AerCap N.V.(AER) - 2024 Q4 - Annual Report

Debt and Financial Exposure - As of December 31, 2024, the principal amount of outstanding floating rate debt was $11.0 billion, representing 24% of the total indebtedness[39] - The company is exposed to interest rate risk, with potential adverse effects on net income due to higher interest payments on floating rate debt[40] - Negative changes in credit ratings could limit financing options and increase borrowing costs, affecting overall financial performance[44] - High inflation rates have increased operational costs and may diminish the value of fixed-rate leases, impacting financial results[43] Lease Revenue and Market Dependence - Lease revenue from emerging market countries accounted for 49% in 2024, 53% in 2023, and 53% in 2022, indicating a significant reliance on these markets[52] - During the year ended December 31, 2024, 99% of basic lease rents from flight equipment under operating leases were from fixed lease rates or power-by-the-hour agreements, with only 1% from floating interest rate leases[40] Geopolitical and Regulatory Risks - 13.3% of long-lived assets were on lease to Chinese airlines as of December 31, 2024, highlighting exposure to geopolitical risks in that region[51] - The geopolitical risks, including the Ukraine Conflict, have resulted in significant asset write-offs and loss of revenue[49] - Compliance with international regulations, such as the GDPR, may impose additional costs and risks of penalties, affecting financial stability[57] - The Ukraine Conflict has resulted in significant increases in insurance costs and reduced coverage, impacting the company's financial condition and cash flows[67] - The company may face challenges in pursuing insurance claims due to geopolitical events, which could delay recovery of losses[66] Environmental and Operational Challenges - The airline industry is facing increasing scrutiny regarding environmental impacts, which may lead to reduced air travel demand and increased operational costs[61] - The EU's "Fit for 55" proposal will phase out free emissions allowances for the aviation sector by 2026, impacting operational costs and compliance requirements[60] - The establishment of the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) will become mandatory in 2027, affecting airlines operating international flights[60] - The aviation sector's transition to lower-carbon technologies may increase costs and reduce demand for traditional aircraft and engines[61] Demand and Market Dynamics - Demand for flight equipment is heavily influenced by long-term trends in passenger air travel and air cargo demand, which may decline due to market conditions[72] - A decrease in demand for flight equipment could materially affect lease rates and the company's financial results[75] - The concentration of aircraft manufacturing among a few companies may lead to missed or late deliveries, affecting revenue growth and customer relationships[77] - Increased fuel prices and volatility can significantly impact lessees' ability to meet lease payment obligations, especially during geopolitical events like the Ukraine Conflict[84] - Financial difficulties faced by lessees, including inflation and supply chain issues, may lead to delays or reductions in rental payments, adversely affecting the company's cash flows[82] - The competitive nature of the aviation leasing industry may hinder the company's ability to secure favorable lease terms, as competitors may have greater resources[95] - Changes in market participants due to mergers, acquisitions, or bankruptcies may affect competition and demand for the company's aircraft[96] Legal and Operational Risks - Legal complexities in repossessing aircraft and engines may lead to significant costs and challenges, impacting financial results[90] - The company's financial condition is closely tied to the financial strength of its lessees, with potential risks from their operational challenges and market conditions[80] - The company faces risks related to delivery delays from aircraft manufacturers, particularly Boeing, which have led to additional costs and potential impacts on cash flow and operations[97] - Delivery delays in the "Big Twin" freighter program due to regulatory certification issues have also contributed to operational challenges[97] Asset Management and Impairment Risks - As of December 31, 2024, 401 owned passenger aircraft were 15 years or older, representing 9% of total flight equipment and lease-related assets[101] - The company may recognize impairments if projected lease rates and residual values decline, particularly for older aircraft[99] Cybersecurity and Taxation - A cybersecurity incident in January 2024 did not cause material disruption or financial loss, but highlights ongoing risks to information systems[104] - The effective tax rate may be impacted by the division of earnings among different tax jurisdictions and changes in tax laws[113] - The implementation of the EU Minimum Tax Directive in Ireland mandates a minimum effective tax rate of 15% starting January 1, 2024[114] - The company may face additional taxes in Ireland based on the extent of operations, with a current corporate income tax rate of 12.5% on trading income[115] - The company is subject to risks from potential classification as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, which could increase tax liabilities for U.S. shareholders[111] - The EU Anti-Tax Avoidance Directive (EU ATAD) and its amendments may affect the company's effective tax rate in future periods[116] - The EU ATAD 3 proposal, aimed at preventing misuse of shell entities, has not yet been adopted and may lead to additional reporting obligations[117] - The U.S. Corporate Alternative Minimum Tax (CAMT) could impact the company's effective tax rate, with a 15% tax on adjusted financial statement income applicable if certain thresholds are met[118] - The three-year average annual adjusted financial statement income (AFSI) threshold for CAMT is$ 1 billion for foreign-parented multi-national groups, with a simplified method lowering thresholds to $500 million and$ 50 million for 2023[118] - The company expects final regulations on CAMT to be issued by the U.S. Treasury in 2025, leaving uncertainty for 2024 and future years[118] - The company does not anticipate material U.S. federal income tax liability from subsidiaries outside the U.S., contingent on maintaining benefits under tax treaties[119] - Qualification for tax treaty benefits may depend on the nature and level of activities conducted by the company and its subsidiaries[120] - Failure to qualify for tax treaty benefits could result in significant U.S. federal and state tax liabilities, adversely affecting financial results[120] Dividend Policy - The company adopted a dividend policy in May 2024, intending to pay quarterly cash dividends, subject to Board approval and capital availability[110]