AYR - Aircastle Limited (AYR) Q4 2022 Earnings Call Transcript

2023-04-25 14:35:23 ET

Aircastle Limited (AYR)

Q4 2022 Earnings Conference Call

April 25, 2023 9:00 AM ET

Company Participants

James Connelly – Senior Vice President-Corporate Communications

Mike Inglese – Chief Executive Officer

Roy Chandran – Chief Financial Officer

Conference Call Participants

Presentation

Operator

Good day, and welcome to the Aircastle Limited Fourth Quarter and Fiscal Year 2022 Investor Update. Today's conference is being recorded.

At this time, I would like to turn the conference over to James Connelly, SVP of Corporate Communications. Please go ahead, Mr. Connelly.

James Connelly

Thank you. Good morning, everyone, and welcome to Aircastle Limited's fourth quarter and full year 2022 financial update call. With me today are Mike Inglese, Chief Executive Officer; and Roy Chandran, Chief Financial Officer. Other members of the management team are on the line and they'll be available during Q&A.

We'll begin the presentation shortly, but I'd like to remind everyone that this call is being recorded and a replay will be available through our website at www.aircastle.com. There you can also find the press release and PowerPoint presentation that accompany this call.

I would like to point out that statements today, which are not historical facts, may be deemed forward-looking statements. Actual results may differ materially from the estimates or expectations expressed in those statements. Certain facts that could cause actual results to differ materially from Aircastle Limited's expectations are detailed in our SEC filings, which can also be found on our website. I'll direct you to Aircastle Limited's press release for the full forward-looking statement legend.

With that, I'll now turn the call over to Mike.

Mike Inglese

Thanks, Jim. Good morning everyone, and thank you for joining us. This morning, we're pleased to share that we finished our fiscal year with net income of $63 million and adjusted EBITDA of $732 million. Our return to profitability and improved cash flows reflects the hard work of our global team and the robust aircraft leasing business. The aviation industry's outlook is bullish for the long-term, airlines and passengers believe that COVID-19 is behind us. Carriers are placing large orders with Boeing and Airbus and the decades long expansion of the global middle class continues its march forward.

Overall, many 2022 traffic metrics have returned to pre-COVID levels, even if the general consensus is that the overall flight volumes won't return to pre-COVID levels until next year. In several regions where we leased aircraft, flight volumes are already more or less at 2019 levels such as the U.S., India, and domestic Brazil. Europe, Australia and Japan continue to improve as well, showing volumes at approximately 80% to 90% of 2019 levels.

And international traffic from China is rapidly ramping back up. I have this passenger analysis for the three months that make up our fourth fiscal quarter, reported an overall 54% increase in RPKs versus the same period in the prior year. Focusing on that improvement a bit, we see globally international RPKs up 91% and Asia-Pacific increasing 95% for both domestic and international traffic on a comparable basis.

Globally, 2022 finished with volume at 4.7 billion passengers, a little over 30% compared to 2021, however, still down by 12% versus 2019. Although, the long-term outlook for aviation is bullish, the short-term outlook still contains uncertainties and therefore requires continued vigilance.

Since our last call, we've seen banking turmoil making headlines, with actions from regulators and central banks appeared to have contained this risk. However, it added another layer of uncertainty to a consumer outlook already worried about high fuel cost and inflation. In the near-term businesses across all sectors are trying to figure out if and how consumers might alter their choices in 2023.

A few months ago, PwC released their Global Consumer Insights poll survey among participant surveyed, 96% reported that they intended to cut spending over the next six months, but despite this cautionary tone, the survey also revealed that travel appears to be a popular option for discretionary spending, which is a theme we've heard from the U.S. airlines who have recently shared their quarterly earnings reports.

As anyone who has booked a flight recently can attest ticket prices remain elevated. Questions are how will consumers react if ticket prices remain high and can airlines and airports avoid the logistical breakdowns this summer that process disruptions to last summer's travel season.

Turning to Aircastle, we're proud to finish fiscal 2022 with a return to profitability and increased acquisition volume. Despite the competitive market for new technology aircraft, our team successfully completed just over $900 million in new acquisitions for the year, over three quarters of which were for new technology aircraft. The year-end net book value of our new technology fleet is up 55% compared to fiscal 2021.

Supply chain challenges continue to hold back desired output from Boeing and Airbus, as demand for new aircraft cannot be fully met. Current technology aircraft remain attractive assets to lease or sell. Although, our new tech growth rate keeps us in sync with the industry's trajectory, our current aircraft continued to be sought after by our customers for leases and lease extensions. For us, these continue to be investments with good returns and solid residual values.

With respect to financing activities, in 2022, our capital markets team was able to manage through a volatile interest rate environment and raise $850 million in new financings. Our total liquidity of $2 billion as of early April, positions us well as we ship to 2023. Not having a large order book also gives us the flexibility to raise and deploy capital quickly, leveraging strong relationships we've built in the secured and unsecured lending markets. Likewise, we’ve built up equally effective relationships with our trading partners who are confident about our efficient and professional transaction execution.

As we look to the future, we will continue to create aviation solutions for our customers while maintaining a risk focused objectivity of the broader aviation marketplace. As a demonstration of our commitment to our own sustainability goals and those of our customers, we will continue to focus on the most fuel efficient low emissions aircraft. Our growing new tech fleet keeps us abreast of the technology transition taking place across our customer base, while our midlife aircraft also meet the heavy demand for narrow-body passenger aircraft.

Before I conclude, I’d like to note that we just passed the three-year anniversary of our partnership with Marubeni Corporation and Mizuho Leasing. During 2022, this relationship continued to deliver on expanded market access and credit rating support. Because of our conservative balance sheet, our investment grade rating, and the strong support of our shareholders, we continue to be well positioned for future growth.

Now I’ll pass it over to Roy to go through the fourth quarter and full year results in more detail.

Roy Chandran

Thanks, Mike. For the fourth quarter, we reported net income of $14 million and adjusted EBITDA of $180 million. Total revenues were $189 million, which included $34 million of maintenance revenue. These rental revenue of $154 million was an 8% improvement from the third quarter, reflecting the impact of new acquisitions and the timing of payments for cash basis customers. For the full year, we had net income of $63 million and total revenues was $796 million, which included $71 million in gains on sales of aircraft, which generated $426 million in cash proceeds. The average age of the 25 aircraft we sold during the year was 17 years.

Full year operating cash flows of $438 million or 17% improvement from the prior year and reflect firmer customer performance. We invested $296 million in the fourth quarter adding seven narrow-body aircraft, six of which were new technology. That brings our total acquisitions for the year to 22.

And as Mike mentioned, we were able to increase our new tech NBV by 55% and what has been an extremely competitive market for new narrow-body aircraft. The $850 million in new financings we successfully raised in fiscal 2022 came by way over $450 million secured aircraft financing facility with a seven-year term, in addition to $400 million of from new or upsize shareholders supported revolving credit facilities.

During 2022, we also expanded our funding sources and successfully completed two JOLCO [ph] financings for new technology aircraft acquisitions with a third completed after year end.

With regards to our capital structure, our net debt to equity at the end of the year was 2.8 times. We finished the year with total debt of $4.6 billion of which 84% was unsecured. The weighted average interest rate on our debt was 4.42% at the end of fiscal 2022. Continuing with liquidity as of April 3 with total liquidity of $2 billion. This include $1.4 billion of undrawn facilities, unrestricted cash of $100 million and projected 12-month adjusted operating cash flows of $500 million.

On April 3, we also paid off $500 million of unsecured senior notes and our next major debt payment is in September 2023.

Looking forward to 2023, as we source [indiscernible] growth opportunities, we will do so maintaining our conservative leverage while also limiting forward commitments, thus affirming our dedication to maintenance of our IG status.

And with that operator, we are happy to open the call up to questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]

It appears that there are no questions at this time. I’ll turn the conference back to James Connelly for any additional remarks.

James Connelly

I just want to thank everyone for joining us today. If there are any questions, please reach out. Hope everyone has a great day. Thank you.

Operator

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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