UNITED STATES
FORM 20-F
(Mark One)
| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20162019o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ORo☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FLY LEASING LIMITED
| FLY LEASING LIMITED |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||
| American Depositary Shares | FLY | New York Stock Exchange | ||||
| Common Shares, par value of $0.001 per share | New York Stock Exchange* |
| * | Not for trading, but only in connection with the registration of American Depositary Shares representing these shares, pursuant to the requirements of the Securities and Exchange Commission. |
32,256,440
☐
☐
Large accelerated filer | Accelerated filer ☒ | Non-accelerated filer ☐ |
| Emerging growth company ☐ |
U.S. GAAP ☒ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ | Other ☐ |
☐
PRELIMINARY NOTE
its affiliates.
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| PART I | |||
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| 59 | |||
| 68 | |||
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| 82 | |||
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PART II | |||
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PART III | |||
| F - 1 | |||
| F - 2 | |||
| F - 41 | |||
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PART I
lease, six were classified as held for sale and one aircraft was off-lease
.(Dollars in thousands, except per share data) Years ended | |||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||
Statement of income data: | |||||||||||||||
Operating lease revenue | $ | 313,582 | $ | 429,691 | $ | 406,563 | $ | 351,792 | $ | 356,102 | |||||
Gain on sale of aircraft | 27,195 | 28,959 | 14,761 | 5,421 | 7,892 | ||||||||||
Gain on sale of investment in unconsolidated subsidiary | — | — | — | — | 36,882 | ||||||||||
Total revenues | 345,039 | 462,397 | 425,548 | 360,634 | 411,167 | ||||||||||
Total expenses | 381,428 | 434,200 | 356,673 | 303,560 | 368,670 | ||||||||||
Net income (loss) | (29,112 | ) | 22,798 | 60,184 | 53,940 | 38,234 | |||||||||
Earnings (loss) per share: | |||||||||||||||
Basic | $ | (0.88 | ) | $ | 0.52 | $ | 1.42 | $ | 1.55 | $ | 1.45 | ||||
Diluted | $ | (0.88 | ) | $ | 0.52 | $ | 1.42 | $ | 1.55 | $ | 1.44 | ||||
Dividends declared and paid per share | $ | — | $ | 1.00 | $ | 1.00 | $ | 0.88 | $ | 0.84 | |||||
(Dollars in thousands, except per share data) Years ended | ||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
| Statement of income data: | ||||||||||||||||||||
| Operating lease revenue | $ | 464,399 | $ | 399,514 | $ | 346,894 | $ | 313,582 | $ | 429,691 | ||||||||||
| Gain on sale of aircraft | $ | 97,323 | $ | 13,398 | $ | 3,926 | $ | 27,195 | $ | 28,959 | ||||||||||
| Total revenues | $ | 575,024 | $ | 418,299 | $ | 353,251 | $ | 345,039 | $ | 462,397 | ||||||||||
| Total expenses | $ | 328,620 | $ | 322,650 | $ | 339,321 | $ | 381,428 | $ | 434,200 | ||||||||||
| Net income (loss) | $ | 225,877 | $ | 85,723 | $ | 2,598 | $ | (29,112 | ) | $ | 22,798 | |||||||||
| Earnings (loss) per share: | ||||||||||||||||||||
| Basic | $ | 7.15 | $ | 2.88 | $ | 0.09 | $ | (0.88 | ) | $ | 0.52 | |||||||||
| Diluted | $ | 7.12 | $ | 2.88 | $ | 0.09 | $ | (0.88 | ) | $ | 0.52 | |||||||||
| Dividends declared and paid per share | $ | — | $ | — | $ | — | $ | — | $ | 1.00 | ||||||||||
(Dollars in thousands) As of December 31, | ||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
| Balance sheet data: | ||||||||||||||||||||
| Total assets | $ | 3,665,159 | $ | 4,226,472 | $ | 3,595,615 | $ | 3,447,009 | $ | 3,424,480 | ||||||||||
| Total liabilities | $ | 2,786,882 | $ | 3,524,362 | $ | 3,051,906 | $ | 2,853,774 | $ | 2,767,516 | ||||||||||
| Total shareholders’ equity | $ | 878,277 | $ | 702,110 | $ | 543,709 | $ | 593,235 | $ | 656,964 | ||||||||||
| Number of shares outstanding | 30,898,410 | 32,650,019 | 27,983,352 | 32,256,440 | 35,671,400 | |||||||||||||||
(Dollars in thousands, except per share data) As of December 31, | |||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||
Balance sheet data: | |||||||||||||||
Total assets | $ | 3,447,009 | $ | 3,424,480 | $ | 4,218,408 | $ | 3,660,679 | $ | 2,960,926 | |||||
Total liabilities | 2,853,774 | 2,767,516 | 3,462,154 | 2,918,583 | 2,437,115 | ||||||||||
Total shareholders’ equity | 593,235 | 656,964 | 756,254 | 742,096 | 523,811 | ||||||||||
Number of shares outstanding | 32,256,440 | 35,671,400 | 41,432,998 | 41,306,338 | 28,040,305 | ||||||||||
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Risk Factors
shares.
Our business is affected by general business, economic
Our businessachievable lease rates of our aircraft and engines include:
debt obligations.
results.
impacted.
obligations.
aircraft.
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obligations.
market.
operations.
Our future growth and profitability will depend on our ability to acquire aircraft and make other strategic investments.
Growth through future acquisitions of additional commercial aircraft requires the availability of capital. Even if capital were available, the market for commercial aircraft is cyclical, sensitive to economic instability and extremely competitive, and we may encounter difficulties in acquiring aircraft on favorable terms, or at all. A significant increase in our cost to acquire aircraft may make it more difficult for us to make accretive acquisitions. Any acquisition of aircraft may not be profitable to us. In addition, acquisition of additional aircraft and other investments that we may make, may expose us to risks that may harm our business, financial condition, cash flows and financial results, including risks that we may:
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We operate in a highly competitive market for investment opportunities in aircraft.
The leasing and remarketing of commercial jet aircraft is highly competitive. We compete with other aircraft leasing companies, including AerCap Holdings N.V., Air Lease Corp., Aircastle Limited, Aviation Capital Group, AWAS, Bank of China Aviation, Boeing Capital Corporation, Bohai Leasing (which, in 2016, acquired Avolon Holdings Limited, and has agreed to acquire CIT Aerospace), Castlelake, GE Commercial Aviation Services Limited (GECAS), ICBC Leasing, Intrepid Aviation Limited, Jackson Square Aviation, Macquarie Bank Limited, and SMBC Aviation Capital, among others. We also may encounter competition from other entities that selectively compete with us, including:
Competition for a leasing transaction is based principally upon lease rates, delivery dates, lease terms, reputation, management expertise, aircraft condition, specifications and configuration and the availability of the types of aircraft necessary to meet the needs of the customer. Some of our competitors have significantly greater operating and financial resources than we have. In addition, some competing aircraft lessors have a lower overall cost of capital and may provide financial services, maintenance services or other inducements to potential lessees that we cannot provide.
Competition in the purchase and sale of used aircraft is based principally on the availability of used aircraft, price, the terms of the lease to which an aircraft is subject and the creditworthiness of the lessee.
Many of our competitors have order positions with Boeing and Airbus that guarantee them the delivery of new, highly desirable aircraft in the future. We do not currently have any order positions with aircraft manufacturers.
If we experience abnormally high maintenance or obsolescence issues with any aircraft that we acquire, our financial results, cash flows and liquidity could be materially and adversely affected.
Aircraft are long-lived assets, requiring long lead times to develop and manufacture, with particular types and models becoming obsolete and less in demand over time when newer, more advanced aircraft are manufactured. By acquiring used aircraft, we have greater exposure to more rapid obsolescence of our fleet, particularly if there are unanticipated events shortening the life cycle of such aircraft, such as government regulation or changes in our airline customers’ preferences. This may result in a shorter life cycle for our fleet and, accordingly, declining lease rates, impairment charges or increased depreciation expense.
In general, the costs of operating an aircraft, including maintenance expenses, increase with the age of the aircraft. Further, variable expenses like fuel, crew size or aging aircraft corrosion control or modification programs and related airworthiness directives could make the operation of older aircraft more costly to our lessees and may result in increased lessee defaults or renegotiation of lease terms. We also may incur some of these increased maintenance expenses and regulatory costs upon acquisition or re-leasing of our aircraft. Any of these expenses or costs would have a material and adverse impact on our financial results.
Unlike new aircraft, used aircraft typically do not carry warranties as to their condition. As a result, we may not be able to claim any warranty related expenses on used aircraft. Although we may inspect an existing aircraft and its documented maintenance, usage, lease and other records prior to acquisition, we may not discover all defects
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during an inspection. Repairs and maintenance costs for existing aircraft are difficult to predict and generally increase as aircraft age and can be adversely affected by prior use. These costs could have a material and adverse impact on our cash flows and our liquidity.
We may enter into strategic ventures which pose risks including a lack of complete control over the enterprise, and potential unforeseen risks, any of which may have a material adverse effect on our financial results and growth prospects.
We may occasionally enter into strategic ventures or investments with third parties. For example, we have a 57% investment in a joint venture that owns two Boeing 767-300 aircraft. We may have limited management rights in our strategic ventures and may not control decisions regarding the remarketing or sale of aircraft owned by these strategic ventures. If we are unable to resolve a dispute with a strategic partner that retains material managerial veto rights, we might reach an impasse that could require us to liquidate our investment at a time and in a manner that would result in our losing some or all of our original investment in the venture. These strategic ventures and investments also may subject us to unforeseen risks, including adverse tax consequences and additional reporting and compliance requirements. Any of these risks may have a material adverse effect on our financial results and growth prospects.
A new standard for lease accounting has been issued and we are currently evaluating its impact.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued its new lease standard, ASU 2016-02, Leases. Under the new standard, the accounting for leases by lessors would remain basically unchanged from the existing concepts in ASC 840, Leases. In addition, FASB has decided that lessors would be precluded from recognizing selling profit and revenue at lease commencement for any sales-type or direct finance lease that does not transfer control of the underlying asset to the lessee. We are currently evaluating the potential impact the adoption of the standard will have on our financial condition, financial results and cash flows. We plan to adopt the standard effective January 1, 2018.
We have entered into residual value guarantees that may require us to make significant cash disbursements, which would reduce our cash flows and may negatively impact our financial results.
During 2016, we
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Risks Relating to Our Aircraft Portfolio
Factors that increase the risk of decline in aircraft valuefuture growth and achievable lease rates could have an adverse effect on our financial results and growth prospects andprofitability will depend on our ability to meet our debt obligations.
Aircraft valuesacquire aircraft and achievable lease rates have from time to time experienced sharp decreases due to a numberaircraft equipment and make other strategic investments.
Any decreasecommercial bank market and in the valuesunsecured bond market remain susceptible to global events, including, for example, political changes in the United States and abroad, rising interest rates, fluctuating currency rates, the rate of international economic growth and achievable lease ratesimplications from changes in oil prices. If we need, but cannot obtain, adequate capital on satisfactory terms, or at all, as a result of negative conditions in the capital markets or otherwise, our business, financial condition or results of operations could be materially adversely affected. Additionally, such inability to obtain capital on satisfactory terms, or at all, could prevent us from pursuing attractive future growth opportunities.
The advent of superior aircraft technology or the introduction of a new line of aircraft could cause our existing aircraft portfolio to become outdated and therefore less desirable, which could adversely affect our financial results and growth prospects.
As manufacturers introduce technological innovations and new types of aircraft, certain aircraftencounter difficulties in our existing aircraft portfolio may become less desirable to potential lessees or purchasers. Such technological innovations may increase the rate of obsolescence of existing aircraft faster than currently anticipated by our management or accounted for in our accounting policy. For example, the Boeing 787 and the Airbus A350, which recently entered production, provide improved fuel consumption and operating economics as compared to earlier aircraft types. In addition, Airbus recently launched the A320neo family and Boeing plans to launch the 737 MAX family of aircraft in May 2017. These “next generation” narrow-body aircraft are expected to improve fuel consumption and to reduce noise, emissions and maintenance costs as compared to current models. In addition, Embraer, Bombardier Inc., Commercial Aircraft Corporation of China Ltd and Sukhoi Company (JSC) in Russia are developing aircraft models that will compete with existing Airbus and Boeing aircraft. It is not certain how these new aircraft offerings will impact the demand and liquidity of existing equipment. In addition, the imposition of more stringent noise or emissions standards may make certain of our aircraft less desirable and less valuable in the marketplace. Any of these risks could adversely affect our ability to lease or sell ouracquiring aircraft on favorable terms, or at allall. A significant increase in our cost to acquire aircraft or our abilityaircraft equipment may make it more difficult for us to charge rental amountsmake accretive acquisitions. Any acquisition of aircraft or aircraft equipment may not be profitable to us. In addition, acquisition of additional aircraft, aircraft equipment and other investments that we would otherwise seekmay make, may expose us to charge, all of which could have an adverse effect on our financial results and growth prospects.
Our operational costs will increase as our aircraft age.
As of December 31, 2016, the weighted average age of our aircraft was 6.2 years. In general, the cost of re-leasing an aircraft, including maintenance and modification expenditures, increases with the age of the aircraft. The costs of converting an aging passenger aircraft to a cargo aircraft are also substantial. The incurrence of these greater expenditures as our fleet ages could adversely affect our financial results and cash flow.
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The concentration of aircraft types in our portfolio could harm our business and financial results should any difficulties specific to these particular types of aircraft occur.
As of December 31, 2016, our aircraft portfolio contained a mix of aircraft types, including Airbus A319 aircraft, A320 aircraft, A321 aircraft, A330 aircraft, and A340 aircraft, and Boeing 737 aircraft, Boeing 757 aircraft, Boeing 777 aircraft and Boeing 787 aircraft. 62% of these aircraft are single-aisle, narrow-body aircraft, and 38% of these aircraft are wide-body aircraft, as measured by net book value. Our business and financial results could be negatively affected if the market demand for any of these aircraft types (or other typesrisks that we acquire in the future) declines, if any of them is redesigned or replaced by its manufacturer. Out-of-production aircraft, such as the Boeing 757 and Airbus A340, current models of the A320 family, known as the CEO, and Boeing 737, known as Next Generation, may have shorter useful lives or lower residual values due to obsolescence. In addition, if any of these aircraft types (or other types that we acquire in the future) should encounter technical or other difficulties, such affected aircraft types may be subject to grounding or diminution in value, and we may be unable to lease such affected aircraft types on favorable terms or at all. The inability to lease the affected aircraft types may harm our business, financial condition, cash flows and financial results, including risks that we may:
Depreciation expenses could have a material adverse effect on our financial condition and financial results.
Our aircraft have finite economic lives. Over time, their values depreciate in the ordinary course, and their ability to generate earnings and cash flows for our business declines. If depreciated aircraft are not replaced with newer aircraft, our ability to generate earnings and cash to meet our debt service obligations will be reduced. In addition,that we depreciate our aircraft for accounting purposes on a straight-line basis to the aircraft’s estimated residual value over its estimated useful life. If we dispose of an aircraft for a price that is less than its depreciated value, then we would be required to recognize a loss that would reduce our total assets and shareholders’ equity and negatively impact our financial results during the period. A reduction in our shareholders’ equity may negatively impact our ability to comply with covenants in certain of our debt facilities requiring us to maintain a minimum tangible net worth, and could result in an event of default under such facilities.
We have written down the value of some of our assets andacquire, or investments we may be required to record further write-downs.
make; or
In the years ended December 31, 2016, 2015 and 2014, we recognized impairment charges of $96.1 million, $66.1 million and $1.2 million, respectively. The impairment charge in 2016 relates primarily to three wide-body aircraft, all of which are nearing the end of their useful lives. In the future, if expected cash flows related to any of our aircraft are adversely affected by factors including credit deterioration of a lessee, declines in rental rates, shortened economic life, residual value risk and other market conditions, then we may be required to recognize additional impairment charges that would reduce our net earnings or increase our net losses. For example, as aircraft approach the end of their economic useful lives, their carrying values may be more susceptible to non-recoverable declines in value because such assets will have a shorter opportunity in which to benefit from a market recovery.
Our financial performance depends partly on our ability to regularly sell aircraft, and we may not be able to do so on favorable terms, or at all.
Our financial performance depends partly on our ability to regularly sell aircraft profitably. When we decide to dispose of an aircraft, BBAM, as our servicer, will arrange the disposition pursuant to the terms of the relevant servicing agreement. In doing so, BBAM will compete with other aircraft leasing companies, as well asincluding AerCap Holdings N.V., Air Lease Corp., Aircastle Limited, Aviation Capital Group, Bank of China Aviation, Boeing Capital Corporation, Bohai Leasing (which acquired Avolon Holdings Limited, and CIT Aerospace), Castlelake, Dubai Aerospace Enterprise (which, in 2017, acquired AWAS), GE Commercial Aviation Services Limited (GECAS), ICBC Leasing, Jackson Square Aviation, Macquarie Bank Limited, ORIX, SMBC Aviation Capital and Voyager Aviation Holdings, among others. We also may encounter competition from other entities that selectively compete with otherus, including:
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addition, our ability to sell oursale of used aircraft will be affected by the maintenance, damage and operating history of the aircraft and its engines. Failure to sell aircraft regularly and profitably could have a material adverse effect on our financial condition, cash flows and financial results.
Aircraft liens could impair our ability to repossess, re-lease or sell the aircraft in our portfolio.
In the normal course of business, liens that secure the payment of airport fees and taxes, custom duties, air navigation charges, landing charges, crew wages, maintenance charges, salvage or other obligations are likely, dependingis based principally on the lawsavailability of the jurisdictions whereused aircraft, operate, to attach to the aircraft in our portfolio (or, if applicable, to the engines separately). The liens may secure substantial sums that may, in certain jurisdictions or for limited types of liens (particularly fleet liens), exceed the value of the aircraft to which the liens have attached. Until they are discharged, the liens described above could impair our ability to repossess, re-lease or sell our aircraft.
If our lessees fail to fulfill their financial obligations, liens may attach to our aircraft. In some jurisdictions, aircraft liens or separate engine liens may give the holder thereof the right to detain or, in limited cases, sell or cause the forfeiture of the aircraft (or, if applicable, the engines separately). We cannot assure you that the lessees will comply with their obligations under the leases to discharge liens arising duringprice, the terms of the leases. We may, in some cases, find it necessarylease to paywhich an aircraft is subject and the claims secured by such liens increditworthiness of the lessee.
We cannot assure you that lessees and governmental authorities will comply with the registration and deregistration requirements in the jurisdictions where our lessees operate.
All of ourfuture. We do not currently have any order positions with aircraft are required to be registered at all times with appropriate governmental authorities. Generally, in jurisdictions outside the United States, failure by a lessee to maintain the registration of a leased aircraft would be a default under the applicable lease, entitling us to exercise our rights and remedies thereunder. If an aircraft were to be operated without a valid registration, the lessee or, in some cases, the owner or lessor might be subject to penalties, which could result in a lien being placed on such aircraft. Failure to comply with registration requirements also could have other adverse effects, including inability to operate the aircraft and loss of insurance. We cannot assure you that all lessees will comply with these requirements.
An aircraft cannot be registered in two countries at the same time. Before an aviation authority will register an aircraft that has previously been registered in another country, it must receive confirmation that the aircraft has been deregistered by that country’s aviation authority. In order to deregister an aircraft, the lessee must comply with applicable laws and regulations, and the relevant governmental authority must enforce these laws and regulations. Failure by lessees and governmental authorities to comply with or enforce deregistration requirements in the jurisdictions in which they operate could impair our ability to repossess, re-lease or sell our aircraft, and cause us to incur associated legal and other expenses, which would negatively impact our cash flows and financial results.
Risks Relating to Our Leases
We will need to re-lease or sell aircraft as leases expire to continue to generate sufficient funds to meet our debt obligations and finance our growth and operations. We may not be able to re-lease or sell aircraft on favorable terms, or at all.
Our business strategy entails the need to re-lease aircraft as our current leases expire to generate sufficient revenues to meet our debt obligations and finance our growth and operations. The ability to re-lease aircraft depends on general market and competitive conditions. If we are not able to re-lease an aircraft or to do so on favorable terms, we may be required to attempt to sell the aircraft to provide funds for our debt service obligations or to otherwise finance our operations. Our ability to re-lease or sell aircraft on favorable terms or without significant off-lease time and transition costs could be adversely affected by general business, economic and financial conditions, market conditions in the airline industry, airline bankruptcies, restructurings and mergers, the effects of terrorism and war, the sale of other aircraft by financial institutions or other factors.
manufacturers.
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ability of lessees to perform their contractual obligations to us. The ability of each lessee to perform its obligations under its lease will depend primarily on the lessee’s financial condition and cash flow, which may be affected by factors beyond our control, including:
We are typically not in possession of any aircraft while the aircraft are on lease to the lessees. Consequently, our ability to determine the condition of the aircraft or whether the lessees are properly maintaining the aircraft is limited to periodic inspections that we perform or that are performed on our behalf by third-party service providers or aircraft inspectors. A lessee’s failure to meet its maintenance obligations under a lease could:
We cannot assure you that, in the event that a lessee defaults under a lease, any security deposit paid or letter of credit provided by the lessee will be sufficient to cover the lessee’s outstanding or unpaid lease obligations and required maintenance expenses or be sufficient to discharge liens that may have attached to our aircraft.
If our lessees encounter financial difficulties and we decide to restructure our leases with those lessees, this could result in less favorable leases, significant reductions in our cash flow and adversely affect our ability to meet our debt obligations.
We have restructured leases when lessees are late in making payments, fail to make required payments or have otherwise advised us that they expect to default in making required payments. A lease restructuring can involve a rescheduling of payments or even termination of a lease without receiving all or any of the past-due or deferred amounts. The terms and conditions of possible lease restructurings could result in a significant reduction of lease revenue which would have an adverse impact on our cash flows and adversely affect our ability to meet our debt obligations. We may receive more requests for lease restructurings if any of our lessees should experience financial difficulties in the future.
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Lease defaults could result in significant expenses and loss of revenues.
In 2016, no leases were terminated prior to their expiration dates. However, in previous years we
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FailureAs manufacturers introduce technological innovations and new types of aircraft and engines, certain aircraft in our existing aircraft portfolio may become less desirable to pay otherpotential lessees or purchasers. Such technological innovations may increase the rate of obsolescence of existing aircraft faster than currently anticipated by our management or accounted for in our accounting policy. For example, the Boeing 787 and the Airbus A350, provide improved fuel consumption and operating economics as compared to earlier aircraft types. In addition, Airbus has launched the A320neo family, and Boeing has launched the 737 MAX family of aircraft. These “next generation” narrow-body aircraft are expected to improve fuel consumption and to reduce noise, emissions and maintenance costs as compared to current models. In addition, Embraer, Bombardier Inc., Commercial Aircraft Corporation of China Ltd and PJSC United Aircraft Corporation in Russia could resultdevelop aircraft models that will compete with existing Airbus and Boeing aircraft. It is not certain how these new aircraft offerings will impact the demand and liquidity of existing equipment. In addition, the imposition of more stringent noise or emissions standards and the development of more fuel-efficient engines could make aircraft in our portfolio less attractive for potential lessees and less valuable in the groundingmarketplace. Any of these risks could adversely affect our ability to lease or sell our aircraft on favorable terms or at all or our ability to charge rental amounts that we would otherwise seek to charge, all of which could have an adverse effect on our financial results and growth prospects.
As in the case of maintenance costs,other market conditions, then we may incur other operational costs uponbe required to recognize additional impairment charges that would reduce our total assets and shareholders’ equity. For example, as aircraft approach the end of their economic useful lives, their carrying values may be more susceptible to non-recoverable declines in value because such assets will have a lessee defaultshorter opportunity in which to benefit from a market recovery.
The failure to pay some of these costs can result in liens on the aircraft or a loss of insurance. Any of these events could result in the groundinghistory of the aircraft and prevent the re-lease, sale or other use of theits engines. Failure to sell aircraft until such default is cured, which would negatively affectregularly and profitably could have a material adverse effect on our financial condition, cash flows and financial results, and our ability to meet our potential aircraft purchase commitments.
Failure to obtain certain required licenses, consents and approvals could negatively affect our ability to re-lease or sell aircraft, which would negatively affect our business, financial condition and financial results.
Aircraft leases often require specific licenses, consents or approvals. These include consents from governmental or regulatory authorities for certain payments under the leases and for the import, re-export or deregistration of the aircraft. Subsequent changes in applicable law or administrative practice may increase or otherwise modify these requirements. In addition, a governmental consent, once given, might be withdrawn. Any of these events could adversely affect our ability to re-lease or sell aircraft, which would negatively affect our business, financial condition and financial results.
Some of our leases may provide our lessees with early termination options.
As of December 31, 2016, none of our leases provided early termination options. However, we have entered into leases providing early termination options in the past, and we may enter into such leases again in the future. If
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any lease is terminated early at a time when we could not re-lease the aircraft at rates at least as favorable to us as the terminated lease, our financial condition, cash flows and financial results could be adversely affected.
Risks associated with the concentration of our lessees in certain geographical regions could harm our business.
In addition, the recent outbreak of a novel strain of coronavirus disease, COVID-19, in Wuhan, China, is expected to have an adverse effect on travel, primarily affecting China and the surrounding region. The COVID-19 outbreak has led to government-imposed travel restrictions, flight cancellations, and a marked decline in passenger demand for air travel, especially in Asia. We cannot currently predict the impact that the COVID-19 outbreak will have on air travel and how that may impact the ability of our lessees to satisfy their payment obligations to us. The risks associated with the geographical concentration of our lessees may become exacerbated as our aircraft are re-leased to lessees or subleased to sublessees in other regions or as we acquire additional aircraft.
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prices to their customers by increasing fares. If they pass on the higher costs, it may adversely affect demand for air travel, which would reduce revenues to our customers. In addition, airlines may not be able to manage this risk by appropriately hedging their exposure to fuel price fluctuations.
Consequently, these conditions may (i) affect our lessees’ ability to make rental and other lease payments; (ii) result in lease restructurings and aircraft repossessions; (iii) impair our ability to re-lease or dispose the aircraft on a timely basis at favorable rates; and (iv) reduce the proceeds received for the aircraft upon any disposition. Any of these results could have a material adverse effect on our business, financial condition and financial results.
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takeoff weight of less than 55,000 kg on or after December 31, 2020. On January 14, 2016, the U.S. proposedThe United States has adopted new noise regulations, effective November 3, 2017, to harmonize with the new ICAO standards.
These regulations could limit the economic life of the aircraft and engines, reduce their value, limit our ability to lease or sell the non-compliant aircraft and engines or, if engine modifications are permitted, require us to make significant additional investments in the aircraft and engines to bring them into compliance.
European countries generally have relatively strict environmental regulations that can restrict operational flexibility and decrease aircraft productivity. The European Parliament has confirmed that all emissions from flights within the European Union are subject to the ETS requirement, even those emissions that are emitted outside of the European Union. The European Union suspended the enforcement of the ETS requirements for international flights outside of the European Union due to a proposal issued by the ICAO in October 2013 to develop a global program to reduce international aviation emissions, which would be enforced by 2020. In response to this, the European Commission amended the ETS legislation through the end of 2016 so that only flights or portions thereof that take place in European regional airspace are subject to the ETS requirements. The United States, China and other countries continue to oppose the inclusion of aviation emissionstime in the ETS.
normal course, it is likely that the number of such replacements would increase over time.
In addition, compliance with current or future regulations, taxes or duties imposed to deal with environmental concerns could cause lessees to incur higher costs and lead to higher ticket prices, which could mean lower demand for travel, thereby generating lower net revenues and resulting in an adverse impact on the financial condition of our lessees.
profits.
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increased costs incurred as a consequence of terrorist attacks and geopolitical conditions, including those referred to above; and (vii) special charges recognized by some airlines, such as those related to the impairment of aircraft and other long lived assets stemming from the above conditions.
under U.S. sanctions.
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contractual obligations to us or even result in our being held liable for such conduct. Moreover, while we believe that we have been in compliance with all applicable sanctions laws and regulations, and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to change. Violations of FCPA, OFAC, the Bribery Act and other export control, anti-corruption, anti-terrorism and anti-money laundering laws and regulations may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could have a material adverse effect on our business, financial condition and financial results.
Uncertainty
There is uncertainty regarding the policies and positions the United States will adopt following the change of presidential administration in the United States. This uncertainty includes the future of existing treaties and trade relationships, financial regulation, relationships with other countries, U.S. domestic manufacturing and environmental regulation. This uncertainty may adversely impact (i) air cargo demand and passenger air travel, (ii) manufacturing of airframes, engines and other related components, (iii) global stock markets (including the New York Stock Exchange, on which our shares are traded), and (iv) general global economic conditions. All of these factors are outside of our control, but may nonetheless impact the airline industry and could have anmaterial adverse effect on our business.
Economic conditions and regulatory changes resulting fromeconomic uncertainty, most recently as a result of the United Kingdom’s likely exit from the European Union, the change of presidential administration in the United States, and the outcome of elections across the European Union in 2017, could have an adverse effect on our business, financial condition and financial results.
Following a referendum in June 2016 in which voters in the United Kingdom (the “UK”referendum (commonly referred to as “Brexit”) approved an exitto withdraw from the European Union (the “EU”), it is expected that. The economic consequences of Brexit, including the UK government will initiatepossible repeal of open-skies agreements, could have a process to leave the EU (“Brexit”). While the referendum was advisory, and the terms of any withdrawal are subject to a negotiation period that could last at least two years after the UK government formally initiates the withdrawal process, the referendum has created significant uncertainty, in particular as to the trade and travel agreements that may be made between the UK and the EU. In the United States, the new presidential administration and Congress could make significant changes in, or create uncertainty regarding, governmental policies, the regulatory environment and many other areas that could impact us, including but not limited to changes to existing trade agreements, import and export regulations, immigration, tariffs and customs duties, tax regulations, environmental regulations and other areas that become subject to significant changes. In the EU, several countries will hold general and/or presidential elections in 2017, including France, Germany, the Netherlands, and possibly Italy, and the outcome of these elections could create significant changes in, or create uncertainty regarding, laws, regulations and policies affectingmaterial adverse effect on our business.
Adverse consequences,business, such as instability in financial markets, deterioration in economic conditions, volatility in currency exchange rates or adverse changes in regulation of the aviation industry or bilateral agreements governing air travel, which could negatively affect our financial condition, cash flowsflow and financial results.results of operations. These impacts may include increased costs of financing; downward pressure on demand for our aircraft and reduced market lease rates and lease margins; and a higher incidence, in the UKU.K. in particular and the EUE.U. generally, of lessee defaults or other events resulting in our lessees’ failing to perform under our lease agreements. In the year ended December 31, 2016, we had our second largest concentration of total revenues from Europe and consequently anyFurther, many of the effectsstructural issues facing the EU following the global financial crisis of 2008 and Brexit as described above,remain, and othersproblems could resurface that we may not be able to anticipate, could negatively impactaffect market conditions, and, possibly, our business, financial conditionresults and financial results.
Changesliquidity, particularly if they lead to the global trade regime could have an adverse effect onexit of one or more countries from the airline industry, our lessees and, in turn, our business, financial condition and financial results.
Changes toEuropean Monetary Union (the “EMU”) or the global trade regime following political events, such as the Brexit vote in the UK, the 2016 United States presidential election, and the 2017 EU elections, may adversely impact our financial condition. As the UK renegotiates its economic and political relationship with the EU, there is a risk that such discussions could disrupt the free movementexit of goods, services and people between the UK andadditional countries from the EU. InIf one or more countries exited the United StatesEMU, there would be significant uncertainty with respect to outstanding obligations of counterparties and the EU, oppositiondebtors in any exiting country, whether sovereign or otherwise, and it would likely lead to free trade agreementscomplex and the free movement of people have been significant issues in recentlengthy disputes and upcoming elections. Increased restrictions on global trade and international travel may reduce the
18
demand for air cargo and passenger air travel, which could have an adverse effect on the airline industry and on our lessees’ ability to make their lease payment obligations to us, which, in turn, would negatively impact our business, financial condition and financial results.
We depend on aircraft and engine manufacturers’ success in remaining financially stable and producing aircraft.
aircraft that meet customers’ expectations.
In
values.
19
Servicer may not provide the same quality of service or may not afford us terms as favorable as the terms currently offered by BBAM. If BBAM, as the servicer, makes a decision that is adverse to our interests, our business, financial condition, financial results and cash flows could suffer. See “Even if we were to become dissatisfied with BBAM LP’s performance, there are only limited circumstances under which we are able to terminate our management and servicing agreements and we may not terminate certain of our servicing agreements without the prior written consent of third parties, including insurance policy provider or lenders.”
20
In addition, we are required to obtain written consent of certain of our lendersengines prior to terminating certain of our servicing agreements.
termination.
Under certain circumstances the provider of the financial guaranty insurance policy with respect to the notes issued by B&B Air Funding (the “Securitization Notes”), and certain of our lenders may have the right to terminate BBAM as the servicer for certain of our aircraft without our consent and may terminate the Servicer at a time which may be disadvantageous to us.
any insurance available.
21
For example, B&B Air Funding is required
growth.
We and our subsidiaries have a significant amount of indebtedness. As of December 31, 2016, our total consolidated indebtedness, net of unamortized debt discounts and loan costs, was $2.5 billion.
In addition, the indentures governing our 2020 Notes and 2021 Notes, as well as the agreements governing our other indebtedness, contain restrictive financial and operating covenants that may limit our ability to engage in activities that may be in our long-term best interest. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, may result in the acceleration of some or all our debt.
22
We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
The terms
The indentures and agreements governing certain of our indebtedness contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including restrictions on our ability to:
As a result of these restrictions, we may be limited in how we conduct and grow our business, or unable to compete effectively or to take advantage of new business opportunities.
In addition, the indentures and agreements governing certain of our indebtedness contain financial and operating covenants that, among other things, require us to maintain specified financial ratios and tests. Our ability to meet these financial and operating covenants can be affected by events beyond our control, and we may be unable to meet them.
A breach of the covenants or restrictions under the indentures and agreements governing certain of our indebtedness could result in an event of default under the applicable indebtedness. Such a default may allow holders of our debt securities or our lenders, as applicable, to accelerate the related indebtedness, which may result in the acceleration of other indebtedness to which a cross-acceleration or cross-default provision applies. In addition, such lenders or debt holders could terminate commitments to lend money, if any. Furthermore, if we
23
were unable to repay the indebtedness then due and payable, secured lenders could proceed against the aircraft, if any, securing such indebtedness. In the event our lenders or holders of our debt securities accelerate the repayment of our borrowings, we may not have sufficient assets to repay that indebtedness.
We have a significant amount of non-recourse debt.
As of December 31, 2016,2019, we had a total debt, net of unamortized debt discounts and loan costs, of $2.5 billion.$2.3billion principal amount outstanding under our borrowings. Of this amount, $769.4 million$0.6 billion was non-recourse to Fly, except for certain limited obligations which typically include reimbursement for certain expenses and costs incurred by the lenders. These non-recourse loans may be provided through loan facilities that are typically cross-collateralized and contain cross-default provisions against all of the loans advanced within each facility, as well as through individual loans against individual aircraft. As of December 31, 2016, 2019, we had the following non-recourse debt facilities that provided financing against multiple aircraft:
Facility (1) | Principal Amount Outstanding at December 31, | Number of Aircraft Financed | Maturity Date | |||||
Nord LB Facility | 3 | May 2021 | ||||||
| Fly Aladdin Acquisition Facility | $ | 272.3 million | 15 | June 2023 | ||||
| (1) | Excludes |
| (2) | Excludes unamortized debt discounts and loan costs. |
24
financed through these facilities may be unavailable to us and/or we may be unable to draw additional amounts under these facilities. The events that could cause some of our subsidiaries to be noncompliant under their loan agreements, such as a lessee default, may be beyond our control, but they nevertheless could have a substantial adverse impact on the amount of our cash flows available to fund working capital, make capital expenditures and satisfy other cash needs. For a description of the operating and financial restrictions in our debt facilities, see the section titled “Operating and Financial Review and Prospects—Financing.”
counterparties.
25
We may face increased tax costs.
With
Depending upon how these schemes arethe actual corporate tax paid on its profits by the subsidiary or foreign branch. These rules have been implemented by participatingin Ireland and non-participating countries,apply for accounting periods beginning on/after 1 January 2019. While the new rules require assessment and consideration in the context of Fly, it couldappears unlikely the rules will have material impact on the group.
rate.
26
resources.
27
the last complete fiscal year prior to the termination date. Neither our management agreement nor our servicing agreements automatically terminate upon a change of control.
corporation
.28
of directors approves the issuance of such shares in a future financing transaction, our existing shareholders will not have the ability to approve such a transaction. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of our common shares bear the risk of our future offerings reducing the market price of our common shares and diluting their share holdings in us.
SEC.
manages.
ADSs.
As of December 31, 2016, we had 76 aircraft in our portfolio, of which 75 were held for operating lease and one was recorded as an investment in finance lease. Our portfolio was comprised of 65 narrow-body passenger aircraft (including one freighter) and 11 wide-body passenger aircraft (including two freighters).
portfolio.
29
The following table presents the aircraft in our portfolio (excluding aircraft held for sale) as of December 31, 2016:
Lessee | Aircraft Type | Airframe Type | Date of Manufacture | |
1. | Aeromexico | B737-700 | Narrow-body | 2006 |
2. | Aeromexico | B737-700 | Narrow-body | 2005 |
3. | Aeromexico | B737-700 | Narrow-body | 2005 |
4. | Air Berlin | A321-200 | Narrow-body | 2015 |
5. | Air Berlin | A330-200 | Wide-body | 2001 |
6. | Air China | B737-800 | Narrow-body | 2007 |
7. | Air India | B787-8 | Wide-body | 2015 |
8. | Air India | B787-8 | Wide-body | 2014 |
9. | Air India | B787-8 | Wide-body | 2014 |
10. | Air Moldova | A319-100 | Narrow-body | 2006 |
11. | American Airlines | B737-800 | Narrow-body | 2013 |
12. | Chang’An Airlines | B737-800 | Narrow-body | 2006 |
13. | Eastern Airlines | B737-800 | Narrow-body | 2006 |
14. | easyJet | A319-100 | Narrow-body | 2007 |
15. | easyJet | A319-100 | Narrow-body | 2004 |
16. | easyJet | A319-100 | Narrow-body | 2004 |
17. | Ethiopian Airlines | B777-200LRF (1) | Wide-body | 2015 |
18. | Ethiopian Airlines | B777-200LRF (1) | Wide-body | 2015 |
19. | Finnair (2) | A320-200 | Narrow-body | 2003 |
20. | flydubai | B737-800 | Narrow-body | 2010 |
21. | Frontier | A319-100 | Narrow-body | 2001 |
22. | Garuda Indonesia | B737-800 | Narrow-body | 2010 |
23. | Garuda Indonesia | B737-800 | Narrow-body | 2010 |
24. | Icelandair | B757-200SF (1) | Narrow-body | 1990 |
25. | Israir Airlines | A320-200 | Narrow-body | 2016 |
26. | IZair | B737-800 | Narrow-body | 2007 |
27. | IZair | B737-800 | Narrow-body | 2006 |
28. | Jet Airways | B737-800 | Narrow-body | 2014 |
29. | Jet Airways | B737-800 | Narrow-body | 2014 |
30. | Jet Airways | B737-800 | Narrow-body | 2014 |
31. | Jet Lite | B737-700 | Narrow-body | 2002 |
32. | Jetstar Pacific Airlines | A320-200 | Narrow-body | 2005 |
33. | LATAM | B787-8 | Wide-body | 2013 |
34. | Lucky Air Airlines | B737-800 | Narrow-body | 2007 |
35. | Lucky Air Airlines | B737-800 | Narrow-body | 2007 |
36. | Malaysian Airlines | B737-800 | Narrow-body | 2011 |
37. | Malaysian Airlines | B737-800 | Narrow-body | 2011 |
38. | Nok Airlines | B737-800 | Narrow-body | 2015 |
39. | Philippine Airlines | A321-200 | Narrow-body | 2014 |
40. | Philippine Airlines | A321-200 | Narrow-body | 2014 |
41. | Philippine Airlines | A330-300 | Wide-body | 2013 |
42. | Philippine Airlines | A330-300 | Wide-body | 2013 |
43. | Qantas | A320-200 | Narrow-body | 2005 |
44. | Shandong Airlines | B737-800 | Narrow-body | 2013 |
45. | Shandong Airlines | B737-800 | Narrow-body | 2013 |
46. | Silk Air | A320-200 | Narrow-body | 2004 |
47. | Spicejet | B737-800 | Narrow-body | 2007 |
48. | Spicejet | B737-800 | Narrow-body | 2007 |
49. | Spicejet | B737-900ER | Narrow-body | 2007 |
50. | Sun Express (Germany) | B737-800 | Narrow-body | 1998 |
51. | Sun Express (Turkey) | B737-800 | Narrow-body | 2007 |
52. | Sunwing Airlines | B737-800 | Narrow-body | 2006 |
53. | Sunwing Airlines | B737-800 | Narrow-body | 2006 |
| Lessee | Aircraft Type | Airframe Type | Date of Manufacture | |||||
| 1. | Aeromexico | B737-700 | Narrow-body | 2005 | ||||
| 2. | Aeromexico | B737-700 | Narrow-body | 2005 | ||||
| 3. | Air China | B737-800 | Narrow-body | 2007 | ||||
| 4. | Air Europa | B787-8 | Wide-body | 2017 | ||||
| 5. | Air India | B787-8 | Wide-body | 2015 | ||||
| 6. | Air India | B787-8 | Wide-body | 2014 | ||||
| 7. | Air India | B787-8 | Wide-body | 2014 | ||||
| 8. | Air Moldova | A319-100 | Narrow-body | 2006 | ||||
| 9. | AirAsia Berhad | A320-200 | Narrow-body | 2013 | ||||
| 10. | AirAsia Berhad | A320-200 | Narrow-body | 2013 | ||||
| 11. | AirAsia Berhad | A320-200 | Narrow-body | 2012 | ||||
| 12. | AirAsia Berhad | A320-200 | Narrow-body | 2012 | ||||
| 13. | AirAsia Berhad | A320-200 | Narrow-body | 2012 | ||||
| 14. | AirAsia Berhad | A320-200 | Narrow-body | 2011 | ||||
| 15. | AirAsia Berhad | A320-200 | Narrow-body | 2011 | ||||
| 16. | AirAsia Berhad | A320-200 | Narrow-body | 2010 | ||||
| 17. | AirAsia Berhad | A320-200 | Narrow-body | 2010 | ||||
| 18. | AirAsia Berhad | A320-200 | Narrow-body | 2010 | ||||
| 19. | AirAsia Berhad | A320-200 | Narrow-body | 2009 | ||||
| 20. | AirAsia India | A320-200 | Narrow-body | 2014 | ||||
| 21. | AirAsia India | A320-200 | Narrow-body | 2014 | ||||
| 22. | Alaska Airlines | A320-200 | Narrow-body | 2007 | ||||
| 23. | American Airlines | B737-800 | Narrow-body | 2013 | ||||
| 24. | American Airlines | A319-100 | Narrow-body | 2000 | ||||
| 25. | American Airlines | A319-100 | Narrow-body | 2000 | ||||
| 26. | American Airlines | A319-100 | Narrow-body | 2000 | ||||
| 27. | American Airlines | A319-100 | Narrow-body | 2000 | ||||
| 28. | Chang’An Airlines | B737-800 | Narrow-body | 2006 | ||||
| 29. | Condor | A321-200 | Narrow-body | 2015 | ||||
| 30. | easyJet | A319-100 | Narrow-body | 2007 | ||||
| 31. | Ethiopian Airlines | B777-200LRF(1) | Wide-body | 2015 | ||||
| 32. | Ethiopian Airlines | B777-200LRF(1) | Wide-body | 2015 | ||||
| 33. | Finnair | A320-200(2) | Narrow-body | 2003 | ||||
| 34. | flydubai | B737-800 | Narrow-body | 2010 | ||||
| 35. | flydubai | B737-800 | Narrow-body | 2010 | ||||
| 36. | Fly Gangwon | B737-800 | Narrow-body | 2012 | ||||
| 37. | Garuda Indonesia | B737-800 | Narrow-body | 2010 | ||||
| 38. | Go2Sky | B737-800 | Narrow-body | 2007 | ||||
| 39. | Go2Sky | B737-800 | Narrow-body | 1998 | ||||
| 40. | Icelandair | B757-200SF(1) | Narrow-body | 1990 | ||||
| 41. | Indigo | A320-200 | Narrow-body | 2005 | ||||
| 42. | Indigo | A320-200 | Narrow-body | 2005 | ||||
| 43. | Indonesia AirAsia | A320-200 | Narrow-body | 2013 | ||||
| 44. | Indonesia AirAsia | A320-200 | Narrow-body | 2012 | ||||
| 45. | Lucky Air Airlines | B737-800 | Narrow-body | 2007 | ||||
| 46. | Lucky Air Airlines | B737-800 | Narrow-body | 2007 | ||||
| 47. | Malaysian Airlines | B737-800 | Narrow-body | 2012 | ||||
| 48. | Malaysian Airlines | B737-800 | Narrow-body | 2012 | ||||
| 49. | Malaysian Airlines | B737-800 | Narrow-body | 2012 | ||||
| 50. | Malaysian Airlines | B737-800 | Narrow-body | 2011 | ||||
| 51. | Malaysian Airlines | B737-800 | Narrow-body | 2011 | ||||
| 52. | Malaysian Airlines | B737-800 | Narrow-body | 2011 | ||||
| 53. | Malaysian Airlines | B737-800 | Narrow-body | 2011 | ||||
| 54. | Nordavia Airline | B737-700 | Narrow-body | 2006 | ||||
| 55. | Oman Air S.A.O.C. | B737-800 | Narrow-body | 2009 | ||||
| 56. | Philippine Airlines | A321-200 | Narrow-body | 2014 |
| Lessee | Aircraft Type | Airframe Type | Date of Manufacture | |||||
| 57. | Philippine Airlines | A321-200 | Narrow-body | 2014 | ||||
| 58. | Philippine Airlines | A330-300 | Wide-body | 2013 | ||||
| 59. | Philippine Airlines | A330-300 | Wide-body | 2013 | ||||
| 60. | Philippines AirAsia | A320-200 | Narrow-body | 2007 | ||||
| 61. | PT Batik Air | A320-200 | Narrow-body | 2017 | ||||
| 62. | PT Lion Mentari | B737 MAX 8 | Narrow-body | 2017 | ||||
| 63. | PT Lion Mentari | B737 MAX 8 | Narrow-body | 2017 | ||||
| 64. | Shandong Airlines | B737-800 | Narrow-body | 2013 | ||||
| 65. | Shandong Airlines | B737-800 | Narrow-body | 2013 | ||||
| 66. | SpiceJet Ltd | B737-800 | Narrow-body | 2011 | ||||
| 67. | SpiceJet Ltd | B737-800 | Narrow-body | 2010 | ||||
| 68. | SpiceJet Ltd | B737-800 | Narrow-body | 2007 | ||||
| 69. | TAROM S.A. | B737-800 | Narrow-body | 2017 | ||||
| 70. | Tata SIA Airlines Limited (Vistara) | B737-800 | Narrow-body | 2014 | ||||
| 71. | Tata SIA Airlines Limited (Vistara) | B737-800 | Narrow-body | 2014 | ||||
| 72. | Thai AirAsia | A321neo | Narrow-body | 2019 | ||||
| 73. | Thai AirAsia | A320-200 | Narrow-body | 2010 | ||||
| 74. | Transavia France | B737-800 | Narrow-body | 2008 | ||||
| 75. | Transavia France | B737-800 | Narrow-body | 2008 | ||||
| 76. | Transavia France | B737-800 | Narrow-body | 2007 | ||||
| 77. | Transavia France | B737-800 | Narrow-body | 2007 | ||||
| 78. | TUI Travel Aviation Finance | B737-800 | Narrow-body | 2010 | ||||
| 79. | Virgin Atlantic | A330-200 | Wide-body | 2001 | ||||
| 80. | Vueling Airlines | A320-200 | Narrow-body | 2007 | ||||
| 81. | Vueling Airlines | A320-200 | Narrow-body | 2007 | ||||
| 82. | Yakutia | B737-800 | Narrow-body | 2002 | ||||
| 83. | Off-lease(3) | B737-800 | Narrow-body | 2014 |
30
Lessee | Aircraft Type | Airframe Type | Date of Manufacture | |
54. | TAM | A320-200 | Narrow-body | 2006 |
55. | THY | A320-200 | Narrow-body | 2005 |
56. | THY | A320-200 | Narrow-body | 2005 |
57. | THY | A320-200 | Narrow-body | 2005 |
58. | Transavia France | B737-800 | Narrow-body | 2008 |
59. | Transavia France | B737-800 | Narrow-body | 2008 |
60. | Transavia France | B737-800 | Narrow-body | 2007 |
61. | Transavia France | B737-800 | Narrow-body | 2007 |
62. | Travel Service | B737-800 | Narrow-body | 2010 |
63. | Travel Service | B737-800 | Narrow-body | 2010 |
64. | TUI Travel Aviation Finance | B737-800 | Narrow-body | 2010 |
65. | TUI Travel Aviation Finance | B757-200 | Narrow-body | 1999 |
66. | TUI Travel Aviation Finance | B757-200 | Narrow-body | 1999 |
67. | US Airways | A319-100 | Narrow-body | 2000 |
68. | US Airways | A319-100 | Narrow-body | 2000 |
69. | US Airways | A319-100 | Narrow-body | 2000 |
70. | US Airways | A319-100 | Narrow-body | 2000 |
71. | Virgin America | A320-200 | Narrow-body | 2007 |
72. | Virgin Atlantic | A340-600 | Wide-body | 2006 |
73. | Virgin Atlantic | A340-600 | Wide-body | 2006 |
74. | Vueling Airlines | A320-200 | Narrow-body | 2007 |
75. | Vueling Airlines | A320-200 | Narrow-body | 2007 |
76. | Yakutia | B737-800 | Narrow-body | 2002 |
| (1) | Freighter. |
| (2) |
| (3) | Re-leased to EL AL Israel in February 2020. |
| Lessee | Aircraft Type | Airframe Type | Date of Manufacture | |||||
| 1. | Malaysian Airlines(1) | B737-800 | Narrow-body | 2011 | ||||
| 2. | Oman Air S.A.O.C. | B737-800 | Narrow-body | 2009 | ||||
| 3. | SpiceJet Ltd | B737-800 | Narrow-body | 2010 | ||||
| 4. | SpiceJet Ltd | B737-800 | Narrow-body | 2007 | ||||
| 5. | Sunwing Airlines(1) | B737-800 | Narrow-body | 2006 | ||||
| 6. | Thai AirAsia(1) | A320-200 | Narrow-body | 2012 |
| (1) | Sold subsequent to December 31, 2019. |
| Lessee | Engine Type | Date of Manufacture | ||||
| 1. | AirAsia Berhad | CFM56-5B4/3 | 2011 | |||
| 2. | AirAsia Berhad | CFM56-5B6/3 | 2011 | |||
| 3. | AirAsia Berhad | CFM56-5B4/3 | 2008 | |||
| 4. | AirAsia Berhad | CFM56-5B6/3 | 2008 | |||
| 5. | AirAsia Berhad | CFM56-5B6/P | 2006 | |||
| 6. | AirAsia Japan | CFM56-5B6/3 | 2009 | |||
| 7. | Indonesia AirAsia | CFM56-5B6/3 | 2015 |
Aircraft Manufacturer | Aircraft Type | Number of Aircraft | |||||
Airbus | 6 | ||||||
A320-200(1) | 24 | ||||||
| 3 | |||||||
| A321neo | 1 | ||||||
| 1 | |||||||
| 2 | |||||||
| 37 | |||||||
Boeing | 3 | ||||||
| 2 | |||||||
| 34 | |||||||
| 1 | |||||||
| 2 | |||||||
| 4 | |||||||
| 46 | |||||||
| Total | |||||||
83 | |||||||
| (1) | Includes one aircraft classified as an investment in finance lease. |
31
generation Boeing 737 and Boeing 757 aircraft families, which enjoy high worldwide demand due to their fuel-efficient design, relatively low maintenance costs, and an increase in customer demand for point-to-point destination service. These aircraft are based on more routes around the world than any other airframe and thus have the largest installed base. Our wide-body aircraft include Airbus A330 Airbus A340 and next generation Boeing 777 (freighter) and Boeing 787 aircraft families.
families.
Airframe Type | Number of Aircraft | |||
Narrow-body(1)(2) | 74 | |||
Wide-body(3) | 9 | |||
Total | 83 | |||
| (1) | Includes one aircraft classified as an investment in finance lease. |
| (2) | Includes one freighter. |
| (3) | Includes two freighters. |
Years ended | ||||||||||||||||||
2016 | 2015 | 2014 | ||||||||||||||||
Europe: | ||||||||||||||||||
United Kingdom | $ | 34,498 | 11 | % | $ | 50,742 | 12 | % | $ | 46,281 | 11 | % | ||||||
Turkey | 24,593 | 8 | % | 29,847 | 7 | % | 27,069 | 7 | % | |||||||||
Russia | 3,141 | 1 | % | 24,095 | 6 | % | 9,017 | 2 | % | |||||||||
Other (1) | 46,516 | 14 | % | 74,171 | 17 | % | 73,660 | 19 | % | |||||||||
Europe — Total | 108,748 | 34 | % | 178,855 | 42 | % | 156,027 | 39 | % | |||||||||
Asia and South Pacific: | ||||||||||||||||||
India | 39,640 | 13 | % | 19,572 | 4 | % | 32,675 | 8 | % | |||||||||
Philippines | 29,129 | 9 | % | 38,677 | 9 | % | 12,947 | 3 | % | |||||||||
China | 23,882 | 8 | % | 37,943 | 9 | % | 47,049 | 12 | % | |||||||||
Other | 27,287 | 8 | % | 39,056 | 9 | % | 45,855 | 11 | % | |||||||||
Asia and South Pacific — Total | 119,938 | 38 | % | 135,248 | 31 | % | 138,526 | 34 | % | |||||||||
Mexico, South and Central America: | ||||||||||||||||||
Chile | 8,939 | 3 | % | 24,336 | 6 | % | 28,116 | 7 | % | |||||||||
Other | 8,768 | 3 | % | 16,732 | 4 | % | 21,733 | 5 | % | |||||||||
Mexico, South and Central America — Total | 17,707 | 6 | % | 41,068 | 10 | % | 49,849 | 12 | % | |||||||||
North America: | ||||||||||||||||||
United States | 24,591 | 8 | % | 37,316 | 9 | % | 41,531 | 10 | % | |||||||||
Other | 6,223 | 2 | % | 6,380 | 1 | % | 3,429 | 1 | % | |||||||||
North America — Total | 30,814 | 10 | % | 43,696 | 10 | % | 44,960 | 11 | % | |||||||||
Middle East and Africa — Total: | ||||||||||||||||||
Ethiopia | 30,084 | 10 | % | 22,808 | 5 | % | 4,501 | 1 | % | |||||||||
Other | 8,357 | 2 | % | 8,315 | 2 | % | 12,700 | 3 | % | |||||||||
Middle East and Africa — Total | 38,441 | 12 | % | 31,123 | 7 | % | 17,201 | 4 | % | |||||||||
Total Lease Revenue | $ | 315,648 | 100 | % | $ | 429,990 | 100 | % | $ | 406,563 | 100 | % | ||||||
| Years ended | |||||||||||||||||||||||||
| 2019 | 2018 | 2017 | |||||||||||||||||||||||
| Europe: | |||||||||||||||||||||||||
| Spain | $ | 17,475 | 4 | % | $ | 17,267 | 4 | % | $ | 11,199 | 3 | % | |||||||||||||
| United Kingdom | 79,022 | 17 | % | (1) | 31,259 | 8 | % | 29,182 | 8 | % | |||||||||||||||
| Turkey | 2,041 | — | 12,114 | 3 | % | 17,103 | 5 | % | |||||||||||||||||
| Germany | 951 | — | — | 0 | % | 26,457 | 8 | % | |||||||||||||||||
Other(2) | 31,815 | 7 | % | 32,670 | 8 | % | 29,911 | 9 | % | ||||||||||||||||
| Europe — Total | 131,304 | 28 | % | 93,310 | 23 | % | 113,852 | 33 | % | ||||||||||||||||
| Asia and South Pacific: | |||||||||||||||||||||||||
| India | 103,422 | 22 | % | 87,492 | 22 | % | 64,381 | 18 | % | ||||||||||||||||
| Malaysia | 55,189 | 12 | % | 26,748 | 7 | % | 8,767 | 3 | % | ||||||||||||||||
| Philippines | 34,217 | 7 | % | 35,009 | 9 | % | 29,825 | 9 | % | ||||||||||||||||
| Indonesia | 32,882 | 7 | % | 32,336 | 8 | % | 16,308 | 5 | % | ||||||||||||||||
| China | 23,320 | 5 | % | 21,103 | 5 | % | 22,611 | 6 | % | ||||||||||||||||
| Other | 18,550 | 5 | % | 18,756 | 4 | % | 10,496 | 3 | % | ||||||||||||||||
| Asia and South Pacific — Total | 267,580 | 58 | % | 221,444 | 55 | % | 152,388 | 44 | % | ||||||||||||||||
| Mexico, South and Central America — Total | 5,425 | 1 | % | 11,415 | 3 | % | 17,565 | 5 | % | ||||||||||||||||
| North America: | |||||||||||||||||||||||||
| United States | 16,267 | 4 | % | 20,147 | 5 | % | 17,647 | 5 | % | ||||||||||||||||
| Other | 4,991 | 1 | % | 6,242 | 2 | % | 6,237 | 2 | % | ||||||||||||||||
| North America — Total | 21,258 | 5 | % | 26,389 | 7 | % | 23,884 | 7 | % | ||||||||||||||||
| Middle East and Africa: | |||||||||||||||||||||||||
| Ethiopia | 30,019 | 6 | % | 30,019 | 8 | % | 30,018 | 9 | % | ||||||||||||||||
| Other | 9,431 | 2 | % | 17,612 | 4 | % | 9,918 | 2 | % | ||||||||||||||||
| Middle East and Africa — Total | 39,450 | 8 | % | 47,631 | 12 | % | 39,936 | 11 | % | ||||||||||||||||
| Total Lease Revenue | $ | 465,017 | 100 | % | $ | 400,189 | 100 | % | $ | 347,625 | 100 | % | |||||||||||||
| (1) | Includes |
| (2) | Includes $0.6 million, $0.7 million and |
32
Our Leases
Because all our lease agreements provide for regular payments over a period of years, we generally do not expect significant seasonality in our business.
Airframe Type | |||||||||
Year of Scheduled Lease Expiration | Narrow | Wide | Total | ||||||
2017 | 7 | — | 7 | ||||||
2018 | 6 | (1) | 3 | 9 | |||||
2019 | 13 | — | 13 | ||||||
2020 | 6 | — | 6 | ||||||
2021 | 9 | — | 9 | ||||||
2022 | 9 | — | 9 | ||||||
2023 | 4 | — | 4 | ||||||
2024 | 3 | — | 3 | ||||||
2025 | 3 | (2) | 3 | 6 | |||||
2026 | 2 | — | 2 | ||||||
2027 | 2 | (3) | 2 | 4 | |||||
2028 | 1 | 3 | 4 | ||||||
Total | 65 | 11 | 76 | ||||||
Year of Scheduled Lease Expiration | Narrow-body | Wide-body | Engines | Total | ||||||||||||
Off-lease | 1 | — | — | 1 | ||||||||||||
2020 | 9 | — | — | 9 | ||||||||||||
2021 | 12 | 1 | — | 13 | ||||||||||||
2022 | 18 | — | 6 | 24 | ||||||||||||
2023 | 8 | — | 1 | 9 | ||||||||||||
2024 | 5 | (1) | — | — | 5 | |||||||||||
2025 | 4 | (2) | 2 | — | 6 | |||||||||||
2026 | 4 | — | — | 4 | ||||||||||||
2027 | 1 | 2 | (3) | — | 3 | |||||||||||
2028 | 3 | 3 | — | 6 | ||||||||||||
2029 | 7 | 1 | — | 8 | ||||||||||||
2030 | — | — | — | — | ||||||||||||
2031 | 2 | — | — | 2 | ||||||||||||
| Total | 74 | 9 | 7 | 90 | ||||||||||||
| (1) | Includes one freighter. |
| (2) | Includes one aircraft classified as an investment in finance |
| (3) | Includes two freighters. |
taxes.
33
Security Deposits and Letters of Credit. The majority of our leases provide for cash security deposits and/or letters of credit which may be drawn in the event that a lessee defaults under its respective lease. These securitySecurity deposits and/or letters of credit may mitigate losses we may incur while attempting to re-lease the aircraft. Under certain circumstances, the lessee may be required to obtain guarantees or other financial support from an acceptable financial institution or other third parties.
parties.
directives.
lessee.
equivalent.
| 2019, there were no subleases. | |
Our leases also generally permit the lessees to subject the equipment or components to removal or replacement and, in certain cases, to pooling arrangements (temporary borrowing of equipment), without the lessor’s consent but subject to conditions and criteria set forth in the applicable lease. Under our leases, the lessee may deliver possession of the aircraft, engines and other equipment or components to the relevant manufacturer for testing or similar purposes, or to a third party for service, maintenance, repair or other work required or permitted under the lease.
lease.
34
Lease Restructurings. During the term of a lease, a lessee’s business circumstances may change to the point where it is economically sensible for us to consider restructuring the terms of the lease. Restructurings may involve the voluntary termination of leases prior to the scheduled lease expiration, the arrangement of subleases from the primary lessee to another airline, the rescheduling of lease payments, the forgiveness and/or reduction of lease obligations and the extension of the lease terms.
aircraft.
lessees.
35 aircraft.
self-insured.
industry.
lessees.
35
warranty endorsement so that, subject to certain standard exceptions, our interests are not prejudiced by any act or omission of the lessee, (ii) confirmation that the liability coverage is primary and not contributory, (iii) agreement that insurers waive rights of subrogation against us and (iv) in respect to all policies, a 30-day notice of cancellation or material change; however, war and allied perils policies customarily provide seven days advance written notice for cancellation and may be subject to lesser notice under certain market conditions.
conditions.
participate.
claim.
amounts.
36
current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in global, regional or local political, economic, business, competitive, market, regulatory and other factors, many of which are beyond our control. See “Preliminary note” and Item 3 “Key Information — Risk factors.factors.”
We are pursuing a strategy of fleet renewal by acquiring newer aircraft and opportunistically selling older aircraft. We expect to continue to acquire aircraft primarily by (i) entering into purchase and leaseback transactions with airlines for newer aircraft and (ii) opportunistically acquiring individual aircraft that we believe are being offered at attractive prices. In addition, we will continue to consider opportunities to purchase aircraft portfolios, and to sell our aircraft, individually or in portfolio sales of various sizes, when we believe that doing so will maximize our returns, or to manage the composition of our portfolio.
In 2016, we acquired ten aircraft and sold a total of 27 aircraft, one of which was an investment in a finance lease.
Ireland.
Horizon III’s portfolio are serviced and managed by affiliates of BBAM LP, whose affiliates also manage and service our aircraft portfolio. We also purchased $3.1 million, or 3%, of the equity certificates issued by Horizon III Limited in connection with the Horizon III Transaction, which are subject to a seven-year lock-up agreement.
year. Long term, there continues to bewe believe the overall positive trends in world air traffic and airlines’ need to renew their fleets will fuel demand for commercial aircraft which we believeand will continue to drive growth in the aircraft leasing market. Passenger demand continues to grow, although at a more moderate pace in the second half of 2016. Aircraft manufacturers are increasing the production rates of their narrow-body aircraft, including new models which currently make up about 80% of the worldwide fleet.
Despite the favorable market conditions, the
airline leasing market in 2020.
37
equipment, investments, deferred assets, accruals and reserves. We utilize third party appraisers and industry valuation professionals, where possible, to support estimates, particularly with respect to flight equipment. Despite our best efforts to accurately estimate such amounts, actual results could differ from those estimates. The following is a discussion of the accounting policies that involve a high degree of judgment and the methods of their application.
application.
In accordance with guidance provided by the FASB, flight equipment is classified as held for sale when we commit to and commence a plan of sale that is reasonably expected to be completed within one year and satisfies certain other held for sale criteria. Flight equipment held for sale is recorded at the lesser of carrying value or fair value, less estimated cost to sell. We continue to recognize rent from aircraft held for sale until the date the aircraft is sold. Rent collected from the sale contract date through the aircraft disposition date reduces the sale proceeds and gain on sale of aircraft. Imputed interest earned from the sale contract date through the aircraft disposition date increases the selling price of an aircraft. An impairment loss is recorded for an asset held for sale when the carrying value of the asset exceeds its fair value, less estimated cost to sell. An aircraft classified as held for sale is not depreciated.
Subsequent changes to the asset’s fair value are recorded as adjustments to the carrying value of the flight equipment. However, any such adjustment will not cause the asset’s fair value to exceed its original carrying value.
Flight Equipment Held for Operating Lease
| ● | Flight equipment where original manufacturer’s prices are not relevant due to plane modifications and conversions. |
| ● | Flight equipment that is out of production and may have a shorter useful life or lower residual value due to obsolescence. |
| ● | The remaining life of a converted freighter is determined based on the date of conversion, in which case, the total useful life may extend beyond 25 years from the date of manufacture. |
| ● | Flight equipment which management believes will be disposed of prior to the end of its estimated useful life. |
Estimated residual values and useful lives of flight equipment are reviewed and adjusted, if appropriate, during each reporting period.
Major aircraft improvements or lessee-specific modifications to the aircraft to be performed by us pursuant to any lease agreement are accounted for as lease incentives and are amortized against revenue over the term of the lease, assuming no lease renewals. Generally, lessees are responsible for repairs, scheduled maintenanceasset exceeds its fair value, less estimated cost to sell.
Major aircraft improvements and modifications incurred during an off-lease period are capitalized and depreciated overfuture rents, the remaining liferesidual value of the flight equipment. In addition, costs paid by us for scheduled maintenanceequipment to be realized upon sale at some future date, estimated downtime between re-leasing events and overhauls are also capitalized and depreciated over a period to the next scheduled maintenance or overhaul event. Miscellaneous repairs are expensed when incurred.
Impairmentamount of Flight Equipment
re-leasing costs.
38
appraisals of aircraft, published values for similar aircraft, any occurrence of adverse changes in the aviation industry and the overall market conditions that could impact the fair value of our aircraft. The review for recoverability includes an assessment of the estimated future cash flows associated with the use of an asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, we will assess whether the carrying values of the flight equipment exceed the fair values and an impairment loss is required. The undiscounted cash flows consist of cash flows from currently contracted leases, future projected lease rates, transition costs, estimated down time and estimated residual or scrap values for aircraft. We will also record an impairment charge if the expected sale proceeds of an aircraft are less than its carrying value. The impairment loss is measured as the excess of the carrying amount of the impaired asset overaircraft on its fair value.
eventual disposition.
The preparation
operations.
Rights
39
without any cash payment by us to the lessee, the maintenance right liability is relieved and end of lease income is recognized; (ii) we pay the lessee cash compensation at lease expiry of less than the value of the maintenance right liability, the maintenance right liability is relieved and any difference is recognized as end of lease income; or (iii) we pay the lessee cash compensation at lease expiry in excess of the value of the maintenance right liability, the maintenance right liability is relieved and the excess amount is recorded as an aircraft improvement.
improvement to the extent the improvement is substantiated and deemed to meet our capitalization policy.
loss.
40
Maintenance Payment Liability
Our flight equipment is typically subject to triple-net leases under which the lessee is responsible for maintenance, insurance and taxes. Fly’s operating leases also obligate the lessees to comply with all governmental requirements applicable to the flight equipment, including without limitation, operational, maintenance, registration and airworthiness directives.
Under the terms of the lease agreements, cash collected from lessees for future maintenance of the aircraft is recorded as maintenance payment liabilities. We do not recognize such maintenance payments as revenue during the lease. Maintenance payment liabilities are attributable to specific aircraft and are typically based on hours or cycles of utilization, depending upon the component. Upon the occurrence of qualified maintenance events, the lessee submits a request for reimbursement and upon disbursement of the funds, the liability is relieved.
In some leases, the lessor may be obligated to contribute to maintenance related expenses on an aircraft during the term of the lease. In other instances, the lessee or lessor may be obligated to make a payment to the other party at lease termination based on a computation stipulated in the lease agreement. The calculation is based on utilization and condition of the airframe, engines and other major life-limited components as determined at lease termination.
We may also incur maintenance expenses on off-lease aircraft. Scheduled major maintenance or overhaul activities and costs for certain high-value components that are paid by us are capitalized and depreciated over the period until the next overhaul is required. Such payments made by us for minor maintenance, repairs and re-leasing of aircraft are expensed as incurred.
Maintenance payment liability balances at the end of a lease or any amount received as part of a redelivery adjustment are recorded as lease revenue at lease termination, including early termination upon a default. When flight equipment is sold, the maintenance payment liability amounts may be remitted to the buyer in accordance with the terms of the related agreements and are released from the balance sheet as part of the disposition gain or loss.
Revenue Recognition
Operating lease revenue. We receive lease |
End of lease income. The amount of end of lease income we recognize in any reporting period is inherently volatile and depends upon a number of factors, including the timing of |
Lease incentives. Our leases may contain provisions which require us to contribute a portion of the lessee’s costs for heavy maintenance, overhaul or replacement of certain high-value components. We account for these expected payments as lease incentives, which are amortized as a reduction of lease revenue over the life of the |
Lease premium and discount. Lease premiums and lease discounts are amortized into operating lease revenue over the lease term. Amortization of lease premiums decreases rental revenue and amortization of lease discounts increases rental revenue. |
| ● | Finance lease income. Revenue from finance leases is recognized using the interest method to produce a level yield over the life of the finance |
more-likely-than-notmore likely than not realized.41
We apply a recognition threshold of more-likely-than-notrecognize an uncertain tax benefit only to the extent that it is more likely than not that the tax position will be sustained inon examination by the examinationtaxing authorities, based on the technical merits of income tax on uncertainties.the position. We have elected to classify any interest on unpaid income taxes and penalties as a component of the provision for income taxes. No interest on unpaid income taxes and penalties were incurred during each of the years ended December 31, 2016, 20152019, 2018 and 2014.
2017.
In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenues arising from contracts with customers. The guidance specifically notes that lease contracts with customers are a scope exception. However, the standard may impact accounting for our revenue other than lease revenue. We are currently evaluating the potential impact the adoption of the standard will have on our consolidated financial condition, results of operations and cash flows. We plan to adopt the guidance effective January 1, 2018.
In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). The new guidance is intended to reduce diversityprovide entities with relief from the costs of implementing certain aspects of ASU 2016-02, Leases (Topic 842). Under a new transition method, entities can elect to not restate comparative periods presented in practice in how certain transactions are classifiedfinancial statements in the statementperiod of cash flows.adoption. The guidance requires application usingFASB also issued new practical expedients that allow lessors to elect not to separate lease and associated non-lease components within a retrospective transition method. contract if the following conditions are met:
2019 and elected the practical expedients and transition relief, which does not require us to restate comparative periods. Accordingly, the adoption did not result in any adjustment to our consolidated financial statements.
In October 2016, FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires the recognition of current and deferred income taxes for intra-entity asset transfers, other than inventory, when the transfer occurs. Historically, the income tax consequence was not recognized until the asset was sold to a third party. We are currently evaluating the potential impact the2020. The adoption of the standard willdid not have a material effect on our consolidated financial condition, resultsstatements.
2020. The adoption of the standard did not have a material effect on our consolidated financial statements.
42
Operating Results
Management’s discussion and analysis of operating results presented below pertain to the consolidated statementstatements of operationsincome of Fly for the years ended December 31, 2016, 20152019, 2018 and 2014.
2017.
Years ended | Increase/ (Decrease) | ||||||||
2016 | 2015 | ||||||||
(Dollars in thousands) | |||||||||
Revenues | |||||||||
Operating lease revenue | $ | 313,582 | $ | 429,691 | $ | (116,109 | ) | ||
Finance lease income | 2,066 | 299 | 1,767 | ||||||
Equity earnings from unconsolidated subsidiary | 530 | 1,159 | (629 | ) | |||||
Gain on sale of aircraft | 27,195 | 28,959 | (1,764 | ) | |||||
Interest and other income | 1,666 | 2,289 | (623 | ) | |||||
Total revenues | 345,039 | 462,397 | (117,358 | ) | |||||
Expenses | |||||||||
Depreciation | 120,452 | 159,732 | (39,280 | ) | |||||
Aircraft impairment | 96,122 | 66,093 | 30,029 | ||||||
Interest expense | 123,161 | 145,448 | (22,287 | ) | |||||
Selling, general and administrative | 30,077 | 33,674 | (3,597 | ) | |||||
Ineffective, dedesignated and terminated derivatives | 91 | 4,134 | (4,043 | ) | |||||
Net loss on extinguishment of debt | 9,246 | 17,491 | (8,245 | ) | |||||
Maintenance and other costs | 2,279 | 7,628 | (5,349 | ) | |||||
Total expenses | 381,428 | 434,200 | (52,772 | ) | |||||
Net income (loss) before provision for income taxes | (36,389 | ) | 28,197 | (64,586 | ) | ||||
Provision (benefit) for income taxes | (7,277 | ) | 5,399 | (12,676 | ) | ||||
Net income (loss) | $ | (29,112 | ) | $ | 22,798 | $ | (51,910 | ) | |
| Years ended | Increase/ (Decrease) | |||||||||||
| 2019 | 2018 | |||||||||||
| (Dollars in thousands) | ||||||||||||
| Revenues | ||||||||||||
| Operating lease revenue | $ | 464,399 | $ | 399,514 | $ | 64,885 | ||||||
| Finance lease revenue | 618 | 675 | (57 | ) | ||||||||
Equity earnings (loss) from unconsolidated subsidiary | 2,717 | (54 | ) | 2,771 | ||||||||
| Gain on sale of aircraft | 97,323 | 13,398 | 83,925 | |||||||||
| Interest and other income | 9,967 | 4,766 | 5,201 | |||||||||
| Total revenues | 575,024 | 418,299 | 156,725 | |||||||||
| Expenses | ||||||||||||
| Depreciation | 140,798 | 144,084 | (3,286 | ) | ||||||||
| Interest expense | 137,133 | 144,742 | (7,609 | ) | ||||||||
| Selling, general and administrative | 35,304 | 31,185 | 4,119 | |||||||||
| Loss (gain) on derivatives | 2,720 | (2,382 | ) | 5,102 | ||||||||
| Loss on modification and extinguishment of debt | 9,590 | 2,474 | 7,116 | |||||||||
| Maintenance and other costs | 3,075 | 2,547 | 528 | |||||||||
| Total expenses | 328,620 | 322,650 | 5,970 | |||||||||
| Net income before provision for income taxes | 246,404 | 95,649 | 150,755 | |||||||||
| Provision for income taxes | 20,527 | 9,926 | 10,601 | |||||||||
| Net income | $ | 225,877 | $ | 85,723 | $ | 140,154 | ||||||
| Years ended | Increase/ (Decrease) | |||||||||||
| 2019 | 2018 | |||||||||||
| (Dollars in thousands) | ||||||||||||
| Operating lease revenue: | ||||||||||||
| Operating lease rental revenue | $ | 391,142 | $ | 389,350 | $ | 1,792 | ||||||
| End of lease income | 78,781 | 20,333 | 58,448 | |||||||||
| Amortization of lease incentives | (5,590 | ) | (9,738 | ) | 4,148 | |||||||
| Amortization of lease premiums, discounts & other | 66 | (431 | ) | 497 | ||||||||
| Total operating lease revenue | $ | 464,399 | $ | 399,514 | $ | 64,885 | ||||||
| Years ended | Increase/ | |||||||||||
| 2018 | 2017 | (Decrease) | ||||||||||
| (Dollars in thousands) | ||||||||||||
| Revenues | ||||||||||||
| Operating lease revenue | $ | 399,514 | $ | 346,894 | $ | 52,620 | ||||||
| Finance lease revenue | 675 | 731 | (56 | ) | ||||||||
| Equity (loss) earnings from unconsolidated subsidiary | (54 | ) | 496 | (550 | ) | |||||||
| Gain on sale of aircraft | 13,398 | 3,926 | 9,472 | |||||||||
| Interest and other income | 4,766 | 1,204 | 3,562 | |||||||||
| Total revenues | 418,299 | 353,251 | 65,048 | |||||||||
| Expenses | ||||||||||||
| Depreciation | 144,084 | 133,227 | 10,857 | |||||||||
| Aircraft impairment | — | 22,000 | (22,000 | ) | ||||||||
| Interest expense | 144,742 | 127,782 | 16,960 | |||||||||
| Selling, general and administrative | 31,185 | 30,671 | 514 | |||||||||
| Gain on derivatives | (2,382 | ) | (192 | ) | (2,190 | ) | ||||||
| Loss on modification and extinguishment of debt | 2,474 | 23,309 | (20,835 | ) | ||||||||
| Maintenance and other costs | 2,547 | 2,524 | 23 | |||||||||
| Total expenses | 322,650 | 339,321 | (16,671 | ) | ||||||||
| Net income before provision for income taxes | 95,649 | 13,930 | 81,719 | |||||||||
| Provision for income taxes | 9,926 | 11,332 | (1,406 | ) | ||||||||
| Net income | $ | 85,723 | $ | 2,598 | $ | 83,125 | ||||||
In the years ended December 31, 2016 and 2015, we continued to recognize revenue from aircraft classified as held for sale, until the date that the aircraft were delivered to the purchasers. Pursuant to the sale contracts governing these transactions, rents collected with respect to these aircraft from the sale contract date through the aircraft disposition date reduced the sale proceeds and gain on sale of aircraft, which was partially offset by imputed interest earned for the same period. We ceased to recognize depreciation on these aircraft on the relevant sale contract date.
Years ended | Increase/ (Decrease) | ||||||||
2016 | 2015 | ||||||||
(Dollars in thousands) | |||||||||
Operating lease revenue: | |||||||||
Operating lease rental revenue | $ | 313,976 | $ | 398,741 | $ | (84,765 | ) | ||
End of lease revenue | 8,918 | 53,760 | (44,842 | ) | |||||
Amortization of lease incentives | (8,898 | ) | (20,527 | ) | 11,629 | ||||
Amortization of lease premiums, discounts & other | (414 | ) | (2,283 | ) | 1,869 | ||||
Total operating lease revenue | $ | 313,582 | $ | 429,691 | $ | (116,109 | ) | ||
Years ended Increase/ 2018 2017 (Decrease) (Dollars in thousands) Operating lease revenue: Operating lease rental revenue $ 389,350 $ 337,137 $ 52,213 End of lease income 20,333 17,837 2,496 Amortization of lease incentives (9,738 ) (7,668 ) (2,070 ) Amortization of lease premiums, discounts & other (431 ) (412 ) (19 ) Total operating lease revenue $ 399,514 $ 346,894 $ 52,620
43
of lease revenue recognized2018 and (iii) a decrease of $5.8 million from off-lease periods and lower lease rates on lease extensions and remarketings. The decrease was partially offset by (i) an increase of $52.9 million from aircraft purchased in 2015 and 2016, (ii) a decrease of $11.6$2.1 million in lease incentive amortization, (iii) a decrease of amortization of lease premiums, net of lease discounts of $1.4 million, and (iv) other increases of $1.8 million.
For the year ended December 31, 2016, finance lease income totaled $2.1 million. At December 31, 2016, we had one investment in finance lease. An existing operating lease was reclassified to a finance lease, resulting in a gain of $2.7 million. For the year ended December 31, 2015, finance lease income totaled $0.3 million, which was attributable to one lease recorded as an investment in finance lease. This aircraft was sold during the third quarter of 2016.
During the years ended December 31, 2016 and 2015, we recorded equity earnings from our investment in unconsolidated subsidiary of $0.5 million and $1.2 million, respectively. Two aircraft remain in the joint venture.
amortization.
Depreciation expense during the year ended December 31, 2016 was $120.5 million, compared to $159.7 million for the year ended December 31, 2015, a decrease of $39.2 million. The decrease was primarily due to stoppage of depreciation on (i) aircraft classified as held for sale in 2015 and (ii) aircraft sold in 2015 and 2016. These decreases were partially offset by depreciation on aircraft acquired in 2015 and 2016.
During the year ended December 31, 2016, we recognized aircraft impairment totaling $96.1 million. This impairment charge related primarily to three wide-body aircraft nearing the end of their useful lives and are the only aircraft of their type in our portfolio. In addition, we recognized an impairment charge on one narrow-body aircraft which was sold in the third quarter of 2016, with proceeds paid to the lender in full satisfaction of the associated debt. During the year ended December 31, 2015, we recognized aircraft impairment totaling $66.1 million related to three wide-body aircraft nearing the end of their economic lives and 11 narrow-body aircraft, ten of which were sold in 2015 and 2016.
Interest expense totaled $123.2 million and $145.4 million for the years ended December 31, 2016 and 2015, respectively. The decrease of $22.2 million was primarily due to (i) a reduction in interest due to debt repayments from aircraft sales and regular amortization, (ii) a reduction in swap interest expense, (iii) re-pricing of the Term Loan in April 2015 and (iv) loan fees and commitment fees paid under the Fly Acquisition II Facility prior to its termination in the first quarter of 2015, partially offset by interest on other secured borrowings in 2016, and loan and commitment fees paid under the Fly Acquisition III Facility.
Debt extinguishment costs totaled $9.2 million and $17.5 million for the years ended December 31, 2016 and 2015, respectively. During the year December 31, 2016, we (i) wrote off unamortized loan costs and debt discounts and expensed other fees totaling $4.8 million in connection with the repayment of debt associated with aircraft sold, (ii) wrote off unamortized loan costs and debt discounts and expensed loan costs totaling $2.3 million in connection with the extension of the Term Loan, and (iii) incurred swap breakage fees of $2.1$
Selling, general and administrative expenses were $30.1 million and $33.7 million for the years ended December 31, 2016 and 2015, respectively. The decrease of $3.6 million was primarily due to (i) a reduction in annual management fees in connection with the amendment to the management agreement with our Manager effective July 1, 2015 and (ii) a reduction in servicing fees paid to BBAM due to a decrease in the number of aircraft in our portfolio. These decreases were partially offset by $1.1 million of professional fees incurred in 2016 related to the restatement of our financial statements and a reduction in unrealized foreign currency exchange gains caused by the valuation of other aircraft secured borrowings denominated in Euros.
44
Maintenance and other costs totaled $2.3 million and $7.6 million during the years ended December 31, 2016 and 2015, respectively. The decrease of $5.3 million was primarily due to a reduction in remarketing activities.
For the years ended December 31, 2016 and 2015, we had a benefit for income taxes of $7.3 million and provision for income taxes of $5.4 million, respectively. In 2016, we recognized a deduction for an interest payment made by a subsidiary. We intend to utilize this benefit as group relief to offset income tax on repatriated earnings of a Cayman Islands subsidiary. During the years ended December 31, 2016 and 2015, we recorded net valuation allowances of $7.2 million and $3.4 million, respectively.
Our consolidated net loss was $29.1 million and our consolidated net income was $22.8 million for the years ended December 31, 2016 and 2015, respectively.
Consolidated Statements of Income of Fly for the years ended December 31, 2015 and 2014
Years ended | Increase/ (Decrease) | ||||||||
2015 | 2014 | ||||||||
(Dollars in thousands) | |||||||||
Revenues | |||||||||
Operating lease revenue | $ | 429,691 | $ | 406,563 | $ | 23,128 | |||
Finance lease income | 299 | — | 299 | ||||||
Equity earnings from unconsolidated subsidiary | 1,159 | 3,562 | (2,403 | ) | |||||
Gain on sale of aircraft | 28,959 | 14,761 | 14,198 | ||||||
Interest and other income | 2,289 | 662 | 1,627 | ||||||
Total revenues | 462,397 | 425,548 | 36,849 | ||||||
Expenses | |||||||||
Depreciation | 159,732 | 166,983 | (7,251 | ) | |||||
Aircraft impairment | 66,093 | 1,200 | 64,893 | ||||||
Interest expense | 145,448 | 142,519 | 2,929 | ||||||
Selling, general and administrative | 33,674 | 41,033 | (7,359 | ) | |||||
Ineffective, dedesignated and terminated derivatives | 4,134 | 72 | 4,062 | ||||||
Net gain on extinguishment of debt | 17,491 | (2,194 | ) | 19,685 | |||||
Maintenance and other costs | 7,628 | 7,060 | 568 | ||||||
Total expenses | 434,200 | 356,673 | 77,527 | ||||||
Net income before provision for income taxes | 28,197 | 68,875 | (40,678 | ) | |||||
Provision for income taxes | 5,399 | 8,691 | (3,292 | ) | |||||
Net income | $ | 22,798 | $ | 60,184 | $ | (37,386 | ) | ||
As of December 31, 2015, we had 93 aircraft in our portfolio, of which 79 were held for operating lease, 13 were held for sale, and one was recorded as an investment in finance lease. As of December 31, 2014, we had 127 aircraft in our portfolio, all of which were held for operating lease. In 2015, we purchased ten aircraft and sold 44 aircraft.
Years ended | Increase/ (Decrease) | ||||||||
2015 | 2014 | ||||||||
(Dollars in thousands) | |||||||||
Operating lease revenue: | |||||||||
Operating lease rental revenue | $ | 398,741 | $ | 387,835 | $ | 10,906 | |||
End of lease revenue | 53,760 | 41,651 | 12,109 | ||||||
Amortization of lease incentives | (20,527 | ) | (18,934 | ) | (1,593 | ) | |||
Amortization of lease premiums, discounts & other | (2,283 | ) | (3,989 | ) | 1,706 | ||||
Total operating lease revenue | $ | 429,691 | $ | 406,563 | $ | 23,128 | |||
For the year ended December 31, 2015, operating lease revenue totaled $429.7 million, an increase of $23.1 million compared to the year ended December 31, 2014. The increase was primarily due to (i) an increase of $76.0 million from aircraft purchased in 2014 and 2015, (ii) an increase of $12.1 million from end of lease revenue recognized and (iii) other increases of $1.9 million. The increase was partially offset by (i) a decrease of
45
$40.5 million in lease revenue from aircraft sold in 2014 and 2015, (ii) a decrease of $24.8 million from off-lease periods and lower lease rates on lease extensions and remarketings and (iii) an increase of $1.6 million in lease incentive amortization. For the year ended December 31, 2015, operating lease revenue recognized with respect to aircraft held for sale was $94.1 million.
For the year ended December 31, 2015, finance lease income totaled $0.3 million, which was attributable to one lease recorded as an investment in finance lease. This aircraft was sold during the third quarter of 2016. During the year ended December 31, 2014, we had no investment in finance lease.
During the years ended December 31, 2015 and 2014, we recorded equity earnings from our investment in unconsolidated subsidiary of $1.2 million and $3.6 million, respectively. Our equity earnings for 2014 included our share of the gain on conversion of operating leases to finance leases with respect to two aircraft held in Fly-Z/C LP, which were transferred to the airline in the first quarter of 2015.
During the year ended December 31, 2015,2017, we sold 44one aircraft and recognized a gain on sale of aircraft of $3.9 million.
Depreciation expense during the year ended December 31, 2015 was $159.7 million, compared to $167.0 million for the year ended December 31, 2014, a decrease of $7.3 million. The decrease was primarily due to stoppage of depreciation on (i) aircraft held for sale aircraft and (ii) aircraft sold in 2015 and 2014. These decreases were partially offset by (i) depreciation on acquired aircraft, (ii) additional depreciation on our Boeing 757 aircraft that we contracted to sell in 2014 and (iii) accelerated depreciation on one aircraft resulting from an adjustment to its residual value.
During the year ended December 31, 2015, we recognized an impairment totaling $66.1 million. The impairment charge related to three wide-body aircraft nearing the end of their economic lives and 11 narrow-body aircraft, ten of which were sold in 2015 and 2016. During the year ended December 31, 2014, we recognized aircraft impairment totaling $1.2 million related to one wide-body aircraft. This aircraft was sold during the first quarter of 2016.
Interest expense totaled $145.4 million and $142.5 million for the years ended December 31, 2015 and 2014, respectively. The increase of $2.9 million was primarily due to (i) the Additional 2020 Notes and 2021 Notes issued in October 2014 and (ii) additional secured borrowings used to finance aircraft acquisitions. This increase was partially offset by (i) a reduction in interest due to debt repayments, (ii) re-pricing of the Term Loan, (iii) refinancings made in 2015 and 2014 and (iv) loan fees and commitment fees paid in the Fly Acquisition II Facility prior to its termination.
During the year December 31, 2015, we wrote off unamortized loan costs and debt discounts totaling $13.9 million as debt extinguishment costs and incurred $2.6 million of prepayment and other fees in connection with (i) termination of the Fly Acquisition II Facility, (ii) re-pricing of the Term Loan, and (iii) repayment of debt associated with aircraft sold. We also incurred swap breakage fees of $1.0 million. During the year ended December 31, 2014, we recognized a net gain on debt extinguishment of $2.2 million which primarily related to the sale of two aircraft that were financed under the CBA Facility. The sale proceeds were paid to the lenders as full and final discharge of the loans secured by these two aircraft. The gain was partially offset by the write-off of unamortized loan costs associated with the repayment of two other aircraft secured borrowings.
Selling, general and administrative expenses were $33.7 million and $41.0 million for the years ended December 31, 2015 and 2014, respectively. The decrease of $7.3 million was primarily due to (i) a $5.0 million reduction in annual management expenses in connection with the amendment to the management agreement effective July 1, 2015, (ii) lower expensed acquisition fees in 2015 compared to 2014, and (iii) unrealized foreign currency exchange gains caused by the valuation of other aircraft secured borrowings denominated in Euros. These decreases were partially offset by increases in servicing fees as a result of aircraft purchased in the portfolio.
Maintenance and other costs totaled $7.6 million and $7.1 million during the years ended December 31, 2015 and 2014, respectively. The increase was primarily due to higher costs related to remarketing activities.
46
Our provision for income taxes was $5.4 million and $8.7 million during the years ended December 31, 2015 and 2014, respectively. Our effective tax rate was 19.1% and 12.6% for the years ended December 31, 2015 and 2014, respectively. We recorded net valuation allowancesallowance provision of $3.4$8.4 million and $2.5 million during the years ended December 31, 2015 and 2014, respectively.
Our consolidated net income was $22.8 million and $60.2 million for the years ended December 31, 2015 and 2014, respectively.
.
34 aircraft and seven engines.
and six aircraft, respectively.
$639.2 m
illion.extended the maturity date from February 2023 to August 2025.
During the year ended December 31, 2016, we repurchased 3,414,960 shares at an average price of $11.73 per share, for a total of $40.1 million.
report.
Cash provided by financing activities for the year ended December 31, 2016 totaled $215.7 million.
47
partially offset by (i) net proceeds of $147.3 million from secured borrowings to partially finance aircraft acquisitions and (ii) net maintenance reserve receipts of $45.7 million.
Cash Flows of Fly for the years ended December 31, 2015 and 2014
We generated cash from operations of $214.9 million and $227.2 million for the years ended December 31, 2015 and 2014, respectively, a decrease of $12.3 million.
Cash provided by investing activities was $480.5 million for the year ended December 31, 2015. Cash used in investing activities totaled $840.6 million for the year ended December 31, 2014. In 2015, we used $601.1 million of cash to purchase ten aircraft, including a $33.6 million investment in a finance lease aircraft, and sold 44 aircraft for net cash proceeds of $1.1 billion. In 2014, we used $915.5 million of cash to purchase 22 aircraft, and sold eight aircraft for net cash proceeds of $88.6 million. Lessor maintenance contributions totaled $18.6 million and $5.0 million for the years ended December 31, 2015 and 2014, respectively.
Cash used in financing activities for the year ended December 31, 2015 totaled $756.6$696.3 million. Cash provided by financing activities for the year ended December 31, 20142018 totaled $546.5$436.7 million. In 2015,2019, we (i) made repayments on our secured borrowings totaling $791.4$699.0 million, largely in connection with aircraft sales, redemption of the Securitization Notes and repayment of the Fly Acquisition III Facility and (ii) used $81.4$32.9 million to repurchase 5,797,6732,010,437 shares. These payments were partially offset by net maintenance reserve receipts of $38.2 million. In 2018, we received (i) net proceeds from secured borrowings of $826.4 million, (ii) net maintenance reserves of $68.6 million, (iii) increased our restricted cash accounts by $35.8net proceeds of $19.6 million from shares issued and sold in private placement transactions and (iv) paid dividends and dividend equivalentsnet security deposits from our lessees of $42.4$6.3 million. These receipts were partially offset by (i) repayments on our secured borrowings totaling $482.7 million primarily in connection with aircraft sales and early repayment of debt and (ii) debt issuance costs of $3.6 million.
48
Dividends and Share Repurchases
the current authorization
.During the year ended December 31, 2018, Fly did not repurchase any shares.
borrowings.
Interest Rate. The 2020 Notes have a fixed annual interest rate of 6.750%, which is paid semi-annually on June 15th and December 15th of each year. The 2021 Notes have a fixed annual interest rate of 6.375%, which will be paid semi-annually on April 15th and October 15th of each year, beginning on April 15, 2015.
Payment Terms. The 2020 Notes have a maturity date of December 15, 2020 and the 2021 Notes have a maturity date of October 15, 2021.
Optional Redemption.
20202021 and the 2024 Notes
have a maturity date of October 15, 2024.
If redeemed during the 12-month period commencing on December 15 of the years set forth below: | Redemption Price | ||
2016 | 105.063 | % | |
2017 | 103.375 | % | |
2018 | 101.688 | % | |
2019 and thereafter | 100.000 | % | |
| If redeemed during the 12-month period commencing on October 15 of the years set forth below: | Redemption Price | |||
| 2019 | 101.594 | % | ||
| 2020 and thereafter | 100.000 | % | ||
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2021 Notes
At any time prior to October 15, 2017,2020, we may redeem up to 35% of the original principal amount of the 20212024 Notes with the proceeds of certain equity offerings at a redemption price of 106.375%105.250% of the principal amount thereof, together with accrued and unpaid interest to, but not including, the date of redemption. On and after October 15, 2017,2020, we may redeem the 20212024 Notes, in whole or in part, at the redemption prices listed below, plus accrued and unpaid interest to the redemption date.
If redeemed during the 12-month period commencing on October 15 of the years set forth below: | Redemption Price | ||
2017 | 104.781 | % | |
2018 | 103.188 | % | |
2019 | 101.594 | % | |
2020 and thereafter | 100.000 | % | |
If redeemed during the 12-month period commencing on October 15 of the years set forth below: | Redemption Price | |||
2020 | 102.625 | % | ||
2021 | 101.313 | % | ||
2022 and thereafter | 100.000 | % | ||
Mandatory Offerindenture.
Default and Remedies. obtain an investment grade rating.
Certain Covenants. Pursuant to the indenture governing the 20202024 Notes and 2021 Notes, we are subject to restrictive covenants which relate to dividend payments, incurrence of debt and issuance of guarantees, incurrence of liens, repurchases of common shares, investments, disposition of aircraft, consolidation, merger or sale of our company and transactions with affiliates. We are also subject to certain operating covenants, including reporting requirements. Our failure to comply with any of the covenants under the indentures governing the 2020 Notes or 2021 Notes could result in an event of default which, if not cured or waived, may result in the acceleration of the indebtedness thereunder and other indebtedness containing cross-default or cross-acceleration provisions. Certain of these covenants will be suspended if the 2020 Notes or 2021 Notes obtain an investment grade rating.
.
50
Securitization Notes
At December 31, 2016, our subsidiary,
Interest Rate. The Securitization Notes bear interest at an adjustable interest rate equal to2033, in the current one-month LIBOR plus 0.77%. Interest expense also includes amounts payable to the provider of a financial guaranty insurance policy and the liquidity facility provider thereunder, as well as accretion on the Securitization Notes re-issued at a discount. Interest and any principal payments due are payable monthly. We have entered into interest rate swap contracts to mitigate the interest rate fluctuation risk associated with the Securitization Notes.
Payment Terms. All cash collected, including sale proceeds from the aircraft financed by the Securitization Notes, is applied to service the outstanding balance of the Securitization Notes, after the payment of certain expenses and other costs, including interest, interest rate swap payments, and the fees to the policy provider in accordance with those agreements.
Redemption. We may, on any future payment date, redeem the Securitization Notes in whole or from time to time in part for an amount equal to 100% of the outstandingaggregate principal amount together with accrued and unpaid interest to, but excluding, the date fixed for redemption. Redemption prior to accelerationthen-outstanding of the Securitization Notes may be of all or any part of the Securitization Notes. Redemption after acceleration of the Securitization Notes upon default may only be for all of the Securitization Notes.
Collateral. The Securitization Notes are secured by (i) first priority, perfected security interests in and pledges or assignments of equity ownership and beneficial interests in the subsidiaries of B&B Air Funding; (ii) interests in the leases of the associated aircraft; (iii) cash held by the subsidiaries of B&B Air Funding; and (iv) rights under agreements with BBAM, the initial liquidity facility provider, hedge counterparties and the policy provider. Rentals paid under leases are placed in the collections account and paid out according to a priority of payments set forth in the indenture. The Securitization Notes are also secured by a lien or similar interest in any of the aircraft B&B Air Funding currently owns that are registered in the United States or Ireland. B&B Air Funding may not encumber the aircraft it currently owns or incur additional indebtedness except as permitted under the securitization-related documents.
Certain Covenants. B&B Air Funding is subject to operating covenants which relate to, among other things, its operations, disposition of aircraft, lease concentration limits, and restrictions on the modification of aircraft and capital expenditures. A breach of the covenants could result in the acceleration of the Securitization Notes and exercise of remedies available in relation to the collateral, including the sale of aircraft at public or private sale. In addition, the servicing agreement for B&B Air Funding includes servicer termination events as specified in the agreement.
Default and Remedies. Following any event of default and any acceleration of the Securitization Notes by the controlling party (initially, the policy provider), the security trustee may, at the direction of the controlling party, exercise such remedies in relation to the collateral as may be available to it under applicable law, including the sale of any of the aircraft at public or private sale. After the occurrence of certain bankruptcy and insolvency related events of default, or any acceleration of the Securitization Notes after the occurrence of any event of default, all cash generated by B&B Air Funding will be used to prepay the Securitization Notes.
Liquidity Facility.$63.8 million. In connection with the issuanceredemption, we expensed approximately $1.9 million of the Securitization Notes, B&B Air Funding entered into a revolving credit facility (“Securitization Note Liquidity Facility”) that provides additional liquidity of up to $60.0 million. Subject to the terms and conditions of the Securitization Note Liquiditydebt extinguishment costs.
Our obligations under the Securitization Note Liquidity Facility are secured under the security trust agreement on the same basis as other indebtedness of B&B Air Funding.
51
Nord LB Facility
As of December 31, 2016,2019, we had $171.5 $65.3 million principal amount outstanding under our non-recourse debt facility with Norddeutsche Landesbank Gironzentrale (the “Nord LB Facility”), which was secured by six three aircraft. The Nord LB Facility is structured with loans secured by each aircraft individually. The loans are cross-collateralized and contain cross-default provisions. Borrowings are secured by Fly’s equity interests in the aircraft owning and leasing subsidiaries, the related leases, and certain deposits.
Interest Rate. The
Payment Terms. Wecost. Effective on December 16, 2019, we amended the remaining loans under the Nord LB Facility to further extend the maturity date to May 14, 2021.
loan.
Collateral. Borrowings are secured by our equity interest in the subsidiaries that own the financed aircraft, the related leases, maintenance reserves and other deposits. The loans are cross-collateralized and contain cross-default provisions.
Certain Covenants.
Default and Remedies.
CBA Facility
Interest Rate. Borrowings under the CBA Facility accrue interest at a fixed interest rate, ranging between 4.32% and 7.75%. The weighted average interest rate on all outstanding amounts was 5.45% as of December 31, 2016, excluding the amortization of debt discount loan cost.
Payment Terms. We make scheduled monthly payments of principal and interest on each loan in accordance with a fixed amortization schedule. If, upon the repayment of any loan, the ratio of the remaining principal amount outstanding under the CBA Facility to the aggregate appraised value of the associated aircraft is equal to or greater than 80%, we will be required to pay into a collateral account an amount that is necessary to reduce this ratio to less than 80%.
52
Collateral. Borrowings are secured by our equity interest in the subsidiaries that own the financed aircraft, the aircraft and the related leases. The loans are guaranteed by us on a recourse basis.
Certain Covenants. The CBA Facility includes certain operating covenants, including reporting requirements. A breach of the covenants could result in the acceleration of outstanding indebtedness under the CBA Facility, and exercise of remedies available in relation to the collateral.
Term Loan
As of December 31, 2016, we had $404.0 $385.4 million principal amount outstanding under our senior secured term loan (the “Term Loan”), which was secured by 2627 aircraft. Fly has guaranteed all payments under the Term Loan.
On October 19, 2016, we amendedThe final maturity date of the Term Loan to extend the maturity date fromis August 2019 to February 2022. In addition, until April 2017,9, 2025. Until May 2020, the Term Loan can be prepaid in whole or in part for an amount equal to 101% of the outstanding principal amount being repaid. Thereafter, the Term Loan can be prepaid in whole or in part at par.
upsized the Term Loan by $50.0 million. On November 1, 2017, we had further amended the Term Loan to reduce the margin to 2.00%. During the year ended December 31, 2015,2017, we wrote off approximately $2.1 million of unamortized loan costs and debt discounts asincurred debt extinguishment costs totaling $3.0 million in connection with a re-pricing of the Term Loan. There was no prepayment penalty associated with the re-pricing.
Interest Rate. The Term Loan bears interest at three-month LIBOR, plus a margin of 2.75%, with a LIBOR floor of 0.75%.
Payment Terms. these amendments.
Under the Term Loan,that we must maintain a maximum loan-to-value ratio of 70.0% based on the lower of the mean or median of half-life adjusted base values of the financed aircraft as determined by three independent appraisers, and includes other customary covenants, including reporting requirements and maintenance of credit ratings.
Collateral. Borrowings are secured by our equity interests in the aircraft owning and/or leasing subsidiaries, the aircraft and related leases and other deposits. The loan is guaranteed by us on a recourse basis.
Certain Covenants. appraisers. The Term Loan contains certain concentration limits with respect to types of aircraft thatwhich can be financed throughin the Term Loan, as well as geographic and single lessee concentration limits. These concentration limits apply upon the acquisition, sale, removal andor substitution of an aircraft. The Term Loan also includes certain customary covenants, including reporting requirements and maintenance of credit ratings.
Default and Remedies.
Fly
In February 2016,
As of December 31, 2016, we had $113.0 million principal amount outstanding, which was secured by four aircraft.
Commitment Fees. We pay a commitment fee of 0.50% per annum on a monthly basis to each lender on the undrawn amount of our commitment until the termination of the availability period; provided that at any time from and after March 26, 2017 through the end of the availability period, the commitment fee will increase to 0.75% per annum if at least 50% of the total amount of commitments have not been drawn.
53
Interest.The interest rate underon the facilityloans is based on one-month LIBOR plus an applicable margin.margin of 1.65% per annum. The applicable margininterest rate on the notes is 2.00% througha fixed rate of 3.93% per annum. The weighted average interest rate on all outstanding amounts was 4.11% as of December 31, 2019, excluding the expirationamortization of the availability period,debt discounts and will increase to 2.50% from February 27, 2019 through February 26, 2020 and 3.00% from February 27, 2020 through the maturity datedebt issuance costs. The facility requires monthly principal payments of the facility.
Certain Covenants. $2.2 million.
Default and Remedies.
thereunder.
Fly. The weighted average interest rate on all outstanding amounts was 4.07% as of December 31, 2019, excluding the amortization of debt discounts and debt issuance costs.
2028
.In addition to aircraft acquisitions, we
Foreign Currency Exchange Risk
We receive substantially all of our revenue in U.S. Dollars. Commencing in 2015, we have one lease pursuant to which we receive a portion of the rent amount in Euro and the secured borrowing associated with such aircraft is partially denominated in Euro.
We pay substantially all of our expenses in U.S. Dollars. However, we incur some of our expenses in other currencies, primarily the Euro. Changes in the value of the U.S. Dollar relative to the Euro, and other currencies may increase the U.S. Dollar cost to us of paying such expenses. The portion of our business conducted in other currencies could increase in the future, which could expand our exposure to losses arising from currency fluctuations. Volatility in foreign exchange rates could have a material impact on our results of operations.
environment.
54
Off-Balance Sheet Arrangements
Not applicable.
2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | Total | |||||||||||||||
Principal payments: | |||||||||||||||||||||
Principal payment under the 2020 Notes (1) | $ | — | $ | — | $ | — | $ | 375,000 | $ | — | $ | — | $ | 375,000 | |||||||
Principal payment under the 2021 Notes (2) | — | — | — | — | 325,000 | — | 325,000 | ||||||||||||||
Principal payments under the Securitization Notes (3) | 34,693 | 15,759 | 20,208 | 4,646 | 8,524 | 55,911 | 139,741 | ||||||||||||||
Principal payments under the Nord LB Facility (4) | 18,791 | 152,718 | — | — | — | — | 171,509 | ||||||||||||||
Principal payments under the CBA Facility (5) | 7,066 | 7,816 | 8,172 | 33,092 | — | — | 56,146 | ||||||||||||||
Principal payments under the Term Loan (6) | 23,766 | 23,766 | 23,766 | 23,766 | 23,766 | 285,186 | 404,016 | ||||||||||||||
Fly Acquisition III Facility (7) | 6,894 | 6,894 | 6,894 | 6,894 | 6,894 | 78,575 | 113,045 | ||||||||||||||
Principal payments under Other Aircraft Secured Borrowings (8) | 78,362 | 81,197 | 88,722 | 94,516 | 84,322 | 553,848 | 980,967 | ||||||||||||||
Total principal payments | 169,572 | 288,150 | 147,762 | 537,914 | 448,506 | 973,520 | 2,565,424 | ||||||||||||||
Interest payments: | |||||||||||||||||||||
Interest payments under the 2020 Notes and 2021 Notes (9) | 40,969 | 40,969 | 40,969 | 40,125 | 16,402 | — | 179,434 | ||||||||||||||
Interest payments under secured borrowings (10) | 56,651 | 51,087 | 42,057 | 37,949 | 32,966 | 46,117 | 266,827 | ||||||||||||||
Total interest payments | 97,620 | 92,056 | 83,026 | 78,074 | 49,368 | 46,117 | 446,261 | ||||||||||||||
Payments to BBAM and its affiliates under our management agreement (11) | 6,304 | 6,304 | 6,304 | 6,304 | 6,304 | 28,369 | 59,889 | ||||||||||||||
Payments to BBAM and its affiliates under our administrative services and servicing agreements (12) | 12,625 | 11,572 | 9,855 | 8,721 | 7,862 | 27,386 | 78,021 | ||||||||||||||
Total | $ | 286,121 | $ | 398,082 | $ | 246,947 | $ | 631,013 | $ | 512,040 | $ | 1,075,392 | $ | 3,149,595 | |||||||
| 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | ||||||||||||||||||||||
| Principal payments: | ||||||||||||||||||||||||||||
| Principal payment under the 2021 Notes | $ | — | $ | 325,000 | $ | — | $ | — | $ | — | $ | — | $ | 325,000 | ||||||||||||||
| Principal payment under the 2024 Notes | — | — | — | — | 300,000 | — | 300,000 | |||||||||||||||||||||
| Principal payments under the Nord LB Facility | 5,177 | 60,113 | — | — | — | — | 65,290 | |||||||||||||||||||||
| Principal payments under the Term Loan | 22,404 | 22,404 | 22,404 | 22,404 | 22,404 | 273,344 | 385,364 | |||||||||||||||||||||
| Principal payments under the Magellan Acquisition Limited Facility | 26,542 | 26,542 | 26,542 | 26,542 | 26,542 | 145,974 | 278,684 | |||||||||||||||||||||
| Principal payments under the Aladdin Acquisition Facility | 23,874 | 25,057 | 26,262 | 197,150 | — | — | 272,343 | |||||||||||||||||||||
| Principal payments under the Aladdin Engine Funding Facility | 1,565 | 32,240 | 8,534 | — | — | — | 42,339 | |||||||||||||||||||||
| Principal payments under Other Aircraft Secured Borrowings | 93,122 | 75,079 | 85,667 | 162,206 | 64,787 | 192,602 | 673,463 | |||||||||||||||||||||
| Total principal payments | 172,684 | 566,435 | 169,409 | 408,302 | 413,733 | 611,920 | 2,342,483 | |||||||||||||||||||||
| Interest payments: | ||||||||||||||||||||||||||||
| Interest payments under the 2021 Notes and 2024 Notes | 36,469 | 32,152 | 15,750 | 15,750 | 12,469 | — | 112,590 | |||||||||||||||||||||
Interest payments under secured borrowings (1) | 62,812 | 55,268 | 46,487 | 35,350 | 25,750 | 23,524 | 249,191 | |||||||||||||||||||||
| Total interest payments | 99,281 | 87,420 | 62,237 | 51,100 | 38,219 | 23,524 | 361,781 | |||||||||||||||||||||
Purchase price of Portfolio B aircraft in the AirAsia transactions (2) | 351,500 | 571,198 | 99,000 | — | — | — | 1,021,698 | |||||||||||||||||||||
Acquisition fees related to Portfolio B in the AirAsia transactions (2) | 5,273 | 8,568 | 1,485 | — | — | — | 15,326 | |||||||||||||||||||||
| Disposition fees on flight equipment held for sale | 2,768 | — | — | — | — | — | 2,768 | |||||||||||||||||||||
Payments to our Manager under our management agreement (3) | 7,840 | 7,840 | 7,840 | 7,840 | 7,840 | 43,121 | 82,321 | |||||||||||||||||||||
Payments to BBAM under our servicing agreements (4) | 12,656 | 11,358 | 9,640 | 7,906 | 7,259 | 18,188 | 67,007 | |||||||||||||||||||||
| Total | $ | 652,002 | $ | 1,252,819 | $ | 349,611 | $ | 475,148 | $ | 467,051 | $ | 696,753 | $ | 3,893,384 | ||||||||||||||
| (1) |
55
| For variable rate borrowings based on LIBOR plus the applicable margin, LIBOR is assumed to remain at the current rate in effect at year end through the term of the loan. |
| (2) | Based on number of aircraft expected to be purchased. |
| (3) | Assumes automatic extension for one additional term of five years to June 30, 2030. Also assumes the |
| (4) | Amounts in the table reflect the application of these servicing fees to our aircraft |
With respect to all other aircraft, BBAM is entitled to receive a servicing fee equal to 3.5% of the aggregate amount of rents actually collected and an administrative fee of $1,000 per month per aircraft. Under the Term Loan and the Fly Acquisition III Facility, BBAM is entitled to an administrative fee of $10,000 per month.
Amounts in the table reflect the application of these servicing fees to our aircraft at December 31, 2016.
| ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
Name | Age | Position | ||
Colm Barrington | 74 | Chief Executive Officer and Director | ||
54 | Chief Financial Officer | |||
Joseph M. Donovan | 65 | Director and Chairman | ||
Erik G. Braathen | 64 | Director | ||
Eugene McCague | 61 | Director | ||
Robert S. Tomczak | 58 | Director | ||
Susan M. Walton | 59 | Director | ||
Steven Zissis | 60 | Director |
recently retired after seven years as the non-executive Chairman of the Board of Directors of Aer Lingus plc, following the sale of Aer Lingus to International Consolidated Airlines Group (IAG). Mr. Barrington is a56
non-executive director of IFG Group plc and Hibernia REIT plc and has recently been nominated to join the Board of Directorsis Vice Chairman and a non-executive director of Finnair plc as non-executive Vice Chairman.plc. Mr. Barrington received a BA and an MA in Economics from University College Dublin and a public administration degree from the Institute of Public Administration, also in Dublin.
Gary Dales
Accounting.
57
Aerospace marketing plan. Ms. Walton is a trustee for the Sussex Wildlife Trust, a trustee for the Sussex East Area Meeting of Quakers, a trustee of Raystede Animal Sanctuary and a member of the CorporationFinance Committee of the East Sussex Coast College Hastings.Group. Ms. Walton holds a degree in Environmental Conservation from Birkbeck College, University of London.
directors.
directors.
At December 31, 2019, there were 14,025 SARs entitle the holder to receive any increase in value between the grant date price of Fly’s ADSsoutstanding and their value on the exercise date. RSUs entitle the holder to receive a number of Fly’s ADSs equal to the number of RSUs awarded upon vesting. All awards are fully vested. The SARs and RSUs granted in 2011 and 2012 vest in three equal installments on the first, second and third anniversary of the grant date. exercisable. The Company satisfies SAR exercises SARs with newly issued ADSs.
The holder of a SAR or RSU grant is also entitled to dividend equivalent rights on each SAR and RSU that has been granted. For each dividend equivalent right, the holder shall have the right to receive a cash amount equal to the per share dividend paid by the Company during the period between the grant date and the earlier of the (i) award exercise date or vesting date, (ii) termination date or (iii) expiration date. Dividend equivalent rights expire at the same time and in the same proportion that the SARs and RSUs are either exercised, canceled, forfeited or expired. Dividend equivalent rights are payable to the holder only when the SAR or RSU on which the dividend equivalent right applies has vested.
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of shareholders and shall hold office until the next annual general meeting following his or her election or until his or her successor is elected or appointed or their office is otherwise vacated.
| ● | selecting independent auditors for approval by our shareholders; |
| ● | reviewing the scope of the audit to be conducted by our independent auditors, as well as the results of their audit; |
| ● | approving audit and non-audit services provided to us by the independent auditors; |
| ● | reviewing the organization and scope of our internal system of audit, financial and disclosure controls; |
| ● | overseeing internal controls and risk management; |
| ● | overseeing our financial reporting activities, including our annual report, and the accounting standards and principles followed; |
| ● | reviewing and approving related-party transactions and preparing reports for the board of directors on such related-party transactions; |
| ● | conducting other reviews relating to compliance with applicable laws and our policies, including reviewing at least annually our decision to enter into swaps, and our hedging policy; and |
| ● | overseeing our internal audit function. |
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resources include the dedicated services of Messrs.Mr. Colm Barrington and Gary Dales,Ms. Julie Ruehl, who serve as our chief executive officer and chief financial officer, respectively, but who also remain employees of BBAM LP, the dedicated services of other members of our Manager’s core management team, and the non-exclusive services of other personnel employed by BBAM LP.
None
Shares Beneficially Owned | ||||||
Name | Number | Percent | ||||
Donald Smith & Co., Inc. (1) | 3,121,334 | 9.6 | % | |||
Onex Corporation (2) | 2,443,476 | 7.6 | % | |||
Hawkeye Capital Management, LLC (3) | 1,821,031 | 5.6 | % | |||
Summit Aviation Partners LLC (4) | 1,743,156 | 5.4 | % | |||
| Shares Beneficially Owned | ||||||||
| Name | Number | Percent | ||||||
AirAsia Group Berhad (1) | 3,333,333 | 10.8 | % | |||||
Onex Corporation (2) | 3,110,143 | 10.1 | % | |||||
Summit Aviation Partners LLC (3) | 2,261,214 | 7.3 | % | |||||
Morgan Stanley (4) | 2,242,234 | 7.3 | % | |||||
Donald Smith & Co., Inc. (5) | 2,068,405 | 6.7 | % | |||||
| (1) |
| (2) | The information above and in this footnote is based on information taken from the Schedule 13G/A filed by Onex Corporation, Onex Partners III GP LP, Onex Partners GP Inc., Onex US Principals LP, Onex American Holdings GP LLC, Onex Private Equity Holdings LLC, Onex Partners III PV LP, Onex Partners III Select LP, Onex Partners III LP, Meridian Aviation Partners Limited, Onex ATR S.a.r.l., ATR Aviation Holdings I Corporation, Onex Partners III International LP, Onex Partners III International GP LP, Onex Partners III International GP LLC, Onex Partners Canadian GP Inc., New PCo II Investments Ltd., and Gerald W. Schwartz (collectively, the “Onex Reporting Persons”) with the SEC on February 13, 2020. Onex Corporation has shared voting and dispositive power over 3,094,399 ADSs. Onex Partners III GP LP has shared voting and dispositive power over 1,806,537 ADSs. Onex Partners GP Inc. has shared voting and dispositive power over 1,806,537 ADSs. Onex US Principals LP has shared voting and dispositive power over 5,241 ADSs. Onex American Holdings GP LLC has shared voting and dispositive power over 5,241 ADSs. Onex Private Equity Holdings LLC has shared voting and dispositive power over 5,241 ADSs. Onex Partners III PV LP has shared voting and dispositive power over 21,746 ADSs. Onex Partners III Select LP has shared voting and dispositive power over 5,517 ADSs. Onex Partners III LP has shared voting and dispositive power over 1,715,470 ADSs. Meridian Aviation Partners Limited has shared voting and dispositive power over 666,667 ADSs. Onex ATR S.a.r.l. has shared voting and dispositive power over 666,667 ADSs. ATR Aviation Holdings I Corporation has shared voting and dispositive power over 666,667 ADSs. Onex Partners III International LP has shared voting and dispositive power over 666,667 ADSs. Onex Partners III International GP LP has shared voting and dispositive power over 666,667 ADSs. Onex Partners III International GP LLC has shared voting and dispositive power over 666,667 ADSs. Onex Partners Canadian GP Inc. has shared voting and dispositive power over 666,667 ADSs. New PCo II Investments Ltd. has shared voting and dispositive power over 15,744 ADSs. Gerald W. Schwartz has shared voting and dispositive power over 3,110,143 ADSs. |
| (3) | The information above and in this footnote is based on information taken from the Schedule 13D/A filed by Steven Zissis, Zissis Family Trust, Summit Aviation Partners LLC and SZ Services Puerto Rico LLC with the SEC on July 20, 2018, and from information independently provided to us by Mr. Zissis. Mr. Zissis and Zissis Family Trust have shared voting and dispositive power over 2,261,214 ADSs. Summit Aviation Partners LLC has shared voting and dispositive power over 1,610,717 ADSs. SZ Services Puerto Rico LLC has shared voting and dispositive power over 487,708 ADSs. |
| (4) | The information above and in this footnote is based on information taken from the Schedule 13G/A filed by Morgan Stanley with the SEC on February 12, 2020. Morgan Stanley has shared voting power over 2,188,325 ADSs and shared dispositive power over 2,242,234 ADSs. Morgan Stanley Capital Services LLC has shared voting power and shared dispositive power over 2,154,345 ADSs. |
| (5) | The information above and in this footnote is based on information taken from the Schedule 13G filed by Donald Smith & Co., Inc., |
All ADS holders have the same voting rights.
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Manager Shares
rights.
On June 19, 2015, we amended our management agreement with the Manager. See “Management Agreement.”
On July 27, 2016, we amended our management agreement with the Manager to make clarifying changes to certain definitions related to the calculation of the Management Expense Amount payable by us to the Manager. See “Management Agreement.”
On February 1, 2017, B&B Air Funding amendedterminated its servicing agreement with respect to aircraft financed by the Securitization Notes. See “Servicing Agreements — B&B Air Funding — Servicing Agreement.” On February 1, 2017,Also in connection with the redemption of the Securitization Notes in March 2019, we also amendedterminated the management agreement with the Manager to accommodate the changes to the servicing and administrative fees relating to the aircraft financed by the Securitization Notes. See “ManagementAgreement.”
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Management and Administrative Services. Our Manager provides us with the following management and administrative services:
| ● | managing our portfolio of aircraft and other aviation assets and the administration of our cash balances; |
| ● | if requested by our board, making available a member of the core management team of our Manager as our nominee on the board of directors of any of our subsidiaries (provided that each such member must be agreed between us and our Manager); |
| ● | assisting with the implementation of our board’s decisions; |
| ● | providing us suitably qualified and experienced persons to perform the management and administrative services for us and our subsidiaries, including persons to be appointed by our board to serve as our dedicated chief executive and chief financial officers (who shall remain employees of, and be remunerated by, our Manager or an affiliate of our Manager while serving in such capacities); |
| ● | performing or procuring the performance of all reasonable accounting, tax, corporate secretarial, information technology, reporting and compliance services for us and our subsidiaries, including the preparation and maintenance of our accounts and such financial statements and other reports and filings as we are required to make with any governmental agency (including the SEC) or stock exchange; |
| ● | supervising financial audits of us by an external auditor as required; |
| ● | managing our relations with our investors and the public, including: |
| ● | preparing our annual reports and any notices of meeting, papers, reports and agendas relating to meetings of our shareholders; and |
| ● | assisting in the resolution of any complaints by or disputes with our investors and any litigation involving us (other than litigation in which our interests are adverse to those of our Manager or BBAM); and |
| ● | using commercially reasonable efforts to cause us to comply with all applicable laws. |
Origination and Disposition Services. Our Manager also provides us with the following origination and disposition services:
| ● | sourcing opportunities relating to aircraft and other aviation assets, including using its commercially reasonable efforts to notify us of potential aviation asset investment opportunities that come to the attention of our Manager and which our Manager acting reasonably believes may be of interest to us as investments; |
| ● | in relation to identified potential opportunities to purchase or sell aircraft and other aviation assets, investigating, researching, evaluating, advising and making recommendations on or facilitating such opportunities; |
| ● | with respect to prospective purchases and sales of aircraft and other aviation assets, conducting negotiations with sellers and purchasers and their agents, representatives and financial advisors; and |
| ● | otherwise providing advice and assistance to us in relation to the evaluation or pursuit of aviation asset investment or disposition opportunities as we may reasonably request from time to time. |
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Ancillary Management and Administrative Services. Our Manager also provides us with ancillary management and administrative services upon such terms as may be agreed from time to time between us and our Manager, which may require, among other things if requested by our board of directors:
| ● | the expansion of our Manager’s core management team with additional personnel as may be required by developments or changes in the commercial aircraft leasing industry (whether regulatory, economic or otherwise) or the compliance or reporting environment for publicly listed companies in the United States (whether as a result of changes to securities laws or regulations, listing requirements or accounting principles or otherwise); and |
Appointment of Our Chief Executive Officer and Chief Financial Officer into, appointed or retained by BBAM on our behalf pursuant to our servicing agreements or administrative agency agreements are not included in determining whether the thresholds discussed under this heading have been met or exceeded. Acquisitions of series of aircraft from non-affiliated persons are deemed not to be related matters for purposes of this provision. aggregate gross proceeds in respect of any aircraft sold. In Services 2017. 2017. Term and Termination B&B Air Funding – Servicing Agreement 1.5% of the aggregate gross proceeds in respect of any aircraft sold. BBAM was also entitled to an administrative agency fee from B&B Air Funding and BBAM was terminated. 2017. All Other Aircraft and Aviation Assets Acquired – Servicing Agreements● making available individuals (other than members of our Manager’s core management team) as our nominees on the boards of directors of any of our subsidiaries. for B&B Air Funding or the servicing agreement between our other subsidiaries and BBAM or on such other terms as we and BBAM may agree.Withwith Our Strategy, Policy and Directionsthat matter has been the subject of a recommendation by our Manager; orthe failure to make that decision, take that action or omit to take that action would breach the fiduciary duties of our directors or any law.● that matter has been the subject of a recommendation by our Manager; or ● the failure to make that decision, take that action or omit to take that action would breach the fiduciary duties of our directors or any law. that matter has been the subject of a recommendation by our Manager; orthe failure to make that decision, take that action or omit to take that action would breach the fiduciary duties of our directors or any law.● that matter has been the subject of a recommendation by our Manager; or ● the failure to make that decision, take that action or omit to take that action would breach the fiduciary duties of our directors or any law. 63Officer(1) carry out any transaction with an affiliate of our Manager on our behalf, it being understood that BBAM has been appointed as the exclusive Servicer for our portfolio of aircraft, and that our Manager may delegate the provision of all or any part of the services under the Management Agreement to any person affiliated or associated with BBAM; (2) carry out any aviation asset investment or disposition transaction, or sequence of related aviation asset investment or disposition transactions with the same person or group of persons under common control, for us if the aggregate purchase price to be paid or the gross proceeds to be received by us in connection therewith would exceed $200 million; (3) carry out any aviation asset investment or disposition transaction if the sum of all the purchase prices to be paid or of all the gross proceeds to be received by us in connection with all such transactions during any quarter would exceed $500 million; (4) appoint or retain any third-party service provider to assist our Manager in providing management and administrative services if: the amount to be paid by our Manager and reimbursed by us or paid by us to the third party with respect to any particular matter, or series of related matters, is reasonably likely to exceed $1 million; oras a result of the appointment or retention, the amount to be paid by our Manager and reimbursed by us or paid by us to all such third-party service providers appointed or retained in any rolling 12-month period is reasonably likely to exceed $5 million;● the amount to be paid by our Manager and reimbursed by us or paid by us to the third party with respect to any particular matter, or series of related matters, is reasonably likely to exceed $1 million; or ● as a result of the appointment or retention, the amount to be paid by our Manager and reimbursed by us or paid by us to all such third-party service providers appointed or retained in any rolling 12-month period is reasonably likely to exceed $5 million; (5) appoint or retain any third-party service provider to assist our Manager in providing ancillary management and administrative or the origination and disposition services if: the amount to be paid by our Manager and reimbursed by us or paid by us to the third party with respect to any particular matter, or series of related matters, is reasonably likely to exceed $1 million; oras a result of the appointment or retention, the amount to be paid by our Manager and reimbursed by us or paid by us to all such third-party service providers appointed or retained in any rolling 12-month period is reasonably likely to exceed $7.5 million; or● the amount to be paid by our Manager and reimbursed by us or paid by us to the third party with respect to any particular matter, or series of related matters, is reasonably likely to exceed $1 million; or ● as a result of the appointment or retention, the amount to be paid by our Manager and reimbursed by us or paid by us to all such third-party service providers appointed or retained in any rolling 12-month period is reasonably likely to exceed $7.5 million; or (6) hold any cash or other assets of ours, provided that our Manager may cause our cash and other assets to be held in our name or any custodian for us nominated or approved by us. 64With respect to aircraft financed by the Securitization Notes, until December 31, 2016, BBAM wasis entitled to receive (i) a base fee of $150,000 per month, subject to certain adjustments, and (ii) a rent fee equal to 1.0% of the aggregate amount of rents due and 1.0% of the aggregate amount of rents actually collected.Effective January 1, 2017, the servicing agreement between B&B Air Funding and BBAM relating to aircraft financed by the Securitization Notes was amended, thereby (i) amending the rent fee to 3.5% of the aggregate amount of rents actually collected, plus $1,000 per aircraft per month and (ii) eliminating the basea sales fee of $150,000 per month, and1.5% of the management agreement was amended to accommodate these changes. Pursuant to the June 2015 amendment to the management agreement, we agreed to reduce the disposition fee payable to our Manager in respect of the ECAF-I Transaction to 1.2% of the aggregate gross proceeds for such aircraft, to be given effect as agreed by us and the Manager.of our assets.2016,2019, we paid our Manager origination fees of $8.4$5.0 million in connection with the purchase of 11 aircraft. In 2018, we paid our Manager origination fees of $16.1 million in connection with the purchase of 34 aircraft and seven engines. In 2017, we paid our Manager origination fees of $6.8 million in connection with the purchase of ten aircraft. In 2015, we paid our Manager origination fees of $9.2 million in connection with the purchase of ten aircraft. In 2014, we paid our Manager origination fees of $12.8 million in connection with the purchase of 22 aircraft.We pay to our Manager an administrative agency fee equal to $750,000 per annum for each aircraft securitization financing (the amount of the administrative agency fee for each aircraft securitization financing we establish will be subject to adjustment as set forth below under “— Fees and Expenses — Adjusting the Base Fees and Administrative Agency Fees”).65Effective January 1, 2017, theThe administrative agency fee payable with respect to the B&B Air Funding Securitization Notes was reduced, through a rebate, to $20,000 per month, subject to an annual CPI adjustment.2016,connection with the redemption of the Securitization Notes in March 2019, the administrative service agreement was terminated.$0.9$0.1 million, $0.2 million and $0.2 million, respectively, which amount wasamounts were credited toward servicing fees paid pursuant to the servicing agreement between B&B Air Funding and BBAM. In 2015 and 2014, we paid the Manager administrative agency fees totaling $0.8 million in respect of each year.Adjusting the Base Fees and Administrative Agency Fees. The amount of the base fee payable and the amount of the administrative agency fee payable for each aircraft securitization financing we establish will be increased (but not decreased) annually by the percentage movement (if any) in the CPI index applicable for the previous calendar year.Services.2016, 20152019, 2018 or 2014.Services.Fees and Change of Control Fees.” See “Servicing Agreements — Servicing Fees.Agreements.”2016, 20152019, 2018 or 2014. Effective as of July 1, 2015, the annual management fee was reduced from $10.7 million to $5.7 million. The management fee is adjusted each calendar year by (i) 0.3% of the change in the book value of our aircraft portfolio during the preceding year, up to a $2.0 billion increase over $2.7 billion and (ii) 0.25% of the change in the book value of our aircraft portfolio in excess of $2.0 billion, with a minimum annual management fee of $5.0 million. The management fee is subject to an annual adjustment tied to the Consumer Price Index applicable to the prior calendar year. For the years ended December 31, 2016, 20152019, 2018 and 2014,2017, we incurred management fees of $9.6 million, $7.3 million and $6.3 million, $8.2 million and $10.6 million, respectively.for all our costs paid for us by our Manager (other than remuneration and certain expenses in relation to our Manager’s core management team and our Manager’s corporate overhead), including the following items which are not covered by the management expense amount:directors’ fees for the independent directors on our board of directors and our subsidiaries,directors’ and officers’ insurance for our and our subsidiaries’ directors and officers,travel expenses of the directors (including flights, accommodation, taxis, entertainment and meals while traveling) to attend any meeting of the board of our Company,● for all our costs paid for us by our Manager (other than remuneration and certain expenses in relation to our Manager’s core management team and our Manager’s corporate overhead), including the following items which are not covered by the management expense amount: 66● directors’ fees for the independent directors on our board of directors and our subsidiaries, registration and listing fees in connection with the listing of our shares on the NYSE and registering the shares under the Securities Act,● directors’ and officers’ insurance for our and our subsidiaries’ directors and officers, ● travel expenses of the directors (including flights, accommodation, taxis, entertainment and meals while traveling) to attend any meeting of the board of our Company, ● registration and listing fees in connection with the listing of our shares on the NYSE and registering the shares under the Securities Act, ● fees and expenses relating to any equity or debt financings we enter into in the future, ● fees and expenses of the depositary for our ADSs, ● costs and expenses related to insuring our aircraft and other aviation assets, including all fees and expenses of insurance advisors and brokers, ● costs incurred in connection with organizing and hosting our annual meetings or other general meetings of our Company, ● costs of production and distribution of any of our security holder communications, including notices of meetings, annual and other reports, press releases, and any prospectus, disclosure statement, offering memorandum or other form of offering document, ● website development and maintenance, ● travel expenses of the core management team and other personnel of BBAM and its affiliates (including flights, accommodation, taxis, entertainment and meals while traveling) related to sourcing, negotiating and conducting transactions on our behalf and attending any meeting of the board or our Company, ● external legal counsel, ● fees of third party consultants, accounting firms and other professionals, ● external auditor’s fees, and ● internal auditor’s fees. ● for all taxes, costs, charges and expenses properly incurred by our Manager in connection with: ● the provision of ancillary management and administrative services, and ● the engagement of professional advisors, attorneys, appraisers, specialist consultants and other experts as requested by us from time to time; or which our Manager considers reasonably necessary in providing the services and discharging its duties and other functions under the Management Agreement, including, without limitation, the fees and expenses of professional advisors relating to the purchase and sale of aircraft and other aviation assets. fees and expenses relating to any equity or debt financings we enter into in the future,65fees and expensescosts and expenses related to insuring our aircraft and other aviation assets, including all fees and expenses of insurance advisors and brokers,costs incurred in connection with organizing and hosting our annual meetings or other general meetings of our Company,costs of production and distribution of any of our security holder communications, including notices of meetings, annual and other reports, press releases, and any prospectus, disclosure statement, offering memorandum or other form of offering document,website development and maintenance,travel expenses of the core management team and other personnel of BBAM and its affiliates (including flights, accommodation, taxis, entertainment and meals while traveling) related to sourcing, negotiating and conducting transactions on our behalf and attending any meeting of the board or our Company,external legal counsel,fees of third party consultants, accounting firms and other professionals,external auditor’s fees, andinternal auditor’s fees.for all taxes, costs, charges and expenses properly incurred by our Manager in connection with:the provision of ancillary management and administrative services, andthe engagement of professional advisors, attorneys, appraisers, specialist consultants and other experts as requested by us from time to time; or which our Manager considers reasonably necessary in providing the services and discharging its duties and other functions under the Management Agreement, including, without limitation, the fees and expenses of professional advisors relating to the purchase and sale of aircraft and other aviation assets.BBAM LP ceases to hold (directly or indirectly) more than 50% of the voting equity of, and economic interest in our Manager;our Manager becomes subject to bankruptcy or insolvency proceedings that are not discharged within 75 days, unless our Manager is withdrawn and replaced within 90 days of the initiation of such bankruptcy or insolvency proceedings with an affiliate or associate of BBAM that is able to make correctly the representations and warranties set out in the Management Agreement;at least 75% of our independent directors and holders of 75% or more of all of our outstanding common shares (measured by vote) determine by resolution that there has been unsatisfactory performance by our Manager that is materially detrimental to us;● 67● our Manager materially breaches the Management Agreement and fails to remedy such breach within 90 days of receiving written notice from us requiring it to do so, or such breach results in liability to us and is attributable to our Manager’s gross negligence, fraud or dishonesty, or willful misconduct in respect of the obligation to apply the standard of care;● any license, permit or authorization held by our Manager which is necessary for it to perform the services and duties under the Management Agreement is materially breached, suspended or revoked, or otherwise made subject to conditions which, in the reasonable opinion of our board of directors, would prevent our Manager from performing the services and the situation is not remedied within 90 days;our Manager voluntarily commences or files any petition seeking bankruptcy, insolvency or receivership relief; consents to the institution of, or fails to contest the filing of any bankruptcy or insolvency filing; files an answer admitting the material allegations filed against it in any such proceeding; or makes a general assignment for the benefit of its creditors, unless our Manager is withdrawn and replaced within 15 days with an affiliate or associate of BBAM that is able to make correctly the representations and warranties set out in the Management Agreement;● our Manager materially breaches the Management Agreement and fails to remedy such breach within 90 days of receiving written notice from us requiring it to do so, or such breach results in liability to us and is attributable to our Manager’s gross negligence, fraud or dishonesty, or willful misconduct in respect of the obligation to apply the standard of care; an order is made for the winding up of our Manager, unless our Manager is withdrawn and replaced within 15 days with an affiliate or associate of BBAM that is able to make correctly the representations and warranties set out in the Management Agreement.● any license, permit or authorization held by our Manager which is necessary for it to perform the services and duties under the Management Agreement is materially breached, suspended or revoked, or otherwise made subject to conditions which, in the reasonable opinion of our board of directors, would prevent our Manager from performing the services and the situation is not remedied within 90 days; ● our Manager voluntarily commences or files any petition seeking bankruptcy, insolvency or receivership relief; consents to the institution of, or fails to contest the filing of any bankruptcy or insolvency filing; files an answer admitting the material allegations filed against it in any such proceeding; or makes a general assignment for the benefit of its creditors, unless our Manager is withdrawn and replaced within 15 days with an affiliate or associate of BBAM that is able to make correctly the representations and warranties set out in the Management Agreement; or ● an order is made for the winding up of our Manager, unless our Manager is withdrawn and replaced within 15 days with an affiliate or associate of BBAM that is able to make correctly the representations and warranties set out in the Management Agreement. we fail to make any payment due under the Management Agreement to our Manager within 15 days after the same becomes due;we otherwise materially breach the Management Agreement and fail to remedy the breach within 90 days of receiving written notice from our Manager requiring us to do so; or● we fail to make any payment due under the Management Agreement to our Manager within 15 days after the same becomes due; if the directors in office on December 28, 2012 and any successor to any such director who was nominated or selected by a majority of the current directors and our Manager appointed directors, cease to constitute at least a majority of the board (excluding directors appointed by our Manager). (See “Board Appointees”.)● we otherwise materially breach the Management Agreement and fail to remedy the breach within 90 days of receiving written notice from our Manager requiring us to do so; or ● if the directors in office on December 28, 2012 and any successor to any such director who was nominated or selected by a majority of the current directors and our Manager appointed directors, cease to constitute at least a majority of the board (excluding directors appointed by our Manager). (See “Board Appointees”.) dealing or conducting business with us, our Manager, any affiliate or associate of BBAM or any shareholder of ours;being interested in any contract or transaction with us, our Manager, any affiliate or associate of BBAM or any shareholder of ours;acting in the same or similar capacity in relation to any other corporation or enterprise;holding or dealing in any of our shares or other securities or interests therein; orco-investing with us.● dealing or conducting business with us, our Manager, any affiliate or associate of BBAM or any shareholder of ours; 68● being interested in any contract or transaction with us, our Manager, any affiliate or associate of BBAM or any shareholder of ours; ● acting in the same or similar capacity in relation to any other corporation or enterprise; ● holding or dealing in any of our shares or other securities or interests therein; or ● co-investing with us. lease marketing and remarketing, including lease negotiation;● lease marketing and remarketing, including lease negotiation; ● collecting rental payments and other amounts due under leases, collecting maintenance payments where applicable, lease compliance and enforcement and delivery and accepting redelivery of aircraft and engines under lease; ● implementing aircraft and engine dispositions; collecting rental payments and other amounts due under leases, collecting maintenance payments where applicable, lease compliance and enforcement and delivery and accepting redelivery67implementing aircraft dispositions;● monitoring the performance of maintenance obligations of lessees under the leases; monitoring the performance of maintenance obligations of lessees under the leases;● procuring legal and other professional services with respect to the lease, sale or financing of the aircraft or engines, any amendment or modification of any lease, the enforcement of our rights under any lease, disputes that arise as to any aircraft or engines or for any other purpose that BBAM reasonably determines is necessary in connection with the performance of its services; procuring legal and other professional services with respect to the lease, sale or financing of the aircraft, any amendment or modification of any lease, the enforcement of our rights under any lease, disputes that arise as to any aircraft or for any other purpose that BBAM reasonably determines is necessary in connection with the performance of its services;● periodic reporting of operational information relating to the aircraft and engines, including providing certain reports to lenders and other third parties; and periodic reporting of operational information relating to the aircraft, including providing certain reports to lenders and other third parties; and● certain aviation insurance related services. certain aviation insurance related services.BBAM is entitled to receive servicing fees. Within respect toof the aircraft financed by the Securitization Notes, until December 31, 2016, BBAM was entitled to receive (i) a base fee of $150,000 per month, subject to certain adjustments, (ii) a rent fee equal to 1.0% of the aggregate amount of rents due and 1.0% of the aggregate amount of rents actually collected and (iii) a sales fee of 1.5% of the aggregate gross proceeds in respect of any aircraft sold.69Effective January 1, 2017, the servicing agreement between B&B Air Funding and BBAM relating to aircraft financed by the Securitization Notes was amended, thereby (i) amending the rent fee to 3.5% of the aggregate amount of rents actually collected, plus $1,000 per aircraft per month and (ii) eliminating the basea sales fee of $150,000 per month.has entered into an administrative services agreement with our Manager to act as its administrative agent and to perform various administrative services, including maintaining its books and records, procuring and supervising legal counsel, accounting, tax and other advisers. In consideration for such services, until December 31, 2016, B&B Air Funding paid the administrative agent an annual fee of $750,000. Effective January 1, 2017, the administrative agency fee has been reduced, through a rebate, to $20,000 per month. In each case, the administrative fee ismonth, subject to an annual CPI adjustment, andadjustment. In connection with the redemption of the Securitization Notes in March 2019, the servicing agreement between B&B Air Funding is obligated to reimburse its Manager for its expenses.2016, 20152019, 2018 and 2014,2017, BBAM received base, rent and servicing fees pursuant to the B&B Air Funding servicing agreement totaling $2.4$0.5 million, $3.2$0.8 million and $3.5$0.9 million, respectively. In addition, BBAM received $0.2 million in each year, for the annual CPI adjustment made to such fees pursuant to the management agreement. BBAM also received administrative fees totaling $0.9$0.1 million during the year ended December 31, 2016, and $0.82019. BBAM received administrative fees totaling $0.2 million forduring each of the years ended December 31, 20152018 and 2014.2016,2019, B&B Air Funding incurred disposition fees of $2.0$0.6 million in connection with the sale of ninethree aircraft. For each of the yearyears ended December 31, 2015, B&B Air Funding incurred disposition fees of $4.5 million in connection with the sale of 17 aircraft. For the year ended December 31, 2014,2018 and 2017, B&B Air Funding incurred no disposition fees.The agreement may be terminated in the case of certain events, including:Bankruptcy or insolvency of BBAM LP;BBAM LP ceasing to own, directly or indirectly, at least 50% of the Servicer;Summit ceasing to own, directly or indirectly, at least 33.33% of the partnership interests in BBAM LP; provided that a sale that results in such ownership being at a level below 33.33% shall not constitute a servicer termination event if the sale is to a publicly listed entity or other person with a net worth of at least $100 million; andduring any one year period commencing each April 29, 50% or more of the Servicer’s key finance and legal team or technical and marketing team ceasing to be employed by BBAM LP and are not replaced with employees with reasonably comparable experience within 90 days.If any of the above servicer termination events occur, B&B Air Funding, with the prior consent of its policy provider (or the policy provider alone, if an event of default under the indenture governing the Securitization Notes has occurred and is continuing) and with notice to each credit rating agency, may substitute BBAM with a replacement servicer. A servicer termination event under the Servicing Agreement does not give rise to an event of default under the indenture governing the Securitization Notes.andplus an administrative fee of $1,000 per monthaircraft per aircraft.month. Under the Term Loan, the Magellan Acquisition Limited Facility and the Fly Aladdin Acquisition III Facility, BBAM is also entitled to an administrative fee of $10,000 per month. PriorUnder the Fly Aladdin Engine Funding Facility, BBAM is entitled to the terminationreceive a servicing fee equal to 3.5% of monthly rents actually collected and an administrative fee equal to $1,000 per month.IIIII Facility, BBAM was entitled to an administrative fee of $10,000 per month. In addition, BBAM is entitled to receive a sales fee of 1.5%connection with the repayment of the gross consideration collected for any aircraft sold.Fly Acquisition III Facility in October 2019, the servicing agreement was terminated.2016, 20152019, 2018 and 2014,2017, BBAM received servicing and administrative fees totaling $11.3$14.9 million, $13.2$14.7 million and, $12.8$12.0 million, respectively.2016, 20152019, 2018 and 2014,2017, we incurred disposition fees of $5.5$14.8 million, $11.1$3.1 million and $2.2$0.3 million, respectively, in connection with the sale of aircraft.70
ceases to be actively involved in the aircraft leasing business. Some servicing agreements require the consent of the lender providing financing for the relevant aircraft prior to termination. It is our intention to enter into substantially similar servicing agreements with respect to all future aircraft and aviation assets that we acquire.
Report.
The table below shows the quarterly dividends we have paid and the total cash requirement for each dividend payment.
Dividend payment date | Dividends paid per share | Total cash outlay | ||||
2015 | ||||||
November 20, 2015 | $ | 0.25 | $10.3 million | |||
August 20, 2015 | $ | 0.25 | $10.4 million | |||
May 20, 2015 | $ | 0.25 | $10.4 million | |||
February 20, 2015 | $ | 0.25 | $10.4 million | |||
2014 | ||||||
November 20, 2014 | $ | 0.25 | $10.4 million | |||
August 20, 2014 | $ | 0.25 | $10.4 million | |||
May 20, 2014 | $ | 0.25 | $10.3 million | |||
February 20, 2014 | $ | 0.25 | $10.3 million | |||
2019, 2018 or 2017.
relevant.
71
The following table sets forth the annual high and low market prices for our ADSs on the New York Stock Exchange:
High | Low | |||||
2012 | $ | 14.17 | $ | 11.06 | ||
2013 | 17.37 | 12.51 | ||||
2014 | 16.59 | 10.86 | ||||
2015 | 16.29 | 11.77 | ||||
2016 | 14.45 | 9.54 | ||||
The following table sets forth the quarterly high and low market prices for our ADSs on the New York Stock Exchange for the two most recent financial years:
High | Low | |||||
2015 | ||||||
Quarter ending March 31, 2015 | $ | 15.55 | $ | 13.01 | ||
Quarter ending June 30, 2015 | 16.29 | 14.48 | ||||
Quarter ending September 30, 2015 | 16.05 | 11.77 | ||||
Quarter ending December 31, 2015 | 14.03 | 12.09 | ||||
2016 | ||||||
Quarter ending March 31, 2016 | 13.85 | 10.63 | ||||
Quarter ending June 30, 2016 | 12.65 | 9.71 | ||||
Quarter ending September 30, 2016 | 12.47 | 9.54 | ||||
Quarter ending December 31, 2016 | 14.45 | 11.53 | ||||
The following table sets forth the monthly high and low market prices for our ADSs on the New York Stock Exchange for the most recent six months:
High | Low | |||||
2016 | ||||||
September 2016 | 12.05 | 11.41 | ||||
October 2016 | 12.38 | 11.53 | ||||
November 2016 | 14.10 | 11.90 | ||||
December 2016 | 14.45 | 13.17 | ||||
2017 | ||||||
January 2017 | 14.39 | 13.37 | ||||
February 2017 | 14.40 | 13.41 | ||||
72
reference.
| 1) |
| 2) |
| 3) |
| 4) | Form of |
| 5) |
| 6) | Form of Servicing Agreement among BBAM US LP, BBAM Aviation Services Limited and each company thereof. See Item 7 “Related Party |
| Amended and Restated Fly Leasing Limited Management Agreement dated as of December 28, 2012, between Fly Leasing Limited and Fly Leasing Management Co. Limited. See Item 7 “Related Party Transactions — Management Agreement.” |
| Amended and Restated Servicing Agreement, dated as of January 24, 2013, by and among BBAM US LP, BBAM Aviation Services Limited and Fly Leasing Limited. See Item 7 “Related Party Transactions — Servicing Agreement.” |
73
| Amended and Restated Term Loan Credit Agreement, dated as of November 21, 2013, among Fly Funding II S.à |
| Indenture dated December 11, 2013, between Fly Leasing Limited and Wells Fargo Bank, National Association. See Item 5 “Liquidity and Capital Resources—Financing—Unsecured Borrowing.” |
| First Supplemental Indenture, dated December 11, 2013, between Fly Leasing Limited and Wells Fargo Bank, National Association. See Item 5 “Liquidity and Capital Resources—Financing—Unsecured Borrowing.” |
| 12) | Form of Loan Agreement among Hobart Aviation Holdings Limited, Norddeutsche Landesbank Girozentrale and each borrower thereof. See Item 5 “Liquidity and Capital Resources – Financing – Nord LB Facility.” |
| 13) | Second Supplemental Indenture, dated as of October 3, 2014, between Fly Leasing Limited and Wells Fargo Bank, National Association. See Item 5 “Liquidity and Capital Resources—Financing—Unsecured Borrowing.” |
| Amendment to Credit Agreement, dated as of April 22, 2015, among Fly Funding II S.à |
| First Amendment to Amended and Restated Fly Leasing Limited Management Agreement, dated June 19, 2015, between Fly Leasing Limited and Fly Leasing Management Co. Limited. See Item 7 “Related Party Transactions — Management Agreement.” |
| 16) |
| Second Amendment to Credit Agreement, dated as of October 19, 2016, among Fly Funding II S.à |
74
| Second Amendment to Amended and Restated Fly Leasing Limited Management Agreement, dated July 27, 2016, between Fly Leasing Limited and Fly Leasing Management Co. Limited. See Item 7 “Related Party Transactions — Management Agreement.” |
| Third Amendment to Amended and Restated Fly Leasing Limited Management Agreement, dated as of February 1, 2017, between Fly Leasing Limited and Fly Leasing Management Co. Limited. See Item 7 “Related Party Transactions — Management Agreement.” |
| 20) |
| 21) | Servicing Agreement dated as of December 8, 2017, among BBAM US LP, BBAM Aviation Services Limited and Magellan Acquisition Limited. See Item 7 “Related Party Transactions — Management Agreement.” |
| 22) | Third Amendment to Credit Agreement, dated as of April 28, 2017, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Bank Northwest, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent. See Item 5 “Liquidity and Capital Resources—Financing—Term Loan.” |
| 23) | Fourth Amendment to Credit Agreement, dated as of November 1, 2017, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Bank Northwest, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent. See Item 5 “Liquidity and Capital Resources—Financing—Term Loan.” |
| 24) | Facility Agreement [FLY 2017A Term Loan], dated as of December 8, 2017 among Magellan Acquisition Limited, the Subsidiary Guarantors party thereto, the Lenders party thereto, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Administrative Agent and Wells Fargo Bank, National Association, as Security Trustee. See Item 5 “Liquidity and Capital Resources—Financing—Magellan Acquisition Limited.” |
| 25) | Note Purchase Agreement [FLY 2017A Term Loan], dated as of December 8, 2017 among Magellan Acquisition Limited, the Purchasers party thereto, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Administrative Agent and Wells Fargo Bank, National Association, as Security Trustee. See Item 5 “Liquidity and Capital Resources—Financing—Magellan Acquisition Limited.” |
| 26) | Credit Agreement [FLY 2017A Term Loan], dated as of December 8, 2017 among Magellan Acquisition Limited, the Banks party thereto, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Administrative Agent and Wells Fargo Bank, National Association, as Security Trustee. See Item 5 “Liquidity and Capital Resources—Financing—Magellan Acquisition Limited.” |
| 27) | Security Agreement [FLY 2017A Term Loan], dated as of December 8, 2017 among Magellan Acquisition Limited, the Grantors party thereto, and Wells Fargo Bank, National Association, as Security Trustee. See Item 5 “Liquidity and Capital Resources—Financing—Magellan Acquisition Limited.” |
| 28) | Guaranty [Fly 2017A Term Loan] dated December 8, 2017 by Fly Leasing Limited. See Item 5 “Liquidity and Capital Resources—Financing—Magellan Acquisition Limited.” |
| 29) | Share Purchase Agreement, dated February 28, 2018, between Asia Aviation Capital Limited, Fly Aladdin Holdings Limited, Fly Leasing Limited and AirAsia Berhad. See Item 5, “Operating and Financial Review and Prospects—AirAsia Transactions.” |
| 30) | Aircraft Sale and Purchase Agreement, dated February 28, 2018, between Asia Aviation Capital Limited, Fly Aladdin Holdings Limited and AirAsia Berhad. See Item 5, “Operating and Financial Review and Prospects—AirAsia Transactions.” |
| 31) | Aircraft Sale and Purchase Option Agreement, dated April 26, 2018, but having effect between the parties as of February 28, 2018, between Asia Aviation Capital Limited, Fly Aladdin Holdings Limited and AirAsia Berhad. See Item 5, “Operating and Financial Review and Prospects—AirAsia Transactions.” |
| 32) | Amended and Restated Purchase Commitment Letter (Portfolio C Aircraft and Portfolio D Aircraft), dated May 3, 2018, but having effect between the parties as of February 28, 2018, between Fly Leasing Limited and Nomura Babcock & Brown Co., Ltd. See Item 5, “Operating and Financial Review and Prospects—AirAsia Transactions.” |
| 33) | Amended and Restated Delivery Side Letter (Portfolio C and Portfolio D), dated May 3, 2018, but having effect between the parties as of February 28, 2018, between Fly Leasing Limited and Incline B Aviation Limited Partnership. See Item 5, “Operating and Financial Review and Prospects—AirAsia Transactions.” |
| 34) | Securities Purchase Agreement, dated July 11, 2018, between Fly Leasing Limited and Meridian Aviation Partners Limited. See Item 7, “Major Shareholders and Related Party Transactions.” |
| 35) | Securities Purchase Agreement, dated July 11, 2018, between Fly Leasing Limited and Summit Aviation Holdings LLC. See Item 7, “Major Shareholders and Related Party Transactions.” |
| 36) | Registration Rights Agreement, dated July 18, 2018, among Fly Leasing Limited and shareholders named therein. See Item 7, “Major Shareholders and Related Party Transactions.” |
| 37) | Subscription Agreement, dated July 18, 2018, among Fly Leasing Limited, AirAsia Group Berhad and AirAsia Berhad. See Item 7, “Major Shareholders and Related Party Transactions.” |
| 38) | Registration Rights Agreement, dated July 18, 2018, between Fly Leasing Limited and AirAsia Group Berhad. See Item 7, “Major Shareholders and Related Party Transactions.” |
| 39) | Fly SPA Amendment Agreement (No. 1) dated July 11, 2018, among Fly Aladdin Holdings Limited, Fly Leasing Limited, Asia Aviation Capital Limited and AirAsia Group Berhad. See Item 5, “Operating and Financial Review and Prospects—AirAsia Transactions.” |
| 40) | Fly SPA Amendment Agreement (No. 2) dated July 18, 2018, among Fly Aladdin Holdings Limited, Fly Leasing Limited, Asia Aviation Capital Limited and AirAsia Group Berhad. See Item 5, “Operating and Financial Review and Prospects—AirAsia Transactions.” |
| 41) | Servicing Agreement dated June 15, 2018, among BBAM Aviation Services Limited, BBAM US LP, Fly Aladdin Funding Limited, Fly Aladdin MaltaCo Limited and each Borrower Group Company that becomes a party thereto. See Item 7 “Related Party Transactions —Servicing Agreement.” |
| 42) | Senior Secured Credit Agreement dated June 15, 2018, among Fly Aladdin Funding Limited, as Borrower, Fly Aladdin MaltaCo Limited, as Fly Malta, the lenders party thereto, Wilmington Trust (London) Limited, as Security Trustee and BNP Paribas, as Administrative Agent. See Item 5 “Liquidity and Capital Resources – Financing – Fly Aladdin Acquisition Facility.” See Item 5 “Liquidity and Capital Resources—Financing—Fly Aladdin Engine Funding Facility.” |
| 43) | Borrower Parent Security Agreement dated June 15, 2018, between Fly Aladdin Holdings Limited, as Grantor and Wilmington Trust (London) Limited, as Security Trustee. See Item 5 “Liquidity and Capital Resources – Financing – Fly Aladdin Acquisition Facility.” |
| 44) | Co-Borrower Security Agreement dated June 15, 2018, between Fly Aladdin Funding Limited, as Borrower, Fly Aladdin MaltaCo Limited, as Fly Malta and Wilmington Trust (London) Limited, as Security Trustee. See Item 5 “Liquidity and Capital Resources—Financing—Fly Aladdin Acquisition Facility.” |
| 45) | Deed of Limited Guaranty |
| 46) | Amendment to Senior Secured Credit Agreement dated July 19, 2018, among Fly Aladdin Funding Limited, as Borrower, Fly Aladdin MaltaCo Limited, as Fly Malta, the lenders, Wilmington Trust (London) Limited, as Security Trustee and BNP Paribas, as Administrative Agent. See Item 5 “Liquidity and Capital Resources – Financing – Fly Aladdin Acquisition |
| 47) | Purchase Agreement dated November 30, 2018 among the sellers identified therein, Horizon Aircraft Finance I Limited, Horizon Aircraft Finance I LLC and the other purchasers identified therein. See Item 5, “Operating and Financial Review and Prospects.” |
| 48) | Form of Loan Amendment Letter Agreement (2018) among Hobart Aviation Holdings Limited, Norddeutsche Landesbank Girozentrale and each borrower thereof. See Item 5, “Liquidity and Capital Resources—Financing—Nord LB Facility.” |
| 49) | Purchase Agreement dated July 2, 2019 among the sellers identified therein, Horizon Aircraft Finance II Limited, Horizon Aircraft Finance II LLC and the other purchasers identified therein. See Item 5, “Operating and Financial Review and Prospects.” |
| 50) | Purchase Agreement dated October 31, 2019 among the sellers identified therein, Horizon Aircraft Finance III Limited, Horizon Aircraft Finance III LLC and the other purchasers identified therein. See Item 5, “Operating and Financial Review and Prospects.” |
| 51) | Fifth Amendment to Credit Agreement dated as of November 22, 2019, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Trust Company, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent. See Item 5, “Liquidity and Capital Resources—Financing—Term Loan.” |
| 52) | Form of Loan Amendment Letter Agreement (2019) among Hobart Aviation Holdings Limited, Norddeutsche Landesbank Girozentrale and each borrower thereof. See Item 5, “Liquidity and Capital Resources—Financing—Nord LB Facility.” |
www.sec.gov.
SEC.
75
of our shares may vary depending upon such holder’s particular situation, and holders or prospective purchasers of our shares are advised to consult their own tax advisors as to the Irish or other tax consequences of the purchase, ownership and disposition of our shares.
| ● | An “Irish Holder” is a holder of our shares that (1) beneficially owns our shares by virtue of holding the related ADSs evidenced by the relevant American Depositary Receipt or ADR; (2) in the case of individual holders, is resident or ordinarily resident in Ireland under Irish taxation laws; and (3) in the case of a holder that is a company, is resident in Ireland under Irish taxation laws and is not also a resident of any other country under any double taxation agreement entered into by Ireland. |
| ● | A “Non-Irish Holder” is a holder of our shares that is not an Irish Holder and has never been an Irish Holder. |
| ● | A “US Holder” is a holder of our shares that (1) beneficially owns our shares by virtue of holding the related ADSs evidenced by the relevant ADR; (2) is a resident of the United States for the purposes of the Ireland/United States Double Taxation Convention; (3) in the case of an individual holder, is not also resident or ordinarily resident in Ireland for Irish tax purposes; (4) in the case of a corporate holder, is not resident in Ireland for Irish tax purposes and is not ultimately controlled by persons resident in Ireland; and (5) is not engaged in any trade or business and does not perform independent personal services through a permanent establishment or fixed base in Ireland. |
received from Fly. Taxation of Capital Gains €3,000 per annum from any number of individuals exempt from CAT. Canada. U.S. Federal Income Tax Considerations We anticipate that we will have positive earnings and profits for U.S. federal income tax purposes for the year ended December 31, 2019, which may impact the taxation of U.S. holders of shares. a PFIC. We will be treated as a PFIC if (i) 75% or more of our gross income is passive income or (ii) at least 50% of our assets are held for the production of, or produce, passive income in a taxable year, based on a quarterly average and generally by value, including our pro rata share of the gross income or assets of any company, U.S. or non-U.S., in which we are considered to own directly or indirectly 25% or more of the shares by value. Passive income for this purpose generally includes, among other things, dividends, interest, rents, royalties, gains from commodities and securities transactions, and gains from assets that produce passive income. Assuming we are a PFIC, our dividends will not qualify for the reduced rate of U.S. federal income tax that applies to qualified dividends paid to non-corporate U.S. Holders. Thus, dividends (as determined for U.S. federal income tax purposes) will be taxed at the rate applicable to ordinary income of the U.S. Holder. corporation no longer satisfies either the passive income or passive assets test described above, unless the U.S. Holder terminates this deemed PFIC status by electing to recognize gain, which will be taxed under the excess distribution rules as if such shares had been sold on the last day of the last taxable year for which the corporation was a PFIC. a U.S. Holder to maintain the QEF election. U.S. Holders are advised to consult with their tax advisors regarding the tax issues raised by this investment. Information Reporting and Backup Withholding for Malta. Effectively connected taxable income means the taxable income of the partnership which is effectively connected (or treated as effectively connected) with the conduct of a trade or business in the United States. shareholders in respect of our shares. We have obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until March 31, 2035, be applicable to us or to any of our operations or to our shares, debentures or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or is payable by us in respect of real property owned or leased by us in Bermuda. Foreign Currency Exchange Risk respectively. PART II Our independent auditor, Deloitte & Touche LLP, a registered public accounting firm, has issued their report which is included below. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. (d) Changes in Internal Control over Financial Reporting The Audit Committee pre-approves all audit and non-audit services provided to the Company by its auditors.● DWT.DWT for 2019. This rate increased to 25% effective January 1, 2020. DWT may not apply where an exemption is permitted by Irish tax legislation or a double taxation treaty and where all necessary documentation has been submitted to the ADS depository prior to the payment of the dividend.Holders.Holders. Shareholders who are individuals resident in a Relevant Territory and who are not resident or ordinarily resident in Ireland may receive dividends free from DWT where the shareholder has provided the ADS depository with the relevant declaration and residency certificate required by Irish legislation.who are ultimately controlled, whether directly or indirectly, by persons resident in a Relevant Territory and who are not ultimately controlled, whether directly or indirectly, by persons not resident in a Relevant Territory; orwho are resident in a Relevant Territory and not controlled directly or indirectly by Irish residents; orwhose principal class of shares or the principal class of shares of whose 75% or greater parents are substantially and regularly traded on a recognized stock exchange in a Relevant Territory; or which are wholly owned by two or more companies, each of whose principal class of shares are substantially and● 76● ● regularly traded on a recognized stock exchange in a Relevant Territory or on such other stock exchange as may be approved by the Minister for Finance may receive dividends free from DWT where they provide the ADS depository with the relevant documentation required by Irish law before the record date for the dividend.and Non-Irish HoldersIrish Holders.Holders.2016,2019, the Universal Social Charge will apply to all income where an individual has income in excess of €13,000 (limit increased from €12,012 in 2015).€13,000. The Universal Social Charge applies at four different rates1 for 20162019 as follows:1%3%€6,656;€7,862;5.5%€51,376€50,170 andThere is also a surcharge of 3% on individuals in receipt of non-PAYE income that exceeds €100,000 in a year.received.Holders. Holders. Non-Irish Holders will not have an Irish income tax liability on dividends from us if the shareholder is neither resident nor ordinarily resident in Ireland and is:an individual resident in a Relevant Territory and who are not resident or ordinarily resident in Ireland; ora corporation that is resident in a Relevant Territory and not controlled directly or indirectly by Irish residents; or● a corporation that is ultimately controlled, whether directly or indirectly, by persons resident in a Relevant Territory and who are not ultimately controlled, whether directly or indirectly, by persons not resident in a Relevant Territory; ora corporation whose principal class of shares (or whose 75% or greater parent’s principal class of shares) are substantially and regularly traded on a recognized stock exchange in a Relevant Territory or on such other stock exchange as may be approved by the Minister for Finance;● a corporation that is wholly owned by two or more corporations each of whose principal class of shares are substantially and regularly traded on a recognized stock exchange in a Relevant Territory or on such other stock exchange as may be approved by the Minister for Finance; or● otherwise entitled to an exemption from DWT.● ● ● 1For the year ended 2015, the Universal Social Charge applied as follows:1.5% on the first €12,012;3.5% on the next €5,5647% on the next €52,468 and8% on the aggregate income in excess of €70,044.77Holders.Holders. Irish Holders that acquire shares will generally be considered, for Irish tax purposes, to have acquired their shares at a base cost equal to the amount paid for shares. On subsequent dispositions, shares acquired at an earlier time will generally be deemed, for Irish tax purposes, to be disposed of on a “first in first out” basis before shares acquired at a later time. Irish Holders that dispose of their shares will generally be subject to Irish capital gains tax (CGT) to the extent that the proceeds realized from such disposition exceed the base cost of the common shares or ADSs disposed of and any incidental expenses. Disposals made on or after 6 December 2012 are subject to CGT at 33%. Unutilized capital losses from other sources generally can be used to reduce gains realized on the disposal of our shares.Holders. Holders. A person who is not resident or ordinarily resident in Ireland is not subject to Irish capital gains tax on the disposal of our shares unless at or before the time when the chargeable gain arose, such shares are used, held or acquired for the purposes of a trade carried on by such a shareholder though a branch or agency in Ireland.sharesshares/ADRs will be within the charge to capital acquisitions tax (CAT) where the donor/deceased is Irish resident/ordinarily resident at the date of the gift/date of inheritance or the beneficiary is resident orIrish resident/r ordinarily resident in Ireland at the date of the gift/inheritance or to the extent that the property of which the gift or inheritance consists is situated in IrelandADR has an Irish situs at the relevant date.Special rules with regard to residence apply Where the ADR is in bearer form its legal situs is where it is held and if a unit trust then where the trustees are resident.notnon-Irish domiciled, in Ireland.then special rules apply to determine his/her residence for CAT purposes. CAT is payable by the beneficiary and is charged at 33% on the value of the gift / inheritance that exceeds a flat rate of 33% for gifts or inheritances takentax-free threshold amount. The applicable tax-free threshold depends on or after 6 December 2012the relationship between the donor and there are various thresholds before the tax becomes applicable.beneficiary. Gifts and inheritances between spouses are not subjectexempt from CAT. A person can receive a gift with a value of up to capital acquisitions tax. of shares is subject to both Irish CAT and US federal estate tax. The Estate Tax Convention does not apply to Irish CAT paid on gifts.Noor capital duty shall apply toshould arise on the issuance of the common shares. Transfers of the common shares of a non-Irish incorporated company would not ordinarily be subject to Irish stamp duty, unless the transfer was related to Irish propertyreal estate or any matterIrish stocks or thing done or to be done in Ireland.marketable securities. In such cases a 1% stamp duty charge willwould arise for the transferee based on the transfer consideration for (or,paid or, if higher, the market value of)of the shares.Canada and the transfer does not relate to Irish property or any matter or thing done or to be done in Ireland.78or persons for whom a share is not a capital asset, and persons holding, directly indirectly or constructively, 5%10% or more of our ADSsshares by voting power or underlying shares.value. The tax consequences of an investment in our shares will depend not only on the nature of our operations and the then-applicable U.S. federal tax principles, but also on certain factual determinations that cannot be made at this time, and upon a particular investor’s individual circumstances. No rulings have been or will be sought from the IRS regarding any matter discussed herein.subsidiaries)subsidiaries or any investment) will or will not be considered a PFIC in the current or future years. The determination of whether or not we are a PFIC is a factual determination that is made annually (after the close of each taxable year) based on the types of income we earn and the value of our assets, and because certain aspects of the PFIC rules are not entirely certain, there can be no assurance that we are or are not a PFIC or that the IRS will agree with our conclusion regarding our PFIC status. If we (or any of our subsidiaries) are currently or were to become a PFIC, U.S. Holders of shares would be subject to special rules and a variety of potentially adverse tax consequences under the Code.79(and if(assuming we complycontinue to provide shareholders with certain reporting requirements, which we have done and intendthe annual information necessary to do)do so), then such U.S. Holder will be required for each taxable year to include in income a pro rata share of our ordinary earnings as ordinary income and a pro rata share of our net capital gain as long-term capital gain, subject to a separate voluntary election to defer payment of taxes, which deferral is subject to an interest charge. If a QEF election is made, U.S. Holders will not be taxed again on our distributions, which will be treated as return of capital for U.S. federal income tax purposes. Instead, distributions will reduce the U.S. Holder’s basis in our shares and, to the extent in excess of such basis, will be treated as gain from the sale or exchange of a capital asset.Excess distributions by us to a U.S. Holder would be taxed in a special way. “Excess distributions” are amounts received by a U.S. Holder with respect to our shares in any taxable year that exceed 125% of the average distributions received by such U.S. Holder from us in the shorter of either the three previous years or such U.S. Holder’s holding period for shares before the present taxable year. Excess distributions must be allocated ratably to each day that a U.S. Holder has held our shares. A U.S. Holder must include amounts allocated to the current taxable year in its gross income as ordinary income for that year. A U.S. Holder must pay tax on amounts allocated to each prior taxable year in which we were a PFIC at the highest rate in effect for that year on ordinary income and the tax is subject to an interest charge at the rate applicable to deficiencies for income tax. The preferential U.S. federal income tax rates for dividends and long-term capital gain of individual U.S. Holders (as well as certain trusts and estates) would not apply, and special rates would apply for calculating the amount of the foreign tax credit with respect to excess distributions.The entire amount of gain realized by a U.S. Holder upon the sale or other disposition of shares will also be treated as an excess distribution and will be subject to tax as described above.● The tax basis in shares that were acquired from a decedent who was a U.S. Holder would not receive a step-up to fair market value as of the date of the decedent’s death but would instead be equal to the decedent’s basis, if lower than fair market value.● ● 80 Ifsubsidiary issuch lower-tier PFIC, or that the lower-tier PFIC will provide the required information for a U.S. Holder to make or maintain a QEF election with respect to such lower-tier PFIC. In addition, a mark-to-market election generally would not subjectbe available with respect to such a lower-tier PFIC. U.S. Holders are advised to consult with their tax advisors regarding the tax issues raised by lower-tier PFICs.electioninvestment in Horizon I Limited, an entity that we expect to be treated as a disregarded entity or partnershipPFIC for U.S. federal income tax purposes thenpurposes. In addition, in 2019 we made investments in Horizon II Limited and Horizon III Limited, entities that we also expect to be treated as PFICs for U.S. federal income tax purposes. As such, U.S. Holders may need to make a QEF election wouldwith respect to these lower-tier PFICs with their 2019 tax returns. However, there is no assurance that we will cause the lower-tier PFICs to provide the required information for a U.S. Holder to make the timely QEF election for the 2019 tax year. Further, with respect to these investments in the lower-tier PFICs, there is no assurance that we will have timely knowledge of the status of these lower-tier PFICs on an annual basis, or that we will cause the lower-tier PFICs to be madeprovide the required information for each such subsidiary.recently-enactedcertain reporting obligations with respect to shares and if the aggregate value of these and certain other “specified foreign financial assets” exceeds $50,000. If required, this disclosure is made by filing Form 8938 with the IRS. Significant penalties can apply and the period of limitations on assessment and collection of United States federal income taxes may be extended if holders are required to make this disclosure and fail to do so. In addition, a U.S. Holder should consider the possible obligation to file a Form TD F 90-22.1—annually FinCEN Report 114 (Report of Foreign Bank and Financial Accounts ReportAccounts) as a result of holding shares. Holders are thus encouraged to consult their U.S. tax advisors with respect to these and other reporting requirements that may apply to their acquisition of shares.rate )rate) for non-corporate U.S. Holders.81Non-U. S.Non-U.S. HoldersW-EECIW-8ECI or W-8IMY, as applicable.Labuan, SingaporeAustralia and Australia.Fly-Z/C Aircraft Limited is expected to be a qualified resident under the U.S. and Ireland tax treaty. each year for the benefits of the Irish Treaty or that we will not in the future be treated as maintaining a permanent establishment in the United States or having income that is effectively connected with the conduct of a trade or business in the United States. In order for us and our subsidiaries to be eligible for the benefits of the Irish Treaty for a particular fiscal year, we must each satisfy the requirements of Article 23 (Limitation on Benefits) of the Irish Treaty for that fiscal year. We will be eligible for the benefits of the Irish Treaty if the principal class of our shares is substantially and regularly traded on one or more recognized stock exchanges. Our shares will be considered substantially and regularly traded on one or more recognized stock exchanges in a fiscal year if (1) trades in such shares are effected on such stock exchanges in more than de minimis quantities during every quarter; and (2) the aggregate number of shares traded on such stock exchanges during the previous fiscal year is at least 6% of the average number of shares outstanding during that taxable year. We satisfied this requirement for each of the years since our inception. If our shares cease to be treated as regularly traded, then we may no longer be eligible for the benefits of the Irish Treaty. Our subsidiaries and investees that are Irish tax-resident, including Fly-Z/C Aircraft Limited, will be eligible for benefits under the Irish Treaty if we hold, directly or indirectly, 50% or more of the vote and value of the subsidiary and we meet the regularly traded test described above.35%21%. In addition, we or that subsidiary would be subject to the U.S. federal branch profits tax at a rate of 30% on its effectively connected earnings and profits, considered distributed from the U.S. business. In addition, if we did not qualify for the Irish Treaty benefits, certain U.S. source rental income not connected with a U.S. trade or business could be subject to withholding tax of 30% and certain U.S. source gross transportation income could be subject to a 4% gross transportation tax if an exemption did not apply.82obligations such as the Securitization Notes, the Term Loan and other borrowings. obligations. As of December 31, 2016,2019, we had 7582 lease agreements (excluding lease agreements associated with our flight equipmentaircraft classified as held for operatingsale) and seven engine lease 63agreements. 83 of which require the payment of athese lease agreements had fixed rent amount during the lease term,rates and the remaining 12 require asix had floating rent amountlease rates based on LIBOR. Our floating rate indebtedness requires payments based on a variable interest rate index such as LIBOR. Therefore, increases in interest rates may reduce our net income by increasing the cost of our debt without any corresponding proportional increase in rents or cash flow from our leases.extraordinarily complex market reactions that normally would arise from the market shifts. Although the following results of a sensitivity analysis for changes in interest rates may have some limited use as a benchmark, they should not be viewed as a forecast. This forward-lookinghypothetical disclosure also is selective in nature and addresses only the potential impacts on our financial instruments and our variable rate leases. It does not include a variety of other potential factors that could affect our business as a result of changes in interest rates.$16.0$15.3 million, and would have increased or decreased our revenues by $6.7$4.3 million and $4.9 million, respectively, on an annualized basis.the derivativesa derivative that is designated and qualifies as an effective cash flow hedge are recorded as a component ofin accumulated other comprehensive income, net of a provisiontax, until earnings are affected by the variability of cash flows of the hedged item. Any derivative gains and losses that do not qualify for income taxes.hedge accounting treatment are recognized directly into income. As of December 31, 2016,2019, the fair value of our interest rate swap derivative liabilities, excluding accrued interest, was $12.7$27.0 million. A 100 basis-point increase in the interest rate would reduce the fair value of our derivative liabilities by approximately $14.9$24.4 million. A 100 basis-point decrease in the interest rate would increase the fair value of our derivative liabilities by approximately $12.0$25.7 million. As of December 31, 2016, the fair market value of our interest rate swap derivative assets, excluding accrued interest, was $1.9 million. A 100 basis-point increase in the interest rate would increase the fair market value of our derivative assets by approximately $3.4 million. A 100 basis-point decrease in the interest rate would reduce the fair market value of our derivative assets by approximately $3.4 million.83one leasetwo leases pursuant to which we receive a portion of the rent amount in Euros andEuros. In 2018, we entered into a cross currency swap contract to mitigate our exposure to foreign currency exchange fluctuations in conjunction with one of these leases. As of December 31, 2019, the fair value of our cross currency swap derivative asset, excluding accrued rent, was $4.8 million. A 10% increase or decrease in the Euro to U.S. Dollar exchange rate would decrease or increase the fair value of our derivative asset by approximately $5.1 million, respectively. For the other Euro denominated lease, a 10% increase or decrease in the Euro to U.S. Dollar exchange rate would increase or decrease the annual rental revenue by $0.3 million, respectively.associated with such aircraft is partially denominated in Euros. During the year ended December 31, 2019, we recorded an unrealized foreign currency exchange gain of $0.3 million associated with this borrowing, resulting primarily from an increase in value of the U.S. Dollar relative to the Euro. A 10% increase or decrease in the Euro to U.S. Dollar exchange rate on the Euro denominated secured borrowing at December 31, 2019 would resulthave resulted in a $2.3$1.6 million unrealized foreign exchange loss or gain, or loss.In 2016, we recorded an unrealized foreign currency exchange gain of $0.4 million, resulting primarily from an increase of the U.S. Dollar value relative to the Euro. In 2015, we recorded an unrealized foreign currency exchange gain of $1.2 million.of payingto pay such expenses. The portion of our business conducted in other currencies could increase in the future, which could expand our exposure to losses arising from currency fluctuations. Volatility in foreign exchange rates could have a material impact on our results of operations.84None.2016,2019, an evaluation was conducted under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective.20162019 using the framework and criteria established in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on this assessment, our management concluded that our internal control over financial reporting was effective as of December 31, 2016.2019.85and Shareholders of2016,2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.Company'sCompany’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.Reporting. Our responsibility is to express an opinion on the Company'sCompany’s internal control over financial reporting based on our audit.Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.company'scompany’s internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company'scompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'scompany’s assets that could have a material effect on the financial statements.theits inherent limitations, of internal control over financial reporting including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be preventedprevent or detected on a timely basis.detect misstatements. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2016 of the Company and our report dated March 14, 2017 expressed an unqualified opinion on those financial statements and financial statement schedules.
March 14, 20178620162019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.“About”“About Fly Leasing” section of our website (www.flyleasing.com).20162019 and 20152018 were Deloitte & Touche LLP.20162019 and 2015,2018, respectively, and fees billed for other services rendered (in thousands): Years ended 2019 2018 Amount % Amount % Audit fees Tax fees All other fees Total $ 2,290 100 % $ 2,418 100 % (1)Includes $1.9 million of audit fees and $0.3 million of tax fees that were paid to Ernst & Young LLP in 2015.
87
Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of a Publicly Announced Repurchased Plan | Approximate Dollar Value of Shares that may yet be Purchased Under the Plans or Programs | ||||||||
January 1-31, 2016 | 1,053,400 | $ | 12.17 | 1,053,400 | $ | 12.2 million | ||||||
February 1-28, 2016 | 836,240 | $ | 11.65 | 836,240 | $ | 2.4 million | ||||||
March 1-31, 2016 | 182,270 | $ | 13.06 | 182,270 | $ | 30.0 million | (1) (2) | |||||
April 1-30, 2016 | — | — | — | $ | 30.0 million | |||||||
May 1-31, 2016 | — | — | — | $ | 30.0 million | |||||||
June 1-30, 2016 | 251,500 | $ | 10.47 | 251,500 | $ | 27.4 million | ||||||
July 1-31, 2016 | 408,611 | $ | 10.69 | 408,611 | $ | 74.8 million | (3) | |||||
August 1-31, 2016 | 251,302 | $ | 11.93 | 251,302 | $ | 71.8 million | ||||||
September 1-30, 2016 | 234,098 | $ | 11.82 | 234,098 | $ | 69.0 million | ||||||
October 1-31, 2016 | 186,824 | $ | 11.92 | 186,824 | $ | 66.8 million | ||||||
November 1-30, 2016 | 10,715 | $ | 12.00 | 10,715 | $ | 66.7 million | ||||||
December 1-31, 2016 | — | — | — | $ | 66.7 million | |||||||
| Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of a Publicly Announced Repurchased Plan | Approximate Dollar Value of Shares that may yet be Purchased Under the Plans or Programs(1) | |||||||||||
| January 1-31, 2019 | — | $ | — | — | $ | 50.0 million | |||||||||
| February 1-28, 2019 | — | $ | — | — | $ | 50.0 million | |||||||||
| March 1-31, 2019 | 197,592 | $ | 13.59 | 197,592 | $ | 47.3 million | |||||||||
| April 1-30, 2019 | 29,597 | $ | 13.97 | 29,597 | $ | 46.9 million | |||||||||
| May 1-31, 2019 | 502,954 | $ | 16.27 | 502,954 | $ | 38.7 million | |||||||||
| June 1-30, 2019 | 937,802 | $ | 16.75 | 937,802 | $ | 23.0 million | |||||||||
| July 1-31, 2019 | 84,016 | $ | 16.99 | 84,016 | $ | 21.5 million | |||||||||
| August 1-31, 2019 | 258,476 | $ | 16.78 | 258,476 | $ | 17.2 million | |||||||||
| September 1-30, 2019 | — | $ | — | — | $ | 50.0 million | |||||||||
| October 1-31, 2019 | — | $ | — | — | $ | 50.0 million | |||||||||
| November 1-30, 2019 | — | $ | — | — | $ | 50.0 million | |||||||||
| December 1-31, 2019 | — | $ | — | — | $ | 50.0 million | |||||||||
| (1) | In November |
| December 2019. In |
88
PART III
Page | |||
| 2018 | F-4 | ||
| 2017 | F-5 | ||
| 2017 | F-6 | ||
| 2019 | F-7 | ||
| 2017 | F-8 | ||
| F-10 | |||
| F-38 |
F-2
2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Fly Leasing Limited and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated on March 14, 2017 expressed an unqualified opinion on the Company's internal control over financial reporting.
F-3
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Fly Leasing Limited
We have audited the accompanying consolidated balance sheet of Fly Leasing Limited as of December 31, 2014, and the related accompanying consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for the year ended December 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Fly Leasing Limited at December 31, 2014, and the consolidated results of its operations and its cash flows for the year ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
San Francisco, California
May 2, 2016
F-4
December 31, | ||||||
2016 | 2015 | |||||
Assets | ||||||
Cash and cash equivalents | $ | 517,964 | $ | 275,998 | ||
Restricted cash and cash equivalents | 94,123 | 174,933 | ||||
Rent receivables | 419 | 124 | ||||
Investment in unconsolidated subsidiary | 7,700 | 7,170 | ||||
Investment in finance lease, net | 15,095 | 34,878 | ||||
Flight equipment held for sale, net | — | 237,262 | ||||
Flight equipment held for operating lease, net | 2,693,821 | 2,585,426 | ||||
Maintenance rights, net | 101,969 | 94,493 | ||||
Deferred tax assets, net | 7,445 | 7,505 | ||||
Fair value of derivative assets | 1,905 | 241 | ||||
Other assets, net | 6,568 | 6,450 | ||||
Total assets | $ | 3,447,009 | $ | 3,424,480 | ||
Liabilities | ||||||
Accounts payable and accrued liabilities | $ | 13,786 | $ | 17,548 | ||
Rentals received in advance | 13,123 | 14,560 | ||||
Payable to related parties | 5,042 | 7,170 | ||||
Security deposits | 42,495 | 48,876 | ||||
Maintenance payment liability | 182,571 | 194,543 | ||||
Unsecured borrowings, net | 691,390 | 689,409 | ||||
Secured borrowings, net | 1,831,985 | 1,695,711 | ||||
Deferred tax liability, net | 19,847 | 28,246 | ||||
Fair value of derivative liabilities | 13,281 | 19,327 | ||||
Other liabilities | 40,254 | 52,126 | ||||
Total liabilities | 2,853,774 | 2,767,516 | ||||
Shareholders’ equity | ||||||
Common shares, $0.001 par value; 499,999,900 shares authorized; 32,256,440 and 35,671,400 shares issued and outstanding at December 31, 2016 and 2015, respectively | 32 | 36 | ||||
Manager shares, $0.001 par value; 100 shares authorized, issued and outstanding | — | — | ||||
Additional paid-in capital | 536,922 | 577,290 | ||||
Retained earnings | 66,026 | 95,138 | ||||
Accumulated other comprehensive loss, net | (9,745 | ) | (15,500 | ) | ||
Total shareholders’ equity | 593,235 | 656,964 | ||||
Total liabilities and shareholders’ equity | $ | 3,447,009 | $ | 3,424,480 | ||
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | 285,565 | $ | 180,211 | ||||
| Restricted cash and cash equivalents | 52,738 | 100,869 | ||||||
| Rent receivables | 14,264 | 9,307 | ||||||
| Investment in finance lease, net | 11,639 | 12,822 | ||||||
| Flight equipment held for sale, net | 144,119 | 259,644 | ||||||
| Flight equipment held for operating lease, net | 2,720,000 | 3,228,018 | ||||||
| Maintenance rights | 290,958 | 298,207 | ||||||
| Deferred tax asset, net | 11,675 | 6,505 | ||||||
| Fair value of derivative assets | 4,824 | 5,929 | ||||||
| Other assets, net | 129,377 | 124,960 | ||||||
| Total assets | $ | 3,665,159 | $ | 4,226,472 | ||||
| Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 22,746 | $ | 23,146 | ||||
| Rentals received in advance | 16,391 | 21,322 | ||||||
| Payable to related parties | 10,077 | 4,462 | ||||||
| Security deposits | 40,726 | 60,097 | ||||||
| Maintenance payment liability, net | 219,371 | 292,586 | ||||||
| Unsecured borrowings, net | 619,407 | 617,664 | ||||||
| Secured borrowings, net | 1,695,525 | 2,379,869 | ||||||
| Deferred tax liability, net | 57,935 | 36,256 | ||||||
| Fair value of derivative liabilities | 27,943 | 8,558 | ||||||
| Other liabilities | 76,761 | 80,402 | ||||||
| Total liabilities | 2,786,882 | 3,524,362 | ||||||
| Shareholders’ equity | ||||||||
| Common shares, $0.001 par value; 499,999,900 shares authorized; 30,898,410 and 32,650,019 shares issued and outstanding at December 31, 2019 and 2018, respectively | 31 | 33 | ||||||
| Manager shares, $0.001 par value; 100 shares authorized, issued and outstanding | — | — | ||||||
| Additional paid-in capital | 516,254 | 549,123 | ||||||
| Retained earnings | 380,392 | 154,347 | ||||||
| Accumulated other comprehensive loss, net | (18,400 | ) | (1,393 | ) | ||||
| Total shareholders’ equity | 878,277 | 702,110 | ||||||
| Total liabilities and shareholders’ equity | $ | 3,665,159 | $ | 4,226,472 | ||||
F-5
Years ended | |||||||||
2016 | 2015 | 2014 | |||||||
Revenues | |||||||||
Operating lease revenue | $ | 313,582 | $ | 429,691 | $ | 406,563 | |||
Finance lease income | 2,066 | 299 | — | ||||||
Equity earnings from unconsolidated subsidiary | 530 | 1,159 | 3,562 | ||||||
Gain on sale of aircraft | 27,195 | 28,959 | 14,761 | ||||||
Interest and other income | 1,666 | 2,289 | 662 | ||||||
Total revenues | 345,039 | 462,397 | 425,548 | ||||||
Expenses | |||||||||
Depreciation | 120,452 | 159,732 | 166,983 | ||||||
Aircraft impairment | 96,122 | 66,093 | 1,200 | ||||||
Interest expense | 123,161 | 145,448 | 142,519 | ||||||
Selling, general and administrative | 30,077 | 33,674 | 41,033 | ||||||
Ineffective, dedesignated and terminated derivatives | 91 | 4,134 | 72 | ||||||
Net (gain) loss on extinguishment of debt | 9,246 | 17,491 | (2,194 | ) | |||||
Maintenance and other costs | 2,279 | 7,628 | 7,060 | ||||||
Total expenses | 381,428 | 434,200 | 356,673 | ||||||
Net income (loss) before provision for income taxes | (36,389 | ) | 28,197 | 68,875 | |||||
Provision (benefit) for income taxes | (7,277 | ) | 5,399 | 8,691 | |||||
Net income (loss) | $ | (29,112 | ) | $ | 22,798 | $ | 60,184 | ||
Weighted average number of shares: | |||||||||
Basic | 33,239,001 | 41,222,690 | 41,405,211 | ||||||
Diluted | 33,239,001 | 41,315,149 | 41,527,584 | ||||||
Earnings (loss) per share: | |||||||||
Basic | $ | (0.88 | ) | $ | 0.52 | $ | 1.42 | ||
Diluted | $ | (0.88 | ) | $ | 0.52 | $ | 1.42 | ||
Dividends declared and paid per share | $ | — | $ | 1.00 | $ | 1.00 | |||
| Years ended | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| Revenues | ||||||||||||
| Operating lease revenue | $ | 464,399 | $ | 399,514 | $ | 346,894 | ||||||
| Finance lease revenue | 618 | 675 | 731 | |||||||||
| Equity earnings (loss) from unconsolidated subsidiary | 2,717 | (54 | ) | 496 | ||||||||
| Gain on sale of aircraft | 97,323 | 13,398 | 3,926 | |||||||||
| Interest and other income | 9,967 | 4,766 | 1,204 | |||||||||
| Total revenues | 575,024 | 418,299 | 353,251 | |||||||||
| Expenses | ||||||||||||
| Depreciation | 140,798 | 144,084 | 133,227 | |||||||||
| Aircraft impairment | — | — | 22,000 | |||||||||
| Interest expense | 137,133 | 144,742 | 127,782 | |||||||||
| Selling, general and administrative | 35,304 | 31,185 | 30,671 | |||||||||
| Loss (gain) on derivatives | 2,720 | (2,382 | ) | (192 | ) | |||||||
| Loss on modification and extinguishment of debt | 9,590 | 2,474 | 23,309 | |||||||||
| Maintenance and other costs | 3,075 | 2,547 | 2,524 | |||||||||
| Total expenses | 328,620 | 322,650 | 339,321 | |||||||||
| Net income before provision for income taxes | 246,404 | 95,649 | 13,930 | |||||||||
| Provision for income taxes | 20,527 | 9,926 | 11,332 | |||||||||
| Net income | $ | 225,877 | $ | 85,723 | $ | 2,598 | ||||||
| Weighted average number of shares: | ||||||||||||
| Basic | 31,607,781 | 29,744,083 | 30,307,357 | |||||||||
| Diluted | 31,715,469 | 29,783,904 | 30,353,425 | |||||||||
| Earnings per share: | ||||||||||||
| Basic | $ | 7.15 | $ | 2.88 | $ | 0.09 | ||||||
| Diluted | $ | 7.12 | $ | 2.88 | $ | 0.09 | ||||||
F-6
Years ended | |||||||||
2016 | 2015 | 2014 | |||||||
Net income (loss) | $ | (29,112 | ) | $ | 22,798 | $ | 60,184 | ||
Other components of comprehensive income (loss), net of tax: | |||||||||
Change in fair value of derivatives, net of deferred tax (1) | 5,036 | 158 | (3,238 | ) | |||||
Reclassification from other comprehensive loss into earnings due to termination of derivative liabilities, net of deferred tax (2) | (10 | ) | (130 | ) | — | ||||
Reclassification from other comprehensive loss into earnings due to derivatives that no longer qualified for hedge accounting treatment, net of deferred tax (3) | 729 | 1,563 | — | ||||||
Comprehensive income (loss) | $ | (23,357 | ) | $ | 24,389 | $ | 56,946 | ||
| Years ended | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| Net income | $ | 225,877 | $ | 85,723 | $ | 2,598 | ||||||
| Other components of comprehensive income (loss), net of tax: | ||||||||||||
Change in fair value of derivatives, net of deferred tax(1) | (19,668 | ) | (530 | ) | 3,926 | |||||||
Reclassification from other comprehensive loss into earnings due to derivatives that no longer qualified for hedge accounting treatment, net of deferred tax(2) | 2,829 | 3,717 | 1,239 | |||||||||
| Comprehensive income | $ | 209,038 | $ | 88,910 | $ | 7,763 | ||||||
| (1) | The associated deferred tax benefit for the years ended December 31, 2019 and 2018 was $3.5 million and $0.7 million, respectively. The associated deferred tax expense was $0.6 million for the year ended December 31, 2017. |
| (2) | The associated deferred tax expense was |
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Manager Shares | Common Shares | Additional Paid-in Capital | Retained Earnings (Deficit) | Other Comprehensive Loss, net | Total Shareholders’ Equity | |||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||
Balance December 31, 2013 | 100 | — | 41,306,338 | 41 | 658,492 | 97,416 | (13,853 | ) | 742,096 | |||||||||||||||
Dividends to shareholders | — | — | — | — | — | (41,392 | ) | — | (41,392 | ) | ||||||||||||||
Dividend equivalents | — | — | — | — | — | (1,426 | ) | — | (1,426 | ) | ||||||||||||||
Shares issued in connection with vested share grants | — | — | 119,666 | — | — | — | — | — | ||||||||||||||||
Shares issued in connection with SARs exercised | — | — | 6,994 | — | — | — | — | — | ||||||||||||||||
Share-based compensation | — | — | — | — | 30 | — | — | 30 | ||||||||||||||||
Net income | — | — | — | — | — | 60,184 | — | 60,184 | ||||||||||||||||
Net change in the fair value of derivatives, net of deferred tax of $0.6 million (1) | — | — | — | — | — | — | (3,238 | ) | (3,238 | ) | ||||||||||||||
Balance December 31, 2014 | 100 | $ | — | 41,432,998 | $ | 41 | $ | 658,522 | $ | 114,782 | $ | (17,091 | ) | $ | 756,254 | |||||||||
Dividends to shareholders | — | — | — | — | — | (41,388 | ) | — | (41,388 | ) | ||||||||||||||
Dividend equivalents | — | — | — | — | — | (1,054 | ) | — | (1,054 | ) | ||||||||||||||
Shares issued in connection with vested share grants | — | — | 36,075 | — | — | — | — | — | ||||||||||||||||
Shares repurchased pursuant to share repurchase program | — | — | (421,329 | ) | — | (5,529 | ) | — | — | (5,529 | ) | |||||||||||||
Shares repurchased pursuant to tender offer | — | — | (5,376,344 | ) | (5 | ) | (75,898 | ) | — | — | (75,903 | ) | ||||||||||||
Share-based compensation | — | — | — | — | 195 | — | — | 195 | ||||||||||||||||
Net income | — | — | — | — | — | 22,798 | — | 22,798 | ||||||||||||||||
Net change in the fair value of derivatives, net of deferred tax of $0.3 million (1) | — | — | — | — | — | — | 158 | 158 | ||||||||||||||||
Reclassification from other comprehensive loss into earnings due to termination of derivative liabilities, net of deferred tax of $19,000 (1) | — | — | — | — | — | — | (130 | ) | (130 | ) | ||||||||||||||
Reclassification from other comprehensive loss into earnings due to derivatives that no longer qualified for hedge accounting treatment, net of deferred tax of $0.2 million (1) | — | — | — | — | — | — | 1,563 | 1,563 | ||||||||||||||||
Balance December 31, 2015 | 100 | $ | — | 35,671,400 | $ | 36 | $ | 577,290 | $ | 95,138 | $ | (15,500 | ) | $ | 656,964 | |||||||||
Shares repurchased | — | — | (3,414,960 | ) | (4 | ) | (40,368 | ) | — | — | (40,372 | ) | ||||||||||||
Net loss | — | — | — | — | — | (29,112 | ) | — | (29,112 | ) | ||||||||||||||
Net change in the fair value of derivatives, net of deferred tax of $0.7 million (1) | — | — | — | — | — | — | 5,036 | 5,036 | ||||||||||||||||
Reclassification from other comprehensive loss into earnings due to termination of derivative liabilities, net of deferred tax of $1,000 (1) | — | — | — | — | — | — | (10 | ) | (10 | ) | ||||||||||||||
Reclassification from other comprehensive loss into earnings due to derivatives that no longer qualified for hedge accounting treatment, net of deferred tax of $0.1 million (1) | — | — | — | — | — | — | 729 | 729 | ||||||||||||||||
Balance December 31, 2016 | 100 | $ | — | 32,256,440 | $ | 32 | $ | 536,922 | $ | 66,026 | $ | (9,745 | ) | $ | 593,235 | |||||||||
Manager Shares | Common Shares | Additional | Accumulated Other | Total | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Paid-in Capital | Retained Earnings | Comprehensive Loss, net | Shareholders’ Equity | |||||||||||||||||||||||||
| Balance December 31, 2016 | 100 | $ | — | 32,256,440 | $ | 32 | $ | 536,922 | $ | 66,026 | $ | (9,745 | ) | $ | 593,235 | |||||||||||||||||
| Shares issued in connection with SARs exercised | — | — | 1,481 | — | — | — | — | — | ||||||||||||||||||||||||
| Shares repurchased | — | — | (4,274,569 | ) | (4 | ) | (57,285 | ) | — | — | (57,289 | ) | ||||||||||||||||||||
| Net income | — | — | — | — | — | 2,598 | — | 2,598 | ||||||||||||||||||||||||
Net change in the fair value of derivatives, net of deferred tax of $0.6 million(1) | — | — | — | — | — | — | 3,926 | 3,926 | ||||||||||||||||||||||||
Reclassification from other comprehensive loss into earnings due to derivatives that no longer qualified for hedge accounting treatment, net of deferred tax of $0.2 million(1) | — | — | — | — | — | — | 1,239 | 1,239 | ||||||||||||||||||||||||
| Balance December 31, 2017 | 100 | $ | — | 27,983,352 | $ | 28 | $ | 479,637 | $ | 68,624 | $ | (4,580 | ) | $ | 543,709 | |||||||||||||||||
Shares issued in connection with AirAsia transactions | — | — | 4,666,667 | 5 | 69,486 | — | — | 69,491 | ||||||||||||||||||||||||
| Net income | — | — | — | — | — | 85,723 | — | 85,723 | ||||||||||||||||||||||||
Net change in the fair value of derivatives, net of deferred tax of $0.7 million(1) | — | — | — | — | — | — | (530 | ) | (530 | ) | ||||||||||||||||||||||
Reclassification from other comprehensive loss into earnings due to derivatives that no longer qualified for hedge accounting treatment, net of deferred tax of $0.3 million(1) | — | — | — | — | — | — | 3,717 | 3,717 | ||||||||||||||||||||||||
| Balance December 31, 2018 | 100 | $ | — | 32,650,019 | $ | 33 | $ | 549,123 | $ | 154,347 | $ | (1,393 | ) | $ | 702,110 | |||||||||||||||||
Reclassification from prior period losses into other comprehensive loss due to adoption of new accounting guidance, net of deferred tax of $0.1 million(1) | 168 | (168 | ) | — | ||||||||||||||||||||||||||||
| Adjusted balance January 1, 2019 | 100 | — | 32,650,019 | 33 | 549,123 | 154,515 | (1,561 | ) | 702,110 | |||||||||||||||||||||||
| Shares issued in connection with SARs exercised | — | — | 258,828 | — | — | — | — | — | ||||||||||||||||||||||||
| Shares repurchased | — | — | (2,010,437 | ) | (2 | ) | (32,869 | ) | — | — | (32,871 | ) | ||||||||||||||||||||
| Net income | — | — | — | — | — | 225,877 | — | 225,877 | ||||||||||||||||||||||||
Net change in the fair value of derivatives, net of deferred tax of $3.5 million(1) | — | — | — | — | — | — | (19,668 | ) | (19,668 | ) | ||||||||||||||||||||||
Reclassification from other comprehensive loss into earnings due to derivatives that no longer qualified for hedge accounting treatment, net of deferred tax of $0.4 million(1) | — | — | — | — | — | — | 2,829 | 2,829 | ||||||||||||||||||||||||
| Balance December 31, 2019 | 100 | $ | — | 30,898,410 | $ | 31 | $ | 516,254 | $ | 380,392 | $ | (18,400 | ) | $ | 878,277 | |||||||||||||||||
| (1) | See Note 11 to Notes to Consolidated Financial Statements. |
Years ended | |||||||||
2016 | 2015 | 2014 | |||||||
Cash Flows from Operating Activities | |||||||||
Net income (loss) | $ | (29,112 | ) | $ | 22,798 | $ | 60,184 | ||
Adjustments to reconcile net income to net cash flows provided by operating activities: | |||||||||
Equity earnings from unconsolidated subsidiary | (530 | ) | (1,159 | ) | (3,562 | ) | |||
Finance lease income | (2,066 | ) | (299 | ) | — | ||||
Gain on sale of aircraft | (27,195 | ) | (28,959 | ) | (14,761 | ) | |||
Depreciation | 120,452 | 159,732 | 166,983 | ||||||
Aircraft impairment | 96,122 | 66,093 | 1,200 | ||||||
Amortization of debt discounts and debt issuance costs | 9,375 | 11,922 | 12,516 | ||||||
Amortization of lease incentives | 8,898 | 20,527 | 18,934 | ||||||
Amortization of lease discounts, premiums and other items | 388 | 2,046 | 2,841 | ||||||
Amortization of GAAM acquisition date fair value adjustments | 1,621 | 3,650 | 6,260 | ||||||
Net loss (gain) on debt modification and extinguishment | 6,094 | 13,868 | (2,247 | ) | |||||
Share-based compensation | — | 195 | 30 | ||||||
Unrealized foreign exchange gain | (437 | ) | (1,247 | ) | — | ||||
Provision for deferred income taxes | (9,158 | ) | 4,919 | 5,733 | |||||
Unrealized loss on derivative instruments | 76 | 4,134 | 38 | ||||||
Security deposits and maintenance payment liability recognized into earnings | (3,450 | ) | (48,658 | ) | (32,271 | ) | |||
Security deposits and maintenance payment claims applied towards operating lease revenues | (684 | ) | — | — | |||||
Distributions from unconsolidated subsidiary | — | — | 5,501 | ||||||
Cash receipts in settlement of maintenance rights | 9,513 | — | — | ||||||
Changes in operating assets and liabilities: | |||||||||
Rent receivables | (1,034 | ) | 6,814 | (4,767 | ) | ||||
Other assets | (1,134 | ) | 137 | (1,589 | ) | ||||
Payable to related parties | (17,163 | ) | (19,407 | ) | (12,848 | ) | |||
Accounts payable, accrued liabilities and other liabilities | (10,965 | ) | (2,183 | ) | 18,990 | ||||
Net cash flows provided by operating activities | 149,611 | 214,923 | 227,165 | ||||||
Cash Flows from Investing Activities | |||||||||
Distributions from (investment in) unconsolidated subsidiary | — | (2,009 | ) | 1,132 | |||||
Rent received from finance lease | 2,970 | 424 | — | ||||||
Investment in finance lease | — | (33,596 | ) | — | |||||
Purchase of flight equipment | (552,166 | ) | (567,523 | ) | (915,450 | ) | |||
Proceeds from sale of aircraft, net | 430,867 | 1,110,046 | 88,617 | ||||||
Payments for aircraft improvement | (2,230 | ) | (8,196 | ) | (9,841 | ) | |||
Payments for maintenance | (2,712 | ) | (18,609 | ) | (5,017 | ) | |||
Net cash flows provided by (used in) investing activities | (123,271 | ) | 480,537 | (840,559 | ) | ||||
Cash Flows from Financing Activities | |||||||||
Restricted cash and cash equivalents | 80,828 | (35,794 | ) | 35,690 | |||||
Security deposits received | 920 | 13,914 | 18,134 | ||||||
Security deposits returned | (7,438 | ) | (7,788 | ) | (4,728 | ) | |||
Maintenance payment liability receipts | 71,514 | 84,491 | 85,172 | ||||||
Maintenance payment liability disbursements | (10,951 | ) | (38,768 | ) | (45,412 | ) | |||
Net swap termination payments | (709 | ) | (3,737 | ) | — | ||||
Debt issuance costs | (2,552 | ) | (933 | ) | (1,803 | ) | |||
Proceeds from unsecured borrowings | — | — | 396,563 | ||||||
Proceeds from secured borrowings | 572,719 | 147,276 | 298,658 | ||||||
Repayment of secured borrowings | (448,346 | ) | (791,385 | ) | (192,974 | ) | |||
Shares repurchased | (40,257 | ) | (81,432 | ) | — | ||||
Dividends paid | — | (41,388 | ) | (41,392 | ) | ||||
Dividend equivalents | — | (1,054 | ) | (1,426 | ) | ||||
Net cash flows provided by (used in) financing activities | 215,728 | (756,598 | ) | 546,482 | |||||
Effect of exchange rate changes on cash and cash equivalents | (102 | ) | (424 | ) | — | ||||
Net increase (decrease) in cash and cash equivalents | 241,966 | (61,562 | ) | (66,912 | ) | ||||
Cash and cash equivalents at beginning of year | 275,998 | 337,560 | 404,472 | ||||||
Cash and cash equivalents at end of year | $ | 517,964 | $ | 275,998 | $ | 337,560 | |||
| Years ended | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| Cash Flows from Operating Activities | ||||||||||||
| Net income | $ | 225,877 | $ | 85,723 | $ | 2,598 | ||||||
| Adjustments to reconcile net income to net cash flows provided by operating activities: | ||||||||||||
| Finance lease revenue | (618 | ) | (675 | ) | (731 | ) | ||||||
| Equity in (earnings) loss from unconsolidated subsidiary | (2,717 | ) | 54 | (496 | ) | |||||||
| Gain on sale of aircraft | (97,323 | ) | (13,398 | ) | (3,926 | ) | ||||||
| Depreciation | 140,798 | 144,084 | 133,227 | |||||||||
| Aircraft impairment | — | — | 22,000 | |||||||||
| Amortization of debt discounts and debt issuance costs | 9,906 | 9,455 | 7,955 | |||||||||
| Amortization of lease incentives and other items | 6,152 | 11,409 | 9,303 | |||||||||
| Loss on modification and extinguishment of debt | 9,590 | 2,474 | 23,309 | |||||||||
| Unrealized foreign exchange (gain) loss | (271 | ) | (563 | ) | 2,305 | |||||||
| Provision for deferred income taxes | 20,449 | 9,864 | 5,178 | |||||||||
| Loss (gain) on derivative instruments | 3,224 | (1,269 | ) | (478 | ) | |||||||
| Security deposits and maintenance payment liability recognized into earnings | (47,890 | ) | (15,597 | ) | (16,268 | ) | ||||||
| Distributions from unconsolidated subsidiary | 2,727 | 2,131 | — | |||||||||
| Cash receipts from maintenance rights | 4,637 | 3,013 | — | |||||||||
| Maintenance rights recognized into earnings | — | — | 465 | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Rent receivables | (10,668 | ) | (12,866 | ) | (4,251 | ) | ||||||
| Other assets | (2,160 | ) | (4,119 | ) | (2,599 | ) | ||||||
| Payable to related parties | 5,615 | 2,378 | (10,126 | ) | ||||||||
| Accounts payable, accrued liabilities and other liabilities | 4,842 | 18,982 | 11,588 | |||||||||
| Net cash flows provided by operating activities | 272,170 | 241,080 | 179,053 | |||||||||
| Cash Flows from Investing Activities | ||||||||||||
| Distributions from unconsolidated subsidiary | 2,639 | 3,103 | — | |||||||||
| Rent received from finance lease | 1,800 | 1,800 | 1,880 | |||||||||
| Net payments for derivative settlements | (3,208 | ) | — | — | ||||||||
| Investment income from equity certificates | 1,603 | — | — | |||||||||
| Purchase of equity certificates | (10,481 | ) | (5,747 | ) | — | |||||||
| Purchase of flight equipment | (319,995 | ) | (934,481 | ) | (434,122 | ) | ||||||
| Proceeds from sale of aircraft, net | 824,116 | 177,702 | 21,750 | |||||||||
| Capitalized interest on Portfolio B orderbook | (4,893 | ) | — | — | ||||||||
| Purchase price allocated to Portfolio B orderbook value | — | (80,450 | ) | — | ||||||||
| Payments for aircraft improvement | (8,085 | ) | (6,779 | ) | (7,357 | ) | ||||||
| Payments for lessor maintenance obligations | (2,110 | ) | (8,601 | ) | (12,564 | ) | ||||||
| Net cash flows provided by (used in) investing activities | 481,386 | (853,453 | ) | (430,413 | ) | |||||||
| Years ended | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| Cash Flows from Financing Activities | ||||||||||||
| Security deposits received | 4,369 | 15,042 | 7,196 | |||||||||
| Security deposits returned | (4,617 | ) | (8,716 | ) | (3,554 | ) | ||||||
| Maintenance payment liability receipts | 60,744 | 84,102 | 75,765 | |||||||||
| Maintenance payment liability disbursements | (22,567 | ) | (15,495 | ) | (14,303 | ) | ||||||
| Net swap termination payments | — | 1,801 | — | |||||||||
| Debt modification and extinguishment costs | (2,052 | ) | 301 | (17,396 | ) | |||||||
| Debt issuance costs | (342 | ) | (3,619 | ) | (1,464 | ) | ||||||
| Proceeds from unsecured borrowings | — | — | 295,150 | |||||||||
| Repayment of unsecured borrowings | — | — | (375,000 | ) | ||||||||
| Proceeds from secured borrowings | — | 826,396 | 513,459 | |||||||||
| Repayment of secured borrowings | (698,989 | ) | (482,703 | ) | (326,909 | ) | ||||||
| Net proceeds from issuance of shares | — | 19,624 | — | |||||||||
| Shares repurchased | (32,871 | ) | — | (57,286 | ) | |||||||
| Net cash flows (used in) provided by financing activities | (696,325 | ) | 436,733 | 95,658 | ||||||||
| Effect of exchange rate changes on unrestricted and restricted cash and cash equivalents | (8 | ) | (95 | ) | 430 | |||||||
| Net increase (decrease) in unrestricted and restricted cash and cash equivalents | 57,223 | (175,735 | ) | (155,272 | ) | |||||||
| Unrestricted and restricted cash and cash equivalents at beginning of year | 281,080 | 456,815 | 612,087 | |||||||||
| Unrestricted and restricted cash and cash equivalents at end of year | $ | 338,303 | $ | 281,080 | $ | 456,815 | ||||||
| Reconciliation to Consolidated Balance Sheets: | ||||||||||||
| Cash and cash equivalents | $ | 285,565 | $ | 180,211 | $ | 329,105 | ||||||
| Restricted cash and cash equivalents | 52,738 | 100,869 | 127,710 | |||||||||
| Unrestricted and restricted cash and cash equivalents | $ | 338,303 | $ | 281,080 | $ | 456,815 | ||||||
F-9
Fly Leasing LimitedConsolidated Statements of Cash Flows
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014(Dollars in thousands) (continued)
Years ended | |||||||||
2016 | 2015 | 2014 | |||||||
Supplemental Disclosure: | |||||||||
Cash paid during the year for: | |||||||||
Interest | $ | 110,351 | $ | 132,780 | $ | 119,745 | |||
Taxes | 460 | 384 | 188 | ||||||
Noncash Activities: | |||||||||
Security deposits applied to maintenance payment liability, rent receivables, other assets and rentals received in advance | — | 3,292 | 1,938 | ||||||
Maintenance payment liability applied to rent receivables and rentals received in advance | — | 2,523 | — | ||||||
Other liabilities applied to maintenance payment liability and rent receivables | 2,550 | 240 | 979 | ||||||
Noncash investing activities: | |||||||||
Aircraft improvement | 5,245 | 1,587 | 2,882 | ||||||
Noncash activities in connection with purchase of aircraft | 6,388 | 19,382 | 26,002 | ||||||
Noncash activities in connection with sale of aircraft | 78,722 | 93,819 | 12,479 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-10
| 1. | ORGANIZATION |
subsidiaries (Fly and its subsidiaries collectively, the “Company”).
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
PRIOR PERIOD RECLASSIFICATION
In 2016, the Company corrected how it presents its
The reclassification had no impact to the Company’s previously reported net income, including earnings per share or shareholders’ equity.
F-11
RISKS AND UNCERTAINTIES
Other types Aviation industry risk is the risk of risk encountered by the Company include the following:
CASH AND CASH EQUIVALENTS
agreements. All restricted cash is held by major financial institutions in segregated accounts.
INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
Fly has a 57.4% interest in Fly-Z/C Aircraft Holdings LP (“Fly-Z/C LP”). Fly accounts for its interest in the unconsolidated subsidiary using the equity method as the Company does not control the entity. Under the equity method, the Company’s investment is initially recorded at cost and the carrying amount is affected by its share of the unconsolidated subsidiary’s undistributed earnings and losses, and distributions of dividends and capital.
F-12
The Company periodically reviews the carrying amount of its investment in the unconsolidated subsidiary, or whenever events or changes in circumstances indicate that a decline in value may have occurred. If its investment is determined to be impaired on an other-than-temporary basis, a loss equal to the difference between the fair value of the investment and its carrying value is recorded in the period of identification.
INVESTMENT IN FINANCE LEASE
In accordance with guidance provided by the Financial Accounting Standards Board (“FASB”), flight
| ● | Flight equipment where original manufacturer’s prices are not relevant due to plane modifications and conversions. |
| ● | Flight equipment that is out of production and may have a shorter useful life or lower residual value due to obsolescence. |
| ● | The remaining life of a converted freighter is determined based on the date of conversion, in which case, the total useful life may extend beyond 25 years from the date of manufacture. |
| ● | Flight equipment that management believes will be disposed of prior to the end of its estimated useful life. |
F-13
term of the lease, assuming no lease renewals.renewal. Generally, lessees are responsible for repairs, scheduled maintenance and overhauls during the lease term and compliance with return conditions of flight equipment at lease termination.
The preparation of these impairment
F-14
When the Company has recorded maintenance right assets with respect to EOL Leases, the following accounting scenarios exist: (i) the aircraft or aircraft equipment is returned at lease expiry in the contractually specifiedrequired maintenance condition without any cash payment to the Company by the lessee, the maintenance right asset is relieved and an aircraft improvement is recorded to the extent the improvement is substantiated and deemed to meet the Company’s capitalization policy; (ii) the lessee pays the Company cash compensation at lease expiry in excess of the value of the maintenance right asset, the maintenance right asset is relieved and any excess is recognized as end of lease income; or (iii) the lessee pays the Company cash compensation at lease expiry that is less than the value of the maintenance right asset, the cash is applied to the maintenance right asset and the balance of such asset is relieved and recorded as an aircraft improvement to the extent the improvement is substantiated and meets the Company’s capitalization policy. Any aircraft improvement will be depreciated over a period to the next scheduled maintenance event in accordance with ourthe Company’s policy with respect to major maintenance.
improvement to the extent the improvement is substantiated and deemed to meet the Company’s capitalization policy.
F-15
effective cash flow hedge are recorded in accumulated other comprehensive income, net of tax, until earnings are affected by the variability of cash flows of the hedged item. Any derivative gains and losses that are not effective in hedging the variability of expected cash flows of the hedged item or that do not qualify for hedge accounting treatment are recognized directly into income.
unconsolidated subsidiary using the equity method as it does not control the entity. Under the equity method, the Company’s investment is initially recorded at cost and the carrying amount is affected by its share of the unconsolidated subsidiary’s undistributed earnings and losses, and distributions of dividends and capital.
In some leases, the
Maintenance
F-16
REVENUE RECOGNITION
Operating lease |
End of lease |
Lease incentives.The |
Lease premiums and lease discounts. Lease premiums and lease discounts are amortized into operating lease revenue over the lease term. Amortization of lease premiums decreases rental revenue and amortization of lease discounts increases rental revenue. |
| ● | Finance lease |
SHARE-BASED COMPENSATION
The Company has a 2010 Omnibus Incentive Plan (“2010 Plan”) permitting the issuance of up to 1,500,000 share grants in the form of (i) stock appreciation rights (“SARs”); (ii) restricted stock units (“RSUs”); (iii) nonqualified stock options; and (iv) other stock-based awards. The Company has issued all shares available under the 2010 Plan.
Compensation expense associated with grants to employees were valued at the grant date and amortized on a straight-line basis over the service period. Grants to non-employees were initially measured at grant date, and then re-measured at each interim reporting period until the awards vested. Determining the appropriate fair value model and calculation of the fair value of stock-based awards required judgment, including estimating stock price volatility, forfeitures and expected grant life.
2017.
In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenues arising from contracts with customers. The guidance specifically notes that lease contracts with customers are a scope exception. However, the standard may impact the accounting for revenue other than lease revenue. The Company is currently evaluating the potential impact the adoption will have on its consolidated financial condition, results of operations and cash flows. The Company plans to adopt the guidance effective January 1, 2018.
F-17
In February 2016, FASBthe Financial Accounting Standards Board (the “FASB”) issued its new lease standard,accounting guidance, ASU 2016-02, Leases (Topic 842). Under the new standard,guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting for leases by lessors would remain basically unchanged from the existing concepts in ASC 840, Leases. In addition,is largely unchanged. The FASB has decided that lessors wouldwill be precluded from recognizing selling profit and revenue at lease commencement for any sales-type or direct finance lease that does not transfer control of the underlying asset to the lessee. The Company is currently evaluatingIn addition, the potential impact the adoption of the standard will have on its consolidated financial condition, results of operations and cash flows. The Company plans to adopt the standard effective January 1, 2018.
In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). The new guidance is intendedwill require lessors to reduce diversitycapitalize, as initial direct costs, only those costs that are incurred in practice in how certain transactions are classified inconnection with the statementexecution of cash flows. The guidance requires application using a retrospective transition method. The Company is currently evaluating the potential impact the adoption of the standard will have on its statement of cash flows. The Company plans to adopt the guidance effective January 1, 2018.
In November 2016, FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230). ASU 2016-18 provides guidance on the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. The guidance requires entities to show the changes in total of cash, cash equivalents, restricted cash and restricted cash equivalents. As a result, entitieslease. Any other costs incurred, including allocated indirect costs, will no longer present transfers between cashbe capitalized and cash equivalents, restricted cash and restricted cash equivalentsinstead will be expensed as incurred.
In October 2016, FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires the recognition of current and deferred income taxes for intra-entity asset transfers, other than inventory, when the transfer occurs. Historically, the income tax consequence was not recognized until the asset was sold to a third party. The Company is currently evaluating the potential impact the adoption of the standard will have on its consolidated financial condition, results of operations and cash flows. The Company plans to adopt the guidance effective January 1, 2018.
In January 2017, FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU 2017-01 provides guidance to assist with evaluating whether transactions should beoperating lease if accounted for as acquisitions (or disposals) of assets or businesses. separately.
| 3. |
| Years ended | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
| (Dollars in thousands) | ||||||||||||
| Cash paid during the year for: | ||||||||||||
| Interest | $ | 126,659 | $ | 126,648 | $ | 113,710 | ||||||
| Taxes | 787 | 4,163 | 2,155 | |||||||||
| Noncash Activities: | ||||||||||||
| Security deposits applied to rent receivables and maintenance payment liability | 3,224 | 1 | 2,045 | |||||||||
| Maintenance payment liability applied to rent receivables, maintenance rights, and other liabilities | 9,133 | 25,837 | 68 | |||||||||
| Other liabilities applied to security deposits, maintenance payment liability and rent receivables | 5,016 | 5,520 | 676 | |||||||||
| Noncash investing activities: | ||||||||||||
| Aircraft improvement | 7,143 | 10,870 | 192 | |||||||||
| Noncash activities in connection with purchase of flight equipment | 34,925 | 79,727 | 3,979 | |||||||||
| Noncash activities in connection with sale of flight equipment | 20,480 | 2,648 | — | |||||||||
| 4. | INVESTMENT IN FINANCE LEASE |
December 31, 2016 | December 31, 2015 | |||||
Total minimum lease payments receivable | $ | 15,080 | $ | 45,901 | ||
Estimated unguaranteed residual value of leased asset | 4,227 | 15,000 | ||||
Unearned finance income | (4,212 | ) | (26,023 | ) | ||
Net Investment in Finance Lease | $ | 15,095 | $ | 34,878 | ||
| December 31, 2019 | December 31, 2018 | |||||||
| Total minimum lease payments receivable | $ | 9,600 | $ | 11,400 | ||||
| Estimated unguaranteed residual value of leased asset | 4,227 | 4,227 | ||||||
| Unearned finance income | (2,188 | ) | (2,805 | ) | ||||
| Net Investment in Finance Lease | $ | 11,639 | $ | 12,822 | ||||
F-18
Presented below are the contracted future minimum rental payments due under the non-cancellable finance lease, as of December 31, 2016.
Year ending December 31, | (Dollars in thousands) | ||
2017 | $ | 1,880 | |
2018 | 1,800 | ||
2019 | 1,800 | ||
2020 | 1,800 | ||
2021 | 1,800 | ||
Thereafter | 6,000 | ||
Future minimum rental payments under finance lease | $ | 15,080 | |
| Year ending December 31, | (Dollars in thousands) | |||
| 2020 | $ | 1,800 | ||
| 2021 | 1,800 | |||
| 2022 | 1,800 | |||
| 2023 | 1,800 | |||
| 2024 | 1,800 | |||
| Thereafter | 600 | |||
| Future minimum rental payments under finance lease | $ | 9,600 | ||
| FLIGHT EQUIPMENT HELD FOR SALE |
In 2015,
| FLIGHT EQUIPMENT HELD FOR OPERATING LEASE |
During the year ended December 31, 2016,2018
During
December 31, 2016 | December 31, 2015 | |||||
Cost | $ | 3,180,160 | $ | 3,059,974 | ||
Accumulated depreciation | (486,339 | ) | (474,548 | ) | ||
Flight equipment held for operating lease, net | $ | 2,693,821 | $ | 2,585,426 | ||
| December 31, 2019 | December 31, 2018 | |||||||
| Cost | $ | 3,334,996 | $ | 3,900,938 | ||||
| Accumulated depreciation | (614,996 | ) | (672,920 | ) | ||||
| Flight equipment held for operating lease, net | $ | 2,720,000 | $ | 3,228,018 | ||||
F-19
The Company capitalized $5.7 $16.3 million and $26.1 $16.4 million of major maintenance expenditures for the years ended December 31, 20162019 and 2015, respectively. In 2016, the full amount of the maintenance expenditures was capitalized in flight equipment held for operating lease. Of the amount capitalized in 2015, $16.6 million was included in flight equipment held for operating lease, and $9.5 million was included in flight equipment held for sale.
2018, respectively.
December 31, 2016 | December 31, 2015 | |||||||||||
Europe: | ||||||||||||
United Kingdom | $ | 143,560 | 5 | % | $ | 244,179 | 9 | % | ||||
Turkey | 142,787 | 5 | % | 171,861 | 7 | % | ||||||
Russia | 17,582 | 1 | % | — | — | |||||||
Other | 335,483 | 13 | % | 359,929 | 14 | % | ||||||
Europe — Total | 639,412 | 24 | % | 775,969 | 30 | % | ||||||
Asia and South Pacific: | ||||||||||||
India | 574,853 | 21 | % | 208,009 | 8 | % | ||||||
Philippines | 279,031 | 10 | % | 289,558 | 11 | % | ||||||
China | 194,774 | 7 | % | 221,576 | 9 | % | ||||||
Other | 216,244 | 9 | % | 224,015 | 8 | % | ||||||
Asia and South Pacific — Total | 1,264,902 | 47 | % | 943,158 | 36 | % | ||||||
Mexico, South and Central America: | ||||||||||||
Chile | 86,251 | 3 | % | 89,406 | 4 | % | ||||||
Other | 83,368 | 3 | % | 87,561 | 3 | % | ||||||
Mexico, South and Central America — Total | 169,619 | 6 | % | 176,967 | 7 | % | ||||||
North America: | ||||||||||||
United States | 156,472 | 6 | % | 218,363 | 9 | % | ||||||
Other | 55,044 | 2 | % | 57,906 | 2 | % | ||||||
North America — Total | 211,516 | 8 | % | 276,269 | 11 | % | ||||||
Middle East and Africa: | ||||||||||||
Ethiopia | 332,817 | 12 | % | 342,736 | 13 | % | ||||||
Other | 75,555 | 3 | % | 51,056 | 2 | % | ||||||
Middle East and Africa — Total | 408,372 | 15 | % | 393,792 | 15 | % | ||||||
Off-Lease — Total | — | — | 19,271 | 1 | % | |||||||
Total flight equipment held for operating lease, net | $ | 2,693,821 | 100 | % | $ | 2,585,426 | 100 | % | ||||
| December 31, 2019 | December 31, 2018 | |||||||||||||||
| Europe: | ||||||||||||||||
| Spain | $ | 161,474 | 6 | % | $ | 168,534 | 5 | % | ||||||||
| United Kingdom | 52,212 | 2 | % | 169,763 | 5 | % | ||||||||||
| Turkey | — | — | 22,843 | 1 | % | |||||||||||
| Other | 259,176 | 9 | % | 242,711 | 8 | % | ||||||||||
| Europe — Total | 472,862 | 17 | % | 603,851 | 19 | % | ||||||||||
| Asia and South Pacific: | ||||||||||||||||
| India | 542,312 | 20 | % | 690,193 | 21 | % | ||||||||||
| Malaysia | 406,777 | 15 | % | 394,441 | 12 | % | ||||||||||
| Philippines | 264,814 | 10 | % | 276,237 | 9 | % | ||||||||||
| Indonesia | 220,304 | 8 | % | 296,390 | 9 | % | ||||||||||
| China | 168,703 | 6 | % | 177,393 | 5 | % | ||||||||||
| Other | 113,713 | 4 | % | 161,330 | 6 | % | ||||||||||
| Asia and South Pacific — Total | 1,716,623 | 63 | % | 1,995,984 | 62 | % | ||||||||||
| Mexico, South and Central America — Total | 37,618 | 1 | % | 58,202 | 2 | % | ||||||||||
| North America: | ||||||||||||||||
| United States | 95,910 | 4 | % | 126,498 | 4 | % | ||||||||||
| Other | — | — | 49,320 | 1 | % | |||||||||||
| North America — Total | 95,910 | 4 | % | 175,818 | 5 | % | ||||||||||
| Middle East and Africa: | ||||||||||||||||
| Ethiopia | 303,057 | 11 | % | 312,977 | 10 | % | ||||||||||
| Other | 51,815 | 2 | % | 81,186 | 2 | % | ||||||||||
| Middle East and Africa — Total | 354,872 | 13 | % | 394,163 | 12 | % | ||||||||||
| Off-Lease — Total | 42,115 | 2 | % | — | — | |||||||||||
| Total flight equipment held for operating lease, net | $ | 2,720,000 | 100 | % | $ | 3,228,018 | 100 | % | ||||||||
F-20
The distribution of operating lease revenue by geographic region for the years ended December 31, 2016, 20152019, 2018 and 20142017 is as follows (dollars in thousands):
Year Ended December 31, 2016 | Year Ended December 31, 2015 | Year Ended December 31, 2014 | ||||||||||||||||
As restated | ||||||||||||||||||
Europe: | ||||||||||||||||||
United Kingdom | $ | 34,498 | 11 | % | $ | 50,742 | 12 | % | $ | 46,281 | 11 | % | ||||||
Turkey | 24,593 | 8 | % | 29,847 | 7 | % | 27,069 | 7 | % | |||||||||
Russia | 3,141 | 1 | % | 24,095 | 6 | % | 9,017 | 2 | % | |||||||||
Other | 44,450 | 14 | % | 73,872 | 17 | % | 73,660 | 19 | % | |||||||||
Europe — Total | 106,682 | 34 | % | 178,556 | 42 | % | 156,027 | 39 | % | |||||||||
Asia and South Pacific: | ||||||||||||||||||
India | 39,640 | 13 | % | 19,572 | 4 | % | 32,675 | 8 | % | |||||||||
Philippines | 29,129 | 9 | % | 38,677 | 9 | % | 12,947 | 3 | % | |||||||||
China | 23,882 | 8 | % | 37,943 | 9 | % | 47,049 | 12 | % | |||||||||
Other | 27,287 | 8 | % | 39,056 | 9 | % | 45,855 | 11 | % | |||||||||
Asia and South Pacific — Total | 119,938 | 38 | % | 135,248 | 31 | % | 138,526 | 34 | % | |||||||||
Mexico, South and Central America: | ||||||||||||||||||
Chile | 8,939 | 3 | % | 24,336 | 6 | % | 28,116 | 7 | % | |||||||||
Other | 8,768 | 3 | % | 16,732 | 4 | % | 21,733 | 5 | % | |||||||||
Mexico, South and Central America — Total | 17,707 | 6 | % | 41,068 | 10 | % | 49,849 | 12 | % | |||||||||
North America: | ||||||||||||||||||
United States | 24,591 | 8 | % | 37,316 | 9 | % | 41,531 | 10 | % | |||||||||
Other | 6,223 | 2 | % | 6,380 | 1 | % | 3,429 | 1 | % | |||||||||
North America — Total | 30,814 | 10 | % | 43,696 | 10 | % | 44,960 | 11 | % | |||||||||
Middle East and Africa: | ||||||||||||||||||
Ethiopia | 30,084 | 10 | % | 22,808 | 5 | % | 4,501 | 1 | % | |||||||||
Other | 8,357 | 2 | % | 8,315 | 2 | % | 12,700 | 3 | % | |||||||||
Middle East and Africa — Total | 38,441 | 12 | % | 31,123 | 7 | % | 17,201 | 4 | % | |||||||||
Total Operating Lease Revenue | $ | 313,582 | 100 | % | $ | 429,691 | 100 | % | $ | 406,563 | 100 | % | ||||||
Years ended 2019 2018 2017 Europe: Spain United Kingdom Turkey Germany Other Europe — Total 130,686 28 % 92,635 23 % 113,121 33 % Asia and South Pacific: India Malaysia Philippines Indonesia China Other Asia and South Pacific — Total 267,580 58 % 221,444 55 % 152,388 44 % Mexico, South and Central America — Total 5,425 1 % 11,415 3 % 17,565 5 % North America: United States Other North America — Total 21,258 5 % 26,389 7 % 23,884 7 % Middle East and Africa: Ethiopia Other Middle East and Africa — Total 39,450 8 % 47,631 12 % 39,936 11 % Total Operating Lease Revenue $ 464,399 100 % $ 399,514 100 % $ 346,894 100 %
At December 31, 2016, no lessees were on non-accrual status. At each2017, the Company had one customer (Air India) that accounted for 10% or more of total operating lease revenue.
During the year ended December 31, 2019, the Company recognized $13.6 million of operating lease revenue from these lessees. At December 31, 2018, the Company had two lessees, which leased a total of three aircraft, on non-accrual status. During the year ended December 31, 2018, the Company recognized $9.3 million of operating lease revenue from these lessees.
For the year ended December 31, 2016, there was no amortization of lease premiums and discounts. For the years ended December 31, 2015 and 2014, the amortization of lease premiums, net of lease discountsincome, which wereis included as a component ofin operating lease revenue, was $1.4of $78.8 million, $20.3 million and $3.0$17.8 million, respectively.
Approximately $52.8 million of end of lease income recognized in 2019 derived from four lessees in the United Kingdom.
F-21
For the year ended December 31, 2019, the Company recognized $391.1 million of operating lease rental revenue, $71.4 million of which was from leases with variable rates. Variable rates are rents that reset based on changes in LIBOR. Presented below are the contracted future minimum rental payments due under non-cancellable operating leases for flight equipment held for operating lease, as of December 31, 2016.2019. For leases that have floating rental rates, the future minimum rental payments due assume that the rental payment dueLIBOR as of December 31, 20162019 is held constant for the duration of the lease.
Year ending December 31, | (Dollars in thousands) | ||
2017 | $ | 319,070 | |
2018 | 292,188 | ||
2019 | 248,419 | ||
2020 | 220,893 | ||
2021 | 199,212 | ||
Thereafter | 699,356 | ||
Future minimum rental payments under operating leases | $ | 1,979,138 | |
| Year ending December 31, | (Dollars in thousands) | |||
| 2020 | $ | 321,993 | ||
| 2021 | 288,459 | |||
| 2022 | 244,007 | |||
| 2023 | 201,380 | |||
| 2024 | 186,707 | |||
| Thereafter | 480,878 | |||
| Future minimum rental payments under operating leases | $ | 1,723,424 | ||
Year ending December 31, | |||
2017 | $ | 6,528 | |
2018 | 6,854 | ||
2019 | 6,130 | ||
2020 | 4,352 | ||
2021 | 2,502 | ||
Thereafter | 1,164 | ||
Future amortization of lease incentives | $ | 27,530 | |
| Year ending December 31, | ||||
| 2020 | $ | 2,573 | ||
| 2021 | 3,221 | |||
| 2022 | 2,821 | |||
| 2023 | 1,614 | |||
| 2024 | 736 | |||
| Thereafter | 303 | |||
| Future amortization of lease incentives | $ | 11,268 | ||
| MAINTENANCE RIGHTS |
December 31, 2016 | December 31, 2015 | |||||
Maintenance rights, net beginning balance | $ | 94,493 | $ | 144,920 | ||
Acquisitions | 28,412 | 8,606 | ||||
Capitalized to aircraft improvements | (5,245 | ) | (6,591 | ) | ||
Maintenance rights written off against end of lease income | — | (5,781 | ) | |||
Cash receipts in settlement of maintenance rights | (9,513 | ) | (5,253 | ) | ||
Maintenance rights associated with aircraft sold | (6,178 | ) | (41,408 | ) | ||
Maintenance rights, net at end of period | $ | 101,969 | $ | 94,493 | ||
The Company has a 57.4% limited partnership interest in Fly-Z/C LP. Summit Aviation Partners LLC has a 10.2% interest in the joint venture and the limited partners appointed a subsidiary of BBAM Limited Partnership as the general partner of the joint venture. For the years ended December 31, 2016, 2015 and 2014, the Company recognized $0.5 million, $1.2 million and $3.6 million, respectively, in equity earnings from its investment in Fly-Z/C LP. During the year ended December 31, 2015, the Company contributed $2.0 million into Fly-Z/C LP. During the year ended December 31, 2014, the Company received distributions totaling $6.6 million. During the years ended December 31, 2016 and 2015, respectively, the Company received no distributions.
| December 31, 2019 | December 31, 2018 | |||||||
| Maintenance rights, net beginning balance | $ | 298,207 | $ | 131,299 | ||||
| Acquisitions | 94,664 | 189,864 | ||||||
| Capitalized to aircraft improvements | (6,739 | ) | (9,240 | ) | ||||
| Maintenance rights settled with retained maintenance payments | (3,996 | ) | (2,369 | ) | ||||
| Cash receipts from maintenance rights | (4,637 | ) | (3,013 | ) | ||||
| Maintenance rights associated with aircraft sold | (86,541 | ) | (8,334 | ) | ||||
| Maintenance rights, net ending balance | $ | 290,958 | $ | 298,207 | ||||
F-22
| 8. | OTHER ASSETS |
December 31, 2016 | December 31, 2015 | |||||
Lease costs, net | $ | 1,730 | $ | 2,176 | ||
Other assets | 4,838 | 4,274 | ||||
Total other assets | $ | 6,568 | $ | 6,450 | ||
| December 31, 2019 | December 31, 2018 | |||||||
| Portfolio B orderbook value | $ | 100,935 | $ | 103,951 | ||||
| Equity certificates | 16,048 | 5,747 | ||||||
| Value added tax receivables, net | 7,714 | 6,016 | ||||||
| Investment in unconsolidated subsidiary | 259 | 2,908 | ||||||
| Other assets | 4,421 | 6,338 | ||||||
| Total other assets | $ | 129,377 | $ | 124,960 | ||||
| 9. | UNSECURED BORROWINGS |
Balance as of | Balance as of | |||||||||||||
December 31, 2016 | December 31, 2015 | December 31, 2019 | December 31, 2018 | |||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||
Outstanding principal balance: | ||||||||||||||
2020 Notes | $ | 375,000 | $ | 375,000 | ||||||||||
2021 Notes | 325,000 | 325,000 | $ | 325,000 | $ | 325,000 | ||||||||
| 2024 Notes | 300,000 | 300,000 | ||||||||||||
Total outstanding principal balance | 700,000 | 700,000 | 625,000 | 625,000 | ||||||||||
Unamortized debt discounts and loan costs | (8,610 | ) | (10,591 | ) | (5,593 | ) | (7,336 | ) | ||||||
Unsecured borrowings, net | $ | 691,390 | $ | 689,409 | $ | 619,407 | $ | 617,664 | ||||||
Interest on2021 and the 20202024 Notes is payable semi-annually on Junehave a maturity date of October 15, and December 15 of each year. 2024.
The Company may redeem the 2020 Notes, in whole or in part, at the redemption prices listed below, plus As of each of December 31, 2019 and 2018, accrued and unpaid interest to the redemption date.
If redeemed during the 12-month period commencing on December 15 of the years set forth below: | Redemption Price | ||
2016 | 105.063 | % | |
2017 | 103.375 | % | |
2018 | 101.688 | % | |
2019 and thereafter | 100.000 | % | |
F-23
At any time prior to October 15, 2017, the Company may redeem up to 35% of the original principal amount of the 2021 Notes with the proceeds of certain equity offerings at a redemption price of 106.375% of the principal amount thereof, together with accrued and unpaid interest to, but not including, the date of redemption. On and after October 15, 2017, theThe Company may redeem the 2021 Notes, in whole or in part, at the redemption prices listed below, plus accrued and unpaid interest to the redemption date.
If redeemed during the 12-month period commencing on October 15 of the years set forth below: | Redemption Price | ||
2017 | 104.781 | % | |
2018 | 103.188 | % | |
2019 | 101.594 | % | |
2020 and thereafter | 100.000 | % | |
Redemption Price 2019 2020 and thereafter
If redeemed during the 12-month period commencing on October 15 of the years set forth below: | Redemption Price | |||
| 2020 | 102.625 | % | ||
| 2021 | 101.313 | % | ||
| 2022 and thereafter | 100.000 | % | ||
Should the Company experience a change of control (as defined in the indentures governing the 2020 Notes and the 2021 Notes), holders of the 2020 Notes and the 2021 Notes have the right to require the Company to repurchase all or any part of their 2020 Notes and 2021 Notes for payment in cash equal to 101% of the aggregate principal amount of the 2020 Notes and 2021 Notes repurchased plus accrued and unpaid interest.
F-24
| 10. | SECURED BORROWINGS |
Outstanding principal balance as of | Weighted average interest rate(1) as of | Maturity date | |||||||||||
December 31, 2016 | December 31, 2015 | December 31, 2016 | December 31, 2015 | ||||||||||
Securitization Notes | $ | 139,741 | $ | 295,786 | 3.36 | % | 3.38 | % | November 2033 | ||||
Nord LB Facility | 171,509 | 255,278 | 4.14 | % | 4.04 | % | November 2018 | ||||||
CBA Facility | 56,146 | 88,190 | 5.45 | % | 5.02 | % | October 2020 | ||||||
Term Loan | 404,016 | 427,781 | 4.41 | % | 4.39 | % | February 2022 | ||||||
Fly Acquisition III Facility | 113,045 | — | 2.88 | % | — | February 2022 | |||||||
Other Aircraft Secured Borrowings | 980,967 | 663,069 | 3.50 | % | 3.63 | % | September 2019 – June 2028 | ||||||
Unamortized debt discounts and loan costs | (33,439 | ) | (34,393 | ) | |||||||||
Total | $ | 1,831,985 | $ | 1,695,711 | |||||||||
Outstanding principal balance as of December 31, | Weighted average interest rate(1) as of December 31, | ||||||||||||||||||
2019(2) | 2018(2) | 2019 | 2018 | Maturity date | |||||||||||||||
| Securitization Notes | $ | — | $ | 85,584 | — | 3.08 | % | — | |||||||||||
| Nord LB Facility | 65,290 | 108,882 | 3.59 | % | 4.29 | % | May 2021 | ||||||||||||
| Term Loan | 385,364 | 407,768 | 4.15 | % | 5.17 | % | August 2025 | ||||||||||||
| Magellan Acquisition Limited Facility | 278,684 | 305,226 | 4.11 | % | 4.18 | % | December 2025 | ||||||||||||
| Fly Acquisition III Facility | — | 190,457 | — | 4.10 | % | — | |||||||||||||
| Fly Aladdin Acquisition Facility | 272,343 | 467,179 | 4.85 | % | 4.59 | % | June 2023 | ||||||||||||
| Fly Aladdin Engine Funding Facility | 42,339 | 43,829 | 4.95 | % | 4.95 | % | December 2021 – April 2022 | ||||||||||||
| Other Aircraft Secured Borrowings | 673,463 | 807,882 | 4.07 | % | 4.44 | % | December 2020 – June 2028 | ||||||||||||
| Total outstanding principal balance | 1,717,483 | 2,416,807 | |||||||||||||||||
| Unamortized debt discounts and loan costs | (21,958 | ) | (36,938 | ) | |||||||||||||||
| Total secured borrowings, net | $ | 1,695,525 | $ | 2,379,869 | |||||||||||||||
| (1) | Represents the contractual interest rates and effect of derivative instruments and excludes the amortization of debt discounts and debt issuance costs. |
| (2) | As of December 31, 2019 and 2018, accrued interest on secured borrowings totaled $9.2 million and $10.9 million, respectively. |
At December 31, 2016, the Company’s subsidiary,
The Securitization Notes bear interest at an adjustable interest rate equal to2033, in the current one-month LIBOR plus 0.77%. Interest expense also includes amounts payable to the provider of a financial guaranty insurance policy and the liquidity facility provider thereunder, as well as accretion on the Securitization Notes re-issued at a discount. Interest and any principal payments due are payable monthly. The Company has entered into interest rate swap contracts to mitigate the interest rate fluctuation risk associated with the Securitization Notes.
All cash collected, including sale proceeds from the aircraft financed by the Securitization Notes, is applied to service the outstanding balance of the Securitization Notes, after the payment of certain expenses and other costs, including interest, interest rate swap payments, and the fees to the policy provider in accordance with those agreements.
The Company may, on any future payment date, redeem the Securitization Notes in whole or from time to time in part for an amount equal to 100% of the outstandingaggregate principal amount together with accrued and unpaid interest to, but excluding, the date fixed for redemption. Redemption prior to accelerationthen-outstanding of the Securitization Notes may be of all or any part of the Securitization Notes. Redemption after acceleration of the Securitization Notes upon default may only be for all of the Securitization Notes.
The Securitization Notes are secured by (i) first priority, perfected security interests in and pledges or assignments of equity ownership and beneficial interests in the subsidiaries of B&B Air Funding; (ii) interests in
F-25
the leases of the associated aircraft; (iii) cash held by the subsidiaries of B&B Air Funding; and (iv) rights under agreements with BBAM, the initial liquidity facility provider, hedge counterparties and the policy provider. Rentals paid under leases are placed in the collections account and paid out according to a priority of payments set forth in the indenture. The Securitization Notes are also secured by a lien or similar interest in any of the aircraft B&B Air Funding currently owns that are registered in the United States or Ireland. B&B Air Funding may not encumber the aircraft it currently owns or incur additional indebtedness except as permitted under the securitization-related documents.
B&B Air Funding is subject to operating covenants which relate to, among other things, its operations, disposition of aircraft, lease concentration limits, and restrictions on the modification of aircraft and capital expenditures. A breach of the covenants could result in the acceleration of the Securitization Notes and exercise of remedies available in relation to the collateral, including the sale of aircraft at public or private sale. In addition, the servicing agreement for B&B Air Funding includes servicer termination events as specified in the agreement.
$63.8 million. In connection with the issuanceredemption, the Company expensed approximately $1.9 million of the Securitization Notes, B&B Air Funding entered into a revolving credit facility (“Securitization Note Liquidity Facility”) that provides additional liquidity of up to $60.0 million. Subject to the terms and conditions of the Securitization Note Liquidity Facility, advances may be drawn for the benefit of the Securitization Note holders to cover certain expenses of B&B Air Funding, including maintenance expenses, interest rate swap payments and interest on the Securitization Notes. Advances shall bear interest at one-month LIBOR plus a spread of 1.20%. A commitment fee of 0.40% per annum is due and payable on each payment date based on the unused portion of the Securitization Note Liquidity Facility. As of each of December 31, 2016 and 2015, B&B Air Funding had not drawn on the Securitization Note Liquidity Facility.
The financial guaranty insurance policy (the “Policy”) issued by the Policy Provider supports the payment of interest due on the Notes and the payment of the outstanding principal balance of the Securitization Notes on the final maturity date and, under certain circumstances, prior thereto. A downgrade of the policy provider’s credit rating or its failure to meet its obligations under the Policy will not have a direct impact on B&B Air Funding’s obligations or rights under the Securitization Notes.
debt extinguishment costs.
The
2018 to January 14, 2020 and (ii) reduce the margin to 1.85%. Effective on December 16, 2019, the Company amended the remaining loans under the Nord LB Facility to further extend the maturity date to May 14, 2021.
F-26
If the Company earns a 10% return on its equity investment after full repayment of the facility, the Company will pay Nord LB a fee equal to 10% of returns in excess of 10%, up to a maximum of $5.0 million.
An event of default with respect to the loan on any aircraft will trigger an event of default on the loans with respect to every other financed aircraft. A default by any of the aircraft owning entities in respect of obligations in excess of $10.0 million and holders of such obligation accelerate or demand repayment of amounts due thereunder would constitute an event of default.
CBA Facility
The Company makes scheduled monthly payments of principal and interest on each loan in accordance with a fixed amortization schedule. If, upon the repayment of any loan, the ratio of the remaining principal amount outstanding under the CBA Facility to the aggregate appraised value of the financed aircraft is equal to or greater than 80%, the Company will be required to pay cash collateral in an amount sufficient to reduce this ratio to less than 80%.
Borrowings under the CBA Facility accrue interest at a fixed interest rate. As of December 31, 2016 and 2015, the weighted average interest rates on all outstanding amounts, excluding the amortization of debt discount and loan cost was 5.45% and 5.02%, respectively.
The CBA Facility includes certain operating covenants, including reporting requirements. A breach of the covenants could result in the acceleration of outstanding indebtedness under the CBA Facility, and exercise of remedies available in relation to the collateral.
Term Loan
As of December 31, 2016, the Company had $404.0$385.4 million principal amount outstanding under its senior secured term loan (the “Term Loan”), which was secured by 2627 aircraft. Fly has guaranteed all payments under the Term Loan.
The Term Loan bears interest at three-month LIBOR, plus a marginfinal maturity date of 2.75%, with a LIBOR floor of 0.75%.
On October 19, 2016, the Company amended the Term Loan to extend the maturity date fromis August 2019 to February 2022. In addition, until April 2017,9, 2025. Until May 2020, the Term Loan can be prepaid in whole or in part for an amount equal to 101% of the outstanding principal amount being repaid. Thereafter, the Term Loan can be prepaid in whole or in part at par.
upsized the Term Loan by $50.0 million. On November 1, 2017, the Company had further amended the Term Loan to reduce the margin to 2.00%. During the year ended December 31, 2015,2017, the Company wrote off approximately $2.1 million of unamortized loan costs and debt discounts asincurred debt extinguishment costs totaling $3.0 million in connection with a re-pricing of the Term Loan. There was no prepayment penalty associated with the re-pricing.
these amendments.
The Term Loan contains certain concentration limits with respect to types of aircraft which can be financed in the Term Loan, as well as geographic and single lessee concentration limits. These concentration limits apply upon the acquisition, sale, removal or substitution of an aircraft. The Term Loan also includes certain customary covenants, including reporting requirements and maintenance of credit ratings.
F-27
Fly Acquisition III Facility
In February 2016,As of December 31, 2019, the Company through a wholly-owned subsidiary, Flyhad $278.7 million principal amount outstanding in loans and notes under its term loan facility (“Magellan Acquisition III Limited entered into a revolving $385 million credit facility (the “Fly Acquisition III Facility”) to finance the acquisition of eligible aircraft. Borrowings are, which was secured by the beneficial interests innine aircraft. Fly has guaranteed all payments under this facility. The Magellan Acquisition III and each of its subsidiaries, the aircraft and related leases. The Fly Acquisition IIILimited Facility has an availability period expiring on February 26, 2019 and a maturity date of February 26, 2022. Fly has guaranteed Fly Acquisition III’s obligations under the facility.
As of December 31, 2016, the Company had $113.0 million principal amount outstanding, which was secured by four aircraft.
The Company pays a commitment fee of 0.50% per annum on a monthly basis to each lender on the undrawn amount of its commitment until the termination of the availability period; provided that at any time from and after March 26, 2017 through the end of the availability period, the commitment fee will increase to 0.75% per annum if at least 50% of the total amount of commitments have not been drawn.
8, 2025.
$2.2 million.
Fly.
Future Minimum Principal Payments on Borrowings
During the year ended December 31, 2016,2019, the Company made scheduled principal payments of $130.6$179.7 million on its secured borrowings and made additional payments of $318.5 million in connection with aircraft sold.borrowings. The anticipated future minimum principal payments due for its secured borrowings are as follows (dollars in thousands):
Year ending December 31, | |||
2017 | $ | 169,572 | |
2018 | 288,150 | ||
2019 | 147,762 | ||
2020 | 162,914 | ||
2021 | 123,506 | ||
Thereafter | 973,520 | ||
Future minimum principal payments due | $ | 1,865,424 | |
| Year ending December 31, | ||||
| 2020 | $ | 172,684 | ||
| 2021 | 241,435 | |||
| 2022 | 169,409 | |||
| 2023 | 408,302 | |||
| 2024 | 113,733 | |||
| Thereafter | 611,920 | |||
| Future minimum principal payments due | $ | 1,717,483 | ||
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| 11. | DERIVATIVES |
Designated Derivatives
Certainhedge accounting, and increase transparency as to the scope and results of hedging programs. Under the guidance, if a cash flow hedge is highly effective, all changes in the fair value of the derivative hedging instrument will be recorded in other comprehensive income and reclassified to earnings when the hedged item impacts earnings. After initial qualification, the new guidance permits a qualitative effectiveness assessment for certain hedges instead of a quantitative test, such as a regression analysis, if the company can reasonably support an expectation of high effectiveness throughout the term of the hedge. An initial quantitative test to establish that the hedge relationship is highly effective is still required. Additional disclosures include cumulative basis adjustments for fair value hedges and the effect of hedging on individual income statement line items. As a result of the adoption, the Company reclassified $0.2 million of prior year losses into accumulated other comprehensive loss, net.
Type | Quantity | Maturity Dates | Hedge Interest Rates | Swap Contract Notional Amount | Fair Value of Derivative Asset | Credit Risk Adjustment | Adjusted Fair Value of Derivative Asset | Gain Recognized in Accumulated Comprehensive Loss | Loss Recognized into Earnings | ||||||||||||||
Interest rate swap contracts | 6 | 11/14/2018-2/15/22 | 0.90% - 1.18% | $ | 127,411 | $ | 1,956 | $ | (32 | ) | $ | 1,924 | $ | 1,463 | $ | 252 | |||||||
Accrued interest | — | (19 | ) | — | (19 | ) | — | — | |||||||||||||||
Total – designated derivative assets | 6 | $ | 127,411 | $ | 1,937 | $ | (32 | ) | $ | 1,905 | $ | 1,463 | $ | 252 | |||||||||
Type Quantity Cross currency swap contract 11/26/25 1 EURO to $1.3068 Accrued rent Total - designated derivative asset 1 $ 58,592 $ 4,824 $ 4,204
Type | Quantity | Maturity Dates | Hedge Interest Rates | Swap Contract Notional Amount | Fair Value of Derivative Liability | Credit Risk Adjustment | Adjusted Fair Value of Derivative Liability | Loss Recognized in Accumulated Comprehensive Loss | Loss Recognized into Earnings | ||||||||||||||
Interest rate swap contracts | 10 | 2/9/18-9/27/25 | 1.69% - 6.22% | $ | 350,437 | $ | (11,471 | ) | $ | 279 | $ | (11,192 | ) | $ | (10,286 | ) | $ | 478 | |||||
Accrued interest | — | (316 | ) | — | (316 | ) | — | — | |||||||||||||||
Total – designated derivative liabilities | 10 | $ | 350,437 | $ | (11,787 | ) | $ | 279 | $ | (11,508 | ) | $ | (10,286 | ) | $ | 478 | |||||||
| Type | Quantity | Maturity Date | Hedge Interest Rate | Swap Contract Notional Amount | Credit Risk Adjusted Fair Value | Loss Recognized in Accumulated Comprehensive Loss | |||||||||||||||
| Interest rate swap contracts | 30 | 2/9/23-12/8/25 | 2.28%-3.13 | % | $ | 792,636 | $ | (26,559 | ) | $ | (22,615 | ) | |||||||||
| Accrued interest | — | (932 | ) | — | |||||||||||||||||
| Total – designated derivative liabilities | 30 | $ | 792,636 | $ | (27,491 | ) | $ | (22,615 | ) | ||||||||||||
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Dedesignated Derivatives
| Type | Quantity | Maturity Date | Hedge Interest Rate | Swap Contract Notional Amount | Credit Risk Adjusted Fair Value | ||||||||||||
| Interest rate swap contracts | 3 | 6/15/23 | 2.66%-2.68 | % | $ | 12,259 | $ | (434 | ) | ||||||||
| Accrued interest | — | (18 | ) | ||||||||||||||
| Total – dedesignated derivative liabilities | 3 | $ | 12,259 | $ | (452 | ) | |||||||||||
As of
Type | Quantity | Maturity Dates | Hedge Interest Rates | Swap Contract Notional Amount | Fair Value of Derivative Liability | Credit Risk Adjustment | Adjusted Fair Value of Derivative Liability | Loss Recognized into Earnings | ||||||||||||
Interest rate swap contracts | 2 | 2/9/2018 | 1.82% - 1.83% | $ | 295,509 | $ | (1,542 | ) | $ | 16 | $ | (1,526 | ) | $ | (171 | ) | ||||
Accrued interest | — | (247 | ) | — | (247 | ) | — | |||||||||||||
Total – dedesignated derivative liabilities | 2 | $ | 295,509 | $ | (1,789 | ) | $ | 16 | $ | (1,773 | ) | $ | (171 | ) | ||||||
Terminated Derivatives
The Company terminated four interest rate swap contracts due to dedesignation of interest rate swaps. During the year ended December 31, 2018, the Company amortized $4.1 million from accumulated other comprehensive loss, net of tax, into interest expense.
In 2015,2019, the Company reclassified $2.4 million of accumulated comprehensive loss, net of tax, to loss on derivative instruments.
| 12. | INCOME TAXES |
Year ended December 31, 2016 | Year ended December 31, 2015 | Year ended December 31, 2014 | |||||||
Current tax expense: | |||||||||
Ireland | $ | — | $ | 33 | $ | — | |||
Luxembourg | 145 | 252 | 210 | ||||||
United States | — | — | 2 | ||||||
Australia | 1,742 | 138 | — | ||||||
Other | 33 | 57 | 48 | ||||||
Current tax expense — total | 1,920 | 480 | 260 | ||||||
Deferred tax (benefit) expense: | |||||||||
Ireland | (10,812 | ) | 4,558 | 8,208 | |||||
Australia | 1,615 | 334 | 241 | ||||||
Other | — | 27 | (18 | ) | |||||
Deferred tax (benefit) expense — total | (9,197 | ) | 4,919 | 8,431 | |||||
Total income tax (benefit) expense | $ | (7,277 | ) | $ | 5,399 | $ | 8,691 | ||
In 2016, the Company recorded a net tax benefit Years ended 2019 2018 2017 Current tax expense (benefit): Ireland Luxembourg Australia Other Current tax expense (benefit) — total 78 (44 ) 4,300 Deferred tax expense (benefit): Ireland Australia Other Deferred tax expense (benefit) — total 20,449 9,970 7,032 Total income tax expense (benefit) $ 20,527 $ 9,926 $ 11,332
The Company had no unrecognized tax benefits as of December 31, 20162019 and 2015.2018. The principal components of the Company’s net deferred tax asset (liability) were as follows (dollars in thousands):
December 31, 2016 | December 31, 2015 | |||||
Deferred tax asset: | ||||||
Net operating loss carry forwards | $ | 151,575 | $ | 181,370 | ||
Net unrealized losses on derivative instruments | 1,181 | 1,999 | ||||
Basis difference on acquisition of GAAM Australian assets | 6,786 | 6,844 | ||||
Other | 224 | 240 | ||||
Valuation allowance | (30,524 | ) | (23,029 | ) | ||
Total deferred tax asset | 129,242 | 167,424 | ||||
Deferred tax liability: | ||||||
Excess of tax depreciation over book depreciation | (137,249 | ) | (171,084 | ) | ||
Book/tax differences identified in connection with GAAM Portfolio acquisition | (438 | ) | (911 | ) | ||
Net earnings of non-European Union member subsidiaries | (3,957 | ) | (16,170 | ) | ||
Total deferred tax liability | (141,644 | ) | (188,165 | ) | ||
Deferred tax liability, net | $ | (12,402 | ) | $ | (20,741 | ) |
December 31, 2019 December 31, 2018 Deferred tax asset: Net operating loss carry forwards Net unrealized losses on derivative instruments Basis difference on acquisition of GAAM Australian assets Other Valuation allowance Total deferred tax asset 119,249 147,794 Deferred tax liability: Excess of tax depreciation over book depreciation Miscellaneous book/tax differences Net earnings of non-European Union member subsidiaries Withholding tax on Australian unrepatriated earnings Total deferred tax liability (177,545 ) Deferred tax liability, net $ (46,260 ) $ (29,751 )
The Company has undistributed earnings from its Australian subsidiary. During the third quarter of 2016, the Company changed its assertion to indefinitely reinvest these undistributed earnings back into Australia. A withholding tax of 15.0% will be applied to distributions of earnings which have yet to be taxed in Australia.
For the year ended December 31, 2016,2017, the Company recorded a net valuation allowance provision of $8.4 million.
Year ended December 31, 2016 | Year ended December 31, 2015 | Year ended December 31, 2014 | |||||||
Irish statutory corporate tax rate on trading income | 12.5 | % | 12.5 | % | 12.5 | % | |||
Valuation allowances | (19.8 | )% | 12.0 | % | 3.6 | % | |||
Equity earnings from Fly-Z/C LP | 0.2 | % | (0.5 | )% | (0.4 | )% | |||
Tax impact of repurchased and resold Notes | 1.3 | % | (3.2 | )% | (0.6 | )% | |||
Share-based compensation | — | 0.1 | % | — | |||||
Foreign tax rate differentials | 7.8 | % | (9.7 | )% | (3.9 | )% | |||
| Years ended | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| Irish statutory corporate tax rate on trading income | 12.5 | % | 12.5 | % | 12.5 | % | ||||||
| Valuation allowances | (1.4 | )% | (1.4 | )% | 59.9 | % | ||||||
| Tax impact of repurchased and resold Notes | (0.1 | )% | 0.1 | % | (0.8 | )% | ||||||
| Foreign tax rate differentials | (0.4 | )% | (2.8 | )% | (18.4 | )% | ||||||
| True-up of prior year tax provision | (0.1 | )% | — | 2.2 | % | |||||||
| Non-deductible interest expense, transaction fees and expenses | 0.5 | % | 1.8 | % | 12.2 | % | ||||||
| Deductible interest paid in the period | (2.7 | )% | — | — | ||||||||
| Unrealized foreign exchange loss on re-valuation of deferred tax balances | — | 0.1 | % | 0.5 | % | |||||||
| Withholding tax | — | — | 13.3 | % | ||||||||
| Other | — | 0.1 | % | (0.1 | )% | |||||||
| Effective tax rate | 8.3 | % | 10.4 | % | 81.3 | % | ||||||
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Year ended December 31, 2016 | Year ended December 31, 2015 | Year ended December 31, 2014 | |||||||
True-up of prior year tax provision | — | 1.4 | % | 0.2 | % | ||||
Non-taxable gain on debt extinguishment | 0.3 | % | — | (1.2 | )% | ||||
Non-deductible interest expense, transaction fees and expenses | (4.8 | )% | 6.1 | % | 2.4 | % | |||
Deductible intra-group interest | 30.9 | % | — | — | |||||
Unrealized foreign exchange loss on re-valuation of deferred tax balances | (8.6 | )% | — | — | |||||
Other | 0.2 | % | 0.4 | % | — | ||||
Effective tax rate | 20.0 | % | 19.1 | % | 12.6 | % | |||
Under Irish tax legislation, the Irish Revenue (“Revenue”) is entitled to make enquiries and/or raise an assessment of any corporation tax return submitted up to a period of four years from the end of the year in which the return is submitted. As such, the Irish Revenue is entitled to make enquiries and/or raise an assessment in respect of the corporation tax returns submitted by the Company’s Irish subsidiaries for each of the years ended December 31, 20122015 to 2016.
| 13. | OTHER LIABILITIES |
December 31, 2016 | December 31, 2015 | |||||
Net current tax provision | $ | 2,036 | $ | 645 | ||
Lease incentive obligation | 24,757 | 21,217 | ||||
Deferred rent payable | 3,792 | 11,974 | ||||
Refundable deposits | 350 | 4,240 | ||||
Other | 9,319 | 14,050 | ||||
Total other liabilities | $ | 40,254 | $ | 52,126 | ||
December 31, 2019 | December 31, 2018 | |||||||
| Current tax payable | $ | 308 | $ | 50 | ||||
| Lease discount | 24,965 | 25,539 | ||||||
| Lease incentive obligation | 15,634 | 14,020 | ||||||
| Deferred rent | 15,715 | 15,067 | ||||||
| Refundable deposits | 3,210 | 3,420 | ||||||
| Other | 16,929 | 22,306 | ||||||
| Total other liabilities | $ | 76,761 | $ | 80,402 | ||||
Share Repurchases
In July 2016, the Company’s board of directors approved a $75.0 million share repurchase program expiring in December 2017. Under this program, the Company may make share repurchases from time to time in the open market or in privately negotiated transactions. As of December 31, 2016, there was $66.7 million remaining under this authorization.
During the year ended December 31, 2016, the Company repurchased 3,414,960 shares at an average price of $11.73 per share, or $40.1 million, before commissions and fees. As of December 31, 2016, there were 32,256,440 shares outstanding.
During the year ended December 31, 2015, the Company repurchased a total of 5,797,673 shares at an average price of $13.89 per share, or $80.5 million, before commissions and fees.
No shares were repurchased during the year ended December 31, 2014.
Dividends
On November 12, 2015, the Company announced that its board of directors approved the elimination of dividend payments on its shares. No dividends were declared or paid during the year ended December 31, 2016.
During the year ended December 31, 2015, the Company declared and paid dividends of $1.00 per share or $42.4 million.
During the year ended December 31, 2014, the Company declared and paid dividends of $1.00 per share or $42.8 million.
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Share Issuances
During the years ended December 31, 2016 and 2015, respectively, the Company issued no shares.
During the year ended December 31, 2014, the Company issued 126,660 shares in connection with RSUs that vested and SARs that were exercised.
| SHARE-BASED COMPENSATION |
At
Number of shares | Weighted average exercised price | Weighted average remaining contractual life (in years) | ||||||||||
| Outstanding and vested at January 1, 2017 | 821,117 | $ | 12.74 | 4.1 | ||||||||
| SARs exercised | 24,137 | 12.73 | ||||||||||
| Outstanding at December 31, 2017 | 796,980 | $ | 12.74 | 3.1 | ||||||||
| SARs exercised | — | — | ||||||||||
| Outstanding at December 31, 2018 | 796,980 | $ | 12.74 | 2.1 | ||||||||
| SARs exercised | 782,955 | 12.73 | ||||||||||
| Outstanding and exercisable at December 31, 2019 | 14,025 | 12.95 | 1.6 | |||||||||
| 15. | SHAREHOLDERS’ EQUITY |
A summary of the Company’s RSU activity forfees. During the year ended December 31, 20152018, the Company did not repurchase any shares. During the year ended December 31, 2017, the Company repurchased 4,274,569 shares at an average price of $13.35 per share, or $57.1 million, before commissions and 2014 is as follows:
Number of shares | Weighted average grant date fair value | |||||
Outstanding and unvested at December 31, 2013 | 161,480 | 12.81 | ||||
RSUs vested | (119,666 | ) | 12.99 | |||
RSUs canceled or forfeited | (5,739 | ) | 12.28 | |||
Outstanding and unvested at December 31, 2014 | 36,075 | $ | 12.28 | |||
RSUs vested | (36,075 | ) | 12.28 | |||
Outstanding and unvested at December 31, 2015 | — | $ | — | |||
Share-based compensation expense related to SARs and RSUs is recorded as a component of selling, general and administrative expenses, and totaled $0.2 million and $30,000 for
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| 16. | EARNINGS PER SHARE |
Year ended December 31, 2016 | Year ended December 31, 2015 | Year ended December 31, 2014 | |||||||
Numerator | |||||||||
Net income (loss) | $ | (29,112 | ) | $ | 22,798 | $ | 60,184 | ||
Less: | |||||||||
Dividends declared and paid to shareholders | — | (41,388 | ) | (41,392 | ) | ||||
Dividend equivalents paid to vested RSUs and SARs | — | (1,054 | ) | (1,426 | ) | ||||
Net income (loss) attributable to common shareholders | $ | (29,112 | ) | $ | (19,644 | ) | $ | 17,366 | |
Denominator | |||||||||
Weighted average shares outstanding-Basic | 33,239,001 | 41,222,690 | 41,405,211 | ||||||
Dilutive common equivalent shares: | |||||||||
RSUs | — | 7,950 | 48,674 | ||||||
SARs | — | 84,509 | 73,699 | ||||||
Weighted average shares outstanding-Diluted | 33,239,001 | 41,315,149 | 41,527,584 | ||||||
Earnings per (loss) share: | |||||||||
Basic | |||||||||
Distributed earnings | $ | — | $ | 1.00 | $ | 1.00 | |||
Undistributed income (excess distribution) | $ | (0.88 | ) | $ | (0.48 | ) | $ | 0.42 | |
Basic earnings (loss) per share | $ | (0.88 | ) | $ | 0.52 | $ | 1.42 | ||
Diluted | |||||||||
Distributed earnings | $ | — | $ | 1.00 | $ | 1.00 | |||
Undistributed income (excess distribution) | $ | (0.88 | ) | $ | (0.48 | ) | $ | 0.42 | |
Diluted earnings (loss) per share | $ | (0.88 | ) | $ | 0.52 | $ | 1.42 | ||
Years ended 2019 2018 2017 Numerator Net income attributable to common shareholders Denominator Weighted average shares outstanding-Basic Dilutive common equivalent shares: SARs Weighted average shares outstanding-Diluted Earnings per share: Basic Distributed earnings Undistributed income Basic earnings per share Diluted Distributed earnings Undistributed income Diluted earnings per share
| 17. | COMMITMENTS AND CONTINGENCIES |
In 2016,
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| 18. | RELATED PARTY TRANSACTIONS |
Effective January 1, 2017, the servicing agreement between B&B Air Funding and BBAM relating to aircraft financed by the Securitization Notes was amended, thereby (i) amending the rent fee to 3.5% of the aggregate amount of rents actually collected, plus $1,000 per aircraft per month and (ii) eliminating the basea sales fee of $150,000 per month. In connection with this amendment, effective January 1, 2017,1.5% of the aggregate gross proceeds in respect of any aircraft sold. BBAM was also entitled to an administrative agency fee also was reduced, through a rebate, tofrom B&B Air Funding of $20,000 per month, subject to an annual CPI adjustment.
With respect to all other aircraft, In connection with the redemption of the Securitization Notes in March 2019, these obligations were terminated.
Foraviation asset purchased by the Company, and a disposition fee of 1.5% of the gross proceeds for any aviation asset sold by the Company. During the years ended December 31, 2016, 20152019, 2018 and 2014, BBAM received base, rent and servicing fees pursuant to2017, the Agreements totaling $12.7Company incurred $5.0 million, $15.2$16.1 million and $14.4$6.8 million respectively. BBAM also received administrativeof origination fees, totaling $1.9 million during the year ended December 31, 2016, and $2.1 million for each ofrespectively, payable to BBAM. During the years ended December 31, 20152019, 2018 and 2014.
During the year ended December 31, 2016,2017, the Company incurred $8.4 million of originationdisposition fees of which $0.9$15.4 million, was expensed. During the year ended December 31, 2015, the Company incurred $9.2 million of origination fees, of which $1.0 million was expensed. With respect to aircraft acquired in the first quarter of 2014, the Manager waived the origination fees that it was entitled to receive from the Company. For the year ended December 31, 2014, the Company incurred $12.8 million of origination fees, of which $3.1 million was expensed.
The Companyand $0.3 million, respectively, payable to BBAM.
In connection with the July 2015 amendment to the management agreement, the Company and the Manager also agreed to reduce the disposition fee in respect of the ECAF-I Transaction to an aggregate amount equal to 1.2% of the aggregate gross proceeds for such aircraft. During the years ended December 31, 2016, 2015 and 2014, the Company incurred disposition fees of $7.5 million, $15.6 million and $2.2 million, respectively.
The Company further amended the management agreement, effective as of January 1, 2017 to reflect the amended rent fee and administrative agency fee, as well as the elimination of the base fee, in respect of the aircraft financed by the Securitization Notes.
F-35
If the Management Agreementmanagement agreement is not renewed on July 1, 2025, the CompanyFly will pay the Manager a non-renewal fee on such termination date in an amount equal to (i) $6.0 million plus (ii) so long as the Management Expense Amount does not exceed $12.0 million, 50% of the excess (if any) of the Management Expense Amount over $6.0 million in respect of the last fiscal year prior to such termination date.
2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | Total | |||||||||||||||
Fixed base fee payments (1) | $ | 240 | $ | 240 | $ | 240 | $ | 240 | $ | 240 | $ | 1,440 | $ | 2,640 | |||||||
Fixed administrative agency fee payments due by B&B Air Funding (1)(2) | 108 | 108 | 63 | 25 | 1 | — | 305 | ||||||||||||||
Fixed administrative services fee due under the Term Loan (3) | 418 | 361 | 288 | 172 | 142 | 164 | 1,545 | ||||||||||||||
Fixed administrative services fee due under Fly Acquisition III (3) | 168 | 168 | 168 | 168 | 155 | 165 | 992 | ||||||||||||||
Fixed administrative agency fee payments due by other subsidiaries (3) | 458 | 406 | 338 | 322 | 289 | 929 | 2,742 | ||||||||||||||
Fixed payments for Management Expenses (1) | 6,304 | 6,304 | 6,304 | 6,304 | 6,304 | 28,369 | 59,889 | ||||||||||||||
Total | $ | 7,696 | $ | 7,587 | $ | 7,401 | $ | 7,231 | $ | 7,131 | $ | 31,067 | $ | 68,113 | |||||||
| 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | ||||||||||||||||||||||
Fixed administrative agency fee payments due by B&B Air Funding(1) | $ | 51 | $ | 36 | $ | 34 | $ | 24 | $ | 14 | $ | 84 | $ | 243 | ||||||||||||||
Fixed administrative services fee due under the Term Loan(2) | 384 | 337 | 236 | 173 | 149 | 100 | 1,379 | |||||||||||||||||||||
Fixed administrative services fee due under the Magellan Acquisition Limited Facility(2) | 204 | 204 | 203 | 192 | 192 | 386 | 1,381 | |||||||||||||||||||||
Fixed administrative services fee due under Fly Acquisition III Facility(2) | 48 | 48 | 48 | 44 | 36 | 84 | 308 | |||||||||||||||||||||
Fixed administrative services fee due under Fly Aladdin Acquisition Facility(2) | 288 | 278 | 254 | 140 | 78 | 92 | 1,130 | |||||||||||||||||||||
Fixed administrative services fee due under Fly Aladdin Engine Funding Facility(2) | 12 | 12 | 12 | 10 | — | — | 46 | |||||||||||||||||||||
Fixed administrative agency fee payments due by other subsidiaries(2) | 336 | 284 | 250 | 212 | 192 | 586 | 1,860 | |||||||||||||||||||||
Fixed payments for Management Expenses(1) (3) | 7,840 | 7,840 | 7,840 | 7,840 | 7,840 | 43,121 | 82,321 | |||||||||||||||||||||
Acquisition fees related to Portfolio B in the AirAsia transactions(4) | 5,273 | 8,568 | 1,485 | — | — | — | 15,326 | |||||||||||||||||||||
| Disposition fees on flight equipment held for sale | 2,768 | — | — | — | — | — | 2,768 | |||||||||||||||||||||
| Total | $ | 17,204 | $ | 17,607 | $ | 10,362 | $ | 8,635 | $ | 8,501 | $ | 44,453 | $ | 106,762 | ||||||||||||||
| (1) | Assumes Consumer Price Index (“CPI”) rates in effect as of December 31, |
| (2) |
| Assumes number of aircraft and engines at December 31, |
| (3) | Assumes automatic extension for one additional term of five years to June 30, 2030. Also assumes net book values of aircraft and engines at December 31, 2019 remains |
| (4) | Based on number of aircraft expected to be purchased. |
| 19. | FAIR VALUE MEASUREMENTS |
The fair value
hierarchy.) Where available, the fair value of the Company’s investment in equity certificates, notes payable and debt facilities is based on observable market prices or parameters or derived from such prices or parameters (Level 2). Where observable prices or inputs are not available, valuation models are applied, using the net present value of cash flow streams over the term using estimated market rates for similar instruments and remaining terms (Level 3). These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. The Company determines the fair value of its derivative instruments using a discounted cash flow model which incorporates an assessment of the risk of non-performance by the swap counterparty and an evaluation of its credit risk in valuing derivative liabilities. The valuation model uses various inputs including contractual terms, interest rate curves, credit spreads and measures of volatility.
The Company did not record any impairment during the years ended December 31, 2019 and 2018.
As of December 31, 2016 | As of December 31, 2015 | |||||||||||
Principal Amount Outstanding | Fair Value | Principal Amount Outstanding | Fair Value | |||||||||
Securitization Notes | $ | 139,741 | $ | 134,850 | $ | 295,786 | $ | 252,897 | ||||
Nord LB Facility | 171,509 | 171,509 | 255,278 | 251,849 | ||||||||
CBA Facility | 56,146 | 56,146 | 88,190 | 87,070 | ||||||||
Term Loan | 404,016 | 406,804 | 427,781 | 421,921 | ||||||||
Fly Acquisition III Facility | 113,045 | 113,045 | — | — | ||||||||
Other Aircraft Secured Borrowings | 980,967 | 980,967 | 663,069 | 653,992 | ||||||||
2020 Notes | 375,000 | 394,219 | 375,000 | 375,000 | ||||||||
2021 Notes | 325,000 | 340,438 | 325,000 | 333,125 | ||||||||
Derivative asset | 1,905 | 1,905 | 241 | 241 | ||||||||
Derivative liabilities | 13,281 | 13,281 | 19,327 | 19,327 | ||||||||
As of December 31, 2019 As of December 31, 2018 Fair Value Fair Value Securitization Notes Term Loan 2021 Notes 2024 Notes
Level 1 | Level 2 | Level 3 | Total | |||||||||
December 31, 2016: | ||||||||||||
Derivative asset | — | $ | 1,905 | — | $ | 1,905 | ||||||
Derivative liabilities | — | 13,281 | — | 13,281 | ||||||||
December 31, 2015: | ||||||||||||
Derivative asset | — | $ | 241 | — | $ | 241 | ||||||
Derivative liabilities | — | 19,327 | — | 19,327 | ||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| December 31, 2019: | ||||||||||||||||
| Derivative assets | — | $ | 4,824 | — | $ | 4,824 | ||||||||||
| Derivative liabilities | — | 27,943 | — | 27,943 | ||||||||||||
| Investment in equity certificates | — | 16,048 | — | 16,048 | ||||||||||||
| December 31, 2018: | ||||||||||||||||
| Derivative assets | — | $ | 5,929 | — | $ | 5,929 | ||||||||||
| Derivative liabilities | — | 8,558 | — | 8,558 | ||||||||||||
| Investment in equity certificates | — | 5,747 | — | 5,747 | ||||||||||||
F-37
| 20. | UNAUDITED QUARTERLY CONDENSED CONSOLIDATED FINANCIAL INFORMATION |
March 31, 2016 | June 30, 2016 | September 30, 2016 | December 31, 2016 | |||||||||
Total revenues | $ | 81,208 | $ | 77,934 | $ | 85,297 | $ | 100,600 | ||||
Net income (loss) | $ | 7,100 | $ | 4,677 | $ | 22,942 | $ | (63,831 | ) | |||
Earnings (loss) per share — Basic | $ | 0.21 | $ | 0.14 | $ | 0.70 | $ | (1.98 | ) | |||
Earnings (loss) per share — Diluted | $ | 0.21 | $ | 0.14 | $ | 0.70 | $ | (1.98 | ) | |||
March 31, 2019 | June 30, 2019 | September 30, 2019 | December 31, 2019 | |||||||||||||
| Total revenues | $ | 134,703 | $ | 147,033 | $ | 139,034 | $ | 154,254 | ||||||||
| Net income | $ | 44,965 | $ | 54,050 | $ | 51,704 | $ | 75,158 | ||||||||
| Earnings per share — Basic | $ | 1.38 | $ | 1.69 | $ | 1.67 | $ | 2.43 | ||||||||
| Earnings per share — Diluted | $ | 1.38 | $ | 1.68 | $ | 1.67 | $ | 2.43 | ||||||||
March 31, 2018 | June 30, 2018 | September 30, 2018 | December 31, 2018 | |||||||||||||
| Total revenues | $ | 88,755 | $ | 102,673 | $ | 104,566 | $ | 122,305 | ||||||||
| Net income | $ | 9,630 | $ | 24,344 | $ | 20,740 | $ | 31,009 | ||||||||
| Earnings per share — Basic | $ | 0.34 | $ | 0.87 | $ | 0.68 | $ | 0.95 | ||||||||
| Earnings per share — Diluted | $ | 0.34 | $ | 0.87 | $ | 0.68 | $ | 0.95 | ||||||||
The unaudited quarterly financial information for each of the quarters in the year ended December 31, 2015 is presented below (dollars in thousands, except per share data):
March 31, 2015 | June 30, 2015 | September 30, 2015 | December 31, 2015 | |||||||||
Total revenues | $ | 123,286 | $ | 102,822 | $ | 112,655 | $ | 123,634 | ||||
Net income (loss) | $ | 19,865 | $ | (43,695 | ) | $ | 27,483 | $ | 19,145 | |||
Earnings (loss) per share — Basic | $ | 0.47 | $ | (1.06 | ) | $ | 0.66 | $ | 0.47 | |||
Earnings (loss) per share — Diluted | $ | 0.47 | $ | (1.06 | ) | $ | 0.66 | $ | 0.47 | |||
| 21. | SUBSEQUENT EVENTS |
On February 1, 2017, the servicing agreement between B&B Air Funding and BBAM relating
F-38
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Fly Leasing Limited
We have audited the consolidated financial statements of Fly Leasing Limited as of December 31, 2014,2019, the Company sold two engines as the result of an aircraft part out and for the year endedthree aircraft.
December 31, | ||||||
2016 | 2015 | |||||
Assets | ||||||
Cash and cash equivalents | $ | 229,777 | $ | 139,339 | ||
Notes receivable from subsidiaries | 441,451 | 735,835 | ||||
Investments in subsidiaries | 912,163 | 778,080 | ||||
Investment in unconsolidated subsidiary | 7,700 | 7,170 | ||||
Other assets, net | 534 | 2,712 | ||||
Total assets | 1,591,625 | 1,663,136 | ||||
Liabilities | ||||||
Payable to related parties | 906 | 50 | ||||
Payable to subsidiaries | 280,034 | 289,961 | ||||
Unsecured borrowings, net | 691,390 | 691,109 | ||||
Deferred tax liability, net | 1,946 | 13,675 | ||||
Accrued and other liabilities | 24,114 | 11,377 | ||||
Total liabilities | 998,390 | 1,006,172 | ||||
Shareholders’ equity | 593,235 | 656,964 | ||||
Total liabilities and shareholders’ equity | $ | 1,591,625 | $ | 1,663,136 | ||
The accompanying note is an integral part of these
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | 229,431 | $ | 43,233 | ||||
| Notes receivable from subsidiaries | 440,801 | 466,729 | ||||||
| Investments in subsidiaries | 1,197,465 | 1,019,048 | ||||||
| Deferred tax asset, net | 145 | — | ||||||
| Other assets, net | 19,553 | 11,019 | ||||||
| Total assets | $ | 1,887,395 | $ | 1,540,029 | ||||
| Liabilities | ||||||||
| Payable to related parties | $ | 823 | $ | 729 | ||||
| Payable to subsidiaries | 256,473 | 202,298 | ||||||
| Unsecured borrowings, net | 734,053 | 617,664 | ||||||
| Deferred tax liability, net | — | 3,066 | ||||||
| Accrued and other liabilities | 17,769 | 14,162 | ||||||
| Total liabilities | 1,009,118 | 837,919 | ||||||
| Shareholders’ equity | 878,277 | 702,110 | ||||||
| Total liabilities and shareholders’ equity | $ | 1,887,395 | $ | 1,540,029 | ||||
F-40
Fly Leasing Limited
| Years ended | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| Revenues | ||||||||||||
| Equity earnings from subsidiaries | $ | 219,720 | $ | 90,175 | $ | 35,208 | ||||||
| Equity earnings (loss) from unconsolidated subsidiary | 2,717 | (54 | ) | 496 | ||||||||
| Intercompany management fee income | 16,452 | 16,844 | 12,124 | |||||||||
| Intercompany interest income | 33,290 | 25,740 | 34,068 | |||||||||
| Interest and other income | 6,066 | 1,072 | 809 | |||||||||
| Total revenues | 278,245 | 133,777 | 82,705 | |||||||||
| Expense | ||||||||||||
| Interest expense | 38,211 | 38,211 | 45,970 | |||||||||
| Selling, general and administrative | 14,102 | 12,314 | 12,630 | |||||||||
| Ineffective, dedesignated and terminated derivatives | — | (1,798 | ) | — | ||||||||
| Loss on modification and extinguishment of debt | — | — | 19,655 | |||||||||
| Total expenses | 52,313 | 48,727 | 78,255 | |||||||||
| Net income before provision for income taxes | 225,932 | 85,050 | 4,450 | |||||||||
| Provision (benefit) for income taxes | 55 | (673 | ) | 1,852 | ||||||||
| Net income | $ | 225,877 | $ | 85,723 | $ | 2,598 | ||||||
| Weighted average number of shares: | ||||||||||||
| Basic | 31,607,781 | 29,744,083 | 30,307,357 | |||||||||
| Diluted | 31,715,469 | 29,783,904 | 30,353,425 | |||||||||
| Earnings per share: | ||||||||||||
| Basic | $ | 7.15 | $ | 2.88 | $ | 0.09 | ||||||
| Diluted | $ | 7.12 | $ | 2.88 | $ | 0.09 | ||||||
Schedule I — Condensed financial information of parent
Cash Flows
Years ended | |||||||||
2016 | 2015 | 2014 | |||||||
Revenues | |||||||||
Equity in earnings (loss) of subsidiaries | $ | (24,385 | ) | $ | 17,065 | $ | 59,447 | ||
Equity in earnings from unconsolidated subsidiary | 530 | 1,159 | 3,562 | ||||||
Intercompany management fee income | 8,866 | 15,053 | 16,921 | ||||||
Intercompany interest income | 44,394 | 48,077 | 22,394 | ||||||
Interest and other income | 410 | 224 | 215 | ||||||
Total revenues | 29,815 | 81,578 | 102,539 | ||||||
Expense | |||||||||
Interest expense | 48,013 | 48,013 | 28,089 | ||||||
Selling, general and administrative | 11,803 | 12,987 | 15,520 | ||||||
Total expenses | 59,816 | 61,000 | 43,609 | ||||||
Net income (loss) before provision for income taxes | (30,001 | ) | 20,578 | 58,930 | |||||
Income tax benefit | (889 | ) | (2,220 | ) | (1,254 | ) | |||
Net income (loss) | $ | (29,112 | ) | $ | 22,798 | $ | 60,184 | ||
Weighted average number of shares: | |||||||||
Basic | 33,239,001 | 41,222,690 | 41,405,211 | ||||||
Diluted | 33,239,001 | 41,315,149 | 41,527,584 | ||||||
Earnings (loss) per share: | |||||||||
Basic | $ | (0.88 | ) | $ | 0.52 | $ | 1.42 | ||
Diluted | $ | (0.88 | ) | $ | 0.52 | $ | 1.42 | ||
The accompanying note is an integral part of these consolidated financial statements.
F-41
Schedule I — Condensed financial information of parent
Fly Leasing LimitedCondensed Statements of Cash Flows
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014(Dollars in thousands)
Years ended | |||||||||
2016 | 2015 | 2014 | |||||||
Cash Flows from Operating Activities | |||||||||
Net Income (loss) | $ | (29,112 | ) | $ | 22,798 | $ | 60,184 | ||
Adjustments to reconcile net income to net cash flows provided by operating activities: | |||||||||
Equity in earnings of subsidiaries | 24,385 | (17,065 | ) | (59,447 | ) | ||||
Equity in earnings of unconsolidated subsidiary | (530 | ) | (1,159 | ) | (3,562 | ) | |||
Deferred income taxes | (12,139 | ) | (2,276 | ) | (2,004 | ) | |||
Share-based compensation | — | 195 | 30 | ||||||
Amortization of debt discount and others | 1,982 | 1,982 | 1,537 | ||||||
Distributions from unconsolidated subsidiary | — | — | 5,501 | ||||||
Changes in operating assets and liabilities: | |||||||||
Receivable from subsidiaries | (162,229 | ) | 132,843 | 117,806 | |||||
Other assets | 476 | 1,060 | (1,672 | ) | |||||
Payable to related parties | 856 | (867 | ) | (48 | ) | ||||
Accrued and other liabilities | 12,622 | 483 | 7,211 | ||||||
Net cash flows (used in) provided by operating activities | (163,689 | ) | 137,994 | 125,536 | |||||
Cash Flows from Investing Activities | |||||||||
Capital contributions to subsidiaries | — | — | (5,058 | ) | |||||
Distributions received from subsidiaries | — | 53,500 | 1,925 | ||||||
Capital contributions to unconsolidated subsidiary | — | (2,009 | ) | — | |||||
Distributions received from unconsolidated subsidiary | — | — | 1,132 | ||||||
Notes receivable from subsidiaries | (40,172 | ) | (650,083 | ) | (628,994 | ) | |||
Notes payable to subsidiaries | 334,556 | 505,273 | 94,101 | ||||||
Net cash flows provided by (used in) investing activities | 294,384 | (93,319 | ) | (536,894 | ) | ||||
Cash Flows from Financing Activities | |||||||||
Proceeds from issuance of unsecured borrowings | — | — | 396,563 | ||||||
Debt issuance costs | — | — | (1,116 | ) | |||||
Shares repurchased | (40,257 | ) | (81,432 | ) | — | ||||
Dividends paid | — | (41,388 | ) | (41,392 | ) | ||||
Dividend equivalents | — | (1,054 | ) | (1,426 | ) | ||||
Net cash flows (used in) provided by financing activities | (40,257 | ) | (123,874 | ) | 352,629 | ||||
Net increase (decrease) in cash and cash equivalents | 90,438 | (79,199 | ) | (58,729 | ) | ||||
Cash and cash equivalents at beginning of year | 139,339 | 218,538 | 277,267 | ||||||
Cash and cash equivalents at end of year | $ | 229,777 | $ | 139,339 | $ | 218,538 | |||
Supplemental Disclosure: | |||||||||
Cash paid during the year for: | |||||||||
Interest | $ | 46,032 | $ | 46,723 | $ | 21,488 | |||
Taxes | — | — | — | ||||||
Noncash Activities: | |||||||||
Noncash investing activities: | |||||||||
Capital contribution to subsidiaries | 207,340 | 17,246 | — | ||||||
Distributions paid to subsidiaries | 55,039 | 711 | — | ||||||
The accompanying note is an integral part of these
| Years ended | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| Cash Flows from Operating Activities | ||||||||||||
| Net income | $ | 225,877 | $ | 85,723 | $ | 2,598 | ||||||
| Adjustments to reconcile net income to net cash flows provided by operating activities: | ||||||||||||
| Equity earnings from subsidiaries | (219,720 | ) | (90,175 | ) | (35,208 | ) | ||||||
| Equity (earnings) loss from unconsolidated subsidiary | (2,717 | ) | 54 | (496 | ) | |||||||
| Deferred income taxes | (3,793 | ) | (673 | ) | 1,852 | |||||||
| Amortization of debt discount and other | 1,742 | 1,742 | 1,931 | |||||||||
| Loss on modification and extinguishment of debt | — | — | 19,655 | |||||||||
| Distributions from unconsolidated subsidiary | 2,727 | 2,131 | — | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Receivable from subsidiaries | 240,470 | (104,303 | ) | 6,144 | ||||||||
| Other assets | (2,305 | ) | (709 | ) | (1,121 | ) | ||||||
| Payable to related parties | 94 | 506 | (683 | ) | ||||||||
| Accrued and other liabilities | 3,605 | (477 | ) | (9,478 | ) | |||||||
| Net cash flows used in operating activities | 245,980 | (106,181 | ) | (14,806 | ) | |||||||
| Cash Flows from Investing Activities | ||||||||||||
| Capital contributions to subsidiaries | (46,601 | ) | (8,986 | ) | — | |||||||
| Distributions received from subsidiaries | — | 25,792 | — | |||||||||
| Distributions received from unconsolidated subsidiary | 2,639 | 3,103 | — | |||||||||
| Advances of notes receivable to subsidiaries | (271,084 | ) | (265,311 | ) | (48,335 | ) | ||||||
| Repayment of notes receivable from subsidiaries | 297,013 | 223,925 | 144,718 | |||||||||
| Investment income from equity certificates | 1,603 | — | — | |||||||||
| Investment in equity certificates | (10,481 | ) | (5,747 | ) | — | |||||||
| Net cash flows (used in) provided by investing activities | (26,911 | ) | (27,224 | ) | 96,383 | |||||||
| Cash Flows from Financing Activities | ||||||||||||
| Proceeds from issuance of unsecured borrowings | — | — | 295,150 | |||||||||
| Repayment of unsecured borrowings | — | — | (375,000 | ) | ||||||||
| Debt modification and extinguishment costs | — | — | (16,287 | ) | ||||||||
| Debt issuance costs | — | — | (917 | ) | ||||||||
| Shares issued | — | 19,624 | — | |||||||||
| Shares repurchased | (32,871 | ) | — | (57,286 | ) | |||||||
| Net cash flows (used in) provided by financing activities | (32,871 | ) | 19,624 | (154,340 | ) | |||||||
| Net increase (decrease) in cash and cash equivalents | 186,198 | (113,781 | ) | (72,763 | ) | |||||||
| Cash and cash equivalents at beginning of year | 43,233 | 157,014 | 229,777 | |||||||||
| Cash and cash equivalents at end of year | $ | 229,431 | $ | 43,233 | $ | 157,014 | ||||||
| Supplemental Disclosure: | ||||||||||||
| Cash paid during the year for: | ||||||||||||
| Interest | $ | 36,469 | $ | 36,425 | $ | 41,883 | ||||||
| Taxes | — | — | — | |||||||||
| Noncash Activities: | ||||||||||||
| Noncash investing activities: | ||||||||||||
| Capital contribution to subsidiaries | 142,246 | 7 | 109,391 | |||||||||
| Distributions from subsidiaries | 213,312 | 3,386 | 76,451 | |||||||||
| Intercompany sale of subsidiaries | — | 39,605 | — | |||||||||
F-42
Exhibit Number | Description of Exhibit | |
Memorandum of Association (1) | ||
Amended and Restated Bye-Laws of Fly Leasing Ltd. (2) | ||
Deposit Agreement between Deutsche Bank Trust Company Americas and Babcock & Brown Air Limited. (1) | ||
Description of Securities Registered under Section 12 of the Exchange Act. | ||
Form of Director Service Agreement between Babcock & Brown Air Limited and each director thereof. (1) | ||
Fly Leasing Limited Omnibus Incentive Plan. (3) | ||
Form of Stock Appreciation Right Award Agreement. (3) | ||
Form of Restricted Stock Unit Award Agreement. (3) | ||
Form of Loan Agreement among Hobart Aviation Holdings Limited, Norddeutsche Landesbank Girozentrale and each borrower thereof. (4) | ||
Form of Servicing Agreement among BBAM US LP, BBAM Aviation Services Limited and each company thereof. | ||
Exhibit Number | Description of Exhibit | |
Amended and Restated Fly Leasing Limited Management Agreement dated as of December 28, 2012, between Fly Leasing Limited and Fly Leasing Management Co. Limited. | ||
Amended and Restated Servicing Agreement dated as of January 24, 2013, by and among BBAM US LP, BBAM Aviation Services Limited and Fly Leasing Limited. | ||
Indenture dated December 11, 2013 between Fly Leasing Limited and Wells Fargo Bank, National Association. | ||
First Supplemental Indenture dated December 11, 2013 between Fly Leasing Limited and Wells Fargo Bank, Nation Association. | ||
Second Supplemental Indenture dated as of October 3, 2014, between Fly Leasing Limited and Wells Fargo Bank, National Association. | ||
First Amendment to Amended and Restated Fly Leasing Limited Management Agreement, dated June 19, 2015, between Fly Leasing Limited and Fly Leasing Management Co. Limited. | ||
Second Amendment to Amended and Restated Fly Leasing Limited Management Agreement, dated July 27, 2016, between Fly Leasing Limited and Fly Leasing Management Co. Limited. | ||
Third Amendment to Amended and Restated Fly Leasing Limited Management Agreement, dated as of February 1, 2017, between Fly Leasing Limited and Fly Leasing Management Co. Limited.(13) | ||
Exhibit Number | �� | Description of Exhibit |
Servicing Agreement dated as of December 8, 2017, among BBAM US LP, BBAM Aviation Services Limited and Magellan Acquisition Limited. (17) | ||
Guaranty [Fly 2017A Term Loan] dated December 8, 2017 by Fly Leasing Limited. (17) | ||
Share Purchase Agreement, dated February 28, 2018, between Asia Aviation Capital Limited, Fly Aladdin Holdings Limited, Fly Leasing Limited and | ||
Aircraft Sale and Purchase Agreement, dated February 28, 2018, between Asia Aviation Capital Limited, Fly Aladdin Holdings Limited and AirAsia Berhad. (18) | ||
Aircraft Sale and Purchase Option Agreement, dated April 26, 2018, but having effect between the parties as of February 28, 2018, between Asia Aviation Capital Limited, Fly Aladdin Holdings Limited and AirAsia Berhad. (18) | ||
Amended and Restated Purchase Commitment Letter (Portfolio C Aircraft and Portfolio D Aircraft), dated May 3, 2018, but having effect between the parties as of February 28, 2018, between Fly Leasing Limited and Nomura Babcock & Brown | ||
Amended and Restated Delivery Side Letter (Portfolio C and Portfolio D), dated May 3, 2018, but having effect between the parties as of February 28, 2018, between Fly Leasing Limited and Incline B Aviation Limited Partnership. (18) | ||
Securities Purchase Agreement, dated July 11, 2018, between Fly Leasing Limited and Meridian Aviation Partners Limited. (19) | ||
Securities Purchase Agreement, dated July 11, 2018, between Fly Leasing Limited and Summit Aviation Holdings LLC. (19) | ||
Registration Rights Agreement, dated July 18, 2018, among Fly Leasing Limited and shareholders named therein. (19) | ||
Subscription Agreement, dated July 18, 2018, among Fly Leasing Limited, AirAsia Group Berhad and AirAsia Berhad. (19) | ||
Registration Rights Agreement, dated July 18, 2018, between Fly Leasing Limited and AirAsia Group Berhad. (19) | ||
Fly SPA Amendment Agreement (No. 1) dated July 11, 2018, among Fly Aladdin Holdings Limited, Fly Leasing |
Exhibit Number | Description of Exhibit | |
Fly SPA Amendment Agreement (No. 2) dated July 18, 2018, among Fly Aladdin Holdings Limited, Fly Leasing Limited, Asia Aviation Capital Limited and AirAsia Group Berhad. (19) | ||
89
Purchase Agreement dated July 2, 2019 among the sellers identified therein, Horizon Aircraft Finance II Limited, Horizon Aircraft Finance II LLC and the other purchasers identified therein. (21) | ||
Aircraft Mortgage and Security Agreement dated as of August 9, 2012, among Fly Funding II S.A.R.L., Fly Leasing Limited, Fly Peridot Holdings Limited, Babcock & Brown Air Acquisition I Limited, The Initial Intermediate Lessees, The Initial Lessor Subsidiaries, The Additional Grantors Referred to Therein and Wells Fargo Bank Northwest, National Association. (5) | ||
Amended and Restated Term Loan Credit Agreement dated as of November 21, 2013 among Fly Funding II S.A.R.L., Fly Leasing Limited, Fly Peridot Holdings Limited, Babcock & Brown Air Acquisition I Limited, each other Guarantor Party referred to therein, the Lenders identified therein, Citibank, N.A., and Well Fargo Bank Northwest, National Association. | ||
Amendment to Credit Agreement, dated as of April 22, 2015, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Bank Northwest, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent. | ||
Second Amendment to Credit Agreement, dated as of October 19, 2016, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Bank Northwest, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent. | ||
Third Amendment to Credit Agreement, dated as of April 28, 2017, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Bank Northwest, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent. (14) |
Exhibit Number | Description of Exhibit | |
Fourth Amendment to Credit Agreement, dated as of November 1, 2017, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Bank Northwest, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent. (16) | ||
Facility Agreement [FLY 2017A Term Loan], dated as of December 8, 2017 among Magellan Acquisition Limited, the Subsidiary Guarantors party thereto, the Lenders party thereto, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Administrative Agent and Wells Fargo Bank, National Association, as Security Trustee. (17) | ||
Note Purchase Agreement [FLY 2017A Term Loan], dated as of December 8, 2017 among Magellan Acquisition Limited, the Purchasers party thereto, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Administrative Agent and Wells Fargo Bank, National Association, as Security Trustee. (17) | ||
Credit Agreement [FLY 2017A Term Loan], dated as of December 8, 2017 among Magellan Acquisition Limited, the Banks party thereto, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Administrative Agent and Wells Fargo Bank, National Association, as Security Trustee. (17) | ||
Security Agreement [FLY 2017A Term Loan], dated as of December 8, 2017 among Magellan Acquisition Limited, the Grantors thereto, and Wells Fargo Bank, National Association, as Security Trustee. (17) | ||
Senior Secured Credit Agreement dated June 15, 2018, among Fly Aladdin Funding Limited, as Borrower, Fly Aladdin MaltaCo Limited, as Fly Malta, the lenders party thereto, Wilmington Trust (London) Limited, as Security Trustee and BNP Paribas, as Administrative Agent. (19) | ||
Borrower Parent Security Agreement dated June 15, 2018, between Fly Aladdin Holdings Limited, as Grantor and Wilmington Trust (London) Limited, as Security Trustee. (19) | ||
Co-Borrower Security Agreement dated June 15, 2018, between Fly Aladdin Funding Limited, as Borrower, Fly Aladdin MaltaCo Limited, as Fly Malta and Wilmington Trust (London) Limited, as Security Trustee. (19) | ||
Deed of Limited Guaranty dated June 15, 2018, by Fly Leasing Limited. (19) | ||
Form of Loan Amendment Letter Agreement (2018) among Hobart Aviation Holdings Limited, Norddeutsche Landesbank Girozentrale and each borrower thereof. (20) |
Exhibit Number | Description of Exhibit | |
| 4.49 | Amendment to Senior Secured Credit Agreement dated July 19, 2018, among Fly Aladdin Funding Limited, as Borrower, Fly Aladdin MaltaCo Limited, as Fly Malta, the lenders, Wilmington Trust (London) Limited, as Security Trustee and BNP Paribas, as Administrative Agent. (19) | |
Fifth Amendment to Credit Agreement dated as of November 22, 2019, among Fly Funding II S.à r.l., each Borrower Party named therein, the Consenting Lenders and the Replacement Lenders named therein, Wells Fargo Trust Company, National Association, as Collateral Agent, and Citibank N.A., in its capacity as Administrative Agent. (23) | ||
Form of Loan Amendment Letter Agreement (2019) among Hobart Aviation Holdings Limited, Norddeutsche Landesbank Girozentrale and each borrower thereof. | ||
| 8.1 | List of the Company’s subsidiaries. | |
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002. | ||
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002. |
90
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002. | ||
Consent of Deloitte & Touche LLP. | ||
101 | The following materials from the Company’s Annual Report on Form 20-F for the year ended December 31, |
| (1) | Previously filed with the Registration Statement on Form F-1, File No. 333-145994. |
| (2) | Previously filed as an exhibit on Form 6-K dated June 30, 2010. |
| (3) | Previously filed as an exhibit on Form 6-K dated May 7, 2010. |
| (4) | Previously filed with the Annual Report on Form 20-F for the year ended December 31, 2011. |
| (5) | Previously filed as an exhibit on Form 6-K dated November 13, 2012. |
| (6) |
| Previously filed as an exhibit on Form 6-K dated December 11, 2013. |
| (7) | Previously filed with the Annual Report on Form 20-F for the year ended December 31, 2012. |
| (8) |
| Previously filed as an exhibit on Form 6-K dated October 3, 2014. |
| (9) | Previously filed with the Annual Report on Form 20-F for the year ended December 31, 2013. |
| (10) | Previously filed as an exhibit on Form 6-K dated August 5, 2015. |
| (11) | Previously filed as an exhibit on Form 6-K dated October 20, 2016. |
| (12) | Previously filed as an exhibit on Form 6-K dated November 17, 2016. |
| (13) | Previously filed with the Annual Report on Form 20-F for the year ended December 31, |
| (14) | Previously filed as an exhibit on Form 6-K dated May 1, 2017. |
| (15) | Previously filed as an exhibit on Form 6-K dated October 16, 2017. |
(16) | Previously filed as an exhibit on Form 6-K dated November 1, 2017. |
| (17) | Previously filed with the Annual Report on Form 20-F for the year ended December 31, 2017. |
| (18) | Previously filed as an exhibit on Form 6-K dated May 8, 2018. |
| (19) | Previously filed as an exhibit on Form 6-K dated August |
(20) | Previously filed with the Annual Report on Form 20-F for the year ended December 31, 2018. |
(21) | Previously filed as an exhibit on Form 6-K dated |
(22) |
| Previously filed as an exhibit on Form 6-K dated November |
(23) | Previously filed as an exhibit on Form 6-K dated November 25, 2019. |
91
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
Fly Leasing Limited | |||
By: | /s/ Colm Barrington | ||
Colm Barrington | |||
Chief Executive Officer and Director | |||
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