Document/ExhibitDescriptionPagesSize 1: 6-K Current, Quarterly or Annual Report by a Foreign HTML 2.22M Issuer
7: R1 Cover Page HTML 43K
8: R2 Unaudited Condensed Consolidated Balance Sheets HTML 139K
9: R3 Unaudited Condensed Consolidated Balance Sheets HTML 42K
(Parenthetical)
10: R4 Unaudited Condensed Consolidated Income Statements HTML 133K
11: R5 Unaudited Condensed Consolidated Statements of HTML 63K
Comprehensive Income
12: R6 Unaudited Condensed Consolidated Statements of HTML 31K
Comprehensive Income (Parenthetical)
13: R7 Unaudited Condensed Consolidated Statements of HTML 140K
Cash Flows
14: R8 Unaudited Condensed Consolidated Statements of HTML 52K
Cash Flows (Parenthetical)
15: R9 Unaudited Condensed Consolidated Statements of HTML 77K
Equity
16: R10 General HTML 33K
17: R11 Basis of presentation HTML 36K
18: R12 Summary of significant accounting policies HTML 36K
19: R13 GECAS Transaction HTML 45K
20: R14 Net charges related to Ukraine Conflict HTML 42K
21: R15 Cash, cash equivalents and restricted cash HTML 40K
22: R16 Flight equipment held for operating leases, net HTML 42K
23: R17 Investment in finance leases, net HTML 38K
24: R18 Flight equipment held for sale HTML 31K
25: R19 Intangibles HTML 70K
26: R20 Associated Companies HTML 40K
27: R21 Other assets HTML 48K
28: R22 Derivative financial instruments HTML 90K
29: R23 Accounts payable, accrued expenses and other HTML 39K
liabilities
30: R24 Accrued maintenance liability HTML 42K
31: R25 Debt HTML 102K
32: R26 Income taxes HTML 35K
33: R27 Selling, general and administrative expenses HTML 48K
34: R28 Other income HTML 44K
35: R29 Asset Impairment HTML 33K
36: R30 Allowance for credit losses HTML 47K
37: R31 Earnings per share HTML 60K
38: R32 Variable interest entities HTML 42K
39: R33 Related party transactions HTML 46K
40: R34 Commitments and contingencies HTML 54K
41: R35 Fair value measurements HTML 130K
42: R36 Subsequent events HTML 31K
43: R37 Summary of significant accounting policies HTML 53K
(Policies)
44: R38 GECAS Transaction (Tables) HTML 43K
45: R39 Net charges related to Ukraine Conflict (Tables) HTML 35K
46: R40 Cash, cash equivalents and restricted cash HTML 49K
(Tables)
47: R41 Flight equipment held for operating leases, net HTML 42K
(Tables)
48: R42 Investment in finance and sales-type leases, net HTML 38K
(Tables)
49: R43 Intangibles (Tables) HTML 76K
50: R44 Associated Companies (Tables) HTML 40K
51: R45 Other assets (Tables) HTML 48K
52: R46 Derivative financial instruments (Tables) HTML 95K
53: R47 Accounts payable, accrued expenses and other HTML 39K
liabilities (Tables)
54: R48 Accrued maintenance liability (Tables) HTML 42K
55: R49 Debt (Tables) HTML 96K
56: R50 Selling, general and administrative expenses HTML 48K
(Tables)
57: R51 Other income (Tables) HTML 42K
58: R52 Allowance for credit losses (Tables) HTML 46K
59: R53 Earnings per share (Tables) HTML 60K
60: R54 Variable interest entities (Tables) HTML 37K
61: R55 Related party transactions (Tables) HTML 42K
62: R56 Commitments and contingencies (Tables) HTML 38K
63: R57 Fair value measurements (Tables) HTML 120K
64: R58 General (Details) HTML 43K
65: R59 Basis of presentation Narrative (Details) HTML 33K
66: R60 Summary of significant accounting policies HTML 58K
(Details)
67: R61 GECAS Transaction (Details) HTML 41K
68: R62 GECAS Transaction - Narrative (Detail) HTML 54K
69: R63 Net charges related to Ukraine Conflict (Details) HTML 39K
70: R64 Net charges related to Ukraine Conflict Narrative HTML 72K
(Details)
71: R65 Cash, cash equivalents and restricted cash - HTML 32K
Narrative (Details)
72: R66 Cash, cash equivalents and restricted cash HTML 39K
(Details)
73: R67 Flight equipment held for operating leases, net HTML 46K
(Details)
74: R68 Investment in finance leases, net - Components of HTML 39K
net investment (Details)
75: R69 Investment in finance and sales-type leases, net - HTML 31K
Narrative (Details)
76: R70 Flight equipment held for sale (Details) HTML 41K
77: R71 Intangibles - Finite-lived intangible assets HTML 37K
(Details)
78: R72 Intangibles - Movements in maintenance rights HTML 41K
(Details)
79: R73 Intangibles - Lease premium assets (Details) HTML 37K
80: R74 Intangibles - Other intangibles - narrative HTML 36K
(Details)
81: R75 Intangibles - Other Intangibles (Details) HTML 35K
82: R76 Intangibles - Customer relationships (Details) HTML 37K
83: R77 Associated Companies (Details) HTML 45K
84: R78 Other assets (Details) HTML 76K
85: R79 Derivative financial instruments - Narrative HTML 34K
(Details)
86: R80 Derivative financial instruments - Notional HTML 54K
amounts and fair values of derivatives outstanding
(Details)
87: R81 Derivative financial instruments - Income (Loss) HTML 44K
Recorded in Comprehensive Income (Details)
88: R82 Derivative financial instruments (Effects of HTML 39K
derivatives recorded in interest expense)
(Details)
89: R83 Accounts payable, accrued expenses and other HTML 43K
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90: R84 Accrued maintenance liability (Details) HTML 43K
91: R85 Debt - Narrative (Details) HTML 43K
92: R86 Debt - Summary of indebtedness (Details) HTML 102K
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95: R89 Other income (Details) HTML 44K
96: R90 Asset Impairment (Details) HTML 36K
97: R91 Allowance for credit losses (Details) HTML 44K
98: R92 Allowance for credit losses - Narrative (Details) HTML 34K
99: R93 Earnings per share - Narrative (Details) HTML 34K
100: R94 Earnings per share - Computations of basic and HTML 60K
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101: R95 Earnings per share - Computations of ordinary HTML 40K
shares outstanding, excluding nonvested restricted
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102: R96 Variable interest entities - Narrative (Details) HTML 46K
103: R97 Variable interest entities - Maximum exposure to HTML 31K
loss in VIEs (Details)
104: R98 Related party transactions - Narrative (Details) HTML 59K
105: R99 Related party transactions - Schedule of related HTML 37K
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106: R100 Commitments and contingencies - Narrative HTML 86K
(Details)
107: R101 Commitments and contingencies - Movements in HTML 37K
prepayments on flight equipment (Details)
108: R102 Fair value measurements - Narrative (Details) HTML 43K
109: R103 Fair value measurements - Financial assets and HTML 51K
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110: R104 Fair value measurements - Carrying amounts and HTML 78K
fair values of financial instruments (Details)
111: R105 Subsequent events (Details) HTML 39K
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‘6-K’ — Current, Quarterly or Annual Report by a Foreign Issuer
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F x
Form 40-F o
Indicate
by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the
registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K
submission or other Commission filing on EDGAR.
Other Events
On
August 11, 2022, AerCap Holdings N.V. furnished its interim financial report for the quarter ended June 30, 2022.
Accounts payable, accrued expenses and other liabilities
14
$
i1,789,922
$
i1,958,096
Accrued
maintenance liability
15
i2,315,468
i2,900,651
Lessee
deposit liability
i743,485
i773,753
Debt
16
i47,927,887
i50,204,678
Deferred
tax liabilities
17
i1,859,478
i2,085,230
Commitments
and contingencies
25
i
i
Total Liabilities
i54,636,240
i57,922,408
Ordinary
share capital, €ii0.01/ par value, ii450,000,000/
ordinary shares authorized as of June 30, 2022 and December 31, 2021; i250,347,345 and i250,347,345
ordinary shares issued and i245,848,357 and i245,395,448 ordinary shares outstanding (including i5,032,769
and i5,822,811 shares of unvested restricted stock) as of June 30, 2022 and December 31, 2021, respectively
22
i3,024
i3,024
Additional
paid-in capital
i8,546,331
i8,522,694
Treasury
shares, at cost (i4,498,988 and i4,951,897 ordinary shares as of June 30, 2022 and December 31, 2021, respectively)
22
(i259,646)
(i285,901)
Accumulated
other comprehensive income (loss)
i2,926
(i79,335)
Accumulated
retained earnings
i6,741,794
i8,410,261
Total
AerCap Holdings N.V. shareholders’ equity
i15,034,429
i16,570,743
Non-controlling
interest
i76,922
i76,617
Total
Equity
i15,111,351
i16,647,360
Total
Liabilities and Equity
$
i69,747,591
$
i74,569,768
Supplemental
balance sheet information—amounts related to assets and liabilities of consolidated Variable Interest Entities (“VIE”) for which creditors do not have recourse to our general credit:
Restricted cash
$
i73,847
$
i94,721
Flight
equipment held for operating leases and held for sale
i2,990,298
i3,411,087
Other
assets
i141,869
i100,638
Accrued
maintenance liability
$
i107,341
$
i132,996
Debt
i1,064,501
i1,113,876
Other
liabilities
i99,709
i86,894
The
accompanying notes are an integral part of these Unaudited Financial Statements.
AerCap Holdings N.V., together with its subsidiaries (“AerCap,”“we,”“us” or the “Company”), is the global leader in aviation leasing, with i2,268 aircraft owned, managed or on order, over i900 engines (including engines owned by our Shannon Engine Support (“SES”) joint venture), over i300
owned helicopters, and total assets of approximately $i70 billion as of June 30, 2022. Our ordinary shares are listed on the New York Stock Exchange under the ticker symbol AER. Our headquarters is located in Dublin, and we have offices in Shannon, Miami, Singapore, Memphis, Amsterdam, Shanghai, Abu Dhabi and other locations. We also have representative offices at the world’s largest aircraft manufacturers, The Boeing Company (“Boeing”) in Seattle and Airbus S.A.S. (“Airbus”) in Toulouse.
AerCap completed the acquisition
of GE Capital Aviation Services (“GECAS”) from General Electric (“GE”) (the “GECAS Transaction”) on November 1, 2021 (the “Closing Date”), as further described in Note 4—GECAS Transaction. The results of GECAS’s operations have been included in our Condensed Consolidated Financial Statements since November 1, 2021.
The Condensed Consolidated Financial Statements presented herein include the accounts of AerCap Holdings N.V. and its subsidiaries. AerCap Holdings N.V. was incorporated in the Netherlands as a public limited liability company (“naamloze vennootschap” or “N.V.”) on July
10, 2006.
2. iBasis of presentation
i
General
Our
Condensed Consolidated Financial Statements are presented in accordance with Accounting Principles Generally Accepted in the United States of America (“U.S. GAAP”).
We consolidate all companies in which we have effective control and all VIEs for which we are deemed the Primary Beneficiary (“PB”) under Accounting Standards Codification (“ASC”) 810. All intercompany balances and transactions with consolidated subsidiaries are eliminated. The results of consolidated entities are included from the effective date of control or, in the case of VIEs, from the date that we are or become the PB. The results of subsidiaries sold or otherwise deconsolidated are excluded from the date that we cease to control the subsidiary or, in the
case of VIEs, when we cease to be the PB.
Unconsolidated investments where we have significant influence are reported using the equity method of accounting.
Our Condensed Consolidated Financial Statements are stated in U.S. dollars, which is our functional currency.
Our interim financial statements have been prepared pursuant to the rules of the U.S. Securities and Exchange Commission (“SEC”) and U.S. GAAP for interim financial reporting, and reflect all adjustments that are necessary to fairly state the results for the interim periods presented. Certain information and footnote disclosures required by U.S. GAAP for complete annual financial statements have been omitted and, therefore, our interim financial statements should be read in conjunction with our Annual Report on Form 20-F for the year ended December 31,
2021, filed with the SEC on March 30, 2022. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of those for a full fiscal year.
Due to rounding, numbers presented throughout this document may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures.
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(U.S. Dollars in thousands or as otherwise stated, except share and per share data)
2. Basis of presentation (Continued)
i
Use of estimates
The preparation of Condensed Consolidated Financial Statements in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
The use of estimates is or could be a significant factor affecting the reported carrying values of flight equipment, intangible assets, investment in finance leases, net, investments, trade receivables, notes receivables, deferred tax assets, income tax accruals and maintenance liabilities. Actual results may differ from our estimates under different conditions, sometimes materially.
i
Reportable
segments
We manage our business and analyze and report our results of operations on the basis of iione/
business segment: leasing, financing, sales and management of commercial flight equipment.
Notes
to the Unaudited Condensed Consolidated Financial Statements (Continued)
(U.S. Dollars in thousands or as otherwise stated, except share and per share data)
3. iSummary of significant accounting policies
i
Total
loss write-offs
Total loss write-offs result from the loss of an asset because of an unforeseen event (for example, an airplane crash incident, physical loss by wrongful deprivation, asset seizure, or other loss event). These events may be insured through the lessee’s insurance policies where we are named as the insured, and under our own insurance policies where the lessee’s insurance policy fails to indemnify us. We recognize an insurance receivable to the extent we have a claim from a loss from a total loss write-off event and the likelihood of recovering such loss or portion of the loss is probable at the balance sheet date.
We recognize insurance proceeds in excess of the loss recognized when all contingencies are resolved, which generally occurs when we receive a non-refundable cash payment from the insurers, or when we execute a binding settlement agreement with the
insurers where a non-refundable payment will be made.
i
Unusual or infrequently occurring events or transactions
A material event or transaction that we consider to be unusual in nature or that is expected to occur infrequently, or both, is reported separately in our Condensed Consolidated Income Statements, gross of income taxes.
Our other significant accounting policies are described in our Annual Report on Form 20-F for
the year ended December 31, 2021, filed with the SEC on March 30, 2022.
i
Future application of accounting standards:
Reference Rate Reform
In March 2020, the Financial Accounting Standards Board (“FASB”)issued Accounting Standards Update 2020-04, Reference Rate Reform (ASC 848) Facilitation of the Effects of Reference Rate
Reform on Financial Reporting (“ASC 848”). ASC 848 provided temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to reduce the financial reporting burden in light of the market transition from London Interbank Offered Rates (“LIBOR”) and other reference interest rates to alternative reference rates.
Under ASC 848 companies can elect not to apply certain modification accounting requirements to contracts affected by reference rate reform if certain criteria are met. An entity that makes this election would not be required to remeasure the contracts at the modification date or
reassess a previous accounting determination. The amendments of ASC 848 apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments in ASC 848 are effective from March 12, 2020 through December 31, 2022 and can be adopted prospectively for any interim period that includes or is subsequent to March 12, 2020. We have not adopted ASC 848 for this interim period and are currently evaluating the adoption impact the standard may have on our financial statements.
As of June 30, 2022, we had approximately
$i6.4 billion of floating rate debt outstanding that used either ione-month, ithree-month
or isix-month USD LIBOR as the applicable reference rate to calculate interest on such debt, of which $i5.6 billion is set to mature after June 30, 2023. As of June 30,
2022, we had approximately $i4.2 billion notional amount of floating rate derivatives outstanding that used either ione-month, ithree-month
or isix-month USD LIBOR. Certain of our floating rate debt and derivatives contain, or are subject to applicable law that establishes, LIBOR transition fall-back provisions and we expect these to transition to the Secured Overnight Financing Rate (“SOFR”) on or before June 30, 2023.
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(U.S. Dollars in thousands or as otherwise stated, except share and per share data)
4. iGECAS Transaction
AerCap completed the GECAS Transaction on November
1, 2021. Under the terms of the transaction agreement, GE received i111.5 million newly issued AerCap shares, approximately $i23 billion
of cash and $i1 billion of AerCap senior notes. Immediately following the completion of the GECAS Transaction, GE held approximately i46%
of AerCap’s issued and outstanding ordinary shares. In connection with the GECAS Transaction, GE appointed itwo members to join the Board of Directors of AerCap, bringing the number of directors serving on AerCap’s Board of Directors to i11.
The GE shares are subject to a lock-up period which will expire in stages from nine to i15 months after the Closing Date. GE has entered into agreements with AerCap regarding voting restrictions, standstill provisions and certain registration rights.
i
Transaction
and integration-related expenses related to the GECAS Transaction consisted of the following for the three and six months ended June 30, 2022 and 2021:
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(U.S. Dollars in thousands or as otherwise stated, except share and per share data)
5. iNet charges related to Ukraine Conflict
On February
24, 2022, Russia launched a large-scale military invasion of Ukraine and is engaged in a broad military conflict with Ukraine (the “Ukraine Conflict”). In response to the Ukraine Conflict and ongoing related hostilities, the United States, the European Union, the United Kingdom and other countries have imposed broad, far-reaching sanctions against Russia, certain Russian persons and certain activities involving Russia or Russian persons. These sanctions include prohibitions regarding the supply of aircraft and aircraft components to Russian persons or for use in Russia, subject to certain wind-down periods (the “Sanctions”).
Prior to the Ukraine Conflict, we had i135
owned aircraft on lease to Russian airlines, as well as i14 owned engines on lease to Russian airlines, which represented approximately i5% of AerCap’s
fleet by net book value as of December 31, 2021. Basic lease rents from our owned aircraft and engines leased to Russian airlines were approximately $i33 million for the month of December 2021. We had no helicopters on lease to Russian customers. We have sought to repossess all our aircraft and engines from Russian airlines and remove them from Russia. As of June 30, 2022, we had recovered i22
of our i135 owned aircraft and ithree of our i14
owned engines outside of Russia. While we continue to hold title to the aircraft that remain in Russia, we have concluded that it is not likely we will regain possession of these assets.
In addition, we had iseven owned aircraft on lease to Ukrainian airlines. As of June 30, 2022, ifive
of these aircraft were in temporary storage outside of Ukraine. As of June 30, 2022, the remaining itwo aircraft were grounded in Ukraine, but the exact status of these aircraft remains difficult to ascertain.
In compliance with all applicable sanctions in March 2022, we terminated the leasing of all of our aircraft and engines with Russian airlines. These terminations result in reduced revenues and operating cash flows.
The Ukraine Conflict,
including the Sanctions and the actions of our former Russian lessees and the Russian government, represents an unusual and infrequent event that is classified separately on our Condensed Consolidated Income Statements. During the first quarter of 2022, we recognized a pre-tax net charge of $i2.7 billion to our earnings, comprised of write-offs and impairments of flight equipment, which were partially offset by the derecognition of lease-related assets and liabilities (including maintenance rights and lease premium intangible assets, maintenance liabilities,
security deposits and other balances) and the collection of letter of credit proceeds. We recognized a total loss write-off on our assets that remain in Russia and Ukraine, and impairment losses on the assets we have recovered from Russian and Ukrainian airlines. The impairments recognized on assets recovered from Russian and Ukrainian airlines are based on the expected commercial strategy and corresponding cash flow estimates for each asset.
Derecognition
of lease-related assets and liabilities
(i237)
Letters of credit receipts
(i210)
Net
charges related to Ukraine Conflict
$
i2,729
/
We had letters of credit related to our aircraft and engines leased to Russian airlines as of February 24,
2022 of approximately $i260 million, all confirmed by financial institutions in Western Europe. We have presented requests for payment to all these institutions. To date, we have received payments of $i210 million
related to these letters of credit. We have initiated legal proceedings against one financial institution which rejected our payment demands in respect of certain letters of credit.
Our lessees are required to provide insurance coverage with respect to leased aircraft and we are named as insureds under those policies in the event of a total loss of an aircraft or engine. We also purchase contingent and possessed insurance (“C&P Policy”) which provides us with coverage when our flight equipment is not subject to a lease or where a lessee’s policy fails to indemnify us. In March 2022, we submitted an insurance claim for approximately $i3.5 billion
under our C&P Policy with respect to all aircraft and engines remaining in Russia. In June 2022, we commenced legal proceedings in London, England to recover up to $i3.5 billion in connection with our previously submitted claim under the C&P Policy. Refer to Note 25—Commitments and Contingencies for further details.
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(U.S. Dollars in thousands or as otherwise stated, except share and per share data)
5. Net charges related to Ukraine Conflict (Continued)
In parallel, during the three months ended June 30, 2022, we submitted claims as an additional insured under the Russian airlines’ insurance policies. Our efforts to recover from the airlines’ Russian insurers and their reinsurers continue. The collection, timing and amount of any potential recoveries under the airlines’ insurance and reinsurance policies are uncertain. As with the claim under the C&P
Policy, we have not recognized any claim receivables in respect of our claims under the Russian airlines’ insurance and reinsurance policies as of June 30, 2022.
6. iCash, cash equivalents and restricted cash
Our restricted cash balance was $i173.4 million
and $i186.0 million as of June 30, 2022 and December 31, 2021, respectively, and was primarily related to our Export Credit Agency (“ECA”) financings and Export-Import Bank of the United States (“Ex-Im”) financings, our AerFunding revolving credit facility, our Brazilian Development Bank (“BNDES”) financing and other debt. See Note 16—Debt.
Estimated
residual values of leased flight equipment
i1,105,961
i1,131,419
Less:
Unearned income
(i671,494)
(i406,286)
Less:
Allowance for credit losses (Note 21)
(i65,929)
(i71,292)
$
i2,033,033
$
i1,929,220
/
During
the three months ended June 30, 2022 and 2021, we recognized interest income from investment in finance leases, net of $i33.8 million and $i12.5
million, respectively, included in basic lease rents. During the six months ended June 30, 2022 and 2021, we recognized interest income from investment in finance leases, net of $i70.8 million and $i24.7 million,
respectively, included in basic lease rents.
9. iFlight equipment held for sale
As of June 30, 2022, flight equipment with a total net book value of $i64.1 million
met the held for sale criteria and was classified as flight equipment held for sale in our Condensed Consolidated Balance Sheet. Aggregate maintenance and security deposit amounts received from the lessees of approximately $i1.6 million will be assumed by the buyers of these aircraft upon consummation of the individual sales transactions.
As of December 31,
2021, i13 aircraft met the held for sale criteria. During the first quarter of 2022, the sale of iten of those aircraft closed and the sale of the remaining ithree
aircraft closed during the second quarter of 2022.
EOL
and MR contract maintenance rights expense (a)
(i166,512)
(i6,170)
MR
contract maintenance rights write-off offset by maintenance liability release (a)
(i242,142)
(i7,340)
EOL
contract maintenance rights write-off offset by EOL compensation received
(i65,506)
(i16,701)
EOL
and MR contract maintenance rights write-off due to sale of aircraft
(i2,333)
(i2,362)
Maintenance
rights at end of period
$
i2,815,514
$
i610,252
(a)EOL
and MR contract maintenance rights expense and MR contract maintenance rights write-off offset by maintenance liability release for the six months ended June 30, 2022 included amounts related to the Ukraine Conflict. Refer to Note 5—Net charges related to Ukraine Conflict for further details.
/i
The
following tables present details of lease premium assets and related accumulated amortization as of June 30, 2022 and December 31, 2021:
Lease
premium assets that are fully amortized are removed from the gross carrying amount and accumulated amortization columns in the tables above.
During the three and six months ended June 30, 2022, we recorded amortization expense for lease premium assets of $i56.5 million and $i118.3 million,
respectively.
During
the three months ended June 30, 2022 and 2021, we recorded amortization expense for customer relationships of $ii5.3/
million. During the six months ended June 30, 2022 and 2021, we recorded amortization expense for customer relationships of $ii10.6/
million.
11. iAssociated Companies
i
As
of June 30, 2022 and December 31, 2021, associated companies accounted for under the equity method of accounting consisted of the following:
Notes receivable, net of allowance for credit losses (a) (b)
$
i566,794
$
i616,883
Straight-line
rents, prepaid expenses and other
i605,833
i452,259
Loans
receivable, net of allowance for credit losses (c)
i375,115
i403,378
Lease
incentives
i146,294
i158,417
Derivative
assets (Note 13)
i96,299
i16,909
Operating
lease right of use assets, net
i83,139
i95,814
Inventory
i53,441
i48,584
Other
tangible fixed assets
i43,908
i25,418
Investments
i32,754
i45,254
Debt
issuance costs
i30,751
i30,065
Other
receivables, net (d)
i343,807
i455,036
$
i2,378,135
$
i2,348,017
(a)Notes
receivable as of June 30, 2022 and December 31, 2021 included $i538 million and $i587 million, respectively, related
to agreements we have executed with customers to reschedule certain lease payments under our leases that are due at the reporting dates. Notes receivable as of June 30, 2022 and December 31, 2021 also included $i28 million and $i30
million, respectively, related to aircraft sale and other transactions.
(b)As of June 30, 2022 and December 31, 2021, we had $i56 million and $i41 million,
respectively, allowance for credit losses on notes receivable. Refer to Note 21—Allowance for credit losses for further details.
(c)As of June 30, 2022 and December 31, 2021, we had a $i3 million and $i5
million, respectively, allowance for credit losses on loans receivable. Refer to Note 21—Allowance for credit losses for further details. During the six months ended June 30, 2022 and 2021, we recognized interest income from loans receivable, net of allowance for credit losses of $i13 million and inil,
respectively, included in other income.
(d)Other receivables as of December 31, 2021 included a $i66 million receivable from GE. Refer to Note 24—Related party transactions for further details.
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(U.S. Dollars in thousands or as otherwise stated, except share and per share data)
13. iDerivative financial instruments
We have entered into
interest rate derivatives to hedge the current and future interest rate payments on our variable rate debt. These derivative financial instruments can include interest rate swaps, caps, floors, options and forward contracts.
As of June 30, 2022, we had interest rate caps and swaps outstanding, with underlying variable benchmark interest rates ranging from one to six-month U.S. dollar LIBOR or Term SOFR, as applicable.
Some of our agreements with derivative counterparties require a two-way cash collateralization of derivative fair values. We had iino/t
advanced any cash collateral to counterparties as of June 30, 2022 or December 31, 2021.
The counterparties to our interest rate derivatives are primarily major international financial institutions. We continually monitor our positions and the credit ratings of the counterparties involved and limit the amount of credit exposure to any one party. We could be exposed to potential losses due to the credit risk of non-performance by these counterparties. We have not experienced any material losses to date.
Our derivative assets are recorded in other assets and our derivative liabilities are recorded in accounts payable, accrued expenses and other liabilities in our Condensed Consolidated Balance Sheets.
i
The
following tables present notional amounts and fair values of derivatives outstanding as of June 30, 2022 and December 31, 2021:
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(U.S.
Dollars in thousands or as otherwise stated, except share and per share data)
13. Derivative financial instruments (Continued)
i
We recorded the following in other comprehensive gain or loss related to derivative financial instruments for the three and six months ended June 30, 2022 and 2021:
Effective portion of change in fair market value of derivatives designated as
accounting cash flow hedges:
Interest rate swaps
$
i25,774
$
i17,656
$
i76,524
$
i39,943
Interest
rate caps
i5,753
(i323)
i15,148
i1,142
Derivative
premium and amortization
i1,174
i861
i2,341
i1,626
Income
tax effect
(i4,088)
(i2,274)
(i11,752)
(i5,339)
Net
gain on derivatives, net of tax
$
i28,613
$
i15,920
$
i82,261
$
i37,372
/
We
expect to reclassify approximately $i13 million from accumulated other comprehensive income (“AOCI”) as an increase in interest expense in our Condensed Consolidated Income Statements over the next 12 months.
i
The
following table presents the effect of derivatives recorded in interest expense in our Condensed Consolidated Income Statements for the three and six months ended June 30, 2022 and 2021:
Accrued maintenance liability at beginning of period
$
i2,900,651
$
i1,750,395
Maintenance
payments received
i353,522
i163,280
Maintenance
payments returned
(i172,570)
(i91,957)
Release
to income upon sale
(i14,079)
(i13,587)
Release
to income other than upon sale (a)
(i698,429)
(i140,047)
Lessor
contribution, top-ups and other (a)
(i53,627)
(i19,887)
Accrued
maintenance liability at end of period
$
i2,315,468
$
i1,648,197
(a)Accrued
maintenance liability released to income other than upon sale and lessor contribution, top-ups and other for the six months ended June 30, 2022 included amounts related to the Ukraine Conflict. Refer to Note 5—Net charges related to Ukraine Conflict for further details.
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(U.S. Dollars in thousands or as otherwise stated, except share and per share data)
16. iDebt
As of June 30, 2022, the principal amount of our outstanding indebtedness totaled
$i48.2 billion, which excluded debt issuance costs, debt discounts and debt premium of $i308
million, and our undrawn lines of credit were $i10.6 billion, availability of which is subject to certain conditions, including compliance with certain financial covenants. As of June 30, 2022, we remained in compliance with the financial covenants across our various debt obligations.
Debt
issuance costs, debt discounts and debt premium
(i308,034)
(i343,794)
i342
$
i58,882,907
$
i10,649,324
$
i47,927,887
$
i50,204,678
(a)The
weighted average interest rate for our floating rate debt of $i8.6 billion is calculated based on the U.S. dollar LIBOR or SOFR rate, as applicable, as of the most recent interest payment date of the respective debt, and excludes the impact of related derivative financial instruments which we hold to hedge our exposure to floating interest rates, as well as any amortization of debt issuance costs, debt discounts and debt premium. The institutional secured term loans and secured portfolio loans also contain base rate interest alternatives.
(b)AerCap
Global Aviation Trust, a Delaware Statutory Trust (“AerCap Trust”).
(c)AerCap Ireland Capital Designated Activity Company, a designated activity company with limited liability incorporated under the laws of Ireland (“AICDC”).
(d)Asia Revolver and Citi Revolvers (the “Revolving credit facilities”).
(e)An additional $i0.8 billion
of commitment has been approved by the Export Credit Agencies, subject to customary conditions at drawdown.
(f)In addition to the i18 aircraft, i74 engines are pledged as
collateral.
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(U.S. Dollars in thousands or
as otherwise stated, except share and per share data)
16. Debt (Continued)
Additional details of the principal terms of our indebtedness can be found in our Annual Report on Form 20-F for the year ended December 31, 2021, filed with the SEC on March 30, 2022. The material changes to our indebtedness since the filing of that report, except for scheduled repayments, are described below.
AerFunding Revolving Credit Facility
In April 2006, AerFunding entered into a non-recourse senior secured revolving credit facility. In March 2022, AerFunding amended this facility, extending the revolving period to September 2024, following which there is a 30-month
term-out period. The final maturity date of the AerFunding Revolving Credit Facility is March 2027.
AerCap Trust & AICDC Notes
On May 25, 2022, AerCap Trust and AICDC completed the redemption of all $i500.0 million outstanding aggregate principal amount of their i4.625%
Senior Notes due 2022.
17. iIncome taxes
Our effective tax rate was i14%
and i11.9% for the three and six months ended June 30, 2022, respectively, and i14%
and i14.5% for the three and six months ended June 30, 2021, respectively.
During the six months ended June 30, 2022, we recorded approximately $i341 million
of income tax benefit due to the recognition of net charges related to the Ukraine Conflict. See Note 5—Net charges related to Ukraine Conflict.
Excluding these charges, our effective tax rate for the full year 2022 is expected to be i14.0%, compared to the effective tax rate of i14.2%
for the full year 2021. The effective tax rate is impacted by the source and amount of earnings among our various tax jurisdictions, permanent tax differences relative to pre-tax income or loss, and certain other discrete items. Our effective tax rate in any period can be impacted by revisions to the estimated full year rate.
18. iSelling, general and administrative expenses
i
Selling,
general and administrative expenses consisted of the following for the three and six months ended June 30, 2022 and 2021:
On
April 22, 2021, we entered into a claims sale and purchase agreement with a third party for the sale of certain unsecured claims filed by various AerCap companies against LATAM Airlines Group S.A. and certain of its subsidiaries in the Chapter 11 case captioned LATAM Airlines Group S.A., et al., Case No. 20-11254 (JLG) (Jointly Administered). Subsequent to the bankruptcy court entering an order establishing the allowed claim amount in May 2021, the sale of a portion of the unsecured claims closed. Approximately $ii186/ million
of sale proceeds was recognized in other income during the three and six months ended June 30, 2021.
In June 2022, the Bankruptcy Court entered an order establishing the allowed claim amount and the sale of the final portion of the unsecured claims closed. Approximately $ii39/ million
of sale proceeds was recognized in other income during the three months and six months ended June 30, 2022.
Notes to the Unaudited Condensed Consolidated Financial
Statements (Continued)
(U.S. Dollars in thousands or as otherwise stated, except share and per share data)
20. iAsset Impairment
Our long-lived assets include flight equipment held for operating lease and definite-lived intangible assets. We test long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. We perform event-driven impairment assessments of
our flight equipment held for operating lease each quarter.
During the three and six months ended June 30, 2022, we recognized impairment charges of $i11.8 million and $i14.2
million, respectively. During the three and six months ended June 30, 2021, we recognized impairment charges of $i57.1 million and $i73.4 million,
respectively. For all periods mentioned, the impairment charges were related to lease terminations or sales transactions.
For the three and six months ended June 30, 2022, the impairment charges were largely offset by maintenance revenue recognized when we retained maintenance-related balances or received EOL compensation. For the three and six months ended June 30, 2021, the impairment charges were more than offset by lease revenue recognized when we retained maintenance-related balances or received EOL compensation.
During the three months ended March 31, 2022, we also recognized write-offs and impairments of flight equipment of $i3.2
billion related to the Ukraine Conflict. Please refer to Note 5—Net charges related to Ukraine Conflict.
21. iAllowance for credit losses
i
Movements
in the allowance for credit losses during the six months ended June 30, 2022 and 2021 were as follows:
Allowance
for credit losses at beginning of period
$
i71,292
$
i40,964
$
i5,291
$
i117,547
$
i67,153
Current
period provision for expected credit losses
i26,586
i51,287
(i2,102)
i75,771
i16,954
Write-offs
charged against the allowance
(i31,949)
(i36,222)
i—
(i68,171)
i—
Allowance
for credit losses at end of period
$
i65,929
$
i56,029
$
i3,189
$
i125,147
$
i84,107
/
During
the six months ended June 30, 2022, we increased our credit provision, classified in net charges related to Ukraine Conflict and leasing expenses, by $i75.8 million, primarily reflecting the losses due to the Ukraine Conflict and a specific provision with respect to one of our lessees. During the six months ended June 30, 2021, we increased our credit provision, classified in leasing expenses, by $i17.0 million
to reflect the increased credit risk due to the Covid-19 pandemic.
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(U.S.
Dollars in thousands or as otherwise stated, except share and per share data)
22.iEarnings per share
Basic Earnings Per Share (“EPS”) is calculated by dividing net income by the weighted average of our ordinary shares outstanding, which excludes i5,032,769
and i5,254,512 shares of unvested restricted stock as of June 30, 2022 and 2021, respectively. In general, for the calculation of diluted EPS, the weighted average of our ordinary shares outstanding for basic EPS is adjusted by the effect of dilutive securities provided under our equity compensation plans. The number of shares excluded from diluted shares outstanding
was i416,567 for the three months ended June 30, 2022. Due to the reported loss for the six months ended June 30, 2022, basic EPS is not adjusted by the effect of dilutive securities. The number of shares under our equity compensation plans which could dilute EPS in the future was i3,253,724
for the six months ended June 30, 2022. The number of shares excluded from diluted shares outstanding was i152,446 and i985,779
for the three and six months ended June 30, 2021, because the effect of including these shares in the calculation would have been anti-dilutive.
i
The computation of basic and diluted EPS for the three and six months ended June 30, 2022 and 2021 were as follows:
Net income (loss) for the computation of diluted EPS
$
i339,826
$
i249,751
$
(i1,661,004)
$
i477,776
Weighted
average ordinary shares outstanding - diluted
i242,264,561
i129,896,210
i240,008,449
i129,690,334
Diluted
EPS
$
i1.40
$
i1.92
$
(i6.92)
$
i3.68
/i
The
computations of ordinary shares outstanding, excluding shares of unvested restricted stock, as of June 30, 2022 and December 31, 2021 were as follows:
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(U.S. Dollars in thousands or as otherwise stated, except share and per share data)
23. iVariable interest entities
We use many forms of
entities to achieve our leasing and financing business objectives and we have participated to varying degrees in the design and formation of these entities. Our involvement in VIEs varies and includes being a passive investor in the VIE with involvement from other parties, managing and structuring all of the VIE’s activities, or being the sole shareholder of the VIE.
During the six months ended June 30, 2022, we did not provide any financial support to any of our VIEs that we were not contractually obligated to provide.
Consolidated VIEs
As of June 30, 2022 and December 31, 2021, substantially all assets and liabilities presented in our Condensed Consolidated Balance Sheets were held in consolidated
VIEs.
We have determined that we are the PB of these entities because we control and manage all aspects of these entities, including directing the activities that most significantly affect the entities’ economic performance, absorb the majority of the risks and rewards of these entities and guarantee the activities of these entities.
The assets of our consolidated VIEs that can only be used to settle obligations of these entities, and the liabilities of these VIEs for which creditors do not have recourse to our general credit, are disclosed in our Condensed Consolidated Balance Sheets under Supplemental balance sheet information. Further details of debt held by our consolidated VIEs are disclosed in Note 16—Debt.
Wholly-owned ECA and Ex-Im financing
vehicles
We have created certain wholly-owned subsidiaries for the purpose of purchasing flight equipment and obtaining financing secured by such flight equipment. The secured debt is guaranteed by the European ECAs and the Export-Import Bank of the United States. These entities meet the definition of a VIE because they do not have sufficient equity to operate without subordinated financial support from us in the form of intercompany notes.
Other secured financings
We have created a number of wholly-owned subsidiaries for the purpose of obtaining secured financings. These entities meet the definition of a VIE because they do not have sufficient equity to
operate without subordinated financial support from us in the form of intercompany notes.
Wholly-owned leasing entities
We have created wholly-owned subsidiaries for the purpose of facilitating aircraft leases with airlines. These entities meet the definition of a VIE because they do not have sufficient equity to operate without subordinated financial support from us in the form of intercompany notes, which serve as equity.
Limited recourse financing structures
We have established entities to obtain secured financings for the purchase of aircraft in which we have variable interests. These entities meet the definition of a VIE because they do not have sufficient equity to operate without subordinated financial
support from us in the form of intercompany notes. The loans of these entities are non-recourse to us except under limited circumstances. As of June 30, 2022, these entities had aggregate subordinated debt outstanding of $i54.4 million.
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(U.S. Dollars in thousands or as otherwise stated, except share and per share data)
23. Variable interest entities (Continued)
AerFunding
We hold a i5%
equity investment and i100% of the subordinated notes (“AerFunding Class E-1 Notes”) in AerFunding.
As of June 30, 2022, AerFunding had $i750 million outstanding
under a secured revolving credit facility and $i2 billion of AerFunding Class E-1 Notes outstanding due to us.
Non-consolidated VIEs
Non-consolidated VIEs are investments in which we have determined that we do not have control and are not the PB. We do have significant influence and, accordingly, we account for our investments in non-consolidated VIEs under the equity method of accounting. iThe
following table presents our maximum exposure to loss in non-consolidated VIEs as of June 30, 2022 and December 31, 2021:
The
maximum exposure to loss represents the amount that would be absorbed by us in the event that all of our assets held in the VIEs, for which we are not the PB, had no value.
Other variable interest entities
We have variable interests in other entities in which we have determined we are not the PB because we do not have the power to direct the activities that most significantly affect the entities’ economic performance.
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(U.S. Dollars in thousands or as otherwise stated, except share and per share data)
24. iRelated party transactions
GE
As described
in Note 4—GECAS Transaction, AerCap completed the GECAS Transaction on November 1, 2021. Consequently, GE became a related party upon the Closing Date of the GECAS Transaction. We may purchase, sell or lease flight equipment from/to GE and GE provides services to AerCap under a transition services agreement.
During the three and six months ended June 30, 2022, AerCap recognized rental income from engines on lease to GE of approximately $i35 million
and $i67 million, respectively and purchases from GE of approximately $i12 million and $i16 million,
respectively. During the three months ended June 30, 2022, AerCap recognized sales to GE of approximately $i11 million.
As of June 30, 2022, AerCap had a payable balance of $i2 million with
GE. As of December 31, 2021, AerCap had an outstanding payable balance of $i6 million and a receivable balance of $i66 million
with GE.
Equity Method Investments
SES
SES is a i50% joint venture and is considered a related party. During the three and six months ended June 30, 2022, we recognized lease rental income from SES of $i18 million
and $i35 million, respectively.
Other related parties
i
The following tables present amounts received from other related
parties as detailed in Note 11—Associated companies for management fees and dividends for the three and six months ended June 30, 2022 and 2021:
During the three months ended June 30, 2022, AerCap completed the sale of ithree Boeing 737 MAX aircraft to AerDragon.
25. iCommitments
and contingencies
Flight equipment on order
As of June 30, 2022, we had commitments to purchase i461 new aircraft, scheduled for delivery through 2027, including aircraft under an agreement entered into in July 2022, (see Note 27—Subsequent Events),and excluding aircraft for which we have cancellation rights, and aircraft with contracted sales at delivery. These commitments
are based upon purchase agreements with Boeing, Airbus and Embraer S.A. (“Embraer”).These agreements establish the pricing formulas (including adjustments for certain contractual escalation provisions) and various other terms with respect to the purchase of aircraft. Under certain circumstances, we have the right to alter the mix of aircraft types ultimately acquired. As of June 30, 2022, we also had commitments to purchase i31 new engines and i17
new helicopters for delivery through 2025.
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(U.S. Dollars in thousands or as otherwise stated, except share and per share data)
25. Commitments and contingencies
(Continued)
Prepayments on flight equipment include prepayments of our forward order flight equipment and other balances held by the flight equipment manufacturers. iMovements in prepayments on flight equipment during the six months ended June 30, 2022 and 2021 were as follows:
Prepayments on flight equipment at beginning of period
$
i4,586,848
$
i2,111,659
Prepayments
and additions during the period, net
i361,702
i88,063
Interest
paid and capitalized during the period
i45,376
i10,331
Prepayments
and capitalized interest applied to the purchase of flight equipment
(i364,980)
(i338,237)
Prepayments
on flight equipment at end of period
$
i4,628,946
$
i1,871,816
Legal
proceedings
General
In the ordinary course of our business, we are a party to various legal actions, which we believe are incidental to the operations of our business. The Company regularly reviews the possible outcome of such legal actions, and accrues for such legal actions at the time a loss is probable and the amount of the loss can be estimated. In addition, the Company also reviews indemnities and insurance coverage, where applicable. Based on information currently available, we believe the potential outcome of those cases where we are able to estimate reasonably possible losses, and our estimate of the reasonably possible losses exceeding amounts already recognized, on an aggregated basis, is immaterial
to our Condensed Consolidated Financial Statements.
VASP Litigation
We are party to a group of related cases arising from the leasing of i13 aircraft and ithree
spare engines to Viação Aerea de São Paulo (“VASP”), a Brazilian airline. In 1992, VASP defaulted on its lease obligations and we commenced litigation against VASP to repossess our equipment and obtained a preliminary injunction for the repossession and export of i13 aircraft and ithree
spare engines from VASP. We repossessed and exported the aircraft and engines. VASP appealed and, in 1996, the Appellate Court of the State of São Paulo (“TJSP”) ruled that the aircraft and engines should be returned or that VASP could recover proven damages arising from the repossession.
We have defended this case in the Brazilian courts through various motions and appeals. In 2004, the Superior Court of Justice (the “STJ”) dismissed our then-pending appeal. In 2005, we filed an extraordinary appeal with the Federal Supreme Court (the “STF”). On June 24, 2020, the STF reversed its earlier contrary rulings and granted our extraordinary appeal, ordering a new panel of the STJ to review the merits of our challenge against TJSP’s original order. VASP has appealed the STF’s latest order.
In 2006, VASP commenced
a related proceeding to calculate the amount of alleged damages owed under the TJSP’s 1996 judgment. In 2017, the court decided that VASP had suffered no damages even if the TJSP’s 1996 judgment regarding liability were affirmed. On April 20, 2018, VASP appealed this decision. We believe, however, and we have been advised, that it is not probable that VASP will ultimately be able to recover damages from us even if VASP prevails on the issue of liability. The outcome of the legal process is, however, uncertain. The ultimate amount of damages, if any, payable to VASP cannot reasonably be estimated at this time. We continue to actively pursue all courses of action that may reasonably be available to us and intend to defend our position vigorously.
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(U.S. Dollars in thousands or as otherwise stated, except share and per share data)
25. Commitments and contingencies (Continued)
In 2006, we brought actions against VASP in English and Irish courts seeking damages arising from the 1992 lease defaults. These actions resulted in judgments by the English court in the aggregate amount of approximately $i40
million plus interest and judgments by the Irish court in the aggregate amount of approximately $i36.9 million, all in our favor. VASP had meanwhile in 2008 been adjudicated as insolvent by a Brazilian bankruptcy court, which commenced bankruptcy proceedings. We have caused the English and Irish judgment to be domesticated in Brazil and submitted them as claims in the bankruptcy proceeding. The bankruptcy court has allowed the claims in the amount of $i40
million in respect of the English judgments and $i24 million in respect of the Irish judgments. We have been advised that it is not probable that VASP’s bankruptcy estate will have funds to pay its creditors but our court-approved claims may be used to offset any damages that VASP might be awarded in the Brazilian courts if for any reason we are not successful in defending ourselves against VASP’s claim for damages.
Transbrasil Litigation
We
are party to a group of related actions arising from the leasing of various aircraft and engines to Transbrasil S/A Linhas Areas (“Transbrasil”), a now-defunct Brazilian airline. By 1998, Transbrasil had defaulted on various obligations under its leases with AerCap-related companies (the “AerCap Lessors”), along with other leases it had entered into with General Electric Capital Corporation (“GECC”) and certain of its affiliates (collectively, with GECC, the “GE Lessors”). GECAS was the servicer for all these leases at the time. Subsequently, Transbrasil issued promissory notes (the “Notes”) to the AerCap Lessors and GE Lessors (collectively, the “Lessors”) in connection with restructurings of the leases. Transbrasil defaulted on the Notes and the Lessors individually brought enforcement actions against Transbrasil in 2001 (GECC also filed an action for the involuntary bankruptcy of Transbrasil).
Transbrasil
brought a lawsuit against the Lessors in February 2001 (the “Transbrasil Lawsuit”), claiming that the Notes had in fact been paid at the time the Lessors brought the enforcement actions. In 2007, the trial judge ruled in favor of Transbrasil and the Lessors appealed. In April 2010, the appellate court published a judgment (the “2010 Judgment”) rejecting the Lessors’ appeal, ordering them to pay Transbrasil statutory penalties equal to double the face amount of the Notes (plus interest and monetary adjustments) as well as damages for any losses incurred as a result of the attempts to collect on the Notes. The 2010 Judgment provided that the amount of such losses would be calculated in separate proceedings in the trial court (the “Indemnity Claim”). In June 2010, the Lessors filed special appeals before the STJ in Brazil. In October 2013, the STJ granted the special appeals filed by the GE Lessors, effectively reversing the 2010 Judgment in most respects
as to all of the Lessors. Transbrasil appealed this order, but the appellate panel in November 2016 rejected Transbrasil’s appeal, preserving the 2013 reversal of the 2010 Judgment. All appeals in respect of the Transbrasil Lawsuit based on the merits of the dispute have now concluded.
However, in July 2011, while the various appeals of the 2010 Judgment were pending, Transbrasil brought ithree actions for provisional enforcement of the 2010 Judgment (the “Provisional Enforcement Actions”):
ione to enforce the award of statutory penalties; a second to recover attorneys’ fees related to that award; and a third to enforce the Indemnity Claim. Transbrasil submitted its alleged calculation of statutory penalties, which, according to Transbrasil, amounted to approximately $i210
million in the aggregate against all defendants, including interest and monetary adjustments.
In light of the STJ’s ruling in October 2013, the trial court has ordered the dismissal of the Transbrasil Provisional Enforcement Actions. The TJSP has since affirmed the dismissals of the actions seeking statutory penalties and attorneys’ fees. Lessors’ motion to clarify relating to the dismissal of the Provisional Enforcement Action with respect to the Indemnity Claim remains pending. We believe we have strong arguments to convince the court that Transbrasil suffered ino
material damage as a result of the defendants’ attempts to collect on the Notes.
The only matters remaining to be resolved are: (i) a motion to clarify relating to the dismissal of a lower court appeal with respect to the Indemnity Claim and (ii) a number of court-mandated legal fee assessments for (a) proofs of claim filed by the Lessors against the Transbrasil bankruptcy estate and (b) various otherwise-concluded enforcement proceedings, including the Provisional Enforcement Proceedings.
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(U.S. Dollars in thousands or as otherwise stated, except share and per share data)
25. Commitments and contingencies (Continued)
Contingent and Possessed Insurance Policy Litigation
In our Interim Report on Form 6-K for the quarter ended March 31, 2022, we reported that we had submitted an insurance claim for approximately $i3.5 billion
under our contingent and possessed insurance policy (the “C&P Policy”) with respect to i135 aircraft and i14 engines which had been on lease to Russian airlines at the time of the invasion of Ukraine, the vast majority of which remain in Russia.
On
June 9, 2022, AerCap Ireland Limited (as representative claimant on its own behalf and on behalf of all other insureds under the C&P Policy) commenced a claim in the Commercial Court in London, England (i) in the amount of approximately $i3.5 billion against AIG Europe S.A. (on its own behalf and on behalf of all underwriters subscribing to the Aircraft Hull and Spares and Equipment Coverage section of the C&P Policy) and (ii) in the alternative, in the amount of $i1.2 billion
against Lloyds Insurance Company S.A. (on its own behalf and on behalf of all underwriters subscribing to the Aviation “War and Allied Perils” Coverage section of the C&P Policy), in respect of AerCap’s aircraft and engines lost in Russia.
We intend to continue to pursue our claims under the C&P Policy vigorously. However, the timing and amount of any potential recoveries are uncertain and we have not recognized any claim receivables as of June 30, 2022.
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(U.S. Dollars in thousands or as otherwise stated, except share and per share data)
26. iFair value measurements
The
Company determines fair value based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy as described below. Where limited or no observable market data exists, fair value measurements for assets and liabilities are primarily based on management’s own estimates and are calculated based upon the economic and competitive environment, the characteristics of the asset or liability and other such factors. Therefore, the results may not be realized in actual sale or immediate settlement of the asset or liability.
The degree of judgment used in measuring the fair value of a financial and non-financial asset or liability generally correlates
with the level of pricing observability. We classify our fair value measurements based on the observability and significance of the inputs used in making the measurement, as provided below:
Level 1 — Quoted prices available in active markets for identical assets or liabilities as of the reported date.
Level 2 — Observable market data. Inputs include quoted prices for similar assets, liabilities (risk adjusted) and market-corroborated inputs, such as market comparables, interest rates, yield curves and other items that allow value to be determined.
Level 3 — Unobservable inputs from our own assumptions about market risk developed based on the best information available, subject to cost-benefit analysis. Inputs may include our own data.
Fair value measurements are classified in their entirety
based on the lowest level of input that is significant to their fair value measurement.
Assets and liabilities measured at fair value on a recurring basis
As of June 30, 2022 and December 31, 2021, our derivative portfolio consisted of interest rate swaps and caps. The fair value of derivatives is based on dealer quotes for identical instruments. We have also considered the credit rating and risk of the counterparty of the derivative contract based on quantitative and qualitative factors. As such, the valuation of these instruments was classified as Level 2. As of June 30, 2022 and December 31, 2021,
we held an investment at fair value of $i26.0 million and $i38.4 million, respectively, based on quoted market prices. The valuation of this investment was classified
as Level 1.
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(U.S. Dollars in thousands or as otherwise stated, except share and per share data)
26. Fair value measurements (Continued)
i
The
following tables present our financial assets and liabilities that we measured at fair value on a recurring basis by level within the fair value hierarchy as of June 30, 2022 and December 31, 2021:
Assets
and liabilities measured at fair value on a non-recurring basis
We measure the fair value of our flight equipment and certain definite-lived intangible assets on a non-recurring basis, when U.S. GAAP requires the application of fair value, including when events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable.
Additional details of recoverability assessments performed on our flight equipment and certain definite-lived intangible assets are described in our Annual Report on Form 20-F for the year ended December 31, 2021, filed with the SEC on March 30, 2022.
Management develops the assumptions used in the fair value measurements. Therefore, the fair value measurements of flight equipment
and definite-lived intangible assets are classified as Level 3 valuations.
Flight equipment
Inputs to non-recurring fair value measurements categorized as Level 3
We use the income approach to measure the fair value of flight equipment, which is based on the present value of estimated future cash flows. Key inputs to the income statement approach include the discount rate, current contractual lease cash flows, projected future non-contractual lease cash flows, extended to the end of the aircraft’s estimated holding period in its highest and best use, and a contractual or estimated disposition value.
The current contractual lease cash flows are based on the in-force lease rates. The projected future non-contractual lease cash flows are estimated based on the aircraft
type, age, and the airframe and engine configuration of the aircraft. The projected non-contractual lease cash flows are applied to follow-on lease terms, which are estimated based on the age of the aircraft at the time of re-lease and are assumed through the estimated holding period of the aircraft. The estimated holding period is the period over which future cash flows are assumed to be generated. Shorter holding periods can result when a potential sale or future disassembly of an aircraft for the sale of its parts (“part-out”) of an individual aircraft has been contracted for, or is likely. In instances of a potential sale or part-out, the holding period is based on the estimated sale or part-out date. The disposition value is generally estimated based on aircraft type. In situations where the aircraft will be disposed of, the disposition value assumed is based on an estimated part-out value or the contracted sale price.
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(U.S. Dollars in thousands or as otherwise stated, except share and per share data)
26. Fair value measurements (Continued)
The estimated future cash flows, as described above, are then discounted to present value. The discount rate used is based on the aircraft type and incorporates assumptions market participants would use regarding the likely debt and equity financing components, and the required returns of those financing components.
The significant unobservable inputs utilized in the fair value measurement of flight
equipment are the discount rate and the non-contractual cash flows. The discount rate is affected by movements in the aircraft funding markets, including fluctuations in required rates of return in debt and equity, and loan to value ratios. The non-contractual cash flows represent management’s estimate of the non-contractual cash flows over the remaining life of the aircraft. An increase in the discount rate would decrease the fair value measurement of the aircraft, while an increase in the estimated non-contractual cash flows would increase the fair value measurement of the aircraft.
Fair value disclosures of financial instruments
The fair value of restricted cash and cash and cash equivalents approximates their carrying value because of their short-term nature (Level 1). The fair value of our long-term unsecured debt is estimated using quoted market prices for similar or identical
instruments, depending on the frequency and volume of activity in the market. The fair value of our long-term secured debt is estimated using a discounted cash flow analysis based on current market interest rates and spreads for debt with similar characteristics (Level 2). Derivatives are recognized in our Condensed Consolidated Balance Sheets at their fair value. The fair value of derivatives is based on dealer quotes for identical instruments. We have also considered the credit rating and risk of the counterparties of the derivative contracts based on quantitative and qualitative factors (Level 2).
As of June 30, 2022, we held an investment at fair value of $i26.0
million based on quoted market price. The valuation of this investment was classified as Level 1.
As of June 30, 2022, loans receivable and notes receivable carried at amortized cost had estimated fair values of $i372.2 million and $i566.8
million, respectively, and were classified as Level 3.
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(U.S. Dollars in thousands or as otherwise stated, except share and per share data)
26. Fair value measurements (Continued)
All
of our financial instruments are carried at amortized cost, other than our derivatives and investment which are measured at fair value on a recurring basis. iThe carrying amounts and fair values of our most significant financial instruments as of June 30, 2022 and December 31, 2021 were as follows:
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(U.S. Dollars in thousands or as
otherwise stated, except share and per share data)
27. iSubsequent events
In July 2022, we entered into an agreement with Boeing to purchase ifive
additional Boeing 787-9 aircraft. We now have commitments to purchase i461 new aircraft (excluding aircraft for which we have cancellation rights and aircraft with contracted sales at delivery), i31
new engines, i17 new helicopters and other commitments through 2027.
41
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read this discussion in conjunction with our unaudited Condensed Consolidated Financial Statements and the related notes included in this Interim Report. Our financial statements are presented in accordance with U.S. GAAP, and are presented in U.S. dollars. Due to rounding, numbers presented throughout this document may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures.
Special note about forward looking statements
This report includes “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. We have based these forward looking statements largely on our current beliefs and projections about future events and financial trends affecting
our business. Many important factors, in addition to those discussed in this report, could cause our actual results to differ substantially from those anticipated in our forward looking statements, including, among other things:
•the potential impacts of the Ukraine Conflict, including the resulting sanctions by the United States, the European Union, the United Kingdom and other countries, on our business and results of operations, financial condition and cash flows;
•the severity, extent and duration of the Covid-19 pandemic, including the rate of recovery in air travel, the aviation industry and global economic conditions; the potential impacts of the pandemic and responsive government actions on our business and results of operations, financial condition and cash flows;
•the
availability of capital to us and to our customers and changes in interest rates;
•a downgrade in any of our credit ratings;
•the ability of our lessees and potential lessees to make lease payments to us;
•our ability to successfully negotiate flight equipment (which includes aircraft, engines and helicopters) purchases, sales and leases, to collect outstanding amounts due and to repossess flight equipment under defaulted leases, and to control costs and expenses;
•changes in the overall demand for commercial aviation leasing and aviation asset management services;
•the effects of terrorist attacks on the aviation industry and on
our operations;
•the economic condition of the global airline and cargo industry and economic and political conditions;
•development of increased government regulation, including travel restrictions, regulation of trade and the imposition of import and export controls, tariffs and other trade barriers;
•competitive pressures within the industry;
•the negotiation of flight equipment management services contracts;
•our ability to successfully integrate GECAS or achieve the anticipated benefits of the GECAS Transaction;
•the
potential impact of the consummation of the GECAS Transaction on our relationships, including with employees, suppliers, customers and competitors;
•regulatory changes affecting commercial flight equipment operators, flight equipment maintenance, engine standards, accounting standards and taxes; and
•the risks set forth or referred to in “Part II. Other Information—Item 1A. Risk Factors” included below.
42
The
words “believe,”“may,”“will,”“aim,”“estimate,”“continue,”“anticipate,”“intend,”“expect” and similar words are intended to identify forward looking statements. Forward looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation and the effects of competition. Forward looking statements speak only as of the date they were made and we undertake no obligation to update publicly or to revise any forward looking statements because of new information, future events or other factors. In light of the risks and uncertainties described above, the forward looking events and circumstances described in this report might not occur and are not guarantees of future performance.
43
Flight
equipment portfolio
We are the global leader in aviation leasing with a portfolio consisting of 3,599 aircraft, engines (including engines owned by our SES joint venture) and helicopters that were owned, on order or managed as of June 30, 2022. We provide a wide range of assets for lease, including narrowbody and widebody aircraft, regional jets, freighters, engines and helicopters. We focus on acquiring in-demand flight equipment at attractive prices, funding them efficiently, hedging interest rate risk prudently and using our platform to deploy these assets with the objective of delivering superior risk-adjusted returns. We believe that by applying our expertise, we will be able to identify and execute on a broad range of market opportunities that we expect will generate attractive returns for our investors. We have the infrastructure, expertise and resources to execute a
large number of diverse transactions in a variety of market conditions. Our teams of dedicated marketing and asset trading professionals have been successful in leasing and managing our asset portfolio. During the six months ended June 30, 2022, we executed 341 aviation asset transactions.
Aircraft portfolio
As of June 30, 2022, we owned 1,618 aircraft and we managed 189 aircraft. As of June 30, 2022, we had commitments to purchase 461 new aircraft, including aircraft under an agreement entered into in July 2022, scheduled for delivery through 2027. Please refer to “Part I. Financial Information—Item 1. Financial Statements (Unaudited)— Note27—Subsequent events.”
As of June 30, 2022, the weighted average age of our 1,618 owned aircraft fleet, weighted by net book value, was 7.2 years. As of June 30, 2022, 1,497 of our 1,618 owned aircraft were on lease and 121 aircraft were off-lease. As of August 8, 2022, of the 121 aircraft, 45 aircraft were designated for sale or part-out (which represented less than 1% of the aggregate net book value of our fleet), 40 were re-leased or under commitments for re-lease, 30 aircraft were being marketed for re-lease (which represented less than 1% of the aggregate net book value of our fleet) and six aircraft were sold or under commitments to be sold. During the three and six months ended June 30, 2022 our owned aircraft utilization rate was 96% and 95%, respectively, calculated based on the number
of days each aircraft was on lease, weighted by the net book value of the aircraft. Approximately 1% of our owned aircraft were undergoing or designated for cargo conversion during the three and six months ended June 30, 2022 and were not calculated as utilized.
44
The following table presents our aircraft portfolio by type of aircraft as of June 30, 2022:
Aircraft
type
Number of owned aircraft
Percentage of total net book value
Number of managed aircraft
Number of on order aircraft (b)
Total owned, managed and on order aircraft
Airbus A220 Family
3
—
2
8
13
Airbus
A320 Family
476
12
%
71
—
547
Airbus A320neo Family
314
29
%
19
246
579
Airbus
A330
64
3
%
9
—
73
Airbus A330neo Family
—
—
—
12
12
Airbus
A350
41
10
%
6
—
47
Boeing 737 MAX
46
4
%
5
131
182
Boeing
737NG
338
13
%
68
—
406
Boeing 777-200ER
18
—
—
—
18
Boeing
777-300ER
45
4
%
1
—
46
Boeing 787
99
21
%
1
26
126
Embraer
E190 / 195 / E2
67
1
%
—
33
100
Other (a)
46
1
%
—
5
51
Passenger
Aircraft
1,557
98
%
182
461
2,200
Boeing 737
38
1
%
7
—
45
Boeing
747 / 767 / 777
23
1
%
—
—
23
Freighter Aircraft
61
2
%
7
—
68
Total
1,618
100
%
189
461
2,268
(a)Other
includes 46 owned aircraft (including nine Embraer E170/175 aircraft; 15 Boeing 767 aircraft; 19 ATR and De Havilland Canada DHC-8-400 aircraft and three Boeing 757 aircraft) and five regional jet aircraft on order.
(b)Excludes aircraft for which we have cancellation rights, and aircraft with contracted sales at delivery. Includes aircraft under an agreement entered into in July 2022. Please refer to “Part I. Financial Information—Item 1. Financial Statements (Unaudited)— Note27—Subsequent events.”
During the six months ended June 30, 2022, we had the following activity related to flight equipment:
Held
for operating leases
Investment in finance leases, net
Held for sale
Total owned aircraft
Number of owned aircraft at beginning of period
1,517
226
13
1,756
Aircraft
purchases
30
—
—
30
Aircraft reclassified to held for sale
(4)
—
4
—
Aircraft
sold or designated for part-out (a)
(33)
(7)
(15)
(55)
Aircraft reclassified from investment in finance leases, net
1
(1)
—
—
Write-offs
of aircraft (b)
(111)
(2)
—
(113)
Number of owned aircraft at end of period
1,400
216
2
1,618
(a)Includes
15 aircraft that were reclassified to inventory.
(b)Please refer to “Part I. Financial Information—Item 1. Financial Statements (Unaudited)— Note5—Net charges related to Ukraine Conflict.”
Critical accounting policies and estimates
There have been no significant changes to our critical accounting policies and estimates from those disclosed in our Annual Report on Form 20-F for the year ended December 31, 2021, filed with the SEC on March 30, 2022, except for the addition and updates as described
in “Part I. Financial Information—Item 1. Financial Statements (Unaudited)—Note 3—Summary of significant accounting policies.”
45
Comparative results of operations
Results of operations for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021
Three
Months Ended June 30,
Increase/ (Decrease)
2022
2021
(U.S. Dollars in thousands)
Revenues and other income
Lease revenue:
Basic
lease rents
$
1,461,526
$
871,237
$
590,289
Maintenance rents and other receipts
102,798
130,934
(28,136)
Total
lease revenue
1,564,324
1,002,171
562,153
Net gain on sale of assets
35,200
22,453
12,747
Other income
71,188
207,444
(136,256)
Total
Revenues and other income
1,670,712
1,232,068
438,644
Expenses
Depreciation and amortization
580,744
392,162
188,582
Asset
impairment
11,803
57,054
(45,251)
Interest expense
399,994
292,887
107,107
Loss on debt extinguishment
901
—
901
Leasing
expenses
193,231
59,010
134,221
Selling, general and administrative expenses
104,872
73,071
31,801
Transaction and integration-related expenses
9,245
69,197
(59,952)
Total
Expenses
1,300,790
943,381
357,409
Loss on investment at fair value
(12,464)
—
(12,464)
Income
before income taxes and income of investments accounted for under the equity method
357,458
288,687
68,771
Income tax expense
(50,044)
(40,531)
(9,513)
Equity
in net earnings of investments accounted for under the equity method
33,148
1,703
31,445
Net income
$
340,562
$
249,859
$
90,703
Net
income attributable to non-controlling interest
(736)
(108)
(628)
Net income attributable to AerCap Holdings N.V.
$
339,826
$
249,751
$
90,075
Basic
lease rents. The increase in basic lease rents of $590.3 million, or 68%, was attributable to:
•the acquisition of assets between April 1, 2021 and June 30, 2022, including the assets acquired as part of the GECAS Transaction, with an aggregate net book value of $28.3 billion on their respective acquisition dates, resulting in an increase in basic lease rents of $598.5 million; and
•a $52.5 million lower impact on basic lease rents as a result of the application of Cash Accounting during the three months ended June 30, 2022 compared to the three months ended June 30, 2021;
partially
offset by
•a decrease in basic lease rents of $47.3 million primarily due to lease terminations related to the Ukraine Conflict, lease transitions and lease restructurings, the accounting for which requires the remaining rental payments to be recorded on a straight-line basis over the remaining term of the original lease plus any extension period; and
•the sale of assets between April 1, 2021 and June 30, 2022 with an aggregate net book value of $1.3 billion on their respective sale dates, resulting in a decrease in basic lease rents of $13.4 million.
46
Maintenance
rents and other receipts. The decrease in maintenance rents and other receipts of $28.1 million, or 21%, was attributable to:
•a decrease of $37.4 million in maintenance revenue and other receipts from lease terminations;
partially offset by
•an increase of $9.3 million in regular maintenance rents, primarily due to higher EOL compensation and other receipts.
Net gain on sale of assets. The increase in net gain on sale of assets of $12.7 million was primarily due to the higher volume and composition of asset sales. During the three months ended June 30, 2022, we sold 29 assets for sale proceeds of $386 million and during the three months ended
June 30, 2021, we sold 12 aircraft for proceeds of $139 million.
Other income. The decrease in other income of $136.3 million was primarily due to lower proceeds from unsecured claims. During the three months ended June 30, 2022 and 2021, we recognized $39 million and $193 million, respectively, related to the proceeds from unsecured claims.
Depreciation and amortization. The increase in depreciation and amortization of $188.6 million, or 48%, was primarily a result of the GECAS Transaction and aircraft purchases, partially offset by write-offs of flight equipment related to the Ukraine Conflict and aircraft sales during the three months ended June
30, 2022 compared to the three months ended June 30, 2021.
Asset impairment. For the three months ended June 30, 2022, asset impairments, which related to lease terminations or sales transactions, were largely offset by lease revenue recognized when we retained maintenance-related balances or received EOL compensation.
Interest expense. The increase in interest expense of $107.1 million, or 37%, was primarily attributable to a $20.4 billion increase in the average outstanding debt balance to $48.8 billion as of June 30, 2022 from $28.4 billion as of June 30, 2021, primarily resulting from debt incurred to finance the GECAS Transaction.
Leasing
expenses. The increase in leasing expenses of $134.2 million was primarily due to $106.1 million of higher flight equipment transition costs, lessor maintenance contributions and other leasing expenses, $24.3 million of higher maintenance rights asset amortization as a result of the GECAS Transaction and $3.8 million of higher expenses primarily related to airline defaults.
Selling, general and administrative expenses. The increase in selling, general and administrative expenses of $31.8 million, or 44%, was primarily due to higher compensation-related expenses as a result of the GECAS Transaction.
Transaction and integration-related expenses. During the three months ended June 30, 2022 and 2021, we recognized
$9.2 million and $69.2 million of expenses, respectively, related to the GECAS Transaction.
Income tax expense. The effective tax rate was 14% for the three months ended June 30, 2022 and 2021. The effective tax rate is impacted by the source and amount of earnings among our different tax jurisdictions as well as the amount of permanent tax differences relative to pre-tax income or loss, as well as certain discrete items. The effective tax rate in any period can be impacted by revisions to the estimated full year rate.
47
Results
of operations for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021
Six Months Ended June 30,
Increase/ (Decrease)
2022
2021
(U.S.
Dollars in thousands)
Revenues and other income
Lease revenue:
Basic lease rents
$
3,015,172
$
1,760,324
$
1,254,848
Maintenance
rents and other receipts
288,693
313,829
(25,136)
Total lease revenue
3,303,865
2,074,153
1,229,712
Net gain on sale of assets
38,485
27,248
11,237
Other
income
118,378
226,017
(107,639)
Total Revenues and other income
3,460,728
2,327,418
1,133,310
Expenses
Depreciation
and amortization
1,215,158
788,720
426,438
Net charges related to Ukraine Conflict
2,728,718
—
2,728,718
Asset impairment
14,228
73,386
(59,158)
Interest
expense
780,779
573,704
207,075
Loss on debt extinguishment
2,041
6,061
(4,020)
Leasing expenses
401,286
103,542
297,744
Selling,
general and administrative expenses
202,347
130,422
71,925
Transaction and integration-related expenses
26,633
94,675
(68,042)
Total Expenses
5,371,190
1,770,510
3,600,680
Loss
on investment at fair value
(12,351)
(2,463)
(9,888)
(Loss) income before income taxes and income of investments accounted for under the equity method
(1,922,813)
554,445
(2,477,258)
Income
tax benefit (expense)
228,263
(80,395)
308,658
Equity in net earnings of investments accounted for under the equity method
34,431
3,855
30,576
Net (loss) income
$
(1,660,119)
$
477,905
$
(2,138,024)
Net
income attributable to non-controlling interest
(885)
(129)
(756)
Net (loss) income attributable to AerCap Holdings N.V.
$
(1,661,004)
$
477,776
$
(2,138,780)
Basic
lease rents. The increase in basic lease rents of $1.3 billion, or 71%, was attributable to:
•the acquisition of assets between January 1, 2021 and June 30, 2022, including the assets acquired as part of the GECAS Transaction, with an aggregate net book value of $28.4 billion on their respective acquisition dates, resulting in an increase in basic lease rents of $1.2 billion; and
•a $160.4 million lower impact on basic lease rents due to the application of Cash Accounting during the six months ended June 30, 2022 compared to the six months ended June 30, 2021;
partially
offset by
•a decrease in basic lease rents of $121.3 million primarily due to lease terminations related to the Ukraine Conflict, lease transitions and lease restructurings, the accounting for which requires the remaining rental payments to be recorded on a straight-line basis over the remaining term of the original lease plus any extension period; and
•the sale of assets between January 1, 2021 and June 30, 2022 with an aggregate net book value of $1.5 billion on their respective sale dates, resulting in a decrease in basic lease rents of $26.4 million.
48
Maintenance
rents and other receipts. The decrease in maintenance rents and other receipts of $25.1 million, or 8%, was attributable to:
•a decrease of $39.3 million in regular maintenance rents, primarily due to EOL compensation and other receipts;
partially offset by
•an increase of $14.2 million in maintenance revenue and other receipts from early lease terminations.
Net gain on sale of assets. The increase in net gain on sale of assets of $11.2 million, or 41%, was primarily due to the higher volume and composition of asset sales. During the six months ended June 30, 2022, we sold 52 assets for proceeds of $838 million and during the six months ended June
30, 2021, we sold 21 aircraft for proceeds of $323.5 million.
Other income. The decrease in other income of $107.6 million was primarily due to lower proceeds from unsecured claims. During the six months ended June 30, 2022 and 2021, we recognized $39 million and $193 million, respectively, related to the proceeds from unsecured claims.
Depreciation and amortization. The increase in depreciation and amortization of $426.4 million, or 54%, was primarily a result of the GECAS Transaction and aircraft purchases, partially offset by write-offs of flight equipment related to the Ukraine Conflict and aircraft sales during the six months ended June 30, 2022 compared to the six months ended
June 30, 2021.
Net charges related to Ukraine Conflict. For the six months ended June 30, 2022, we recognized a pre-tax net charge to our earnings of $2.7 billion related to the Ukraine Conflict, comprised of write-offs and impairments of flight equipment, which were partially offset by the derecognition of lease-related assets and liabilities and the collection of letter of credit proceeds. Please refer to “Part I. Financial Information—Item 1. Financial Statements (Unaudited)—Note 5—Net charges related to Ukraine Conflict.”
Asset impairment. For the six months ended June 30, 2022, asset impairments, which related to lease terminations
or sales transactions, were largely offset by lease revenue recognized when we retained maintenance-related balances or received EOL compensation.
Interest expense. The increase in interest expense of $207.1 million, or 36%, was primarily attributable to a $20.6 billion increase in the average outstanding debt balance to $49.3 billion as of June 30, 2022 from $28.7 billion as of June 30, 2021, primarily resulting from debt incurred to finance the GECAS Transaction.
Leasing expenses. The increase in leasing expenses of $297.7 million was primarily due to $216 million of higher flight equipment transition costs, lessor maintenance contributions and other leasing expenses, $70.1 million of higher maintenance rights asset amortization
as a result of the GECAS Transaction and $11.6 million of higher expenses primarily related to airline defaults and restructurings.
Selling, general and administrative expenses. The increase in selling, general and administrative expenses of $71.9 million, or 55%, was primarily due to higher compensation-related expenses as a result of the GECAS Transaction.
Transaction and integration-related expenses. During the six months ended June 30, 2022 and 2021, we recognized $26.6 million and $94.7 million of expenses, respectively, related to the GECAS Transaction.
Income tax benefit (expense). The effective tax rate was 11.9% for the six months ended June
30, 2022, and 14.5% for the six months ended June 30, 2021. During the six months ended June 30, 2022, we recorded approximately $341 million of income tax benefit due to the recognition of net charges related to the Ukraine Conflict. Please refer to “Part I. Financial Information—Item 1. Financial Statements (Unaudited)—Note 5—Net charges related to the Ukraine Conflict.”
Excluding these charges, our effective tax rate for the full year 2022 is expected to be 14.0%, compared to the effective tax rate of 14.2% for the full year 2021. The effective tax rate is impacted by the source and amount of earnings among our different tax jurisdictions as well as the amount of permanent tax differences relative to pre-tax income or loss, as well as certain discrete items. The
effective tax rate in any period can be impacted by revisions to the estimated full year rate.
49
Liquidity and capital resources
The following table presents our consolidated cash flows for the six months ended June 30, 2022 and 2021:
Cash flows provided by operating activities. During the six months ended June 30, 2022, our cash provided by operating activities of $2.5 billion was the result of net loss of $1.7 billion, other adjustments to net loss of $4.1 billion and collections of finance leases of $140.1 million, partially offset by the net change in operating assets and liabilities of $59.4 million. During the six months ended June 30, 2021, our cash provided by operating activities of $1.2 billion was the result of net income of $477.9 million, other adjustments to net income of $961.1
million and collections of finance leases of $42.3 million, partially offset by the net change in operating assets and liabilities of $309.8 million.
Cash flows used in investing activities. During the six months ended June 30, 2022, our cash used in investing activities of $862.7 million primarily consisted of cash used for the purchase of flight equipment and other assets of $1.7 billion, partially offset by cash provided by asset sales of $796.4 million. During the six months ended June 30, 2021, our cash used in investing activities of $233.3 million primarily consisted of cash used for the purchase of flight equipment and other assets of $501.1 million, partially offset by cash provided by asset sales of $267.8 million.
Cash flows used in financing activities. During
the six months ended June 30, 2022, our cash used in financing activities of $2.2 billion primarily consisted of cash used for debt repayments, debt issuance and extinguishment costs, net of new financing proceeds and debt premium received of $2.3 billion, cash used for the repurchase of shares and payments of tax withholdings on share-based compensation of $8.1 million and cash used for the payment of dividends to our non-controlling interest holders of $0.6 million, partially offset by net cash provided by maintenance payments and security deposits received of $189.3 million. During the six months ended June 30, 2021, our cash used in financing activities of $839.3 million primarily consisted of cash used for debt repayments and debt issuance and extinguishment costs, net of new financing proceeds and debt premium of $845.7 million, cash used for the payments of tax
withholdings on share-based compensation of $16.5 million and cash used for the payment of dividends to our non-controlling interest holders of $0.2 million, partially offset by cash provided by net receipts of maintenance and security deposits of $23.1 million.
We have significant capital requirements, including making pre-delivery payments and paying the balance of the purchase price for flight equipment on delivery. As of June 30, 2022, we had commitments to purchase 461 new aircraft, scheduled for delivery through 2027, including aircraft under an agreement entered into in July 2022, (see “Part I. Financial Information—Item 1. Financial Statements (Unaudited)—Note 27—Subsequent Events”)and excluding aircraft for which we have cancellation rights, and aircraft with contracted
sales at delivery. We also had commitments to purchase 31 new engines and 17 new helicopters through 2025. In October 2021, we incurred significant additional debt to fund the acquisition of GECAS. Please refer to “Part I. Financial Information—Item 1. Financial Statements (Unaudited)— Note 16—Debt.”
As of June 30, 2022, our cash balance was $1.4 billion, including unrestricted cash of $1.2 billion, and we had $10.6 billion of undrawn lines of credit available under our revolving credit facilities and term loan facilities. As of June 30, 2022, our total available liquidity, including undrawn lines of credit, unrestricted cash, cash flows from contracted asset sales and other sources of funding, was $12.6 billion and, including
estimated operating cash flows for the next 12 months, our total sources of liquidity were $17 billion. As of June 30, 2022, our existing sources of liquidity were sufficient to operate our business and cover approximately 2.1x of our debt maturities and contracted capital requirements for the next 12 months. As of June 30, 2022, the principal amount of our outstanding indebtedness, which excludes debt issuance costs, debt discounts and debt premium of $308 million, totaled $48.2 billion and consisted of senior unsecured, subordinated and senior secured notes, export credit facilities, commercial bank debt, revolving credit debt, securitization debt and capital lease structures.
50
In
response to the Ukraine Conflict and ongoing related hostilities, the United States, the European Union, the United Kingdom and other countries have imposed broad, far-reaching sanctions against Russia, certain Russian persons and certain activities involving Russia or Russian persons. In compliance with all applicable sanctions in March 2022, we terminated the leasing of all of our aircraft and engines with Russian airlines. These terminations result in reduced revenues and operating cash flows. Basic lease rents from our owned aircraft and engines leased to Russian airlines were approximately $33 million for the month of December 2021. Please refer to “Part I. Financial Information—Item 1. Financial Statements (Unaudited)— Note 5—Net charges related to Ukraine Conflict”for further details.
In order to satisfy our contractual
purchase obligations, we expect to source new debt financing through access to the capital markets, including the unsecured and secured bond markets, the commercial bank market, export credit and the asset-backed securities market.
In the longer term, we expect to fund the growth of our business, including acquiring flight equipment, through internally generated cash flows, the incurrence of new debt, the refinancing of existing debt and other capital-raising initiatives.
During the six months ended June 30, 2022, our average cost of debt, excluding the effect of mark-to-market movements on our interest rate caps and swaps, debt issuance fees, upfront fees and other impacts was 3.0%. As of June 30, 2022, our adjusted debt to equity ratio was 2.8 to 1. Please refer to “Part I. Financial
Information—Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP measures” for further information on our average cost of debt and reconciliations of adjusted debt and adjusted equity to the most closely related U.S. GAAP measures as of June 30, 2022 and December 31, 2021.
51
Contractual obligations
Our
estimated future obligations as of June 30, 2022 include both current and long-term obligations. Our contractual obligations consist of principal and interest payments on debt, executed purchase agreements to purchase flight equipment and rent payments pursuant to our office and facility leases. We intend to fund our contractual obligations through unrestricted cash, lines-of-credit and other borrowings, operating cash flows and cash flows from asset sales. We believe that our sources of liquidity will be sufficient to meet our contractual obligations.
The following table provides details regarding our contractual obligations, excluding purchase obligations, and their payment dates as of June 30, 2022:
2022
- remaining
2023
2024
2025
2026
Thereafter
Total
(U.S. Dollars in millions)
Unsecured debt facilities
$
1,227.8
$
5,399.7
$
7,250.0
$
3,650.0
$
5,250.0
$
12,900.0
$
35,677.5
Secured
debt facilities
427.5
1,915.7
1,629.3
2,089.0
796.1
3,421.3
10,278.9
Subordinated debt facilities
—
—
—
—
—
2,277.2
2,277.2
Estimated
interest payments (a)
821.6
1,512.4
1,257.2
1,066.9
847.7
8,119.1
13,624.9
Operating leases (b)
43.4
51.1
47.2
13.6
9.1
32.9
197.3
Total
$
2,520.3
$
8,878.9
$
10,183.7
$
6,819.5
$
6,902.9
$
26,750.5
$
62,055.8
(a)Estimated
interest payments for floating rate debt are based on rates as of June 30, 2022 and include the estimated impact of our interest rate swap agreements.
(b)Represents contractual payments on aircraft that we lease from corporate aircraft owners and contractual payments on our office and facility leases.
A summary of our purchase obligations can be found in our Annual Report on Form 20-F for the year ended December 31, 2021, filed with the SEC on March 30, 2022. During the six months ended June 30, 2022 we purchased 30 aircraft under the existing commitments. In July 2022, we entered into an agreement to purchase five additional Boeing 787-9 aircraft. We now have
commitments to purchase 461 aircraft (including 14 purchase and leaseback transactions, and excluding aircraft for which we have cancellation rights and aircraft with contracted sales at delivery), 31 engines, 17 helicopters and other commitments through 2027. The timing of our purchase obligations is based on current estimates. We have the right to reschedule the delivery dates of certain of our aircraft to future dates.
52
Off-balance sheet arrangements
We
have interests in variable interest entities, some of which are not consolidated into our Condensed Consolidated Financial Statements. Please refer to “Part I. Financial Information—Item 1. Financial Statements (Unaudited)—Note 23—Variable interest entities” for a detailed description of these interests and our other off-balance sheet arrangements.
(U.S. Dollars in millions, except share and per share data)
Total AerCap Holdings N.V. shareholders’ equity
$
15,034
$
16,571
$
9,384
Ordinary
shares issued
250,347,345
250,347,345
138,847,345
Treasury shares
(4,498,988)
(4,951,897)
(5,468,457)
Ordinary shares outstanding
245,848,357
245,395,448
133,378,888
Shares
of unvested restricted stock
(5,032,769)
(5,822,811)
(5,254,512)
Ordinary shares outstanding, excluding shares of unvested restricted stock
240,815,588
239,572,637
128,124,376
Book
value per ordinary share outstanding, excluding shares of unvested restricted stock
$
62.43
$
69.17
$
73.24
Non-GAAP measures
The following are definitions of our non-GAAP measures and a reconciliation of such measures to the most closely related U.S. GAAP measures for the six months ended June 30, 2022.
Net interest
margin, annualized net spread, annualized net spread less depreciation and amortization and average cost of debt
Net interest margin is calculated as the difference between basic lease rents, excluding the impact of the amortization of lease premium/deficiency recognized under purchase accounting, and interest expense, excluding the impact of the mark-to-market of interest rate caps and swaps. Annualized net spread is net interest margin expressed as a percentage of average lease assets. Annualized net spread less depreciation and amortization is net interest margin less depreciation and amortization, expressed as a percentage of average lease assets. Average cost of debt is calculated as interest expense, excluding mark-to-market on interest rate caps and swaps, debt issuance costs, upfront fees and other impacts, divided by the average debt balance. We believe these measures may further assist investors in their understanding
of the changes and trends related to the earnings of our leasing activities. These measures reflect the impact from changes in the number of aircraft leased, lease rates and utilization rates, as well as the impact from changes in the amount of debt and interest rates.
53
The following is a reconciliation of basic lease rents to net interest margin, annualized net spread and annualized net spread less depreciation and amortization for the six months ended June
30, 2022 and 2021:
Six Months Ended June 30,
Percentage Difference
2022
2021
(U.S.
Dollars in millions)
Basic lease rents
$
3,015
$
1,760
71
%
Adjusted for:
Amortization of lease premium/deficiency
109
3
NA
Basic
lease rents excluding amortization of lease premium/deficiency
$
3,124
$
1,763
77
%
Interest expense
781
574
36
%
Adjusted
for:
Mark-to-market of interest rate caps and swaps
39
10
NA
Interest expense excluding mark-to-market of interest rate caps and swaps
820
584
41
%
Net
interest margin
$
2,304
$
1,179
95
%
Depreciation and amortization
(1,215)
(789)
54
%
Net interest margin less
depreciation and amortization
$
1,089
$
390
179
%
Average lease assets
$
60,601
$
36,190
67
%
Annualized
net spread
7.6
%
6.5
%
Annualized net spread less depreciation and amortization
3.6
%
2.2
%
Lease assets
Lease assets include flight equipment held for operating leases, flight equipment held for
sale, investment in finance leases and maintenance rights assets.
Adjusted debt to equity ratio
This measure is the ratio obtained by dividing adjusted debt by adjusted equity. Adjusted debt means consolidated total debt less cash and cash equivalents, and less a 50% equity credit with respect to certain long-term subordinated debt. Adjusted equity means total equity, plus the 50% equity credit relating to the long-term subordinated debt. Adjusted debt and adjusted equity are adjusted by the 50% equity credit to reflect the equity nature of those financing arrangements and to provide information that is consistent with definitions under certain of our debt covenants. We believe this measure may further assist investors in their understanding of our capital structure and leverage.
54
The
following is a reconciliation of debt to adjusted debt and equity to adjusted equity as of June 30, 2022 and December 31, 2021:
(U.S. Dollars in millions, except debt/equity ratio)
Debt
$
47,928
$
50,205
Adjusted
for:
Cash and cash equivalents
(1,229)
(1,729)
50% credit for long-term subordinated debt
(1,125)
(1,125)
Adjusted debt
$
45,574
$
47,351
Equity
$
15,111
$
16,647
Adjusted
for:
50% credit for long-term subordinated debt
1,125
1,125
Adjusted equity
$
16,236
$
17,772
Adjusted
debt/equity ratio
2.8 to 1
2.7 to 1
55
Summarized financial information of issuers and guarantors
AGAT/AICDC Notes
From time to time since the completion
of the acquisition of ILFC, AerCap Trust and AICDC have co-issued senior unsecured notes (the “AGAT/AICDC Notes”). Please refer to “Part I. Financial Information—Item 1. Financial Statements (Unaudited)—Note 16—Debt” for further details on the AGAT/AICDC Notes. The AGAT/AICDC Notes are jointly and severally and fully and unconditionally guaranteed by AerCap Holdings N.V. (the “Parent Guarantor”) and by AerCap Ireland Limited, AerCap Aviation Solutions B.V., ILFC and AerCap U.S. Global Aviation LLC (the “Subsidiary Guarantors” and, together with the Parent Guarantor, the “AGAT/AICDC Guarantors”).
Subject to the provisions of the indenture governing the AGAT/AICDC Notes (the “AGAT/AICDC Indenture”),
a Subsidiary Guarantor will be automatically and unconditionally released from its guarantee with respect to a series of AGAT/AICDC Notes under the following circumstances: (1) the sale, disposition or other transfer of (i) the capital stock of a Subsidiary Guarantor after which such Subsidiary Guarantor is no longer a Restricted Subsidiary (as defined in the AGAT/AICDC Indenture) or (ii) all or substantially all of the assets of a Subsidiary Guarantor; (2) the permitted designation of the Subsidiary Guarantor as an Unrestricted Subsidiary as defined in and pursuant to the AGAT/AICDC Indenture; (3) the consolidation, amalgamation or merger of a Subsidiary Guarantor with and into AerCap Trust, AICDC or another AGAT/AICDC Guarantor with such person being the surviving entity, or upon the liquidation
of a Subsidiary Guarantor following the transfer of all of its assets to AerCap Trust, AICDC or another AGAT/AICDC Guarantor; or (4) legal defeasance or covenant defeasance with respect to such series, each as described in the AGAT/AICDC Indenture, or if the obligations of AerCap Trust and AICDC with respect to such series under the AGAT/AICDC Indenture are discharged.
The guarantee obligations of each Subsidiary Guarantor are limited (i) to an amount not to exceed the maximum amount that can be guaranteed by a Subsidiary Guarantor (after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of all other AGAT/AICDC Guarantors in respect of the obligations under their respective guarantees) without
rendering the guarantee, as it relates to such Subsidiary Guarantor, voidable under applicable fraudulent conveyance or transfer laws and (ii) as necessary to recognize certain defenses generally available to guarantors, including voidable preference, financial assistance, corporate purpose, capital maintenance or similar laws, regulations or defenses affecting the rights of creditors generally or other considerations under applicable law. In addition, given that some of the AGAT/AICDC Guarantors are Irish and Dutch companies, it may be more difficult for holders of the AGAT/AICDC Notes to obtain or enforce judgments against such guarantors.
AICDC and certain AGAT/AICDC Guarantors are holding companies and therefore hold equity interests in directly held subsidiaries, amongst having other trading activities. As a result, AICDC and
certain AGAT/AICDC Guarantors can receive, where possible, dividends and other payments from their subsidiaries to generate the funds necessary to meet their outstanding debt service and other obligations, and such dividends or other payments will in turn depend on factors, such as their subsidiaries’ earnings, covenants in instruments governing their subsidiaries’ indebtedness, other contractual restrictions and applicable laws (including local law restricting payments of dividends).
Junior Subordinated Notes
In October 2019, AerCap Holdings N.V. issued $750.0 million aggregate principal amount of 5.875% fixed-rate
reset junior subordinated notes due 2079 (the “Junior Subordinated Notes”). Please refer to “Part I. Financial Information—Item 1. Financial Statements (Unaudited)—Note 16—Debt” and our audited Consolidated Financial Statements and “Note 15—Debt”, included in our Annual Report on Form 20-F for the year ended December 31, 2021, filed with the SEC on March 30, 2022, for further details on the Junior Subordinated Notes. The Junior Subordinated Notes are jointly and severally and fully and unconditionally guaranteed by AerCap Trust, AICDC, AerCap Ireland, AerCap Aviation Solutions B.V., ILFC and AerCap U.S. Global Aviation LLC (the “Subordinated Notes Guarantors”).
Subject to the provisions of the indenture
governing the Junior Subordinated Notes (the “Subordinated Notes Indenture”), a Subordinated Notes Guarantor will be automatically and unconditionally released from its guarantee under the following circumstances: (1) the sale, disposition or other transfer of all or substantially all of the assets of a Subordinated Notes Guarantor; (2) the consolidation, amalgamation or merger of a Subordinated Notes Guarantor with and into AerCap Holdings N.V. or another Subordinated Notes Guarantor with such person being the surviving entity, or upon the liquidation of a Subordinated Notes Guarantor following the transfer of all of its assets to AerCap Holdings N.V. or another Subordinated Notes Guarantor; or (3) legal defeasance or covenant defeasance, each as described in the Subordinated Notes Indenture,
or if the obligations of AerCap Holdings N.V. under the Subordinated Notes Indenture are discharged.
56
The guarantee obligations of each Subordinated Notes Guarantor are limited (i) to an amount not to exceed the maximum amount that can be guaranteed by a Subordinated Notes Guarantor (after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of all other Subordinated
Notes Guarantors in respect of the obligations under their respective guarantees) without rendering the guarantee, as it relates to such Subordinated Notes Guarantor, voidable under applicable fraudulent conveyance or transfer laws and (ii) as necessary to recognize certain defenses generally available to guarantors, including voidable preference, financial assistance, corporate purpose, capital maintenance or similar laws, regulations or defenses affecting the rights of creditors generally or other considerations under applicable law. In addition, given that some of the Subordinated Notes Guarantors are Irish and Dutch companies, it may be more difficult for holders of the Junior Subordinated Notes to obtain or enforce judgments against such guarantors.
Because AerCap Holdings N.V. and certain Subordinated Notes Guarantors are holding companies with very limited operations, their only significant assets are the equity interests
of their directly held subsidiaries. As a result, AerCap Holdings N.V. and certain Subordinated Notes Guarantors are dependent primarily upon dividends and other payments from their subsidiaries to generate the funds necessary to meet their outstanding debt service and other obligations, and such dividends or other payments will in turn depend on their subsidiaries’ earnings, covenants in instruments governing their subsidiaries’ indebtedness, other contractual restrictions and applicable laws (including local law restricting payments of dividends).
57
Summarized
Combined Financial Information
Summarized financial information (the “SFI”), as defined under Rule 1-02(bb) of Regulation S-X, is provided below for the issuers and the guarantor entities and includes AerCap Holdings N.V., AerCap Trust, AICDC, AerCap U.S. Global Aviation LLC, AerCap Aviation Solutions B.V., AerCap Ireland and ILFC (collectively, the “Obligor Group”) as of June 30, 2022 and December 31, 2021, and for the six months ended June 30, 2022. The SFI is presented on a combined basis with intercompany transactions and balances among the entities included in the Obligor Group eliminated. The Obligor Group SFI excludes investments in non-obligor entities.
Summarized
combined financial information of issuers and guarantors
Loss before income taxes and loss of investments accounted for under the equity
method
(294)
Net loss
(246)
Net loss attributable to AerCap Holdings N.V.
(247)
(a)Total revenues include interest income from non-obligor entities of $546 million.
(b)Total expenses include interest expense to non-obligor entities
of $30 million.
58
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our primary market risk exposure is interest rate risk associated with short- and long-term borrowings bearing variable interest rates and lease payments under leases tied to floating interest rates. To manage this interest rate exposure, from time to time,
we enter into interest rate swap and cap agreements. We are also exposed to foreign currency risk, which can adversely affect our operating profits. To manage this risk, from time to time, we may enter into forward exchange contracts.
The following discussion should be read in conjunction with “Part I. Financial Information—Item 1. Financial Statements (Unaudited)—Note 13—Derivative financial instruments,” “Part I. Financial Information—Item 1. Financial Statements (Unaudited)—Note 16—Debt” andour audited Consolidated Financial Statements included in our Annual Report on Form 20-F for the year ended December 31, 2021, filed with the SEC on March 30,
2022, which provide further information on our debt and derivative financial instruments.
Interest rate risk
Interest rate risk is the exposure to changes in the level of interest rates and the spread between different interest rates. Interest rate risk is highly sensitive to many factors, including government monetary policies, global economic factors and other factors beyond our control.
We enter into leases with rents that are based on fixed and variable interest rates, and we fund our operations primarily with a mixture of fixed and floating rate debt. Interest rate exposure arises when there is a mismatch between terms of the associated debt and interest earning assets, primarily between floating rate debt and fixed rate leases. We manage this exposure primarily through the use of interest rate caps and interest rate swaps using
a cash flow-based risk management model. This model takes the expected cash flows generated by our assets and liabilities and then calculates by how much the value of these cash flows will change for a given movement in interest rates.
The following tables present the average notional amounts and weighted average interest rates which are contracted for the specified year for our derivative financial instruments that are sensitive to changes in interest rates, including our interest rate caps and swaps, as of June 30, 2022. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. Under our interest rate caps, we will receive the excess, if any, of LIBOR or Term SOFR, reset monthly or quarterly on an actual/360 adjusted basis, over the strike rate
of the relevant cap. For our interest rate swaps, pay rates are based on the fixed rate which we are contracted to pay to our swap counterparty.
2022
- remaining
2023
2024
2025
2026
Thereafter
Fair value
(U.S. Dollars in millions)
Interest rate caps
Average
notional amounts
$
2,098.5
$
2,625.6
$
1,853.3
$
776.7
$
200.0
$
16.7
$
82.9
Weighted
average strike rate
2.3
%
2.1
%
1.7
%
2.2
%
2.0
%
2.0
%
2022
- remaining
2023
2024
2025
2026
Thereafter
Fair value
(U.S. Dollars in millions)
Interest rate swaps
Average
notional amounts
$
2,146.4
$
994.3
$
300.0
$
275.0
$
—
$
—
$
12.1
Weighted
average pay rate
2.8
%
2.7
%
1.9
%
1.9
%
—
—
The variable benchmark interest rates associated with these instruments
ranged from one- to six-month U.S. dollar LIBOR or Term SOFR, as applicable.
Our Board of Directors is responsible for reviewing our overall interest rate management policies. Our counterparty risk is monitored on an ongoing basis, but is mitigated by the fact that the majority of our interest rate derivative counterparties are required to collateralize in the event of their downgrade by the rating agencies below a certain level.
59
Foreign currency risk and foreign
operations
Our functional currency is U.S. dollars. The functional currency for domestic and substantially all foreign operations is the U.S. dollar. Foreign currency transaction gains and losses are not significant to the Company’s operations. Foreign exchange risk arises from our and our lessees’ operations in multiple jurisdictions. All of our aircraft purchase agreements are negotiated in U.S. dollars, we receive substantially all of our revenue in U.S. dollars and we pay our expenses primarily in U.S. dollars. We currently have a limited number of leases and helicopter purchase agreements denominated in foreign currencies, maintain part of our cash in foreign currencies, pay taxes in foreign currencies, and incur some of our expenses in foreign currencies, primarily the Euro. A decrease in the value of the U.S. dollar in relation to
foreign currencies increases both our lease revenue received from foreign currency-denominated leases and our expenses paid in foreign currencies. An increase in the value of the U.S. dollar in relation to foreign currencies decreases both our lease revenue received from foreign currency-denominated leases and our expenses paid in foreign currencies. Because we currently receive most of our revenues in U.S. dollars and pay most of our expenses in U.S. dollars, a change in foreign exchange rates would not have a material impact on our results of operations or cash flows. We do not have any restrictions or repatriation issues associated with our foreign cash accounts.
Inflation
Inflation generally affects our lease revenue and costs, including selling, general and administrative expenses and other expenses. We do not believe that our financial results have been, or will be in the near
future, materially and adversely affected by inflation.
60
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Please refer to “Part I. Financial Information—Item 1. Financial
Statements (Unaudited)—Note 25—Commitments and contingencies”in this report.
Item 1A. Risk Factors
There have been no material changes in our risk factors since those reported in our Annual Report for the year ended December 31, 2021.
61
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item
6. Exhibits
101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document
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.