MRO Magazine

Avolon: 2014 Fourth Quarter and Full Year Results


March 3, 2015
By Business Wire News

DUBLIN

Avolon (NYSE: AVOL), the international aircraft leasing company, today announced results for the 2014 fourth quarter (“Q4”) and full year (“FY”).

2014Full Year | Financial Highlights

  • Adjusted Net Income growth of 43% to $179 million1; Net Income of $91 million
  • Year on year revenue growth of 35% to $606 million
  • Sold nine aircraft in 2014 recording a total gain of $64 million
  • 282 basis point increase in Adjusted Return on Equity to 12.5%; Return on Equity of 6.4%
  • Undrawn debt of $1.2 billion at year-end and reduction in average interest rate2 by 60 basis points to 3.8%

2014 Fourth Quarter & Full Year | Key Performance Measures

   Three Months Ended
December 31
     Twelve Months Ended
December 31
$’000 except where indicated2013  2014      2013  2014
Total Revenue 124,065   172,729       449,773   606,018
Net Income 19,638 (13,078) 112,800 91,103
Per Common Share – Diluted ($) 0.25 (0.17) 1.44 1.16
Adjusted Net Income1 27,827 48,547 125,151 178,994
Per Common Share1 – Adjusted ($) 0.34   0.59       1.53   2.19

1 Throughout this release, we use adjusted metrics. See Non-GAAP reconciliation for the three months and the twelve months ended December 31, 2014 on page 8 together with reconciliation for 2015 guidance. 2 Annualised Cost of Funds at December 31, 2014 does not include the effect of up-front fees, undrawn fees, issuance cost amortization or fair value gains / losses on derivative financial instruments.

2014 Full Year | Portfolio Highlights

  • Delivery of 41 owned and managed aircraft; sale of nine aircraft
  • Sustaining industry leading fleet and lease profile: average age of owned fleet is 2.5 years while average remaining lease term is 7.1 years

2015 | Outlook

  • All deliveries for 2015 placed; sustained progress in aircraft trading activity year-to-date
  • 69% year-on-year increase in total commitments to $6.6 billion at end of 2014 providing substantial ‘locked-in’ growth for the business in years ahead
  • Current expectation for 2015 is to deliver $1.6 billion of aircraft commitments and $700 million of aircraft trading volume – delivering an adjusted Return on Equity of 14.7% to 15.0%1 or a Return on Equity of 12.8% to 13.1%

Dómhnal Slattery, Avolon, CEO commented:

“Avolon delivered a strong performance against key financial and operating metrics in 2014. Revenue increased 35% year-on-year and our adjusted net income increased 43%. The strength of this performance is due to the strong growth in our fleet, our reducing cost of funding balanced origination model and consistent ability to deliver trading gains underpinned by what we believe is the industry’s leading risk-management system.”

“At the end of 2014, the embedded market value in our fleet, according to independent industry appraisers, was $568 million. This significant premium highlights the intrinsic value of the Avolon business and reflects our industry leading aircraft portfolio, our ability to acquire and trade assets at attractive prices and our robust underwriting criteria and asset risk management processes.”

“We are excited about the prospects for our business. We believe we have the right team and right business model, underpinned by a best-in-class risk management system, to continue to deliver superior growth with lower risk, which will in turn drive returns for our shareholders.”

______

2014 Fourth Quarter Performance

Total revenue increased by $49 million, or 39%, to $173 million for the fourth quarter compared to $124 million for the same period in 2013. Adjusted Net Income increased by $21 million, or 74%, to $49 million for the quarter compared to $28 million for same period in 2013. Net Income for the fourth quarter was a loss of $13 million reflecting the one-off costs associated with the initial public offering and share-based compensation charges.

2014 Full Year Performance

Total revenue increased by $156 million, or 35%, to $606 million for 2014 full year compared to $450 million for 2013. Adjusted Net Income increased by $54 million, or 43%, to $179 million for the full year compared to $125 million for the prior year. Net Income for the 2014 full year was $91 million compared to $113 million in 2013.

Balance Sheet at the end of 2014

Aircraft Net Book Value at the end of 2014 was $5,607 million, an increase of $1,347 million or 32% on 2013. Total debt at the end of 2014 was $4,548 million. At the year-end, Avolon also had $1,176 million of undrawn debt facilities. The weighted average interest rate of outstanding debt at the end of December was 3.8% and the weighted average remaining debt maturity was 4.6 years.

Annual Report on Form 20-F

Avolon’s 2014 full year financial performance is set out in detail in the company’s Annual Report which will be available from today, March 3, 2015, on the investor relations section of the website: www.avolon.aero

Conference Call and Webcast

Avolon will host a conference call and live webcast at 9.00am ET (2.00pm GMT) today, March 3, 2015. Dial in details are outlined below and the webcast will be available on: www.avolon.aero

US: +1 718 873 9077

Europe: +44 203 139 4830

Asia: +86 400 681 5421

Passcode: 12469046#

A copy of the related slide presentation is available on the Avolon website. An audio archive and transcript of the event will be available on the website shortly following the call. A conference call replay will also be available for 30 days on US: 1 866 535 8030 or UK: +44 20 3426 2807. Passcode is 654161#.

Avolon Portfolio at the end of 2014

   2013  2014
Owned aircraft   99   126
Managed aircraft 10 11
Committed aircraft   73   98
Total   182   235
 
Average age of owned fleet* (years) 2.4 2.5
Average remaining lease term* (years) 7.0 7.1
Net Book Value of owned aircraft ($ million)   $4,260   $5,607

*Weighted by net book value.

Avolon Owned Managed and Committed Portfolio at the end of 2014

Aircraft Type  Owned  Managed  Committed  Total
A319   1       1
A320ceo 46 3 10 59
A321ceo 7 1 3 11
A320neo 20 20
A330neo 15 15
A330-200/300   11       11
B737-800 51 3 19 73
B737 MAX 20 20
B787-8/9 1 11 12
Boeing B777-300ER 3 3
B777-200LRF     4     4
E190   6       6
   126  11  98  235

About Avolon Holdings Limited (“Avolon”)

Headquartered in Ireland, with offices in the United States, Dubai, Singapore and China, Avolon provides aircraft leasing and lease management services. Avolon has an owned, managed and committed fleet of 235 aircraft serving 49 customers in 28 countries as of December 31, 2014. Avolon is listed on the New York Stock Exchange, under the ticker symbol AVOL.

www.avolon.aero

Note Regarding Forward-Looking Statements

This document includes forward-looking statements, beliefs or opinions, including statements with respect to Avolon’s business, financial condition, results of operations and plans. These forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond our control and all of which are based on our management’s current beliefs and expectations about future events. Forward-looking statements are sometimes identified by the use of forward-looking terminology such as “believe,” “expects,” “may,” “will,” “could,” “should,” “shall,” “risk,” “intends,” “estimates,” “aims,” “plans,” “predicts,” “continues,” “assumes,” “positioned” or “anticipates” or the negative thereof, other variations thereon or comparable terminology or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. Forward-looking statements may and often do differ materially from actual results. No assurance can be given that such future results will be achieved.

These risks, uncertainties and assumptions include, but are not limited to, the following: general economic and financial conditions; the financial condition of our lessees; our ability to obtain additional capital to finance our growth and operations on attractive terms; decline in the value of our aircraft and market rates for leases; the loss of key personnel; lessee defaults and attempts to repossess aircraft; our ability to regularly sell aircraft; our ability to successfully re-lease our existing aircraft and lease new aircraft; our ability to negotiate and enter into profitable leases; periods of aircraft oversupply during which lease rates and aircraft values decline; changes in the appraised value of our aircraft; changes in interest rates; competition from other aircraft lessors; and the limited number of aircraft and engine manufacturers. These and other important factors, including those discussed under “Item 3. Key Information—Risk Factors” included in our Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission on March 3, 2015, may cause our actual events or results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements contained in this document. Such forward-looking statements contained in this document speak only as of the date of this document. We expressly disclaim any obligation or undertaking to update these forward-looking statements contained in this document to reflect any change in our expectations or any change in events, conditions, or circumstances on which such statements are based unless required to do so by applicable law.

The financial information included herein includes financial information that is not presented in accordance with generally accepted accounting principles in the United States (“GAAP”), including adjusted net income, adjusted earnings per share and adjusted return on equity. The reconciliation below includes a reconciliation of adjusted net income, adjusted earnings per share and adjusted return on equity with the most directly comparable financial measures calculated in accordance with GAAP.

More detailed information about these and other factors is set forth in the Annual Report on Form 20-F which is available on the Avolon website, www.avolon.aero and has also been filed with the U.S. Securities and Exchange Commission.

Avolon Holdings Limited

Consolidated Balance Sheets (Audited) December 31, 2013 and 2014

(In US$ thousands except share and per share data)

 2013  2014
Assets  
Cash and cash equivalents 177,924 111,392
Restricted cash 256,426 195,095
Accounts receivable 6,763 11,010
Assets held for sale 127,227
Flight equipment, net 4,133,185 5,606,556
Derivative financial assets 20,011 8,137
Deposits on flight equipment 206,781 199,514
Deferred issuance costs, net 85,050 105,952
Deferred income taxes 19,431 18,996
Investment in unconsolidated equity investees 5,917 16,453
Loan receivables 10,338
Other assets 21,425 53,002
Total Assets including US$5,047,967 as of December 31, 2013 and US$6,326,107 as of December 31, 2014, representing collateral of VIE entities)5,070,4786,326,107
 
Liabilities, Temporary Equity and Shareholders’ Equity
Accounts payable 1,748 203
Accrued expenses and other liabilities 26,421 27,223
Income tax payable 303 434
Deferred revenue 27,472 35,193
Accrued maintenance liabilities 126,549 180,526
Lease deposits liability 44,943 82,677
Debt financing (including debt financing of VIEs of US$1,839,781 as of December 31, 2013, US$1,385,762 as of December 31, 2014, that do not have recourse to the general credit of the Company) 3,442,749 4,465,187
Capital lease obligations 94,043 83,261
Deferred income taxes 12,131 17,006
Derivative financial liabilities 368 1,400
Total Liabilities3,776,7274,893,110
Commitments and contingencies (Note 19)
Temporary Equity
Class A Common Stock, US$0.01 par value; at accreted distribution value:
Authorized: 673,531 shares; Issued and outstanding 673,531 shares at December 31, 2013 2,536
 
Liabilities, Temporary Equity and Shareholders’ Equity (continued)
Class B Common Stock, US$0.01 par value; at accreted distribution value:
Authorized: 11,400,234 shares; Issued and outstanding:

11,400,234 shares at December 31, 2013

1,281,937
Class C Common Stock, US$0.01 par value; at accreted distribution value:
Authorized: 50,766,000 shares; Issued and outstanding:

50,766 shares at December 31, 2013

580

Shareholders’ Equity

Common shares, US$0.000004 par value    
Authorized: 750,000,000; Issued and outstanding:

81,681,131 shares at December 31, 2014

Additional paid-in-capital 1,421,864
Preference shares, US$0.001 par value
Authorized: 250,000,000; Issued and outstanding:

nil at December 31, 2014

Legal reserve 8,698
Retained earnings 11,133
Total Shareholders’ Equity8,6981,432,997
Total Liabilities, Temporary Equity and Shareholders’ Equity5,070,4786,326,107

The accompanying notes are an integral part of these consolidated financial statements.

Avolon Holdings Limited

Unaudited Condensed Consolidated Statements of Comprehensive Income

Three and twelve months ended December 31, 2013 and 2014

(In US$ thousands, except per share data)

 Three months ended
December 31,
 Twelve months ended
December 31,
Revenues2013  2014  2013  2014
Lease revenue 112,544 158,873 415,006 537,547
Management fee revenue 362 1,971 2,468 3,366
Net gain on disposal of flight equipment 10,804 11,841 31,051 64,409
Interest income 355 44 1,248 696
Total revenues124,065172,729449,773606,018
 
Expenses
Depreciation (39,554) (51,579) (145,615) (182,437)
Interest expense (53,447) (53,132) (154,360) (206,580)
(9,785) (9,785)
Selling, general and administrative expenses (10,959) (68,574) (36,748) (110,147)
Total expenses(103,960)(183,070)(336,723)(508,949)
 
Income before income tax and interest in earnings
in earnings/(loss) from unconsolidated equity investees20,105(10,341)113,050

97,069

 
Income tax benefit/(expense) (421) (2,902) (204) (6,273)
 
Profit from unconsolidated equity investees, net of tax (46) 165 (46) 307
Net income and total comprehensive income19,638(13,078)112,80091,103
Net income per share of:        
 
Basic 0.25 (0.17) 1.44 1.16
Diluted 0.25 (0.17) 1.44 1.16

Avolon Holdings Limited

Consolidated Statements of Cash Flows (Audited) Years ended December 31, 2013 and 2014

(In US$ thousands)

 2013  2014
Cash flows provided by operating activities  
Net income 112,800 91,103
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 145,615 182,437
Gain on disposal of flight equipment (31,051) (64,409)
Share-based compensation 53,733
Amortisation of debt issuance costs 18,766 24,277
Deferred income tax (benefit)/ expense (101) 5,837
(Earnings)/loss from unconsolidated equity investees 46 (307)
Unrealised loss/(gain) on derivatives (6,390) 12,240
Changes in operating assets and liabilities:
Increase in accounts receivables (957) (4,217)
(Increase)/decrease in other assets (16,114) (22,396)
Increase in deferred revenue 9,993 7,721
Increase/(decrease) in accounts payable, accrued expenses and other liabilities 10,227 (1,178)
 
Net cash provided by operating activities242,834284,841
 
Cash flows from investing activities
Acquisition of flight equipment (1,281,110) (1,939,561)
Deposits for flight equipment purchases (108,006) (84,017)
Proceeds from disposal of flight equipment 595,194 567,273
Investment in unconsolidated equity investees (5,963) (10,229)
 
Net cash used in investing activities(799,885)(1,466,534)
     
Cash flows from financing activities  
Issuance of ordinary shares 34,335
Repurchase of Class C shares (5,591)
(Increase)/decrease in restricted cash (74,193) 61,331
Issuance of debt 2,208,965 2,368,037
Repayment of debt (1,477,199) (1,356,049)
Debt issuance costs paid (46,287) (44,944)
Net acquisition of interest rate caps (5,243) 666
Maintenance payments received 51,012 64,103
Maintenance payments returned (24,866) (10,126)
Security deposits received 22,689 53,951
Security deposits returned (8,082) (16,217)
Net cash provided by financing activities681,1311,115,161
Net increase/(decrease) in cash and cash equivalents 124,080 (66,532)
Cash at beginning of period 53,844 177,924
Cash at end of period177,924111,392
Supplemental cash flow information:    
Cash paid for interest including amounts capitalized of $1,966 $1,170, and $2,651 for the years ended December 31, 2012, 2013, and 2014, respectively (148,333)   (177,941)
Cash paid for income taxes (304) (252)
 
Supplemental disclosures of non-cash investing and financing activities:
Security deposits, maintenance liabilities and other
liabilities settled on sale of flight equipment
17,716 9,073
Acquisition of flight equipment through capital lease
Issuance of capital lease obligation for acquisition of flight equipment
 
Advance lease rentals, security deposits and maintenance reserves assumed in asset acquisitions 3,788 29,567
Accretion of income to Class A, Class B and Class C shares 107,160 70,798

 

Number of outstanding shares at December 31, 2014 was 81,681,131

For Non-GAAP measure Adjusted Net Income see reconciliation below

 

Three Months Ended

December 31

 

Twelve Months Ended

December 31

US$ ‘000

2013

 

2014

   

2013

 

2014

Net Income

19,638

(13,078)

 

112,800

91,103

Amortization of debt issuance costs 8,396 6,349 18,766 24,277
Unrealized (gain) loss on derivatives

(172)

3,051

(6,390)

12,240
Share based compensation 53,733 53,733
Tax effect

(35)

(1,508)

(25)

(2,359)

Adjusted net income

27,827

48,547

125,151

178,994

 
 

For Non-GAAP measure Adjusted Net Income Per Common Share see reconciliation below

Three Months Ended

December 31

 

Twelve Months Ended

December 31

 

US$ cent except where indicated 2013 2014   2013 2014

Net Income (US$’000)

19,638

(13,078)

112,800

91,103

Weighted Average Shares Outstanding Diluted 78,241 78,762 78,241 78,402
Diluted EPS 0.25

(0.17)

1.44 1.16
Amortization of debt issuance costs 0.11 0.08 0.24 0.31
Unrealized (gain) loss on derivatives

(0.00)

0.04 -0.08 0.16
Share based compensation 0.68 0.69
Tax effect

(0.00)

(0.02)

(0.00)

(0.03)

Effect of number of outstanding shares Dec 31 2014

(0.01)

(0.02)

(0.07)

(0.09)

Adjusted EPS

0.34

0.59

1.53

2.19

 
 
Number of outstanding shares at December 31, 2014 was 81,681,131
 

For Non-GAAP measure Return on Equity (ROE) see reconciliation below

Twelve Months Ended

December 31

 

Twelve Months Ended

December 31

% except where indicated 2013 2014

Net Income ($ 000s)

112,800

91,103

Total shareholders’ equity ($ 000s) 1,293,751 1,432,997
ROE

8.7%

6.4%

Amortization of debt issuance costs

1.5%

1.7%

Unrealized (gain) loss on derivatives

(0.5%)

0.90%
Share based compensation 3.70%
Tax effect

(0.0%)

(0.2%)

Adjusted ROE

9.70%

12.50%
 
 

For Non-GAAP measures in 2015 guidance see reconciliation below

Twelve Months Ended

December 31

Twelve Months Ended

December 31

% 2015 2015

Return on Equity

12.8%

13.1%

Amortization of debt issuance costs 1.40% 1.40%
Unrealized (gain) loss on derivatives
Share based payments 0.60% 0.60%
Tax effect

(0.1%)

(0.1%)

Adjusted Return on Equity (%)

14.7%

15.0%

Avolon
Jonathan Neilan
T: +353 1 663 3686
M: +353 86 231 4135
IR@avolon.aero
or
Jennifer Peters
T: +353 1 663 3684
M: +353 87 178 7021
IR@avolon.aero