Air Lease (AL) - 2022 Q2 - Quarterly Report

Note About Forward-Looking Statements This section highlights forward-looking statements regarding the airline industry, capital markets, and other factors affecting financial condition, which are not guarantees and involve risks and uncertainties - This section highlights that the report contains forward-looking statements regarding the airline industry, capital markets access, lease deferrals, aircraft delivery delays, and other factors affecting financial condition. These statements are not guarantees and involve risks and uncertainties[12] - Key risk factors include inability to obtain capital, increased borrowing costs, failure to generate returns on investments, manufacturer delivery failures, impact of the Russia-Ukraine conflict and sanctions, COVID-19 pandemic effects, aircraft obsolescence, changes in aircraft value/lease rates, lessee financial distress, increased competition, inadequate insurance, trade restrictions, and regulatory changes[12] PART I—FINANCIAL INFORMATION This part presents Air Lease Corporation's unaudited financial statements and management's discussion and analysis Item 1. Financial Statements This section presents Air Lease Corporation's unaudited consolidated financial statements and notes for Q2 2022 and FY 2021 Consolidated Balance Sheets This section provides the unaudited consolidated balance sheets as of June 30, 2022, and December 31, 2021 Consolidated Balance Sheets (in thousands) | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----------------------------------- | :--------------------------- | :--------------------------- | | Total Assets | $27,646,457 | $26,968,722 | | Flight equipment subject to operating leases, net | $23,467,742 | $22,899,004 | | Deposits on flight equipment purchases | $1,618,687 | $1,508,892 | | Total Liabilities | $21,206,823 | $19,960,154 | | Debt financing, net | $18,336,075 | $17,022,480 | | Total Shareholders' Equity | $6,439,634 | $7,008,568 | Consolidated Statements of Operations and Other Comprehensive Income/(Loss) This section presents the unaudited consolidated statements of operations and comprehensive income/(loss) for the three and six months ended June 30, 2022, and 2021 Consolidated Statements of Operations and Other Comprehensive Income/(Loss) - Q2 (in thousands) | Metric | Q2 2022 (in thousands) | Q2 2021 (in thousands) | YoY Change | | :----------------------------------- | :--------------------- | :--------------------- | :--------- | | Total Revenues | $557,696 | $491,877 | +13.4% | | Rental of flight equipment | $545,271 | $452,044 | +20.6% | | Aircraft sales, trading and other | $12,425 | $39,833 | -68.8% | | Total Expenses | $412,764 | $377,315 | +9.4% | | Interest expense | $132,410 | $126,111 | +5.0% | | Depreciation of flight equipment | $235,284 | $217,817 | +8.0% | | Selling, general and administrative | $38,512 | $26,687 | +44.3% | | Net income attributable to common stockholders | $105,852 | $85,587 | +23.7% | | Basic EPS | $0.95 | $0.75 | +26.7% | | Diluted EPS | $0.95 | $0.75 | +26.7% | Consolidated Statements of Operations and Other Comprehensive Income/(Loss) - H1 (in thousands) | Metric | H1 2022 (in thousands) | H1 2021 (in thousands) | YoY Change | | :----------------------------------- | :--------------------- | :--------------------- | :--------- | | Total Revenues | $1,154,358 | $966,704 | +19.4% | | Rental of flight equipment | $1,111,825 | $920,139 | +20.8% | | Aircraft sales, trading and other | $42,533 | $46,565 | -8.7% | | Total Expenses | $1,611,139 | $748,613 | +115.2% | | Write-off of Russian fleet | $802,352 | $0 | N/A | | Net income/(loss) attributable to common stockholders | $(373,566) | $165,835 | N/A (loss vs. profit) | | Basic EPS | $(3.32) | $1.45 | N/A (loss vs. profit) | | Diluted EPS | $(3.32) | $1.45 | N/A (loss vs. profit) | Consolidated Statements of Shareholders' Equity This section details the unaudited consolidated statements of shareholders' equity for the three and six months ended June 30, 2022, and 2021 Consolidated Statements of Shareholders' Equity (in thousands) | Item | Amount (in thousands) | | :---------------------------------------------------------------------------------- | :-------------------- | | Balance at December 31, 2021 | $7,008,568 | | Common stock repurchased | $(129,549) | | Cash dividends (declared $0.185 per share of Class A common stock) | $(21,136) | | Cash dividends (declared on preferred stock) | $(10,425) | | Net loss | $(468,993) | | Balance at March 31, 2022 | $6,369,585 | | Common stock repurchased | $(20,454) | | Cash dividends (declared $0.185 per share of Class A common stock) | $(20,511) | | Cash dividends (declared on preferred stock) | $(10,425) | | Net income | $116,277 | | Balance at June 30, 2022 | $6,439,634 | - The company repurchased 3,420,874 shares of Class A common stock at an average price of $43.85 per share during the six months ended June 30, 2022, completing the $150.0 million stock repurchase program in April 2022[67] Consolidated Statements of Cash Flows This section presents the unaudited consolidated statements of cash flows for the six months ended June 30, 2022, and 2021 Consolidated Statements of Cash Flows (in thousands) | Activity | H1 2022 (in thousands) | H1 2021 (in thousands) | YoY Change | | :----------------------------------- | :--------------------- | :--------------------- | :--------- | | Net cash provided by operating activities | $688,839 | $602,665 | +14.3% | | Net cash used in investing activities | $(2,020,442) | $(1,401,373) | +44.2% | | Net cash provided by financing activities | $1,257,159 | $273,701 | +359.3% | | Net decrease in cash | $(74,444) | $(525,007) | -85.8% | | Cash, cash equivalents and restricted cash at end of period | $1,033,848 | $1,232,760 | -16.2% | - Key cash flow adjustments for H1 2022 included a write-off of the Russian fleet ($802.4 million), significant acquisition of flight equipment under operating lease ($(1.57 billion)), and substantial proceeds from debt financings ($1.50 billion) offset by payments in reduction of debt financings ($(718.7 million))[27] Notes to Consolidated Financial Statements This section provides detailed notes to the unaudited consolidated financial statements Note 1. Company Background and Overview This note describes Air Lease Corporation's business model, fleet size, and operational focus - Air Lease Corporation (ALC) is a leading aircraft leasing company focused on purchasing modern, fuel-efficient commercial jet aircraft directly from manufacturers (Boeing, Airbus) and leasing them globally, aiming for attractive returns on equity[29] - As of June 30, 2022, ALC owned 392 aircraft, managed 89 aircraft, and had 430 aircraft on order with manufacturers[29] - The company also sells aircraft from its fleet to third parties and provides fleet management services for a fee[29] Note 2. Basis of Preparation and Critical Accounting Policies This note outlines the basis for financial statement preparation and critical accounting policies - The Company consolidates financial statements of all entities where it has a controlling financial interest, including Variable Interest Entities for which it is the primary beneficiary[30] - Financial statements are prepared in accordance with GAAP for interim financial information and SEC regulations, including normal, recurring adjustments[30][31] - Certain reclassifications were made in prior year consolidated financial statements to conform to 2022 classifications[32] Note 3. Debt Financing This note details the Company's debt financing structure, including unsecured and secured debt, and future maturities Debt Financing Summary (in thousands) | Debt Type | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----------------------------------- | :--------------------------- | :--------------------------- | | Total unsecured debt financing | $18,396,053 | $17,059,058 | | Total secured debt financing | $135,199 | $144,961 | | Total debt financing | $18,531,252 | $17,204,019 | | Debt financing, net of discounts and issuance costs | $18,336,075 | $17,022,480 | - As of June 30, 2022, $17.7 billion in senior unsecured notes were outstanding, up from $16.9 billion at December 31, 2021. The company issued $1.5 billion in new senior unsecured notes during H1 2022[36] - The unsecured revolving credit facility had $520.0 million outstanding as of June 30, 2022 (vs. $0 at Dec 31, 2021). It was amended in April 2022, extending maturity to May 2026, increasing commitments to $7.0 billion, and replacing LIBOR with Term SOFR[36][37] Debt Financing Maturities (in thousands) | Year | Amount (in thousands) | | :-------------------- | :-------------------- | | 2022 | $1,291,611 | | 2023 | $2,566,329 | | 2024 | $2,885,280 | | 2025 | $2,404,761 | | 2026 | $3,963,094 | | Thereafter | $5,420,177 | | Total | $18,531,252 | Note 4. Flight equipment subject to operating lease This note provides details on the net book value and changes in flight equipment subject to operating leases Flight Equipment Subject to Operating Lease (in thousands) | Item | Amount (in thousands) | | :----------------------------------- | :-------------------- | | Net book value as of December 31, 2021 | $22,899,004 | | Additions | $1,936,337 | | Depreciation | $(470,591) | | Transfers to net investments in sales-type leases | $(105,991) | | Write-off of Russian fleet | $(791,017) | | Net book value as of June 30, 2022 | $23,467,742 | - In March 2022, the Company terminated all leasing activities in Russia, recognizing a $791.0 million loss from asset write-offs for 21 owned aircraft remaining in Russia. Insurance claims have been submitted to recover these losses[44] Note 5. Commitments and Contingencies This note outlines the Company's aircraft purchase commitments and other contingencies - As of June 30, 2022, the Company had commitments to purchase 430 aircraft from Boeing and Airbus for delivery through 2028, with an estimated aggregate commitment of $27.6 billion[45][52] - Significant manufacturing delays, particularly for Boeing 787 aircraft, are impacting planned purchases. Boeing halted 787 deliveries in May 2021, and while FAA approved a repair plan in July 2022, the pace and timing of resumed deliveries remain uncertain[49][50] - Purchase agreements generally provide cancellation rights for delivery delays starting one year after the original contractual delivery date[51] Aircraft Purchase Commitments (in thousands) | Years ending December 31, | Amount (in thousands) | | :------------------------ | :-------------------- | | 2022 | $3,082,573 | | 2023 | $6,057,223 | | 2024 | $6,223,538 | | 2025 | $4,186,938 | | 2026 | $3,641,767 | | Thereafter | $4,433,109 | | Total | $27,625,148 | Note 6. Rental Income This note presents the future minimum rental payments under non-cancelable operating leases Future Minimum Rental Payments (in thousands) | Year | Amount (in thousands) | | :----------------------------------- | :-------------------- | | 2022 (excluding the six months ended June 30, 2022) | $1,089,192 | | 2023 | $2,093,379 | | 2024 | $1,970,231 | | 2025 | $1,823,512 | | 2026 | $1,630,714 | | Thereafter | $6,359,325 | | Total | $14,966,353 | Note 7. Earnings/(Loss) Per Share This note provides the calculation of basic and diluted earnings per share for the reported periods Earnings Per Share - Q2 | Metric | Q2 2022 | Q2 2021 | | :----------------------------------- | :------ | :------ | | Net income attributable to common stockholders (Numerator) | $105,852 | $85,587 | | Weighted-average shares outstanding (Denominator) | 110,868,040 | 114,133,135 | | Basic EPS | $0.95 | $0.75 | | Diluted EPS | $0.95 | $0.75 | Earnings Per Share - H1 | Metric | H1 2022 | H1 2021 | | :----------------------------------- | :------ | :------ | | Net income/(loss) attributable to common stockholders (Numerator) | $(373,566) | $165,835 | | Weighted-average shares outstanding (Denominator) | 112,373,092 | 114,046,252 | | Basic EPS | $(3.32) | $1.45 | | Diluted EPS | $(3.32) | $1.45 | - For the six months ended June 30, 2022, 301,279 potentially dilutive securities were excluded from diluted EPS calculation due to their anti-dilutive effect[57] Note 8. Fair Value Measurements This note describes the fair value measurements of financial instruments, including debt and derivatives - The fair value of the cross-currency swap related to Canadian dollar Medium-Term Notes was an asset of $9.4 million as of June 30, 2022, down from $14.1 million at December 31, 2021[60] - The estimated fair value of debt financing was $17.2 billion as of June 30, 2022, compared to a book value of $18.5 billion[61] - Cash and cash equivalents and restricted cash approximate their carrying value and are categorized as Level 1 in the fair value hierarchy[62] Note 9. Shareholders' Equity This note provides details on changes in shareholders' equity, including common stock and preferred stock - Class A common stock outstanding was 110,892,097 shares as of June 30, 2022, down from 113,987,154 shares at December 31, 2021[64] Preferred Stock Details (in thousands) | Series | Shares Issued and Outstanding | Carrying Value (in thousands) | Dividend Rate | Next Reset Date | | :-------------------- | :---------------------------- | :---------------------------- | :------------ | :-------------- | | Series A | 10,000,000 | $250,000 | 6.150% | March 15, 2024 | | Series B | 300,000 | $300,000 | 4.650% | June 15, 2026 | | Series C | 300,000 | $300,000 | 4.125% | December 15, 2026 | | Total | 10,600,000 | $850,000 | | | - The Company repurchased 3,420,874 shares of Class A common stock for $150.0 million during the six months ended June 30, 2022, completing the program in April 2022[67] Note 10. Stock-based Compensation This note details the stock-based compensation expense and unvested awards - Stock-based compensation expense related to RSUs was $6.6 million for Q2 2022 (vs. $6.7 million in Q2 2021) and $4.0 million for H1 2022 (vs. $12.1 million in H1 2021). The decrease is due to reductions in vesting estimates for certain book value RSUs[69][70] Unvested Stock-based Payments | Item | Number of Shares | Weighted-Average Grant-Date Fair Value | | :----------------------------------- | :--------------- | :----------------------------------- | | Unvested at December 31, 2021 | 1,571,415 | $43.88 | | Granted | 652,016 | $47.24 | | Vested | (542,060) | $42.50 | | Forfeited/canceled | (162,177) | $40.51 | | Unvested at June 30, 2022 | 1,519,194 | $45.88 | - As of June 30, 2022, there was $40.3 million of unrecognized compensation expense related to unvested stock-based payments, to be recognized over a weighted-average remaining period of 2.10 years[73] Note 11. Aircraft Under Management This note describes the Company's aircraft management activities and the impact of the Russia-Ukraine conflict - As of June 30, 2022, the Company managed 89 aircraft across three platforms: 48 through its Thunderbolt platform, 35 through Blackbird investment funds, and six on behalf of other financial institutions[74] - Eight managed aircraft leases in Russia were terminated in March 2022. Six aircraft remain in Russia, leading to a $11.4 million asset write-off related to investments in managed platforms during Q1 2022[77] Note 12. Net Investment in Sales-type Leases This note provides information on aircraft classified as sales-type leases and related future minimum lease payments - As of June 30, 2022, the Company had five A320-200 aircraft on lease classified as sales-type leases, with a net investment of $141.1 million[78][79] Future Minimum Lease Payments for Sales-type Leases (in thousands) | Years ending December 31, | Amount (in thousands) | | :----------------------------------- | :-------------------- | | 2022 (excluding the six months ended June 30, 2022) | $6,150 | | 2023 | $12,300 | | 2024 | $12,300 | | 2025 | $12,300 | | 2026 | $12,300 | | Thereafter | $66,010 | | Total | $121,360 | Note 13. Flight Equipment Held for Sale This note details aircraft classified as held for sale and their carrying value - As of June 30, 2022, six aircraft with a carrying value of $220.9 million were classified as held for sale, with sales expected to be completed in 2022. Depreciation ceases once an aircraft is classified as held for sale[81] Note 14. Subsequent Events This note reports significant events that occurred after the balance sheet date Declared Cash Dividends | Class | Cash Dividend per Share | Record Date | Payment Date | | :-------------------- | :---------------------- | :---------- | :----------- | | Class A Common Stock | $0.185 | Sep 12, 2022 | Oct 7, 2022 | | Series A Preferred Stock | $0.384375 | Aug 31, 2022 | Sep 15, 2022 | | Series B Preferred Stock | $11.625 | Aug 31, 2022 | Sep 15, 2022 | | Series C Preferred Stock | $10.3125 | Aug 31, 2022 | Sep 15, 2022 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and operational results for the three and six months ended June 30, 2022 Overview This overview describes Air Lease Corporation's business model and key drivers of operating performance - Air Lease Corporation (ALC) is a leading aircraft leasing company that purchases modern, fuel-efficient commercial jet aircraft directly from manufacturers and leases them globally, aiming for attractive returns on equity[87] - Operating performance is driven by fleet growth, lease terms, debt interest rates, indebtedness, aircraft sales gains, and management fees[87] Second Quarter Overview This section summarizes the Company's financial and operational highlights for the second quarter of 2022 - As of June 30, 2022, the net book value of the fleet was $23.5 billion (vs. $22.9 billion at Dec 31, 2021). The owned aircraft portfolio grew to 392 aircraft, with 21 new aircraft purchased in Q2 2022. The weighted average age of the fleet was 4.4 years, and the weighted average remaining lease term was 7.1 years[88] - The Company had commitments to purchase 430 aircraft for delivery through 2028, with an estimated aggregate commitment of $27.6 billion. Total committed minimum future rental payments were $31.3 billion[89] - Total liquidity at the end of Q2 2022 was $7.6 billion, comprising $1.0 billion in unrestricted cash and $6.6 billion in undrawn revolving credit facility. Total debt outstanding was $18.5 billion, with 92.4% at a fixed rate and 99.3% unsecured, and a composite cost of funds of 2.81%[90] - Total revenues for Q2 2022 increased by 13.4% YoY to $557.7 million, driven by fleet growth and cash basis revenue recognition, partially offset by lower aircraft sales and the loss of Russian rental revenue. Net income attributable to shareholders rose 23.7% to $105.9 million, or $0.95 per diluted share[91][93] - The collection rate for Q2 2022 was 94.7%, and the lease utilization rate was 99.6%. Outstanding deferred rentals due to COVID-19 decreased to $182.1 million from $203.2 million at year-end 2021[92] Impact of Russia-Ukraine Conflict This section discusses the financial and operational impact of the Russia-Ukraine conflict on the Company - In March 2022, the Company terminated all leasing activities in Russia due to sanctions, affecting 24 owned aircraft, eight managed aircraft, and 29 aircraft on order. Five aircraft on order for Russia were canceled[96] - As of August 4, 2022, 21 owned aircraft and six managed aircraft remain in Russia, with operators continuing to fly them despite lease terminations. The 21 owned aircraft previously generated approximately $18.0 million per quarter in rental revenue[96] - A write-off of $802.4 million was recorded in Q1 2022 for interests in owned and managed aircraft remaining in Russia. Insurance claims have been submitted, but recovery timing and amount are uncertain[97] - Insurance policy renewals in Q2 2022 resulted in an annualized premium increase of approximately $16.0 million, with exclusions for Russia, Ukraine, and Belarus[97] Our Fleet This section provides an overview of the Company's fleet, including its size, age, lease terms, and geographic distribution Fleet Metrics | Metric | June 30, 2022 | December 31, 2021 | | :----------------------------------- | :------------ | :---------------- | | Net book value of flight equipment subject to operating lease | $23.5 billion | $22.9 billion | | Weighted-average fleet age | 4.4 years | 4.4 years | | Weighted-average remaining lease term | 7.1 years | 7.2 years | | Owned fleet | 392 | 382 | | Managed fleet | 89 | 92 | | Aircraft on order | 430 | 431 | | Total committed rentals | $31.3 billion | $30.9 billion | Fleet Net Book Value by Region (in thousands) | Region | Net Book Value (in thousands) | % of Total | | :----------------------------------- | :---------------------------- | :--------- | | Europe | $7,339,480 | 31.3% | | Asia (excluding China) | $6,609,314 | 28.2% | | China | $2,871,509 | 12.2% | | The Middle East and Africa | $2,359,738 | 10.1% | | Central America, South America, and Mexico | $1,724,076 | 7.3% | | U.S. and Canada | $1,662,953 | 7.1% | | Pacific, Australia, and New Zealand | $900,672 | 3.8% | Owned Fleet by Aircraft Type | Aircraft Type | Number of Aircraft | % of Total | | :-------------------- | :----------------- | :--------- | | Boeing 737-800 | 84 | 21.4% | | Airbus A321-200neo | 70 | 17.9% | | Boeing 737-8 MAX | 39 | 9.9% | | Airbus A320-200 | 28 | 7.1% | | Boeing 787-9 | 26 | 6.6% | | Airbus A320-200neo | 26 | 6.6% | | Boeing 777-300ER | 24 | 6.1% | | Airbus A321-200 | 24 | 6.1% | | Other types | 75 | 19.1% | | Total | 392 | 100.0% | Aircraft Delivery Delays This section addresses the impact of manufacturing delays on the Company's aircraft purchase commitments - The Company is experiencing significant manufacturing delays from both Boeing and Airbus, particularly for Boeing 787 aircraft, which have impacted planned purchases[108] - Boeing halted 787 deliveries in May 2021. While the FAA approved Boeing's inspection and repair plan in July 2022, the pace and timing of resumed deliveries for the remainder of the year and beyond remain uncertain[109] - Delivery delays could give the Company, its airline customers, and the manufacturers the right to cancel aircraft commitments[110] Aircraft on Order and Leased Status | Delivery Year | Number of Aircraft | Number Leased | % Leased | | :------------ | :----------------- | :------------ | :--------- | | 2022 | 45 | 45 | 100.0% | | 2023 | 86 | 85 | 98.8% | | 2024 | 96 | 58 | 60.4% | | 2025 | 69 | 35 | 50.7% | | 2026 | 65 | 16 | 24.6% | | Thereafter | 69 | 9 | 13.0% | | Total | 430 | 248 | | Aircraft Industry and Sources of Revenues This section discusses the global aircraft industry, revenue sources, and challenges faced by airline customers - Revenues are primarily derived from operating leases with a globally diversified customer base of 116 airlines in 62 countries, with over 95% of business revenues from airlines domiciled outside of the U.S[112] - Global air travel continues to recover from the COVID-19 pandemic, with passenger traffic up 76% in June 2022 relative to the prior year, benefiting from accelerated international traffic and strong domestic expansion[113] - Increased demand for aircraft, combined with rising interest rates and inflation, is driving rising lease rates, further exacerbated by supply chain challenges[116] - Airline customers face higher operating costs due to rising fuel costs, interest rates, inflation, labor shortages, and currency risk from the appreciating U.S. dollar[117] - The Company expects more airline reorganizations, liquidations, or bankruptcies, with eight aircraft across three airlines currently subject to insolvency proceedings[118] Liquidity and Capital Resources This section analyzes the Company's liquidity position, capital allocation strategy, and funding sources Overview This overview summarizes the Company's liquidity, debt financing strategy, and capital allocation priorities - The Company ended Q2 2022 with $7.6 billion in available liquidity, comprising $1.0 billion in unrestricted cash and $6.6 billion in undrawn balances under its unsecured revolving credit facility[119] - The debt financing strategy focuses on funding the business on an unsecured basis with primarily fixed-rate debt from public bond offerings to maintain investment-grade credit metrics and operational flexibility[119] - Capital allocation priorities are: 1) investing in modern aircraft, 2) maintaining an investment-grade balance sheet, and 3) returning excess cash to shareholders through dividends and share repurchases[120] - Total debt outstanding was $18.5 billion as of June 30, 2022, with unsecured debt at $18.4 billion, representing 99.3% of total debt[120] Material Cash Sources and Requirements This section identifies the Company's primary sources and uses of cash, including debt, purchase commitments, and interest payments - Material cash sources include $1.0 billion in unrestricted cash, $31.3 billion in committed minimum future rental payments, a $7.1 billion revolving credit facility, opportunistic senior unsecured bond issuances ($1.5 billion in 2022), and aircraft sales (targeting up to $750.0 million in 2022)[121] - Material cash requirements are primarily for aircraft purchases and debt service payments, influenced by manufacturer delivery obligations, lessee compliance, aircraft sales timing, and the general economic environment[121] - Rising interest rates are expected to increase borrowing costs, though this impact may be partially offset if increased interest rates lead to higher leasing activity[122] Contractual Obligations (in thousands) | Obligation | 2022 (in thousands) | 2023 (in thousands) | 2024 (in thousands) | 2025 (in thousands) | 2026 (in thousands) | Thereafter (in thousands) | Total (in thousands) | | :----------------------------------- | :------------------ | :------------------ | :------------------ | :------------------ | :------------------ | :------------------------ | :------------------- | | Long-term debt obligations | $1,291,611 | $2,566,329 | $2,885,280 | $2,404,761 | $3,963,094 | $5,420,177 | $18,531,252 | | Interest payments on debt outstanding | $265,327 | $488,339 | $412,246 | $339,308 | $235,360 | $432,636 | $2,173,216 | | Purchase commitments | $3,082,573 | $6,057,223 | $6,223,538 | $4,186,938 | $3,641,767 | $4,433,109 | $27,625,148 | | Total | $4,639,511 | $9,111,891 | $9,521,064 | $6,931,007 | $7,840,221 | $10,285,922 | $48,329,616 | - Aircraft investments are expected to be $3.5 billion to $4.5 billion in 2022, reflecting high uncertainty around the Boeing 787 program and other potential production delays[125] Cash Flows This section analyzes the Company's cash flows from operating, investing, and financing activities - Net cash provided by operating activities increased by 14.3% ($86.2 million) to $688.8 million for the six months ended June 30, 2022, driven by fleet growth and increased cash collections[127] - Net cash used in investing activities increased to $2.0 billion for H1 2022 (from $1.4 billion in H1 2021), primarily due to the purchase of aircraft[127] - Net cash provided by financing activities increased to $1.3 billion for H1 2022 (from $273.7 million in H1 2021), mainly due to the issuance of debt for aircraft acquisitions[127] Debt This section provides a detailed breakdown of the Company's debt financing, including types, interest rates, and recent issuances Debt Financing Summary (in thousands) | Debt Type | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----------------------------------- | :--------------------------- | :--------------------------- | | Total unsecured debt financing | $18,396,053 | $17,059,058 | | Total secured debt financing | $135,199 | $144,961 | | Total debt financing | $18,531,252 | $17,204,019 | | Debt financing, net of discounts and issuance costs | $18,336,075 | $17,022,480 | Debt Interest Rates and Fixed-Rate Percentage | Metric | June 30, 2022 | December 31, 2021 | | :----------------------------------- | :------------ | :---------------- | | Composite interest rate | 2.81% | 2.79% | | Composite interest rate on fixed-rate debt | 2.85% | 2.90% | | Percentage of total debt at a fixed-rate | 92.4% | 94.8% | - During the six months ended June 30, 2022, the Company issued $1.5 billion in senior unsecured notes, comprising $750.0 million of 2.20% Medium-Term Notes due 2027 and $750.0 million of 2.875% Medium-Term Notes due 2032[131] - The Revolving Credit Facility was amended in April 2022, extending its final maturity to May 5, 2026, increasing total revolving commitments to approximately $7.0 billion, and replacing LIBOR with Term SOFR. As of August 4, 2022, total revolving commitments were approximately $7.1 billion[133][134] Preferred equity This section outlines the Company's preferred stock issuances, carrying values, and dividend rates Preferred Stock Details (in thousands) | Series | Shares Issued and Outstanding | Carrying Value (in thousands) | Dividend Rate | Next Reset Date | | :-------------------- | :---------------------------- | :---------------------------- | :------------ | :-------------- | | Series A | 10,000,000 | $250,000 | 6.150% | March 15, 2024 | | Series B | 300,000 | $300,000 | 4.650% | June 15, 2026 | | Series C | 300,000 | $300,000 | 4.125% | December 15, 2026 | | Total | 10,600,000 | $850,000 | | | Preferred Stock Dividends (in thousands) | Title of each class | March 15, 2022 (in thousands) | June 15, 2022 (in thousands) | | :-------------------- | :---------------------------- | :---------------------------- | | Series A Preferred Stock | $3,844 | $3,844 | | Series B Preferred Stock | $3,487 | $3,487 | | Series C Preferred Stock | $3,094 | $3,094 | Off-balance Sheet Arrangements This section clarifies the Company's off-balance sheet arrangements and unconsolidated entities - The Company has not established any unconsolidated entities for the purpose of facilitating off-balance sheet arrangements[140] - The Company holds non-controlling interests of 9.5% in two investment funds (Blackbird I and II), accounted for under the equity method, and approximately 5.0% in two entities through its Thunderbolt platform, accounted for under the cost method[140] Impact of LIBOR Transition This section discusses the implications of the LIBOR transition on the Company's financial instruments - Publication of certain U.S. dollar LIBOR tenors will permanently cease after June 30, 2023, with Term SOFR recommended as an alternative[141] - As of June 30, 2022, approximately $0.8 billion of floating rate debt used LIBOR, with $155.5 million maturing after June 30, 2023. The Series A Preferred Stock will also transition to a floating dividend rate based on LIBOR (or an alternative) from March 15, 2024[142] - The Revolving Credit Facility was amended in April 2022 to replace LIBOR with Term SOFR as the benchmark interest rate[143] - A 1.0% increase in the floating rate for LIBOR-linked debt and Series A Preferred Stock would result in an estimated additional $8.4 million in interest expense and $2.5 million in preferred dividends annually[145] Credit Ratings This section provides an overview of the Company's credit ratings from various agencies Credit Ratings Summary | Rating Agency | Long-term Debt | Corporate Rating | Outlook | | :-------------------- | :------------- | :--------------- | :------ | | Kroll Bond Ratings | A- | A- | Stable | | Standard and Poor's | BBB | BBB | Stable | | Fitch Ratings | BBB | BBB | Stable | - A ratings downgrade would not result in a default under debt agreements but could adversely affect the ability to issue debt, obtain new financings, or renew existing financings, and would increase financing costs[147] Results of Operations This section analyzes the Company's financial performance for the three and six months ended June 30, 2022, compared to the prior year periods Three months ended June 30, 2022, compared to the three months ended June 30, 2021 This section compares the Company's financial performance for Q2 2022 against Q2 2021 - Rental revenue increased by 20.6% YoY to $545.3 million, driven by fleet growth (392 aircraft vs. 354 YoY) and cash basis revenue recognition, partially offset by the loss of Russian revenues[160] - Aircraft sales, trading and other revenue decreased to $12.4 million from $39.8 million YoY, primarily due to a $34.0 million revenue recognized in Q2 2021 from the sale of Aeromexico claims. No aircraft were sold in either period[161] - Interest expense increased by 5.0% YoY to $132.4 million due to a higher average debt balance, partially offset by a decline in the composite cost of funds. Future increases are expected with rising interest rates[162] - Depreciation expense increased by 8.0% YoY to $235.3 million, primarily attributable to fleet growth[163] - Selling, general and administrative expenses increased by 44.3% YoY to $38.5 million, driven by increased business activity, higher insurance premiums (annualized $16.0 million increase), and aircraft transition costs[164] - Net income attributable to common stockholders increased by 23.7% YoY to $105.9 million, or $0.95 diluted EPS, primarily due to fleet growth, partially offset by the loss of Russian revenues and the prior year's Aeromexico claims revenue[166] - Adjusted net income before income taxes increased by 22.7% YoY to $154.5 million, or $1.39 adjusted diluted EPS, driven by continued fleet growth and increased revenues[166] Six months ended June 30, 2022, compared to the six months ended June 30, 2021 This section compares the Company's financial performance for H1 2022 against H1 2021 - Rental revenue increased by 20.8% YoY to $1.1 billion, driven by fleet growth and cash basis revenue recognition, partially offset by the loss of Russian revenues[168] - Aircraft sales, trading and other revenue decreased to $42.5 million from $46.6 million YoY, despite $17.9 million from Russian security deposit forfeitures and $7.2 million from sales-type lease gains, due to a $34.0 million revenue recognized in H1 2021 from Aeromexico claims[169] - Interest expense increased by 2.6% YoY to $262.9 million due to a higher average debt balance, partially offset by a decline in the composite cost of funds. Future increases are expected with rising interest rates[170] - Depreciation expense increased by 10.3% YoY to $470.6 million, primarily attributable to fleet growth[171] - A write-off of $802.4 million was recorded in H1 2022 for interests in owned and managed aircraft remaining in Russia due to the termination of leasing activities[172] - Stock-based compensation expense decreased to $4.0 million from $12.1 million YoY, primarily due to reductions in the underlying vesting estimates of certain book value RSUs[173] - Selling, general and administrative expenses increased by 33.0% YoY to $71.3 million, driven by increased business activity, higher insurance premiums (annualized $16.0 million increase), and aircraft transition costs[174] - The Company reported a net loss attributable to common stockholders of $373.6 million, or loss of $3.32 diluted EPS, for H1 2022 (vs. net income of $165.8 million YoY), primarily due to the impact of the Russian fleet write-off[175] - Adjusted net income before income taxes increased by 46.2% YoY to $355.4 million, or $3.15 adjusted diluted EPS, driven by continued fleet growth and increased revenues[176] Critical Accounting Estimates This section confirms that there have been no material changes to the Company's critical accounting estimates - There have been no material changes to critical accounting estimates in the six months ended June 30, 2022, as reviewed against the Annual Report on Form 10-K for December 31, 2021[178] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the Company's exposure to market risks, primarily arising from changes in interest rates and foreign exchange rates Interest Rate Risk This section analyzes the Company's exposure to interest rate fluctuations and mitigation strategies - The Company is exposed to market risk from changes in interest rates, impacting its cost of borrowing. As of June 30, 2022, $1.4 billion in floating-rate debt was outstanding, and preferred stock will transition to floating rates after five years from issuance[180] - A 1.0% increase in the composite interest rate would lead to an estimated additional $14.1 million in annualized interest expense on existing indebtedness as of June 30, 2022[180] - The risk of increasing interest rates on forward lease placements is partially mitigated by interest rate adjusters in a majority of forward lease contracts[181] Foreign Exchange Rate Risk This section describes the Company's management of foreign exchange rate risk - The Company minimizes currency and exchange risks by denominating aircraft purchase, lease, and debt agreements primarily in U.S. dollars. Approximately 0.3% of lease revenues were denominated in foreign currency as of June 30, 2022[182] - A cross-currency swap effectively hedges foreign currency exposure on C$400.0 million notes due 2024, converting the borrowing rate to a fixed 2.535% U.S. dollar denominated rate[184] Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures and reports on changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures - Management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2022[186] - Disclosure controls and procedures are designed to ensure timely recording, processing, summarizing, and reporting of information required for SEC filings, providing reasonable assurance of achieving control objectives[185] Changes in Internal Control Over Financial Reporting This section reports on any material changes in internal control over financial reporting during the quarter - There were no changes in the Company's internal control over financial reporting during the quarter ended June 30, 2022, that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting[187] PART II—OTHER INFORMATION This part contains other information, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings The Company is not currently a party to any material legal proceedings or enforcement actions related to regulatory compliance matters, though it may be involved in incidental litigation in the ordinary course of business - The Company is not presently a party to any enforcement proceedings or material legal proceedings related to regulatory compliance matters[188] - The Company maintains insurance policies in amounts and with coverage deemed adequate based on the nature and risks of its business[188] Item 1A. Risk Factors There have been no material changes to the Company's previously disclosed risk factors from its Annual Report on Form 10-K for December 31, 2021, and Quarterly Report on Form 10-Q for March 31, 2022 - There have been no material changes in the Company's risk factors from those discussed in its Annual Report on Form 10-K for the year ended December 31, 2021, and Quarterly Report on Form 10-Q for the quarter ended March 31, 2022[189] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's Class A common stock repurchase activities during the second quarter of 2022 - The Board of Directors authorized a $150.0 million Class A common stock repurchase program on February 15, 2022[190] - The 2022 Repurchase Program was completed in April 2022 upon the repurchase of the entire authorized amount[192] Class A Common Stock Repurchase Activity | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------------------------- | :------------------------------- | :--------------------------- | | April 1-30, 2022 | 461,416 | $44.33 | | May 1-31, 2022 | — | — | | June 1-30, 2022 | — | — | | Total April 1, 2022 - June 30, 2022 | 461,416 | $44.33 | Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reported period - There were no defaults upon senior securities[193] Item 4. Mine Safety Disclosures This section indicates that there are no mine safety disclosures to report - There are no mine safety disclosures[193] Item 5. Other Information This section states that there is no other information to report - There is no other information to report[193] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, preferred stock designations, credit agreements, and certifications - Exhibits include organizational documents (Restated Certificate of Incorporation, Amended Bylaws), preferred stock designations (Series A, B, C), Description of Capital Stock, credit agreements (Seventh Amendment and Extension, Lender Extension Supplement, New Lender Supplement), an Airbus purchase agreement amendment, a severance agreement, and certifications (302 and 906)[194][197] Signatures This section contains the required signatures for the Form 10-Q, affirming that the report has been duly authorized and signed - The report was signed on August 4, 2022, by John L. Plueger, Chief Executive Officer and President, and Gregory B. Willis, Executive Vice President and Chief Financial Officer[199][200][201]