Avolon lifts profits 30%, prices $1.1 billion notes, puts focus on investment grade status this year.
Avolon has reported lease revenue for 2018 of $2.6 billion, an increase of 10 per cent year-on-year and a $717 million profit, up 30 per cent year-on-year. During 2018 it generated $2.2 billion of net cash from operating activities and paid its shareholder dividends of $490 million. At year end Avolon had $16.6 billion future contracted rental cashflows and $5.7 billion of liquidity in unrestricted cash, undrawn revolving credit facilities and undrawn secured and unsecured debt.

On the back of its profit announcement rating agencies Fitch and Moody’s revised their ratings for the company. Fitch Ratings upgraded its issuer and senior unsecured notes ratings for Avolon from BB to BB+ with a positive outlook, along with a similar upgrade for its wholly owned subsidiaries, Avolon Holdings Funding Ltd and Park Aerospace Holdings Ltd. Moody's Investors Service revised its outlook on Avolon’s corporate Ba1 rating from ‘stable’ to ‘positive’.

The company has also priced $800 million 5.25 per cent Senior Notes due 2024 at par and the pricing of a private offering by its wholly owned subsidiary, Park Aerospace Holdings, of $300 million 5.25 per cent Senior Notes maturing 2022 at an offering price of 101.375 per cent, adding to a previous issue in January 2017 of $1.75 billion of 5.25 per cent notes maturing 2022. It says the 2022 notes will be treated as a single series. The offerings are expected to close on or about 1 March, 2019.

Commenting on the results for 2018 Chief Executive Domhnal Slattery said the Chinese-owned lessor plans to issue up to $4 billion of unsecured debt this year to achieve its ‘absolute focus’ of securing an investment-grade rating. Slattery said concerns about the leveraged position of its ultimate parent, Chinese conglomerate HNA Group, had been ‘put to bed for once and for all’ by last year’s sale of a 30 per cent stake in Avolon to Japanese financial services group ORIX Corp and the governance framework changes made as part of the deal. He added that the holder of the other 70 per cent, HNA subsidiary Bohai Capital Holding Co. Ltd, plans to hold onto its stake ‘indefinitely’.

Avolon believes the final step to investment-grade status is to cut its ratio of secured to unsecured debt from 42 percent to 30 percent, which will require the issuance of between $3.5 billion and $4 billion in unsecured debt, Slattery said. ‘Our expectation and our plan is that we will try to achieve that this year. If the markets were to stay in their current state, I’d be feeling good about our ability to issue that amount of unsecured debt.’ Slattery also said he expects the aviation leasing business to consolidate further and that Avolon will be ‘alive to every opportunity for acquisitions.’
In his statement in the company’s annual report Chief Financial Officer Andy Cronin said: ‘We have consistently stated that achieving and maintaining an investment grade profile is the core strategic objective for our business. To this end we maintain a prudent financial risk profile comfortably within the boundaries of an investment grade risk profile. Our net debt to equity at 31 December 2018 was 2.2x. Similarly, our total available liquidity at 31 December 2018 was $5.7 billion, which when combined with our annual net cash from operating activities of $2.2 billion, provides us with excellent coverage for future CAPEX funding.

‘We have a continuous focus 
on liability management and debt maturities. In 2018 we extended the maturity of our secured term loan ($4.3 billion at 31 December 2018) from 2022 out to 2025. As at 31 December 2018 we reported a very conservative weighted average debt maturity of 4.5 years. As a result of consistent liability management only 8 per cent of our debt falls due in the next two years.

The reduction in secured debt outstanding of $1.6 billion during the year was a significant step on our path to further investment grade ratings, as it facilitated the release of aircraft collateralised under various debt facilities. As
a result, over the course of 2018, our unencumbered asset balance grew by $2.9 billion to $8.7 billion. This progress is even more significant when we look back to the end of 2016, when we held only $0.9 billion of unencumbered assets. The ratio of our total unencumbered assets to drawn unsecured debt was 1.4x at 31 December 2018, which provides excellent credit protection to our unsecured debt investors.

Our secured debt measured
as a percentage of total assets reduced from 48% at the start of 2018 to 42 per cent at year end. We look forward to continuing our swift and meaningful progress on this front and ultimately reaching our stated target of 30 per cent secured debt to total assets.’

AerCap Holdings presses ahead with share repurchase programme
AerCap Holdings reported a drop in net income for 2018 of $1,015.6 million, compared with $1,076.2 million for 2017. The decline was primarily driven by a lower maintenance contribution as well as mark-to-market losses on interest rate caps that are used for hedging purposes, it said.

However, primarily driven by the repurchase of shares during 2017 and 2018, diluted earnings per share were up 6 per cent at $6.83, compared with $6.43 for 2017. It repurchased 19.2 million shares between October 2017 and end December 2018, with 4.6 million acquired in Q4 2018, at a cost of $235 million. It now has an authorised new $200 million share repurchase programme which will run until the end of Q3 this year.

AerCap achieved a record 145 aircraft transactions executed in the fourth quarter of 2018, with record aircraft purchases of $2.5 billion, and has approximately 95 per cent of lease rents through 2021 already contracted.
The company said it has $10.0 billion of available liquidity and an adjusted debt/equity ratio of 2.86 to 1.

Aengus Kelly, CEO of AerCap, commented: ‘Q4 was a record quarter for AerCap in terms of transactions demonstrating the unique capabilities of AerCap and the strong demand for our aircraft. The output of these transactions was another robust quarter of profitability with earnings per share of $1.62. AerCap has now bought, sold or leased over 2,000 aircraft in the last five years and generated over $5.1 billion of net income. Our unique knowledge of the industry allied to our core principles on how we run AerCap will continue to drive shareholder value in the coming years.’

In its full year 2018 financial results statement AerCap said its basic lease rents were $1,051.0 million for the fourth quarter of 2018, compared with $1,035.3 million for the same period in 2017. The increase was primarily due to the delivery of new aircraft from October 2017 through December 2018, resulting in a $1.6 billion increase in average lease assets.

Maintenance rents and other receipts were $102.3 million for the fourth quarter of 2018, compared with $162.6 million for the same period in 2017. The decrease was primarily the result of lower maintenance revenue recognized as a result of lease terminations.

Net gain on sale of assets for the fourth quarter of 2018 was $40.8 million, relating to 27 aircraft sold, compared with $48.5 million for the same period in 2017, also relating to 27 aircraft sold. The decrease was primarily due to the composition of asset sales.

Other income for the fourth quarter of 2018 was $25.5 million, compared with $16.6 million for the same period in 2017. The increase was primarily the result of the higher inventory sales in the fourth quarter of 2018.

Speaking to analysts on the results, Kelly pointed out: ‘There are only 11 aircraft lessors in the world that even have 250 aircraft in their entire fleet. This gives us tremendous insight into market trends and customer behavior, which better informs our overall decision making. Similarly we sold 103 aircraft this year, which gives us unmatched knowledge about the sales market for used aircraft.’

Anticipating questions about recent airline financial difficulties and closures Kelly said: ‘I know some of you have raised concerns about airline credit. As you all know, we see airline credit events every year and last year and this year and the year after and the year after that will be no different. We've experienced airline credit events every year for the last 13 years, but for every year for the last 13 years AerCap has generated very healthy steady profits. Airline failures will always remain part of the cut and thrust of this industry. But we prepare for them accordingly at the outset.’
At a micro level, he said, this manifested itself in two ways. ‘Firstly, prior to any lease, we ensure that our airline credit team assesses and raise both the credit worthiness and the technical capability of the potential customer. And if we decide to do business with them, an appropriate security package is put in place. Secondly, but far more important than the security package, is our relentless culture around risk management, acting quickly and decisively to protect our interests. This is far more important than the security package.’

At a macro level, he added, ‘we protect ourselves through the global diversification of our customer base. The combination of these factors is why AerCap’s credit cost have averaged approximately 1% of lease revenues for the last 13 years. AerCap’s ability to move aircraft quickly into pockets of strength anywhere in the world creates much better opportunities for consistent earnings than even the strongest airlines would have on an individual basis.’

Kelly was asked by one analyst whether, given the ratings upgrades of Avolon and the recent upgrade of Aircastle to investment grade, he believed there was positive movement potential for the credit of AerCap.

Kelly responded: ‘We certainly think an upgrade is warranted. As we look out at the recent positive rating actions on a number of the other players in the industry, we think that's encouraging. But we also believe AerCap compares very favorably to all of them. We were last upgraded in 2016 and early 2017 and as we look out at our own credit profile now versus then it's clear that over the past three years it's improved considerably. So yes, we think an upgrade is warranted and obviously we would welcome it.’

Aircastle revenues grow, Inglese shares thoughts on Capetown Convention
Aircastle Ltd achieved total revenues in 2018 of $890.4 million versus $851.8 million in 2017, an increase of 4.5 per cent, on which it earned net income of $247.9 million.

Commenting on the results, Mike Inglese, Aircastle's CEO, stated, ‘The successful execution of our active fleet management strategy enabled us to achieve strong financial results. We enhanced and expanded our fleet of in-demand modern aircraft and realized substantial gains from opportunistic sales throughout the year.? Furthermore, the achievement of an investment grade credit rating enables us to access attractively priced capital.? This places Aircastle in a strong competitive position to expand the company's fleet and earnings and to continue to return capital to our shareholders in the form of dividends and opportunistic share repurchases.’

Mr. Inglese said Aircastle had ‘minimal forward commitments and our primary focus will continue to be on responsible capital stewardship.?By maintaining investment discipline with the ability to adapt quickly to changing market conditions, we are positioned to create lasting value for our shareholders.’
The company returned $157.7 million of capital to shareholders during 2018; $88.7 million in dividends paid and $68.9 million of shares repurchased.

Aircastle acquired 18 narrow-body aircraft during the fourth quarter for $760 million and 39 aircraft in 2018, exclusively narrowbodies, for $1.4 billion, including 10 Airbus A320neos. It also closed or committed to acquire 10 additional narrow-body aircraft in 2019 for $378 million. It sold three aircraft during the fourth quarter and 14 aircraft for the full year, including included two wide-body aircraft. The full year gain on sales of $36.8 million represented 10.9 per cent of the net proceeds.

On the results earnings call with analysts Inglese was quizzed closely about the situation with regard to the bankrupt Brazilian airline Avianca, where it still has 10 aircraft on lease. Ingelese said: ‘In our press release last week, we tried to underscore the importance of the Cape Town Convention to Brazil as well as having a predictable judicial system. Although the bankruptcy judge extended the stay on repossession until mid-April, in contravention of Cape Town, in our view, he did require the aircraft to be properly maintained and that the lessors must be paid for everything falling due after February 1.

‘We've appealed this stay and believe we're on the right side of the law and the fact. This gives us cautious optimism. We remain confident that we have aircraft on lease with other operators within a reasonably quick period of time after we get them back. Until then, we'll be closely monitoring our assets and expect that we'll be receiving ongoing rent and maintenance payments.’

Inglese said the world wass watching what happens in Brazil, and how Cape Town plays out. ‘So certainly, we are watching that with keen interest and depending upon how this goes, it will certainly influence how we think about the convention and how we think about pricing that risk into future business,’ he said.

‘We're disappointed with how the process is being implemented and playing out in Brazil,’ he said, adding: ‘The actual time frame involved in making all this come together is not exactly a surprise to anyone who's been in this business for a while.’

The aircraft it has on lease to Avianca are, with one exception, relatively young A320s. ‘I expect to get them back, and I'm expecting to have them on lease quickly, on new long-term leases with a very strong credit,’ Inglese disclosed. A three year-old A330 on lease to Avianca which had been repossessed before the original bankruptcy stay was put in place is currently in the process of being remarketed.

Ingelese was also asked about the prospects at Indian airline Jet Airways, where it also has an exposure. ‘With respect to Jet Airways, it appears that they have in the works a recapitalization plan which will allow them to move forward. It's not done yet and so no one's ready to declare victory, but it appears on the right path, and we expect that we might see some news related to that and more definitive details over the course of the coming months,’ he said.

Star Capital to buys ASL Aviation
European fund manager Star Capital Partnership is to purchase global aviation services company ASL Aviation from its 51 per cent owner, Compagnie Maritime Belge, and 49 per cent owner, 3P Air Freighters, which is controlled by Brussels-based lender Bank Degroof Peterca. The value of the transaction has not been disclosed.

ASL operates a fleet of 130 aircraft and has operations on six continents. It had revenues of €958 million in 2017, close to 30 per cent up on 2016, and recorded an operating profit of €24.2 million and a pre-tax profit of €21.3 million.

ASL chief executive Hugh Flynn said the company would now work with Star Capital to expanding its product offering, develop its geographical compass and focus on core values.

With headquarters in Dublin, Ireland, ASL Holdings’ multiple airlines provide ASL with wide-ranging traffic rights and slots at key airports across Europe, Asia and Africa. These airlines operate scheduled and charter flights under their own brands and operate passenger and cargo networks on behalf of major international customers, including express freight integrators and passenger airlines.

Novus closes $423m facility for four aircraft
UAE-based Novus Aviation Capital (NAC) has closed a $423 million facility deal with BNP Paribas and MUFG Bank to finance an order for four Boeing 777-300ER aircraft. Scheduled for delivery in 2020, the aircraft will be leased to a leading European carrier, the company said in a statement.
‘Completing this financing deal with two of our key banking partners further demonstrates Novus’ ambitious growth plans and our ability to raise long-term asset-based financing,” NAC’s managing director Mounir Kuzbari said.

The privately-owned Dubai-based aircraft lessor said last year it planned to double its portfolio to at least 100 jets worth about $10 billion, primarily through sale-and-leaseback from airlines and buying from other lessors. It currently has a fleet of approximatley 60 aircraft valued at about $4 billion and has an orderbook of $1.4 billion at list prices.

Last year Novus partnered with the Development Bank of Japan, Germany’s Nord/LB and Boeing to start Cedar Aviation Finance, a debt fund for airlines and lessors. The fund will provide airlines with higher loan-to-value financing for Boeing jets, the company said.

FPG Amentum acquires two aircraft
FPG, the Tokyo-headquartered financial services firm and leasing company FPG Amentum have acquired two Boeing 737 MAX8s in sale & lease back transactions. They are on lease to subsidiaries of TUI Group.