AerCap N.V.(AER) - 2023 Q1 - Quarterly Report

Introduction and Filing Information Form 6-K Filing Details This Form 6-K reports AerCap Holdings N.V.'s interim financial results for the quarter ended March 31, 2023, filed on May 2, 2023, with information incorporated by reference into the Company's registration statements - Filing Type: Form 6-K, Report of Foreign Private Issuer[3] - Reporting Period: For the month of May 2023, covering the quarter ended March 31, 2023[3][5] - Purpose: Furnished interim financial report for Q1 2023[5] - Incorporation by Reference: Information incorporated into Form F-3 and S-8 Registration Statements[5] PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This item provides AerCap Holdings N.V.'s unaudited condensed consolidated financial statements for the three months ended March 31, 2023 and 2022, including balance sheets, income statements, comprehensive income, cash flows, and equity, along with explanatory notes Unaudited Condensed Consolidated Balance Sheets The balance sheets show a slight decrease in total assets and total equity from December 31, 2022, to March 31, 2023, while total liabilities remained relatively stable | Metric | March 31, 2023 (USD thousands) | December 31, 2022 (USD thousands) | Change (USD thousands) | | :--------------------------------- | :------------------------------- | :-------------------------------- | :--------------------- | | Total Assets | 69,684,403 | 69,726,918 | (42,515) | | Total Liabilities | 53,560,780 | 53,531,868 | 28,912 | | Total Equity | 16,123,623 | 16,195,050 | (71,427) | | Cash and cash equivalents | 1,089,046 | 1,597,147 | (508,101) | | Flight equipment held for operating leases, net | 55,487,268 | 55,220,809 | 266,459 | | Investment in finance leases, net | 1,277,630 | 1,356,072 | (78,442) | | Flight equipment held for sale | 607,485 | 292,808 | 314,677 | | Debt | 46,295,924 | 46,532,960 | (237,036) | Unaudited Condensed Consolidated Income Statements AerCap reported a significant turnaround from a net loss of $2.0 billion in Q1 2022 to a net income of $435.3 million in Q1 2023, primarily driven by the absence of large charges related to the Ukraine Conflict and a substantial increase in net gain on sale of assets | Metric | Q1 2023 (USD thousands) | Q1 2022 (USD thousands) | Change (USD thousands) | YoY Change (%) | | :---------------------------------------------------------------- | :---------------------- | :---------------------- | :--------------------- | :------------- | | Total Revenues and other income | 1,865,722 | 1,790,016 | 75,706 | 4.23% | | Total Expenses | 1,406,640 | 4,070,400 | (2,663,760) | -65.44% | | Net income (loss) | 435,277 | (2,000,681) | 2,435,958 | 121.76% | | Net income (loss) attributable to AerCap Holdings N.V. | 432,105 | (2,000,830) | 2,432,935 | 121.59% | | Basic earnings (loss) per share | 1.81 | (8.35) | 10.16 | 121.68% | | Diluted earnings (loss) per share | 1.79 | (8.35) | 10.14 | 121.44% | | Net (recoveries) charges related to Ukraine Conflict | (14,108) | 2,728,718 | (2,742,826) | -100.52% | | Net gain on sale of assets | 99,540 | 3,285 | 96,255 | 2929.98% | | Interest expense | 436,222 | 380,785 | 55,437 | 14.56% | Unaudited Condensed Consolidated Statements of Comprehensive Income The company reported comprehensive income of $405.5 million in Q1 2023, a significant improvement from a comprehensive loss of $1.95 billion in Q1 2022, primarily due to the shift from net loss to net income | Metric | Q1 2023 (USD thousands) | Q1 2022 (USD thousands) | Change (USD thousands) | | :---------------------------------------------------- | :---------------------- | :---------------------- | :--------------------- | | Net income (loss) | 435,277 | (2,000,681) | 2,435,958 | | Other comprehensive (loss) income | (29,787) | 53,648 | (83,435) | | Comprehensive income (loss) | 405,490 | (1,947,033) | 2,352,523 | | Total comprehensive income (loss) attributable to AerCap Holdings N.V. | 402,318 | (1,947,182) | 2,349,500 | Unaudited Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities remained strong at $1.36 billion in Q1 2023, slightly up from Q1 2022, while net cash used in investing activities significantly increased to $1.28 billion mainly due to higher flight equipment purchases and prepayments, and net cash used in financing activities decreased due to lower debt repayments and higher share repurchases | Metric | Q1 2023 (USD thousands) | Q1 2022 (USD thousands) | Change (USD thousands) | | :-------------------------------------- | :---------------------- | :---------------------- | :--------------------- | | Net cash provided by operating activities | 1,363,401 | 1,336,556 | 26,845 | | Net cash used in investing activities | (1,278,075) | (646,552) | (631,523) | | Net cash used in financing activities | (579,729) | (1,259,055) | 679,326 | | Net decrease in cash, cash equivalents and restricted cash | (494,403) | (569,051) | 74,648 | | Purchase of flight equipment | (1,291,077) | (881,608) | (409,469) | | Proceeds from sale or disposal of assets | 470,323 | 405,107 | 65,216 | | Repurchase of shares and tax withholdings on share-based compensation | (501,031) | (3,517) | (497,514) | - Non-cash investing activities in Q1 2023 included reclassification of $36.8 million flight equipment to finance leases and $506.0 million to held for sale, and settlement of $42.4 million accrued maintenance liability with buyers[25] Unaudited Condensed Consolidated Statements of Equity Total AerCap Holdings N.V. shareholders' equity slightly decreased from $16.12 billion at December 31, 2022, to $16.05 billion at March 31, 2023, primarily due to significant share repurchases, partially offset by net income | Metric | March 31, 2023 (USD thousands) | December 31, 2022 (USD thousands) | Change (USD thousands) | | :------------------------------------------ | :------------------------------- | :-------------------------------- | :--------------------- | | Total AerCap Holdings N.V. shareholders' equity | 16,045,416 | 16,117,507 | (72,091) | | Treasury shares, at cost | (731,517) | (254,699) | (476,818) | | Accumulated retained earnings | 8,104,773 | 7,674,922 | 429,851 | | Repurchase of shares | (500,736) | — | (500,736) | | Total comprehensive (loss) income | 402,318 | — | 402,318 | Notes to the Unaudited Condensed Consolidated Financial Statements These notes provide detailed explanations and breakdowns for the financial statements, covering significant accounting policies, asset categories, liabilities, equity, and specific events like the Ukraine Conflict and related party transactions Note 1. General AerCap Holdings N.V. is a global leader in aviation leasing, with a portfolio of 2,161 aircraft, over 900 engines, and over 300 helicopters, totaling $70 billion in assets as of March 31, 2023 - Global Leader: AerCap is the global leader in aviation leasing[31] - Asset Portfolio (as of March 31, 2023): 2,161 aircraft (owned, managed, or on order), over 900 engines, over 300 owned helicopters[31] - Total Assets: $70 billion[31] - Headquarters: Dublin, with offices globally[31] Note 2. Basis of presentation The condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial reporting, consolidating entities under effective control or as primary beneficiary of VIEs, and are stated in U.S. dollars - Accounting Standards: Presented in accordance with U.S. GAAP[33] - Consolidation Policy: Consolidates all companies with effective control and all variable interest entities (VIEs) for which AerCap is the Primary Beneficiary[34] - Functional Currency: U.S. dollars[36] - Use of Estimates: Preparation requires significant management estimates, particularly for flight equipment, intangible assets, and maintenance liabilities[40][41] - Reportable Segments: Manages and reports results based on one business segment: leasing, financing, sales, and management of commercial flight equipment[42] Note 3. Summary of significant accounting policies AerCap adopted ASU 2020-04 (Topic 848) on Reference Rate Reform in Q4 2022, providing optional expedients for contract modifications and hedge accounting related to the transition from LIBOR to SOFR, with the company transitioning its LIBOR-based instruments to SOFR by June 2023 - Reference Rate Reform Adoption: Adopted Topic 848 in Q4 2022, providing expedients for LIBOR transition[44] - LIBOR Transition: Commenced transition of LIBOR-based instruments to SOFR in October 2022, expected to conclude by June 2023[45] - Floating Rate Debt (as of March 31, 2023): $5.6 billion linked to SOFR, $3.2 billion linked to three-month U.S. dollar LIBOR[47] - Floating Rate Derivatives (as of March 31, 2023): Approximately $2.2 billion notional linked to SOFR, $3.2 billion notional linked to LIBOR[47] Note 4. Cash, cash equivalents and restricted cash Total cash, cash equivalents, and restricted cash decreased to $1.26 billion as of March 31, 2023, from $1.76 billion at December 31, 2022, with restricted cash primarily relating to ECA and Ex-Im financings, AerFunding, BNDES financing, and other debt | Metric | March 31, 2023 (USD thousands) | December 31, 2022 (USD thousands) | March 31, 2022 (USD thousands) | | :------------------------------------ | :------------------------------- | :-------------------------------- | :------------------------------- | | Cash and cash equivalents | 1,089,046 | 1,597,147 | 1,185,702 | | Restricted cash | 174,621 | 159,623 | 160,532 | | Total cash, cash equivalents and restricted cash | 1,263,667 | 1,756,770 | 1,346,234 | - Restricted cash primarily relates to Export Credit Agency (ECA) and Export-Import Bank of the United States (Ex-Im) financings, AerFunding revolving credit facility, Brazilian Development Bank (BNDES) financing, and other debt[50] Note 5. Flight equipment held for operating leases, net The net book value of flight equipment held for operating leases increased slightly to $55.49 billion as of March 31, 2023, from $55.22 billion at the beginning of the period, driven by additions and partially offset by depreciation and disposals | Metric | Q1 2023 (USD thousands) | Q1 2022 (USD thousands) | | :------------------------------------------ | :---------------------- | :---------------------- | | Net book value at beginning of period | 55,220,809 | 57,825,056 | | Additions | 1,677,164 | 1,104,801 | | Depreciation | (602,294) | (625,317) | | Disposals and transfers to held for sale | (739,562) | (280,547) | | Transfers from/to investment in finance leases, net/inventory | (36,786) | (276,823) | | Write-offs and impairments | (32,063) | (3,178,688) | | Net book value at end of period | 55,487,268 | 54,568,482 | Note 6. Investment in finance leases, net Investment in finance leases, net, decreased to $1.28 billion as of March 31, 2023, from $1.36 billion at December 31, 2022, with interest income from these leases at $27.1 million in Q1 2023, down from $37.0 million in Q1 2022 | Metric | March 31, 2023 (USD thousands) | December 31, 2022 (USD thousands) | | :------------------------------------ | :------------------------------- | :-------------------------------- | | Investment in finance leases, net | 1,277,630 | 1,356,072 | | Future minimum lease payments to be received, net | 1,258,903 | 1,299,724 | | Estimated residual values of leased flight equipment | 545,780 | 630,538 | | Less: Unearned income | (509,329) | (551,165) | | Less: Allowance for credit losses | (17,724) | (23,025) | - Interest income from investment in finance leases, net, was $27.1 million for Q1 2023, down from $37.0 million for Q1 2022[53] Note 7. Flight equipment held for sale Flight equipment held for sale significantly increased to $607.5 million as of March 31, 2023, from $292.8 million at December 31, 2022, with aggregate maintenance and security deposits of $34.4 million to be assumed by buyers - Flight equipment held for sale (March 31, 2023): $607.5 million net book value[54] - Flight equipment held for sale (December 31, 2022): $292.8 million net book value[55] - Associated Deposits: Aggregate maintenance and security deposit amounts of approximately $34.4 million will be assumed by buyers[54] Note 8. Intangibles Maintenance rights and lease premium, net, decreased to $3.16 billion as of March 31, 2023, from $3.36 billion at December 31, 2022, primarily due to various write-offs and amortization, while other intangibles, mainly customer relationships, also slightly decreased | Metric | March 31, 2023 (USD thousands) | December 31, 2022 (USD thousands) | | :------------------------------------ | :------------------------------- | :-------------------------------- | | Maintenance rights and lease premium, net | 3,155,197 | 3,364,453 | | Maintenance rights | 2,383,503 | 2,540,286 | | Lease premium, net | 771,694 | 824,167 | | Other intangibles, net | 179,741 | 185,210 | | Customer relationships, net | 171,941 | 177,235 | - Maintenance rights decreased due to EOL and MR contract maintenance rights expense, write-offs due to maintenance liability release, cash received, and sale of aircraft[56] - Amortization expense for lease premium assets was $46.2 million in Q1 2023 (vs. $61.8 million in Q1 2022) and for customer relationships was $5.3 million in Q1 2023 (same as Q1 2022)[58][59] Note 9. Associated companies Investments in associated companies, accounted for under the equity method, increased to $841.2 million as of March 31, 2023, from $811.2 million at December 31, 2022, primarily driven by Shannon Engine Support (SES) | Associated Company | % Ownership (March 31, 2023) | March 31, 2023 (USD thousands) | December 31, 2022 (USD thousands) | | :--------------------------------------- | :----------------------------- | :------------------------------- | :-------------------------------- | | Shannon Engine Support (SES) | 50.0% | 667,096 | 634,701 | | AerDragon Aviation Partners Limited | 16.7% | 88,264 | 88,240 | | Other | 5.7-39.3% | 85,888 | 88,278 | | Total Associated Companies | | 841,248 | 811,219 | Note 10. Other assets Total other assets slightly decreased to $2.55 billion as of March 31, 2023, from $2.59 billion at December 31, 2022, with notes receivable and loans receivable, net of allowances, also seeing decreases | Metric | March 31, 2023 (USD thousands) | December 31, 2022 (USD thousands) | | :------------------------------------ | :------------------------------- | :-------------------------------- | | Total Other Assets | 2,549,356 | 2,590,439 | | Notes receivable, net | 444,366 | 486,223 | | Loans receivable, net | 336,396 | 351,357 | | Derivative assets | 175,711 | 211,993 | - Allowance for credit losses on notes receivable was $72 million (March 31, 2023) and $111 million (December 31, 2022)[61] - Allowance for credit losses on loans receivable was $2 million (March 31, 2023) and $4 million (December 31, 2022)[62] Note 11. Derivative financial instruments AerCap uses interest rate derivatives to hedge variable rate debt, transitioning from LIBOR to Term SOFR for longer-dated instruments, resulting in total derivative assets decreasing to $175.7 million as of March 31, 2023, from $212.0 million at December 31, 2022, while derivative liabilities increased to $14.9 million - Purpose: Hedge current and future interest rate payments on variable rate debt[64] - LIBOR to SOFR Transition: Transitioned longer-dated derivative instruments from LIBOR to Term SOFR since October 2022, applying optional expedients under Topic 848[66] | Metric | March 31, 2023 (USD thousands) | December 31, 2022 (USD thousands) | | :------------------------------------ | :------------------------------- | :-------------------------------- | | Total derivative assets (Fair value) | 175,711 | 211,993 | | Total derivative liabilities (Fair value) | 14,903 | 0 | | Notional amount of derivative assets designated as cash flow hedges | 4,175,000 | 3,641,000 | | Notional amount of derivative liabilities designated as cash flow hedges | 350,000 | 0 | - Expected Reclassification: Expect to reclassify approximately $67 million from accumulated other comprehensive income (AOCI) as a reduction in interest expense over the next 12 months[72] - Net (Loss) Gain on Derivatives: Recorded a net loss on derivatives, net of tax, of $31.6 million in Q1 2023, compared to a net gain of $53.6 million in Q1 2022[72] Note 12. Accounts payable, accrued expenses and other liabilities Total accounts payable, accrued expenses, and other liabilities increased to $1.67 billion as of March 31, 2023, from $1.49 billion at December 31, 2022, primarily due to increases in deferred revenue, accounts payable, accrued interest, and the recognition of derivative liabilities | Metric | March 31, 2023 (USD thousands) | December 31, 2022 (USD thousands) | | :------------------------------------------ | :------------------------------- | :-------------------------------- | | Accounts payable, accrued expenses and other liabilities | 1,671,896 | 1,494,953 | | Deferred revenue | 593,588 | 547,662 | | Accounts payable and accrued expenses | 581,969 | 475,166 | | Accrued interest | 348,061 | 336,910 | | Derivative liabilities | 14,903 | 0 | Note 13. Accrued maintenance liability Accrued maintenance liability slightly decreased to $2.49 billion as of March 31, 2023, from $2.50 billion at the beginning of the period, influenced by maintenance payments received and returned, and releases to income | Metric | Q1 2023 (USD thousands) | Q1 2022 (USD thousands) | | :------------------------------------------ | :---------------------- | :---------------------- | | Accrued maintenance liability at beginning of period | 2,503,202 | 2,900,651 | | Maintenance payments received | 177,737 | 202,541 | | Maintenance payments returned | (31,185) | (127,541) | | Release to income upon sale | (42,434) | (14,079) | | Release to income other than upon sale | (110,953) | (668,164) | | Accrued maintenance liability at end of period | 2,487,969 | 2,241,084 | Note 14. Debt Total outstanding indebtedness decreased slightly to $46.6 billion as of March 31, 2023, from $46.5 billion at December 31, 2022, with the company maintaining $11.3 billion in undrawn lines of credit and remaining in compliance with financial covenants, while extending Citi Revolver I and redeeming $600 million Senior Notes due 2023 - Total Outstanding Indebtedness (March 31, 2023): $46.6 billion (excluding debt issuance costs, discounts, and premium)[77] - Undrawn Lines of Credit (March 31, 2023): $11.3 billion[77] - Compliance: Remained in compliance with financial covenants[77] | Debt Type | March 31, 2023 (USD thousands) | December 31, 2022 (USD thousands) | Weighted Average Interest Rate (March 31, 2023) | | :-------------------------- | :------------------------------- | :-------------------------------- | :-------------------------------------------- | | Unsecured Debt | 34,174,500 | 34,710,500 | 3.02% (Notes) / 6.29% (Other) | | Secured Debt | 10,100,318 | 9,814,176 | 2.12% - 6.83% | | Subordinated Debt | 2,277,219 | 2,277,007 | 6.36% (Notes) | | Total Debt Outstanding | 46,295,924 | 46,532,960 | | - Debt Changes: Extended Citi Revolver I maturity to February 2027 and amended Citi Revolvers to replace LIBOR with Term SOFR; entered into a new $900 million secured facility agreement in March 2023; redeemed all $600 million outstanding 4.125% Senior Notes due 2023 in February 2023[82][83][84][85] Note 15. Income taxes The effective tax rate for Q1 2023 was 14.0%, compared to 12.2% for Q1 2022, with the Q1 2022 rate including a significant income tax benefit of $341 million due to the Ukraine Conflict charges - Effective Tax Rate (Q1 2023): 14.0%[86] - Effective Tax Rate (Q1 2022): 12.2%[86] - Q1 2022 Impact: Included approximately $341 million income tax benefit from Ukraine Conflict charges[86] Note 16. Equity AerCap repurchased 8,788,890 ordinary shares from General Electric (GE) for $500 million on March 13, 2023, completing a share repurchase program, which decreased GE's ownership to approximately 33.6% as of March 31, 2023, and a new $500 million share repurchase program was approved in April 2023 - Share Repurchase (March 2023): Repurchased 8,788,890 ordinary shares from GE for $500 million at $56.89 per share[87] - GE Ownership: GE's stake decreased to approximately 33.6% as of March 31, 2023[123] - New Share Repurchase Program: Approved in April 2023 for up to $500 million through September 30, 2023[88][164] Note 17. Other income Other income decreased to $42.4 million in Q1 2023 from $47.2 million in Q1 2022, primarily due to lower management fees and interest and other income | Metric | Q1 2023 (USD thousands) | Q1 2022 (USD thousands) | | :-------------------- | :---------------------- | :---------------------- | | Management fees | 9,115 | 10,197 | | Interest and other income | 33,262 | 36,993 | | Total Other Income | 42,377 | 47,190 | Note 18. Net charges related to Ukraine Conflict In Q1 2023, AerCap recognized net recoveries of $14.1 million related to the Ukraine Conflict, primarily from letters of credit and other collateral, contrasting sharply with Q1 2022's pre-tax net charge of $2.7 billion due to asset write-offs and impairments, while the company has received all payments related to $260 million in letters of credit as of March 31, 2023, and continues to pursue insurance claims for assets remaining in Russia and Ukraine - Q1 2023 Impact: Net recoveries of $14.1 million, primarily from letters of credit and collateral[93][94] - Q1 2022 Impact: Pre-tax net charge of $2.7 billion, including $3.2 billion in write-offs/impairments of flight equipment[92][94] - Sanctions Compliance: Terminated all Russian airline leases in March 2022 due to sanctions[91] - Letters of Credit: Received all payments related to approximately $260 million in letters of credit as of March 31, 2023[94] - Insurance Claims: Submitted a $3.5 billion claim under C&P Policy for assets in Russia (trial scheduled for Oct 2024) and approximately $100 million for two aircraft in Ukraine[95][97] Note 19. Asset impairment Asset impairment charges increased to $34.3 million in Q1 2023 from $2.4 million in Q1 2022, primarily related to lease terminations and sales transactions, excluding the $3.2 billion write-offs and impairments related to the Ukraine Conflict in Q1 2022 - Q1 2023 Impairment Charges: $34.3 million[99] - Q1 2022 Impairment Charges: $2.4 million (excluding Ukraine Conflict)[99] - Primary Cause: Lease terminations and sales transactions, partially offset by maintenance revenue[99] - Ukraine Conflict Exclusion: Q1 2022 also included $3.2 billion in write-offs and impairments related to the Ukraine Conflict[100] Note 20. Selling, general and administrative expenses Selling, general and administrative (SG&A) expenses increased to $110.6 million in Q1 2023 from $97.5 million in Q1 2022, driven by higher personnel expenses, travel, and other expenses, partially offset by a slight decrease in share-based compensation | Metric | Q1 2023 (USD thousands) | Q1 2022 (USD thousands) | | :------------------------------------ | :---------------------- | :---------------------- | | Total SG&A Expenses | 110,604 | 97,475 | | Personnel expenses | 48,448 | 45,067 | | Share-based compensation | 26,863 | 27,503 | | Travel expenses | 10,819 | 4,064 | Note 21. Allowance for credit losses The allowance for credit losses decreased to $92.4 million as of March 31, 2023, from $137.9 million at the beginning of the period, due to an $8.6 million decrease in credit provision and $36.9 million in write-offs for one lessee in Q1 2023, contrasting with a $61.7 million increase in credit provision in Q1 2022 mainly due to the Ukraine Conflict | Metric | March 31, 2023 (USD thousands) | March 31, 2022 (USD thousands) | | :------------------------------------------ | :------------------------------- | :------------------------------- | | Allowance for credit losses at beginning of period | 137,861 | 117,547 | | Current period (decrease) increase in provision for expected credit losses | (8,585) | 61,687 | | Write-offs charged against the allowance | (36,883) | (63,334) | | Allowance for credit losses at end of period | 92,393 | 115,900 | - Q1 2023 Decrease: Due to $8.6 million decrease in credit provision and $36.9 million write-offs for one lessee[103] - Q1 2022 Increase: Credit provision increased by $56.4 million primarily reflecting losses from the Ukraine Conflict[103] Note 22. Earnings per share Basic EPS was $1.81 and diluted EPS was $1.79 for Q1 2023, a significant improvement from a basic and diluted loss per share of $(8.35) in Q1 2022, with the number of ordinary shares outstanding (excluding unvested restricted stock) decreasing to 232.6 million as of March 31, 2023, from 241.1 million at December 31, 2022 | Metric | Q1 2023 | Q1 2022 | | :------------------------------------------ | :------ | :------ | | Net income (loss) for the computation of basic EPS | $432,105 | $(2,000,830) | | Weighted average ordinary shares outstanding—basic | 239,368,415 | 239,645,460 | | Basic EPS | $1.81 | $(8.35) | | Net income (loss) for the computation of diluted EPS | $432,105 | $(2,000,830) | | Weighted average ordinary shares outstanding—diluted | 241,559,712 | 239,645,460 | | Diluted EPS | $1.79 | $(8.35) | | Metric | March 31, 2023 | December 31, 2022 | | :-------------------------------------------------------------------- | :------------- | :---------------- | | Ordinary shares outstanding, excluding shares of unvested restricted stock | 232,632,094 | 241,093,673 | Note 23. Variable interest entities Substantially all assets and liabilities are held in consolidated VIEs where AerCap is the primary beneficiary, with no uncontractual financial support provided to VIEs in Q1 2023, and non-consolidated VIEs, accounted for using the equity method, have a maximum exposure to loss of $118.3 million as of March 31, 2023 - Consolidated VIEs: Substantially all assets and liabilities are held in consolidated VIEs where AerCap is the Primary Beneficiary[110][111] - Financial Support: No uncontractual financial support provided to VIEs in Q1 2023[109] - Non-consolidated VIEs: Investments accounted for under the equity method, with maximum exposure to loss of $118.3 million as of March 31, 2023[119] - Limited Recourse Financing Structures: As of March 31, 2023, these entities had aggregate subordinated debt outstanding of $54.4 million[116] Note 24. Related party transactions General Electric (GE) remains a related party, holding 33.6% of AerCap's shares as of March 31, 2023, with AerCap recognizing $40 million in rental income from GE and $53 million in purchases from GE in Q1 2023, and Shannon Engine Support (SES), a 50% joint venture, providing $28 million in lease rental income - GE Ownership: GE held approximately 33.6% of AerCap's shares as of March 31, 2023[123] - Transactions with GE (Q1 2023): Rental income of approximately $40 million, purchases of approximately $53 million, sales of approximately $14 million[124] - SES (50% joint venture): Recognized $28 million in lease rental income from SES in Q1 2023[126] - Other Related Parties (Q1 2023): Management fees and other of $3.0 million, dividends of $2.5 million[127] Note 25. Commitments and contingencies AerCap has significant commitments to purchase 421 new aircraft, 16 engines, and 18 new helicopters through 2028, with prepayments on flight equipment increasing to $3.95 billion as of March 31, 2023, and the company actively pursuing a $3.5 billion insurance claim under its C&P Policy for assets in Russia (trial scheduled for October 2024) and approximately $100 million for assets in Ukraine, alongside ongoing legal proceedings in Brazil - Flight Equipment on Order (March 31, 2023): Commitments to purchase 421 new aircraft (through 2028), 16 engines, and 18 new helicopters (through 2025)[128] - Prepayments on Flight Equipment (March 31, 2023): $3.95 billion[129] - C&P Policy Claim (Russia): Submitted a $3.5 billion insurance claim for 135 aircraft and 14 engines in Russia; legal proceedings commenced in London, trial scheduled for October 2024[131][132] - C&P Policy Claim (Ukraine): Submitted claims for approximately $100 million for two aircraft in Ukraine[97] - Legal Proceedings: Ongoing VASP and Transbrasil litigations in Brazilian courts, with uncertain outcomes regarding damages[135][137][141][143] Note 26. Fair value measurements AerCap classifies fair value measurements into Level 1 (quoted prices in active markets), Level 2 (observable market data), and Level 3 (unobservable inputs), with derivative financial instruments primarily Level 2, investments at fair value mostly Level 1, and flight equipment and certain definite-lived intangible assets measured at fair value on a non-recurring basis using Level 3 valuations based on discounted future cash flows - Fair Value Hierarchy: Level 1 (quoted prices), Level 2 (observable market data), Level 3 (unobservable inputs)[147][148] - Derivative Instruments: Fair value based on dealer quotes, classified as Level 2[150] - Investments at Fair Value: Primarily classified as Level 1[150] - Flight Equipment & Intangibles: Measured at fair value on a non-recurring basis using Level 3 valuations (income approach, discounted future cash flows)[152][153][154] | Financial Instrument | Carrying Value (March 31, 2023, USD millions) | Fair Value (March 31, 2023, USD millions) | Fair Value Level 1 | Fair Value Level 2 | Fair Value Level 3 | | :------------------------- | :------------------------------------------ | :---------------------------------------- | :----------------- | :----------------- | :----------------- | | Cash and cash equivalents | 1,089.0 | 1,089.0 | 1,089.0 | 0 | 0 | | Restricted cash | 174.6 | 174.6 | 174.6 | 0 | 0 | | Loans receivable | 336.4 | 315.9 | 0 | 0 | 315.9 | | Notes receivable | 444.4 | 444.4 | 0 | 0 | 444.4 | | Investments, at fair value | 69.6 | 69.6 | 39.5 | 0 | 30.1 | | Derivative assets | 175.7 | 175.7 | 0 | 175.7 | 0 | | Debt | 46,552.0 | 43,040.4 | 0 | 43,040.4 | 0 | | Derivative liabilities | 14.9 | 14.9 | 0 | 14.9 | 0 | Note 27. Subsequent events In April 2023, AerCap's Board of Directors approved a new share repurchase program, authorizing repurchases of up to $500 million of ordinary shares through September 30, 2023, to be funded by cash on hand and operations - New Share Repurchase Program: Approved in April 2023[164] - Authorization: Up to $500 million of ordinary shares[164] - Period: Through September 30, 2023[164] - Funding: Cash on hand and cash generated from operations[164] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on AerCap's financial performance and condition for Q1 2023, highlighting the flight equipment portfolio, comparative results, liquidity, capital resources, and non-GAAP measures, emphasizing the significant recovery from the prior year's Ukraine Conflict charges Special note about forward looking statements This section cautions readers that the report contains forward-looking statements based on current beliefs and projections, which are subject to various risks and uncertainties that could cause actual results to differ materially - Nature: Includes "forward looking statements" as defined by the Private Securities Litigation Reform Act of 1995[167] - Disclaimer: Actual results may differ substantially due to important factors, including capital availability, lessee payment ability, market demand, Ukraine Conflict impacts, and regulatory changes[168] - No Obligation to Update: The company undertakes no obligation to update or revise forward-looking statements[168] Flight equipment portfolio AerCap is a global leader in aviation leasing with a portfolio of 3,500 aircraft, engines, and helicopters (owned, on order, or managed) as of March 31, 2023, with the owned aircraft fleet having a weighted average age of 7.2 years and a utilization rate of 98% in Q1 2023, and the company executed 252 aviation asset transactions during the quarter - Total Portfolio (March 31, 2023): 3,500 aircraft, engines, and helicopters (owned, on order, or managed)[169] - Owned Aircraft (March 31, 2023): 1,557 aircraft[170] - Aircraft on Order (March 31, 2023): Commitments to purchase 421 new aircraft through 2028[170] - Weighted Average Age (Owned Fleet): 7.2 years (weighted by net book value)[170] - Owned Aircraft Utilization Rate (Q1 2023): 98%[170] - Transactions (Q1 2023): Executed 252 aviation asset transactions[169] - Off-lease Aircraft (March 31, 2023): 71 aircraft, with 35 re-leased or under commitment, 29 for sale/part-out, and 5 marketed for re-lease[170] | Aircraft Type | Number of owned aircraft (March 31, 2023) | Percentage of total net book value | Number of on order aircraft | Total owned, managed and on order aircraft | | :------------------------ | :---------------------------------------- | :--------------------------------- | :-------------------------- | :----------------------------------------- | | Passenger Aircraft | 1,497 | 97% | 421 | 2,094 | | Airbus A320neo Family | 350 | 32% | 207 | 580 | | Boeing 787 | 101 | 21% | 24 | 126 | | Boeing 737NG | 281 | 12% | 0 | 342 | | Freighter Aircraft | 60 | 3% | 0 | 67 | | Total | 1,557 | 100% | 421 | 2,161 | Critical accounting estimates There have been no significant changes to AerCap's critical accounting estimates from those disclosed in its Annual Report on Form 20-F for the year ended December 31, 2022 - No Significant Changes: No material changes to critical accounting estimates since the 2022 Annual Report on Form 20-F[173] Comparative results of operations AerCap's total revenues and other income increased by 4% to $1.87 billion in Q1 2023, while total expenses significantly decreased by 65% due to the absence of large Ukraine Conflict charges from the prior year, leading to a net income of $435.3 million, a substantial turnaround from a $2.0 billion net loss in Q1 2022, driven by a $96.3 million increase in net gain on asset sales and a $2.74 billion decrease in Ukraine Conflict-related charges | Metric | Q1 2023 (USD thousands) | Q1 2022 (USD thousands) | Increase/(Decrease) (USD thousands) | YoY Change (%) | | :------------------------------------------------ | :---------------------- | :---------------------- | :---------------------------------- | :------------- | | Total Revenues and other income | 1,865,722 | 1,790,016 | 75,706 | 4.23% | | Total Expenses | 1,406,640 | 4,070,400 | (2,663,760) | -65.44% | | Net income (loss) attributable to AerCap Holdings N.V. | 432,105 | (2,000,830) | 2,432,935 | 121.59% | | Basic lease rents | 1,536,663 | 1,553,646 | (16,983) | -1.09% | | Net gain on sale of assets | 99,540 | 3,285 | 96,255 | 2929.98% | | Net (recoveries) charges related to Ukraine Conflict | (14,108) | 2,728,718 | (2,742,826) | -100.52% | | Interest expense | 436,222 | 380,785 | 55,437 | 14.56% | | Equity in net earnings of investments accounted for under the equity method | 32,544 | 1,283 | 31,261 | 2436.55% | - Basic lease rents decreased by $17 million (1%) due to Ukraine Conflict lease terminations, transitions, and restructurings, and asset sales, partially offset by $81 million increase from asset acquisitions[176] - Net gain on sale of assets increased by $96.3 million due to higher volume and composition of asset sales (35 assets sold for $639 million in Q1 2023 vs. 23 assets for $452 million in Q1 2022)[177] - Interest expense increased by $55 million (15%) due to a $50 million increase in mark-to-market movements on interest rate caps/swaps (loss in Q1 2023 vs. gain in Q1 2022) and a $33 million increase in average cost of debt, partially offset by a $28 million decrease from lower average outstanding debt[180] Liquidity and capital resources AerCap's total available liquidity, including undrawn lines of credit and unrestricted cash, was $13.6 billion as of March 31, 2023, with total sources of liquidity (including estimated operating cash flows) at $18 billion, sufficient to cover 1.3x debt maturities and contracted capital requirements for the next 12 months, while net cash provided by operating activities was $1.4 billion, and net cash used in investing activities increased to $1.3 billion due to higher flight equipment purchases - Total Available Liquidity (March 31, 2023): $13.6 billion (including $11.3 billion undrawn lines of credit and $1.1 billion unrestricted cash)[189] - Total Sources of Liquidity (March 31, 2023): $18 billion (including estimated operating cash flows for next 12 months)[189] - Liquidity Coverage: Sufficient to cover approximately 1.3x debt maturities and contracted capital requirements for the next 12 months[189] | Cash Flow Activity | Q1 2023 (USD millions) | Q1 2022 (USD millions) | | :-------------------------------------- | :--------------------- | :--------------------- | | Net cash provided by operating activities | 1,363.4 | 1,336.6 | | Net cash used in investing activities | (1,278.1) | (646.6) | | Net cash used in financing activities | (579.7) | (1,259.1) | - Net cash used in investing activities increased due to $1.7 billion for flight equipment purchases and prepayments, partially offset by $470.3 million from asset sales[186] - Net cash used in financing activities decreased due to lower debt repayments and higher share repurchases[187] - Average cost of debt (excluding mark-to-market, issuance costs, etc.) was 3.3% in Q1 2023, up from 3.0% in Q1 2022[191][204] Contractual obligations As of March 31, 2023, AerCap's total contractual obligations amounted to $83.7 billion, with significant portions due in 2023 (remaining), 2024, and 2025, including debt facilities, estimated interest payments, purchase obligations for flight equipment, and operating leases - Total Contractual Obligations (March 31, 2023): $83.7 billion[193] | Obligation Type | 2023 - remaining (USD millions) | 2024 (USD millions) | 2025 (USD millions) | Total (USD millions) | | :-------------------------- | :------------------------------ | :------------------ | :------------------ | :------------------- | | Unsecured debt facilities | 3,500.0 | 6,880.0 | 3,650.0 | 34,174.5 | | Secured debt facilities | 1,689.0 | 906.8 | 2,239.5 | 10,098.6 | | Subordinated debt facilities | 0 | 0 | 0 | 2,277.2 | | Estimated interest payments | 1,327.8 | 1,534.2 | 1,355.5 | 14,693.2 | | Purchase obligations | 5,083.6 | 7,125.3 | 4,945.1 | 22,298.3 | | Operating leases | 47.6 | 46.8 | 14.2 | 151.2 | - Purchase obligations include commitments for 421 aircraft, 16 engines, and 18 helicopters through 2028[194] Off-balance sheet arrangements AerCap has interests in variable interest entities (VIEs), some of which are not consolidated in its financial statements, with details provided in Note 23 - VIE Interests: Holds interests in variable interest entities, some non-consolidated[197] - Reference: Details are in Note 23[197] Book value per share Book value per ordinary share outstanding (excluding unvested restricted stock) increased to $68.97 as of March 31, 2023, from $66.85 at December 31, 2022 | Metric | March 31, 2023 | December 31, 2022 | March 31, 2022 | | :-------------------------------------------------------------------- | :------------- | :---------------- | :------------- | | Total AerCap Holdings N.V. shareholders' equity (USD millions) | 16,045 | 16,118 | 14,653 | | Ordinary shares outstanding, excluding shares of unvested restricted stock | 232,632,094 | 241,093,673 | 239,773,861 | | Book value per ordinary share outstanding, excluding shares of unvested restricted stock | $68.97 | $66.85 | $61.11 | Non-GAAP measures and metrics This section defines and reconciles non-GAAP measures, including adjusted debt to equity ratio and average cost of debt, which provide additional insights into the company's performance and capital structure, with the adjusted debt to equity ratio at 2.56 to 1 as of March 31, 2023 - Purpose: Provide additional understanding of performance and capital structure, not to be viewed in isolation[199] - Adjusted Debt to Equity Ratio (March 31, 2023): 2.56 to 1 (vs. 2.53 to 1 at Dec 31, 2022)[202] | Metric | March 31, 2023 (USD millions) | December 31, 2022 (USD millions) | | :------------------------------------------ | :------------------------------ | :------------------------------- | | Debt | 46,296 | 46,533 | | Adjusted for: Cash and cash equivalents | (1,089) | (1,597) | | Adjusted for: 50% credit for long-term subordinated debt | (1,125) | (1,125) | | Adjusted debt | 44,082 | 43,811 | | Equity | 16,124 | 16,195 | | Adjusted for: 50% credit for long-term subordinated debt | 1,125 | 1,125 | | Adjusted equity | 17,249 | 17,320 | | Adjusted debt/equity ratio | 2.56 to 1 | 2.53 to 1 | - Average cost of debt (excluding mark-to-market, issuance costs, etc.) was 3.3% for Q1 2023, up from 3.0% for Q1 2022[204] Summarized financial information of issuers and guarantors This section provides summarized combined financial information for the Obligor Group (AerCap Holdings N.V. and its guarantors) as of March 31, 2023, and for the three months ended March 31, 2023, reporting total assets of $44.56 billion and total liabilities of $41.71 billion as of March 31, 2023, with net income of $375 million for Q1 2023 - Scope: Summarized financial information for the "Obligor Group" (AerCap Holdings N.V. and its guarantors), excluding non-obligor entities[214] | Metric | March 31, 2023 (USD millions) | December 31, 2022 (USD millions) | | :------------------------------------ | :------------------------------ | :------------------------------- | | Total assets | 44,561 | 44,131 | | Debt | 36,247 | 36,605 | | Total liabilities | 41,712 | 41,567 | | Metric | Q1 2023 (USD millions) | | :-------------------------------------------------------------------- | :--------------------- | | Total revenues and other income | 990 | | Total expenses | 561 | | Income before income taxes and loss of investments accounted for under the equity method | 429 | | Net income | 375 | | Net income attributable to AerCap Holdings N.V. | 372 | - Guarantee Obligations: The guarantee obligations of Subsidiary Guarantors are limited by fraudulent conveyance laws and other legal defenses[207][211] Item 3. Quantitative and Qualitative Disclosures About Market Risk AerCap's primary market risk is interest rate risk, managed through interest rate swaps and caps, while foreign currency risk is not significant due to most revenues and expenses being in U.S. dollars, and inflation poses a risk by increasing costs and potentially decreasing the value of fixed lease payments Interest rate risk AerCap manages interest rate risk, arising from mismatches between fixed/variable rate leases and debt, primarily using interest rate caps and swaps, with the company's derivative financial instruments sensitive to changes in LIBOR or Term SOFR, and all LIBOR-referencing instruments transitioning to Term SOFR by June 30, 2023 - Primary Risk: Exposure to changes in interest rates and spreads[219] - Management Strategy: Uses interest rate caps and swaps to manage exposure, based on a cash flow-based risk management model[220] - Derivative Instruments: Variable benchmark interest rates range from one- to three-month U.S. dollar LIBOR or Term SOFR[222] - LIBOR Transition: All U.S. dollar LIBOR instruments will expire or transition to Term SOFR by June 30, 2023[222] | Derivative Type | 2023 - remaining (USD millions) | 2024 (USD millions) | 2025 (USD millions) | Fair value (USD millions) | | :------------------ | :------------------------------ | :------------------ | :------------------ | :------------------------ | | Interest rate caps (Average notional amounts) | 2,521.7 | 1,903.3 | 854.2 | 114.1 | | Interest rate swaps (Average notional amounts) | 2,700.0 | 2,400.0 | 2,375.0 | 42.0 | Foreign currency risk and foreign operations Foreign currency risk is not significant to AerCap's operations as most revenues and expenses are in U.S. dollars, and all aircraft purchase agreements are in U.S. dollars, with only a limited number of leases and helicopter purchase agreements denominated in foreign currencies - Significance: Foreign currency transaction gains and losses are not significant[224] - Currency Denomination: Substantially all revenue and most expenses are in U.S. dollars; all aircraft purchase agreements are in U.S. dollars[224] - Limited Exposure: Limited number of leases and helicopter purchase agreements in foreign currencies, and some foreign currency cash/tax/expenses[224] Inflation High inflation rates pose adverse effects, potentially increasing operational costs and decreasing the real value of fixed lease payments, with a possible lag in adjusting lease rates, and could also negatively impact suppliers and lessees - Current Environment: Inflation rates are high in the US, EU, UK, and other countries[225] - Adverse Effects: May increase costs of goods, services, and labor; decrease the value of fixed lease payments; and negatively impact suppliers and lessees[225] - Lease Rate Lag: Multi-year leases may cause a lag in adjusting lease rates to inflation[225] PART II. OTHER INFORMATION Item 1. Legal Proceedings This item refers to Note 25 ("Commitments and contingencies") for details on legal proceedings - Reference: Legal proceedings details are in Note 25—Commitments and contingencies[227] Item 1A. Risk Factors There have been no material changes to the company's risk factors since those reported in its Annual Report for the year ended December 31, 2022 - No Material Changes: No material changes in risk factors since the 2022 Annual Report[228] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In March 2023, AerCap repurchased 8,788,890 ordinary shares at an average price of $56.89 per share, completing a publicly announced program | Month | Number of ordinary shares purchased | Average price paid per ordinary share | Total number of ordinary shares purchased as part of our publicly announced program | Maximum dollar value of ordinary shares that may yet be purchased under the program (USD millions) | | :---------- | :---------------------------------- | :------------------------------------ | :---------------------------------------------------------------------------------- | :----------------------------------------------------------------------------------------------- | | January 2023 | — | — | — | — | | February 2023 | — | — | — | — | | March 2023 | 8,788,890 | 56.89 | 8,788,890 | — | | Total | 8,788,890 | 56.89 | 8,788,890 | — | - Reference: Further details on share repurchase programs are in Note 16—Equity[229] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities - No Defaults: None[230] Item 4. Mine Safety Disclosures Not applicable - Applicability: Not applicable[231] Item 5. Other Information No other information to report - No Other Information: None[232] Item 6. Exhibits No exhibits are included - No Exhibits: None[233] Signature The report is duly signed by Aengus Kelly, Authorized Signatory, on behalf of AerCap Holdings N.V. on May 2, 2023 - Signatory: Aengus Kelly, Authorized Signatory[237] - Date: May 2, 2023[237]