AYR Investor Day May 2014
-
Upload
geoffreyhorton -
Category
Documents
-
view
217 -
download
0
Transcript of AYR Investor Day May 2014
-
8/10/2019 AYR Investor Day May 2014
1/70
Investor and Analyst Day Presentation
May 14, 2014
-
8/10/2019 AYR Investor Day May 2014
2/70
Forward-Looking Statements
2
Certain items in this presentation and other information we provide from time to time, may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, but not necessarily limited to,
statements relating to our ability to acquire, sell, lease or finance aircraft, raise capital, pay dividends, and increase revenues,
earnings, EBITDA, Adjusted EBITDA, Adjusted Net Income, Operating Cash Flow, Cash Earnings and Cash ROE and the globalaviation industry and aircraft leasing sector. Words such as anticipates, expects, intends, plans, projects, believes,
may,will,would,could,should,seeks,estimatesand variations on these words and similar expressions are intended
to identify such forward-looking statements. These statements are based on managementscurrent expectations and beliefs and
are subject to a number of factors that could lead to actual results materially different from those described in the forward-
looking statements; Aircastle can give no assurance that its expectations will be attained. Accordingly, you should not place undue
reliance on any forward-looking statements contained in this report. Factors that could have a material adverse effect on our
operations and future prospects or that could cause actual results to differ materially from Aircastle expectations include, but are
not limited to, capital markets disruption or volatility which could adversely affect our continued ability to obtain additional
capital to finance new investments or our working capital needs; government fiscal or tax policies, general economic and businessconditions or other factors affecting demand for aircraft or aircraft values and lease rates; our continued ability to obtain favorable
tax treatment in Bermuda, Ireland and other jurisdictions; our ability to pay dividends; high or volatile fuel prices, lack of access to
capital, reduced load factors and/or reduced yields, operational disruptions caused by political unrest and other factors affecting
the creditworthiness of our airline customers and their ability to continue to perform their obligations under our leases and other
risks detailed from time to time in Aircastles filings with the SEC, including as previously disclosed in Aircastles 2013 Annual
Report on Form 10-K, and elsewhere in this report. In addition, new risks and uncertainties emerge from time to time, and it is not
possible for Aircastle to predict or assess the impact of every factor that may cause its actual results to differ from those
contained in any forward-looking statements. Such forward-looking statements speak only as of the date of this report. Aircastle
Limited expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements
contained herein to reflect any change in its expectations with regard thereto or change in events, conditions or circumstances on
which any statement is based.
The information contained herein is the property of Aircastle Limited and shall not be disclosed, copied, distributed or
transmitted, or used for any purpose, without the express written consent of Aircastle Limited.
-
8/10/2019 AYR Investor Day May 2014
3/70
Agenda
Introduction Frank Constantinople, SVP/ IR
Business Strategy Overview Ron Wainshal, CEO
Market Overview Guy Bacigalupi, CRO
Investment Strategy Mike Kriedberg, CCO
Portfolio Management Dave Walton, COO
Financing Markets Update Roy Chandran, EVP Capital Markets
Capital Structure and Financial Performance Mike Inglese, CFO
Q&A
3
-
8/10/2019 AYR Investor Day May 2014
4/70
Business Strategy Overview
4
-
8/10/2019 AYR Investor Day May 2014
5/70
Aircastle Profile & History
Formed 10 years ago as a bespoke aircraft investor and lessor
Went public in Aug 2006 (NYSE: AYR)
Sold significant minority stake to Marubeni Corporation in Jul 2013
At Mar 31, 2014 owned 164 aircraft leased to 65 customers in 37 countries
$5.8 billion in book value of aircraft and $1.6 billion in equity book value
One of the Worlds Leading Aircraft Investors
5
-
8/10/2019 AYR Investor Day May 2014
6/70
Corporate Strategy
Value Investor in commercial jet aircraft
Cash flow-driven and long term oriented
Flexible capital structure with efficient financing access from many sources
Strong in-house team to capitalize on a multitude of opportunities
Counter-cyclical approach to buying / selling
Return capital to shareholders on a regular basis
Ownership structure with core long-term minded shareholders
6
Differentiated strategy that builds on our strengths
-
8/10/2019 AYR Investor Day May 2014
7/70
World Class Management Team
Team Aircastle Role Previous Role
Ron Wainshal
Chief Executive Officer since 2005 GECAS - Asset Management GroupHead, Restructuring Leader
Michael Inglese Chief Financial Officer since 2007 PanAmSatChief Financial Officer
David Walton Chief Operating Officer since
2006; General Counsel since 2005
Boullioun Aviation ServicesChief
Legal Officer
Michael
Kriedberg
Chief Commercial Officer since
2013
GECAS - Executive Vice President,
Aviation Financing Operations
Roy Chandran Executive Vice President, Capital
Markets since 2008
CitigroupDirector, Capital
Markets
Guy Bacigalupi Chief Risk Officer since 2012 GE Capital - Risk Management;
Federal Reserve Bank of New York
7
Experienced and well-integrated team
-
8/10/2019 AYR Investor Day May 2014
8/70
Shareholders
8
Premier Japanese trading company
Blue chip company with 150+ year history
120 offices in 65 countries
$70 billion in assets
Stock market capitalization of $12 billion
Broad aerospace industry experience
Leading Canadian pension plan
$140 billion in assets under
management
Largest single profession pension plan
in Canada
Significant global investor
NYSE-listed with two large, strategic investors with long-term, global orientations
Completed evolution from private equity funded start-up
Marubeni and Ontario Teachers collectively own ~30% of Aircastlesshares $209 million share sale to Marubeni completed in July 2013
Marubeni has two of ten seats on AircastlesBoard
Diverse shareholder base with two major investors
-
8/10/2019 AYR Investor Day May 2014
9/70
Investment Strategy
Analytically driven and price sensitive
Cash flow minded
Underwrite to hold; trading mindset
Broad approach to sourcing investments
Focus on value-add situations
Sensitive to last off the line / aircraft production life effects
Countercyclical orientation
Require return premium for future capital commitments
9
Savvy aircraft investor with disciplined approach
-
8/10/2019 AYR Investor Day May 2014
10/70
Economic Lives of Aircraft
An aircraft will remain economically viable as long as the present value of
future earnings is more than its disposition value
Engines are the most maintenance intensive parts of aircraft and account for
most of an aircrafts residual value
Engine values are driven by maintenance condition, not age
Engine values are highest when the installed base is largest
Our investment viewpoint:
Aircraft from the earlier part of a production run are likely to last longer
Last off the line aircraft typically have shorter lives Aircraft residual values are primarily engine related, and these are most robust
earlier in the production run when the installed base is highest
10
-
8/10/2019 AYR Investor Day May 2014
11/70
Aircraft Value over the Production Life
The depreciation rate for last off the line aircraft is roughly twice that of a unit
produced during the first part of the production life
Chart also shows business cycle impacts on value
Slope 4% p.a.
Source: Ascend.
Slope 7% p.a.
Good time to
buy
11
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
$40.0
$45.0
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Market Value History: A320-200($ millions)
-
8/10/2019 AYR Investor Day May 2014
12/70
Comparing New with Current Technology Aircraft
Consider incremental revenue generating potential
No additional seats for NEO/ MAX vs. CEO/ NG
Lower fuel consumptionmost easily calculated benefit
But what fuel cost levels to assume and what will lessees bear?
Maintenance costs Hard to gauge how new technology will perform, particularly engines
Residual value and useful life
Production levels expected to rise
12
A320 NEO vs. CEO (Illustrative)
Gallons per year 1,750,000 2,000,000 2,250,000
Monthly Benefit from 12% fuel efficiency gain
Fuel Price/ gallon $ 2.50 $43,750 $50,000 $56,250
$ 3.00 $52,500 $60,000 $67,500
$ 3.50 $61,250 $70,000 $78,750Note: Jet fuel price per gallon at market close on May 9, 2014 was $2.87 per Bloomberg JETINYPR index.
-
8/10/2019 AYR Investor Day May 2014
13/70
Capital Structure
Conservative
Multiple funding sources
Balance between secured and unsecured
Neutral to interest rate movements
Manage maturity walls
Corporate revolver for flexibility and to capture opportunities
Maintain access throughout market cycle
13
Flexible financing approach;
Integrated with investment strategy
-
8/10/2019 AYR Investor Day May 2014
14/70
Business Outlook
Global GDP growth forecast to increase
slowly
Recovery in Europe, slowing growth in Asia
GDP growth will drive passenger travel
Air freight expected to benefit eventually
However, a glut of supply poses a big challengefor the sector
Low interest rates and high fuel prices are
having a significant impact on the aircraft
market
14
IATA Forecast 2014 2015 2016 2017
Pax Traffic Growth 5.8% 6.7% 6.6% 6.3%
Air Cargo Traffic Growth 4.0% 5.4% 5.1% 4.2%
Source: IATA Industry Financial Forecast Table, March 2014.
Source: International Monetary Fund, World Economic Outlook Database, April 2014.
2010 2011 2012 2013 2014P
World Output 5.2% 3.9% 3.2% 3.0% 3.6%
Advanced Economies
United States 2.5% 1.8% 2.8% 1.9% 2.8%
Euro Area 2.0% 1.6% -0.7% -0.5% 1.2%
Japan 4.7% -0.5% 1.4% 1.5% 1.4%
Developing Asia 9.7% 7.9% 6.7% 6.5% 6.7%
Emerging EconomiesChina 10.4% 9.3% 7.7% 7.7% 7.5%
India 10.3% 6.6% 4.7% 4.4% 5.4%
Brazil 7.5% 2.7% 1.0% 2.3% 1.8%
Turkey 9.2% 8.8% 2.2% 4.3% 2.3%
Russia 4.5% 4.3% 3.4% 1.3% 1.3%
GDP Growth Rates
-
8/10/2019 AYR Investor Day May 2014
15/70
Action Plan for 2014 / Corporate Goals
15
Situation Action
Growing investment opportunity set
More new deliveries and increased aircrafttrading activity
Many new aircraft families being
introduced
$1 billion in new investments during 2014
Completed $715 million in Q1 $400 million in additional commitments, although second part of
LATAM deal could slip to 2015
Analyzing new products
Low interest rates
Strong bank and debt capital markets
conditions
Pursue refinancing opportunities Repaid 2006-1 securitization and 9.75% notes
Issued new 5.125% notes; new secured bank debt deals
Expanded and enhanced revolver
Good demand for part-out aircraft
Significant capital inflows into aircraft
market
Part-out sales help address lease roll-off Six end of life aircraft sold in Q1
Expect to sell eight to ten more end of life aircraft during 2014
Pursue opportunistic sales actively
Demand for rental aircraft generally
strong
Address lease placement needs Only two aircraft left for 2014; making progress on 2015
Two major long-term mindedshareholders
Pursue Marubeni synergies and JV opportunities with Teachers
Emerging markets volatility Maintain vigilant asset & risk management approach
Drive Cash ROE and sustainable earnings higher
-
8/10/2019 AYR Investor Day May 2014
16/70
Market Overview
16
-
8/10/2019 AYR Investor Day May 2014
17/70
Portfolio
AircastlesRisk Management Approach
17
Customer
Transaction
Risk Management is a series of concentric processes
Transaction Process
Credit Analysis
Transaction Analysis
Know Your Customer
Deal Approval
Customer Management
Financial Monitoring
Credit Scoring
Ongoing Dialogue
Annual Reviews
Defined Risk Appetite
Customer Diversification
Geographic Diversification
Asset Diversification
Portfolio Run-off
Portfolio Monitoring
Weekly Watch List
Quarterly Risk Review Annual Risk Update
-
8/10/2019 AYR Investor Day May 2014
18/70
Global Airline Profitability
18Source: IATA Fact Sheet March 2014
North American airlines leading
industry in terms of profitability
- Generating almost half of total profits
- Showing continuing growth
Asia-Pacific has resumed growth
- Recovering after sharp 2010-12 drop
- Rate of growth relatively subdued
Europe and Latin America are also
finally showing some profit growth
Overall operating margins remain weak
- Margins remain below 5%
- Doesnt cover cost of capital
Increasing airline profitability
$17.3
$7.5
$6.1
$12.9
$18.7
$0
$5
$10
$15
$20
2010 2011 2012 2013 2014F
IATA Net Profit Projections ($, Billions)
2010 2011 2012 2013E 2014F
North America 4.2 1.7 2.3 6.8 8.6
Europe 1.9 0.3 0.4 1.2 3.1
Asia-Pacific 9.2 4.2 2.7 3.0 3.7
Middle East 0.9 1.0 1.0 1.6 2.2
Latin America 1.0 0.2 (0.2) 0.4 1.0
Africa 0.1 0.0 (0.1) (0.1) 0.1
Global $17.3 $7.4 $6.1 $12.9 $18.7
Operating Margin 4.9% 2.3% 1.8% 3.0% 4.3%
-
8/10/2019 AYR Investor Day May 2014
19/70
Interest Rates and Fuel Prices
19
Fuel prices have stabilized since 2011- Albeit at relatively high levels
Largest expense item for most airlines
High fuel prices favor new aircraft models
Susceptible to geopolitical event risk- Hedging can only smoothout short term
volatility
Interest rates at historic low levels- How long will they stay there?
Capital markets access is broader- Non-US carriers issuing EETCs
- New entrants coming into leasing business
Low rates improve aircraft affordability- But have also driven up aircraft prices
Fuel(Jet Fuel $/barrel)Interest Rates(7 year Swap)
Source: BloombergMore stable macroeconomic environment
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
2000 2002 2004 2006 2008 2010 2012 20140.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
2000 2002 2004 2006 2008 2010 2012
-
8/10/2019 AYR Investor Day May 2014
20/70
Demand for Air Travel
20
RPKs will almost triple in a little over 20 years
North America will remain the largest market, but with smaller overall share
Asia-Pacific will grow to same size as Europe
Fastest growth in Middle East at 10%+ CAGR
Latin America and Africa also growing, but at slower rate1. RPK: Revenue Passenger Kilometers.
Center of gravity is shifting to Asia-Pacific
Source: IATA / Airbus.
RPKs1(billions) 2000 % 2022 % CAGR
North America 1.2 36% 2.6 29% 3.5%
Europe 1.0 30% 2.3 26% 3.9%
Asia-Pacific 0.8 24% 2.3 26% 5.0%
Middle East 0.1 3% 0.9 10% 10.7%
Latin America 0.1 4% 0.5 6% 6.1%
Africa 0.1 2% 0.2 3% 5.3%
Industry 3.3 100% 8.9 100% 4.6%
-
8/10/2019 AYR Investor Day May 2014
21/70
Aircraft Deliveries
21
Deliveries reflect changing global traffic flows
Source: IATA / Airbus.
Aircraft Deliveries11995-2000
%2015-2020
% CAGR
North America 1,127 35% 1,963 29% 2.8%Europe 1,011 32% 1,633 24% 2.4%
Asia-Pacific 792 25% 1,832 27% 4.3%
Middle East 119 4% 678 10% 9.1%
Latin America 97 3% 506 8% 8.6%
Africa 61 2% 120 2% 3.4%
Industry 3,207 100% 6,732 100% 3.8%
Flow of new aircraft deliveries follows changes in traffic
Asia-Pacific fleet will surpass Europe and be almost as large as North America
Significant aircraft deliveries into the Middle East and Latin America
Growth rate of deliveries lower than that of passenger demand1. Mainline aircraft only.
-
8/10/2019 AYR Investor Day May 2014
22/7022
2014 2020
Major Aircraft Product Families
New aircraft offerings in nearly all sizes
Seating
Capacity
A380
747-8
787-8
777
A330
737 NGA320
CEO
E-Jets
787-8/9/10A330 (NEO?)
A350
777X
A320
NEO
737
Max
E-2
A380
-
8/10/2019 AYR Investor Day May 2014
23/70
Low Cost Carriers
23
In Europe, nearly one short-haul passenger in two is flying with a low cost carrier
In Asia-Pacific, low cost carriers got off to a slower start
- Are catching up with Europe in terms of ASKs1
- Total Asian LCC ASKs would double were penetration to reach European levels
LCCs dominate point-to-point leisure markets, leaving legacy carriers long-haul1.ASK: Available Seat Kilometers.
Source: Seabury.LCCs have transformed short/mid haul markets
25.6%
38.6%
41.5% 41.1%
4.3%
8.6%
13.3%
19.4%
0
50
100
150
200
250
300
350
400
450
2004 2007 2010 2013
ASKs(Bilion)
Europe LCC ASKs Asia LCC ASKs European LCC Share Asian LCC share
-
8/10/2019 AYR Investor Day May 2014
24/70
Gulf Mega-Connectors
24
Emirates, Qatar & Etihad doubling market share every two years- Favorable geographic locationat intersection of Europe, Asia & Africa
- Taking advantage of starting with clean sheet of paper
Seriously impacting long haul markets served by European & Asian legacy carriers- Qantas dropped long standing arrangement with BAhas re-trenched east of the Suez Canal
- Air France moved from lobbying for protection to signing code shares
- Etihad taking minority stakes in various carriers to feed Abu Dhabi hub
2.0%
3.2%
4.8%
6.0%
0
50
100
150
200
250
300
350
400
450
2004 2007 2010 2013
ASKs(Billion)
Emirates Qatar Etihad % of Global ASK
Source: Ascend.Gulf carriers transforming long haul market
-
8/10/2019 AYR Investor Day May 2014
25/70
Aer Lingus
Legacy Carriers Transformation
Delta Northwest
United
Southwest
American
Continental
AirTran
US Airways
Avianca TACA
LAN TAM
LufthansaAustrian, Swiss,
Brussels
Air France
British Airways
KLM
Iberia
North America Four carriers dominate market
Postmerger elimination of weaker brand
South America Market also down to four carriers
Two independent players left in Brazil
GOL Azul
Europe Three large groups have emerged
No entities have been eliminated
Host of independent players left
SAS
Alitalia
Rest of World No material consolidation to date
National Flag Carriers in many markets
Bilaterals & access rights still drive
business
Many legacy carriers consolidating
TAP
Air Berlin
25
-
8/10/2019 AYR Investor Day May 2014
26/70
Air Freight
26
Stagnant demand for air freight- Modal shift from air to surface / on-shoring
- Miniaturization of many consumer products
Supply continues to grow- New passenger aircraft have belly capacity
- Manufacturers continue to produce freighters This imbalance puts pressure on sector
- Load factors low and declining
- Various players forced to exit sector
- Converted 747-400s being parked/scrapped
Freighter market under continued pressure
27%26%
23%
25%24%
22% 22%21%
0
5
10
15
20
25
2006 2008 2010 2012
Ai r Tonnes % Air Value
52.0% 51.6%
49.7%
48.5%
53.9%
51.2%
49.6%49.1%
100
150
200
250
300
350
2006 2007 2008 2009 2010 2011 2012 2013
FTK/ATK(Billions)
Demand (FTK) Supply (ATK) Load Factor
0
50
100
150
200
250
300
350
400
450
2003 2008 2013 2014
Classics/DC-10 747-400/MD-11 747-8/777/A330
Source: Seabury, IATA, Ascend.
-
8/10/2019 AYR Investor Day May 2014
27/70
Macro Outlook Impact on Lessors
27
Development Pros Cons
Growth in air travel
Increases demand forleased aircraft
Attracting morecompetitors
Low interest rates Attractive funding Lower lessor yields Lower rents
High fuel price levels Increased airline pressureto re-fleet
Mixed effect on aircraftcompetitiveness
New aircraft models More fleet trade-outopportunities
Increased obsolescencerisk
Increase in new aircraftdeliveries
More financingopportunities
Higher long term risk ofovercapacity
Limited new aircraftavailability
Should result in betterlease terms for lessors
Longer wait for new orderstream opportunities
Improving airline credits/consolidation
Better credit qualitycustomers
Stronger negotiatingleverage for airlines
Change Presents Opportunities
-
8/10/2019 AYR Investor Day May 2014
28/70
Investment Strategy
28
-
8/10/2019 AYR Investor Day May 2014
29/70
Investment Strategy
Analytically driven and price sensitive
Cash flow minded
Underwrite to hold; trading mindset
Broad approach to sourcing investments
Focus on value-add situations
Sensitive to last off the line / aircraft production life effects
Countercyclical orientation
Require return premium for future capital commitments
29
Savvy aircraft investor with disciplined approach
-
8/10/2019 AYR Investor Day May 2014
30/70
Passenger Aircraft Rentals
30
Source: Ascend.
Rents for new wide-bodies have recovered to pre-crisis levels
Rents for new narrow bodies have also improvedthough still below earlier peaks
Gap between 737-800 and A320 is closing
Rents for older aircraft have been relatively stable
Aircraft rental levels improved for new, flat for used
$100k
$300k
$500k
$700k
$900k
$1,100k
$1,300k
$1,500k
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
MonthlyRent
New Aircraft
$100k
$300k
$500k
$700k
$900k
$1,100k
$1,300k
$1,500k
2007 2008 2009 2010 2011 2012 2013 2014
MonthlyRent
10-Year Constant Age Aircraft
-
8/10/2019 AYR Investor Day May 2014
31/70
Aircraft Valuation Trends
Higher new narrow-body values
Still below pre-crisis peaks; new technology increases downside risks
Appraiser values for mid-aged narrow-bodies dont yet reflect market increases
Older 738 values much higher than A320s
New wide-body values are approaching / exceeding 2008 peak levels
Larger variants outperforming, with 777-300ER doing best; delays & new model backlog has helped
Older wide-body values have not recovered
31
Source: Ascend. Source: Ascend.
$15MM
$20MM
$25MM
$30MM
$35MM
$40MM
$45MM
$50MM
199819992000 200120022003 200420052006 200720082009 201020112012 2013
CurrentMarketValue
Narrowbody CMVs
A320-200 New 737-800 NewA320-200 10Y Constant 737-800 10Y Constant
$MM
$20MM
$40MM
$60MM
$80MM
$100MM
$120MM
$140MM
$160MM
$180MM
199819992000 2001 200220032004 2005 200620072008 200920102011 20122013
CurrentMarketValue
Widebody CMVs
A330-300 New 777-300ER New
A330-300 10Y Constant 767-300ER 10Y Constant
Aircraft trading values are increasing
-
8/10/2019 AYR Investor Day May 2014
32/70
New vs Used Narrow-Body Analysis
Much of an aircrafts value derives from cash flows and residual after first lease
Conventional book depreciation for late production aircraft may be too optimistic
Mid-aged A320 base value at year 12 (2026) at around part-out value We believe this may have less down-side risk
Entry price a very important consideration
32
Appraised Value Analysis1
Valuation Year 2014 A320
2002 A320
Comments2014 Market Value $40.5 $20.0 12 year old aircraft
value is less than
half of new
2026 Base Value $18.9 $12.6 2026 value for new
A320 very close to
todays value for a12 year old aircraft
1. Full life values. Amounts in millions.
Source: Ascend.
Lower residual risk on todays mid-aged narrow-bodies
-
8/10/2019 AYR Investor Day May 2014
33/70
Interest rates are extremely low
Fierce competition for new narrow-body aircraft; lowest barrier to entry type for investors
New wide-body deals have become more competitive
Some attractive returns remain available on mid-age, current technology aircraft
Return levels vary significantly by asset types and by situation
IRR Comparison
33
Investment
Last Peak
2007
Last Trough
2009
Q1
2012
Q1
2014
5 Year US$ Swap Rate 4.2% 2.9% 1.7% 1.8%
New Narrow-body
Unlevered IRRs6-7% 11-12% 5-7% 4-7%
New Wide-body
Unlevered IRRs7-8% 11-13% 8-10% 6-9%
Mid-age Aircraft
Unlevered IRRs8-9% 15-16%* 11-14% 8-11%
This information is for illustrative purposes only and does not include the effect of maintenance cash flows or overhead, and is not intended to illustrate the financial statement
impact in a particular year of aircraft acquired during the course of that year.* Very limited # of deals traded.
-
8/10/2019 AYR Investor Day May 2014
34/70
Market Assessment
34
Asset / Situation Commentary
New current generation narrow-bodies
(A320 CEOs & 737 NGs)
Extremely competitive with ample debt availability Monthly rental yields 0.70-0.85%
Last off the line risk for residuals
New current generation wide-
bodies
(A330s & 777ERs)
Increasingly competitive, but less so than narrow-bodies
Monthly rental yields 0.80-0.95%; prices vary broadly
Increasing residual risk given new models
New next generation wide-bodies
(787s & A350s)
Extremely competitive with ample debt availability Monthly rental yields 0.70-0.80%
Will 787-8s hold their value? Will A350 go smoothly?
Mid-aged current generation
aircraft
Less competitive; some debt availability
Monthly rental yields 0.9-1.2%; very broad price ranges
Time intensive; greater re-lease risk
New order aircraft
(current & next generation)
Long wait (5-8 years) unless for end of the line aircraft
Pricing expensive, particularly with escalation
Economic drag from pre-delivery deposits
Future financing terms uncertain
-
8/10/2019 AYR Investor Day May 2014
35/70
Increasing New Deliveries
35
Estimate the value of new aircraft deliveries in 2014 is approximately $110 billion
$40-50 billion higher than five years earlier
Shrinking level of ECA involvement
$0
$20
$40
$60
$80
$100
$120
$140
$160
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Estimated New Aircraft Deliveries
($billions)
Source: Boeing.
Growing investor opportunity set
-
8/10/2019 AYR Investor Day May 2014
36/70
Aircraft Trading Levels
36
Aircraft trading levels recovering sharply in 2014
Drop was due to limited financing for used aircraft and high book values
Recent recovery in asset values driving more sales going forward Improvement in financing terms
New entrants with lower yield requirements
Increasing portfolio management pressures at large lessors could spur more activity
Source: Ascend.
0
500
1,000
1,500
2,000
2,500
3,000
2005 2006 2007 2008 2009 2010 2011 2012 2013
Aircraft Transactions
Used Aircraft Transactions
-
8/10/2019 AYR Investor Day May 2014
37/70
$3 Billion in Acquisitions Since 2012
Aircraft Lessees
% of Total
Investments
New Wide-Bodies:
7x 777-300ERs
13x A330s
LATAM
Singapore
Virgin Australia
Air Canada
Asiana
Garuda
Thai Airways
EVA
70%
Mid-Aged Narrow-Bodies:
16x 737-800s
8x A320 Family
Alaska
Volaris
Monarch
Jeju
United
Garuda
Jet Airways
Korean
17%
Classic Generation:
7x 767-300ERs
Thomas Cook/ Condor Delta 6%
Regional Jets:
5x E-Jets
Azul 7%
37
Significant investment in newer wide-bodies
-
8/10/2019 AYR Investor Day May 2014
38/70
2014 Outlook
$715 million of investments completed in Q1
$400 million in additional investment commitments
Sourcing opportunities:
Lessors: exposure management solution for large players; exits for smaller entities
Airlines: custom tailored solutions with fleet management / exit strategy orientation and
supporting growth at airlines with promising business models
Pipeline remains promising but competition has increased Focus on situations where our team, deal sourcing capabilities and financial flexibility provide
us with an edge
Anticipate we will be most competitive with mid-aged aircraft
Capture opportunities utilizing the benefits for the Ontario Teachers JV
Evaluating new technology aircraft
But acquisition prices / rentals need to be considered relative to current technology aircraft
38
-
8/10/2019 AYR Investor Day May 2014
39/70
LATAM 777-300ER Case Study
Purchase and lease back of eight Boeing 777-
300ERs for ~$900 million
LATAM is the largest airline group in South America
Four aircraft built in 2012 closed in Q1 with
leaseback periods averaging 60 months
Four aircraft built in 2008 expected to close when
the existing financing is unwound*
Leases will expire in 2017 and 2018
Deal provides LATAM with a complete 777-300ER
fleet solution
Aircraft will come off lease at a time when few
comparable new generation aircraft anticipated to
be available
39
* Subject to an outside closing date of June 30, 2015.
Why we were successful:
Placement capability & view
Financial flexibility
Ability to invest in size Reliability and speed
Relationship
-
8/10/2019 AYR Investor Day May 2014
40/70
Portfolio Management
40
-
8/10/2019 AYR Investor Day May 2014
41/70
41
Aircraft Fleet Evolution
$1.45 billion in acquisitions during 2013 and $715 million in Q1:14
Nearly 75% invested in aircraft less than five years old
Weighted average fleet age reduced to 9.1 years
Freighter and classic generation aircraft sales also transforming the fleet
Fleet Distribution as a % of Total Net Book Value
Aircraft Type Model YE 2009 YE 2011 YE 2013 Q1 2014
Current Generation A330s 17% 23% 30% 29%
Mid- & Wide-Bodies 777ERs 2% 5% 12% 20%
Current Generation 737 NGs 18% 17% 18% 17%
Narrow-Bodies A320 CEOs 17% 14% 12% 11%
Freighters 747-400s 27% 22% 17% 15%
Other Freighters 3% 9% 2% 1%
Classic Generation 737s 4% 2% 1%
-
8/10/2019 AYR Investor Day May 2014
42/70
Diversified Customer Base
42
65 airline customers across the globe
Largest individual exposure is 9.3% of total NBV
Large, national flag carriers comprise most of our top customers
Top Ten Lessees
% of NBV* Customer Country #Aircraft
> 6% per Customer LATAM Chile 4
South African Airways South Africa 4Thai Airways Thailand 2
3% to 6% per Singapore Airlines Singapore 4
Customer Martinair Netherlands 5
Emirates UAE 2
Garuda Indonesia 4
US Airways USA 11
Jet Airways India 8
Virgin Australia Australia 2
* Percentage of net book value. Figures as of March 31, 2014.
-
8/10/2019 AYR Investor Day May 2014
43/70
Broad Geographic Distribution
43
Regional distribution evolving with global trends
Asian customers now 38% of portfolio NBV vs. 20% at YE 2009
European exposure now 28% of total NBV vs. 46% at YE 2009
Airline customers based in 37 countries
Top Ten Countries
Country #Customers % of NBV*
Chile 1 9.3%
Russia 7 6.6%
USA 5 6.1%
Thailand 2 5.7%
South Africa 1 5.5%
Singapore 1 5.4%
Netherlands 3 5.2%
South Korea 3 4.2%
UAE 1 4.1%
Indonesia 1 3.8%
* Percentage of net book value. Figures as of March 31, 2014.
A S l K P f li M
-
8/10/2019 AYR Investor Day May 2014
44/70
44
Asset Sales Key to Portfolio Management
We sell aircraft opportunistically, to manage exposure and to exit at the right time
49 aircraft sold since end of 2010
More than $1.1 billion in proceeds
Generating solid gains over time
Gain on sale exceeds $80 million since end of 2010
Aircraft Sold Since Year End 2010
Opportunistic
Sales
2x A330-200 3x A330-200F
4x 737-800
1x 767-300ER 4x 737-400F
Exposure
Management
3x A330-200
1x A330-300
Exit Strategy
1x A319-100
3x A320-200
8x 737-Classic
4x 757-200 9x 767-300ER
1x 747-400
1x A310-300F
4x 737-300F
* Figures as of March 31, 2014.Sold 66 aircraft since inception and generated unlevered IRR of 11.1%1
1 Unlevered Internal Rate of Return; assumes annual SG&A expense equal to 1% of purchase price and excludes taxes and interest expense, interest rate hedging charges andother effects of financing.
-
8/10/2019 AYR Investor Day May 2014
45/70
Successfully Using Maintenance Timing in Exit Strategy
Lessees pay for maintenance time burned off leased aircraft
Maintenance cash balance and maintenance value of the metal inversely related
Cash maintenance payments grow in significance as aircraft age
Optimizing lease term and structure makes exit easier
Careful monitoring and active management are also key
Exit opportunity may present itself before scheduled lease-end
Usually best execution when cash balance is high
45
Cash maintenance payment balance
Full-life value
Time
Optimal time to
exit
Run-out value
Maintenance value of metal
C St d S l L f 1999 B i 737 700
-
8/10/2019 AYR Investor Day May 2014
46/70
Case Study: Sale vs. Lease of 1999 Boeing 737-700
46
Cash flow drives decision-making
1 Unlevered Internal Rate of Return; assumes annual SG&A expense equal to 1% of purchase price and excludes taxes and interest expense, interest rate hedging charges and
other effects of financing.
Positive net P&L impact
Maintenance revenue
exceeds transactional
impairment
Consider book impacts ofmetal together with lease
Holding period unlevered IRR
expected to be ~10%1
Transactional
Impairment
Maintenance
Revenue
Part-out
Sale of engine 1 $4.04
Sale of engine 2 4.34
Sale of airframe 5.60
Return condition buy-out 0.44
Total $14.44
Lease & Reinvest
Lease transition costs ($0.31)
NPV of rentals 7.27
NPV of mtx payments 2.60
NPV of residual value 3.66
Total $13.22
All $ in millions.
P&L Impact
Net book value $16.42
Sale of equipment 14.00
Net gain/(loss) ($2.42)
Maintenance revenue 5.23
Return condition buy-out 0.44
Total $3.25
All $ in millions.
G d P M i F i ht I t t
-
8/10/2019 AYR Investor Day May 2014
47/70
Good Progress Managing Freighter Investments
47
Track record of successful freighter sales
Four in 2013 generated $25 million in gains on sale
Four in Q1:14 for a modest gain
Working to sell two 747-400 converted freighters in 2014
Q1:14 exposure down to 16% of total net book value*
Modest near-term lease placement task
One converted freighter aircraft in 2014
Three freighters in 2015; 2.9% of total NBV
Plan to work exposure down over time
Older freighters are 7% of total net book value
Younger freighter fleet is 9% of total net book value
Five factory-built 747-400s; weighted average remaining lease term of four years
Good customer quality
* Percentage of net book value. Figures as of March 31, 2014. Weighted average remaining lease term is weighted by total NBV.
C i l S P f li P f
-
8/10/2019 AYR Investor Day May 2014
48/70
Consistently Strong Portfolio Performance
Portfolio utilization of 98-99% and rental yield of ~14% over past six years
Q1:14 utilization of 98.9% and rental yield of 13.5%
Yield reflecting impact of investments in newer wide-body aircraft with long leases
1. Aircraft on-lease days as a percent of total days in period weighted by NBV.
2. Calculated as lease rental revenue / average NBV of flight equipment for the period. Rental revenue does not include maintenance revenue.
Diversification and active asset management drive results
6%
7%
8%
9%
10%
11%
12%13%
14%
15%
16%
80%
82%
84%
86%
88%
90%
92%94%
96%
98%
100%
Q10
7
Q20
7
Q30
7
Q40
7
Q10
8
Q20
8
Q30
8
Q40
8
Q10
9
Q20
9
Q30
9
Q40
9
Q11
0
Q21
0
Q31
0
Q41
0
Q11
1
Q21
1
Q31
1
Q41
1
Q11
2
Q21
2
Q31
2
Q41
2
Q11
3
Q21
3
Q31
3
Q41
3
Q11
4
Utilization Yield
Historical Revenue Utilization1and Yield2
48
-
8/10/2019 AYR Investor Day May 2014
49/70
Financing Markets Update
49
Very Attractive Aviation Financing Markets
-
8/10/2019 AYR Investor Day May 2014
50/70
Very Attractive Aviation Financing Markets
20-year average: 9.84%
% of time below current level: 0.29%
Source: J.P. Morgan High Yield Research.
JPM High Yield Index Yield to Worst (Spread to Worst data in call out boxes )
5%
7%
9%
11%
13%
15%
17%
19%
21%
May-86 May-90 May-94 May-98 May-02 May-06 May-10 May-14
J.P. Morgan Global High Yield Index Yield to Worst All-time high YTW: 20.9%
All-time high STW: +1,925 bps
Previous all-time low YTW (1/5/05): 6.95%
Current YTW: 5.58%Current STW: +437bps
Previous low YTW (5/11/11): 6.75%
Previous all-time low YTW (3/15/13): 5.83%
All-time low YTW (5/8/13): 5.24%
Historical Rate Lows Driving Markets
Rates continue to be very low in historical terms driving the search for yield
Since 1980, 5-year and 10-year Treasury only lower < 10% of the time
Aviation Sector Seen As Good Diversification Play
Both traditional and non traditional lenders expanding lending envelope
50
G i C it l M k t R l I A i ti Fi i
-
8/10/2019 AYR Investor Day May 2014
51/70
Ample Access To Bond Markets
Both airlines and lessors have tapped markets aggressively
Secured and unsecured deals across range of instruments (EETCs, ABS, EXIM/ECA
bonds)
Foreign airline EETC issuance ~$3.1 billion vs $5.0 billion + domestic EETCs
Source: Bloomberg, Press Releases.
2,3004,955 6,245
8,910 9,652
3,349
3,712
10,7015,657
10,558
21,498
5,534
1,401
2,859
5,127
5,214
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2009 2010 2011 2012 2013 2014YTD
Unsecured Secured Ex-Im ABS
Growing Capital Markets Role In Aviation Financing
51
Aviation Capital Markets Issuance Hit Record Levels in 2013
Other Market Observations
-
8/10/2019 AYR Investor Day May 2014
52/70
Other Market Observations
52
Lessors Take Full Advantage of Robust Capital Market Conditions
Since 2010, $22 billion+ in unsecured issuance by lessors
Asset-based lending less relevant as credit markets fill the gap Decoupling of ratings from trading / issuance levels
Aviation Bank Market Returning
Core aviation lenders (European, Asian and some US banks) stepping up lending
Basel compliance resulting in overweighting of credit factors (vs. asset)
Regional banks motivated by relationship lending adding capacity
Diminishing Export Credit Influence on New Delivery Financing
Volumes dropped from high of 31% ($29.5 billion) to estimated 15% ($16.8billion) in 2014
Combined impact of robust credit markets and higher cost of ECA guarantee
Reducing margins (from high of ~130bps to ~40bps) also a factor
Aircastles Proven Access To Multiple Forms Of Debt Financing
-
8/10/2019 AYR Investor Day May 2014
53/70
AircastlesProven Access To Multiple Forms Of Debt Financing
53
Unsecured Bonds
$900 million in two issuances since 2013 ($2.65 billion in total since 2010)
Significant reduction in incremental cost of financing since 2010 (~400 bps)
Significantly expanded institutional investor base
Expanded Unsecured Revolving Credit Facility
$450 million / four year facility
Nine international banks
Multiple Secured Bank Financings
In excess of $700 million in nine separate financings (including Teachers JV
financing)
Six core aviation bank lenders
ECA Bond Market
Refinanced ECA bank facility into bond market
Integrated acquisition and growth capital strategy
Debt Mix and Unencumbered Asset Trend
-
8/10/2019 AYR Investor Day May 2014
54/70
Debt Mix and Unencumbered Asset Trend
54
$ millions
$ millions
Debt Mix
Capital structure reshaped given strong conditions and market validation
1. Unencumbered Assets include cash and cash equivalents.
85%
51%
42%
15%
49%
58%
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
12/31/09 12/31/10 12/31/11 12/31/12 12/31/13
Secured Debt % Unsecured Debt % Unencumbered Assets
Joint Venture With Ontario Teachers Pension Plan
-
8/10/2019 AYR Investor Day May 2014
55/70
Joint Venture With Ontario Teachers Pension Plan
Formed joint venture with Teachers in late 2013
Aircastle owns 30% of the equity, Teachers 70%
Non-recourse debt to fund 65-70% of aircraft acquisitions
Target $1 billion in aviation assets
Aircastle servicing the portfolio
Key benefits and rationale
Enables Aircastle to pursue larger ticket transactions
Partner with sophisticated long-term minded investor
Leverages platforms asset management skills
Helps with concentration risk
55
-
8/10/2019 AYR Investor Day May 2014
56/70
Capital Structure and Financial Performance
56
Capital Allocation Framework: Shareholder Return Focused
-
8/10/2019 AYR Investor Day May 2014
57/70
Capital Allocation Framework: Shareholder Return Focused
Balanced approach to capital allocation:
1. Acquire incremental assets and prune low
margin assets to drive higher cash returnsover time
$4.0 billion of total aircraft investments from
2011 through Q1:14; NBV of flight equipment
up approximately $1.4 billion
2. Provide regular quarterly return of capitalto shareholders
$157 million of dividends paid from 2011
through Q1:14
3. Opportunistically use share repurchases
Share repurchases of $138.5 million since
2011 at an average price of $11.87 per share
57
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
1/1/2011 1/1/2012 1/1/2013 1/1/2014
Through 05-07-2014, AYRs TSR from 01-01-
2011 was +92.3%
Source: Bloomberg. Total Shareholder Return (TSR) includes gross dividends plus
share price appreciation from January 1, 2009 through the close on May 7, 2014.
Transformed Capital Structure and Reduced Cost of Debt
-
8/10/2019 AYR Investor Day May 2014
58/70
Transformed Capital Structure and Reduced Cost of Debt
5.57%
5.80%
5.81%
5.22%
5.37%
4.63%
4.00%
4.20%
4.40%
4.60%
4.80%
5.00%
5.20%
5.40%
5.60%
5.80%
6.00%
0
500
1,000
1,500
2,000
2,500
3,000
2009 2010 2011 2012 2013 Q1:14
W
g
e
A
a
n
e
e
R
e
m
o
Unsecured Debt Secured Debt Equity Weighted Average Rate
58
Unsecured Debt is 57% of Total Debt Pro-Forma March, 31, 2014
1. Weightedaverageratereflectsfixedratesforallunsecuredbondsandallfixedratesecureddebt.ForSecuritizationNo.2,reflectsfixedswaprateineffectplusmarginatperiodend.
2. Debtandequitybalancesareasofperiodend.Q1:14debtandequityarepro-formaandreflectstheredemptionof$450millionof9.75%onApril25,2014.
2
1
Strong Revenue and Cash Generation
-
8/10/2019 AYR Investor Day May 2014
59/70
Strong Revenue and Cash Generation
$362
$542
$511$531
$580
$632 $661
$679
$339
$544$530
$507
$608$648
$717 $719
$200
$300
$400
$500
$600
$700
$800
2007 2008 2009 2010 2011 2012 2013 LTM
$millions
Lease Rental Revenue Adj. EBITDA
59
Lease revenue growth tracks net growth in flight equipment
Consistent lease rental revenue drives strong cash flow and Adjusted EBITDA
Lease Rental Revenue and Adj. EBITDA2
1. Note: See appendix for reconciliation of GAAP to Non-GAAP figures.
Revenue Composition by Quarter
-
8/10/2019 AYR Investor Day May 2014
60/70
Revenue Composition by Quarter
Increasing operating and finance lease revenues reflects fleet growth
Maintenance and other revenue levels are volatile and driven by the timing of
lease expirations
60
$ millions Q2:12 Q3:12 Q4:12 Q1:13 Q2:13 Q3:13 Q4:13 Q1:14
Operating & Finance Lease Rev $154.6 $163.1 $162.0 $160.5 $162.0 $165.3 $173.3 $178.3
1. Q1:14 maintenance revenue includes $16.4 million of contra maintenance revenue.
$ millions Q2:12 Q3:12 Q4:12 Q1:13 Q2:13 Q3:13 Q4:13 Q1:141
Amortization of Net Lease
Discounts and Incentives$2.0 ($6.8) ($6.5) ($7.1) ($8.7) ($9.7) ($6.9) ($6.6)
Maintenance Revenue1 $13.5 $10.9 $16.2 $16.9 $13.2 $12.9 $25.4 $3.0
Other Revenue $2.0 $5.7 $4.9 $5.9 $3.9 $1.6 $0.2 $1.8
P&L Impact of Transactional Impairments Has Been Net Positive
-
8/10/2019 AYR Investor Day May 2014
61/70
P&L Impact of Transactional Impairments Has Been Net Positive
What is a transactional impairment?
Typically driven by the sell / reinvest decision at lease expiry
The financial reporting elements flow through different P&L items as follow:
Revenue: MX revenue / LI reversals / Other revenuerelease of liability accounts
Impairment charge: difference between sale value today and NBV of flight equipment
When considered across these various elements, these have had a modest overall
incremental P&L impact
61
$ millions 2012 2013 Q1:14 Total
Maintenance Revenue $20.1 $28.2 $17.2 $65.4
Other Revenue 1.2 1.8 -- 2.9
Transactional Impairments (29.1) (19.7) (18.3) (67.1)
Net P&L Impact $(7.9) $10.2 $(1.1) $1.3
# of Aircraft 5 5 3 13
Cash Returns Illustrate a Consistently Strong Underlying Business
-
8/10/2019 AYR Investor Day May 2014
62/70
Cash Returns Illustrate a Consistently Strong Underlying Business
2007 2008 2009 2010 2011 2012 2013 LTM
GAAP ROE 13.2% 9.6% 8.5% 5.0% 9.0% 2.3% 1.9% 0.8%
Cash ROE 13.2% 11.5% 9.9% 10.9% 11.4% 11.8% 12.1% 11.8%
0%
2%
4%
6%
8%
10%
12%
14%
16%
ReturnonAverageShareholdersEquity
62
Maintenance revenue, non-cash interest expense and other non-cash charges
contribute to GAAP ROE1volatility
1. Net income as reported, divided by average shareholders equity.
2. Cash ROE = Cash Flow From Operations plus collections on finance leases and gain (loss) on sale of flight equipment less depreciation plus distributions received from our Joint Venture with
Ontario Teachers, divided by average shareholders equity.
3. Includes contra maintenance revenue of $16.4 million in Q1:14.
NOTE: See appendix for GAAP to Non-GAAP reconciliation.
2
1
3
Among Industrys Highest Net Interest Margins
-
8/10/2019 AYR Investor Day May 2014
63/70
Among Industry s Highest Net Interest Margins
13.5%
13.9%
13.8%
13.8%
13.6%
13.5%
9.6%
9.9%
9.7%
9.8%
9.4%
9.5%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
Q4:09
Q1:10
Q2:10
Q3:10
Q4:10
Q1:11
Q2:11
Q3:11
Q4:11
Q1:12
Q2:12
Q3:12
Q4:12
Q1:13
Q2:13
Q3:13
Q4:13
Q1:14
Lease Rental Yield Net Interest Margin
63
Stable Lease Rental Yields and Net Interest Margins
1. Lease Rental Yield = Operating lease rental revenue / average NBV of flight equipment for the period calculated on a rolling 12 month basis.
2. Net Interest Margin = Lease Rental Yield minus Interest on borrowings, net of settlements on interest rate derivatives, and other liabilities / average NBV of flight equipment for the period
calculated on a rolling 12 month basis.
1 2
Changing fleet mix over last few years produces slightly lower revenue yields, but
Proactive liability management results in very attractive net interest margins
Cash Earnings Growth Driving Dividends
-
8/10/2019 AYR Investor Day May 2014
64/70
Cash Earnings Growth Driving Dividends
$128 $138$119
$143$156
$167
$186$193
$0
$50
$100
$150
$200
$250
2007 2008 2009 2010 2011 2012 2013 LTM
$millions
Cash Earnings Dividends Paid Repurchases
64
Dividends increasing with cash earnings1. Cash Earnings = Cash Flow From Operations plus collections on finance leases and gain (loss) on sale of flight equipment less depreciation plus distributions received from our Joint Venture
with Ontario Teachers.
NOTE: See appendix for GAAP to Non-GAAP reconciliation.
Share repurchases from 2011 - 13 totaled $138.5 million
Average price of $11.87 per share
AircastleSummary
-
8/10/2019 AYR Investor Day May 2014
65/70
y
Value oriented strategy responsive to market dynamics
Global customer base well diversified across lessees
Effective portfolio management aligned with proactive risk management
Risk resilient model through cycles: stable cash flow supported by conservative, flexible long-
term capital structure
Strong financial track record: focused on increasing cash returns
Shareholder focused orientation
32 consecutive quarterly dividends
Through Q1:14, nearly $650 million of capital returned to shareholders via dividends and repurchases
World class management team
65
Capitalize on our disciplined and differentiated approach
-
8/10/2019 AYR Investor Day May 2014
66/70
Non-GAAP Reconciliation Pages
Appendices
66
Adjusted EBITDA Reconciliation
-
8/10/2019 AYR Investor Day May 2014
67/70
j
67
Year Ended December 31,
$ thousands 2007 2008 2009 2010 2011 2012 2013 LTM
Net income $127,344 $115,291 $ 102,492 $65,816 $124,270 $32,868 $29,781 $12,494
Depreciation 126,403 201,759 209,481 220,476 242,103 269,920 284,924 288,951
Amortization of net lease premiums (discounts)and lease incentives
(7,379) (1,815) 11,229 20,081 16,445 12,844 32,411 31,921
Interest, net 92,660 203,529 169,810 178,262 204,150 222,808 243,757 248,868
Income tax provision 7,658 7,541 8,660 6,596 7,832 7,845 9,215 6,514
Discontinued operations, net of income taxes (12,941) - - - - - - -
EBITDA $333,745 $526,305 $501,672 $491,231 $594,800 $546,285 $600,088 $588,748
Mark-to-market (income) expense ofundesignated interest rate derivatives
(1,154) 11,446 (959) 860 848 (597) (4,754) (4,220)
Share based payment expense 6,674 6,529 6,868 7,509 5,786 4,232 4,569 4,748
Impairment of aircraft - - 18,211 7,342 6,436 96,454 117,306 129,370
Contract termination expense - - 4,000 - - 1,248 - -
Adjusted EBITDA $339,265 $544,280 $529,792 $506,942 $607,870 $647,622 $717,209 $718,646
We define EBITDA as income from continuing operations before income taxes, interest expense, and depreciation and amortization. We use EBITDA to assess our consolidated financial and
operating performance, and we believe this non-GAAP measure is helpful in identifying trends in our performance. Using EBITDA assists us in comparing our operating performance on a
consistent basis by removing the impact of our capital structure (primarily interest charges on our outstanding debt) and asset base (primarily depreciation and amortization) from our
operating results. We define Adjusted EBITDA as EBITDA (as defined above) further adjusted to give effect to adjustments required in calculating covenant ratios and compliance as that
term is defined in the indenture governing our senior unsecured notes. Adjusted EBITDA is a material component of these covenants.
Reconciliation of GAAP to Non-GAAP MeasuresOperating Cash Flow
-
8/10/2019 AYR Investor Day May 2014
68/70
p g
68
($ thousands) 2007 2008 2009 2010 2011 2012 2013 LTM
Net cash provided by operating activities $ 243,236 $ 333,626 $ 327,641 $ 356,530 $ 359,377 $ 427,277 $ 424,037 $ 434,281
Collections on Finance Leases - - - - - 3,852 9,508 10,436
Operating Cash Flow $ 243,236 $ 333,626 $ 327,641 $ 356,530 $ 359,377 $ 431,129 $ 433,545 $ 444,717
Management believes that Operating Cash Flow when viewed in conjunction with the Companys results under US GAAP and the above reconciliation, provide useful information about
operating and period-over-period performance, and provide additional information that is useful for evaluating the underlying operating performance of our business without regard to
periodic reporting elements related to non-cash revenue and expense items and interest rate derivative accounting.
Reconciliation of GAAP to Non-GAAP MeasuresCash Earnings and Cash ROE
-
8/10/2019 AYR Investor Day May 2014
69/70
69
Note:AverageShareholdersEquityisthesumofthecurrentperiodendshareholdersequityandprioryearendshareholdersequitydividedbytwo.Managementbelievesthatthecashreturnon
equitymetric(CashROE)whenviewedinconjunctionwiththeCompanysresultsunderUSGAAPandtheabovereconciliation,provideusefulinformationaboutoperatingandperiod-over-period
performance,andprovideadditionalinformationthatisusefulforevaluatingtheunderlyingoperatingperformanceofourbusinesswithoutregardtoperiodicreportingimpactsrelatedtonon-cash
revenueandexpenseitemsandinterestratederivativeaccounting,whilerecognizingthedepreciatingnatureofourassets.
$ in thousands 2007 2008 2009 2010 2011 2012 2013 LTM
Net cash provided by operating activities $ 243,236 $ 333,626 $ 327,641 $ 356,530 $ 359,377 $ 427,277 $ 424,037 $ 434,281
Collections on Finance Leases - - - - - 3,852 9,508 10,436
Gain on Sale of Flight Equipment 11,566 6,525 1,162 7,084 39,092 5,747 37,220 37,138
Less: Depreciation (127,164) (201,759) (209,481) (220,476) (242,103) (269,920) (284,924) (288,951)
Distributions Received from Joint Venture - - - - - - - 388
Cash Earnings $ 127,638 $ 138,392 $ 119,322 $ 143,138 $ 156,366 $ 166,956 $ 185,841 $ 193,292
Average Shareholder's Equity $965,887 $1,203,372 $1,201,702 $1,316,978 $1,373,663 $1,410,117 $1,530,516 $1,644,413
Cash Earnings / Average Shareholder's Equity 13.2% 11.5% 9.9% 10.9% 11.4% 11.8% 12.1% 11.8%
Net Income $127,344 $115,291 $102,492 $65,816 $124,270 $32,868 $29,781 $12,493
Net Income / Average Shareholder's Equity 13.2% 9.6% 8.5% 5.0% 9.0% 2.3% 1.9% 0.8%
Limitations of EBITDA, Adjusted EBITDA, Cash ROE and Operating Cash Flow
-
8/10/2019 AYR Investor Day May 2014
70/70
An investor or potential investor may find EBITDA, Adjusted EBITDA , Cash ROE and Operating Cash Flow important measures in
evaluating our performance, results of operations and financial position. We use these non-US GAAP measures to supplement our
US GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.
EBITDA, Adjusted EBITDA, Cash ROE and Operating Cash Flow have limitations as analytical tools and should not be viewed in
isolation or as substitutes for US GAAP measures of earnings. Material limitations in making the adjustments to our earnings tocalculate EBITDA, Adjusted EBITDA, Cash ROE and Operating Cash Flow, and using these non-US GAAP measures as compared to
US GAAP net income, income from continuing operations and cash flows provided by or used in operations, include:
depreciation and amortization, though not directly affecting our current cash position, represent the wear and tear and/or
reduction in value of our aircraft, which affects the aircrafts availability for use and may be indicative of future needs for
capital expenditures;
the cash portion of income tax (benefit) provision generally represents charges (gains), which may significantly affect our
financial results;
elements of our interest rate derivative accounting may be used to evaluate the effectiveness of our hedging policy;
hedge loss amortization charges related to Term Financing No. 1; and
adjustments required in calculating covenant ratios and compliance as that term is defined in the indenture governing our
senior unsecured notes.
EBITDA, Adjusted EBITDA, Cash ROE and Operating Cash Flow are not alternatives to net income, income from operations or cash
flows provided by or used in operations as calculated and presented in accordance with US GAAP. You should not rely on these
non-US GAAP measures as a substitute for any such US GAAP financial measure. We strongly urge you to review the
reconciliations to US GAAP net income, along with our consolidated financial statements included elsewhere in our Annual
Report. We also strongly urge you to not rely on any single financial measure to evaluate our business. In addition, because
EBITDA, Adjusted EBITDA, Cash ROE and Operating Cash Flow are not measures of financial performance under US GAAP and are
susceptible to varying calculations, EBITDA, Adjusted EBITDA, Cash ROE and Operating Cash Flow as presented here, may differ
from and may not be comparable to, similarly titled measures used by other companies.