we owned and leased 31 737 MAX aircraft and we had 88 737 MAX aircraft on order. With respect to the 737 MAX aircraft we own and lease, our airline customers are obligated to continue to make payments under the lease, irrespective of any difficulties the lessees may encounter, including an aircraft fleet grounding. However, the lease payments for some of our 737 MAX airline customers are in arrears.
During the fourth quarter of 2020, Boeing identified manufacturing related issues on its 787 aircraft. As a result, Boeing suspended deliveries of 787 aircraft between October 2020 and March 2021. Boeing temporarily resumed
787 aircraft deliveries in March 2021; however, in May 2021, deliveries were once again halted while the FAA completes its evaluation of Boeing’s inspection process. Manufacturing related issues in some 787 aircraft will require further modifications in order to resume deliveries. Boeing expects to maintain 787 production at a reduced rate of less than five per month until deliveries resume, and the timing of resumption of deliveries remains uncertain. As such, we are not yet able to determine the impact of delivery delays.
As a result of the aforementioned items occurring with both the 737 MAX and 787 aircraft, as of November 4, 2021, we anticipate that Boeing may continue to experience challenges in delivering these aircraft resulting in delivery delays on both the 737 MAX and 787 throughout the remainder of 2021 and delivery delays
could potentially extend well into 2022 and beyond.
We have also experienced delivery delays for certain of our Airbus orderbook aircraft, including the A320neo family aircraft and, to a lesser extent, the A330neo aircraft. Airbus has advised us to continue to expect several months of delivery delays relating to such aircraft scheduled to deliver through 2022. These delays have also impacted airline operations and the profitability of certain airlines.
We are also continuing to experience aircraft delivery delays as a result of supply
chain disruption from the COVID-19 pandemic. While we have planned our capital expenditures for the remainder of 2021 and beyond based on currently expected delivery schedules, given the current industry circumstances, our aircraft delivery schedule could continue to be subject to material changes.
Our leases typically provide that we and our airline customer each have a cancellation right related to certain aircraft delivery delays. Our purchase agreements with Boeing and Airbus also generally provide that we and the manufacturer each have cancellation rights that typically parallel our cancellation rights in our leases. Our leases and our purchase agreements with Boeing and Airbus generally provide for cancellation rights starting at one year after the original contractual delivery date, regardless of cause.
We
expect that if the grounding of the 737 MAX continues in certain countries and jurisdictions for an extended time, or if there are significant 737 MAX delivery delays in countries and jurisdictions where the grounding has been lifted, more of our customers may seek to cancel their lease contracts for the 737 MAX with us. We believe that the majority of our 737 MAX aircraft and some of our 787 aircraft deliveries in our orderbook will be delayed more than 12 months, which would give us, our airline customers and Boeing the right to cancel these aircraft commitments. As of November 4, 2021, we have canceled our orders for 23 737 MAX aircraft and three 787 aircraft with Boeing. It is unclear at this point if we will cancel more of our 737 MAX or 787 delivery positions with Boeing or attempt to find replacement lessees. We are currently
in discussions with Boeing regarding the mitigation of damages resulting from the delivery delays associated with the 737 MAX and 787 aircraft that we own and have on order.
The following table, which is subject to change based on Airbus and Boeing delivery delays, shows the number of new aircraft scheduled to be delivered as of September 30, 2021, along with the lease placements of such aircraft as of November 4, 2021. As noted above, we expect delivery delays for all aircraft deliveries in our orderbook. We remain in discussions with Boeing and Airbus to determine the extent and duration of delivery delays, but we are not yet able to determine the full impact of the delivery delays.
Delivery Year
Number of
Aircraft
Number Leased
% Leased
2021
25
25
100.0
%
2022
77
77
100.0
%
2023
59
53
89.8
%
2024
85
47
55.3
%
2025
42
13
31.0
%
Thereafter
32
—
—
%
Total
320
215
Aircraft
Industry and Sources of Revenues
Our revenues are principally derived from operating leases with scheduled and charter airlines throughout the world. As of September 30, 2021, we had a globally diversified customer base comprised of 115 airlines in 59 different countries, with over 95% of our business revenues from airlines domiciled outside of the U.S., and we anticipate that most of our revenues in the future will be generated from foreign customers.
Performance of the commercial airline industry is linked to global economic health and development, which may be negatively impacted by economic disruption, macroeconomic conditions and geopolitical and policy risks, among other factors. COVID-19 continues to cause significant disruption to the commercial airline industry resulting
in a significant decline in air travel, negatively impacting airlines, aircraft manufacturers, and other related businesses. While the International Air Transport Association (“IATA”) has reported that passenger traffic has increased 67% year-over-year for the first nine months of 2021, air travel has still not recovered to 2019 levels primarily due to the ongoing impact of COVID-19. IATA reported that passenger traffic for the first nine months of 2021 is 62% below the comparable period during 2019, and air traffic for the month of September 2021 declined 53% from the comparable 2019 level. While domestic and regional airline traffic have improved since the industry low in April 2020, passenger traffic remains challenged, especially with respect to international and to a somewhat lesser degree business air travel demand, due to ongoing cases of the virus, the emergence of new variants of the virus, vaccine availability and acceptance, and continuing travel restrictions.
Air travel is recovering and travel restrictions are easing in certain locations where vaccination rates are rising. We believe widespread vaccination can reduce the impact of COVID-19 on the commercial airline industry; however, we cannot predict the pace of vaccinations or how long it will take the industry to recover. In addition, many countries are working on ways to further enable air travel despite the virus, including the use of digital certifications for COVID-19 vaccination or negative test results for purposes of
travel. We anticipate that the long-term recovery of domestic and international air travel will occur in phases and vary by region and be driven
by rising vaccination rates, easing travel restrictions and by the efforts of countries working independently and collectively to develop new ways to reduce travel restrictions.
We expect our airline customers to continue to experience financial difficulties into early 2022 and potentially longer, which could result in additional requests for lease accommodations, requests to return aircraft early and lease defaults. We also continue to expect more airline reorganizations, liquidations, or other forms of bankruptcies, which may include our aircraft customers and result in the early return of aircraft or changes in our lease terms. As of the date of this filing, we had 15 aircraft across five airlines which were subject to various forms of insolvency proceedings.
As of September
30, 2021, approximately 74% of the net book value of our fleet are leased to flag carriers or airlines that have some form of governmental ownership; however, this does not guarantee our ability to collect contractual rent payments. We believe that having a large portion of the net book value of our fleet on lease with flag carriers or airlines with some form of governmental ownership, coupled with the overall quality of our aircraft and security deposits and maintenance reserves under our leases will help mitigate our customer default risk.
We expect the aviation industry to recover over time from the impact of COVID-19, and in the long-term we remain optimistic. While we believe some aircraft lessors may consolidate or cease operations as a result of the pandemic, we believe the aircraft leasing industry has remained resilient over time across a variety of global economic conditions
and remain optimistic about the long-term fundamentals of our business. As a result of the COVID-19 pandemic, some airlines have accelerated their plans to retire older, less fuel-efficient aircraft that have higher maintenance costs in the current environment, and we anticipate that airlines will continue to accelerate the retirement of these types of aircraft, ultimately increasing demand for newer aircraft over time. We also anticipate that when airlines need to add new aircraft to their fleet, they will increasingly elect to lease aircraft instead of purchasing aircraft to reduce capital requirements and manage other operating expenses, and that we will benefit from that trend. We expect a number of these trends to continue for the remainder of 2021 and beyond.
We and airlines around the world have continued to experience delivery delays from Boeing and Airbus and have been impacted
by the 737 MAX grounding, as discussed above in “Our Fleet.” Aircraft manufacturer delays and the 737 MAX grounding have impacted the growth of our company as well as the growth of our airline customers, passenger growth and airline profitability and we expect this to continue. As a result of continued manufacturing delays and the impact of COVID-19, our aircraft delivery schedule could continue to be subject to material changes and delivery delays could potentially extend well into 2022 and beyond.
As a result of various impacts of COVID-19 including border restrictions and other travel limitations, we have seen reduced demand for certain aircraft in our fleet, which has resulted in weakened lease rates for these aircraft. This includes demand for and lease rates on widebody aircraft which have, in particular,
been impacted by travel restrictions curtailing long-haul international travel. However, we are beginning to witness increased lease rates and demand for our narrowbody and widebody aircraft. Due to the grounding of the 737 MAX and other narrow body delivery delays, our fleet currently has a greater concentration of widebody aircraft than we typically target. It is unclear at this time what further impact on lease rates will ultimately result from the impact of COVID-19 on the airline industry, changes in the competitive landscape of the aircraft leasing industry, evolving international trade matters, and ongoing aircraft delays from Airbus and Boeing, among other items.
In October 2019, the U.S. government imposed a 10% tariff on new aircraft imported from Europe, including Airbus aircraft. In March 2020, the tariff was raised to 15%. In November 2020, the European Union (“E.U.”)
imposed a 15% tariff on new aircraft imported into the E.U. from the U.S., including Boeing aircraft. In June 2021, the U.S. and the E.U. agreed to temporarily suspend all retaliatory tariffs related to new aircraft imports for five years. If tariffs are reinstated or other actions are taken with respect to trade relations between the U.S. and U.S. trading partners, it may impact our business, including by delaying deliveries of aircraft to our lessees and decreasing future demand for our orderbook aircraft.
We finance the purchase of aircraft and our business with available cash balances, internally generated funds, including through aircraft sales and trading activity, and an array of financing products. 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 with primarily fixed-rate debt. Unsecured financing provides us with operational flexibility when selling or transitioning aircraft from one airline to another and also reduces structural subordination in our capital structure. We also have the ability to seek debt financing secured by our assets, as well as financings supported through the Export-Import Bank of the United States and other export credit agencies for
future aircraft deliveries. Our access to a variety of financing alternatives including unsecured public bonds, private capital, bank debt, preferred stock and secured markets provides us with a key advantage in managing our liquidity and we have continued to access a number of these markets during the COVID-19 pandemic. Aircraft delivery delays as a product of the COVID-19 pandemic, the 737 MAX grounding and other manufacturer delays are expected to further reduce our capital requirements for the next nine to twelve months and potentially beyond.
Our cash flows provided by operating activities increased by 29.5% or $211.8 million, to $929.4 million for the nine months ended September 30, 2021 as compared to $717.6 million for the nine months ended September 30, 2020. Despite the decrease in our net income, our cash flow provided by operating activities during the nine months ended September 30, 2021 as compared to the nine months ended September
30, 2020 was higher primarily due to the growth of our fleet and an increase in our cash collections. Our cash flow used in investing activities was $2.2 billion for the nine months ended September 30, 2021, which resulted primarily from the purchase of aircraft. Our cash flow used in investing activities was $1.4 billion for the nine months ended September 30, 2020, 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 $1.4 billion for the nine months ended September 30, 2021, which resulted primarily from the issuance of unsecured notes and the issuance of our Series B preferred stock partially offset by the repayment of outstanding debt. Our cash flow provided by financing activities was $1.6 billion
for the nine months ended September 30, 2020, which resulted primarily from the issuance of unsecured notes partially offset by the repayment of outstanding debt. The continued impact of COVID-19, including as a result of rent deferrals and other lease concessions made or that we may make in the future to our customers, may negatively affect our cash flow from operating activities in the future.
We ended the third quarter of 2021 with available liquidity of $8.4 billion, which is comprised of unrestricted cash of $1.9 billion and an available borrowing capacity under our Revolving Credit Facility of $6.5 billion. Our Revolving Credit Facility does not condition our ability to borrow on the lack of a material adverse effect to us or the general
economy. A key component of the ongoing liquidity available to us is our Revolving Credit Facility, for which the substantial majority of the commitments mature in 2025. As of November 4, 2021, our Revolving Credit Facility is syndicated across 50 financial institutions from around various regions of the world, diversifying our reliance on any individual lending institution. We continue to utilize our Revolving Credit Facility in the normal course of business.
We have a balanced approach to capital allocation based on the following priorities, ranked in order of importance: first, investing in modern, in-demand aircraft to profitably grow our core aircraft leasing business while maintaining strong
fleet metrics and creating sustainable long-term shareholder value; second, maintaining our investment grade balance sheet utilizing unsecured debt as our primary form of financing; and finally, in lockstep with the aforementioned priorities, returning excess cash to shareholders through our dividend policy as well as regular evaluation of share repurchases, as appropriate.
We currently believe that our cash on hand, current debt arrangements and general ability to access the capital markets will be sufficient to finance our operations and fund our debt service requirements and capital expenditures, including aircraft acquisition over the next 12 months.
As of September 30, 2021, we were in compliance in all material respects with the covenants contained 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, 2020.
As of September 30, 2021, we had $17.5 billion in senior unsecured notes outstanding. As of December 31, 2020, we had $15.6 billion in senior unsecured notes outstanding.
During the nine months ended September 30, 2021, we issued approximately $3.7 billion in aggregate principal amount of Medium-Term Notes comprised of (i) $750.0 million
in aggregate principal amount of 0.70% Medium-Term Notes due 2024, (ii) $1.2 billion in aggregate principal amount of 1.875% Medium-Term Notes due 2026, (iii) $600.0 million in aggregate principal amount of Medium-Term Notes due 2022 bearing interest at a floating rate of three-month LIBOR plus 0.35%, (iv) $600.0 million in aggregate principal amount of 0.800% Medium-Term Notes due 2024, and (v) $500.0 million in aggregate principal amount of 2.100% Medium-Term Notes due 2028.
Unsecured revolving credit facilities
As of September 30, 2021 and December 31, 2020, we did not have any amounts outstanding under our unsecured revolving credit facility (the “Revolving Credit Facility”).
Borrowings under our Revolving Credit Facility accrue 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 or improvements 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 or improvements in the credit ratings for our debt) in respect of total commitments under our Revolving Credit Facility. Borrowings under our Revolving Credit Facility are used to finance our working capital needs
in the ordinary course of business and for other general corporate purposes.
In April 2021, we amended and extended our Revolving Credit Facility through an amendment that, among other things, extended the final maturity date from May 5, 2023 to May 5, 2025 and, after giving effect to commitments that matured on May 5, 2021, increased the total revolving commitments to approximately $6.4 billion, representing an increase of 6.7% from December 31, 2020. On September 10, 2021, we executed a new lender supplement to the Revolving Credit Facility, which increased the aggregate facility capacity by an additional $50.0 million increasing our total
revolving commitments to $6.5 billion. As of November 4, 2021, lenders held revolving commitments totaling approximately $5.8 billion that mature on May 5, 2025, commitments totaling $575.0 million that mature on May 5, 2023 and commitments totaling $105.0 million that mature on May 5, 2022. The amended Revolving Credit Facility also added benchmark replacement language with respect to LIBOR largely based on Alternative Reference Rates Committee LIBOR fallback language and amended certain financial maintenance covenants, including removing the maximum consolidated leverage ratio covenant, increasing the required level for minimum consolidated shareholders equity and removing the mechanism for suspending the minimum interest coverage ratio if certain debt ratings are met.
In
September 2021, we entered into an uncommitted unsecured revolving credit facility with a total borrowing capacity of $75.0 million and a maturity date of June 22, 2022, bearing interest at a rate of LIBOR plus 0.90%. As of September 30, 2021, we did not have any amounts outstanding under this facility.
Secured debt financing
As of September 30, 2021, the outstanding balance on our secured debt financings, including our export credit financing, was $149.8 million and we had pledged three aircraft as collateral with a net book value of $224.7 million. As of December 31, 2020, the outstanding balance on our secured debt
financings, including our secured warehouse facility and our export credit financing, was $301.0 million and we had pledged 12 aircraft as collateral with a net book value of $628.7 million.
Preferred equity
On March 5, 2019, we issued 10,000,000 shares of 6.15% 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. See “Item 1. Financial Statements – Note 8, Shareholders’ Equity,” in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 for a discussion of the Series A Preferred Stock dividend rate.
On
March 2, 2021, we issued 300,000 shares of 4.65% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series B (the “Series B Preferred Stock”), $0.01 par value, with a liquidation preference of $1,000 per share. We will pay dividends on the preferred stock only when, as and if declared by our board of directors. Dividends will accrue, on a non-cumulative basis, on the stated amount of $1,000 per share at a rate per annum equal to: (i) 4.65% through June 15, 2026, and payable quarterly in arrears beginning on June 15, 2021, and (ii) the Five-year U.S. Treasury Rate as of the applicable reset dividend determination date plus a spread of 4.076% per reset period from June 15, 2026 and reset every five years and payable quarterly in arrears.
We
may redeem shares of the Series B Preferred Stock at our option, in whole or in part, from time to time, on any dividend payment date on or after June 15, 2026, for cash at a redemption price equal to $1,000 per share, plus any declared and unpaid dividends, without accumulation of any undeclared dividends. We may also redeem shares of the Series B Preferred Stock at our option under certain other limited conditions. The Series B Preferred Stock ranks on a parity with the Series A Preferred Stock and Series C Preferred Stock.
In October 2021, we issued 300,000 shares of 4.125% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series C (the “Series C Preferred Stock”), with an aggregate liquidation preference of $300.0 million ($1,000 per share). We will pay dividends on the Series C Preferred Stock only when, as and if
declared by our board of directors. Dividends will accrue, on a non-cumulative basis, on the stated amount of $1,000 per share at a rate per annum equal to: (i) 4.125% through December 15, 2026, and payable quarterly in arrears beginning on December 15, 2021, and (ii) the Five-year U.S. Treasury Rate as of the applicable reset dividend determination date plus a spread of 3.149% per reset period from December 15, 2026 and reset every five years and payable quarterly in arrears.
We
may redeem shares of the Series C Preferred Stock at our option, in whole or in part, from time to time, on any dividend payment date on or after December 15, 2026, for cash at a redemption price equal to $1,000 per share, plus any declared and unpaid dividends, without accumulation of any undeclared dividends. We may also redeem shares of the Series C Preferred Stock at our option under certain other limited conditions. The Series C Preferred Stock ranks on a parity with the Series A Preferred Stock and Series B Preferred Stock.
A cash dividend of $0.384375 per share on our outstanding Series A Preferred Stock was paid on each of March 15, 2021, June 15, 2021 and September 15, 2021. Additionally,
a cash dividend of $13.304167 and $11.625 per share on our outstanding Series B Preferred Stock was paid on June 15, 2021 and September 15, 2021, respectively.
Potential Impact of LIBOR Transition
As of September 30, 2021, we had approximately $0.9 billion of floating rate debt outstanding that used LIBOR as the applicable reference rate to calculate the interest on such debt. Additionally, our Series A Preferred Stock will in the future accrue dividends at a floating rate determined by reference to LIBOR, if available. The Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates LIBOR, has announced
that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021. However, for U.S. dollar LIBOR, it appears that the relevant date may be deferred to June 30, 2023 for certain tenors (including overnight and one, three, six, nine and 12 months), at which time the LIBOR administrator has indicated that it intends to cease publication of U.S. dollar LIBOR. Despite this potential deferral, the LIBOR administrator has advised that no new contracts using U.S. dollar LIBOR should be entered into after December 31, 2021. These actions indicate that the continuation of U.S. dollar LIBOR on the current basis cannot and will not be guaranteed after June 30, 2023. Moreover, it is possible that U.S.
dollar LIBOR will be discontinued or modified prior to June 30, 2023. The U.S. Federal Reserve and the Bank of England have begun publishing a Secured Overnight Funding Rate and a reformed Sterling Overnight Index Average, respectively, which are intended to serve as alternative reference rates to LIBOR. At this time, however, it is not possible to predict the establishment of any market-accepted alternative reference rates or any other reforms to LIBOR and the effect of any such changes.
Furthermore, while fallback provisions governing the calculation of floating rate interest and dividends in the event LIBOR is unavailable have recently been established by the Alternative Reference Rate Committee, these provisions are not reflected in many agreements. The lack of a market practice and inconsistency in fallback provisions is reflected
across our floating rate debt and Series A Preferred Stock and the discontinuation of LIBOR could lead to unexpected outcomes that may vary between our various debt and equity securities that reference LIBOR to determine the rate in which interest or dividends, as applicable, accrue. For example, if LIBOR is discontinued, the fallback provisions contained in our credit facility, outstanding floating rate notes and the certificate of designations applicable to our Series A Preferred Stock are not the same among the various instruments and could lead to such debt or preferred stock bearing interest or paying dividends, as applicable, at, among other things, a rate of interest equal to the interest rate last in effect for which LIBOR was determinable, a floating rate determined in reference to a predetermined fallback reference rate or an alternative reference rate to be agreed upon by the parties to such agreement or that has been selected by the central bank, reserve
bank, monetary authority or any similar institution, and a rate of interest representative of the cost to applicable lenders of funding their participation in the debt.
If the rate used to calculate interest on our outstanding floating rate debt that currently uses LIBOR and our Series A Preferred Stock were to increase by 1.0% either as a result of an increase in LIBOR or the result of the use of an alternative reference rate determined under the fallback provisions in the applicable debt if LIBOR is discontinued, we would expect to incur additional interest expense on such indebtedness as of September 30, 2021 of approximately $9.0 million on an annualized basis. Further, if LIBOR is discontinued and there is no acceptable alternative reference rate, some of our floating rate debt, including
certain senior unsecured notes issued under our Medium-Term Note Program, and our Series A Preferred Stock may effectively become fixed rate debt. As a result, the cost of this debt and equity would increase to us if and as interest rates decreased.
While we do not expect the potential impact of any LIBOR transition to have a material effect on our financial results based on our currently outstanding floating rate debt and equity, uncertainty as to the nature of potential changes to LIBOR, fallback provisions, alternative reference rates or other reforms could adversely impact our interest expense on our floating rate debt that currently uses LIBOR as the applicable reference rate and our Series A Preferred Stock. In addition, any alternative reference rates to LIBOR may result in interest or dividend payments that do not correlate over time with the payments that would have been made
on our indebtedness or Series A Preferred Stock, respectively, if LIBOR was available in its current form. Further, the discontinuance or modification of LIBOR and uncertainty of an alternative reference rate may result in the increase in the cost of future indebtedness, which could have a material adverse effect on our financial condition, cash flow and results of operations. We intend to closely
monitor the financial markets and the use of fallback provisions and alternative reference rates in anticipation of the discontinuance or modification of LIBOR by June 30, 2023.
Credit
Ratings
In July 2021, Fitch Ratings reaffirmed our long-term debt and corporate rating and upgraded our outlook to Stable. 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.
The following table presents our historical operating results for the three and nine month periods
ended September 30, 2021 and 2020 (in thousands, except per share amounts and percentages):
Adjusted
diluted earnings per share before income taxes(1)
$
1.28
$
1.47
$
3.40
$
4.77
Pre-tax return on common equity (trailing twelve months)
8.0
%
12.8
%
8.0
%
12.8
%
Adjusted
pre-tax return on common equity (trailing twelve months)(1)
9.1
%
13.9
%
9.1
%
13.9
%
__________________________________________
(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 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. 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 table shows the reconciliation of the numerator for adjusted pre-tax profit margin (in thousands, except percentages):
Reconciliation of the numerator for adjusted pre-tax profit margin (net income available to common stockholders to adjusted net income before income taxes):
Net income available
to common stockholders
$
100,006
$
116,552
$
265,841
$
393,640
Amortization of debt discounts and issuance costs
12,571
10,899
37,109
31,660
Stock-based
compensation
6,692
6,635
18,800
14,956
Provision for income taxes
27,208
32,860
67,785
103,686
Adjusted net income before income taxes
$
146,477
$
166,946
$
389,535
$
543,942
Denominator
for adjusted pre-tax profit margin:
Total revenues
$
524,509
$
493,601
$
1,491,213
$
1,526,337
Adjusted pre-tax profit margin(a)
27.9
%
33.8
%
26.1
%
35.6
%
(a)
Adjusted pre-tax profit margin is adjusted net income before income taxes divided by total revenues
The following table shows the reconciliation of the numerator for adjusted diluted earnings per share before income taxes (in thousands, except share and per share amounts):
Reconciliation of the numerator for adjusted diluted earnings per share (net income available to common stockholders to adjusted net income before income taxes):
Net income
available to common stockholders
$
100,006
$
116,552
$
265,841
$
393,640
Amortization of debt discounts and issuance costs
12,571
10,899
37,109
31,660
Stock-based
compensation
6,692
6,635
18,800
14,956
Provision for income
taxes
27,208
32,860
67,785
103,686
Adjusted net income before income taxes
$
146,477
$
166,946
$
389,535
$
543,942
Denominator
for adjusted diluted earnings per share:
Weighted-average diluted common shares outstanding
114,381,621
113,951,102
114,415,169
113,928,775
Adjusted diluted earnings per share before income taxes(b)
$
1.28
$
1.47
$
3.40
$
4.77
(b)
Adjusted diluted earnings per share before income taxes is adjusted net income before income taxes divided by weighted-average diluted common shares outstanding
The following table shows the reconciliation of pre-tax return on common equity to adjusted pre-tax return on common equity (in thousands, except percentages):
During the three months ended September 30, 2021, we recorded $519.5 million in rental revenue, an increase of $51.1 million or 10.9% as compared to $468.4 million for the three months ended September 30, 2020. The increase in total revenues is primarily driven by the continued growth of our fleet to 370 aircraft with a net book value of $22.1 billion as of September 30, 2021 from 308 aircraft with a net book value
of $19.5 billion as of September 30, 2020. During the quarter, we recorded $5.4 million in incremental revenue from lessees on cash basis accounting primarily due to cash payments received from Vietnam Airlines. During the three months ended September 30, 2020, we were not able to recognize $25.3 million in rental revenue from lessees on a cash basis of accounting. In addition, the impact of lease restructurings decreased total revenues by approximately $26.6 million during the three months ended September 30, 2021as compared to the three months ended September 30, 2020.
Aircraft
sales, trading and other revenue
Aircraft sales, trading and other revenue totaled $5.0 million for the three months ended September 30, 2021 compared to $25.2 million for the three months ended September 30, 2020. For the three months ended September 30, 2021, we did not have any aircraft sales. The decrease in aircraft sales, trading and other revenue is primarily due to approximately $17.3 million in revenue recorded during the three months ended September 30, 2020, related to lease termination fees and revenue from the sale of one aircraft.
Interest expense
Interest
expense totaled $127.2 million for the three months ended September 30, 2021 compared to $118.4 million for the three months ended September 30, 2020. The increase was primarily due to an increase in our aggregate debt balance driven by the growth of our fleet and the increase in our liquidity position, partially offset by a decrease in our composite interest rate. We ended the quarter with $8.4 billion in available liquidity. 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 $225.0 million in depreciation expense of flight equipment for the three months ended
September 30, 2021 compared to $195.1 million for the three months ended September 30, 2020. The increase in depreciation expense for the three months ended September 30, 2021, compared to the three months ended September 30, 2020, is primarily attributable to the acquisition of additional aircraft in our operating fleet during the last twelve months.
Selling, general and administrative expenses
We recorded selling, general and administrative expenses of $31.1 million for the three months ended September 30, 2021 compared to $20.2 million for the three months ended September 30,
2020. Selling, general and administrative expense as a percentage of total revenue increased to 5.9% for the three months ended September 30, 2021 compared to 4.1% for the three months ended September 30, 2020. The increase in selling, general and administrative expenses is primarily due to the increase in business activity. 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.
Net income available to common stockholders
For the three months ended September 30, 2021, we reported consolidated net income available to common stockholders of $100.0 million, or
$0.87 per diluted share, compared to a consolidated net income available to common stockholders of $116.6 million, or $1.02 per diluted share, for the three months ended September 30, 2020. Despite the growth in our fleet and the increase in our cash collections, our net income available to common stockholders and diluted earnings per share decreased due to lower aircraft sales, trading and other revenue during the period.
For the three months ended September 30,
2021, we recorded adjusted net income before income taxes of $146.5 million, or $1.28 per diluted share, compared to an adjusted net income before income taxes of $166.9 million, or $1.47 per diluted share, for the three months ended September 30, 2020. Despite the growth in our fleet and the increase in our cash collections, our adjusted net income before income taxes and adjusted diluted earnings per share before income taxes decreased due to lower aircraft sales, trading and other revenue during the period.
During
the nine months ended September 30, 2021, we recorded $1.44 billion in rental revenue, a decrease of $23.3 million or by 1.6% as compared to $1.46 billion for the nine months ended September 30, 2020. Our fleet continued to grow, increasing to 370 aircraft with a net book value of $22.1 billion as of September 30, 2021 from 308 aircraft with a net book value of $19.5 billion as of September 30, 2020. Despite the growth in our fleet and the increase in our cash collections across our fleet, our revenues for the nine months ended September 30, 2021 decreased due to the impact of lease restructurings totaling $108.7 million and $84.9 million in rental revenue not recognized because lease receivables from lessees on a cash basis
of accounting exceeded the lease security package held by us.
Aircraft sales, trading and other revenue
Aircraft sales, trading and other revenue totaled $51.5 million for the nine months ended September 30, 2021 compared to $63.3 million for the nine months ended September 30, 2020. During the nine months ended September 30, 2021, we recorded approximately $34.0 million related to the sale to a third party of certain unsecured claims related to Aeromexico’s insolvency proceedings and did not have any aircraft sales. During the nine months ended September 30, 2020, we recorded approximately $31.1 million related to lease termination fees
and the sale of eight aircraft and also recorded $14.0 million in other revenue related to the repurchase of $206.1 million in aggregate principal amount of our Floating Rate Medium-Term Notes due 2021.
Interest expense
Interest expense totaled $383.4 million for the nine months ended September 30, 2021 compared to $349.4 million for the nine months ended September 30, 2020. The increase was primarily due to an increase in our aggregate debt balance driven by the growth of our fleet and the increase in our liquidity position, partially offset by a decrease in our composite interest rate. We ended the quarter with $8.4 billion in available liquidity. 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 $651.7 million in depreciation expense of flight equipment for the nine months ended September 30, 2021 compared to $578.0 million for the nine months ended September 30, 2020. The increase in depreciation expense for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, 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 $84.7 million for the nine months ended September 30, 2021 compared to $75.1 million for the nine months ended September 30, 2020. Selling, general and administrative expense as a percentage of total revenue increased to 5.7% for the nine months ended September 30, 2021 compared to 4.9% for the nine months ended September 30, 2020. The increase in selling, general and administrative expenses is primarily due to the increase in business activity. 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.
For the nine months ended September 30, 2021, we reported consolidated net income available to common stockholders of $265.8 million, or $2.32 diluted share, compared to a consolidated net income available to common stockholders of $393.6 million, or $3.46 diluted share, for the nine months ended September 30, 2020. The decrease in net income available to common stockholders and diluted earnings per share was primarily due to a decrease in total revenues and an increase in depreciation and interest expense from the growth of our fleet.
Adjusted net income before income taxes
For
the nine months ended September 30, 2021, we recorded adjusted net income before income taxes of $389.5 million, or $3.40 per diluted share, compared to an adjusted net income before income taxes of $543.9 million, or $4.77 per diluted share, for the nine months ended September 30, 2020. Our adjusted net income before income taxes and adjusted diluted earnings per share before income taxes decreased for the nine months ended September 30, 2021 as compared to 2020, primarily due to the decrease in our revenues as described above and an increase in depreciation and interest expense.
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.
Contractual Obligations
Our contractual obligations as of September 30, 2021, are as follows (in thousands):
2021
2022
2023
2024
2025
Thereafter
Total
Long-term
debt obligations
$
8,829
$
2,733,882
$
2,490,951
$
2,890,800
$
2,313,889
$
7,373,021
$
17,811,372
Interest
payments on debt outstanding(1)
72,844
495,640
429,892
354,439
282,918
492,938
2,128,671
Purchase commitments(2)(3)
1,960,449
5,896,528
4,345,644
5,291,881
2,232,608
1,432,269
21,159,379
Operating
leases
1,697
6,602
7,071
5,477
7,692
25,072
53,611
Total
$
2,043,819
$
9,132,652
$
7,273,558
$
8,542,597
$
4,837,107
$
9,323,300
$
41,153,033
(1)
Future interest payments on floating rate debt are estimated using floating rates in effect at September 30, 2021.
(2) Purchase commitments reflect our estimate of future Boeing and Airbus aircraft deliveries based on information currently available to us. The actual delivery dates of such aircraft and expected time for payment of such aircraft may differ from our estimates and could be further impacted by the COVID-19 pandemic and the pace at which Boeing can deliver 737 MAX and 787 aircraft, among other factors. Purchase commitments include only the costs of aircraft in our committed orderbook and do not include costs of aircraft that we have the option to purchase or have the right to purchase through memorandums of understanding or letters of intent.
(3) Due to the expected aircraft delivery
delays, we expect approximately $2.4 billion of our purchase commitments will be subject to cancellation, at our option, by the time of delivery.
The above table does not include any dividends we may pay on our 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 non-controlling interests in two investment funds in which we own 9.5% of the equity of each fund. We account for our interest in these funds under the equity method of accounting due to our level of influence and involvement in the funds. Also, we manage aircraft that we have sold through our Thunderbolt platform. In connection with the sale of these aircraft portfolios through our Thunderbolt platform, we hold non-controlling interests of approximately 5.0% in two entities. These investments are accounted for under the cost method of accounting.
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, 2020. 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, 2021.
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, 2021 and December 31, 2020, we had $0.9 billion
and $1.2 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 interest rates were to increase by 1.0%, we would expect to incur additional interest expense on our existing indebtedness of approximately $9.0 million and $11.7 million as of September 30, 2021 and December 31, 2020, respectively, each on an annualized basis, which would put downward pressure on our operating margins. Further, as of September 30, 2021, 95.0% 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 0.4% and 0.6% of our lease revenues were denominated in foreign currency as of September 30, 2021 and December 31, 2020, 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.
In December 2019, we issued C$400.0 million in aggregate principal amount of 2.625% notes due 2024. We effectively hedged our foreign currency exposure on this transaction through a cross-currency swap that converts the borrowing rate to a fixed 2.535% U.S. dollar denominated rate.
See Note 7 of Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details on the fair value of the swap.
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, 2021. Based on that evaluation, our Certifying Officers have concluded that our disclosure controls and procedures were effective at September 30, 2021.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting
during the quarter ended September 30, 2021 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.
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, 2020.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
On May 5, 2021, our Board of Directors authorized us to repurchase up to $100.0 million of outstanding shares of our Class A common stock (the “Repurchase Program”). Repurchases under the Repurchase Program, which expires on December 31, 2021, may be made through open market purchases, privately negotiated transactions, tender offers, block purchases, structured or derivative transactions such as puts, calls, options, forwards, collars, accelerated share repurchase transactions (with or without collars), other equity contracts,
or other methods of acquiring shares, in each case subject to market conditions and at such times as shall be permitted by applicable securities laws and determined by management. Repurchases under the Repurchase Program may also be made pursuant to a plan adopted under Rule 10b5-1 promulgated under the Exchange Act. The Repurchase Program may be modified, discontinued or suspended at any time.
The following table provides information about our purchases of our Class A common stock during the three months ended September 30, 2021:
Period
Total
Number of Shares Purchased
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Approximate Dollar Value that May Yet Be Purchased Under the Plans or Programs (in thousands)
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)
101.SCH
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Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL
Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
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104
The cover page from Air Lease Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL and contained in Exhibit 101
†
The
Company has omitted portions of the referenced exhibit pursuant to Item 601(b) of Regulation S-K because it (a) is not material and (b) is the type of information that the Company both customarily and actually treats as private and confidential.
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.
