AerCap N.V.(AER) - 2019 Q4 - Annual Report

Financial Risks and Market Conditions - The company's cost of borrowing is influenced by market assessments of credit risk and fluctuations in interest rates, which directly impacts net income [25]. - The company is exposed to risks associated with the discontinuation of LIBOR after 2021, which may disrupt financial markets and negatively impact interest expenses [28]. - Negative changes in credit ratings could limit the company's financing options and increase borrowing costs, adversely impacting financial results [29]. - The company faces operational restrictions due to covenants in debt agreements, which may limit its ability to pursue growth opportunities [32]. - A sovereign debt crisis could lead to higher borrowing costs and limited credit availability, impacting the financial health of lessees [61]. - Adverse geopolitical events, such as terrorist attacks or wars, could negatively impact the aviation industry and lessees' financial conditions [65]. - The COVID-19 pandemic has resulted in significant economic disruption and reduced demand for air travel, adversely affecting the aviation industry [72]. - Interruptions in capital markets could impair lessees' ability to finance operations, affecting their payment obligations to the company [59]. - The financial condition of the company is significantly dependent on the financial strength of its lessees, particularly in the aviation industry [53]. Aircraft Leasing and Market Competition - The aircraft leasing industry is highly competitive, with major competitors potentially having greater resources, which could adversely affect the company's financial results [51]. - The company has 95 Boeing 737 MAX aircraft on order, with production delays expected to impact future financial results [49]. - The introduction of new aircraft types by manufacturers like Airbus and Boeing could decrease the residual value and lease rates of older aircraft in the company's fleet [94]. - Overcapacity in the aircraft industry may negatively impact aircraft values and lease rates, as seen in past events like the 2008 financial crisis [96]. - The company has established joint ventures to diversify economic risks related to aircraft and obtain stable servicing revenues [184]. - The company is one of the largest customers of Airbus and Boeing, with significant order backlogs and favorable pricing due to extensive manufacturer relationships [185]. Lessee and Operational Risks - Airlines with high financial leverage are more susceptible to economic downturns and may seek operating leases, increasing risk for the company [54]. - Any downturn in the aviation industry could exacerbate the financial condition of lessees, leading to potential delays or failures in rental payments [55]. - A return to historically high fuel prices could adversely affect the profitability of the aviation industry and lessees' ability to meet lease obligations [57]. - Lessees may fail to maintain aircraft properly, leading to increased maintenance costs and potential declines in aircraft market value [76]. - Historical rates indicate that some lessees are likely to default on lease obligations, potentially leading to material financial impacts [84]. - The company may incur significant costs and expenses during aircraft repossessions, including legal fees and lost revenue, which could adversely affect financial results [82]. Regulatory and Compliance Issues - Legal and regulatory compliance costs, including those related to the General Data Protection Regulation (GDPR), could impose significant financial burdens on the company [108]. - Aircraft are subject to stringent environmental regulations, including noise and emissions standards, which could affect their economic life and value [111]. - New emissions control laws may be enacted that could impact older aircraft, potentially leading to increased costs and reduced ability to lease or sell less efficient aircraft [112]. - Increased scrutiny on the airline industry regarding environmental impacts may reduce demand for aircraft, affecting financial condition and cash flow [113]. - The company faces risks associated with geopolitical and economic instability in international markets, which could adversely affect financial results [98]. Financial Performance and Revenue - Approximately 4.5% of the company's basic lease rents from aircraft under operating leases were derived from leases tied to floating interest rates, indicating potential revenue decline if interest rates decrease [27]. - The company raised approximately $9.5 billion in financing in 2019, including bank debt and note issuances [180]. - The top five lessees contributed 26.6% of the total lease revenue in 2019, with China Southern Airlines at 7.7% and American Airlines at 6.9% [173]. - Lease revenue by region in 2019 showed Asia/Pacific/Russia at 38%, Europe at 28%, and Latin America at 11% [174]. - The company intends to maintain a diversified customer base, leasing aircraft to approximately 200 airlines in about 80 countries [183]. Aircraft Portfolio Management - The company has a total owned aircraft portfolio of 939 as of December 31, 2019, with 299 aircraft on order [199][202]. - The Airbus A320neo Family represents 18% of the total net book value of the owned aircraft portfolio, while the Boeing 787 accounts for 28% [200]. - The company executed 353 aircraft transactions during the year ended December 31, 2019, achieving a weighted average owned aircraft utilization rate of 99.6% [157]. - The company focuses on managing the profitability of its aircraft portfolio by sourcing acquisition opportunities and securing long-term funding [179]. - The company identifies acquisition and disposition opportunities through its marketing team in contact with airlines worldwide [203]. Corporate Structure and Taxation - The company’s Irish tax resident group companies are subject to a corporate income tax rate of 12.5% on trading income, with significant tax losses available to carry forward [133]. - The introduction of the EU Anti-Tax Avoidance Directive may restrict the tax deductibility of net interest expense to 30% of EBITDA, potentially impacting the company's tax deductions [147]. - The company intends to carry on activities in Ireland to maintain the 12.5% tax rate on trading income and utilize tax losses against future income [133]. - The company is limited in its ability to pay dividends unless subsidiaries generate positive cash flows, which may be restricted by financing terms [126]. Operational Facilities - The company leases its Dublin headquarters under a 25-year lease for 61,000 square feet, which began in December 2015 [205]. - The company occupies additional office spaces in Los Angeles, Singapore, and several international locations [205]. - The company has options to terminate leases for its Shannon office facility in 2024 [205].