TIDMDNA2
RNS Number : 3571T
Doric Nimrod Air Two Limited
11 October 2017
QUARTERLY FACT SHEET
30 September 2017
DORIC NIMROD AIR TWO LIMITED
LSE: DNA2
The Company
Doric Nimrod Air Two Limited ("the Company") is a Guernsey
domiciled company, which was listed on the Specialist Fund Segment
(SFS) of the London Stock Exchange's Main Market on 14 July 2011
with the admission of 72.5 million Ordinary Shares at an issue
price of 200p per share. On 27 March 2012, the Company issued
100,250,000 C Shares at 200p per share. With effect from 6 March
2013, the C Shares were converted into Ordinary Shares. One
Ordinary Share has been received for every one C Share, resulting
in 172,750,000 Ordinary Shares in total. The market capitalisation
of the Company was GBP 388.9 million as of 30 September 2017.
The Company has four wholly-owned subsidiaries: MSN077 Limited,
MSN090 Limited, MSN105 Limited and Doric Nimrod Air Finance Alpha
Limited ("DNAFA").
Investment Strategy
The Company's investment objective is to obtain income returns
and a capital return for its shareholders by acquiring, leasing and
then selling a portfolio of aircraft. The Company receives income
from the leases and targets a gross distribution to the
shareholders of 4.5 pence per share per quarter (amounting to a
yearly distribution of 9.0% based on the initial placing price of
200p per share). It is anticipated that income distributions will
continue to be made quarterly.
The total return for a shareholder investing today (30 September
2017) at the current share price consists of future income
distributions during the remaining lease duration and a return of
capital at dissolution of the Company. The latter payment is
subject to the future value and the respective sales proceeds of
the aircraft, quoted in US dollars and the USD/GBP exchange rate at
that point in time. Since launch, three independent appraisers have
provided the Company with their future values for the aircraft at
the end of each financial year. The latest appraisals available are
dated the end of March 2017. The table below summarises the total
return components, calculated on different exchange rates and using
the average value of the aircraft as provided by the three
independent external appraisers.
The contracted lease rentals are calculated and paid in US
dollars to satisfy debt interest and principal, and in sterling to
satisfy dividend distributions and Company running costs, which are
in sterling. The Company is, therefore, insulated from foreign
currency market volatility during the term of the leases.
With reference to the following two tables, there is no
guarantee that the aircraft will be sold at such a sale price or
that such capital returns would be generated. It is also assumed
that the lessee will honour all its contractual obligations during
the entire anticipated lease term:
I. Implied Future Total Return Components Based on
Appraisals
The implied return figures are not a forecast and assume
the Company has not incurred any unexpected costs.
Aircraft portfolio value at lease expiry according
to
* Prospectus appraisal USD 863 million
* Latest appraisal(1) USD 813 million
==============================================================================================
Per Share Income Distributions Return of Capital Total Return(2)
(rounded)
--------------------- --------------------------- ---------------------------
Prospectus Latest Prospectus Latest
Appraisal Appraisal(3) Appraisal Appraisal(3)
--------------------- ----------- -------------- ----------- --------------
Prospectus
FX Rate(4) 126p 322p 308p 449p 434p
------------- --------------------- ----------- -------------- ----------- --------------
Current
FX Rate(5) 126p 370p 353p 496p 479p
------------- --------------------- ----------- -------------- ----------- --------------
(1) Date of valuation: 31 March 2017
(2) Includes future dividends
(3) Average of the three appraisals as at the end of
the Company's respective fiscal years in which each
of the leases reached the end of their respective 12-year
terms
(4) 1.56 USD/GBP Initial Admission / 1.53 USD/GBP C
Shares Admission
(5) 1.3398 USD/GBP (30 September 2017)
II. Company Facts (30 September 2017)
Listing LSE
---------------------------- ------------------------------------
Ticker DNA2
---------------------------- ------------------------------------
Current Share Price 225.13p (closing)
---------------------------- ------------------------------------
Market Capitalisation GBP 388.9 million
---------------------------- ------------------------------------
Initial Debt USD 1.03 billion
---------------------------- ------------------------------------
Outstanding Debt USD 553.9 million (54% of
Balance Initial Debt)
---------------------------- ------------------------------------
Current/Future Anticipated 4.5p per quarter (18p per
Dividend annum)
---------------------------- ------------------------------------
Earned Dividends 98.0p
---------------------------- ------------------------------------
Current Dividend
Yield 8.00%
---------------------------- ------------------------------------
Dividend Payment April, July, October, January
Dates
---------------------------- ------------------------------------
Total Expense Ratio 1.3% (based on Average Net
Assets)
---------------------------- ------------------------------------
Currency GBP
---------------------------- ------------------------------------
Launch Date/Price 14 July 2011 / 200p
---------------------------- ------------------------------------
Average Remaining 6 years 10 months
Lease Duration
---------------------------- ------------------------------------
C Share Issue Date/Price 27 March 2012 / 200p
---------------------------- ------------------------------------
C Share Conversion 6 March 2013 / 1:1
Date/Ratio
---------------------------- ------------------------------------
Incorporation Guernsey
---------------------------- ------------------------------------
Aircraft Registration A6-EDP (14.10.2023), A6-EDT
Numbers (02.12.2023), A6-EDX (01.10.2024),
(Lease Expiry Dates) A6-EDY (01.10.2024), A6-EDZ
(12.10.2024), A6-EEB (09.11.2024),
A6-EEC (30.11.2024)
---------------------------- ------------------------------------
Asset Manager Doric GmbH
---------------------------- ------------------------------------
Corp & Shareholder Nimrod Capital LLP
Advisor
---------------------------- ------------------------------------
Administrator JTC Fund Solutions (Guernsey)
Ltd
---------------------------- ------------------------------------
Auditor Deloitte LLP
---------------------------- ------------------------------------
Market Makers Jefferies International Ltd,
Numis Securities Ltd,
Shore Capital Ltd,
Winterflood Securities Ltd,
Canaccord Genuity Ltd
---------------------------- ------------------------------------
SEDOL, ISIN B3Z6252, GG00B3Z62522
---------------------------- ------------------------------------
Year End 31 March
---------------------------- ------------------------------------
Stocks & Shares ISA Eligible
---------------------------- ------------------------------------
Website www.dnairtwo.com
---------------------------- ------------------------------------
Asset Manager's Comment
1. The Assets
The Company acquired a total of seven Airbus A380-861 aircraft
between October 2011 and November 2012. Each aircraft is leased to
Emirates Airline ("Emirates") - the national carrier owned by the
Investment Corporation of Dubai, based in Dubai, United Arab
Emirates - for an initial term of 12 years from the point of
delivery, with fixed lease rentals for the duration. In order to
complete the purchase of the first three aircraft, MSN077 Limited,
MSN090 Limited and MSN105 Limited entered into three separate
loans, each of which will be fully amortised with quarterly
repayments in arrear over 12 years.
The net proceeds from the C Share issue ("the Equity") were used
to partially fund the purchase of four of the seven Airbus A380s.
In order to help fund the acquisition of these final four aircraft,
DNAFA issued two tranches of enhanced equipment trust certificates
("the Certificates" or "EETC") - a form of debt security - in June
2012 in the aggregate face value of USD 587.5 million. DNAFA used
the proceeds from both the Equity and the Certificates to finance
the acquisition of four new Airbus A380 aircraft leased to
Emirates.
The seven Airbus A380 aircraft bearing manufacturer's serial
numbers (MSN) 077, 090, 105, 106, 107, 109 and 110.
The seven A380s owned by the Company recently visited Abu Dhabi,
Amsterdam, Auckland, Bangkok, Barcelona, Bangkok, Beijing,
Casablanca, Dublin, Frankfurt, Hong Kong, Jeddah, Kuwait City,
London Heathrow, Madrid, Melbourne, Milan, Moscow, New York JFK,
Paris, Perth, Shanghai, Sydney and Washington.
Aircraft utilisation for the period from delivery of each Airbus
A380 until the end of August 2017 was as follows:
MSN Delivery Flight Flight Cycles Average Flight
Date Hours Duration
---- ----------- ------- -------------- ---------------
077 14/10/2011 27,212 3,208 8 h 30 min
---- ----------- ------- -------------- ---------------
090 02/12/2011 24,617 4,070 6 h 5 min
---- ----------- ------- -------------- ---------------
105 01/10/2012 21,697 3,508 6 h 10 min
---- ----------- ------- -------------- ---------------
106 01/10/2012 23,955 2,774 8 h 40 min
---- ----------- ------- -------------- ---------------
107 12/10/2012 23,622 2,761 8 h 35 min
---- ----------- ------- -------------- ---------------
109 09/11/2012 20,677 3,323 6 h 15 min
---- ----------- ------- -------------- ---------------
110 30/11/2012 21,000 3,485 6 h
---- ----------- ------- -------------- ---------------
Maintenance Status
Emirates maintains its A380 aircraft fleet based on a
maintenance programme according to which minor maintenance checks
are performed every 1,500 flight hours, and more significant
maintenance checks (C checks) at 24 month or 12,000 flight hour
intervals, whichever occurs first. Emirates bears all costs
relating to the aircraft during the lifetime of the lease
(including maintenance, repairs and insurance).
Inspections
Doric, the asset manager, performed inspections of MSNs 105,
106, 107 and 109 in September 2017. The final reports were not
available at the editorial deadline.
2. Market Overview
In the first seven months of 2017, global revenue passenger
kilometres (RPKs) grew by 7.7% compared to the same period in the
previous year. The robust end to 2016 provided for a favourable
start for RPK growth rates in 2017. However, IATA notes that the
upward trend in seasonally-adjusted (SA) passenger traffic has
slowed since the end of 2016. While industry-wide RPKs were growing
at an annualized rate of more than 12% coming into 2017, that
growth has begun to slow to around 6% over the past three months.
This annualized growth rate falls between its five-year and
ten-year averages (6.4% and 5.5%, respectively).
During the first seven months of this year, industry-wide
available seat kilometres (ASKs) increased by 6.1%. As ASKs and
RPKs have trended upward at similar rates, the global passenger
load factor (PLF) rose by 1.2 percentage points in the first seven
months of 2017, resulting in a PLF of 81.3%. All regions, except
for the Middle East, recorded increases in PLF in the first seven
months of 2017 compared to the same period in 2016. PLF in the
Middle East decreased by 0.2 percentage points to 74.7% during this
period.
International RPKs flown by Middle Eastern airlines have grown
by 7.0% in the first seven months of 2017, compared with the
five-year average of 11.2%. Adjusting for the later timing of Eid
this year, which could have led to a jump in July on a
month-on-month basis, SA traffic volumes are still level with where
they started this year. In particular, the Middle East to North
America market continues to feel the effects of a combination of
factors, including the (recently-lifted) ban on personal electronic
devices (PED) as well as the proposed travel bans to the US.
Traffic growth on the segment was already slowing in early-2017, in
line with the slowing growth rate of non-stop services flown by the
largest Middle Eastern airlines. However, in June, RPKs on these
routes between the Middle East and North America fell for the
fourth consecutive month in year-on-year terms (-6.8%).
With an RPK growth of 10.2% until July 2017 Asia/Pacific-based
operators outperformed the overall market demand this year. Europe
ranked second with 8.6% and Africa third with 7.7%, ahead of Latin
America (6.8%). With a combined domestic and international RPK
growth of 6.7% the Middle East reached the second-last place, with
North America achieving 3.9%.
For 2017, IATA forecasts that the airlines fuel bill will rise
to USD 129 billion and represent 18.8% of average operating costs.
As jet fuel prices have begun to rise with oil prices, IATA expects
an average price of USD 64 per barrel of jet fuel during 2017.
(c) International Air Transport Association, 2017. Air Passenger
Market Analysis July 2017, Air Passenger Market Analysis June 2017,
Economic Performance of the Airline Industry, 2017 Mid-Year Report.
All Rights Reserved. Available on the IATA Economics page.
3. Lessee - Emirates Key Financials
In the 2016/17 financial year ending on 31 March 2017, Emirates
recorded the 29(th) consecutive year of profit with a net result of
USD 340 million (AED 1,250 million), down 82% compared to the
previous financial year. The net profit margin was 1.5%, down by 7
percentage points. Revenue for the period remained unchanged at USD
23.2 billion (AED 85.1 billion). However, lower results were to be
expected as Emirates' president Tim Clark hinted earlier in March
2017 that the increased volatility in the market had affected
Emirates' performance. His Highness Sheikh Ahmed bin Saeed Al
Maktoum, Chairman and Chief Executive of Emirates, listed a number
of destabilizing events, which impacted travel demand during the
year: the Brexit vote, Europe's immigration challenges and terror
attacks, new policies impacting air travel into the US, and
currency devaluation. He deemed the past fiscal year as "one of our
most challenging years to date".
In the face of these challenges, Emirates increased its
passenger numbers, RPKs and cargo carried during the 2016/17
financial year. Emirates carried a record 56.1 million passengers
(8.1% more than in the previous fiscal year), increased capacity
for passengers (measured in ASK) by 10.3% and increased RPKs by
8.4%. As a result, the passenger seat factor dropped by 1.4
percentage points to 75.1%. In the 2016/17 annual report it was
noted that seat factor on the Emirates' A380 fleet was high - and a
testament of the customer preference for this aircraft. The share
of passengers carried on an A380 increased by 5 percentage points
to 37%.
The costs resulting from the ongoing efforts to expand capacity
contributed to a 7.7% increase in operating costs. While fuel
prices fell by 2%, an 8% uplift in line with the capacity increase
led the airline's fuel bill to increase 6%. Fuel costs as a
percentage of operating costs only slightly decreased from 25.7% to
25.4% during the reporting period, remaining the biggest cost
component for the airline, followed by personnel costs. The overall
increase in operating costs is marginally higher than the capacity
growth of 7.2%, measured in available tonne kilometre.
As of 31 March 2017, the balance sheet totalled USD 33.1 billion
(AED 121.6 billion), an increase of 2% compared to the previous
financial year. Total equity increased by 8.3% to USD 9.6 billion
(AED 35.1 billion) with an equity ratio of nearly 29%. The carrier
had a cash balance of USD 4.3 billion (AED 15.7 billion) at the end
of the period, down by USD 1.2 billion (AED 4.3 billion) compared
to the previous financial year. This included the repayment of
bullet bonds in the amount of USD 1.1 billion. The current ratio
stood at 0.73, meaning the airline would be able to meet nearly
three-quarters of its current liabilities by liquidating all its
current assets. Significant items on the liabilities' side of the
balance sheet included current and non-current borrowings and lease
liabilities in the amount of USD 13.9 billion - an increase of 1.8%
against the previous financial year.
In line with its strategy to increase capacity through a young
and efficient fleet, Emirates received a record of 35 wide-body
aircraft, consisting of 19 Airbus A380 and 16 Boeing 777-300ER,
during the 2016/2017 financial year. At the same time, the airline
also retired 27 older aircraft, bringing the average fleet age of 6
years 2 months down to 5 years 3 months, which is well below the
industry average of nearly 12 years. To fund its fleet growth,
Emirates raised USD 7.9 billion (AED 29.1 billion) during the
financial year through finance and operating leases as well as term
loans. Over the last ten years, the operator raised more than USD
47.3 billion (AED 173.7 billion) for aircraft financing.
In the 2016/17 financial year, Emirates launched services to six
new passenger points (Yinchuan and Zhengzhou in China, Yangon in
Myanmar, Hanoi in Vietnam, Fort Lauderdale and Newark in the US).
These new destinations add to Emirates' well-balanced regional
distribution, whereby no region represents more than 30 percent of
overall revenues. In line with increased demand, the operator added
frequencies and increased capacity to several existing destinations
of its global route network, which spanned 156 destinations in 83
countries by fiscal year end.
In June, the airline won the World's Best Inflight Entertainment
award for a record 13(th) year at this year's Skytrax World Airline
Awards, which are considered a global benchmark of airline
excellence. Nearly 20 million passenger reviewed over 320
airlines.
In July, Emirates announced that it is entering a broad
partnership with low-cost operator Flydubai, which will include a
codeshare and optimization of the airlines' networks. Both carriers
are government-owned, and the move aims to reduce unnecessary
competition, enabling Emirates to benefit from Flydubai's
single-aisle operations. Between them, the airlines operate routes
to 216 cities with networks that overlap to an extent. However,
they expect to be serving 240 destinations as a combined operation
by 2022, with a total fleet of 380 aircraft.
In August 2017 Moody's Investors Service (Moody's) downgraded
its Class A rating assigned to the Certificates issued by DNAFA, a
subsidiary of the Company, to Baa1 from A3. The Class B rating
remains unchanged and the rating outlook is stable. According to
Moody's, the downgrade reflects that the market for the A380 has
weakened since the transaction was first rated in 2012, which
increases market risk and potentially, the sufficiency of
collateral coverage under a certificate default scenario. It was
further confirmed, that Moody's long-term view on the credit
quality of the airline remains unchanged from the time the EETC
rating was assigned. Moody's also used delivery date values that
were approximately 20% (USD 45 million per aircraft) below the
lower of mean or median values of the transaction appraisers when
rating these transactions. Moody's expects improvements in the
equity cushions with upcoming amortization payments and the rating
agency expects that the A380 will remain integral part to the
carrier's network strategy.
Market data from Reuters indicate that the downgrade by one
notch did not result in an increased risk perception of potential
investors in the EETC issuance of the Company. The spread in the
market over the interbank swap rate for the corresponding weighted
average life has actually narrowed for both the Class A and Class B
Certificates post the rating downgrade.
Source: ch-aviation, CNN, Emirates, FlightGlobal, Moody's
Investors Service, Reuters
4. Aircraft - A380
By mid-September 2017, Emirates operated a fleet of 97 A380s,
which currently serve 47 destinations within its global network via
its hub in Dubai. A380 destinations include: Amsterdam, Auckland,
Bangkok, Barcelona, Beijing, Birmingham, Brisbane, Casablanca,
Christchurch, Copenhagen, Doha, Dusseldorf, Frankfurt, Guangzhou,
Hong Kong, Johannesburg, Kuala Lumpur, Kuwait, London Gatwick,
London Heathrow, Los Angeles, Madrid, Manchester, Mauritius,
Melbourne, Milan, Moscow, Mumbai, Munich, New York JFK, Nice,
Paris, Perth, Prague, Rome, San Francisco, Sao Paulo, Seoul,
Shanghai, Singapore, Sydney, Taipei, Tokyo, Toronto, Vienna,
Washington, and Zurich.
As of mid-September 2017, the global A380 fleet consisted of 215
commercially operated planes in service. The thirteen operators are
Emirates (97), Singapore Airlines (19), Deutsche Lufthansa (14),
Qantas (12), British Airways (12), Air France (10), Korean Air
Lines (10), Etihad Airways (10) Malaysia Airlines (6), Qatar
Airways (8), Thai Airways (6), China Southern Airlines (5), and
Asiana Airlines (6). The number of undelivered A380 orders stood at
102.
Emirates expects the delivery of its 100(th) A380 later this
year. The increasing number of superjumbos allows the airline to
increase the number of A380 destinations as well as frequency on
existing routes: From March 2018, the carrier will add a fourth
daily A380 service from Dubai to Sydney, which will increase the
capacity for Emirates' Australian services by more than 7%. Also
from March 2018, the carrier will upgrade its third daily flight
between Dubai and Melbourne from a Boeing 777-300ER to an A380.
From October this year, Emirates will make its second daily flight
to Moscow an A380 service.
In August 2017, Emirates commenced Hajj services. The airline
operated 45 additional flights to Jeddah and 12 additional flights
to Medina between 17 August 2017 and 11 September 2017, in addition
to its regular three time daily Jeddah and twice daily Medina
frequencies. The A380 was used to support the increased demand to
Medina during this time. Emirates anticipated a total of 2 million
pilgrims traveling to Mecca, 20,000 of which would fly with
Emirates from destinations such as Yangon, Manchester, Mauritius,
Jakarta, Karachi, Lagos and Nairobi.
Speaking during the Aviation Festival event in London on 7
September, Emirates president Tim Clark stated that the airline
will capitalize on its flexibility in order to compete with
long-haul, low-cost operators. Clark noted that Emirates' fleet of
97 A380s would enable the airline to "compartmentalise" by offering
"three or four economy classes" on the main deck alone. This would
allow Emirates to match long-haul, low-cost operators in their base
price while still being to offer additional enhancements.
This summer, Airbus presented a development study for an
enhanced A380, called "A380plus". It includes aerodynamic
improvements like large winglets. An optimised cabin layout would
allow up to 80 additional seats.
As a result of weak sales, Airbus announced that it will cut
A380 deliveries in 2019 to eight aircraft. The production rate for
2018 remains at 12 aircraft. Airbus is expecting only a relatively
small impact from the cut in production rate, as a result of its
continuing effort to bring down fixed costs associated with the
programme.
Source: Ascend, Aviation Week, Bloomberg, CAPA, Emirates,
FlightGlobal, iflyA380, MarketWatch, Reuters
Contact Details
Company
Doric Nimrod Air Two Limited
Dorey Court, Admiral Park
St Peter Port
Guernsey GY1 2HT
Tel: +44 1481 702400
www.dnairtwo.com
Corporate & Shareholder Advisor
Nimrod Capital LLP
3 St Helen's Place
London EC3A 6AB
Tel: +44 20 7382 4565
www.nimrodcapital.com
Disclaimer
This document is issued by Doric Nimrod Air Two Limited (the
"Company") to and for the information of its existing shareholders
and does not in any jurisdiction constitute investment advice or an
invitation to invest in the shares of the Company. The Company has
used reasonable care to ensure that the information included in
this document is accurate at the date of its issue but does not
undertake to update or revise the information, including any
information provided by the Asset Manager, or guarantee the
accuracy of such information.
To the extent permitted by law neither the Company nor the Asset
Manager nor their directors or officers shall be liable for any
loss or damage that anyone may suffer in reliance on such
information. The information in this document may be changed by the
Company at any time. Past performance cannot be relied on as a
guide to future performance. The value of an investment may go down
as well as up and some or all of the total amount invested may be
lost.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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