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These excerpts taken from the AYR 10-K filed Mar 2, 2009. Acquisitions
and Dispositions
We originate acquisitions and dispositions through
well-established relationships with airlines, other aircraft
lessors, financial institutions and brokers, as well as other
sources. We believe that sourcing such transactions both
globally and through multiple channels provides for a broad and
relatively consistent set of opportunities.
On January 22, 2007, we entered into an asset purchase
agreement, which we refer to as the GAIF Acquisition Agreement,
with affiliates of Guggenheim Aviation Investment Fund LP,
or GAIF, pursuant to which we acquired 32 aircraft for an
aggregate base purchase price of approximately
$1.39 billion, subject to certain agreed adjustments. We
acquired 28 of the aircraft in 2007 related to this transaction
and the remaining four aircraft were acquired during the first
half of 2008.
On June 20, 2007, we entered into an acquisition agreement,
which we refer to as the Airbus A330 Agreement, under which we
agreed to acquire from Airbus fifteen new A330-200 aircraft, or
the New A330 Aircraft (as reduced to twelve aircraft as
described below). Pre-delivery payments for each aircraft are
payable to Airbus and are refundable to us only in limited
circumstances. We agreed to separate arrangements with
Rolls-Royce PLC, or Rolls-Royce, and Pratt & Whitney,
or P&W, pursuant to which we committed to acquire aircraft
engines for the New A330 Aircraft. We agreed to acquire six
shipsets of Trent 772B engines from Rolls-Royce and were granted
options to acquire an additional four shipsets. We also
committed to acquire five shipsets of PW4170 engines from
P&W, and were granted options to acquire an additional five
shipsets. Each shipset consists of two engines. In July 2008, we
amended the Airbus A330 Agreement, reducing the number of New
A330 Aircraft to be acquired from fifteen to twelve and changing
the Airbus A330 Agreement so that we receive a mix of freighter
and passenger aircraft. As a result, seven of the New A330
Aircraft are scheduled to be delivered as freighters, including
the first three positions, and five of the New A330 Aircraft
will be manufactured in passenger configuration. As of
December 31, 2008, we had paid $56.1 million in Airbus
deposits and pre-delivery payments and recorded
$4.4 million in capitalized interest. Pre-delivery payments
scheduled for 2009 amount to $126.1 million. Under certain
circumstances, we have the right to change the delivery
positions to alternative A330 aircraft models. In February 2009,
we amended the Airbus A330 Agreement to defer the scheduled
delivery of an aircraft from the fourth quarter of 2010 to the
first half of 2012. Three of the New A330 Aircraft are scheduled
to be delivered in 2010, six are scheduled to be delivered in
2011 and the remaining three are scheduled to be delivered in
2012.
Our objective is to develop and maintain a diverse and stable
operating lease portfolio and, in that regard, our investment
strategy is oriented towards longer-term holding horizons rather
than shorter-term trading. However, we review our operating
lease portfolio periodically to make opportunistic divestures of
aircraft and to manage our portfolio diversification, and in
2008 we sold the following aircraft:
These sales resulted in a pre-tax gain of $6.5 million and
end of lease maintenance revenue of $5.8 million which are
included in other income (expense) and lease rental revenue,
respectively, on our consolidated statement of income.
Table of Contents
We have an experienced acquisitions and sales team based in
Stamford, Connecticut, Dublin, Ireland and Singapore that
maintains strong relationships with a wide variety of market
participants throughout the world. We believe that our seasoned
personnel and extensive industry contacts facilitate our access
to acquisition and sales opportunities.
Potential investments and dispositions are evaluated by teams
comprised of marketing, engineering/technical, credit, financial
and legal professionals. These teams consider a variety of
aspects before we commit to purchase or sell an aircraft,
including its price, specification/configuration, age, condition
and maintenance history, operating efficiency, lease terms,
financial condition and liquidity of the lessee, jurisdiction,
industry trends and future redeployment potential and values,
among other factors. We believe that utilizing a
cross-functional team of experts to consider the investment
parameters noted above will help us assess more completely the
overall risk and return profile of potential acquisitions and
will help us move forward expeditiously on letters of intent and
acquisition documentation. Our letters of intent are typically
non-binding prior to internal approval, and upon internal
approval are binding subject to the fulfillment of customary
closing conditions.
Acquisitions and Dispositions We originate acquisitions and dispositions through well-established relationships with airlines, other aircraft lessors, financial institutions and brokers, as well as other sources. We believe that sourcing such transactions both globally and through multiple channels provides for a broad and relatively consistent set of opportunities. On January 22, 2007, we entered into an asset purchase agreement, which we refer to as the GAIF Acquisition Agreement, with affiliates of Guggenheim Aviation Investment Fund LP, or GAIF, pursuant to which we acquired 32 aircraft for an aggregate base purchase price of approximately $1.39 billion, subject to certain agreed adjustments. We acquired 28 of the aircraft in 2007 related to this transaction and the remaining four aircraft were acquired during the first half of 2008. On June 20, 2007, we entered into an acquisition agreement, which we refer to as the Airbus A330 Agreement, under which we agreed to acquire from Airbus fifteen new A330-200 aircraft, or the New A330 Aircraft (as reduced to twelve aircraft as described below). Pre-delivery payments for each aircraft are payable to Airbus and are refundable to us only in limited circumstances. We agreed to separate arrangements with Rolls-Royce PLC, or Rolls-Royce, and Pratt & Whitney, or P&W, pursuant to which we committed to acquire aircraft engines for the New A330 Aircraft. We agreed to acquire six shipsets of Trent 772B engines from Rolls-Royce and were granted options to acquire an additional four shipsets. We also committed to acquire five shipsets of PW4170 engines from P&W, and were granted options to acquire an additional five shipsets. Each shipset consists of two engines. In July 2008, we amended the Airbus A330 Agreement, reducing the number of New A330 Aircraft to be acquired from fifteen to twelve and changing the Airbus A330 Agreement so that we receive a mix of freighter and passenger aircraft. As a result, seven of the New A330 Aircraft are scheduled to be delivered as freighters, including the first three positions, and five of the New A330 Aircraft will be manufactured in passenger configuration. As of December 31, 2008, we had paid $56.1 million in Airbus deposits and pre-delivery payments and recorded $4.4 million in capitalized interest. Pre-delivery payments scheduled for 2009 amount to $126.1 million. Under certain circumstances, we have the right to change the delivery positions to alternative A330 aircraft models. In February 2009, we amended the Airbus A330 Agreement to defer the scheduled delivery of an aircraft from the fourth quarter of 2010 to the first half of 2012. Three of the New A330 Aircraft are scheduled to be delivered in 2010, six are scheduled to be delivered in 2011 and the remaining three are scheduled to be delivered in 2012. Our objective is to develop and maintain a diverse and stable operating lease portfolio and, in that regard, our investment strategy is oriented towards longer-term holding horizons rather than shorter-term trading. However, we review our operating lease portfolio periodically to make opportunistic divestures of aircraft and to manage our portfolio diversification, and in 2008 we sold the following aircraft:
These sales resulted in a pre-tax gain of $6.5 million and end of lease maintenance revenue of $5.8 million which are included in other income (expense) and lease rental revenue, respectively, on our consolidated statement of income.
Table of ContentsWe have an experienced acquisitions and sales team based in Stamford, Connecticut, Dublin, Ireland and Singapore that maintains strong relationships with a wide variety of market participants throughout the world. We believe that our seasoned personnel and extensive industry contacts facilitate our access to acquisition and sales opportunities. Potential investments and dispositions are evaluated by teams comprised of marketing, engineering/technical, credit, financial and legal professionals. These teams consider a variety of aspects before we commit to purchase or sell an aircraft, including its price, specification/configuration, age, condition and maintenance history, operating efficiency, lease terms, financial condition and liquidity of the lessee, jurisdiction, industry trends and future redeployment potential and values, among other factors. We believe that utilizing a cross-functional team of experts to consider the investment parameters noted above will help us assess more completely the overall risk and return profile of potential acquisitions and will help us move forward expeditiously on letters of intent and acquisition documentation. Our letters of intent are typically non-binding prior to internal approval, and upon internal approval are binding subject to the fulfillment of customary closing conditions. Acquisitions
and Dispositions
On January 22, 2007, we entered into the GAIF Acquisition
Agreement pursuant to which we acquired 32 aircraft for an
aggregate base purchase price of approximately
$1.39 billion, subject to
Table of Contents
certain agreed upon adjustments. We acquired 28 of the aircraft
in 2007 related to this transaction and the remaining four
aircraft were acquired during the first half of 2008.
On June 20, 2007, we entered into the Airbus A330 Agreement
under which we agreed to acquire from Airbus fifteen new
A330-200 aircraft, or the New A330 Aircraft (as reduced to
twelve aircraft as described below). Pre-delivery payments for
each aircraft are payable to Airbus and are refundable to us
only in limited circumstances. We agreed to separate
arrangements with Rolls-Royce PLC, or Rolls-Royce, and
Pratt & Whitney, or P&W, pursuant to which we
committed to acquire aircraft engines for the New A330 Aircraft.
We agreed to acquire six shipsets of Trent 772B engines from
Rolls-Royce and were granted options to acquire an additional
four shipsets. We also committed to acquire five shipsets of
PW4170 engines from P&W, and were granted options to
acquire an additional five shipsets. Each shipset consists of
two engines. In July 2008, we amended the Airbus A330 Agreement,
reducing the number of New A330 Aircraft to be acquired from
fifteen to twelve and changing the Airbus A330 Agreement so that
we receive a mix of freighter and passenger aircraft. As a
result, seven of the New A330 Aircraft are scheduled to be
delivered as freighters, including the first three positions,
and five of the New A330 Aircraft will be manufactured in
passenger configuration. As of December 31, 2008, we had
paid $56.1 million in Airbus deposits and pre-delivery
payments and recorded $4.4 million in capitalized interest.
Pre-delivery payments scheduled for 2009 amount to
$126.1 million. Under certain circumstances, we have the
right to change the delivery positions to alternative A330
aircraft models. In February 2009, we amended the Airbus A330
Agreement to defer the scheduled delivery of an aircraft from
the fourth quarter of 2010 to the first half of 2012. Three of
the New A330 Aircraft are scheduled to be delivered in 2010, six
are scheduled to be delivered in 2011 and the remaining three
are scheduled to be delivered in 2012.
Our objective is to develop and maintain a diverse and stable
operating lease portfolio and, in that regard, our investment
strategy is oriented towards longer-term holding horizons rather
than shorter-term trading. However, we review our operating
lease portfolio periodically to make opportunistic divestures of
aircraft and to manage our portfolio diversification, and in
2008 we sold the following aircraft:
These sales resulted in a pre-tax gain of $6.5 million and
end of lease maintenance revenue of $5.8 million which are
included in other income (expense) and lease rental revenue,
respectively, on our consolidated statement of income.
Table of Contents
The following table sets forth certain information with respect
to the aircraft owned by us as of December 31, 2008:
AIRCASTLE
AIRCRAFT INFORMATION (dollars in millions)
Our owned aircraft portfolio as of December 31, 2008 is
listed in Exhibit 99.1 to this report. Approximately 87% of
the total aircraft and 92% of the freighters we owned as of
December 31, 2008 are what we consider to be the most
current technology for the relevant airframe and engine type and
airframe size, as listed under the headings “Latest
Generation Narrowbody Aircraft,” “Latest Generation
Midbody Aircraft,” “Latest Generation Widebody
Aircraft” and “Latest Generation Widebody Freighter
Aircraft” in Exhibit 99.1 to this report.
Table of Contents
Acquisitions and Dispositions On January 22, 2007, we entered into the GAIF Acquisition Agreement pursuant to which we acquired 32 aircraft for an aggregate base purchase price of approximately $1.39 billion, subject to
Table of Contentscertain agreed upon adjustments. We acquired 28 of the aircraft in 2007 related to this transaction and the remaining four aircraft were acquired during the first half of 2008. On June 20, 2007, we entered into the Airbus A330 Agreement under which we agreed to acquire from Airbus fifteen new A330-200 aircraft, or the New A330 Aircraft (as reduced to twelve aircraft as described below). Pre-delivery payments for each aircraft are payable to Airbus and are refundable to us only in limited circumstances. We agreed to separate arrangements with Rolls-Royce PLC, or Rolls-Royce, and Pratt & Whitney, or P&W, pursuant to which we committed to acquire aircraft engines for the New A330 Aircraft. We agreed to acquire six shipsets of Trent 772B engines from Rolls-Royce and were granted options to acquire an additional four shipsets. We also committed to acquire five shipsets of PW4170 engines from P&W, and were granted options to acquire an additional five shipsets. Each shipset consists of two engines. In July 2008, we amended the Airbus A330 Agreement, reducing the number of New A330 Aircraft to be acquired from fifteen to twelve and changing the Airbus A330 Agreement so that we receive a mix of freighter and passenger aircraft. As a result, seven of the New A330 Aircraft are scheduled to be delivered as freighters, including the first three positions, and five of the New A330 Aircraft will be manufactured in passenger configuration. As of December 31, 2008, we had paid $56.1 million in Airbus deposits and pre-delivery payments and recorded $4.4 million in capitalized interest. Pre-delivery payments scheduled for 2009 amount to $126.1 million. Under certain circumstances, we have the right to change the delivery positions to alternative A330 aircraft models. In February 2009, we amended the Airbus A330 Agreement to defer the scheduled delivery of an aircraft from the fourth quarter of 2010 to the first half of 2012. Three of the New A330 Aircraft are scheduled to be delivered in 2010, six are scheduled to be delivered in 2011 and the remaining three are scheduled to be delivered in 2012. Our objective is to develop and maintain a diverse and stable operating lease portfolio and, in that regard, our investment strategy is oriented towards longer-term holding horizons rather than shorter-term trading. However, we review our operating lease portfolio periodically to make opportunistic divestures of aircraft and to manage our portfolio diversification, and in 2008 we sold the following aircraft:
These sales resulted in a pre-tax gain of $6.5 million and end of lease maintenance revenue of $5.8 million which are included in other income (expense) and lease rental revenue, respectively, on our consolidated statement of income.
Table of ContentsThe following table sets forth certain information with respect to the aircraft owned by us as of December 31, 2008: AIRCASTLE AIRCRAFT INFORMATION (dollars in millions)
Our owned aircraft portfolio as of December 31, 2008 is listed in Exhibit 99.1 to this report. Approximately 87% of the total aircraft and 92% of the freighters we owned as of December 31, 2008 are what we consider to be the most current technology for the relevant airframe and engine type and airframe size, as listed under the headings “Latest Generation Narrowbody Aircraft,” “Latest Generation Midbody Aircraft,” “Latest Generation Widebody Aircraft” and “Latest Generation Widebody Freighter Aircraft” in Exhibit 99.1 to this report.
Table of ContentsThis excerpt taken from the AYR 10-Q filed Nov 17, 2008. Acquisitions
and Dispositions
We believe the large and growing commercial aircraft market
generates opportunities for additional investments which may
offer more attractive entry points during cyclical downturns.
However, while the current financial markets turmoil may present
compelling acquisitions opportunities, credit availability is
much more limited and costly. Our approach is predicated on
sourcing investments we believe to be accretive to shareholders
after taking into account, among other things, financing
availability.
Our investment focus is primarily on high-utility commercial jet
aircraft for the passenger and freighter markets, although we
also intend to continue to explore investment opportunities for
asset-backed aviation assets, such as debt investments. Our
business strategy has been to pursue acquisitions through
multiple channels across the world, such as sale-leasebacks with
airlines and purchases from operating lessors, banks and other
aircraft owning entities. We also explore opportunities to
purchase aircraft from manufacturers. Going forward, we may seek
to make investments through investment vehicles involving third
party investors. Our ability to successfully and efficiently
acquire and integrate
Table of Contents
additional aviation assets on favorable terms, including our
ability to source capital to fund acquisitions, will
significantly impact our financial results and growth prospects.
We evaluate our portfolio on a regular basis in order to manage
our investments in a way we believe will maximize shareholder
value. As part of our active portfolio management, we will sell
aircraft or debt investments in order to manage exposures, to
reflect our views of evolving market conditions, and in cases
where we believe we can earn better returns, by selling aircraft
and investing our capital in other ways. In addition, we analyze
each aircraft as its lease expiration or other milestones
approach to determine whether to offer it for sale, re-lease, or
in the case of passenger aircraft, to reconfigure the aircraft
as a freighter, and then lease it. Although our focus is not on
trading assets to generate short-term gains, asset sales are a
fundamental part of our ongoing portfolio management.
On January 22, 2007, we entered into the GAIF Acquisition
Agreement, pursuant to which we acquired 32 aircraft for
approximately $1.385 billion.
On June 20, 2007, we entered into the Airbus A330
Agreement, under which we agreed to acquire from Airbus fifteen
new A330-200 aircraft, or the New A330 Aircraft. Pre-delivery
payments for each aircraft are payable to Airbus and are
refundable to us only in limited circumstances. We agreed to
separate arrangements with Rolls-Royce PLC, or Rolls-Royce, and
Pratt & Whitney, or P&W, pursuant to which we
committed to acquire aircraft engines for the New A330 Aircraft.
We agreed to acquire six shipsets of Trent 772B engines from
Rolls-Royce and were granted options to acquire an additional
four shipsets. We also committed to acquire five shipsets of
PW4170 engines from P&W, and were granted options to
acquire an additional five shipsets. Each shipset consists of
two engines. In July 2008, we amended the Airbus A330
Agreement to reduce the number of New A330 Aircraft to be
acquired from fifteen to twelve and to change the Airbus A330
Agreement so that we receive a mix of freighter and passenger
aircraft. Seven of the New A330 Aircraft are scheduled to be
delivered as freighters, including three early positions, and
five of the New A330 Aircraft will be manufactured in passenger
configuration. Under certain circumstances, we have the right to
change the delivery positions to alternative A330 aircraft
models. Four of the New A330 Aircraft are scheduled to be
delivered in 2010, six are scheduled to be delivered in 2011 and
the remaining two are scheduled to be delivered in 2012.
In May 2008, we sold three Boeing Model
737-500
aircraft that were on lease to one of our customers. We sold one
Boeing Model
757-200
aircraft in July 2008 and one Boeing Model
757-200
aircraft in September 2008 that had previously been subject to
forward sales agreements and on lease to one of our customers.
The leases expired immediately prior to the sale of these
aircraft. These sales resulted in a pre-tax gain of
$5.9 million and is included in other income (expense) on
our consolidated statement of income.
Table of Contents
The following table sets forth certain information with respect
to the aircraft acquired by us as of September 30, 2008:
AIRCASTLE
AIRCRAFT INFORMATION (dollars in millions)
Our owned aircraft portfolio as of September 30, 2008 is
listed in Exhibit 99.1 to this report. Approximately 87% of
the total aircraft and 92% of the freighters we owned as of
September 30, 2008 are what we consider to be the most
current technology for the relevant airframe and engine type and
airframe size, as listed under the headings “Latest
Generation Narrowbody Aircraft,” “Latest Generation
Midbody Aircraft,” “Latest Generation Widebody
Aircraft” and “Latest Generation Widebody Freighter
Aircraft” in Exhibit 99.1 to this report.
Table of Contents
This excerpt taken from the AYR 10-Q filed Aug 8, 2008. Acquisitions
and Dispositions
We believe the large and growing aircraft market generates
additional acquisition opportunities. Our approach is predicated
on sourcing investments we believe to be accretive to
shareholders. Currently, our investment focus is primarily on
high-utility commercial jet aircraft for the passenger and
freighter markets, although we also intend to continue to
explore investment opportunities for asset-backed aviation
assets, such as debt investments. Our business strategy has been
to pursue acquisitions through multiple channels across the
world, such as sale-leasebacks with airlines and purchases from
operating lessors, banks and other aircraft owning entities. We
also explore opportunities to purchase aircraft from
manufacturers. Going forward, we may seek to make investments
through
Table of Contents
investment vehicles involving third party investors. Our ability
to successfully and efficiently acquire and integrate additional
aviation assets on favorable terms, including our ability to
source capital to fund acquisitions, will significantly impact
our financial results and growth prospects.
We evaluate our portfolio on a regular basis in order to manage
our investments in a way we believe will maximize shareholder
value. As part of our active portfolio management, we will sell
aircraft or debt investments in order to manage exposures, to
reflect our views of evolving market conditions, and in cases
where we believe we can earn better returns, by selling aircraft
and investing our capital in other ways. In addition, we analyze
each aircraft as its lease expiration or other milestones
approach, to determine whether to offer it for sale, re-lease
or, in the case or passenger aircraft, to reconfigure the
aircraft as a freighter and then lease it. Although our focus is
not on trading assets to generate short-term gains, asset sales
are a fundamental part of our ongoing portfolio management.
On January 22, 2007, we entered into the GAIF Acquisition
Agreement, pursuant to which we agreed to acquire 38 aircraft
for an aggregate base purchase price of approximately
$1.595 billion, subject to certain agreed adjustments. In
November 2007, we agreed with GAIF to remove two aircraft from
the GAIF Acquisition Agreement. In March 2008, we agreed to
remove one additional aircraft from the GAIF Acquisition
Agreement and in June 2008 we determined that we would not
acquire three additional aircraft from the GAIF Acquisition
Agreement, reducing the total number of aircraft to be acquired
to 32, with an aggregate base purchase price of approximately
$1.412 billion. For certain of the aircraft, we agreed to
make accelerated payments to the relevant sellers and acquire
their rights and obligations under the seller’s purchase or
freighter conversion agreements, with final payment and delivery
of the aircraft to us being made upon delivery by the
manufacturer or seller, or completion of the conversion process.
We acquired 28 of these aircraft in 2007 and four of these
aircraft during the first six months of 2008. As of
June 30, 2008, we have completed the acquisition of the 32
aircraft for approximately $1.385 billion.
On June 20, 2007, we entered into the Airbus A330
Agreement, under which we agreed to acquire from Airbus fifteen
new A330-200 aircraft, or the New A330 Aircraft. Pre-delivery
payments for each aircraft are payable to Airbus and are
refundable to us only in limited circumstances. We agreed to
separate arrangements with Rolls-Royce PLC, or Rolls-Royce, and
Pratt & Whitney, or P&W, pursuant to which we
committed to acquire aircraft engines for the New A330 Aircraft.
We agreed to acquire six shipsets of Trent 772B engines from
Rolls-Royce and were granted options to acquire an additional
four shipsets. We also committed to acquire five shipsets of
PW4170 engines from P&W, and were granted options to
acquire an additional five shipsets. Each shipset consists of
two engines. In July 2008, we amended the Airbus A330 Agreement
to reduce the number of New A330 aircraft to be acquired from
fifteen to twelve and to change the Airbus A330 Agreement so
that we receive a mix of freighter and passenger aircraft. Seven
of the New A330 aircraft are scheduled to be delivered as
freighters, including three early positions, and five New A330
aircraft will be manufactured in passenger configuration. Under
certain circumstances, we have the right to change certain
aircraft to alternative A330 aircraft models. Four of the New
A330 aircraft are scheduled to be delivered in 2010, six are
scheduled to be delivered in 2011 and the remaining two are
scheduled to be delivered in 2012.
In May 2008, we sold three Boeing Model
737-500
aircraft that were on lease to one of our customers, which
resulted in a pre-tax gain of $5.1 million and is included
in other income on our consolidated statement of income. In July
2008, we sold one Boeing Model
757-200
aircraft that had previously been subject to a forward sales
agreement and on lease to one of our customers, to a third
party. The lease expired immediately prior to the sale of this
aircraft.
Table of Contents
The following table sets forth certain information with respect
to the aircraft acquired by us as of June 30, 2008:
AIRCASTLE
AIRCRAFT INFORMATION (dollars in millions)
Our owned aircraft portfolio as of June 30, 2008 is listed
in Exhibit 99.1 to this report. Approximately 86% of the
total aircraft and 92% of the freighters we owned as of
June 30, 2008 are what we consider to be the most current
technology for the relevant airframe and engine type and
airframe size, as listed under the headings “Latest
Generation Narrowbody Aircraft,” “Latest Generation
Midbody Aircraft,” “Latest Generation Widebody
Aircraft” and “Latest Generation Widebody Freighter
Aircraft” in Exhibit 99.1 to this report.
Table of Contents
This excerpt taken from the AYR 8-K filed Sep 26, 2007. Acquisitions and Dispositions Our financial results are impacted by the timing and size of acquisitions and dispositions we complete. As of March 15, 2007 we had acquired and committed to acquire aviation assets having an aggregate purchase price equal to $2.20 billion and $1.44 billion, respectively, or a total of approximately $3.64 billion. To date, we have sold one aircraft and one debt security. We believe the large and growing aircraft market continues to evolve, generating significant additional acquisition opportunities. Our acquisition strategy is flexible and allows us to take advantage of the best available market opportunities. Currently, we are primarily focused on acquiring high-utility commercial jet aircraft and we may also make opportunistic acquisitions of other asset-backed aviation assets. Our business strategy has been to pursue acquisitions through multiple channels across the world, such as sale-leasebacks with airlines and purchases from operating lessors, banks and other aircraft owning entities. We also explore opportunities to purchase aircraft from manufacturers from time to time. Our ability to successfully and efficiently acquire and integrate additional aviation assets on favorable terms will significantly impact our financial results and growth prospects.
15
On January 22, 2007, Aircastle entered into the Acquisition Agreement with GAIF under which we agreed to acquire 38 aircraft for an aggregate base purchase price of approximately $1.595 billion, subject to certain agreed adjustments. The aircraft we will acquire under the Acquisition Agreement are scheduled to be delivered to us through February 2009. As of March 15, 2007, we completed the acquisition of five of these aircraft. Four of the aircraft are Boeing Model 747-400ERF freighter aircraft. Our purchase of each of the new freighters would close on its delivery date from the manufacturer; however, subject to satisfaction of certain conditions, we have agreed to make an accelerated payment to the relevant seller and acquire its rights and obligations under the manufacturer’s purchase agreement for the new freighters. Signed leases are in place for all of the new freighters, with delivery under each lease scheduled to be made upon completion of the manufacturing process for the relevant new freighter. Seven of the aircraft are Boeing Model 747-400 aircraft which have been, or will be converted into freighter aircraft. One of the converted freighters completed its passenger-to-cargo conversion process in November 2006 and was delivered to a lessee; the remaining converted freighters are scheduled to complete the conversion process through June 2008. Our purchase of each of the converted freighters would close on the date it completes the conversion process; however, subject to satisfaction of certain conditions, we have agreed to make an accelerated payment to the relevant seller and acquire the converted freighters, and the rights and obligations of the relevant seller under the passenger-to-freighter conversion contract, prior to completion of the conversion process. Signed leases are in place for all of the converted freighters, with delivery under each lease having been made, or being scheduled to be made, upon completion of the conversion process for the relevant converted freighter. Six of the aircraft are Airbus Model A320-200 aircraft, which are under contract for purchase from an airline during the period through February 2009. Our purchase of the Airbus Model A320-200 aircraft would close upon delivery from the airline to the relevant seller; however, subject to satisfaction of certain conditions, we have agreed to make an accelerated payment to the relevant seller and acquire the rights and obligations of the relevant seller under its contract with the airline seller. Currently there are no leases signed for the Airbus Model A320-200 aircraft. The purchase of each of the remaining 21 aircraft under the Acquisition Agreement will close upon satisfaction of agreed conditions precedent, with scheduled closing dates ranging through May 2007. Five of the remaining 21 aircraft are passenger-configured Boeing Model 757-200 aircraft, currently on lease to two lessees. Upon our purchase of these aircraft we expect to succeed to the rights and obligations of the relevant seller under a sale agreement with a third party, under which we would sell the aircraft upon expiry of the existing leases, which are currently scheduled to expire on dates between June 2008 and October 2011. The weighted average age of the aircraft is 8.65 years. The weighted average remaining lease term for the aircraft, excluding the aircraft not currently subject to lease, is 8.32 years. The top five lessees of the aircraft are Martinair, Emirates, Volga-Dnepr, KLM and Cargo 360, all of which are leasing freighter aircraft, and the aircraft operated or to be operated by these five lessees represent approximately 64% of the aggregate purchase price for the aircraft. Our purchase of the aircraft is generally on an “as-is, where-is” basis, in some cases subject to a pre-delivery inspection and to such aircraft being in an expected delivery condition. If an aircraft suffers a total loss or significant damage prior to our purchase, or if delivery of an aircraft is delayed beyond an agreed deadline, then we may terminate our obligation to purchase that aircraft (without affecting our rights and obligations in relation to the other aircraft). If we have made an accelerated payment with respect to an aircraft, then upon any such termination affecting that aircraft any accelerated payment we have made with respect to that aircraft must be returned to us with interest at 6% per annum from the date the accelerated payment was made. The Company will guarantee the obligations of its affiliates under the Acquisition Agreement. In order to secure the obligations of our affiliates, we will post a letter of credit. If we were to default on our
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obligation to purchase an aircraft when all conditions to closing had been met by the relevant seller, then following notice and an opportunity to cure such default the sellers would have the right to terminate the Acquisition Agreement as a whole and draw down the then-current stated amount of the letter of credit, and retain the proceeds as liquidated damages for our failure to perform. The obligations of the sellers will be guaranteed by GAIF. If any seller were to knowingly default in any material respect on a material obligation, then following notice and an opportunity to cure such default, we would have the right to terminate the Acquisition Agreement and seek damages, subject to agreed limitations. If we make any accelerated payments for any aircraft, the obligations of the seller to return such accelerated payments following a termination of the Acquisition Agreement with respect to the relevant aircraft will be secured by a letter of credit. We and the sellers have rights of indemnification against one another for losses suffered as a consequence of a breach of the Acquisition Agreement or for operational risks relating to the aircraft during agreed time periods, subject to customary limitations. Closing of the transactions contemplated by the Acquisition Agreement is subject to certain customary closing conditions for transactions of this type. There can be no assurance that these conditions will be satisfied or that we will complete the acquisition of all the aircraft contemplated by the Acquisition Agreement. See “Risk Factors — Failure to close the Aircraft Acquisition could negatively impact our stock price and financial results.” Of the total base purchase price for the 38 aircraft of approximately $1.595 billion, 28 aircraft with an aggregate base purchase price of approximately $1.040 billion are scheduled to be acquired in 2007, of which we have acquired five aircraft with an aggregate purchase price of approximately $258.8 million. The remaining ten aircraft have an aggregate purchase price of $554.5 million, nine of which we expect will be delivered in 2008 and one we expect will be delivered in 2009. Of the 38 aircraft that are to be acquired, 29 are to be acquired subject to lease and nine are to be acquired not subject to lease. The 29 aircraft subject to lease have an aggregate base purchase price of approximately $1.467 billion, contractual monthly rents totaling approximately $14.0 million and a weighted average remaining lease term of 8.32 years. The nine aircraft that are not subject to lease have an aggregate base purchase price of approximately $127.5 million, of which we have acquired three aircraft and have letters of intent to lease all these aircraft. The aircraft to be acquired include 26 passenger aircraft with a weighted average age of 11.3 years and a total base purchase price of $500.5 million and 12 freighters with a weighted average age of 7.4 years and a total base purchase price of $1.094 billion. For accounting purposes, we calculate aircraft depreciation expense based on the estimated useful life of each aircraft and the estimated residual value of each aircraft at the end of its useful life. Generally, we estimate that passenger aircraft have a useful life of 25 years and freighters have a useful life of between 30 and 35 years from the date of manufacture. We estimate that the residual value of our passenger aircraft is 15% of the manufacturer’s original sales price when new and the residual value of freighters ranges between 10% and 15% of the manufacturer’s original sales price when new, or, in the case of converted freighters, of our purchase price. We initially expect to pay for substantially all of the purchase price of the aircraft using debt financing available on our Revolving Credit Facility and Amended Credit Facility No. 2 or other borrowings that may be available to us at the time of acquisition. See “Liquidity and Capital Resources — Credit Facilities.” We expect to fund our aircraft on a long-term basis by securitizing their future cash flows using a structure similar to Securitization No. 1. Therefore, we expect to incur additional interest expense as a result of the Aircraft Acquisition.
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The following table sets forth certain information with respect to the aircraft acquired or to be acquired by us, including the aircraft to be acquired pursuant to the Acquisition Agreement. | EXCERPTS ON THIS PAGE:
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