Unsecured revolving credit facility
On August 8, 2016, we executed a commitment increase to our unsecured revolving facility. This increased the aggregate facility capacity by $35.0 million to $3.2 billion.
On May 27, 2016, the Company amended and extended its four-year unsecured revolving credit facility whereby the Company extended the maturity date from May 5, 2019 to May 5, 2020 and increased the total revolving commitments to approximately $3.1 billion from approximately $2.8 billion. At that time, the unsecured revolving credit facility was priced at LIBOR plus 1.25% with a 0.25% facility fee, each subject to adjustment based on changes in the Company’s credit ratings. Lenders hold revolving commitments totaling approximately $2.8 billion that mature on May 5, 2020, commitments totaling $290.0 million that mature on May 5, 2019, and commitments totaling $65.0 million that mature on May 5, 2018.
Effective October 17, 2016, the pricing of our unsecured revolving credit facility has been further reduced to LIBOR plus 1.05% with a 0.20% facility fee as a result of the upgraded investment grade corporate credit rating of 'BBB' obtained from S&P.
The total amount outstanding under our unsecured revolving credit facility was $1.0 billion and $720.0 million as of September 30, 2016 and December 31, 2015, respectively.
Unsecured term financings
In March 2016, the Company entered into a $100.0 million one-year unsecured term facility bearing interest at a rate of LIBOR plus 1.00%.
The outstanding balance on our unsecured term facilities as of September 30, 2016 and December 31, 2015 was $214.7 million and $292.8 million, respectively.
Secured term financing
In June 2016, the availability period for our ability to draw from our warehouse facility expired. The outstanding drawn balance at the end of the availability period was converted to an amortizing, four-year term loan with an interest rate of LIBOR plus 2.00%. As of September 30, 2016, the Company's outstanding balance was $257.4 million and pledged 12 aircraft with a net book value of $450.6 million were pledged as collateral. As of December 31, 2015, the Company had borrowed $372.4 million under our warehouse facility and pledged 14 aircraft as collateral with a net book value of $577.6 million.
As of September 30, 2016, the outstanding balance on our secured term facilities, including the converted warehouse facility, was $654.2 million and we had pledged 25 aircraft as collateral with a net book value of $1.3 billion. The outstanding balance under our secured term facilities as of September 30, 2016 was comprised of $38.8 million fixed rate debt and $615.4 million floating rate debt, with interest rates ranging from 4.34% to 5.36% and LIBOR plus 1.15% to LIBOR plus 2.99%, respectively. As of September 30, 2016, the remaining maturities of all secured term facilities ranged from approximately 0.3 years to approximately 6.8 years.
As of December 31, 2015, the outstanding balance on our secured term facilities was $477.2 million and we had pledged 15 aircraft as collateral with a net book value of $933.4 million. The outstanding balance under our secured term facilities as of December 31, 2015 was comprised of $75.1 million fixed rate debt and $402.1 million floating rate debt, with interest rates ranging from 4.28% to 5.36% and LIBOR plus 1.15% to LIBOR plus 2.99%, respectively. As of December 31, 2015, the remaining maturities of all secured term facilities ranged from approximately 0.1 years to approximately 7.5 years.
2016 and December 31, 2015, the amount due from Blackbird to the Company was $0.7 million. The Company's investment in Blackbird was $24.6 million and $18.6 million as of September 30, 2016 and December 31, 2015, respectively and is recorded in other assets on the Consolidated Balance Sheet.
Note 10. Flight Equipment Held for Sale
In May 2016, we entered into an agreement to sell 25 Embraer E190 and E175 aircraft to Nordic Aviation Capital A/S ("NAC"). During the quarter ended September 30, 2016, we completed sales of one E175 aircraft and three E190 aircraft. As of September 30, 2016, we have completed the sale of eight Embraer aircraft to NAC. We expect to complete the sales of the remaining 17 Embraer aircraft over the next two quarters.
In December 2015, we entered into an agreement to sell our fleet of 25 ATR turboprop aircraft, comprised of 20 delivered aircraft and five undelivered aircraft. During the quarter ended September 30, 2016, we completed sales of two ATR aircraft. As of September 30, 2016, we have completed the sale of 20 ATR aircraft to NAC. We expect to complete the sale of our existing ATR fleet and the remaining three ATR aircraft from our order book over the next quarter at delivery.
The remaining two delivered ATR aircraft and 17 Embraer aircraft, with a carrying value of $460.3 million, were held for sale and included in flight equipment subject to operating leases on the Consolidated Balance Sheet as of September 30, 2016. We cease recognition of depreciation expense once an aircraft is classified as held for sale.
As of December 31, 2015, we had 19 aircraft, with a carrying value of $305.9 million, held for sale and included in flight equipment subject to operating leases on the Consolidated Balance Sheet.
Note 11. Litigation
On April 22, 2015, the Company and certain executive officers and employees of the Company entered into a settlement agreement and release ("the Settlement Agreement") with AIG, ILFC, and ILFC’s parent, AerCap Holdings N.V., to settle all ongoing litigation. In the first quarter of 2015, the Company recorded settlement expense of $72.0 million on the Consolidated Statement of Income related to this settlement. During the first half of 2016, the Company received $5.25 million in insurance recoveries related to this matter, which are included in aircraft sales, trading and other revenue in our Consolidated Statement of Income.
Note 12. Subsequent Events
On October 3, 2016, the Company issued $500.0 million in aggregate principal amount of senior unsecured notes due 2020 that bear interest at a rate of 2.125%
On November 2, 2016, our board of directors approved a quarterly cash dividend of $0.075 per share on our outstanding common stock. The dividend will be paid on January 9, 2017 to holders of record of our common stock as of December 12, 2016.
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Overview
Air Lease Corporation is a leading aircraft leasing company that was founded by aircraft leasing industry pioneer, Steven F. Udvar-Házy. We are principally engaged in purchasing new commercial jet transport aircraft directly from the manufacturers, such as Boeing and Airbus, and leasing those aircraft to airlines throughout the world with the intention to generate attractive returns on equity. In addition to our leasing activities, we sell aircraft from our operating lease portfolio to third-parties, including other leasing companies, financial services companies and airlines. We also provide fleet management services to investors and owners of aircraft portfolios for a management fee. Our operating performance is driven by the growth of our fleet, the terms of our leases, the interest rates on our debt, and the aggregate amount of our indebtedness, supplemented by the gains from our aircraft sales and trading activities and our management fees.
During the quarter ended September 30, 2016, we purchased and took delivery of six aircraft from our new order pipeline, and sold seven aircraft, ending the quarter with a total of 244 aircraft, with a net book value of $11.9 billion. The weighted average lease term remaining on our operating lease portfolio was 6.9 years and the weighted average age of our fleet was 3.7 years as of September 30, 2016. Our fleet grew by 9.8% based on net book value of $11.9 billion as of September 30, 2016 compared to $10.8 billion as of December 31, 2015. In addition, we have a managed fleet of 33 aircraft as of September 30, 2016 and 29 aircraft as of December 31, 2015. We have a globally diversified customer base comprised of 88 airlines in 52 countries. 99% of the aircraft in our fleet were leased as of September 30, 2016.
During the first nine months of 2016, we entered into supplemental agreements and amendments to existing agreements with Airbus and Boeing to purchase nine additional aircraft. From Airbus, we agreed to purchase one A350-900 aircraft and one A321-200. From Boeing, we agreed to purchase six additional 737-8MAX aircraft and one 787-9 aircraft. Deliveries of the aircraft are scheduled to commence in 2017 and continue through 2021. As of September 30, 2016, we had, in the aggregate, 372 aircraft on order with Boeing, Airbus and ATR for delivery through 2023, with an estimate aggregate purchase price of $28.8 billion, making us one of the world's largest customers for new commercial jet aircraft.
In May 2016, we entered into an agreement to sell 25 Embraer E190 and E175 aircraft to Nordic Aviation Capital ("NAC"). As of September 30, 2016, eight aircraft had been transferred to NAC and the remaining 17 aircraft were held for sale. We expect the sale of the 17 aircraft held for sale to be completed by the first quarter of 2017.
On October 17, 2016, Standard & Poor's Ratings Services raised its corporate credit and senior unsecured ratings on ALC to 'BBB' with a stable outlook. While a ratings downgrade would not result in a default under any of our debt agreements, it could adversely affect our ability to issue debt and obtain new financings, or renew existing financings, and it would increase the cost of our financings.
On October 3, 2016, the Company issued $500.0 million in aggregate principal amount of senior unsecured notes due 2020 that bear interest at a rate of 2.125%.
On August 15, 2016, the Company issued $750.0 million in aggregate principal amount of senior unsecured notes due 2023 that bear interest at a rate of 3.00%.
On August 8, 2016, we executed a commitment increase to our unsecured revolving facility. This increased the aggregate facility capacity by $35.0 million to $3.2 billion.
In April 2016, we issued $600.0 million in senior unsecured notes which mature in 2021 and bear interest at a rate of 3.375%. In May 2016, we amended and extended our four-year unsecured revolving credit facility whereby we extended the maturity date from May 5, 2019 to May 5, 2020 and increased the total revolving commitments to approximately $3.1 billion from approximately $2.8 billion. Effective October 17, 2016, the pricing of our unsecured
revolving credit facility has been further reduced to LIBOR plus 1.05% with a 0.20% facility fee from LIBOR plus 1.25% with a 0.25% facility fee as a result of the upgraded investment grade corporate credit rating of 'BBB' obtained from S&P.
We ended the third quarter of 2016 with total debt outstanding, net of discounts and issuance costs, of $8.6 billion, of which 80.0% was at a fixed rate and 91.8% of which was unsecured, with a composite cost of funds of 3.44%. Since the end of the third quarter, in October 2016, we issued $500.0 million in aggregate principal amount of senior unsecured notes due 2020.
Our total revenues for the quarter ended September 30, 2016 increased by 13.4% to $355.1 million, compared to the quarter ended September 30, 2015. This is comprised of rental revenues on our operating lease portfolio of $340.9 million and aircraft sales, trading and other revenue of $14.2 million. During the quarter ended September 30, 2016, we recorded gains of $10.0 million from the sale of seven aircraft from our operating lease portfolio, compared to gains of $5.2 million from the sale of four aircraft from our operating lease portfolio for the quarter ended September 30, 2015.
Our net income for the quarter ended September 30, 2016 was $93.3 million compared to $77.0 million for the quarter ended September 30, 2015, an increase of $16.2 million or 21.1%. Our diluted earnings per share for the quarter ended September 30, 2016 was $0.86 compared to $0.71 for the quarter ended September 30, 2015. Our pre-tax profit margin for the three months ended September 30, 2016 was 40.7% compared to 38.2% for the three months ended September 30, 2015.
Excluding the effects of certain non-cash items, one-time or non-recurring items, such as settlement expense, net of recoveries, that are not expected to continue in the future and certain other items, our adjusted net income before income taxes was $157.3 million for the three months ended September 30, 2016 compared to $131.7 million for the three months ended September 30, 2015, an increase of $25.6 million or 19.4%. Our adjusted margin for the three months ended September 30, 2016 was 44.3% compared to 42.0% for the three months ended September 30, 2015. Adjusted diluted earnings per share before income taxes increased to $1.43 for the three months ended September 30, 2016, compared to $1.20 for the three months ended September 30, 2015. Adjusted net income before income taxes, adjusted margin and adjusted diluted earnings per share before income taxes are measures of financial and operational performance that are not defined by GAAP. See Note 1 under the "Results of Operations" table for a discussion of adjusted net income before income taxes, adjusted margin and adjusted diluted earnings per share before income taxes as non-GAAP measures and reconciliation of these measures to net income.
Our fleet
Portfolio metrics of our aircraft portfolio as of September 30, 2016 and December 31, 2015 are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
Owned fleet
|
|
|
244
|
|
|
240
|
|
Managed fleet
|
|
|
33
|
|
|
29
|
|
Order book
|
|
|
372
|
|
|
389
|
|
|
|
|
|
|
|
|
|
Weighted average fleet age
(1)
|
|
|
3.7 years
|
|
|
3.6 years
|
|
Weighted average remaining lease term
(1)
|
|
|
6.9 years
|
|
|
7.2 years
|
|
Aggregate fleet net book value
|
|
$
|
11,875,116
|
|
$
|
10,813,475
|
|
|
(1)
|
|
Weighted-average fleet age and remaining lease term calculated based on net book value.
|
The following table sets forth the net book value and percentage of the net book value of our aircraft portfolio operating in the indicated regions as of September 30, 2016 and December 31, 2015 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
|
|
Net Book
|
|
|
|
Net Book
|
|
|
|
Region
|
|
Value
|
|
% of Total
|
|
Value
|
|
% of Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
3,363,331
|
|
28.3
|
%
|
$
|
3,238,323
|
|
30.0
|
%
|
China
|
|
|
2,805,168
|
|
23.6
|
%
|
|
2,444,370
|
|
22.6
|
%
|
Asia (excluding China)
|
|
|
2,781,130
|
|
23.4
|
%
|
|
2,313,477
|
|
21.4
|
%
|
The Middle East and Africa
|
|
|
972,236
|
|
8.2
|
%
|
|
1,023,715
|
|
9.5
|
%
|
Central America, South America and Mexico
|
|
|
883,541
|
|
7.4
|
%
|
|
923,352
|
|
8.5
|
%
|
U.S. and Canada
|
|
|
610,901
|
|
5.2
|
%
|
|
446,839
|
|
4.1
|
%
|
Pacific, Australia, New Zealand
|
|
|
458,809
|
|
3.9
|
%
|
|
423,399
|
|
3.9
|
%
|
Total
|
|
$
|
11,875,116
|
|
100.0
|
%
|
$
|
10,813,475
|
|
100.0
|
%
|
The following table sets forth the number of aircraft we leased by aircraft type as of September 30, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
|
|
Number of
|
|
|
|
Number of
|
|
|
|
Aircraft type
|
|
Aircraft
|
|
% of Total
|
|
Aircraft
|
|
% of Total
|
|
Airbus A319-100
|
|
3
|
|
1.2
|
%
|
3
|
|
1.3
|
%
|
Airbus A320-200
|
|
44
|
|
18.0
|
%
|
39
|
|
16.3
|
%
|
Airbus A321-200
|
|
30
|
|
12.3
|
%
|
26
|
|
10.9
|
%
|
Airbus A330-200
|
|
17
|
|
7.0
|
%
|
16
|
|
6.7
|
%
|
Airbus A330-300
|
|
5
|
|
2.1
|
%
|
5
|
|
2.1
|
%
|
Boeing 737-700
|
|
8
|
|
3.3
|
%
|
8
|
|
3.3
|
%
|
Boeing 737-800
|
|
93
|
|
38.1
|
%
|
79
|
|
32.9
|
%
|
Boeing 767-300ER
|
|
1
|
|
0.4
|
%
|
1
|
|
0.4
|
%
|
Boeing 777-200ER
|
|
1
|
|
0.4
|
%
|
1
|
|
0.4
|
%
|
Boeing 777-300ER
|
|
20
|
|
8.2
|
%
|
17
|
|
7.1
|
%
|
Boeing 787-9
|
|
2
|
|
0.8
|
%
|
—
|
|
0.0
|
%
|
Embraer E175
|
|
2
|
|
0.8
|
%
|
5
|
|
2.1
|
%
|
Embraer E190
|
|
16
|
|
6.6
|
%
|
21
|
|
8.7
|
%
|
ATR 42/72-600
|
|
2
|
|
0.8
|
%
|
19
|
|
7.8
|
%
|
Total
|
|
244
|
|
100.0
|
%
|
240
|
|
100.0
|
%
|
As of September 30, 2016 and through November 3, 2016, we had commitments to acquire a total of 372 new aircraft for delivery as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft Type
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
Thereafter
|
|
Total
|
|
Airbus A320/A321-200
|
|
1
|
|
1
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2
|
|
Airbus A320/321neo
(1)(2)
|
|
1
|
|
14
|
|
17
|
|
27
|
|
26
|
|
55
|
|
140
|
|
Airbus A330-800/900neo
|
|
—
|
|
—
|
|
5
|
|
5
|
|
5
|
|
10
|
|
25
|
|
Airbus A350-900/1000
|
|
—
|
|
2
|
|
4
|
|
2
|
|
8
|
|
8
|
|
24
|
|
Boeing 737-800
|
|
2
|
|
9
|
|
—
|
|
—
|
|
—
|
|
—
|
|
11
|
|
Boeing 737-8/9 MAX
|
|
—
|
|
2
|
|
11
|
|
19
|
|
30
|
|
56
|
|
118
|
|
Boeing 777-300ER
|
|
2
|
|
2
|
|
—
|
|
—
|
|
—
|
|
—
|
|
4
|
|
Boeing 787-9/10
|
|
1
|
|
4
|
|
7
|
|
7
|
|
6
|
|
20
|
|
45
|
|
ATR 72-600
(3)
|
|
3
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
3
|
|
Total
|
|
10
|
|
34
|
|
44
|
|
60
|
|
75
|
|
149
|
|
372
|
|
|
(1)
|
|
Our Airbus A320/321neo aircraft orders include 40 long-range variants.
|
|
(2)
|
|
Airbus has advised us to anticipate several month delays on up to eight Pratt & Whitney powered A320/321neo aircraft scheduled for delivery in 2017.
|
|
(3)
|
|
We have committed to sell all of our ATR aircraft on order.
|
As of September 30, 2016, we had a non-binding commitment to acquire up to five A350-1000 aircraft. Deliveries of these aircraft are scheduled to commence in 2023 and continue through 2024.
Our lease placements are progressing in line with expectations. As of September 30, 2016 and through November 3, 2016, we have entered into contracts for the lease of new aircraft scheduled to be delivered as follows:
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Number
|
|
|
|
Delivery Year
|
|
Aircraft
|
|
Leased
|
|
% Leased
|
|
2016
(1)
|
|
10
|
|
8
|
|
80.0
|
%
|
2017
|
|
34
|
|
34
|
|
100.0
|
%
|
2018
|
|
44
|
|
38
|
|
86.4
|
%
|
2019
|
|
60
|
|
42
|
|
70.0
|
%
|
2020
|
|
75
|
|
17
|
|
22.7
|
%
|
Thereafter
|
|
149
|
|
4
|
|
2.7
|
%
|
Total
|
|
372
|
|
143
|
|
|
|
(1) Two unplaced ATR turboprop aircraft are expected to transfer to NAC upon delivery to us.
Aircraft industry and sources of revenues
Our revenues are principally derived from operating leases with scheduled and charter airlines. In each of the last three years, we derived more than 95% of our revenues from airlines domiciled outside of the U.S., and we anticipate that most of our revenues in the future will be generated from foreign customers.
Demand for air travel has consistently grown in terms of both passenger traffic and number of aircraft in service. According to the International Air Transport Association (“IATA”), global passenger traffic demand has grown 5.8% in the first eight months of 2016 compared to the first eight months of 2015. In 2015 and 2014, global passenger traffic demand grew 6.5% and 5.9% respectively, which was in line with the annual growth rate over the past 30 years. The number of aircraft in service has grown steadily and the number of leased aircraft in the global fleet has increased. The long-term outlook for aircraft demand remains robust due to increased passenger traffic and the need to replace aging aircraft.
The success of the commercial airline industry is linked to the strength of global economic development, which may be negatively impacted by macroeconomic conditions, geopolitical and policy risks. Nevertheless, across a variety of global economic conditions, the leasing industry has remained resilient over time. We remain optimistic about the long-term growth prospects for air transportation. We see a growing demand for aircraft leasing in the broader industry and a role for us in helping airlines modernize their fleets to support the growth of the airline industry. However, with the growth in aircraft leasing worldwide, we are witnessing an increase in competition among aircraft lessors resulting in more variation in lease rates.
Liquidity and Capital Resources
Overview
We finance the purchase of aircraft and our business with available cash balances, internally generated funds, including aircraft sales and trading activity, and debt financings. We have structured ourselves to have an investment-grade credit profile and our debt financing strategy has focused on funding our business on an unsecured basis. Unsecured financing provides us with operational flexibility when selling or transitioning aircraft from one airline to another. In addition, we may, to a limited extent, utilize export credit financing in support of our new aircraft deliveries.
We ended the third quarter of 2016 with total debt outstanding, net of discounts and issuance costs, of $8.6 billion compared to $7.7 billion as of December 31, 2015. Our unsecured debt increased to $7.9 billion as of September 30, 2016 from $6.9 billion as of December 31, 2015. Our unsecured debt as a percentage of total debt increased to 91.8% as of September 30, 2016 from 88.4% as of December 31, 2015.
We increased our cash flows from operations by 29.8% or $174.9 million, to $761.5 million for the nine months ended September 30, 2016 as compared to $586.6 million for the nine months ended September 30, 2015. Our cash
flows from operations increased primarily because of our increased net income. Our cash flow used in investing activities was $1.6 billion for the nine months ended September 30, 2016, which resulted primarily from the purchase of aircraft partially offset by proceeds on the sale of aircraft. Our cash flow provided by financing activities was $903.3 million for the nine months ended September 30, 2016, which resulted primarily from the issuances of unsecured notes in 2016, partially offset by the repayment of outstanding debt.
We ended the third quarter of 2016 with available liquidity of $2.4 billion which is comprised of unrestricted cash of $226.8 million and undrawn balances under our unsecured revolving credit facility of $2.1 billion. Including the $500 million of senior unsecured notes issued on October 3, 2016, at 2.125%, maturing in 2020, our available liquidity increased to $2.9 billion. We believe that we have sufficient liquidity to satisfy the operating requirements of our business through the next twelve months.
Our financing plan for the remainder of 2016 is focused on funding the purchase of aircraft and our business with available cash balances, internally generated funds, including aircraft sales and trading activities, and debt financings. Our debt financing plan is focused on continuing to raise unsecured debt in the global bank and investment grade capital markets. In addition, we may utilize, to a limited extent, export credit financing in support of our new aircraft deliveries.
We are in compliance in all material respects with all covenants or other requirements in our debt agreements. While a ratings downgrade would not result in a default under any of our debt agreements, it could adversely affect our ability to issue debt and obtain new financings, or renew existing financings, and it would increase the cost of certain financings. Our liquidity plans are subject to a number of risks and uncertainties, including those described in our Annual Report on Form 10-K for the year ended December 31, 2015.
Debt
Our debt financing was comprised of the following at September 30, 2016 and December 31, 2015 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
Unsecured
|
|
|
|
|
|
|
|
Senior notes
|
|
$
|
6,506,343
|
|
$
|
5,677,769
|
|
Revolving credit facility
|
|
|
1,018,000
|
|
|
720,000
|
|
Term financings
|
|
|
214,734
|
|
|
292,788
|
|
Convertible senior notes
|
|
|
200,000
|
|
|
200,000
|
|
Total unsecured debt financing
|
|
|
7,939,077
|
|
|
6,890,557
|
|
Secured
|
|
|
|
|
|
|
|
Term financings
|
|
|
654,166
|
|
|
477,231
|
|
Warehouse facility
|
|
|
—
|
|
|
372,423
|
|
Export credit financing
|
|
|
53,238
|
|
|
58,229
|
|
Total secured debt financing
|
|
|
707,404
|
|
|
907,883
|
|
|
|
|
|
|
|
|
|
Total debt financing
|
|
|
8,646,481
|
|
|
7,798,440
|
|
Less: Debt discounts and issuance costs
|
|
|
(91,749)
|
|
|
(86,019)
|
|
Debt financing, net of discounts and issuance costs
|
|
$
|
8,554,732
|
|
$
|
7,712,421
|
|
Selected interest rates and ratios:
|
|
|
|
|
|
|
|
Composite interest rate
(1)
|
|
|
3.44
|
%
|
|
3.59
|
%
|
Composite interest rate on fixed-rate debt
(1)
|
|
|
3.80
|
%
|
|
4.04
|
%
|
Percentage of total debt at fixed-rate
|
|
|
79.95
|
%
|
|
78.70
|
%
|
|
(1)
|
|
This rate does not include the effect of upfront fees, undrawn fees or issuance cost amortization.
|
Senior unsecured notes
As of September 30, 2016, we had $6.5 billion in senior unsecured notes outstanding. As of December 31, 2015, we had $5.7 billion in senior unsecured notes outstanding. Since the end of the third quarter, on October 3, 2016, we issued $500.0 million in aggregate principal amount of senior unsecured notes due 2020 that bear interest at the rate of 2.125%.
On August 15, 2016, the Company issued $750.0 million in aggregate principal amount of senior unsecured notes due 2023 that bear interest at a rate of 3.00%.
On August 2, 2016, the Company issued and sold $100.0 million aggregate principal amount of its 3.00% Senior Unsecured Notes, Series A, due 2020 in a private placement that was not registered with the Securities and Exchange Commission. The Company also entered into an uncommitted shelf facility by which the Company may request that certain parties purchase, until August 2, 2020, up to $200.0 million of additional senior unsecured notes of the Company. The interest rate of such notes will be determined at the time of purchase. The parties to the facility are under no obligation to purchase such notes.
On April 11, 2016, the Company issued $600.0 million in aggregate principal amount of senior unsecured notes due 2021 that bear interest at a rate of 3.375%.
Unsecured revolving credit facility
On August 8, 2016, we executed a commitment increase to our unsecured revolving facility. This increased the aggregate facility capacity by $35.0 million to $3.2 billion.
On May 27, 2016, we amended and extended our four-year unsecured revolving credit facility whereby we extended the maturity date from May 5, 2019 to May 5, 2020 and increased the total revolving commitments to approximately $3.1 billion from approximately $2.8 billion. At that time,the unsecured revolving credit facility was priced at LIBOR plus 1.25% with a 0.25% facility fee, each subject to adjustments based on our credit ratings. Lenders hold revolving commitments totaling approximately $2.8 billion that mature on May 5, 2020, commitments totaling $290.0 million that mature on May 5, 2019, and commitments totaling $65.0 million that mature on May 5, 2018.
Effective October 17, 2016, the pricing of our unsecured revolving credit facility has been further reduced to LIBOR plus 1.05% with a 0.20% facility fee as a result of the upgraded investment grade corporate credit rating of 'BBB' obtained from S&P.
The total amount outstanding under our unsecured revolving credit facility was $1.0 billion and $720.0 million as of September 30, 2016 and December 31, 2015, respectively.
Unsecured term financings
In March 2016, we entered into a $100.0 million one-year unsecured term facility bearing interest at a rate of LIBOR plus 1.00%.
The outstanding balance on our unsecured term facilities as of September 30, 2016 and December 31, 2015 was $214.7 million and $292.8 million, respectively.
Secured term financing
In June 2016, the availability period for our ability to draw from our warehouse facility expired. The outstanding drawn balance at the end of the availability period was converted to an amortizing, four-year term loan with an interest rate of LIBOR plus 2.00%. As of September 30, 2016, the Company's outstanding balance was $257.4 million and pledged 12 aircraft with a net book value of $450.6 million were pledged as collateral. As of December 31, 2015, the Company had borrowed $372.4 million under our warehouse facility and pledged 14 aircraft as collateral with a net book value of $577.6 million.
As of September 30, 2016, the outstanding balance on our secured term facilities, including the converted warehouse facility, was $654.2 million and we had pledged 25 aircraft as collateral with a net book value of $1.3 billion. The outstanding balance under our secured term facilities as of September 30, 2016 was comprised of $38.8 million fixed rate debt and $615.4 million floating rate debt, with interest rates ranging from 4.34% to 5.36% and LIBOR plus 1.15% to LIBOR plus 2.99%, respectively. As of September 30, 2016, the remaining maturities of all secured term facilities ranged from approximately 0.3 years to approximately 6.8 years.
As of December 31, 2015, the outstanding balance on our secured term facilities was $477.2 million and we had pledged 15 aircraft as collateral with a net book value of $933.4 million. The outstanding balance under our secured term facilities as of December 31, 2015 was comprised of $75.1 million fixed rate debt and $402.1 million floating rate debt, with interest rates ranging from 4.28% to 5.36% and LIBOR plus 1.15% to LIBOR plus 2.99%, respectively. As of December 31, 2015, the remaining maturities of all secured term facilities ranged from approximately 0.1 years to approximately 7.5 years.
Credit ratings
On October 17, 2016, Standard & Poor's Ratings Services raised its corporate credit and senior unsecured ratings on ALC to 'BBB' with a stable outlook.
The following table summarizes our current credit ratings:
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
|
|
Corporate
|
|
|
|
Date of Last
|
|
Rating Agency
|
|
Debt
|
|
Rating
|
|
Outlook
|
|
Ratings Action
|
|
Standard and Poor's
|
|
BBB
|
|
BBB
|
|
Stable Outlook
|
|
October 17, 2016
|
|
Kroll Bond Rating Agency
|
|
A−
|
|
A−
|
|
Stable Outlook
|
|
December 7, 2015
|
|
While a ratings downgrade would not result in a default under any of our debt agreements, it could adversely affect our ability to issue debt and obtain new financings, or renew existing financings, and it would increase the cost of our financings.
Results of Operations
The following table presents our historical operating results for the three and nine month periods ended September 30, 2016 and 2015 (in thousands, except percentages and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
(in thousands)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental of flight equipment
|
|
$
|
340,864
|
|
$
|
304,264
|
|
$
|
985,375
|
|
$
|
860,281
|
|
Aircraft sales, trading and other
|
|
|
14,237
|
|
|
8,862
|
|
|
63,193
|
|
|
35,862
|
|
Total revenues
|
|
|
355,101
|
|
|
313,126
|
|
|
1,048,568
|
|
|
896,143
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
64,720
|
|
|
60,103
|
|
|
188,870
|
|
|
173,654
|
|
Amortization of debt discounts and issuance costs
|
|
|
8,081
|
|
|
7,419
|
|
|
22,630
|
|
|
22,782
|
|
Interest expense
|
|
|
72,801
|
|
|
67,522
|
|
|
211,500
|
|
|
196,436
|
|
Depreciation of flight equipment
|
|
|
113,251
|
|
|
102,046
|
|
|
333,962
|
|
|
291,460
|
|
Settlement
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
72,000
|
|
Selling, general and administrative
|
|
|
19,874
|
|
|
19,323
|
|
|
59,929
|
|
|
56,150
|
|
Stock-based compensation
|
|
|
4,602
|
|
|
4,648
|
|
|
12,342
|
|
|
12,372
|
|
Total expenses
|
|
|
210,528
|
|
|
193,539
|
|
|
617,733
|
|
|
628,418
|
|
Income before taxes
|
|
|
144,573
|
|
|
119,587
|
|
|
430,835
|
|
|
267,725
|
|
Income tax expense
|
|
|
(51,297)
|
|
|
(42,545)
|
|
|
(152,898)
|
|
|
(95,233)
|
|
Net income
|
|
$
|
93,276
|
|
$
|
77,042
|
|
$
|
277,937
|
|
$
|
172,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share of Class A and B common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.91
|
|
$
|
0.75
|
|
$
|
2.70
|
|
$
|
1.68
|
|
Diluted
|
|
$
|
0.86
|
|
$
|
0.71
|
|
$
|
2.55
|
|
$
|
1.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax profit margin
|
|
|
40.7
|
%
|
|
38.2
|
%
|
|
41.1
|
%
|
|
29.9
|
%
|
Adjusted net income before income taxes
(1)
|
|
$
|
157,256
|
|
$
|
131,654
|
|
$
|
460,557
|
|
$
|
374,879
|
|
Adjusted margin
(1)
|
|
|
44.3
|
%
|
|
42.0
|
%
|
|
44.1
|
%
|
|
41.8
|
%
|
Adjusted diluted earnings per share before income taxes
(1)
|
|
$
|
1.43
|
|
$
|
1.20
|
|
$
|
4.20
|
|
$
|
3.43
|
|
|
(1)
|
|
Adjusted net income before income taxes (defined as net income excluding the effects of certain non-cash items, one-time or non-recurring items, such as settlement expense, net of recoveries, that are not expected to continue in the future and certain other items), adjusted margin (defined as adjusted net income before income taxes divided by total revenues, excluding insurance recoveries) and adjusted diluted earnings per share before income taxes (defined as adjusted net income before income taxes divided by the weighted average diluted common shares outstanding) are measures of operating performance that are not defined by GAAP and should not be considered as an alternative to net income, pre-tax profit margin, earnings per share, and diluted earnings per share, or any other performance measures derived in accordance with GAAP. Adjusted net income before income taxes, adjusted margin and adjusted diluted earnings per share before income taxes, are presented as supplemental disclosure because management believes they provide useful information on our earnings from ongoing operations.
|
Management and our board of directors use adjusted net income before income taxes, adjusted margin and adjusted diluted earnings per share before income taxes to assess our consolidated financial and operating performance. Management believes these measures are helpful in evaluating the operating performance of our ongoing operations and identifying trends in our performance, because they remove the effects of certain non-cash items, one-time or non-recurring items that are not expected to continue in the future and certain other items from our operating results. Adjusted net income before income taxes, adjusted margin and adjusted diluted earnings per share before income taxes, however, should not be considered in isolation or as a substitute for analysis of our operating results or cash flows as reported under GAAP. Adjusted net income before income taxes, adjusted margin and adjusted diluted earnings per share before income taxes do not reflect our cash expenditures or changes in or cash requirements for
our working capital needs. In addition, our calculation of adjusted net income before income taxes, adjusted margin and adjusted diluted earnings per share before income taxes may differ from the adjusted net income before income taxes, adjusted margin and adjusted diluted earnings per share before income taxes or analogous calculations of other companies in our industry, limiting their usefulness as a comparative measure.
The following tables show the reconciliation of net income to adjusted net income before income taxes and adjusted margin (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
Reconciliation of net income to adjusted net income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
93,276
|
|
$
|
77,042
|
|
$
|
277,937
|
|
$
|
172,492
|
|
Amortization of debt discounts and issuance costs
|
|
|
8,081
|
|
|
7,419
|
|
|
22,630
|
|
|
22,782
|
|
Stock-based compensation
|
|
|
4,602
|
|
|
4,648
|
|
|
12,342
|
|
|
12,372
|
|
Settlement
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
72,000
|
|
Insurance recovery on settlement
|
|
|
—
|
|
|
—
|
|
|
(5,250
|
)
|
|
—
|
|
Provision for income taxes
|
|
|
51,297
|
|
|
42,545
|
|
|
152,898
|
|
|
95,233
|
|
Adjusted net income before income taxes
|
|
$
|
157,256
|
|
$
|
131,654
|
|
$
|
460,557
|
|
$
|
374,879
|
|
Adjusted margin
(1)
|
|
|
44.3
|
|
%
|
42.0
|
%
|
|
44.1
|
%
|
|
41.8
|
%
|
|
(1)
|
|
Adjusted margin is adjusted net income before income taxes divided by total revenues, excluding insurance recoveries.
|
The following table shows the reconciliation of net income to adjusted diluted earnings per share before income taxes (in thousands, except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
Reconciliation of net income to adjusted diluted earnings per share before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
93,276
|
|
$
|
77,042
|
|
$
|
277,937
|
|
$
|
172,492
|
|
Amortization of debt discounts and issuance costs
|
|
|
8,081
|
|
|
7,419
|
|
|
22,630
|
|
|
22,782
|
|
Stock-based compensation
|
|
|
4,602
|
|
|
4,648
|
|
|
12,342
|
|
|
12,372
|
|
Settlement
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
72,000
|
|
Insurance recovery on settlement
|
|
|
—
|
|
|
—
|
|
|
(5,250)
|
|
|
—
|
|
Provision for income taxes
|
|
|
51,297
|
|
|
42,545
|
|
|
152,898
|
|
|
95,233
|
|
Adjusted net income before income taxes
|
|
$
|
157,256
|
|
$
|
131,654
|
|
$
|
460,557
|
|
$
|
374,879
|
|
Assumed conversion of convertible senior notes
|
|
|
1,472
|
|
|
1,463
|
|
|
4,382
|
|
|
4,341
|
|
Adjusted net income before income taxes plus assumed conversions
|
|
$
|
158,728
|
|
$
|
133,117
|
|
$
|
464,939
|
|
$
|
379,220
|
|
Weighted-average diluted shares outstanding
|
|
|
110,788,913
|
|
|
110,623,960
|
|
|
110,737,889
|
|
|
110,635,282
|
|
Adjusted diluted earnings per share before income taxes
|
|
$
|
1.43
|
|
$
|
1.20
|
|
$
|
4.20
|
|
$
|
3.43
|
|
Three months ended September 30, 2016, compared to the three months ended September 30, 2015
Rental revenue
As of September 30, 2016, we owned 244 aircraft at a net book value of $11.9 billion and recorded $340.9 million in rental revenue for the quarter then ended September 30, 2016, which included overhaul revenue of $4.6 million. In the prior year, as of September 30, 2015, we owned 235 aircraft at a net book value of $10.4 billion and recorded $304.3 million in rental revenue for the quarter ended September 30, 2015, which included overhaul revenue of $13.4 million.
The increase in rental revenue was primarily attributable to the leasing of additional aircraft in this quarter and prior periods, which was partially offset by the reduction in revenue from the sale of seven aircraft during the third quarter.
Aircraft sales, trading and other
Aircraft sales, trading and other revenue totaled $14.2 million for the three months ended September 30, 2016 compared to $8.9 million for the three months ended September 30, 2015. During the quarter ended September 30, 2016, we recorded $10.0 million in gains from the sale of seven aircraft from our operating lease portfolio. During the quarter ended September 30, 2015, we recorded $5.2 million in gains from the sale of four aircraft from our operating lease portfolio.
Interest expense
Interest expense totaled $72.8 million for the three months ended September 30, 2016 compared to $67.5 million for the three months ended September 30, 2015. The change was primarily due to an increase in our average outstanding debt balances partially offset by a decrease in our composite rate. We expect that our interest expense will increase as our average debt balance outstanding continues to increase. Interest expense will also be impacted by changes in our composite cost of funds.
Depreciation expense
We recorded $113.3 million in depreciation expense of flight equipment for the three months ended September 30, 2016 compared to $102.0 million for the three months ended September 30, 2015. The increase in depreciation expense for the three months ended September 30, 2016, compared to the three months ended September 30, 2015, is attributable to the acquisition of additional aircraft.
Selling, general and administrative expenses
We recorded selling, general and administrative expenses of $19.9 million for the three months ended September 30, 2016 compared to $19.3 million for the three months ended September 30, 2015. Selling, general and administrative expense as a percentage of total revenue decreased to 5.6% for the three months ended September 30, 2016 compared to 6.2% for the three months ended September 30, 2015. As we continue to add new aircraft to our portfolio, we expect over the long-term, selling, general and administrative expense to decrease as a percentage of revenue.
Taxes
The effective tax rate was 35.5% and 35.6% for the three months ended September 30, 2016 and 2015, respectively.
Net income
For the three months ended September 30, 2016, we reported consolidated net income of $93.3 million, or $0.86 per diluted share, compared to a consolidated net income of $77.0 million, or $0.71 per diluted share, for the three months ended September 30, 2015. The increase in net income for the third quarter of 2016 compared to the third quarter of 2015, was primarily attributable to the lease of additional aircraft.
Adjusted net income before income taxes
For the three months ended September 30, 2016, we recorded adjusted net income before income taxes of $157.3 million, or $1.43 per adjusted diluted share before income taxes, compared to an adjusted net income before income taxes of $131.7 million, or $1.20 per adjusted diluted share before income taxes, for the three months ended September 30, 2015. The increase in adjusted net income before income taxes for the third quarter of 2016 compared to the third quarter of 2015, was primarily attributable to the lease of additional aircraft.
Adjusted net income before income taxes and adjusted diluted earnings per share before income taxes are measures of financial and operational performance that are not defined by GAAP. See Note 1 under the "Results of Operations" table above for a discussion of adjusted net income before income taxes and adjusted diluted earnings per share before income taxes as non-GAAP measures and reconciliation of these measures to net income.
Nine months ended September 30, 2016, compared to the nine months ended September 30, 2015
Rental revenue
As of September 30, 2016, we owned 244 aircraft at a net book value of $11.9 billion and recorded $985.4 million in rental revenue for the nine months ended September 30, 2016, which included overhaul revenue of $8.1 million. In the prior year, as of September 30, 2015, we owned 235 aircraft at a net book value of $10.4 billion and recorded $860.3 million in rental revenue for the nine months ended September 30, 2015, which included overhaul revenue of $23.4 million. The increase in rental revenue was primarily attributable to the leasing of additional aircraft in this period and prior periods.
Aircraft sales, trading and other
Aircraft sales, trading and other revenue totaled $63.2 million for the nine months ended September 30, 2016 compared to $35.9 million for the nine months ended September 30, 2015. During the nine months ended September 30, 2016, we recorded $47.7 million in gains from the sale of 29 aircraft from our operating lease portfolio. In addition, we received insurance proceeds of $5.25 million during the nine months ended September 30, 2016 in connection with the litigation settlement discussed in Note 11: Litigation, in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. During the nine months ended September 30, 2015, we recorded $29.1 million in gains from the sale of 20 aircraft from our operating lease portfolio.
Interest expense
Interest expense totaled $211.5 million for the nine months ended September 30, 2016 compared to $196.4 million for the nine months ended September 30, 2015. The change was primarily due to an increase in our average outstanding debt balances partially offset by a decrease in our composite rate. We expect that our interest expense will increase as our average debt balance outstanding continues to increase. Interest expense will also be impacted by changes in our composite cost of funds.
Depreciation expense
We recorded $334.0 million in depreciation expense of flight equipment for the nine months ended September 30, 2016 compared to $291.5 million for the nine months ended September 30, 2015. The increase in depreciation expense for the nine months ended September 30, 2016, compared to the nine months ended September 30, 2015, is attributable to the acquisition of additional aircraft.
Selling, general and administrative expenses
We recorded selling, general and administrative expenses of $59.9 million for the nine months ended September 30, 2016 compared to $56.2 million for the nine months ended September 30, 2015. Selling, general and administrative expense as a percentage of total revenue decreased to 5.7% for the nine months ended September 30, 2016 compared to 6.3% for the nine months ended September 30, 2015. As we continue to add new aircraft to our portfolio, we expect over the long-term, selling, general and administrative expense to decrease as a percentage of our revenue.
Settlement expense
During the nine months ended September 30, 2015, we recorded settlement expense of $72.0 million resulting from the Settlement Agreement entered into by and between us, certain of our executive officers and employees, AIG, ILFC, and AerCap Holdings N.V., to settle all ongoing litigation as set forth in Note 11: Litigation in the Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
Taxes
The effective tax rate was 35.5% and 35.6% for the nine months ended September 30, 2016 and 2015, respectively.
Net income
For the nine months ended September 30, 2016, we reported consolidated net income of $277.9 million, or $2.55 per diluted share, compared to a consolidated net income of $172.5 million, or $1.60 per diluted share, for the nine months ended September 30, 2015. Net income and diluted earnings per share for the nine months ended September 30, 2015 were negatively impacted by the litigation settlement discussed in Note 11: Litigation, in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Adjusted net income before income taxes
For the nine months ended September 30, 2016, we recorded adjusted net income before income taxes of $460.6 million, or $4.20 per adjusted diluted share before income taxes, compared to an adjusted net income before income taxes of $374.9 million, or $3.43 per adjusted diluted share before income taxes, for the nine months ended September 30, 2015. The increase in adjusted net income before income taxes for the third quarter of 2016 compared to the third quarter of 2015, was primarily attributable to the lease of additional aircraft.
Adjusted net income before income taxes and adjusted diluted earnings per share before income taxes are measures of financial and operational performance that are not defined by GAAP. See Note 1 under the "Results of Operations" table above for a discussion of adjusted net income before income taxes and adjusted diluted earnings per share before income taxes as non-GAAP measures and reconciliation of these measures to net income.
Contractual Obligations
Our contractual obligations as of September 30, 2016, are as follows (in thousands):
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2016
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2017
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2018
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2019
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2020
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Thereafter
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Total
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Long-term debt obligations
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$
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93,573
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$
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1,412,525
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$
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1,466,778
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$
|
1,073,411
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$
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1,557,266
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$
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3,042,928
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$
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8,646,481
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Interest payments on debt outstanding
(1)
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70,961
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|
|
268,609
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|
|
222,876
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|
|
175,229
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|
|
130,636
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|
|
212,626
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|
|
1,080,937
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Purchase commitments
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|
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700,749
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|
|
2,790,354
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|
|
3,791,575
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|
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4,629,955
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|
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5,878,157
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|
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10,959,387
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|
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28,750,177
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Operating leases
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|
|
644
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|
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2,619
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|
|
2,926
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|
|
3,232
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|
|
3,111
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|
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9,750
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|
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22,282
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Total
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$
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865,927
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$
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4,474,107
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$
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5,484,155
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$
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5,881,827
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|
$
|
7,569,170
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|
$
|
14,224,691
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$
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38,499,877
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(1)
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Future interest payments on floating rate debt are estimated using floating rates in effect at September 30, 2016.
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Off-Balance Sheet Arrangements
We have not established any unconsolidated entities for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. We have, however, from time to time established subsidiaries and created partnership arrangements or trusts for the purpose of leasing aircraft or facilitating borrowing arrangements, all of which are consolidated.
Critical Accounting Policies
Our critical accounting policies reflecting management’s estimates and judgments are described in our Annual Report on Form 10-K for the year ended December 31, 2015. We have reviewed recently adopted accounting pronouncements and determined that the adoption of such pronouncements is not expected to have a material impact, if any, on its consolidated financial statements. Accordingly, there have been no changes to critical accounting policies in the nine months ended September 30, 2016.