Aircastle's Q2 income falls on $36.6m in refinancing fees

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Aircastle’s second quarter net income totalled $3.1 million, down $29.7 million from the year-earlier period, due to redemption expenses of $36.6 million tied to the refinancing of $450 million in senior unsecured notes.

Lower net gains from the sale of aircraft of $20.4 million and higher aircraft impairment charges of $28.3 million were partially offset by higher total revenues of $226.1 million, says the lessor in an earnings statement.

Total revenues increased by 33%, reflecting higher operating and finance lease revenue of $25.1 million, and higher maintenance revenues of $23 million and lower amortisation of net lease discounts and incentives in the quarter.

Operating and finance lease revenues were $187.1 million, up 15% year-over-year, due primarily to the impact of aircraft acquisitions of $51.2 million, partially offset by lower revenues on aircraft dispositions of $20.3 million.

Commenting on the results, Ron Wainshal, Aircastle's chief executive officer, says, "Our second quarter 2014 results were strong as we reported 15% lease rental revenue growth versus last year. Our net interest margin was 9.7%, which was among the highest in the industry, and represented 23% year-over-year growth in dollar terms.”

Aircastle has continued to meet its “high-yield and profitability” targets, he says, completing $916 million of accretive investments, committing an additional $490 million to aircraft acquisitions and pursuing new opportunities.

The lessor also sold during the quarter 17 aircraft and, designated for sale, two freighters for a net pre-tax income of $8.2 million.

Aircastle's chief financial officer, Mike Inglese, adds:"We've made great strides improving our capital structure, enhancing the company's competitive position. In that regard, we are particularly pleased to have lowered our cost of capital by replacing 9.75% coupon debt with new, longer term 5.125% notes, reducing interest expense by approximately $21 million per annum and further supporting cash flow generation for years to come."

Adjusted EBITDA for the second quarter was $211.7 million, up $28.2 million, or 15% from the second quarter of 2013. The increase was primarily driven by higher lease rental and finance lease revenue and higher maintenance revenue, partially offset by lower net gain on the sale of flight equipment of $20.4 million.

The second quarter of 2013 included a $23.6 million gain from the sale of three A330-200 freighter aircraft.

Assets

During the first-half of the year to 30 June, Aircastle acquired 11 aircraft and two engines for $915.9 million. Seven aircraft, which were less than five years old, accounted for $818.9 million of this total.

Aircastle had commitments to acquire seven additional aircraft for approximately $490 million at quarter-end. It expects to acquire three of these aircraft for approximately $117 million during the third quarter.

The four other aircraft are Boeing 777-300ERs to be purchased from and leased back to LATAM once the existing financings are repaid. This transaction should close during the first half of 2015, says the lessor.

During the first six-months, Aircastle sold 23 aircraft, including four freighters and eleven older aircraft, for $246 million and repaid $20.2 million in associated debt. Of these, 17 aircraft were sold during the second quarter.

In addition to these completed sales, Aircastle also disposed of one Boeing 747-400 converted freighter early in July and designated two other 747-400 converted freighter aircraft that its intend to sell by the end of this year.

In late March 2014, Aircastle issued $500 million of 5.125% senior unsecured notes due in 2021. On April 25, 2014, it used the proceeds from this issue to redeem $450 million of 9.75% senior unsecured notes that were due in 2018.

In connection with the redemption of the 9.75% notes, it recorded a $36.6 million debt extinguishment expense, which included a $32.8 million call premium that was paid to the holders of the notes on 25 April.

Aircastle ended the quarter with 148 aircraft with a net book value of $5.7 billion.