Aircastle swings to Q3 loss on aircraft impairment charges

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Aircastle reported a net loss of $45.8 million for the third quarter versus net income of $22.7 million in year-earlier period, primarily due to non-cash impairment charges of $78.7 million against 15 older aircraft.

In a third quarter earnings statement today, Aircastle says the impairment charges reflect its current estimate of future lease rates and residual values associated with the 15 aircraft in the current environment. The aircraft represent approximately 1.7% of the net book value of the lessor's flight equipment.

"We concluded that these assets will not recover from their current market levels and, accordingly, have been written down," says Aircastle.

Partially offsetting the charges are $10.2 million of maintenance revenue and $1.2 million of lease incentive benefit received from the early termination of leases associated with two impaired, older generation Airbus A320-200 aircraft. Aircastle says it expect to part-out the aircraft at their reduced carrying value.

Total revenues were $172.9 million, an increase of 22%, versus the third quarter of 2011. This increase reflects $13.7 million of higher lease rental revenue, $10.9 million in higher maintenance revenue associated with the early termination of leases on two aircraft that were impaired during the quarter, and higher other revenues of $8.9 million.

Commenting on the results, Ron Wainshal, Aircastle's chief executive officer, says: "Aircastle's third quarter operating results were strong despite a difficult economic environment. We grew our lease rental revenues 9%, achieved portfolio utilization of 99%, and generated sizeable operating cash flows. With our strong investment origination capabilities and ability to access the unsecured bond market at today's attractive levels, we are positioned to capitalize on opportunities that generate strong returns on equity."

Lease rental revenue for the third quarter was $159.5 million, up $13.7 million. Including revenue from its finance leases of $3.5 million, total lease revenues increased 12%.

Adjusted EBITDA for the third quarter was $166.3 million, up 18% from the third quarter of 2011, as higher lease rental revenues of $13.7 million, and higher maintenance and total other revenues of $19.8 million were partially offset by lower gains from the sale of aircraft of $9 million.

Aircastle says it has invested approximately $610 million in aircraft and aircraft-secured debt investments consisting of 18 aircraft and one secured loan. Approximately $120 million of these investments were closed during the third quarter. It also entered into commitments for approximately $170 million of additional aircraft, which have closed or are due to close during the fourth quarter.

During the third quarter Aircastle disposed of one Boeing 737-300 aircraft following its scheduled lease expiration, and also finalised the part-out of a Boeing 747-400 that was originally planned to be converted to a freighter aircraft.

It also expects to part-out two Airbus A320 classic aircraft that were included in the third quarter non-cash impairment charge.

At quarter end. Aircastle owned 157 aircraft with a net book value of $4.7 billion. Of these, 70 aircraft with a net book value of $2 billion are unencumbered.

On 5 November, Aircastle increased its share repurchase approval by an additional $28.5 million, bringing the current authorisation to $50 million.