al_Current Folio_10Q

Table of Contents


 


 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2018

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from         to        

 

Commission file number 001-35121

 

AIR LEASE CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

27-1840403

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

2000 Avenue of the Stars, Suite 1000N
Los Angeles, California

 

90067

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (310) 553-0555

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 

 

Large accelerated filer ☒

 

Accelerated filer ☐

Non-accelerated filer ☐

 

Smaller reporting company ☐

(Do not check if a smaller reporting company)

 

Emerging growth company☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No ☒

 

At May 9, 2018, there were 103,989,227 shares of Air Lease Corporation’s Class A common stock outstanding.



 

 

 


 

Table of Contents

Air Lease Corporation and Subsidiaries

 

Form 10-Q

For the Quarterly Period Ended March 31, 2018

 

TABLE OF CONTENTS

 

 

Page

Note About Forward-Looking Statements 

3

PART I—FINANCIAL INFORMATION 

 

Item 1 

Financial Statements

4

 

Consolidated Balance Sheets—March 31, 2018 and December 31, 2017 (unaudited)

4

 

Consolidated Statements of Income—Three Months Ended March 31, 2018 and 2017 (unaudited)

5

 

Consolidated Statement of Shareholders' Equity—Three Months Ended March 31, 2018 (unaudited)

6

 

Consolidated Statements of Cash Flows—Three Months Ended March 31, 2018 and 2017 (unaudited)

7

 

Notes to Consolidated Financial Statements (unaudited)

8

Item 2 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 3 

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4 

Controls and Procedures

26

PART II—OTHER INFORMATION 

 

Item 1 

Legal Proceedings

27

Item 1A 

Risk Factors

27

Item 2 

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 3 

Defaults Upon Senior Securities

27

Item 4 

Mine Safety Disclosures

27

Item 5 

Other Information

27

Item 6 

Exhibits

28

 

Signatures

30

 

2


 

Table of Contents

NOTE ABOUT FORWARD-LOOKING STATEMENTS

 

Statements in this quarterly report on Form 10-Q that are not historical facts may constitute “forward-looking statements,” including any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. These statements are only predictions and involve estimates, known and unknown risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed in such statements, including as a result of the following factors, among others:

 

·

our inability to make acquisitions of, or lease, aircraft on favorable terms;

 

·

our inability to sell aircraft on favorable terms;

 

·

our inability to obtain additional financing on favorable terms, if required, to complete the acquisition of sufficient aircraft as currently contemplated or to fund the operations and growth of our business;

 

·

our inability to effectively oversee our managed fleet;

 

·

our inability to obtain refinancing prior to the time our debt matures;

 

·

impaired financial condition and liquidity of our lessees;

 

·

deterioration of economic conditions in the commercial aviation industry generally;

 

·

increased maintenance, operating or other expenses or changes in the timing thereof;

 

·

changes in the regulatory environment;

 

·

unanticipated impacts of the Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”), including as a result of changes in assumptions we make in our interpretation of the Tax Reform Act, guidance related to application of the Tax Reform Act that may be issued in the future, and actions that we may take as a result of our expected impact of the Tax Reform Act;

 

·

potential natural disasters and terrorist attacks and the amount of our insurance coverage, if any, relating thereto; and

 

·

the factors discussed under “Part I — Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2017, and other SEC filings.

 

All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations. You are therefore cautioned not to place undue reliance on such statements. Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

 

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PART I—FINANCIAL INFORMATION

 

ITEM 1.FINANCIAL STATEMENTS

 

Air Lease Corporation and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and par value amounts)

 

 

 

 

 

 

 

 

 

 

    

March 31, 2018

    

December 31, 2017

 

 

 

(unaudited)

 

Assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

252,491

 

$

292,204

 

Restricted cash

 

 

19,133

 

 

16,078

 

Flight equipment subject to operating leases

 

 

15,544,868

 

 

15,100,040

 

Less accumulated depreciation

 

 

(1,955,924)

 

 

(1,819,790)

 

 

 

 

13,588,944

 

 

13,280,250

 

Deposits on flight equipment purchases

 

 

1,567,690

 

 

1,562,776

 

Other assets

 

 

516,588

 

 

462,856

 

Total assets

 

$

15,944,846

 

$

15,614,164

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

Accrued interest and other payables

 

$

281,122

 

$

309,182

 

Debt financing, net of discounts and issuance costs

 

 

9,887,499

 

 

9,698,785

 

Security deposits and maintenance reserves on flight equipment leases

 

 

894,323

 

 

856,140

 

Rentals received in advance

 

 

106,844

 

 

104,820

 

Deferred tax liability

 

 

548,435

 

 

517,795

 

Total liabilities

 

$

11,718,223

 

$

11,486,722

 

Shareholders’ Equity

 

 

 

 

 

 

 

Preferred stock, $0.01 par value; 50,000,000 shares authorized; no shares issued or outstanding

 

 

 

 

 —

 

Class A common stock, $0.01 par value; authorized 500,000,000 shares; issued and outstanding 103,979,834 and 103,621,629 shares at March 31, 2018 and December 31, 2017, respectively

 

 

1,040

 

 

1,036

 

Class B non-voting common stock, $0.01 par value; authorized 10,000,000 shares; no shares issued or outstanding

 

 

 —

 

 

 —

 

Paid-in capital

 

 

2,258,987

 

 

2,260,064

 

Retained earnings

 

 

1,966,596

 

 

1,866,342

 

Total shareholders’ equity

 

$

4,226,623

 

$

4,127,442

 

Total liabilities and shareholders’ equity

 

$

15,944,846

 

$

15,614,164

 

 

(See Notes to Consolidated Financial Statements)

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Table of Contents

Air Lease Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

    

 

Three Months Ended

March 31,

 

 

2018

 

2017

 

 

(unaudited)

Revenues

    

 

 

    

 

 

Rental of flight equipment

 

$

377,862

 

$

354,653

Aircraft sales, trading and other

 

 

3,347

 

 

5,534

Total revenues

 

 

381,209

 

 

360,187

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

Interest

 

 

68,943

 

 

67,063

Amortization of debt discounts and issuance costs

 

 

8,022

 

 

8,992

Interest expense

 

 

76,965

 

 

76,055

Depreciation of flight equipment

 

 

136,134

 

 

123,909

Selling, general and administrative

 

 

23,359

 

 

22,572

Stock-based compensation

 

 

3,432

 

 

3,773

Total expenses

 

 

239,890

 

 

226,309

Income before taxes

 

 

141,319

 

 

133,878

Income tax expense

 

 

(30,668)

 

 

(48,941)

Net income

 

$

110,651

 

$

84,937

 

 

 

 

 

 

 

Net income per share of Class A and Class B common stock:

 

 

 

 

 

 

Basic

 

$

1.07

 

$

0.83

Diluted

 

$

1.00

 

$

0.78

Weighted-average shares outstanding

 

 

 

 

 

 

Basic

 

 

103,747,920

 

 

102,947,611

Diluted

 

 

112,230,410

 

 

111,429,926

 

 

 

 

 

 

 

Dividends declared per share

 

$

0.10

 

$

0.075

 

(See Notes to Consolidated Financial Statements)

 

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Air Lease Corporation and Subsidiaries

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

Class B Non-Voting

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

Common Stock

 

Common Stock

 

Paid-in

 

Retained

 

 

 

 

(unaudited)

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Earnings

    

Total

 

Balance at December 31, 2017

 

 —

 

$

 —

 

103,621,629

 

$

1,036

 

 —

 

$

 —

 

$

2,260,064

 

$

1,866,342

 

$

4,127,442

 

Issuance of common stock upon vesting of restricted stock units and upon exercise of options

 

 —

 

 

 —

 

514,773

 

 

 4

 

 —

 

 

 —

 

 

2,632

 

 

 

 

2,636

 

Stock-based compensation

 

 —

 

 

 —

 

 

 

 

 —

 

 

 —

 

 

3,432

 

 

 

 

3,432

 

Cash dividends (declared $0.10 per share)

 

 —

 

 

 —

 

 

 

 

 —

 

 

 —

 

 

 

 

(10,397)

 

 

(10,397)

 

Tax withholding related to vesting of restricted stock units and exercise of stock options

 

 —

 

 

 —

 

(156,568)

 

 

 

 —

 

 

 —

 

 

(7,141)

 

 

 

 

(7,141)

 

Net income

 

 —

 

 

 —

 

 

 

 

 —

 

 

 —

 

 

 

 

110,651

 

 

110,651

 

Balance at March 31, 2018

 

 —

 

$

 —

 

103,979,834

 

$

1,040

 

 —

 

$

 —

 

$

2,258,987

 

$

1,966,596

 

$

4,226,623

 

 

(See Notes to Consolidated Financial Statements)

 

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Air Lease Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

 

 

 

 

 

 

 

    

Three Months Ended

March 31,

 

 

2018

 

2017

 

 

(unaudited)

Operating Activities

    

 

 

    

 

 

Net income

 

$

110,651

 

$

84,937

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation of flight equipment

 

 

136,134

 

 

123,909

Stock-based compensation

 

 

3,432

 

 

3,773

Deferred taxes

 

 

30,668

 

 

48,941

Amortization of debt discounts and issuance costs

 

 

8,022

 

 

8,992

Amortization of prepaid lease costs

 

 

7,020

 

 

4,037

Gain on aircraft sales, trading and other activity

 

 

(765)

 

 

(7,264)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Other assets

 

 

(25,605)

 

 

(20,359)

Accrued interest and other payables

 

 

(24,913)

 

 

(30,549)

Rentals received in advance

 

 

2,023

 

 

3,247

Net cash provided by operating activities

 

 

246,667

 

 

219,664

Investing Activities

 

 

 

 

 

 

Acquisition of flight equipment under operating lease

 

 

(362,519)

 

 

(597,254)

Payments for deposits on flight equipment purchases

 

 

(63,751)

 

 

(200,549)

Proceeds from aircraft sales, trading and other activity

 

 

 

 

96,840

Acquisition of aircraft furnishings, equipment and other assets

 

 

(54,970)

 

 

(51,464)

Net cash used in investing activities

 

 

(481,240)

 

 

(752,427)

Financing Activities

 

 

 

 

 

 

Issuance of common stock upon exercise of options and warrants

 

 

2,628

 

 

864

Cash dividends paid

 

 

(10,359)

 

 

(7,714)

Tax withholdings on stock-based compensation

 

 

(7,141)

 

 

(5,252)

Net change in unsecured revolving facility

 

 

(510,000)

 

 

(60,000)

Proceeds from debt financings

 

 

1,230,765

 

 

487,955

Payments in reduction of debt financings

 

 

(537,444)

 

 

(46,598)

Debt issuance costs

 

 

(2,623)

 

 

(1,531)

Security deposits and maintenance reserve receipts

 

 

48,754

 

 

56,165

Security deposits and maintenance reserve disbursements

 

 

(16,665)

 

 

(7,840)

Net cash provided by financing activities

 

 

197,915

 

 

416,049

Net decrease in cash

 

 

(36,658)

 

 

(116,714)

Cash, cash equivalents and restricted cash at beginning of period

 

 

308,282

 

 

290,802

Cash, cash equivalents and restricted cash at end of period

 

$

271,624

 

$

174,088

Supplemental Disclosure of Cash Flow Information

 

 

 

 

 

 

Cash paid during the period for interest, including capitalized interest of $12,816 and $11,402 at March 31, 2018 and 2017, respectively

 

$

95,466

 

$

90,059

Supplemental Disclosure of Noncash Activities

 

 

 

 

 

 

Buyer furnished equipment, capitalized interest, deposits on flight equipment purchases and seller financing applied to acquisition of flight equipment and other assets applied to payments for deposits on flight equipment purchases

 

$

79,677

 

$

220,610

Cash dividends declared, not yet paid

 

$

10,397

 

$

7,736

 

(See Notes to Consolidated Financial Statements)

 

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Air Lease Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1. Company Background and Overview

 

Air Lease Corporation (the “Company”, “ALC”, “we”, “our” or “us”) is a leading aircraft leasing company that was founded by aircraft leasing industry pioneer, Steven F. Udvar-Házy. We are principally engaged in purchasing new commercial jet transport aircraft directly from aircraft manufacturers, such as The Boeing Company (“Boeing”) and Airbus S.A.S. (“Airbus”), and leasing those aircraft to airlines throughout the world with the intention to generate attractive returns on equity. In addition to our leasing activities, we sell aircraft from our operating lease portfolio to third parties, including other leasing companies, financial services companies and airlines. We also provide fleet management services to investors and owners of aircraft portfolios for a management fee. As of March 31, 2018, we owned a fleet of 253 aircraft, managed 49 aircraft and had 372 aircraft on order with aircraft manufacturers.

 

Note 2.Basis of Preparation and Critical Accounting Policies

 

The Company consolidates financial statements of all entities in which we have a controlling financial interest, including the accounts of any Variable Interest Entity in which we have a controlling financial interest and for which we are the primary beneficiary. All material intercompany balances are eliminated in consolidation. The accompanying Consolidated Financial Statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

 

The accompanying unaudited consolidated financial statements include all adjustments, including only normal, recurring adjustments, which are in the opinion of management, necessary to present fairly the Company’s financial position, results of operations and cash flows at March 31, 2018, and for all periods presented. The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the operating results expected for the year ending December 31, 2018. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2017.

 

Maintenance Rights

 

For the three months ended March 31, 2018, the Company purchased two aircraft in the secondary market subject to existing leases.  The total cost for the two aircraft was $73.3 million, which included maintenance right assets of $13.2 million.  The Company did not purchase any aircraft in the secondary market subject to existing leases for the year ended December 31, 2017.  As of March 31, 2018 and December 31, 2017, the Company had maintenance right assets, net of accumulated amortization of $56.8 million and $44.6 million, respectively. Maintenance right assets are included under flight equipment subject to operating lease in our Consolidated Balance Sheets.

 

Cash, cash equivalents and restricted cash

 

The Company considers cash and cash equivalents to be cash on hand and highly liquid investments with original maturity dates of 90 days or less.  Restricted cash consists of pledged security deposits, maintenance reserves, and rental payments related to secured aircraft financing arrangements.

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The following table reconciles cash, cash equivalents and restricted cash reported in our consolidated balance sheets to the total amount presented in our consolidated statements of cash flows (in thousands):

 

 

 

 

 

 

 

    

March 31, 2018

    

March 31, 2017

 

 

(unaudited)

Cash and cash equivalents

 

$  

252,491

 

$  

155,758

Restricted cash

 

19,133

 

18,330

Total cash, cash equivalents and restricted cash in the consolidated statements of cash flows

 

$  

271,624

 

$

174,088

 

 

 

 

 

 

Reclassifications

 

Certain reclassifications have been made in the 2017 consolidated financial statements to conform to the classifications in 2018.

 

Recently adopted accounting standards

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”), “Revenue from Contracts with Customers (Topic 606)”.  The amendments in ASU 2014-09 supersede current revenue recognition requirements. The guidance specifically notes that lease contracts are a scope exception. ASU 2014-09 requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. Further, the guidance requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

 

Effective January 1, 2018, the Company adopted ASU 2014-09 using the modified retrospective approach. Adopting this standard did not have a material impact to our consolidated financial statements and related disclosures. As the standard did not apply to lease contracts within the scope of FASB Accounting Standard Codification (“ASC”) 840 Leases, we evaluated the recognition of gains on sale of flight equipment under the scope of the new standard. Under ASU 2014-09, a performance obligation is satisfied and the related revenue recognized when control of the underlying goods or services related to the performance obligation is transferred to the customer. Our performance obligation associated with the sale of flight equipment is satisfied upon delivery of the flight equipment to a customer, which is the point in time where control of the underlying flight equipment has transferred to the buyer. At the time flight equipment is retired or sold, the cost and accumulated depreciation are removed from the related accounts and the difference, net of transaction price, is recorded as a gain or loss.  Since there was no net income impact upon adoption of the new guidance, a cumulative effect adjustment to opening retained earnings was not deemed necessary.

 

In August 2016, the FASB issued ASU No. 2016-15 (“ASU 2016-15”), “Statement of Cash Flows (Topic 230)”.  The amendments in ASU 2016-15 address eight classification issues related to the statement of cash flows.  The Company adopted ASU 2016-15 using the retrospective transition method.  The adoption of this standard did not have an impact on the current period or prior period consolidated financial statements.

 

In November 2016, FASB issued ASU No. 2016-18 (“ASU 2016-18”), “Statement of Cash Flows (Topic 230): Restricted Cash”. ASU 2016-18 requires entities to present the aggregate changes in cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. In addition, when cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, ASU 2016-18 requires a reconciliation of the totals in the statement of cash flows to the related captions on the balance sheet. The Company adopted ASU 2016-18 retrospectively as of January 1, 2018. The adoption of this standard did not have a material impact on the current period or prior period consolidated financial statements.

 

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Note 3.Recently Issued Accounting Standards

 

In February 2016, FASB issued ASU No. 2016-02 (“ASU 2016-02”), Leases (Topic 842). The amendments in ASU 2016-02 set out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. ASU 2016-02 will be effective for annual reporting periods beginning after December 15, 2018 for public entities and is required to be applied using the modified retrospective transition approach. Early adoption is permitted. Based on our initial evaluation of the guidance, we noted that Lessor accounting is similar to the current model but the guidance will impact us in scenarios where we are the Lessee. We do not expect the impact of this standard to have a material impact on our consolidated financial statements. We will adopt the standard on January 1, 2019.

 

Note 4.Debt Financing

 

The Company's debt financing was comprised of the following at March 31, 2018 and December 31, 2017 (dollars in thousands):

 

 

 

 

 

 

 

 

 

    

March 31, 2018

    

December 31, 2017

Unsecured

 

 

 

 

 

 

Senior notes

 

$

8,768,445

 

$

8,019,871

Revolving credit facility

 

 

337,000

 

 

847,000

Convertible senior notes

 

 

199,975

 

 

199,983

Term financings

 

 

195,016

 

 

203,704

Total unsecured debt financing

 

 

9,500,436

 

 

9,270,558

Secured

 

 

 

 

 

 

Term financings

 

 

458,371

 

 

484,036

Export credit financing

 

 

43,256

 

 

44,920

Total secured debt financing

 

 

501,627

 

 

528,956

 

 

 

 

 

 

 

Total debt financing

 

 

10,002,063

 

 

9,799,514

Less: Debt discounts and issuance costs

 

 

(114,564)

 

 

(100,729)

Debt financing, net of discounts and issuance costs

 

$

9,887,499

 

$

9,698,785

 

The Company’s secured obligations as of March 31, 2018 and December 31, 2017 are summarized below (dollars in thousands):

 

 

 

 

 

 

 

 

 

    

March 31, 2018

    

December 31, 2017

Nonrecourse

 

$

198,541

 

$

205,906

Recourse

 

 

303,086

 

 

323,050

Total secured debt financing

 

$

501,627

 

$

528,956

Number of aircraft pledged as collateral

 

 

21

 

 

21

Net book value of aircraft pledged as collateral

 

$

1,171,129

 

$

1,184,264

 

Senior unsecured notes

 

As of March 31, 2018, the Company had $8.8 billion in senior unsecured notes outstanding.  As of December 31, 2017, the Company had $8.0 billion in senior unsecured notes outstanding.

 

In January 2018, the Company issued (i) $550.0 million in aggregate principal amount of senior unsecured notes due 2021 that bear interest at a rate of 2.50% and (ii) $700.0 million in aggregate principal amount of senior unsecured notes due 2025 that bear interest at a rate of 3.25%.

 

Unsecured revolving credit facility

 

During the quarter ended March 31, 2018, we increased the aggregate capacity of our unsecured revolving credit facility by $300.0 million to $4.1 billion.

 

In May 2018, the Company amended and extended its unsecured revolving credit facility whereby, among other things, the Company extended the final maturity date from May 5, 2021 to May 5, 2022 and increased the total revolving

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commitments to approximately $4.5 billion from approximately $4.1 billion with an interest rate of LIBOR plus 1.05% with a 0.20% facility fee. As of May 10, 2018, lenders hold revolving commitments totaling approximately $4.0 billion that mature on May 5, 2022, commitments totaling $20.0 million that mature on May 5, 2021, commitments totaling approximately $247.7 million that mature on May 5, 2020, and commitments totaling $245.0 million that mature on May 5, 2019.

 

The total amount outstanding under our unsecured revolving credit facility was approximately $337.0 million and $847.0 million as of March 31, 2018 and December 31, 2017, respectively.

 

Maturities

 

Maturities of debt outstanding as of March 31, 2018 are as follows (in thousands):

 

 

 

 

 

 

Years ending December 31,

 

 

 

2018

    

$

838,490

 

2019

 

 

1,168,237

 

2020

 

 

1,202,623

 

2021

 

 

1,968,011

 

2022

 

 

1,226,884

 

Thereafter

 

 

3,597,818

 

Total

 

$

10,002,063

 

 

 

Note 5.Commitments and Contingencies

 

As of March 31, 2018 and through May 10, 2018, the Company had commitments to acquire a total of 372 new aircraft for delivery through 2023 as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aircraft Type

    

2018

    

2019

    

2020

    

2021

    

2022

    

Thereafter

    

Total

Airbus A321-200

 

 2

 

 —

 

 —

 

 —

 

 —

 

 —

 

 2

Airbus A320/321neo(1)

 

12

 

36

 

27

 

22

 

25

 

25

 

147

Airbus A330-900neo

 

 5

 

 5

 

 4

 

 7

 

 6

 

 2

 

29

Airbus A350-900/1000

 

 3

 

 2

 

 4

 

 5

 

 3

 

 —

 

17

Boeing 737-7/8/9 MAX

 

10

 

27

 

28

 

35

 

34

 

 —

 

134

Boeing 787-9/10

 

 7

 

12

 

 9

 

 7

 

 8

 

 —

 

43

Total

 

39

 

82

 

72

 

76

 

76

 

27

 

372


(1)

Our Airbus A320/321neo aircraft orders include 55 long-range variants.

 

Airbus has informed us to expect several month delivery delays relating to certain aircraft scheduled for delivery in 2018 and 2019.  The delays have been reflected in our commitment schedules above; however, we anticipate additional delivery delays not currently reflected in the schedules above. Our leases contain lessee cancellation clauses related to aircraft delivery delays, typically for aircraft delays greater than one year. Our purchase agreements contain similar clauses. As of May 10, 2018, none of our lease contracts were subject to cancellation.

 

Commitments for the acquisition of these aircraft and other equipment at an estimated aggregate purchase price (including adjustments for inflation) of approximately $27.0 billion at March 31, 2018 and through May 10, 2018 are as follows (in thousands):

 

 

 

 

 

Years ending December 31,

    

 

 

2018

 

$

3,502,489

2019

 

 

5,856,782

2020

 

 

5,573,672

2021

 

 

5,574,106

2022

 

 

4,966,650

Thereafter

 

 

1,478,734

Total

 

$

26,952,433

 

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We have made non-refundable deposits on the aircraft for which we have commitments to purchase of $1.6 billion as of March 31, 2018 and December 31, 2017, which are subject to manufacturer performance commitments. If we are unable to satisfy our purchase commitments, we may be forced to forfeit our deposits. Further, we would be exposed to breach of contract claims by our lessees and manufacturers.

 

As of March 31, 2018, the Company had a non-binding commitment to acquire up to five A350-1000 aircraft.  Deliveries of these aircraft are scheduled to commence in 2023 and continue through 2024.

 

 

Note 6.Net Earnings Per Share

 

Basic net earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock; however, potential common equivalent shares are excluded if the effect of including these shares would be anti-dilutive. The Company’s two classes of common stock, Class A and Class B Non-Voting, have equal rights to dividends and income, and therefore, basic and diluted earnings per share are the same for each class of common stock.  As of March 31, 2018, we did not have any Class B Non-Voting common stock outstanding.

 

Diluted net earnings per share takes into account the potential conversion of stock options, restricted stock units, and warrants using the treasury stock method and convertible notes using the if-converted method.  For the three months ended March 31, 2018, the Company did not exclude any potentially dilutive securities, whose effect would have been anti-dilutive, from the computation of diluted earnings per share.  The Company excluded 933,531 and 1,062,025 shares related to restricted stock units for which the performance metric had yet to be achieved as of March 31, 2018 and 2017, respectively.

 

The following table sets forth the reconciliation of basic and diluted net income per share (in thousands, except share and per share amounts):

 

 

 

 

 

 

 

 

 

 

Three Months Ended

March 31,

 

  

2018

 

2017

Basic net income per share:

 

 

 

    

 

 

Numerator

 

 

 

 

 

 

Net income

 

$

110,651

 

$

84,937

Denominator

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

103,747,920

 

 

102,947,611

Basic net income per share

 

$

1.07

 

$

0.83

Diluted net income per share:

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

Net income

 

$

110,651

 

$

84,937

Assumed conversion of convertible senior notes

 

 

1,739

 

 

1,424

Net income plus assumed conversions

 

$

112,390

 

$

86,361

Denominator

 

 

 

 

 

 

Number of shares used in basic computation

 

 

103,747,920

 

 

102,947,611

Weighted-average effect of dilutive securities

 

 

8,482,490

 

 

8,482,315

Number of shares used in per share computation

 

 

112,230,410

 

 

111,429,926

Diluted net income per share

 

$

1.00

 

$

0.78

 

 

Note 7.Fair Value Measurements

 

Assets and Liabilities Measured at Fair Value on a Recurring and Non-recurring Basis

 

The Company had no assets or liabilities which are measured at fair value on a recurring or non-recurring basis as of March 31, 2018 or December 31, 2017.

 

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Financial Instruments Not Measured at Fair Value

 

The fair value of debt financing is estimated based on the quoted market prices for the same or similar issues, or on the current rates offered to the Company for debt of the same remaining maturities, which would be categorized as a Level 2 measurement in the fair value hierarchy. The estimated fair value and book value of debt financing as of March 31, 2018 were both approximately $10.0 billion. The estimated fair value of debt financing as of December 31, 2017 was $10.0 billion compared to a book value of $9.8 billion.

 

The following financial instruments are not measured at fair value on the Company’s consolidated balance sheet at March 31, 2018, but require disclosure of their fair values: cash and cash equivalents and restricted cash. The estimated fair value of such instruments at March 31, 2018 and December 31, 2017 approximates their carrying value as reported on the consolidated balance sheet.  The fair value of all these instruments would be categorized as Level 1 in the fair value hierarchy.

 

Note 8.Stock-based Compensation

 

On May 7, 2014, the stockholders of the Company approved the Air Lease Corporation 2014 Equity Incentive Plan (the “2014 Plan”). Upon approval of the 2014 Plan, no new awards may be granted under the Amended and Restated 2010 Equity Incentive Plan (the “2010 Plan”). As of March 31, 2018, the number of stock options (“Stock Options”) and restricted stock units (“RSUs”) remaining under the 2014 Plan is approximately 5,649,108, which includes 649,108 shares which were previously reserved for issuance under the 2010 Plan. Stock Options are generally granted for a term of 10 years and generally vest over a three year period. The Company has issued RSUs with four different vesting criteria: those RSUs that vest based on the attainment of book value goals, those RSUs that vest based on the attainment of Total Shareholder Return (“TSR”) goals, time based RSUs that vest ratably over a time period of three years and RSUs that cliff-vest at the end of a one or two year period. The Company has two types of book value RSUs — those that vest ratably over three years if the performance condition has been met, and those that vest at the end of a three-year period if the performance condition has been met.  For the book value RSUs that vest at the end of the three-year period, the number of shares that will ultimately vest will range from 0% to 200% of the RSUs initially granted depending on the percentage change in the Company's book value per share at the end of the vesting period.  At each reporting period, the Company reassesses the probability of the performance condition being achieved and expense is recognized based upon management’s assessment. Book value RSUs for which the performance metric has not been met are forfeited. The TSR RSUs vest at the end of a three-year period. The number of TSR RSUs that will ultimately vest is based upon the percentile ranking of the Company’s TSR among a peer group. The number of shares that will ultimately vest will range from 0% to 200% of the RSUs initially granted depending on the extent to which the TSR metric is achieved.

 

The Company recorded $3.4 million and $3.8 million of stock-based compensation expense related to RSUs for the three months ended March 31, 2018 and 2017, respectively.

 

Stock Options

 

A summary of stock option activity for the three month period ended March 31, 2018 follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Remaining

    

Aggregate

 

 

 

 

 

Exercise

 

Contractual Term

 

Intrinsic Value

 

 

 

Shares

 

Price

 

(in years)

 

(in thousands)(1)

 

Balance at December 31, 2017

 

2,858,158

 

$

20.37

 

2.49

 

$

79,230

 

Granted

 

 —

 

$

 

 

$

 

Exercised

 

(131,363)

 

$

20.00

 

 

$

3,063

 

Forfeited/canceled

 

 —

 

$

 

 

$

 

Balance at March 31, 2018

 

2,726,795

 

$

20.39

 

2.25

 

$

60,624

 

Vested and exercisable as of March 31, 2018

 

2,726,795

 

$

20.39

 

2.25

 

$

60,624

 


(1)

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of our Class A common stock as of the respective date.

 

As of March 31, 2018, all of the Company’s outstanding employee stock options had fully vested and there were no unrecognized compensation costs related to outstanding stock options as of March 31, 2018.  As a result, there was no stock-based compensation expense related to Stock Options for the three months ended March 31, 2018 and 2017.

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The following table summarizes additional information regarding exercisable and vested stock options at March 31, 2018:

 

 

 

 

 

 

 

 

Stock Options Exercisable

 

 

and Vested

 

    

 

    

Weighted-

 

 

 

 

Average

 

 

Number of

 

Remaining Life

Range of exercise prices

 

Shares

 

(in years)

$20.00

 

2,606,795

 

2.21

$28.80

 

120,000

 

3.07

$20.00 - $28.80

 

2,726,795

 

2.25

 

Restricted Stock Units

 

Compensation cost for stock awards is measured at the grant date based on fair value and recognized over the vesting period.  The fair value of time based and book value RSUs is determined based on the closing market price of the Company’s Class A common stock on the date of grant, while the fair value of TSR RSUs is determined at the grant date using a Monte Carlo simulation model. Included in the Monte Carlo simulation model were certain assumptions regarding a number of highly complex and subjective variables, such as expected volatility, risk-free interest rate and expected dividends. To appropriately value the award, the risk-free interest rate is estimated for the time period from the valuation date until the vesting date and the historical volatilities were estimated based on a historical timeframe equal to the time from the valuation date until the end date of the performance period.

 

During the three months ended March 31, 2018, the Company granted 337,965 RSUs of which 84,478 are TSR RSUs. The following table summarizes the activities for our unvested RSUs for the three months ended March 31, 2018:

 

 

 

 

 

 

 

 

 

 

Unvested Restricted Stock Units

 

 

 

 

 

Weighted-Average

 

 

 

 

 

Grant-Date

 

 

    

Number of Shares

     

Fair Value

 

Unvested at December 31, 2017

 

1,163,700

 

$

40.24

 

Granted

 

337,965

 

$

47.74

 

Vested

 

(383,173)

 

$

42.68

 

Forfeited/canceled

 

(34,506)

 

$

47.95

 

Unvested at March 31, 2018

 

1,083,986

 

$

41.47

 

Expected to vest after March 31, 2018

 

1,117,788

 

$

41.60

 

 

The Company recorded $3.4 million and $3.8 million of stock-based compensation expense related to RSUs for the three months ended March 31, 2018 and 2017, respectively.

 

As of March 31, 2018, there was $30.0 million of unrecognized compensation cost related to unvested stock-based payments granted to employees. Total unrecognized compensation cost will be recognized over a weighted-average remaining period of 2.22 years.

 

Note 9.Investments

 

On November 4, 2014, a wholly owned subsidiary of the Company entered into an agreement with a co-investment vehicle arranged by Napier Park Global Capital (US) LP (‘‘Napier Park’’) to participate in a joint venture and formed Blackbird Capital I, LLC (‘‘Blackbird I’’) for the purpose of investing in commercial aircraft and leasing them to airlines around the globe. We provide management services to the joint venture for a fee based upon aircraft assets under management. The Company’s non-controlling interest in Blackbird I is 9.5% and it is accounted for as an investment under the equity method of accounting.  The Company's investment in Blackbird I was $33.0 million and $32.3 million as of March 31, 2018 and December 31, 2017, respectively, and is recorded in other assets on the Consolidated Balance Sheets.

 

On August 1, 2017, a wholly owned subsidiary of the Company entered into an agreement with a co-investment vehicle arranged by Napier Park to participate in a joint venture and formed Blackbird Capital II, LLC (‘‘Blackbird II’’)

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for the purpose of investing in commercial aircraft and leasing them to airlines around the globe. We provide management services to the joint venture for a fee based upon aircraft assets under management. The Company’s non-controlling interest in Blackbird II is 9.5% and it is accounted for as an investment under the equity method of accounting. The Company's investment in Blackbird II was $3.3 million as of March 31, 2018 and December 31, 2017 and is recorded in other assets on the Consolidated Balance Sheets. As of March 31, 2018, the Company's total unfunded commitment to Blackbird II was $19.0 million.

 

Note 10.Subsequent Events

 

On May 9, 2018, our board of directors approved a quarterly cash dividend of $0.10 per share on our outstanding common stock. The dividend will be paid on July 10, 2018 to holders of record of our common stock as of June 5, 2018.

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

 

Overview

 

Air Lease Corporation is a leading aircraft leasing company that was founded by aircraft leasing industry pioneer, Steven F. Udvar-Házy. We are principally engaged in purchasing new commercial jet transport aircraft directly from aircraft manufacturers, such as Boeing and Airbus, and leasing those aircraft to airlines throughout the world with the intention to generate attractive returns on equity. In addition to our leasing activities, we sell aircraft from our operating lease portfolio to third-parties, including other leasing companies, financial services companies and airlines. We also provide fleet management services to investors and owners of aircraft portfolios for a management fee. Our operating performance is driven by the growth of our fleet, the terms of our leases, the interest rates on our debt, and the aggregate amount of our indebtedness, supplemented by the gains from our aircraft sales and trading activities and our management fees.

 

During the three months ended March 31, 2018, we purchased and took delivery of four aircraft from our new order pipeline and purchased five incremental aircraft, ending the period with a total of 253 aircraft with a net book value of $13.6 billion. The weighted average lease term remaining on our operating lease portfolio was 6.7 years and the weighted average age of our fleet was 3.9 years as of March 31, 2018. Our fleet grew by 2.3% based on net book value of $13.6 billion as of March 31, 2018 compared to $13.3 billion as of December 31, 2017. In addition, we had a managed fleet of 49 aircraft as of March 31, 2018, compared to a managed fleet of 50 aircraft as of December 31, 2017. We have a globally diversified customer base comprised of 93 airlines in 56 countries. As of March 31, 2018, all of our aircraft in our operating lease portfolio were subject to lease agreements.

 

During the first quarter of 2018, we increased our total commitment with Boeing by eight aircraft.  As of March 31, 2018, we had commitments to purchase 372 aircraft from Airbus and Boeing for delivery through 2023, with an estimated aggregate commitment of $27.0 billion.  We ended the first quarter of 2018 with $23.5 billion in committed minimum future rental payments and placed 81% of our order book on long-term leases for aircraft delivering through 2020. This includes $10.2 billion in contracted minimum rental payments on the aircraft in our existing fleet and $13.3 billion in minimum future rental payments related to aircraft which will be delivered during the remainder of 2018 through 2022.

 

In January 2018, we issued (i) $550.0 million in aggregate principal amount of senior unsecured notes due 2021 that bear interest at a rate of 2.50% and (ii) $700.0 million in aggregate principal amount of senior unsecured notes due 2025 that bear interest at a rate of 3.25%. In May 2018, we amended and extended our unsecured revolving credit facility whereby, among other things, we increased the total revolving commitments to approximately $4.5 billion and extended the final maturity date to May 5, 2022.  Borrowings under our unsecured revolving credit facility will bear interest at LIBOR plus a margin of 1.05% per year.  We ended the first quarter of 2018 with total debt outstanding, net of discounts and issuance costs, of $9.9 billion, of which 91.1% was at a fixed rate and 95.0% of which was unsecured. Our composite cost of funds increased to 3.28% as of March 31, 2018 from 3.20% as of December 31, 2017.

 

Our total revenues for the quarter ended March 31, 2018 increased by 5.8% to $381.2 million, compared to the quarter ended March 31, 2017.  The increase in our revenues is primarily due to the increase in the book value of our operating lease portfolio. Our net income for the quarter ended March 31, 2018 was $110.7 million compared to $84.9 million for the quarter ended March 31, 2017. Our diluted earnings per share for the quarter ended March 31, 2018 was $1.00 compared to $0.78 for the quarter ended March 31, 2017. The increase in net income in the first quarter of 2018 as compared to 2017 was primarily due to an increase in our rental revenue resulting from an increase in the net book value of our operating lease portfolio and lower income tax expense as a result of the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”), which, among other things, lowered the corporate tax rate from 35% to 21% effective January 1, 2018.

 

Our adjusted net income before income taxes excludes the effects of certain non-cash items, one-time or non-recurring items, that are not expected to continue in the future and certain other items.  Our adjusted net income before income taxes for the three months ended March 31, 2018 was $152.8 million or $1.38 per diluted share, compared to

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$146.6 million or $1.33 per diluted share for the three months ended March 31, 2017. Our adjusted margin before income taxes for the three months ended March 31, 2018 was 40.1% compared to 40.7% for the three months ended March 31, 2017. Adjusted net income before income taxes, adjusted margin before income taxes and adjusted diluted earnings per share before income taxes are measures of financial and operational performance that are not defined by GAAP. See Note 1 under the “Results of Operations” table for a discussion of adjusted net income before income taxes, adjusted margin before income taxes and adjusted diluted earnings per share before income taxes as non-GAAP measures and reconciliation of these measures to net income.

 

Our Fleet

 

Portfolio metrics of our fleet as of March 31, 2018 and December 31, 2017 are as follows:

 

 

 

 

 

 

 

 

 

 

    

March 31, 2018

    

December 31, 2017

 

 

 

 

 

 

 

 

 

Aggregate fleet net book value

 

$

13.6

billion  

$

13.3

billion  

Weighted-average fleet age(1)

 

 

3.9

years  

 

3.8

years  

Weighted-average remaining lease term(1) 

 

 

6.7

years  

 

6.8

years  

 

 

 

 

 

 

 

 

Owned fleet

 

 

253

 

 

244

 

Managed fleet

 

 

49

 

 

50

 

Order book

 

 

372

 

 

368

 

Total

 

 

674

 

 

662

 

 

 

 

 

 

 

 

 

Current fleet contracted rentals

 

$

10.2

billion  

$

10.1

billion  

Committed fleet rentals

 

$

13.3

billion  

$

13.3

billion  

Total committed rentals

 

$

23.5

billion  

$

23.4

billion  


(1)

Weighted-average fleet age and remaining lease term calculated based on net book value.

 

The following table sets forth the net book value and percentage of the net book value of our flight equipment subject to operating lease in the indicated regions based on each airline's principal place of business as of March 31, 2018 and December 31, 2017 (in thousands, except percentages):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2018

 

December 31, 2017

 

 

 

Net Book

 

 

 

Net Book

 

 

 

Region

 

Value

 

% of Total

    

Value

 

% of Total

 

Europe

 

$

4,252,841

 

31.3

%  

$

4,205,431

 

31.7

%

Asia (excluding China)

 

 

3,176,475

 

23.4

%  

 

2,981,339

 

22.4

%

China

 

 

2,693,517

 

19.8

%  

 

2,720,124

 

20.5

%

The Middle East and Africa

 

 

1,593,852

 

11.7

%  

 

1,481,825

 

11.2

%

Central America, South America and Mexico

 

 

916,940

 

6.7

%  

 

926,732

 

7.0

%

U.S. and Canada

 

 

593,421

 

4.4

%  

 

599,367

 

4.5

%

Pacific, Australia and New Zealand

 

 

361,898

 

2.7

%  

 

365,432

 

2.7

%

Total

 

$

13,588,944

 

100.0

%  

$

13,280,250

 

100.0

%

 

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The following table sets forth the number of aircraft we leased by aircraft type as of March 31, 2018 and December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2018

 

December 31, 2017

 

 

 

Number of

 

 

 

Number of

 

 

 

Aircraft type

    

Aircraft

    

% of Total

    

Aircraft

    

% of Total

 

Airbus A319-100

    

 1

    

0.4

%  

 1

    

0.4

%

Airbus A320-200

 

42

 

16.6

%  

40

 

16.4

%

Airbus A320-200neo

 

 5

 

2.0

%  

 5

 

2.1

%

Airbus A321-200

 

29

 

11.4

%  

29

 

11.9

%

Airbus A321-200neo

 

 6

 

2.4

%

 5

 

2.1

%

Airbus A330-200

 

15

 

5.9

%  

15

 

6.2

%

Airbus A330-300

 

 5

 

2.0

%  

 5

 

2.0

%

Airbus A350-900

 

 3

 

1.2

%  

 2

 

0.9

%  

Boeing 737-700

 

 5

 

2.0

%  

 3

 

1.2

%

Boeing 737-800

 

103

 

40.7

%  

102

 

41.8

%

Boeing 737-8 MAX

 

 4

 

1.6

%  

 2

 

0.8

%

Boeing 767-300ER

 

 1

 

0.4

%  

 1

 

0.4

%

Boeing 777-200ER

 

 1

 

0.4

%  

 1

 

0.4

%

Boeing 777-300ER

 

24

 

9.5

%  

24

 

9.8

%

Boeing 787-9

 

 8

 

3.1

%  

 8

 

3.3

%

Embraer E190

 

 1

 

0.4

%  

 1

 

0.3

%

Total

 

253

 

100.0

%  

244

 

100.0

%

 

As of March 31, 2018 and through May 10, 2018, we had commitments to acquire a total of 372 new aircraft for delivery as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aircraft Type

    

2018

    

2019

    

2020

    

2021

    

2022

    

Thereafter

    

Total

Airbus A321-200

 

 2

 

 —

 

 —

 

 —

 

 —

 

 —

 

 2

Airbus A320/321neo(1)

 

12

 

36

 

27

 

22

 

25

 

25

 

147

Airbus A330-900neo

 

 5

 

 5

 

 4

 

 7

 

 6

 

 2

 

29

Airbus A350-900/1000

 

 3

 

 2

 

 4

 

 5

 

 3

 

 —

 

17

Boeing 737-7/8/9 MAX

 

10

 

27

 

28

 

35

 

34

 

 —

 

134

Boeing 787-9/10

 

 7

 

12

 

 9

 

 7

 

 8

 

 —

 

43

Total

 

39

 

82

 

72

 

76

 

76

 

27

 

372


(1)

Our Airbus A320/321neo aircraft orders include 55 long-range variants.

 

Airbus has informed us to expect several month delivery delays relating to certain aircraft scheduled for delivery in 2018 and 2019.  The delays have been reflected in our commitment schedules above; however, we anticipate additional delivery delays not currently reflected in the schedules above. Our leases contain lessee cancellation clauses related to aircraft delivery delays, typically for aircraft delays greater than one year. Our purchase agreements contain similar clauses. As of May 10, 2018, none of our lease contracts were subject to cancellation.

 

As of March 31, 2018, we had a non-binding commitment to acquire up to five A350-1000 aircraft.  Deliveries of these aircraft are scheduled to commence in 2023 and continue through 2024.

 

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Our lease placements are progressing in line with expectations. As of March 31, 2018 and through May 10, 2018, we have entered into contracts for the lease of new aircraft scheduled to be delivered as follows:

 

 

 

 

 

 

 

 

 

 

    

Number of

 

Number

 

 

 

Delivery Year

 

Aircraft

 

Leased

 

% Leased

 

2018

 

39

 

39

 

100.0

%

2019

 

82

 

82

 

100.0

%

2020

 

72

 

35

 

48.6

%

2021

 

76

 

 6

 

7.9

%

2022

 

76

 

 2

 

2.6

%

Thereafter

 

27

 

 —

 

 —

%

Total

 

372

 

164

 

 

 

 

Aircraft industry and sources of revenues

 

Our revenues are principally derived from operating leases with scheduled and charter airlines. In each of the last four calendar years, we derived more than 95% of our revenues from airlines domiciled outside of the U.S., and we anticipate that most of our revenues in the future will be generated from foreign customers.

 

Demand for air travel has consistently grown in terms of both passenger traffic and number of aircraft in service. The International Air Transport Association (“IATA”) reported passenger traffic up 7.6% year over year in 2017, exceeding the 10-year average annual growth rate. For the first quarter of 2018, global revenue passenger kilometers grew 7.2% year-on-year. The number of aircraft in service has grown steadily and the number of leased aircraft in the global fleet has increased. The long term outlook for aircraft demand remains robust due to increased passenger traffic and the need to replace aging aircraft.

 

The success of the commercial airline industry is linked to the strength of global economic development, which may be negatively impacted by macroeconomic conditions and geopolitical and policy risks. Nevertheless, across a variety of global economic conditions, the leasing industry has remained resilient over time. We remain optimistic about the long‑term growth prospects for air transportation. We see a growing demand for aircraft leasing in the broader industry and a role for us in helping airlines modernize their fleets to support the growth of the airline industry. However, with the growth in aircraft leasing worldwide, we are witnessing an increase in competition among aircraft lessors resulting in more variation in lease rates.

 

Liquidity and Capital Resources

 

Overview

 

We finance the purchase of aircraft and our business with available cash balances, internally generated funds, including aircraft sales and trading activity, and debt financings. We have structured ourselves with the goal to maintain investment-grade credit metrics and our debt financing strategy has focused on funding our business on an unsecured basis. Unsecured financing provides us with operational flexibility when selling or transitioning aircraft from one airline to another. In addition, we may, to a limited extent, utilize export credit financing in support of our new aircraft deliveries.

 

We ended the first quarter of 2018 with total debt outstanding, net of discounts and issuance costs, of $9.9 billion compared to $9.7 billion as of December 31, 2017. Our unsecured debt increased to $9.5 billion as of March 31, 2018 from $9.3 billion as of December 31, 2017. Our unsecured debt as a percentage of total debt increased slightly to 95.0% as of March 31, 2018 from 94.6% as of December 31, 2017.

 

We increased our cash flows from operations by 12.3% or $27.0 million, to $246.7 million for the three months ended March 31, 2018 as compared to $219.7 million for the three months ended March 31, 2017.  Our cash flow used in investing activities was $481.2 million for the three months ended March 31, 2018, which resulted primarily from the purchase of aircraft. Our cash flow provided by financing activities was $197.9 million for the three months ended March 31, 2018, which resulted primarily from the issuance of unsecured notes during the first half of 2018, partially offset by the repayment of outstanding debt.  

 

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We ended the first quarter of 2018 with available liquidity of $4.0 billion which is comprised of unrestricted cash of $252.5 million and undrawn balances under our unsecured revolving credit facility of $3.7 billion. We believe that we have sufficient liquidity to satisfy the operating requirements of our business through the next twelve months.

 

Our financing plan for the remainder of 2018 is focused on funding the purchase of aircraft and our business with available cash balances, internally generated funds, including aircraft sales and trading activities, and debt financings. Our debt financing plan will remain focused on continuing to raise unsecured debt in the global bank and investment grade capital markets. In addition, we may utilize, to a limited extent, export credit financing in support of our new aircraft deliveries.

 

We are in compliance in all material respects with all covenants or other requirements in our debt agreements. While a ratings downgrade would not result in a default under any of our debt agreements, it could adversely affect our ability to issue debt and obtain new financings, or renew existing financings, and it would increase the cost of certain financings. Our liquidity plans are subject to a number of risks and uncertainties, including those described in our Annual Report on Form 10-K for the year ended December 31, 2017.

 

Debt

 

Our debt financing was comprised of the following at March 31, 2018 and December 31, 2017 (in thousands, except percentages):

 

 

 

 

 

 

 

 

 

 

    

March 31, 2018

    

December 31, 2017

 

Unsecured

 

 

 

 

 

 

 

Senior notes

 

$

8,768,445

 

$

8,019,871

 

Revolving credit facility

 

 

337,000

 

 

847,000

 

Convertible senior notes

 

 

199,975

 

 

199,983

 

Term financings

 

 

195,016

 

 

203,704

 

Total unsecured debt financing

 

 

9,500,436

 

 

9,270,558

 

Secured

 

 

 

 

 

 

 

Term financings

 

 

458,371

 

 

484,036

 

Export credit financing

 

 

43,256

 

 

44,920

 

Total secured debt financing

 

 

501,627

 

 

528,956

 

 

 

 

 

 

 

 

 

Total debt financing

 

 

10,002,063

 

 

9,799,514

 

Less: Debt discounts and issuance costs

 

 

(114,564)

 

 

(100,729)

 

Debt financing, net of discounts and issuance costs

 

$

9,887,499

 

$

9,698,785

 

Selected interest rates and ratios:

 

 

 

 

 

 

 

Composite interest rate(1)

 

 

3.28

%  

 

3.20

%

Composite interest rate on fixed-rate debt(1)

 

 

3.29

%  

 

3.27

%

Percentage of total debt at fixed-rate

 

 

91.07

%  

 

85.42

%


(1)

This rate does not include the effect of upfront fees, undrawn fees or amortization of debt discounts and issuance costs.

 

Senior unsecured notes

 

As of March 31, 2018, we had $8.8 billion in senior unsecured notes outstanding.  As of December 31, 2017, we had $8.0 billion in senior unsecured notes outstanding.

 

In January 2018, we issued (i) $550.0 million in aggregate principal amount of senior unsecured notes due 2021 that bear interest at a rate of 2.50% and (ii) $700.0 million in aggregate principal amount of senior unsecured notes due 2025 that bear interest at a rate of 3.25%.

 

Unsecured revolving credit facility

 

During the quarter ended March 31, 2018, we increased the aggregate capacity of our unsecured revolving credit facility by $300.0 million to $4.1 billion.

 

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In May 2018, we amended and extended our unsecured revolving credit facility whereby, among other things, we extended the final maturity date from May 5, 2021 to May 5, 2022 and increased the total revolving commitments to approximately $4.5 billion from approximately $4.1 billion with an interest rate of LIBOR plus 1.05% with a 0.20% facility fee. As of May 10, 2018, lenders hold revolving commitments totaling approximately $4.0 billion that mature on May 5, 2022, commitments totaling $20.0 million that mature on May 5, 2021, commitments totaling approximately $247.7 million that mature on May 5, 2020, and commitments totaling $245.0 million that mature on May 5, 2019.

 

The total amount outstanding under our unsecured revolving credit facility was approximately $337.0 million and $847.0 million as of March 31, 2018 and December 31, 2017, respectively.

 

Credit ratings

 

Our investment-grade credit ratings help us to lower our cost of funds and broaden our access to attractively priced capital.

 

The following table summarizes our current credit ratings:

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

 

    

 

 

Rating Agency

 

Long-term Debt

 

Corporate Rating

 

Outlook

 

Date of Last Ratings Action

 

Kroll Bond Ratings

 

A−

 

A−

 

Stable

 

December 15, 2017 

 

Standard and Poor's

 

BBB

 

BBB

 

Stable

 

November 12, 2017

 

Fitch Ratings

 

BBB

 

BBB

 

Stable

 

July 24, 2017 

 

 

While a ratings downgrade would not result in a default under any of our debt agreements, it could adversely affect our ability to issue debt and obtain new financings, or renew existing financings, and it would increase the cost of our financings.

 

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Results of Operations

 

The following table presents our historical operating results for the three month periods ended March 31, 2018 and 2017 (in thousands, except share and per share amounts and percentages):

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended March 31,

    

 

 

 

2018

 

2017

 

 

 

 

(unaudited)

Revenues

 

 

 

 

 

 

 

 

Rental of flight equipment

 

 

$

377,862

 

$

354,653

 

Aircraft sales, trading and other

 

 

 

3,347

 

 

5,534

 

Total revenues

 

 

 

381,209

 

 

360,187

 

Expenses

 

 

 

 

 

 

 

 

Interest

 

 

 

68,943

 

 

67,063

 

Amortization of debt discounts and issuance costs

 

 

 

8,022

 

 

8,992

 

Interest expense

 

 

 

76,965

 

 

76,055

 

Depreciation of flight equipment

 

 

 

136,134

 

 

123,909

 

Selling, general and administrative

 

 

 

23,359

 

 

22,572

 

Stock-based compensation

 

 

 

3,432

 

 

3,773

 

Total expenses

 

 

 

239,890

 

 

226,309

 

Income before taxes

 

 

 

141,319

 

 

133,878

 

Income tax expense

 

 

 

(30,668)

 

 

(48,941)

 

Net income

 

 

$

110,651

 

$

84,937

 

 

 

 

 

 

 

 

 

 

Net income per share of Class A and B common stock

 

 

 

 

 

 

 

 

Basic

 

 

$

1.07

 

$

0.83

 

Diluted

 

 

$

1.00

 

$

0.78

 

 

 

 

 

 

 

 

 

 

Other financial data

 

 

 

 

 

 

 

 

Pre-tax profit margin

 

 

 

37.1

%  

 

37.2

%

Adjusted net income before income taxes(1)

 

 

$

152,773

 

$

146,643

 

Adjusted margin before income taxes(1)

 

 

 

40.1

%  

 

40.7

%

Adjusted diluted earnings per share before income taxes(1)

 

 

$

1.38

 

$

1.33

 


(1)

Adjusted net income before income taxes (defined as net income excluding the effects of certain non-cash items, one-time or non-recurring items that are not expected to continue in the future and certain other items), adjusted margin before income taxes (defined as adjusted net income before income taxes divided by total revenues) and adjusted diluted earnings per share before income taxes (defined as adjusted net income before income taxes divided by the weighted average diluted common shares outstanding) are measures of operating performance that are not defined by GAAP and should not be considered as an alternative to net income, pre-tax profit margin, earnings per share, and diluted earnings per share, or any other performance measures derived in accordance with GAAP. Adjusted net income before income taxes, adjusted margin before income taxes and adjusted diluted earnings per share before income taxes, are presented as supplemental disclosure because management believes they provide useful information on our earnings from ongoing operations.

 

Management and our board of directors use adjusted net income before income taxes, adjusted margin before income taxes and adjusted diluted earnings per share before income taxes to assess our consolidated financial and operating performance.  Management believes these measures are helpful in evaluating the operating performance of our ongoing operations and identifying trends in our performance, because they remove the effects of certain non-cash items, one-time or non-recurring items that are not expected to continue in the future and certain other items from our operating results.  Adjusted net income before income taxes, adjusted margin before income taxes and adjusted diluted earnings per share before income taxes, however, should not be considered in isolation or as a substitute for analysis of our operating results or cash flows as reported under GAAP. Adjusted net income before income taxes, adjusted margin before income taxes and adjusted diluted earnings per share before income taxes do not reflect our cash expenditures or changes in our cash requirements for our working capital needs.  In addition, our calculation of adjusted net income before income taxes, adjusted margin before income taxes and adjusted diluted earnings per share before income taxes may differ from the adjusted net income before income taxes, adjusted

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margin before income taxes and adjusted diluted earnings per share before income taxes or analogous calculations of other companies in our industry, limiting their usefulness as a comparative measure.

 

The following tables show the reconciliation of net income to adjusted net income before income taxes and adjusted margin before income taxes (in thousands, except percentages):

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

    

2018

    

2017

 

 

Reconciliation of net income to adjusted net income before income taxes:

 

(unaudited)

 

 

Net income

 

$

110,651

 

$

84,937

 

 

Amortization of debt discounts and issuance costs

 

 

8,022

 

 

8,992

 

 

Stock-based compensation

 

 

3,432

 

 

3,773

 

 

Provision for income taxes

 

 

30,668

 

 

48,941

 

 

Adjusted net income before income taxes

 

$

152,773

 

$

146,643

 

 

Adjusted margin before income taxes(1)

 

 

40.1

%

 

40.7

%

 


(1)

Adjusted margin before income taxes is adjusted net income before income taxes divided by total revenues.

 

The following table shows the reconciliation of net income to adjusted diluted earnings per share before income taxes (in thousands, except share and per share amounts):

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

March 31,

 

 

    

2018

    

2017

 

Reconciliation of net income to adjusted diluted earnings per share before income taxes:

 

(unaudited)

 

Net income

 

$

110,651

 

$

84,937

 

Amortization of debt discounts and issuance costs

 

 

8,022

 

 

8,992

 

Stock-based compensation

 

 

3,432

 

 

3,773

 

Provision for income taxes

 

 

30,668

 

 

48,941

 

Adjusted net income before income taxes

 

$

152,773

 

$

146,643

 

Assumed conversion of convertible senior notes

 

 

1,739

 

 

1,424

 

Adjusted net income before income taxes plus assumed conversions

 

$

154,512

 

$

148,067

 

Weighted-average diluted shares outstanding

 

 

112,230,410

 

 

111,429,926

 

Adjusted diluted earnings per share before income taxes

 

$

1.38

 

$

1.33

 

 

Three months ended March 31, 2018, compared to the three months ended March 31, 2017

 

Rental revenue

 

As of March 31, 2018, we owned 253 aircraft with a net book value of $13.6 billion and recorded $377.9 million in rental revenue for the quarter then ended, which included $0.8 million in amortization expense related to initial direct costs, which is net of overhaul revenue. In the prior year, as of March 31, 2017, we owned 243 aircraft with a net book value of $12.6 billion and recorded $354.7 million in rental revenue for the quarter ended March 31, 2017, which included overhaul revenue, net of amortization of initial direct costs, of $4.9 million.  The increase in rental revenue was primarily due to the increase in net book value of our operating lease portfolio to $13.6 billion as of March 31, 2018 from $12.6 billion as of March 31, 2017.

 

Aircraft sales, trading and other revenue

 

Aircraft sales, trading and other revenue totaled $3.3 million for the three months ended March 31, 2018 compared to $5.5 million for the three months ended March 31, 2017.  During the quarter ended March 31, 2018, we did not sell any aircraft from our operating lease portfolio. During the quarter ended March 31, 2017, we sold five aircraft from our operating lease portfolio.

 

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Interest expense

 

Interest expense totaled $77.0 million for the three months ended March 31, 2018 compared to $76.1 million for the three months ended March 31, 2017. The increase was primarily due to an increase in our aggregate debt balance offset by a decrease in our composite cost of funds. We expect that our interest expense will increase as our average debt balance outstanding continues to increase.  Interest expense will also be impacted by changes in our composite cost of funds.

 

Depreciation expense

 

We recorded $136.1 million in depreciation expense of flight equipment for the three months ended March 31, 2018 compared to $123.9 million for the three months ended March 31, 2017. The increase in depreciation expense for the three months ended March 31, 2018, compared to the three months ended March 31, 2017, is primarily attributable to the acquisition of additional aircraft during the last twelve months.

 

Selling, general and administrative expenses

 

We recorded selling, general and administrative expenses of $23.4 million for the three months ended March 31, 2018 compared to $22.6 million for the three months ended March 31, 2017. Selling, general and administrative expense as a percentage of total revenue decreased to 6.1% for the three months ended March 31, 2018 compared to 6.3% for the three months ended March 31, 2017. As we continue to add new aircraft to our portfolio, we expect over the long-term, selling, general and administrative expense to decrease as a percentage of our revenue.

 

 

Taxes

 

The effective tax rate was 21.7% and 36.6% for the three months ended March 31, 2018 and 2017, respectively. The change in effective tax rate is primarily due to the impact of the Tax Reform Act. The Tax Reform Act significantly revised the U.S. corporate income tax law by, among other things, lowering the U.S. corporate tax rate from 35% to 21%, effective January 1, 2018.

 

Net income

 

For the three months ended March 31, 2018, we reported consolidated net income of $110.7 million, or $1.00 per diluted share, compared to a consolidated net income of $84.9 million, or $0.78 per diluted share, for the three months ended March 31, 2017.  Net income increased in the first quarter of 2018 as compared to 2017, primarily due to an increase in our rental revenue resulting from an increase in the net book value of our fleet of aircraft subject to operating lease and the reduction of our tax expense resulting from the impact of the Tax Reform Act.

 

Adjusted net income before income taxes

 

For the three months ended March 31, 2018, we recorded adjusted net income before income taxes of $152.8 million, or $1.38 per diluted share, compared to an adjusted net income before income taxes of $146.6 million, or $1.33 per diluted share, for the three months ended March 31, 2017. The increase in adjusted net income before income taxes for the first quarter of 2018 compared to the first quarter of 2017 was primarily due to an increase in our rental revenue resulting from an increase in the net book value of our fleet of aircraft subject to operating lease.

 

Adjusted net income before income taxes and adjusted diluted earnings per share before income taxes are measures of financial and operational performance that are not defined by GAAP.  See Note 1 under the “Results of Operations” table above for a discussion of adjusted net income before income taxes and adjusted diluted earnings per share before income taxes as non-GAAP measures and reconciliation of these measures to net income.

 

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Contractual Obligations

 

Our contractual obligations as of March 31, 2018, are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2018

    

2019

    

2020

    

2021

    

2022

    

Thereafter

    

Total

 

Long-term debt obligations

 

$

838,490

 

$

1,168,237

 

$

1,202,623

 

$

1,968,011

 

$

1,226,884

 

$

3,597,818

 

$

10,002,063

 

Interest payments on debt outstanding(1)

 

 

226,664

 

 

288,850

 

 

250,604

 

 

190,191

 

 

148,461

 

 

804,484

 

 

1,909,254

 

Purchase commitments

 

 

3,502,489

 

 

5,856,782

 

 

5,573,672

 

 

5,574,106

 

 

4,966,650

 

 

1,478,734

 

 

26,952,433

 

Operating leases

 

 

2,280

 

 

3,232

 

 

3,111

 

 

2,946

 

 

3,034

 

 

3,770

 

 

18,373

 

Total

 

$

4,569,923

 

$

7,317,101

 

$

7,030,010

 

$

7,735,254

 

$

6,345,029

 

$

5,884,806

 

$

38,882,123

 


(1)

Future interest payments on floating rate debt are estimated using floating rates in effect at March 31, 2018.

 

Off-Balance Sheet Arrangements

 

We have not established any unconsolidated entities for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. We have, however, from time to time established subsidiaries and created partnership arrangements or trusts for the purpose of leasing aircraft or facilitating borrowing arrangements, all of which are consolidated. We have investments in two joint ventures in which we own 9.5% of the equity of each joint venture. We account for our investment in these joint ventures using the equity method of accounting due to our level of influence and involvement in the joint ventures.

 

Critical Accounting Policies

 

Our critical accounting policies reflecting management’s estimates and judgments are described in our Annual Report on Form 10-K for the year ended December 31, 2017. We have reviewed recently adopted accounting pronouncements and determined that the adoption of such pronouncements is not expected to have a material impact, if any, on our consolidated financial statements.  Accordingly, there have been no material changes to critical accounting policies in the three months ended March 31, 2018.

 

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ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Market risk represents the risk of changes in value of a financial instrument, caused by fluctuations in interest rates and foreign exchange rates. Changes in these factors could cause fluctuations in our results of operations and cash flows. We are exposed to the market risks described below.

 

Interest Rate Risk

 

The nature of our business exposes us to market risk arising from changes in interest rates. Changes, both increases and decreases, in our cost of borrowing, as reflected in our composite interest rate, directly impact our net income. Our lease rental stream is generally fixed over the life of our leases, whereas we have used floating-rate debt to finance a significant portion of our aircraft acquisitions.  As of March 31, 2018 and December 31, 2017, we had $0.9 billion and $1.4 billion in floating-rate debt outstanding, respectively. If interest rates increase, we would be obligated to make higher interest payments to our lenders. If we incur significant fixed-rate debt in the future, increased interest rates prevailing in the market at the time of the incurrence of such debt would also increase our interest expense. If our composite rate were to increase by 1.0%, we would expect to incur additional interest expense on our existing indebtedness of approximately $8.9 million and $14.3 million as of March 31, 2018 and December 31, 2017, respectively, each on an annualized basis, which would put downward pressure on our operating margins. Further, as of March 31, 2018, 91.1% of our total debt incurred interest at a fixed rate.

 

We also have interest rate risk on our forward lease placements. This is caused by us setting a fixed lease rate in advance of the delivery date of an aircraft. The delivery date is when a majority of the financing for an aircraft is arranged. We partially mitigate the risk of an increasing interest rate environment between the lease signing date and the delivery date of the aircraft by having interest rate adjusters in a majority of our forward lease contracts which would adjust the final lease rate upward if certain benchmark interest rates are higher at the time of delivery of the aircraft than at the lease signing date.

 

 

Foreign Exchange Rate Risk

 

We attempt to minimize currency and exchange risks by entering into aircraft purchase agreements and a majority of lease agreements and debt agreements with U.S. dollars as the designated payment currency. Thus, most of our revenue and expenses are denominated in U.S. dollars.  As of March 31, 2018 and December 31, 2017, approximately 1.0% of our lease revenues were denominated in Euros. As our principal currency is the U.S. dollar, fluctuations in the U.S. dollar as compared to other major currencies should not have a significant impact on our future operating results.

 

ITEM 4.   CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”), and such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer (collectively, the “Certifying Officers”), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives as the Company’s controls are designed to do, and management necessarily was required to apply its judgment in evaluating the risk related to controls and procedures.

 

We have evaluated, under the supervision and with the participation of management, including the Certifying Officers, the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, as of March 31, 2018. Based on that evaluation, our Certifying Officers have concluded that our disclosure controls and procedures were effective at March 31, 2018.

 

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Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2018 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Effective January 1, 2018, we implemented ASU 2014-09 and given its limited impact, we made certain revisions to existing controls to conform to the new five-step model provided in the revenue standard, including enhanced contract review requirements and other ongoing monitoring activities. These controls were designed to provide assurance at a reasonable level of the fair presentation of our consolidated financial statements and related disclosures.

 

 

PART II—OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we may be involved in litigation and claims incidental to the conduct of our business in the ordinary course. Our industry is also subject to scrutiny by government regulators, which could result in enforcement proceedings or litigation related to regulatory compliance matters. We are not presently a party to any enforcement proceedings or litigation related to regulatory compliance matters or material legal proceedings. We maintain insurance policies in amounts and with the coverage and deductibles we believe are adequate, based on the nature and risks of our business, historical experience and industry standards.

 

ITEM 1A. RISK FACTORS

 

There have been no material changes in our risk factors from those discussed under “Part I—Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2017.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On March 8, 2018, a holder of our 3.875% convertible senior notes due 2018 (“Convertible Notes”) converted $8,000 in principal amount of our Convertible Notes and received 271 shares of Class A Common Stock at a per share conversion price of $29.42. The shares were issued in reliance on an exemption from registration under Section 3(a)(9) of the Securities Act of 1933.

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None

 

ITEM 5. OTHER INFORMATION

 

None

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ITEM 6.  EXHIBITS

 

 

 

3.1

Restated Certificate of Incorporation of Air Lease Corporation (incorporated by reference to Exhibit 3.1 to Air Lease Corporation's Registration Statement on Form S-1 filed on January 14, 2011 (File No. 333-171734)).

 

 

3.2

Fourth Amended and Restated Bylaws of Air Lease Corporation (incorporated by reference to Exhibit 3.1 to Air Lease Corporation's Current Report on Form 8-K filed on March 27, 2018 (File No. 001-35121)).

 

 

4.1

Sixteenth Supplemental Indenture, dated as of January 16, 2018, by and between Air Lease Corporation and Deutsche Bank Trust Company Americas, as trustee, relating to 2.500% Senior Notes due 2021 (incorporated by reference to Exhibit 4.2 to Air Lease Corporation's Current Report on 8-K filed on January 16, 2018 (File No. 001-35121)).

 

 

4.2

Seventeenth Supplemental Indenture, dated as of January 16, 2018, by and between Air Lease Corporation and Deutsche Bank Trust Company Americas, as trustee, relating to 3.250% Senior Notes due 2025 (incorporated by reference to Exhibit 4.3 to Air Lease Corporation's Current Report on Form 8-K filed on January 16, 2018 (File No. 001-35121)).

 

 

10.1

Form of Grant Notice (Time-Based Vesting) and Form of Restricted Stock Units Award  (Time-Based Vesting) Agreement for Messrs. John L. Plueger and Steven F. Udvar-Házy under the Air Lease Corporation 2014 Equity Incentive Plan, for awards granted beginning February 20, 2018.

 

 

10.2

Form of Grant Notice and Form of Book Value and Total Stockholder Return Restricted Stock Units Award Agreements for officers (Executive Vice President and below) and other employees under the Air Lease Corporation 2014 Equity Incentive Plan, for awards granted beginning February 20, 2018.

 

 

10.3

Form of Grant Notice and Form of Book Value and Total Stockholder Return Restricted Stock Units Award Agreements for Messrs. John L. Plueger and Steven F. Udvar-Házy under the Air Lease Corporation 2014 Equity Incentive Plan, for awards granted beginning February 20, 2018.

 

 

10.4

Form of Grant Notice (Time-Based Vesting) and Form of Restricted Stock Units Award (Time-Based Vesting) Agreement for officers (Executive Vice President and below) and other employees under the Air Lease Corporation 2014 Equity Incentive Plan, for awards granted beginning February 20, 2018.

 

 

10.5

Fourth Amendment, dated May 5, 2018, to the Second Amended and Restated Credit Agreement, dated as of May 5, 2014 among Air Lease Corporation, as Borrower, the several lenders from time to time party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent. (incorporated by reference to Exhibit 10.1 to Air Lease Corporation's Current Report on Form 8-K filed on May 3, 2018 (File No. 001-35121)).

 

 

10.6†

Amendment No. 22 to A320 NEO Family Purchase Agreement, dated February 16, 2018, by and between Air Lease Corporation and Airbus S.A.S.

 

 

10.7†

Supplemental Agreement No. 17 to Purchase Agreement No. PA-03791, dated March 29, 2018, by and between Air Lease Corporation and The Boeing Company.

 

 

10.8

Commitment Increase Supplement, dated February 7, 2018, to the Second Amended and Restated Credit Agreement, among Air Lease Corporation, as Borrower, the several lenders from time to time parties thereto, and JP Morgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.11 to Air Lease Corporation's Current Report on Form 10-K filed on February 22, 2018 (File No. 001-35121)).

 

 

10.9

New Lender Supplement, dated February 1, 2018, to the Second Amended and Restated Credit Agreement, dated as of May 5, 2014 among Air Lease Corporation, as Borrower, the several lenders from time to time party thereto, and JP Morgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.12 to Air Lease Corporation's Current Report on Form 10-K filed on February 22, 2018 (File No. 001-35121)).

 

 

10.10

New Lender Supplement, dated March 27, 2018, to the Second Amended and Restated Credit Agreement, dated as of May 5, 2014 among Air Lease Corporation, as Borrower, the several lenders from time to time party thereto, and JP Morgan Chase Bank, N.A., as Administrative Agent.

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12.1

Computation of Ratio of Earnings to Fixed Charges.

 

 

31.1

Certification of the Chief Executive Officer and President Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

31.2

Certification of the Executive Vice President and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

32.1

Certification of the Chief Executive Officer and President Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

 

 

32.2

Certification of the Executive Vice President and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

 

 

101.INS

XBRL Instance Document

 

 

101.SCH

XBRL Taxonomy Extension Schema

 

 

101.CAL

XBRL Taxonomy Extension Calculation Linkbase

 

 

101.DEF

XBRL Taxonomy Extension Definition Linkbase

 

 

101.LAB

XBRL Taxonomy Extension Label Linkbase

 

 

101.PRE

XBRL Taxonomy Extension Presentation Linkbase


 

 

The registrant has omitted confidential portions of the referenced exhibit and filed such confidential portions separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended.

 

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

AIR LEASE CORPORATION

 

 

May 10, 2018

/s/ John L. Plueger

 

John L. Plueger

 

Chief Executive Officer and President

 

(Principal Executive Officer)

 

 

May 10, 2018

/s/ Gregory B. Willis

 

Gregory B. Willis

 

Executive Vice President and Chief Financial Officer

 

(Principal Financial Officer and Principal Accounting Officer)

 

 

30