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AIR LEASE CORP - Quarter Report: 2017 March (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2017

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from         to        

 

Commission file number 001-35121

 

AIR LEASE CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

27-1840403

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

2000 Avenue of the Stars, Suite 1000N
Los Angeles, California

 

90067

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (310) 553-0555

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 

 

Large accelerated filer ☒

 

Accelerated filer ☐

Non-accelerated filer ☐

 

Smaller reporting company ☐

(Do not check if a smaller reporting company)

 

Emerging growth company☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No ☒

 

At May 3, 2017, there were 103,164,551 shares of Air Lease Corporation’s Class A common stock outstanding.



 

 

 


 

Table of Contents

Air Lease Corporation and Subsidiaries

 

Form 10-Q

For the Quarterly Period Ended March 31, 2017

 

TABLE OF CONTENTS

 

 

Page

Note About Forward-Looking Statements 

3

PART I—FINANCIAL INFORMATION 

 

Item 1 

Financial Statements

4

 

Consolidated Balance Sheets—March 31, 2017 and December 31, 2016 (unaudited)

4

 

Consolidated Statements of Income—Three Months Ended March 31, 2017 and 2016 (unaudited)

5

 

Consolidated Statement of Shareholders' Equity—Three Months Ended March 31, 2017 (unaudited)

6

 

Consolidated Statements of Cash Flows—Three Months Ended March 31, 2017 and 2016 (unaudited)

7

 

Notes to Consolidated Financial Statements (unaudited)

8

Item 2 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

Item 3 

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4 

Controls and Procedures

26

PART II—OTHER INFORMATION 

 

Item 1 

Legal Proceedings

26

Item 1A 

Risk Factors

26

Item 2 

Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 3 

Defaults Upon Senior Securities

27

Item 4 

Mine Safety Disclosures

27

Item 5 

Other Information

27

Item 6 

Exhibits

28

 

Signatures

30

 

Index of Exhibits

31

 

2


 

Table of Contents

NOTE ABOUT FORWARD-LOOKING STATEMENTS

 

Statements in this quarterly report on Form 10-Q that are not historical facts may constitute “forward-looking statements,” including any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. These statements are only predictions and involve estimates, known and unknown risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed in such statements, including as a result of the following factors, among others:

 

·

our inability to make acquisitions of, or lease, aircraft on favorable terms;

 

·

our inability to sell aircraft on favorable terms;

 

·

our inability to obtain additional financing on favorable terms, if required, to complete the acquisition of sufficient aircraft as currently contemplated or to fund the operations and growth of our business;

 

·

our inability to obtain refinancing prior to the time our debt matures;

 

·

impaired financial condition and liquidity of our lessees;

 

·

deterioration of economic conditions in the commercial aviation industry generally;

 

·

increased maintenance, operating or other expenses or changes in the timing thereof;

 

·

changes in the regulatory environment;

 

·

potential natural disasters and terrorist attacks and the amount of our insurance coverage, if any, relating thereto; and

 

·

the factors discussed under “Part I — Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2016, and other SEC filings.

 

All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations. You are therefore cautioned not to place undue reliance on such statements. Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

 

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Table of Contents

PART I—FINANCIAL INFORMATION

 

ITEM 1.FINANCIAL STATEMENTS

 

Air Lease Corporation and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and par value amounts)

 

 

 

 

 

 

 

 

 

 

    

March 31, 2017

    

December 31, 2016

 

 

 

(unaudited)

 

Assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

155,758

 

$

274,802

 

Restricted cash

 

 

18,330

 

 

16,000

 

Flight equipment subject to operating leases

 

 

14,280,318

 

 

13,597,530

 

Less accumulated depreciation

 

 

(1,657,268)

 

 

(1,555,605)

 

 

 

 

12,623,050

 

 

12,041,925

 

Deposits on flight equipment purchases

 

 

1,331,693

 

 

1,290,676

 

Other assets

 

 

348,209

 

 

352,213

 

Total assets

 

$

14,477,040

 

$

13,975,616

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

Accrued interest and other payables

 

$

223,374

 

$

256,775

 

Debt financing, net of discounts and issuance costs

 

 

9,102,689

 

 

8,713,874

 

Security deposits and maintenance reserves on flight equipment leases

 

 

874,206

 

 

856,335

 

Rentals received in advance

 

 

102,632

 

 

99,385

 

Deferred tax liability

 

 

714,907

 

 

667,060

 

Total liabilities

 

$

11,017,808

 

$

10,593,429

 

Shareholders’ Equity

 

 

 

 

 

 

 

Preferred Stock, $0.01 par value; 50,000,000 shares authorized; no shares issued or outstanding

 

 

 

 

 —

 

Class A common stock, $0.01 par value; authorized 500,000,000 shares; issued and outstanding 103,163,730 and 102,844,477 shares at March 31, 2017 and December 31, 2016, respectively

 

 

1,012

 

 

1,010

 

Class B non-voting common stock, $0.01 par value; authorized 10,000,000 shares; no shares issued or outstanding

 

 

 

 

 —

 

Paid-in capital

 

 

2,237,250

 

 

2,237,866

 

Retained earnings

 

 

1,220,970

 

 

1,143,311

 

Total shareholders’ equity

 

$

3,459,232

 

$

3,382,187

 

Total liabilities and shareholders’ equity

 

$

14,477,040

 

$

13,975,616

 

 

(See Notes to Consolidated Financial Statements)

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Air Lease Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

 

 

 

March 31,

 

 

 

2017

 

2016

 

 

 

(unaudited)

 

Revenues

    

 

 

    

 

 

 

Rental of flight equipment

 

$

354,653

 

$

317,198

 

Aircraft sales, trading and other

 

 

5,534

 

 

26,130

 

Total revenues

 

 

360,187

 

 

343,328

 

Expenses

 

 

 

 

 

 

 

Interest

 

 

67,063

 

 

60,960

 

Amortization of debt discounts and issuance costs

 

 

8,992

 

 

7,161

 

Interest expense

 

 

76,055

 

 

68,121

 

Depreciation of flight equipment

 

 

123,909

 

 

108,575

 

Selling, general and administrative

 

 

22,572

 

 

19,402

 

Stock-based compensation

 

 

3,773

 

 

3,239

 

Total expenses

 

 

226,309

 

 

199,337

 

Income before taxes

 

 

133,878

 

 

143,991

 

Income tax expense

 

 

(48,941)

 

 

(51,133)

 

Net income

 

$

84,937

 

$

92,858

 

 

 

 

 

 

 

 

 

Net income per share of Class A and Class B common stock:

 

 

 

 

 

 

 

Basic

 

$

0.83

 

$

0.90

 

Diluted

 

$

0.78

 

$

0.85

 

Weighted-average shares outstanding

 

 

 

 

 

 

 

Basic

 

 

102,947,611

 

 

102,679,411

 

Diluted

 

 

111,429,926

 

 

110,563,526

 

 

(See Notes to Consolidated Financial Statements)

 

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Air Lease Corporation and Subsidiaries

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

Class B Non-Voting

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

Common Stock

 

Common Stock

 

Paid-in

 

Retained

 

 

 

 

(unaudited)

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Earnings

    

Total

 

Balance at December 31, 2016

 

 —

 

$

 —

 

102,844,477

 

$

1,010

 

 —

 

$

 —

 

$

2,237,866

 

$

1,143,311

 

$

3,382,187

 

Cumulative effect adjustment upon adoption of ASU 2016-09

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

458

 

 

458

 

Issuance of common stock upon vesting of restricted stock units and upon exercise of options and warrants

 

 —

 

 

 —

 

448,254

 

 

 2

 

 —

 

 

 —

 

 

863

 

 

 

 

865

 

Stock-based compensation

 

 —

 

 

 —

 

 

 

 

 —

 

 

 —

 

 

3,773

 

 

 

 

3,773

 

Cash dividends (declared $0.075 per share)

 

 —

 

 

 —

 

 

 

 

 —

 

 

 —

 

 

 

 

(7,736)

 

 

(7,736)

 

Tax withholding related to vesting of restricted stock units

 

 —

 

 

 —

 

(129,001)

 

 

 

 —

 

 

 —

 

 

(5,252)

 

 

 

 

(5,252)

 

Net income

 

 —

 

 

 —

 

 

 

 

 —

 

 

 —

 

 

 

 

84,937

 

 

84,937

 

Balance at March 31, 2017

 

 —

 

$

 —

 

103,163,730

 

$

1,012

 

 —

 

$

 —

 

$

2,237,250

 

$

1,220,970

 

$

3,459,232

 

 

(See Notes to Consolidated Financial Statements)

 

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Air Lease Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended March 31,

 

 

 

2017

 

2016

 

 

 

(unaudited)

 

Operating Activities

    

 

 

    

 

 

 

Net income

 

$

84,937

 

$

92,858

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation of flight equipment

 

 

123,909

 

 

108,575

 

Stock-based compensation

 

 

3,773

 

 

3,239

 

Deferred taxes

 

 

48,941

 

 

51,133

 

Amortization of debt discounts and issuance costs

 

 

8,992

 

 

7,161

 

Loss/(Gain) on aircraft sales, trading and other activity

 

 

462

 

 

(20,979)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Other assets

 

 

(24,048)

 

 

9,446

 

Accrued interest and other payables

 

 

(30,549)

 

 

(22,483)

 

Rentals received in advance

 

 

3,247

 

 

(1,204)

 

Net cash provided by operating activities

 

 

219,664

 

 

227,746

 

Investing Activities

 

 

 

 

 

 

 

Acquisition of flight equipment under operating lease

 

 

(597,254)

 

 

(458,435)

 

Payments for deposits on flight equipment purchases

 

 

(200,549)

 

 

(200,908)

 

Proceeds from aircraft sales, trading and other activity

 

 

96,840

 

 

191,824

 

Acquisition of aircraft furnishings, equipment and other assets

 

 

(51,464)

 

 

(52,845)

 

Net cash used in investing activities

 

 

(752,427)

 

 

(520,364)

 

Financing Activities

 

 

 

 

 

 

 

Issuance of common stock upon exercise of options and warrants

 

 

864

 

 

 —

 

Cash dividends paid

 

 

(7,714)

 

 

(5,129)

 

Tax withholdings on stock-based compensation

 

 

(5,252)

 

 

(5,877)

 

Net change in unsecured revolving facilities

 

 

(60,000)

 

 

879,000

 

Proceeds from debt financings

 

 

487,955

 

 

100,000

 

Payments in reduction of debt financings

 

 

(46,598)

 

 

(680,885)

 

Net change in restricted cash

 

 

(2,330)

 

 

38

 

Debt issuance costs

 

 

(1,531)

 

 

(198)

 

Security deposits and maintenance reserve receipts

 

 

56,165

 

 

26,920

 

Security deposits and maintenance reserve disbursements

 

 

(7,840)

 

 

(15,112)

 

Net cash provided by financing activities

 

 

413,719

 

 

298,757

 

Net increase/(decrease) in cash

 

 

(119,044)

 

 

6,139

 

Cash and cash equivalents at beginning of period

 

 

274,802

 

 

156,675

 

Cash and cash equivalents at end of period

 

$

155,758

 

$

162,814

 

Supplemental Disclosure of Cash Flow Information

 

 

 

 

 

 

 

Cash paid during the period for interest, including capitalized interest of $11,402 and $9,470 at March 31, 2017 and 2016, respectively

 

$

90,059

 

$

86,481

 

Supplemental Disclosure of Noncash Activities

 

 

 

 

 

 

 

Buyer furnished equipment, capitalized interest, deposits on flight equipment purchases and seller financing applied to acquisition of flight equipment and other assets applied to payments for deposits on flight equipment purchases

 

$

220,610

 

$

290,195

 

Cash dividends declared, not yet paid

 

$

7,736

 

$

5,142

 

 

(See Notes to Consolidated Financial Statements)

 

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Air Lease Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1.Company Background and Overview

 

Air Lease Corporation, together with its subsidiaries (the “Company”, “ALC”, “we”, “our” or “us”), is a leading aircraft leasing company that was founded by aircraft leasing industry pioneer, Steven F. Udvar-Házy. We are principally engaged in purchasing new commercial jet transport aircraft directly from the manufacturers, such as The Boeing Company (“Boeing”) and Airbus S.A.S. (“Airbus”).  As of March 31, 2017, we owned a fleet of 243 aircraft and had 353 aircraft on order with the manufacturers. In addition to our leasing activities, we sell aircraft from our fleet to leasing companies, financial services companies and airlines. We also provide fleet management services to investors and owners of aircraft portfolios for a management fee.

 

Note 2.Basis of Preparation and Critical Accounting Policies

 

The Company consolidates financial statements of all entities in which we have a controlling financial interest, including the accounts of any Variable Interest Entity in which we have a controlling financial interest and for which we are determined to be the primary beneficiary. All material intercompany balances are eliminated in consolidation. The accompanying Consolidated Financial Statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

 

The accompanying unaudited consolidated financial statements include all adjustments, including only normal, recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows at March 31, 2017, and for all periods presented. The results of operations for the three months ended March 31, 2017 are not necessarily indicative of the operating results expected for the year ending December 31, 2017. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2016.

 

Stock-based compensation

 

Effective as of January 1, 2017, the Company adopted a change in accounting policy in accordance with Accounting Standards Update (“ASU”) 2016-09 (“ASU 2016-09”), “Compensation-Stock Compensation (Topic 718),” wherein all excess tax benefits and tax deficiencies related to employee stock compensation will be recognized within income tax expense on the Consolidated Statement of Income. Previously, only net tax deficiencies were recognized as tax expense. As a result of adopting ASU 2016-09, we recognized $1.7 million as a discrete item in income tax expense relating to stock-based compensation expense for tax deficiencies incurred during the three months ended March 31 2017. Additionally, in connection with the adoption of ASU 2016-09, the Company recorded excess tax benefits relating to prior periods of $0.5 million on a modified retrospective basis through a cumulative effect adjustment to retained earnings.

 

In addition, ASU 2016-09 requires excess tax benefits and deficiencies to be classified as operating activities on the Statement of Cash Flow. Previously, these items were classified as financing activities. We have elected to present the cash flow statement on a prospective transition method and there were no adjustments to the Consolidated Statement of Cash Flows for the three months ended March 31, 2017 as a result of this adoption.

 

Finally, ASU 2016-09 provides an accounting policy election to account for forfeitures as they occur or to account for forfeitures on an estimated basis. We elected to change our policy from estimating forfeitures to accounting for forfeitures as they are incurred. This change in accounting policy was made on a prospective basis.

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Note 3.Recently Issued Accounting Standards

 

In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-01 (“ASU 2017-01”), “Business Combinations (Topic 805)”.  The amendments in ASU 2017-01 provides a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.  ASU 2017-01 will be effective for annual reporting periods beginning after December 15, 2017 for public entities. Early adoption is permitted. We are currently evaluating this guidance to determine the impact it will have on our financial statements.

 

In February 2017, the FASB issued ASU No. 2017-05 (“ASU 2017-05”), “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20)”.  The amendments in ASU 2017-05 clarifies the guidance in Subtopic 610-20 on accounting for derecognition of a nonfinancial asset.  ASU 2017-05 will be effective at the same time the Company applies ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).”  We are currently evaluating this guidance to determine the impact it will have on our financial statements.

 

Note 4.Debt Financing

 

The Company’s debt financing was comprised of the following at March 31, 2017 and December 31, 2016 (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

    

March 31, 2017

    

December 31, 2016

 

Unsecured

 

 

 

 

 

 

 

Senior notes

 

$

7,451,917

 

$

6,953,343

 

Revolving credit facility

 

 

706,000

 

 

766,000

 

Term financings

 

 

205,258

 

 

211,346

 

Convertible senior notes

 

 

199,994

 

 

199,995

 

Total unsecured debt financing

 

 

8,563,169

 

 

8,130,684

 

Secured

 

 

 

 

 

 

 

Term financings

 

 

582,345

 

 

619,767

 

Export credit financing

 

 

49,911

 

 

51,574

 

Total secured debt financing

 

 

632,256

 

 

671,341

 

 

 

 

 

 

 

 

 

Total debt financing

 

 

9,195,425

 

 

8,802,025

 

Less: Debt discounts and issuance costs

 

 

(92,736)

 

 

(88,151)

 

Debt financing, net of discounts and issuance costs

 

$

9,102,689

 

$

8,713,874

 

 

The Company’s secured obligations as of March 31, 2017 and December 31, 2016 are summarized below (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

    

March 31, 2017

    

December 31, 2016

 

Nonrecourse

 

$

236,761

 

$

245,155

 

Recourse

 

 

395,495

 

 

426,186

 

Total secured debt financing

 

$

632,256

 

$

671,341

 

Number of aircraft pledged as collateral

 

 

23

 

 

25

 

Net book value of aircraft pledged as collateral

 

$

1,264,678

 

$

1,421,657

 

 

Senior unsecured notes

 

As of March 31, 2017, the Company had $7.5 billion in senior unsecured notes outstanding.  As of December 31, 2016, the Company had $7.0 billion in senior unsecured notes outstanding.

 

On March 8, 2017, the Company issued $500.0 million in aggregate principal amount of senior unsecured notes due 2027 that bear interest at a rate of 3.625%.

 

Unsecured revolving credit facility

 

During the quarter ended March 31, 2017, we increased the aggregate capacity of our unsecured revolving credit facility by $300.0 million to $3.5 billion.

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In May 2017, the Company amended and extended its unsecured revolving credit facility whereby, among other things, the Company extended the final maturity date from May 5, 2020 to May 5, 2021 and increased the total revolving commitments to approximately $3.7 billion from approximately $3.5 billion with an interest rate of LIBOR plus 1.05% with a 0.20% facility fee. Lenders hold revolving commitments totaling approximately $3.1 billion that mature on May 5, 2021, commitments totaling approximately $217.7 million that mature on May 5, 2020, commitments totaling $290.0 million that mature on May 5, 2019, and commitments totaling $55.0 million that mature on May 5, 2018.

 

The total amount outstanding under our unsecured revolving credit facility was $706.0 million and $766.0 million as of March 31, 2017 and December 31, 2016, respectively.

 

Maturities

 

Maturities of debt outstanding as of March 31, 2017 are as follows (in thousands):

 

 

 

 

 

 

Years ending December 31,

 

 

 

 

 

 

 

 

2017

    

$

1,261,037

 

2018

 

 

1,557,561

 

2019

 

 

1,037,681

 

2020

 

 

1,796,218

 

2021

 

 

1,121,777

 

Thereafter

 

 

2,421,151

 

Total

 

$

9,195,425

 

 

 

Note 5.Commitments and Contingencies

 

As of March 31, 2017 and through May 4, 2017, the Company had commitments to acquire a total of 353 new aircraft scheduled to deliver through 2023 as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aircraft Type

    

2017

    

2018

    

2019

    

2020

    

2021

    

Thereafter

    

Total

Airbus A321-200

 

 1

 

 —

 

 —

 

 —

 

 —

 

 —

 

 1

Airbus A320/321neo(1)

 

 8

 

19

 

29

 

26

 

22

 

33

 

137

Airbus A330-800/900neo

 

 —

 

 5

 

 5

 

 5

 

 5

 

 5

 

25

Airbus A350-900/1000

 

 2

 

 4

 

 2

 

 8

 

 8

 

 —

 

24

Boeing 737-800(2)

 

 3

 

 —

 

 —

 

 —

 

 —

 

 —

 

 3

Boeing 737-8/9 MAX

 

 2

 

12

 

21

 

29

 

35

 

19

 

118

Boeing 787-9/10

 

 4

 

 7

 

10

 

 9

 

 7

 

 8

 

45

Total

 

20

 

47

 

67

 

77

 

77

 

65

 

353


(1)

Our Airbus A320/321neo aircraft orders include 40 long-range variants.

(2)

In addition to the three Boeing 737-800 aircraft from our new orderbook, we have commitments to purchase 11 used Boeing 737-800 aircraft from an airline which are scheduled for delivery in 2017.

 

Airbus has informed us to expect several month delivery delays relating to aircraft scheduled for delivery in 2017 and 2018. The delays have been reflected in our commitment schedules above.

 

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Commitments for the acquisition of these aircraft and other equipment at an estimated aggregate purchase price (including adjustments for inflation) of approximately $27.6 billion at March 31, 2017 and through May 4, 2017 are as follows (in thousands):

 

 

 

 

 

Years ending December 31,

 

 

 

    

 

 

2017

 

$

2,244,564

2018

 

 

4,068,515

2019

 

 

5,192,553

2020

 

 

6,191,086

2021

 

 

5,676,387

Thereafter

 

 

4,212,073

Total

 

$

27,585,178

 

We have made non-refundable deposits on the aircraft for which we have commitments to purchase of $1.3 billion as of March 31, 2017 and December 31, 2016, which are subject to manufacturer performance commitments. If we are unable to satisfy our purchase commitments, we may forfeit our deposits. Further, we would be subject to breach of contract claims by our lessees and manufacturers.

 

As of March 31, 2017, the Company had a non-binding commitment to acquire up to five A350-1000 aircraft.  Deliveries of these aircraft are scheduled to commence in 2023 and continue through 2024.

 

Note 6.Net Earnings Per Share

 

Basic net earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock; however, potential common equivalent shares are excluded if the effect of including these shares would be anti-dilutive. The Company’s two classes of common stock, Class A and Class B Non-Voting, have equal rights to dividends and income, and therefore, basic and diluted earnings per share are the same for each class of common stock.  As of March 31, 2017, we did not have any Class B Non-Voting common stock outstanding.

 

Diluted net earnings per share takes into account the potential conversion of stock options, restricted stock units, and warrants using the treasury stock method and convertible notes using the if-converted method.  For the three months ended March 31, 2017, the Company did not have any potentially anti-dilutive securities which would require exclusion from the computation of dilutive earnings per share.  For the three months ended March 31, 2016, the Company excluded 150,000 shares related to stock options which were potentially dilutive securities from the computation of diluted earnings per share because including these shares would be anti-dilutive.  The Company excluded 1,062,025 and 993,438 shares related to restricted stock units for which the performance metric had yet to be achieved as of March 31, 2017 and 2016, respectively.

 

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The following table sets forth the reconciliation of basic and diluted net income per share (in thousands, except share and per share amounts):

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

2016

 

 

Basic net income per share:

 

 

    

 

 

 

 

Numerator

 

 

 

 

 

 

 

Net income

$

84,937

 

$

92,858

 

 

Denominator

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

102,947,611

 

 

102,679,411

 

 

Basic net income per share

$

0.83

 

$

0.90

 

 

Diluted net income per share:

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

Net income

$

84,937

 

$

92,858

 

 

Assumed conversion of convertible senior notes

 

1,424

 

 

1,454

 

 

Net income plus assumed conversions

$

86,361

 

$

94,312

 

 

Denominator

 

 

 

 

 

 

 

Number of shares used in basic computation

 

102,947,611

 

 

102,679,411

 

 

Weighted-average effect of dilutive securities

 

8,482,315

 

 

7,884,115

 

 

Number of shares used in per share computation

 

111,429,926

 

 

110,563,526

 

 

Diluted net income per share

$

0.78

 

$

0.85

 

 

 

 

Note 7.Fair Value Measurements

 

Assets and Liabilities Measured at Fair Value on a Recurring and Non-recurring Basis

 

The Company had no assets or liabilities which are measured at fair value on a recurring or non-recurring basis as of March 31, 2017 or December 31, 2016.

 

Financial Instruments Not Measured at Fair Value

 

The fair value of debt financing is estimated based on the quoted market prices for the same or similar issues, or on the current rates offered to the Company for debt of the same remaining maturities, which would be categorized as a Level 2 measurement in the fair value hierarchy. The estimated fair value of debt financing as of March 31, 2017 was $9.4 billion compared to a book value of $9.2 billion. The estimated fair value of debt financing as of December 31, 2016 was $8.9 billion compared to a book value of $8.8 billion.

 

The following financial instruments are not measured at fair value on the Company’s consolidated balance sheet at March 31, 2017, but require disclosure of their fair values: cash and cash equivalents and restricted cash. The estimated fair value of such instruments at March 31, 2017 approximates their carrying value as reported on the consolidated balance sheet.  The fair value of all these instruments would be categorized as Level 1 of the fair value hierarchy.

 

Note 8.Stock-based Compensation

 

On May 7, 2014, the stockholders of the Company approved the Air Lease Corporation 2014 Equity Incentive Plan (the “2014 Plan”). Upon approval of the 2014 Plan, no new awards may be granted under the Amended and Restated 2010 Equity Incentive Plan (the “2010 Plan”). As of March 31, 2017, the number of stock options (“Stock Options”) and restricted stock units (“RSUs”) remaining under the 2014 Plan is approximately 5,803,652, which includes 803,652 shares which were previously reserved for issuance under the 2010 Plan. Stock Options are generally granted for a term of 10 years and generally vest over a three-year period. The Company has issued RSUs with four different vesting criteria: those RSUs that vest based on the attainment of book value goals, those RSUs that vest based on the attainment of Total Shareholder Return (“TSR”) goals, time based RSUs that vest ratably over a time period of three years and RSUs that cliff-vest at the end of a one or two year period. The book value RSUs generally vest ratably over three years, if the performance condition has been met. Book value RSUs for which the performance metric has not been met are forfeited. The TSR RSUs vest at the end of a three-year period. The number of TSR RSUs that will ultimately vest is based upon the percentile ranking of the Company’s TSR among a peer group. The number of shares that will ultimately

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vest will range from 0% to 200% of the RSUs initially granted depending on the extent to which the TSR metric is achieved.

 

The Company recorded $3.8 million and $3.2 million of stock-based compensation expense related to RSUs for the three months ended March 31, 2017 and 2016.

 

Stock Options

 

A summary of stock option activity for the three month period ended March 31, 2017 follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Remaining

    

Aggregate

 

 

 

 

 

Exercise

 

Contractual Term

 

Intrinsic Value

 

 

 

Shares

 

Price

 

(in years)

 

(in thousands)(1)

 

Balance at December 31, 2016

 

3,308,158

 

$

20.40

 

3.50

 

$

46,086

 

Granted

 

 —

 

$

 

 

$

 

Exercised

 

(30,000)

 

$

28.80

 

 

$

316

 

Forfeited/canceled

 

 —

 

$

 

 

$

 

Balance at March 31, 2017

 

3,278,158

 

$

20.32

 

3.24

 

$

60,409

 

Vested and exercisable as of March 31, 2017

 

3,278,158

 

$

20.32

 

3.24

 

$

60,409

 


(1)

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of our Class A common stock as of the respective date.

 

The Company’s outstanding stock options fully vested on June 30, 2013 and there were no unrecognized compensation costs related to outstanding stock options as of March 31, 2017.  As a result, there was no stock-based compensation expense related to Stock Options for the three months ended March 31, 2017 and 2016.

 

The following table summarizes additional information regarding exercisable and vested stock options at March 31, 2017:

 

 

 

 

 

 

 

 

 

Stock Options Exercisable

 

 

 

and Vested

 

 

    

 

    

Weighted-

 

 

 

 

 

Average

 

 

 

Number of

 

Remaining Life

 

Range of exercise prices

 

Shares

 

(in years)

 

$20.00

 

3,158,158

 

3.21

 

$28.80

 

120,000

 

4.07

 

$20.00 - $28.80

 

3,278,158

 

3.24

 

 

Restricted Stock Units

 

Compensation cost for stock awards is measured at the grant date based on fair value and recognized over the vesting period.  The fair value of time based and book value RSUs is determined based on the closing market price of the Company’s Class A common stock on the date of grant, while the fair value of TSR RSUs is determined at the grant date using a Monte Carlo simulation model. Included in the Monte Carlo simulation model were certain assumptions regarding a number of highly complex and subjective variables, such as expected volatility, risk-free interest rate and expected dividends. To appropriately value the award, the risk-free interest rate is estimated for the time period from the valuation date until the vesting date and the historical volatilities were estimated based on a historical timeframe equal to the time from the valuation date until the end date of the performance period.

 

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During the three months ended March 31, 2017, the Company granted 462,131 RSUs of which 216,641 are TSR RSUs. The following table summarizes the activities for our unvested RSUs for the three months ended March 31, 2017:

 

 

 

 

 

 

 

 

 

 

Unvested Restricted Stock Units

 

 

 

 

 

Weighted-Average

 

 

 

 

 

Grant-Date

 

 

    

Number of Shares

     

Fair Value

 

Unvested at December 31, 2016

 

1,129,045

 

$

37.47

 

Granted

 

462,131

 

$

45.60

 

Vested

 

(287,367)

 

$

38.03

 

Forfeited/canceled

 

(102,270)

 

$

48.38

 

Unvested at March 31, 2017

 

1,201,539

 

$

39.53

 

 

The Company recorded $3.8 million and $3.2 million of stock-based compensation expense related to RSUs for the three months ended March 31, 2017 and 2016.

 

As of March 31, 2017, there was $30.7 million of unrecognized compensation cost related to unvested RSUs granted to employees. Total unrecognized compensation cost will be recognized over a weighted-average remaining period of 2.25 years.

 

Note 9. Investments

 

On November 4, 2014, a wholly owned subsidiary of the Company entered into an agreement with a co-investment vehicle arranged by Napier Park to participate in a joint venture formed as a Delaware limited liability company—Blackbird Capital I, LLC (‘‘Blackbird’’) for the purpose of investing in commercial aircraft and leasing them to airlines around the globe. We provide management services to the joint venture for a fee based upon aircraft assets under management. The Company’s non-controlling interest in Blackbird is 9.5% and it is accounted for as an investment under the equity method of accounting.  The Company did not sell any aircraft to Blackbird during the three months ended March 31, 2017 and 2016.  As of March 31, 2017 and December 31, 2016, the amounts due from Blackbird to the Company were $0.9 million and $0.7 million, respectively. The Company's investment in Blackbird was $29.9 million and $25.1 million as of March 31, 2017 and December 31, 2016, respectively and is recorded in other assets on the Consolidated Balance Sheet.

 

Note 10. Flight Equipment Held for Sale

 

In May 2016, we entered into an agreement to sell 25 Embraer E190 and E175 aircraft to Nordic Aviation Capital A/S ("NAC"). As of March 31, 2017, we have completed the sale of all twenty-five Embraer aircraft to NAC.

 

As of March 31, 2017, we had one aircraft, with a carrying value of $43.4 million, which was held for sale and included in flight equipment subject to operating leases on the Consolidated Balance Sheet.  We cease recognition of depreciation expense once an aircraft is classified as held for sale.  We expect the sale of this aircraft to occur in the second quarter of 2017.  As of December 31, 2016, we had six aircraft, with a carrying value of $163.4 million, held for sale and included in flight equipment subject to operating leases on the Consolidated Balance Sheet.

 

Note 11.  Subsequent Events

 

On May 2, 2017, our board of directors approved a quarterly cash dividend of $0.075 per share on our outstanding common stock. The dividend will be paid on July 11, 2017 to holders of record of our common stock as of June 14, 2017.

 

On May 3, 2017, we entered into an agreement to sell 19 aircraft to Thunderbolt Aircraft Lease Limited ("Thunderbolt"), a group of third party investors.  As of May 3, 2017, all 19 aircraft, with a carrying value of $400.5 million, were classified as held for sale and included in flight equipment subject to operating leases on the Consolidated Balance Sheet.  We expect the sale of all aircraft to be completed by the end of 2017. All of the aircraft in Thunderbolt's portfolio will be managed by the Company.

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

 

Overview

 

Air Lease Corporation is a leading aircraft leasing company that was founded by aircraft leasing industry pioneer, Steven F. Udvar-Házy. We are principally engaged in purchasing new commercial jet transport aircraft directly from aircraft manufacturers, such as Boeing and Airbus, and leasing those aircraft to airlines throughout the world with the intention to generate attractive returns on equity. In addition to our leasing activities, we sell aircraft from our operating lease portfolio to third-parties, including other leasing companies, financial services companies and airlines. We also provide fleet management services to investors and owners of aircraft portfolios for a management fee. Our operating performance is driven by the growth of our fleet, the terms of our leases, the interest rates on our debt, and the aggregate amount of our indebtedness, supplemented by the gains from our aircraft sales and trading activities and our management fees.

 

During the quarter ended March 31, 2017, we purchased and took delivery of 11 aircraft from our new order pipeline and sold five aircraft, ending the quarter with a total of 243 aircraft with a net book value of $12.6 billion. The weighted-average lease term remaining on our operating lease portfolio was 6.9 years and the weighted-average age of our fleet was 3.7 years as of March 31, 2017. Our fleet grew by 4.8% based on net book value of $12.6 billion as of March 31, 2017 compared to $12.0 billion as of December 31, 2016. In addition, our managed fleet increased to 31 aircraft as of March 31, 2017 from 30 aircraft as of December 31, 2016.  We have a globally diversified customer base comprised of 86 airlines in 54 countries.  All of the aircraft in our operating lease portfolio were subject to lease as of March 31, 2017.

 

During the first quarter of 2017, we concluded the sale of the remaining five Embraer E190 to Nordic Aviation Capital ("NAC").  As of March 31, 2017, the sale of all the aircraft committed to be sold to NAC has been completed.

 

On May 3, 2017, we entered into an agreement to sell 19 aircraft to Thunderbolt Aircraft Lease Limited ("Thunderbolt"), a group of third party investors.  As of May 3, 2017, all 19 aircraft, with a carrying value of $400.5 million, were classified as held for sale and included in flight equipment subject to operating leases on the Consolidated Balance Sheet.  We expect the sale of all aircraft to be completed by the end of 2017.  All of the aircraft in Thunderbolt's portfolio will be managed by the Company.  In the first quarter of 2017, in connection with executing this transaction, we incurred $2.2 million in expenses which are reflected in selling, general and administrative expenses.

 

On March 8, 2017, we issued $500.0 million in aggregate principal amount of senior unsecured notes due 2027 that bear interest at a rate of 3.625%.

 

During the quarter ended March 31, 2017, we increased the aggregate capacity of our unsecured revolving credit facility by $300.0 million to $3.5 billion.  In May 2017, we amended and extended our unsecured revolving credit facility whereby, among other things, we extended the final maturity date from May 5, 2020 to May 5, 2021 and increased the total revolving commitments to approximately $3.7 billion from approximately $3.5 billion with an interest rate of LIBOR plus 1.05% with a 0.20% facility fee.

 

We ended the first quarter of 2017 with total debt outstanding, net of discounts and issuance costs, of $9.1 billion, of which 85.1% was at a fixed rate and 93.1% of which was unsecured, with a composite cost of funds of 3.48%.

 

In the first quarter of 2017, we were active in the forward lease placement of our orderbook.  As a result, we increased the minimum future rental payments that our airline customers have committed to $24.0 billion as of March 31, 2017 from $23.8 billion as of December 31, 2016.  This includes $9.8 billion in contracted minimum rental payments on the aircraft in our existing fleet and $14.2 billion in minimum future rental payments related to aircraft which will deliver during the remainder of 2017 through 2022.

 

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Our total revenues for the quarter ended March 31, 2017 increased by 4.9% to $360.2 million, compared to the quarter ended March 31, 2016.  This is comprised of rental revenues on our operating lease portfolio of $354.7 million and aircraft sales, trading and other revenue of $5.5 million.

 

Effective as of January 1, 2017, we adopted a change in accounting policy in accordance with ASU 2016-09 wherein all net tax deficiencies related to employee stock-based compensation were recognized as a $1.7 million discrete item in income tax expense for the three months ended March 31, 2017. 

 

Our net income for the quarter ended March 31, 2017 was $84.9 million compared to $92.9 million for the quarter ended March 31, 2016.  Our diluted earnings per share for the quarter ended March 31, 2017 was $0.78 compared to $0.85 for the quarter ended March 31, 2016.  Our pre-tax profit margin for the three months ended March 31, 2017 was 37.2% compared to 41.9% for the three months ended March 31, 2016.  The decrease in net income in the first quarter of 2017 as compared to 2016 was primarily due to a decrease in gains on aircraft sales, an increase in income tax expense as a result of the adoption of ASU 2016-09, an increase in selling, general and administrative expenses related to the Thunderbolt transaction and receipt of insurance proceeds in 2016 related to the legal settlement in 2015.  This was partially offset by the increase in the net book value of our fleet of aircraft subject to operating lease.

 

Excluding the effects of certain non-cash items, one-time or non-recurring items, such as settlement expense, net of recoveries, that are not expected to continue in the future and certain other items, our adjusted net income before income taxes was $146.6 million for the three months ended March 31, 2017 compared to $151.1 million for the three months ended March 31, 2016.  Our adjusted margin before income taxes for the three months ended March 31, 2017 was 40.7% compared to 44.4% for the three months ended March 31, 2016.  Adjusted diluted earnings per share before income taxes for the three months ended March 31, 2017 was $1.33 compared to $1.38 for the three months ended March 31, 2016.  Adjusted net income before income taxes, adjusted margin before income taxes and adjusted diluted earnings per share before income taxes are measures of financial and operational performance that are not defined by GAAP.  See Note 1 under the "Results of Operations" table for a discussion of adjusted net income before income taxes, adjusted margin before income taxes and adjusted diluted earnings per share before income taxes as non-GAAP measures and reconciliation of these measures to net income.

 

Our fleet

 

Portfolio metrics of our aircraft portfolio as of March 31, 2017 and December 31, 2016 are as follows:

 

 

 

 

 

 

 

 

 

 

    

March 31, 2017

    

December 31, 2016

 

Owned fleet

 

 

243

 

 

237

 

Managed fleet

 

 

31

 

 

30

 

Order book

 

 

353

 

 

363

 

 

 

 

 

 

 

 

 

Weighted-average fleet age(1)

 

 

3.7 years

 

 

3.8 years

 

Weighted-average remaining lease term(1)

 

 

6.9 years

 

 

6.9 years

 

Aggregate fleet net book value

 

$

12.6 billion

 

$

12.0 billion

 

 

 

 

 

 

 

 

 

Current fleet contracted rentals

 

$

9.8 billion

 

$

9.4 billion

 

Committed fleet rentals

 

$

14.2 billion

 

$

14.4 billion

 

Total committed rentals

 

$

24.0 billion

 

$

23.8 billion

 


(1)

Weighted-average fleet age and remaining lease term calculated based on net book value.

 

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The following table sets forth the net book value and percentage of the net book value of our aircraft portfolio operating in the indicated regions as of March 31, 2017 and December 31, 2016 (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2017

 

December 31, 2016

 

 

 

Net Book

 

 

 

Net Book

 

 

 

Region

    

Value

    

% of Total

    

Value

    

% of Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Europe

 

$

3,836,728

 

30.4

%  

$

3,547,294

 

29.5

%

Asia (excluding China)

 

 

2,871,599

 

22.7

%  

 

2,739,554

 

22.7

%

China

 

 

2,753,330

 

21.8

%  

 

2,779,546

 

23.0

%

The Middle East and Africa

 

 

1,104,776

 

8.7

%  

 

935,968

 

7.8

%

Central America, South America and Mexico

 

 

854,820

 

6.8

%  

 

937,287

 

7.8

%

U.S. and Canada

 

 

751,541

 

6.0

%  

 

647,743

 

5.4

%

Pacific, Australia and New Zealand

 

 

450,256

 

3.6

%  

 

454,533

 

3.8

%

Total

 

$

12,623,050

 

100.0

%  

$

12,041,925

 

100.0

%

 

The following table sets forth the number of aircraft we leased by aircraft type as of March 31, 2017 and December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2017

 

December 31, 2016

 

 

 

Number of

 

 

 

Number of

 

 

 

Aircraft type

    

Aircraft

    

% of Total

    

Aircraft

    

% of Total

 

Airbus A319-100

    

3

    

1.2

%  

3

    

1.3

%

Airbus A320-200

 

44

 

18.1

%  

44

 

18.6

%

Airbus A320-200neo

 

3

 

1.2

%  

1

 

0.4

%

Airbus A321-200

 

31

 

12.8

%  

31

 

13.1

%

Airbus A330-200

 

17

 

7.0

%  

17

 

7.2

%

Airbus A330-300

 

5

 

2.1

%  

5

 

2.1

%

Boeing 737-700

 

8

 

3.3

%  

8

 

3.4

%

Boeing 737-800

 

101

 

41.6

%  

95

 

40.1

%

Boeing 767-300ER

 

1

 

0.4

%  

1

 

0.4

%

Boeing 777-200ER

 

1

 

0.4

%  

1

 

0.4

%

Boeing 777-300ER

 

24

 

9.9

%  

22

 

9.3

%

Boeing 787-9

 

 4

 

1.6

%  

 3

 

1.3

%

Embraer E190

 

 1

 

0.4

%  

 6

 

2.4

%

Total

 

243

 

100.0

%  

237

 

100.0

%

 

As of March 31, 2017 and through May 4, 2017, we had commitments to acquire a total of 353 new aircraft for delivery as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aircraft Type

    

2017

    

2018

    

2019

    

2020

    

2021

    

Thereafter

    

Total

Airbus A321-200

 

 1

 

 —

 

 —

 

 —

 

 —

 

 —

 

 1

Airbus A320/321neo(1)

 

 8

 

19

 

29

 

26

 

22

 

33

 

137

Airbus A330-800/900neo

 

 —

 

 5

 

 5

 

 5

 

 5

 

 5

 

25

Airbus A350-900/1000

 

 2

 

 4

 

 2

 

 8

 

 8

 

 —

 

24

Boeing 737-800(2)

 

 3

 

 —

 

 —

 

 —

 

 —

 

 —

 

 3

Boeing 737-8/9 MAX

 

 2

 

12

 

21

 

29

 

35

 

19

 

118

Boeing 787-9/10

 

 4

 

 7

 

10

 

 9

 

 7

 

 8

 

45

Total

 

20

 

47

 

67

 

77

 

77

 

65

 

353


(1)

Our Airbus A320/321neo aircraft orders include 40 long-range variants.

(2)

In addition to the three Boeing 737-800 aircraft from our new orderbook, we have commitments to purchase 11 used Boeing 737-800 aircraft from an airline which are scheduled for delivery in 2017. 

 

Airbus has informed us to expect several month delivery delays relating to aircraft scheduled for delivery in 2017 and 2018. The delays have been reflected in our commitment schedules above.

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As of March 31, 2017, we had a non-binding commitment to acquire up to five A350-1000 aircraft.  Deliveries of these aircraft are scheduled to commence in 2023 and continue through 2024.

 

Our lease placements are progressing in line with expectations. As of March 31, 2017 and through May 4, 2017, we have entered into contracts for the lease of new aircraft scheduled to be delivered as follows:

 

 

 

 

 

 

 

 

 

 

    

Number of

    

Number

    

 

 

Delivery Year

 

Aircraft

 

Leased

 

% Leased

 

2017

 

20

 

20

 

100.0

%

2018

 

47

 

46

 

97.9

%

2019

 

67

 

56

 

83.6

%

2020

 

77

 

30

 

39.0

%

2021

 

77

 

5

 

6.5

%

Thereafter

 

65

 

4

 

6.2

%

Total

 

353

 

161

 

 

 

 

Aircraft industry and sources of revenues

 

Our revenues are principally derived from operating leases with scheduled and charter airlines. In each of the last four years, we derived more than 95% of our revenues from airlines domiciled outside of the U.S., and we anticipate that most of our revenues in the future will be generated from foreign customers.

 

Demand for air travel has consistently grown in terms of both passenger traffic and number of aircraft in service. According to the International Air Transport Association (“IATA”), global passenger traffic demand has grown 7.0% in the first three months of 2017 compared to the first three months of 2016. In 2016 and 2015, global passenger traffic demand grew 6.3% and 6.5% respectively, which exceeded the ten-year average annual growth rate of 5.5%. The number of aircraft in service has grown steadily and the number of leased aircraft in the global fleet has increased.  The long-term outlook for aircraft demand remains robust due to increased passenger traffic and the need to replace aging aircraft.

 

From time to time, our airline customers face financial difficulties.  In May 2017, Alitalia, an Italian airline, began the process to file a petition to begin an Extraordinary Administration proceeding in the Italian Bankruptcy Court.  Extraordinary Administrative proceedings are aimed at enabling a debtor in financial difficulty to restructure its operations, including its debt, in order to continue its activities.  While the Extraordinary Administrative proceeding is pending, the airline is permitted to operate and we understand that Alitalia intends to continue its normal operations.  Alitalia operates four of our Airbus A330-200 aircraft. 

 

The success of the commercial airline industry is linked to the strength of global economic development, which may be negatively impacted by macroeconomic conditions, geopolitical and policy risks. Nevertheless, across a variety of global economic conditions, the leasing industry has remained resilient over time. We remain optimistic about the long-term growth prospects for air transportation. We see a growing demand for aircraft leasing in the broader industry and a role for us in helping airlines modernize their fleets to support the growth of the airline industry. However, with the growth in aircraft leasing worldwide, we are witnessing an increase in competition among aircraft lessors resulting in more variation in lease rates.

 

Liquidity and Capital Resources

 

Overview

 

We finance the purchase of aircraft and our business with available cash balances, internally generated funds, including aircraft sales and trading activity, and debt financings. We have structured ourselves to have an investment-grade credit profile and our debt financing strategy has focused on funding our business on an unsecured basis. Unsecured financing provides us with operational flexibility when selling or transitioning aircraft from one airline to another. In addition, we may, to a limited extent, utilize export credit financing in support of our new aircraft deliveries.

 

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We ended the first quarter of 2017 with total debt outstanding, net of discounts and issuance costs, of $9.1 billion compared to $8.7 billion as of December 31, 2016. Our unsecured debt increased to $8.6 billion as of March 31, 2017 from $8.1 billion as of December 31, 2016. Our unsecured debt as a percentage of total debt increased to 93.1% as of March 31, 2017 from 92.4% as of December 31, 2016.

 

Our cash flows from operations decreased by 3.5% or $8.1 million, to $219.7 million for the three months ended March 31, 2017 as compared to $227.7 million for the three months ended March 31, 2016. Our cash flow used in investing activities was $752.4 million for the three months ended March 31, 2017, which resulted primarily from the purchase of aircraft partially offset by proceeds on the sale of aircraft. Our cash flow provided by financing activities was $413.7 million for the three months ended March 31, 2017, which resulted primarily from the issuance of unsecured notes during the first quarter of 2017, partially offset by the repayment of outstanding debt.

 

We ended the first quarter of 2017 with available liquidity of $2.9 billion which is comprised of unrestricted cash of $155.8 million and undrawn balances under our unsecured revolving credit facility of $2.8 billion. We believe that we have sufficient liquidity to satisfy the operating requirements of our business through the next twelve months.

 

Our financing plan for the remainder of 2017 is focused on funding the purchase of aircraft and our business with available cash balances, internally generated funds, including aircraft sales and trading activities, and debt financings. Our debt financing plan is focused on continuing to raise unsecured debt in the global bank and investment grade capital markets. In addition, we may utilize, to a limited extent, export credit financing in support of our new aircraft deliveries.

 

We are in compliance in all material respects with all covenants or other requirements in our debt agreements. While a ratings downgrade would not result in a default under any of our debt agreements, it could adversely affect our ability to issue debt and obtain new financings, or renew existing financings, and it would increase the cost of certain financings. Our liquidity plans are subject to a number of risks and uncertainties, including those described in our Annual Report on Form 10-K for the year ended December 31, 2016.

 

Debt

 

Our debt financing was comprised of the following at March 31, 2017 and December 31, 2016 (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

    

March 31, 2017

    

December 31, 2016

 

Unsecured

 

 

 

 

 

 

 

Senior notes

 

$

7,451,917

 

$

6,953,343

 

Revolving credit facility

 

 

706,000

 

 

766,000

 

Term financings

 

 

205,258

 

 

211,346

 

Convertible senior notes

 

 

199,994

 

 

199,995

 

Total unsecured debt financing

 

 

8,563,169

 

 

8,130,684

 

Secured

 

 

 

 

 

 

 

Term financings

 

 

582,345

 

 

619,767

 

Export credit financing

 

 

49,911

 

 

51,574

 

Total secured debt financing

 

 

632,256

 

 

671,341

 

 

 

 

 

 

 

 

 

Total debt financing

 

 

9,195,425

 

 

8,802,025

 

Less: Debt discounts and issuance costs

 

 

(92,736)

 

 

(88,151)

 

Debt financing, net of discounts and issuance costs

 

$

9,102,689

 

$

8,713,874

 

Selected interest rates and ratios:

 

 

 

 

 

 

 

Composite interest rate(1)

 

 

3.48

%  

 

3.42

%

Composite interest rate on fixed-rate debt(1)

 

 

3.69

%  

 

3.69

%

Percentage of total debt at fixed-rate

 

 

85.10

%  

 

83.48

%


(1)

This rate does not include the effect of upfront fees, undrawn fees or discount and issuance cost amortization.

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Senior unsecured notes

 

As of March 31, 2017, the Company had $7.5 billion in senior unsecured notes outstanding.  As of December 31, 2016, the Company had $7.0 billion in senior unsecured notes outstanding.

 

On March 8, 2017, the Company issued $500.0 million in aggregate principal amount of senior unsecured notes due 2027 that bear interest at a rate of 3.625%.

 

Unsecured revolving credit facility

 

During the quarter ended March 31, 2017, we increased the aggregate capacity of our unsecured revolving credit facility by $300.0 million to $3.5 billion.

 

In May 2017, we amended and extended our unsecured revolving credit facility whereby, among other things, we extended the final maturity date from May 5, 2020 to May 5, 2021 and increased the total revolving commitments to approximately $3.7 billion from approximately $3.5 billion with an interest rate of LIBOR plus 1.05% with a 0.20% facility fee. Lenders hold revolving commitments totaling approximately $3.1 billion that mature on May 5, 2021, commitments totaling approximately $217.7 million that mature on May 5, 2020, commitments totaling $290.0 million that mature on May 5, 2019, and commitments totaling $55.0 million that mature on May 5, 2018.

 

The total amount outstanding under our unsecured revolving credit facility was $706.0 million and $766.0 million as of March 31, 2017 and December 31, 2016, respectively.

 

Credit ratings

 

In January 2017, Fitch assigned an investment grade rating of 'BBB' to our senior unsecured debt and long-term issuer default rating with a stable outlook.  Our investment-grade credit ratings help us to lower our cost of funds and broaden our access to attractively priced capital.

 

The following table summarizes our current credit ratings:

 

 

 

 

 

 

 

 

 

 

 

 

    

Long-term

    

Corporate

    

 

    

Date of Last

 

Rating Agency

 

Debt

 

Rating

 

Outlook

 

Ratings Action

 

Fitch

 

BBB

 

BBB

 

Stable

 

January 16, 2017 

 

Kroll Bond Rating Agency

 

A−

 

A−

 

Stable

 

December 16, 2016 

 

Standard and Poor's

 

BBB

 

BBB

 

Stable

 

October 17, 2016 

 

 

While a ratings downgrade would not result in a default under any of our debt agreements, it could adversely affect our ability to issue debt and obtain new financings, or renew existing financings, and it would increase the cost of our financings.

 

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Results of Operations

 

The following table presents our historical operating results for the three month periods ended March 31, 2017 and 2016 (in thousands, except percentages and per share data):

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

2016

 

 

 

(unaudited)

 

Revenues

 

 

 

 

 

 

 

Rental of flight equipment

 

$

354,653

 

$

317,198

 

Aircraft sales, trading and other

 

 

5,534

 

 

26,130

 

Total revenues

 

 

360,187

 

 

343,328

 

Expenses

 

 

 

 

 

 

 

Interest

 

 

67,063

 

 

60,960

 

Amortization of debt discounts and issuance costs

 

 

8,992

 

 

7,161

 

Interest expense

 

 

76,055

 

 

68,121

 

Depreciation of flight equipment

 

 

123,909

 

 

108,575

 

Selling, general and administrative

 

 

22,572

 

 

19,402

 

Stock-based compensation

 

 

3,773

 

 

3,239

 

Total expenses

 

 

226,309

 

 

199,337

 

Income before taxes

 

 

133,878

 

 

143,991

 

Income tax expense

 

 

(48,941)

 

 

(51,133)

 

Net income

 

$

84,937

 

$

92,858

 

 

 

 

 

 

 

 

 

Net income per share of Class A and B common stock

 

 

 

 

 

 

 

Basic

 

$

0.83

 

$

0.90

 

Diluted

 

$

0.78

 

$

0.85

 

 

 

 

 

 

 

 

 

Other financial data

 

 

 

 

 

 

 

Pre-tax profit margin

 

 

37.2

%  

 

41.9

%

Adjusted net income before income taxes(1)

 

$

146,643

 

$

151,141

 

Adjusted margin before income taxes(1)

 

 

40.7

%  

 

44.4

%

Adjusted diluted earnings per share before income taxes(1)

 

$

1.33

 

$

1.38

 


(1)

Adjusted net income before income taxes (defined as net income excluding the effects of certain non-cash items, one-time or non-recurring items, such as settlement expense, net of recoveries, that are not expected to continue in the future and certain other items), adjusted margin before income taxes (defined as adjusted net income before income taxes divided by total revenues, excluding insurance recoveries) and adjusted diluted earnings per share before income taxes (defined as adjusted net income before income taxes divided by the weighted average diluted common shares outstanding) are measures of operating performance that are not defined by GAAP and should not be considered as an alternative to net income, pre-tax profit margin, earnings per share, and diluted earnings per share, or any other performance measures derived in accordance with GAAP. Adjusted net income before income taxes, adjusted margin before income taxes and adjusted diluted earnings per share before income taxes, are presented as supplemental disclosure because management believes they provide useful information on our earnings from ongoing operations.

 

Management and our board of directors use adjusted net income before income taxes, adjusted margin before income taxes and adjusted diluted earnings per share before income taxes to assess our consolidated financial and operating performance.  Management believes these measures are helpful in evaluating the operating performance of our ongoing operations and identifying trends in our performance, because they remove the effects of certain non-cash items, one-time or non-recurring items that are not expected to continue in the future and certain other items from our operating results.  Adjusted net income before income taxes, adjusted margin before income taxes and adjusted diluted earnings per share before income taxes, however, should not be considered in isolation or as a substitute for analysis of our operating results or cash flows as reported under GAAP. Adjusted net income before income taxes, adjusted margin before income taxes and adjusted diluted earnings per share before income taxes do not reflect our cash expenditures or changes in or cash requirements for our working capital needs.  In addition, our calculation of adjusted net income before income taxes, adjusted

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margin before income taxes and adjusted diluted earnings per share before income taxes may differ from the adjusted net income before income taxes, adjusted margin before income taxes and adjusted diluted earnings per share before income taxes or analogous calculations of other companies in our industry, limiting their usefulness as a comparative measure.

 

The following tables show the reconciliation of net income to adjusted net income before income taxes and adjusted margin before income taxes (in thousands, except percentages):

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

    

2017

    

2016

 

 

 

 

(unaudited)

 

 

Reconciliation of net income to adjusted net income before income taxes:

 

 

 

 

 

 

 

 

Net income

 

$

84,937

 

$

92,858

 

 

Amortization of debt discounts and issuance costs

 

 

8,992

 

 

7,161

 

 

Stock-based compensation

 

 

3,773

 

 

3,239

 

 

Insurance recovery on settlement

 

 

 

 

(3,250)

 

 

Provision for income taxes

 

 

48,941

 

 

51,133

 

 

Adjusted net income before income taxes

 

$

146,643

 

$

151,141

 

 

Adjusted margin before income taxes(1)

 

 

40.7

%

 

44.4

%

 


(1) Adjusted margin before income taxes is adjusted net income before income taxes divided by total revenues, excluding insurance recoveries.

 

The following table shows the reconciliation of net income to adjusted diluted earnings per share before income taxes (in thousands, except share and per share amounts):

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

    

2017

    

2016

 

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of net income to adjusted diluted earnings per share before income taxes:

 

 

 

 

 

 

 

 

Net income

 

$

84,937

 

$

92,858

 

 

Amortization of debt discounts and issuance costs

 

 

8,992

 

 

7,161

 

 

Stock-based compensation

 

 

3,773

 

 

3,239

 

 

Insurance recovery on settlement

 

 

 

 

(3,250)

 

 

Provision for income taxes

 

 

48,941

 

 

51,133

 

 

Adjusted net income before income taxes

 

$

146,643

 

$

151,141

 

 

Assumed conversion of convertible senior notes

 

 

1,424

 

 

1,454

 

 

Adjusted net income before income taxes plus assumed conversions

 

$

148,067

 

$

152,595

 

 

Weighted-average diluted shares outstanding

 

 

111,429,926

 

 

110,563,526

 

 

Adjusted diluted earnings per share before income taxes

 

$

1.33

 

$

1.38

 

 

 

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Three months ended March 31, 2017, compared to the three months ended March 31, 2016

 

Rental revenue

 

As of March 31, 2017, we owned 243 aircraft at a net book value of $12.6 billion and recorded $354.7 million in rental revenue for the quarter then ended, which included overhaul revenue, net of amortization of initial direct costs, of $4.9 million. In the prior year, as of March 31, 2016, we owned 239 aircraft at a net book value of $11.2 billion and recorded $317.2 million in rental revenue for the quarter ended March 31, 2016, which included $0.5 million in amortization expense related to initial direct costs, which is net of overhaul revenue.  The increase in rental revenue was primarily due to the increase in net book value of our operating lease portfolio to $12.6 billion as of March 31, 2017 from $11.2 billion as of March 31, 2016.

 

Aircraft sales, trading and other revenue

 

Aircraft sales, trading and other revenue totaled $5.5 million for the three months ended March 31, 2017 compared to $26.1 million for the three months ended March 31, 2016.  During the quarter ended March 31, 2017, we sold five aircraft from our operating lease portfolio. During the quarter ended March 31, 2016, we recorded $21.0 million in gains from sale of 12 aircraft from our operating lease portfolio.  In addition, we received insurance proceeds of $3.25 million during the quarter ended March 31, 2016 in connection with litigation settlement. 

 

Interest expense

 

Interest expense totaled $76.1 million for the three months ended March 31, 2017 compared to $68.1 million for the three months ended March 31, 2016. The change was primarily due to an increase in our average outstanding debt balances. We expect that our interest expense will increase as our average debt balance outstanding continues to increase.  Interest expense will also be impacted by changes in our composite cost of funds.

 

Depreciation expense

 

We recorded $123.9 million in depreciation expense of flight equipment for the three months ended March 31, 2017 compared to $108.6 million for the three months ended March 31, 2016. The increase in depreciation expense for the three months ended March 31, 2017, compared to the three months ended March 31, 2016, is attributable to the acquisition of additional aircraft.

 

Selling, general and administrative expenses

 

We recorded selling, general and administrative expenses of $22.6 million for the three months ended March 31, 2017 compared to $19.4 million for the three months ended March 31, 2016. Selling, general and administrative expense as a percentage of total revenue increased to 6.3% for the three months ended March 31, 2017 compared to 5.7% for the three months ended March 31, 2016.  The increase in selling, general and administrative expenses was primarily due to $2.2 million of transaction expenses incurred during the quarter related to the Thunderbolt transaction.  As we continue to add new aircraft to our portfolio, we expect over the long-term, selling, general and administrative expense to decrease as a percentage of revenue.

 

Taxes

 

The effective tax rate was 36.6% and 35.5% for the three months ended March 31, 2017 and 2016, respectively.  The increase in our effective tax rate was due to the adoption of ASU 2016-09 in the first quarter of 2017, which resulted in a discrete income tax expense item related to stock-based compensation of approximately $1.7 million as discussed in Note 2: Basis of Preparation, in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

 

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Net income

 

For the three months ended March 31, 2017, we reported consolidated net income of $84.9 million, or $0.78 per diluted share, compared to a consolidated net income of $92.9 million, or $0.85 per diluted share, for the three months ended March 31, 2016.  Net income decreased in the first quarter of 2017 as compared to 2016, this was primarily due to a decrease in gains on aircraft sales, as well as the receipt of insurance proceeds in 2016 related to a legal settlement in 2015.  This was partially offset by the increase in the net book value of our fleet of aircraft subject to operating lease. 

 

Adjusted net income before income taxes

 

For the three months ended March 31, 2017, we recorded adjusted net income before income taxes of $146.6 million, or $1.33 per adjusted diluted share before income taxes, compared to an adjusted net income before income taxes of $151.1 million, or $1.38 per adjusted diluted share before income taxes, for the three months ended March 31, 2016. The decrease in adjusted net income before income taxes for the first quarter of 2017 compared to the first quarter of 2016 was primarily due to a decrease in gains on aircraft sales.  This was partially offset by the increase in the net book value of our fleet of aircraft subject to operating lease.

 

Adjusted net income before income taxes and adjusted diluted earnings per share before income taxes are measures of financial and operational performance that are not defined by GAAP.  See Note 1 under the "Results of Operations" table above for a discussion of adjusted net income before income taxes and adjusted diluted earnings per share before income taxes as non-GAAP measures and reconciliation of these measures to net income.

 

Contractual Obligations

 

Our contractual obligations as of March 31, 2017, are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2017

    

2018

    

2019

    

2020

    

2021

    

Thereafter

    

Total

 

Long-term debt obligations

    

$

1,261,037

 

$

1,557,561

 

$

1,037,681

 

$

1,796,218

 

$

1,121,777

 

$

2,421,151

    

$

9,195,425

 

Interest payments on debt outstanding(1)

 

 

198,262

 

 

249,220

 

 

201,038

 

 

153,218

 

 

106,719

 

 

723,848

 

 

1,632,305

 

Purchase commitments

 

 

2,244,564

 

 

4,068,515

 

 

5,192,553

 

 

6,191,086

 

 

5,676,387

 

 

4,212,073

 

 

27,585,178

 

Operating leases

 

 

1,973

 

 

2,926

 

 

3,232

 

 

3,111

 

 

2,946

 

 

6,804

 

 

20,992

 

Total

 

$

3,705,836

 

$

5,878,222

 

$

6,434,504

 

$

8,143,633

 

$

6,907,829

 

$

7,363,876

 

$

38,433,900

 


(1)

Future interest payments on floating rate debt are estimated using floating rates in effect at March 31, 2017.

 

Off-Balance Sheet Arrangements

 

We have not established any unconsolidated entities for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. We have, however, from time to time established subsidiaries and created partnership arrangements or trusts for the purpose of leasing aircraft or facilitating borrowing arrangements, all of which are consolidated.

 

Critical Accounting Policies

 

Our critical accounting policies reflecting management’s estimates and judgments are described in our Annual Report on Form 10-K for the year ended December 31, 2016. We have reviewed recently adopted accounting pronouncements and determined that the adoption of such pronouncements is not expected to have a material impact, if any, on its consolidated financial statements.  Accordingly, there have been no material changes to critical accounting policies in the three months ended March 31, 2017.

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ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Market risk represents the risk of changes in value of a financial instrument, caused by fluctuations in interest rates and foreign exchange rates. Changes in these factors could cause fluctuations in our results of operations and cash flows. We are exposed to the market risks described below.

 

Interest Rate Risk

 

The nature of our business exposes us to market risk arising from changes in interest rates. Changes, both increases and decreases, in our cost of borrowing, as reflected in our composite interest rate, directly impact our net income. Our lease rental stream is generally fixed over the life of our leases, whereas we have used floating-rate debt to finance a portion of our aircraft acquisitions from time to time. We had $1.4 billion and $1.5 billion in floating-rate debt outstanding on each of March 31, 2017 and December 31, 2016. If interest rates increase, we would be obligated to make higher interest payments to our lenders. As we incur significant fixed-rate debt in the future, increased interest rates prevailing in the market at the time of the incurrence of such debt will increase our interest expense. If the composite rate on our floating-rate debt were to increase by 1.0%, we would expect to incur additional interest expense on our existing indebtedness of approximately $13.7 million and $14.5 million as of March 31, 2017 and December 31, 2016, respectively, on an annualized basis, which would put downward pressure on our operating margins. Further, as of March 31, 2017, 85.1% of our total debt incurred interest at a fixed rate.

 

We also have interest rate risk on our forward lease placements. This is caused by us setting a fixed lease rate in advance of the delivery date of an aircraft. The delivery date is when a majority of the financing for an aircraft is arranged. We partially mitigate the risk of an increasing interest rate environment between the lease signing date and the delivery date of the aircraft by having interest rate adjusters in a majority of our forward lease contracts which would adjust the final lease rate upward if certain benchmark interest rates are higher at the time of delivery of the aircraft than at the lease signing date.

 

Foreign Exchange Rate Risk

 

We attempt to minimize currency and exchange risks by entering into aircraft purchase agreements and a majority of lease agreements and debt agreements with U.S. dollars as the designated payment currency. Thus, most of our revenue and expenses are denominated in U.S. dollars.  As of March 31, 2017 and December 31, 2016, 1.0% of our lease revenues were denominated in Euros. As our principal currency is the U.S. dollar, changes in the U.S. dollar as compared to other major currencies should not have a significant impact on our future operating results.

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ITEM 4.   CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”), and such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer (collectively, the “Certifying Officers”), as appropriate, to allow timely decisions regarding required disclosure. Our management, including the Certifying Officers, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

 

We have evaluated, under the supervision and with the participation of management, including the Certifying Officers, the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, as of March 31, 2017. Based on that evaluation, our Certifying Officers have concluded that our disclosure controls and procedures were effective at March 31, 2017.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II—OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we may be involved in litigation and claims incidental to the conduct of our business in the ordinary course. Our industry is also subject to scrutiny by government regulators, which could result in enforcement proceedings or litigation related to regulatory compliance matters. We are not presently a party to any enforcement proceedings or litigation related to regulatory compliance matters or material legal proceedings. We maintain insurance policies in amounts and with the coverage and deductibles we believe are adequate, based on the nature and risks of our business, historical experience and industry standards.

 

ITEM 1A. RISK FACTORS

 

There have been no material changes in our risk factors from those discussed under “Part I—Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2016.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On March 9, 2017, Commonwealth Bank of Australia ("CBA"), one of our institutional investors, performed a cashless exercise of all of its 268,125 warrants, resulting in the issuance of 131,001 shares of Class A Common Stock at an exercise price of $20 per share.  The shares were issued in reliance on an exemption from registration under Section 4(a)(2) under the 1933 Act.

 

On March 30, 2017, a holder of our 3.875% convertible senior notes due 2018 ("Convertible Notes") converted $1,000 in principal amount of our Convertible Notes and received 33 shares of Class A Common Stock at a per share conversion price of $29.60.  The shares were issued in reliance on an exemption from registration from registration under Section 3(a)(9) under the 1933 Act.

 

On December 30, 2016, a holder of our Convertible Notes converted $5,000 in principal amount of our Convertible Notes and received 168 shares of Class A Common Stock at a per share conversion price of $29.65.  The shares were issued in reliance on an exemption from registration from registration under Section 3(a)(9) under the 1933 Act.

 

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Table of Contents

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None

 

ITEM 5. OTHER INFORMATION

 

Third Amendment to Second Amended and Restated Credit Agreement

 

On May 2, 2017, we amended and extended (the “Third Amendment”) our unsecured revolving credit facility with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders named therein (as previously amended and extended by the First Amendment, dated as of June 1, 2015, the Second Amendment, dated as of May 27, 2016, and as further amended, the “Syndicated Unsecured Revolving Credit Facility”) whereby we extended the maturity date from May 5, 2020 to May 5, 2021 and increased the total revolving commitments thereunder to approximately $3.7 billion from approximately $3.5 billion, across 43 financial institutions. The Syndicated Unsecured Revolving Credit Facility remains priced at LIBOR plus 1.05% with a 0.20% facility fee, each subject to adjustments based on changes to our credit rating. Under the Syndicated Unsecured Revolving Credit Facility, lenders hold revolving commitments totaling approximately $3.1 billion that mature on May 5, 2021, commitments totaling approximately $217.7 million that mature on May 5, 2020, commitments totaling $290.0 million that mature on May 5, 2019, and commitments totaling $55.0 million that mature on May 5, 2018. Some of the lenders party to the Syndicated Unsecured Revolving Credit Facility and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. They have received, or may in the future receive, customary fees and commissions for these transactions.

 

The foregoing summary of the material elements of the Third Amendment is subject in all respects to the more detailed terms and provisions set forth in the Third Amendment, which is attached to this Quarterly Report on Form 10-Q as Exhibit 10.5 and the terms of which are incorporated herein by reference.

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Table of Contents

ITEM 6.  EXHIBITS

 

3.1

    

Restated Certificate of Incorporation of Air Lease Corporation (incorporated by reference to Exhibit 3.1 to Air Lease Corporation's Registration Statement on Form S-1 filed on January 14, 2011 (File No. 333-171734)).

 

 

 

3.2

 

Third Amended and Restated Bylaws of Air Lease Corporation (incorporated by reference to Exhibit 3.2 to Air Lease Corporation's Current Report on Form 8-K filed on June 20, 2016 (File No. 001-35121)).

 

 

 

4.1

 

Twelfth Supplemental Indenture, dated as of March 8, 2017, to the October 11, 2012 Indenture by and between Air Lease Corporation and Deutsche Bank Trust Company Americas, as Trustee, relating to 3.625% Senior Notes due 2027 (incorporated by reference to Exhibit 4.2 to Air Lease Corporation's Current Report on Form 8-K filed on March 8, 2017 (File No. 001-35121)).

 

 

 

10.1

 

Air Lease Corporation Executive Severance Plan, adopted February 21, 2017, as amended on May 3, 2017.

 

 

 

10.2

 

New Lender Supplement, dated January 27, 2017, to the Second Amended and Restated Credit Agreement, dated as of May 5, 2014 among Air Lease Corporation, as Borrower, the several lenders from time to time party thereto, and JP Morgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.12 to Air Lease Corporation’s Annual Report on Form 10-K filed on February 23, 2017 (File No. 001-35121)).

 

 

 

10.3

 

New Lender Supplement, dated March 22, 2017, to the Second Amended and Restated Credit Agreement, dated as of May 5, 2014 among Air Lease Corporation, as Borrower, the several lenders from time to time party thereto, and JP Morgan Chase Bank, N.A., as Administrative Agent.

 

 

 

10.4

 

New Lender Supplement, dated March 29, 2017, to the Second Amended and Restated Credit Agreement, dated as of May 5, 2014 among Air Lease Corporation, as Borrower, the several lenders from time to time party thereto, and JP Morgan Chase Bank, N.A., as Administrative Agent.

 

 

 

10.5

 

Third Amendment, dated as of May 2, 2017, to the Second Amended and Restated Credit Agreement, dated as of May 5, 2014 among Air Lease Corporation, as Borrower, the several lenders from time to time party thereto, and JP Morgan Chase Bank, N.A., as Administrative Agent.

 

 

 

10.6

 

Form of Grant Notice and Form of Book Value and Total Stockholder Return Restricted Stock Units Award Agreement for Messrs. John L. Plueger and Steven F. Udvar-Házy under the Air Lease Corporation 2014 Equity Incentive Plan, for awards granted beginning February 21, 2017.

 

 

 

10.7

 

Form of Grant Notice and Form of Book Value and Total Stockholder Return Restricted Stock Units Award Agreement for officers (Executive Vice President and below) and other employees under the Air Lease Corporation 2014 Equity Incentive Plan, for awards granted beginning February 21, 2017.

 

 

 

10.8

 

Form of Grant Notice (Time-Based Vesting) and Form of Restricted Stock Units Award (Time-Based Vesting) Agreement for officers (Executive Vice President and below) and other employees under the Air Lease Corporation 2014 Equity Incentive Plan, for awards granted beginning February 21, 2017.

 

 

 

10.9

 

Amendment No. 12 to A320 NEO Family Purchase Agreement, dated August 17, 2016, by and between Air Lease Corporation and Airbus S.A.S.

 

 

 

10.10

 

Amendment No. 13 to A320 NEO Family Purchase Agreement, dated December 20, 2016, by and between Air Lease Corporation and Airbus S.A.S.

 

 

 

10.11

 

Amendment No. 14 to A320 NEO Family Purchase Agreement, dated March 3, 2017, by and between Air Lease Corporation and Airbus S.A.S.

 

 

 

10.12

 

Supplemental Agreement No. 1 to Purchase Agreement No. PA-03791, dated February 4, 2013, by and between Air Lease Corporation and The Boeing Company

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Table of Contents

 

 

 

10.13

 

Supplemental Agreement No. 4 to Purchase Agreement No. PA-03791, dated December 11, 2015, by and between Air Lease Corporation and The Boeing Company

 

 

 

10.14

 

Supplemental Agreement No. 8 to Purchase Agreement No. PA-03791, dated January 30, 2017, by and between Air Lease Corporation and The Boeing Company

 

 

 

10.15

 

Supplemental Agreement No. 9 to Purchase Agreement No. PA-03791, dated February 28, 2017, by and between Air Lease Corporation and The Boeing Company

 

 

 

12.1

 

Computation of Ratio of Earnings to Fixed Charges.

 

 

 

31.1

 

Certification of the Chief Executive Officer and President Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification of the Executive Vice President and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

Certification of the Chief Executive Officer and President Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

 

 

 

32.2

 

Certification of the Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase


The registrant has omitted confidential portions of the referenced exhibit and filed such confidential portions separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended.

 

 

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Table of Contents

SIGNATURES

 

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.

 

 

AIR LEASE CORPORATION

 

 

 

 

May 4, 2017

/s/ John L. Plueger

 

John L. Plueger

 

Chief Executive Officer and President

 

(Principal Executive Officer)

 

 

 

 

May 4, 2017

/s/ Gregory B. Willis

 

Gregory B. Willis

 

Executive Vice President and Chief Financial Officer

 

(Principal Financial Officer and Principal Accounting Officer)

 

 

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Table of Contents

INDEX TO EXHIBITS

 

 

 

 

 

3.1

 

Restated Certificate of Incorporation of Air Lease Corporation (incorporated by reference to Exhibit 3.1 to Air Lease Corporation's Registration Statement on Form S-1 filed on January 14, 2011 (File No. 333-171734)).

 

 

 

3.2

 

Third Amended and Restated Bylaws of Air Lease Corporation (incorporated by reference to Exhibit 3.2 to Air Lease Corporation's Current Report on Form 8-K filed on June 20, 2016 (File No. 001-35121)).

 

 

 

4.1

 

Twelfth Supplemental Indenture, dated as of March 8, 2017, to the October 11, 2012 Indenture by and between Air Lease Corporation and Deutsche Bank Trust Company Americas, as Trustee, relating to 3.625% Senior Notes due 2027 (incorporated by reference to Exhibit 4.2 to Air Lease Corporation's Current Report on Form 8-K filed on March 8, 2017 (File No. 001-35121)).

 

 

 

10.1

 

Air Lease Corporation Executive Severance Plan, adopted February 21, 2017, as amended on May 3, 2017.

 

 

 

10.2

 

New Lender Supplement, dated January 27, 2017, to the Second Amended and Restated Credit Agreement, dated as of May 5, 2014 among Air Lease Corporation, as Borrower, the several lenders from time to time party thereto, and JP Morgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.12 to Air Lease Corporation’s Annual Report on Form 10-K filed on February 23, 2017 (File No. 001-35121)).

 

 

 

10.3

 

New Lender Supplement, dated March 22, 2017, to the Second Amended and Restated Credit Agreement, dated as of May 5, 2014 among Air Lease Corporation, as Borrower, the several lenders from time to time party thereto, and JP Morgan Chase Bank, N.A., as Administrative Agent.

 

 

 

10.4

 

New Lender Supplement, dated March 29, 2017, to the Second Amended and Restated Credit Agreement, dated as of May 5, 2014 among Air Lease Corporation, as Borrower, the several lenders from time to time party thereto, and JP Morgan Chase Bank, N.A., as Administrative Agent.

 

 

 

10.5

 

Third Amendment, dated as of May 2, 2017, to the Second Amended and Restated Credit Agreement, dated as of May 5, 2014 among Air Lease Corporation, as Borrower, the several lenders from time to time party thereto, and JP Morgan Chase Bank, N.A., as Administrative Agent.

 

 

 

10.6

 

Form of Grant Notice and Form of Book Value and Total Stockholder Return Restricted Stock Units Award Agreement for Messrs. John L. Plueger and Steven F. Udvar-Házy under the Air Lease Corporation 2014 Equity Incentive Plan, for awards granted beginning February 21, 2017.

 

 

 

10.7

 

Form of Grant Notice and Form of Book Value and Total Stockholder Return Restricted Stock Units Award Agreement for officers (Executive Vice President and below) and other employees under the Air Lease Corporation 2014 Equity Incentive Plan, for awards granted beginning February 21, 2017.

 

 

 

10.8

 

Form of Grant Notice (Time-Based Vesting) and Form of Restricted Stock Units Award (Time-Based Vesting) Agreement for officers (Executive Vice President and below) and other employees under the Air Lease Corporation 2014 Equity Incentive Plan, for awards granted beginning February 21, 2017.

 

 

 

10.9

 

Amendment No. 12 to A320 NEO Family Purchase Agreement, dated August 17, 2016, by and between Air Lease Corporation and Airbus S.A.S.

 

 

 

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Table of Contents

10.10

 

Amendment No. 13 to A320 NEO Family Purchase Agreement, dated December 20, 2016, by and between Air Lease Corporation and Airbus S.A.S.

 

 

 

10.11

 

Amendment No. 14 to A320 NEO Family Purchase Agreement, dated March 3, 2017, by and between Air Lease Corporation and Airbus S.A.S.

 

 

 

10.12

 

Supplemental Agreement No. 1 to Purchase Agreement No. PA-03791, dated February 4, 2013, by and between Air Lease Corporation and The Boeing Company

 

 

 

10.13

 

Supplemental Agreement No. 4 to Purchase Agreement No. PA-03791, dated December 11, 2015, by and between Air Lease Corporation and The Boeing Company

 

 

 

10.14

 

Supplemental Agreement No. 8 to Purchase Agreement No. PA-03791, dated January 30, 2017, by and between Air Lease Corporation and The Boeing Company

 

 

 

10.15

 

Supplemental Agreement No. 9 to Purchase Agreement No. PA-03791, dated February 28, 2017, by and between Air Lease Corporation and The Boeing Company

 

 

 

12.1

 

Computation of Ratio of Earnings to Fixed Charges.

 

 

 

31.1

 

Certification of the Chief Executive Officer and President Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification of the Executive Vice President and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

Certification of the Chief Executive Officer and President Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

 

 

 

32.2

 

Certification of the Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase


 

 

The registrant has omitted confidential portions of the referenced exhibit and filed such confidential portions separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended.

 

 

 

 

 

32