The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes appearing in "Item 8. Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
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 the most modern, fuel-efficient new technology commercial jet aircraft directly from aircraft 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 fleet to third-parties, including other leasing companies, financial services companies, airlines and other investors. 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 gains from aircraft sales and our management fees. 2021 Overview During the year endedDecember 31, 2021 , we purchased and took delivery of 53 aircraft from our new order pipeline and sold three aircraft, ending the period with a total of 382 aircraft in our owned aircraft portfolio. The weighted average age of our fleet was 4.4 years and the weighted average lease term remaining was 7.2 years as ofDecember 31, 2021 . The net book value of our fleet grew by 12.4%, to$22.9 billion as ofDecember 31, 2021 compared to$20.4 billion as ofDecember 31, 2020 . Our managed fleet increased to 92 aircraft as ofDecember 31, 2021 as compared to 81 as ofDecember 31, 2020 . We have a globally diversified customer base comprised of 118 airlines in 60 countries as ofDecember 31, 2021 . As ofFebruary 17, 2022 , all aircraft in our fleet, except for one aircraft, were subject to lease agreements or letters of intent and our lease utilization rate for 2021 was 99.8%.
At
Also, inFebruary 2022 , we agreed to purchase 50 737 MAX aircraft, which consisted of 32 incremental 737 MAX aircraft and 18 737 MAX aircraft resulting from the conversion of three 787 aircraft from our existing orderbook. Deliveries of the aircraft are scheduled to commence in 2024 and continue through 2026. The additional 32 737 MAX aircraft are pursuant to a memorandum of understanding and are subject to the negotiation of a definitive purchase agreement. As ofDecember 31, 2021 , and giving effect to our conversion of three Boeing 787 aircraft to 18 737 MAX aircraft inFebruary 2022 , we had commitments to purchase 431 aircraft from Boeing and Airbus for delivery through 2028, with an estimated aggregate commitment of$27.7 billion . We have placed approximately 99% of our committed orderbook on long-term leases for aircraft delivering through the end of 2023 and have placed 58% of our entire orderbook. We ended 2021 with$30.9 billion in committed minimum future rental payments, consisting of$14.8 billion in contracted minimum rental payments on the aircraft in our existing fleet and$16.1 billion in minimum future rental payments related to aircraft which will deliver between 2022 through 2025. We typically finance the purchase of aircraft and our business with available cash balances, internally generated funds, including through aircraft sales, preferred stock issuances, and debt financings. In 2021, we issued$3.7 billion in aggregate principal amount of senior unsecured notes with maturities ranging from 2022 to 2028 with a weighted average interest rate of 1.27%. In addition, we ended 2021 with an aggregate borrowing capacity under our revolving credit facility of$6.8 billion and total liquidity of$7.9 billion . We had total debt outstanding of$17.2 billion , of which 94.8% was at a fixed rate and 99.2% of which was unsecured. As ofDecember 31, 2021 , our composite cost of funds raised through debt financings was 2.79%. In 2020 and 2021, we also issued preferred stock with a total aggregate stated value of$850.0 million . Our preferred stock pays dividends currently at a weighted average rate of 4.9%. 33 --------------------------------------------------------------------------------
Contents
Our total revenues for the year endedDecember 31, 2021 increased by 3.6% to$2.1 billion as compared to 2020. The increase in total revenues was primarily driven by the continued growth in our fleet, an increase in our cash collections from our lessees as well as an increase in our aircraft sales, trading and other activity, partially offset by the impact of cash basis accounting and lease restructurings. The impact of cash basis accounting and lease restructurings for the year endedDecember 31, 2021 resulted in a decrease in revenue of$72.7 million and$132.5 million , respectively. During the year endedDecember 31, 2021 , our net income available to common stockholders was$408.2 million compared to$500.9 million for the year endedDecember 31, 2020 . Our diluted earnings per share for the full year 2021 was$3.57 compared to$4.39 for the full year 2020. Despite the growth of our fleet, our net income available to common stockholders and diluted earnings per share decreased due to the impact of lease restructurings and cash basis accounting. Our adjusted net income before income taxes excludes 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. Our adjusted net income before income taxes for the year endedDecember 31, 2021 was$589.7 million or$5.15 per diluted share, compared to$692.0 million , or$6.07 per diluted share for the year endedDecember 31, 2020 . The decrease in our adjusted net income before income taxes was due to the impact of lease restructurings and cash basis accounting. 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 byU.S. Generally Accepted Accounting Principles ("GAAP"). See "Results of Operations" below for a discussion of adjusted net income before income taxes and adjusted diluted earnings per share before income taxes as non-GAAP measures and a reconciliation of these measures to net income available to common stockholders.
Update on the impact of the COVID-19 pandemic
Throughout 2021, passenger air travel gradually improved. The strong recovery in most domestic markets, together with robust global cargo demand, resulted in steady improvements in airline financial results throughout the year. While domestic travel improved significantly inthe United States ,Europe ,China andLatin America , Inter-Asia traffic did not fare as well given more widespread travel restrictions. It is unclear how long and to what extent travel restrictions will remain in place. In the aggregate, the recovery of passenger traffic from pandemic-level lows has led to a firming market for aircraft values and lease rates. We also expect that the continued recovery of passenger traffic and production-related issues at Boeing and Airbus may contribute to a shortage of new technology aircraft in the years ahead, which could present a favorable environment for aircraft lessors. During 2021, we continued to receive requests from our customers for accommodations, such as lease deferrals or other lease concessions; however, the number of such requests have continued to decline throughout the year, roughly tracking the recovery of air travel. Throughout the pandemic, on a case-by-case basis, we have agreed to accommodations with approximately 66% of our lessees. The majority of these accommodations have been in the form of partial lease deferrals which, in many cases, include lease extensions. As ofDecember 31, 2021 , we had$203.2 million in outstanding deferred rentals as compared to$144.3 million in the prior year, the increase is primarily related toVietnam Airlines . The majority of our outstanding deferred rentals are scheduled to be repaid within the next two years. As ofDecember 31, 2021 , our outstanding deferral balance represented approximately 2.6% of our total available liquidity as ofDecember 31, 2021 . In addition to lease deferral arrangements, we have from time to time agreed to restructure some of our lease agreements. As part of our lease restructuring agreements, we have typically modified our existing leases by extending the lease term and reducing our lease rates. In the aggregate, the impact of these restructurings have extended the weighted average lease term remaining of our fleet and have decreased our total revenues by$23.8 million and$132.5 million for the quarter and year endedDecember 31, 2021 , respectively. At the beginning of the pandemic, our airline customers were under a tremendous amount of stress, which resulted in a decline in our collection rate. However, during 2021, our collection rate steadily increased in connection with the recovery of passenger air travel along with the improved financial health of our airline customers. Our collection rate for the three months and year endedDecember 31, 2021 was 99.3% and 91.4%, respectively. Our collection rate is defined as the sum of cash collected from lease rentals and maintenance reserves, including cash recovered from outstanding receivables from previous periods, as a percentage of the total contracted receivables due during the period. Our collection rate is calculated after giving effect to lease deferral arrangements made as ofDecember 31, 2021 . As our collection rate is positively impacted by the recovery of past-due receivables, our collection rate increased due to cash payments received fromVietnam Airlines and other lessees accounted for on a cash basis. During the three months endedDecember 31, 2021 , we recorded$12.2 million in incremental revenue from our lessees on cash basis accounting. However, during the year endedDecember 31, 2021 , we did not recognize a total of$72.7 million in rental revenue 34 -------------------------------------------------------------------------------- Table of Contents from lessees on a cash basis of accounting as collection was not reasonably assured. As ofDecember 31, 2021 , approximately 6.0% of our fleet by net book value was accounted for on a cash basis of accounting. Our lease utilization rate for the three months and year endedDecember 31, 2021 was 99.8%. Lease utilization rate is calculated based on the number of days each aircraft was subject to a lease or letter of intent during the period, weighted by the net book value of the aircraft. Lease utilization rate reflects the amount of time our aircraft are subject to lease during a specific period. We believe that we were successful in keeping our aircraft nearly fully utilized during the pandemic due to the quality of our fleet and the strength of our lessee relationships. We continue to believe that the airline industry will ultimately recover and aircraft travel will return to historical levels over the long term. See "Aircraft Industry and Sources of Revenues" below for further discussion of our industry expectations. Further, we believe we are well positioned to offer solutions for airlines because we offer the ability to lease younger, more fuel-efficient aircraft at a time when airlines are focused on reducing capital requirements, achieving environmental initiatives, and managing costs.
Our fleet
We have continued to build one of the world's youngest fleets, including some of the most fuel-efficient commercial jet aircraft. Our fleet, based on net book value, increased by 12.4%, to$22.9 billion as ofDecember 31, 2021 , compared to$20.4 billion as ofDecember 31, 2020 . During the year endedDecember 31, 2021 , we took delivery of 53 aircraft from our new order pipeline and sold three aircraft, ending the year with a total of 382 aircraft in our owned aircraft portfolio. As ofDecember 31, 2021 , the weighted average fleet age and weighted average remaining lease term of our fleet as of were 4.4 years and 7.2 years, respectively. We also managed 92 aircraft as ofDecember 31, 2021 .
Our fleet portfolio metrics at
December 31, 2021 December 31, 2020
Net book value of aeronautical equipment covered by an operating lease
$ 22.9 billion $ 20.4 billion Weighted average fleet age(1) 4.4 years 4.1 years Weighted average remaining lease term(1) 7.2 years 6.9 years Owned fleet 382 332 Managed fleet 92 81 Aircraft on order(2)(3) 431 361 Aircraft purchase options(4) - 25 Total 905 799 Current fleet contracted rentals $ 14.8 billion $ 13.6 billion Committed fleet rentals $ 16.1 billion $ 13.2 billion Total committed rentals $ 30.9 billion $ 26.8 billion (1) Weighted-average fleet age and remaining lease term calculated based on net book value of our flight equipment subject to operating lease. (2) The table above reflects the conversion of three 787-9 aircraft to 18 737 MAX aircraft pursuant to a February 2022 agreement with Boeing. (3) Excluded from the table above are orders for 32 Boeing 737 MAX aircraft pursuant to aFebruary 2022 memorandum of understanding signed with Boeing. (4) As ofDecember 31, 2021 , we did not have any options to acquire aircraft. As ofDecember 31, 2020 , we had options to acquire up to 25 Airbus A220 aircraft. 35
-------------------------------------------------------------------------------- Table of Contents The following table sets forth the net book value and percentage of the net book value of our flight equipment subject to operating leases in the indicated regions based on each airline's principal place of business as ofDecember 31, 2021 and 2020: December 31, 2021 December 31, 2020 Net Book Net Book Region Value % of Total Value % of Total (in thousands, except percentages) Europe$ 7,439,993 32.5 %$ 6,413,557 31.4 % Asia (excluding China) 5,952,981 26.0 % 5,513,498 27.1 % China 2,934,224 12.8 % 2,766,543 13.5 % The Middle East and Africa 2,447,919 10.7 % 2,356,418 11.6 % U.S. and Canada 1,638,450 7.2 % 1,298,974 6.4 % Central America, South America and Mexico 1,566,133 6.8 % 1,074,792 5.3 % Pacific, Australia, and New Zealand 919,304 4.0 % 956,568 4.7 % Total$ 22,899,004 100.0 %$ 20,380,350 100.0 %
The following table shows the number of aircraft in our fleet owned by aircraft type at
December 31, 2021 December 31, 2020
Number of Number of
Aircraft type Aircraft % of Total Aircraft % of Total
Airbus A319-100 1 0.3 % 1 0.3 %
Airbus A320-200 31 8.1 % 31 9.4 %
Airbus A320-200neo 23 6.0 % 19 5.7 %
Airbus A321-200 26 6.8 % 28 8.4 %
Airbus A321-200neo 69 18.1 % 49 14.8 %
Airbus A330-200 13 3.4 % 13 3.9 %
Airbus A330-300 8 2.1 % 8 2.4 %
Airbus A330-900neo 9 2.4 % 8 2.4 %
Airbus A350-900 12 3.1 % 11 3.3 %
Airbus A350-1000 5 1.3 % 2 0.6 %
Boeing 737-700 4 1.0 % 4 1.2 %
Boeing 737-800 88 23.0 % 88 26.5 %
Boeing 737-8 MAX 28 7.3 % 15 4.5 %
Boeing 737-9 MAX 7 1.8 % - - %
Boeing 777-200ER 1 0.3 % 1 0.3 %
Boeing 777-300ER 24 6.3 % 24 7.2 %
Boeing 787-9 26 6.8 % 23 7.0 %
Boeing 787-10 6 1.6 % 6 1.8 %
Embraer E190 1 0.3 % 1 0.3 %
Total 382 100.0 % 332 100.0 %
36
-------------------------------------------------------------------------------- Table of Contents As ofDecember 31, 2021 , we had contractual commitments to purchase 431 new aircraft, with an estimated aggregate purchase price (including adjustments for anticipated inflation) of$27.7 billion , for delivery through 2028 as shown in the following table. The table is subject to change based on Airbus and Boeing delivery delays. As noted below, we expect delivery delays for some aircraft deliveries in our orderbook. We remain in discussions with Boeing and Airbus to determine the extent and duration of delivery delays; however, we are not yet able to determine the full impact of the delivery delays. Estimated Delivery Years Aircraft Type 2022 2023 2024 2025 2026 Thereafter Total Airbus A220-100/300 4 17 23 20 12 - 76 Airbus A320/321neo(1) 27 24 26 23 32 64 196 Airbus A330-900neo 8 6 4 - - - 18 Airbus A350-900/1000 3 3 3 - - - 9 Airbus A350F - - - - 2 5 7 Boeing 737-7/8/9 MAX(2) 33 31 35 2 - - 101 Boeing 787-9/10(2) 10 3 6 5 - - 24 Total(3)(4) 85 84 97 50 46 69 431 (1) Our Airbus A320/321neo aircraft orders include 28 long-range variants and 49 extra long-range variants. (2) The table above reflects the conversion of three 787-9 aircraft to 18 737 MAX aircraft pursuant to a February 2022 agreement with Boeing (3) The table above reflects future Airbus and Boeing aircraft delivery delays based on information currently available to us based on contractual documentation. (4) Excluded from the table above are orders for 32 Boeing 737 MAX aircraft pursuant to aFebruary 2022 memorandum of understanding signed with Boeing.
Aircraft delivery delays
Pursuant to our purchase agreements with Boeing and Airbus, we agree to contractual delivery dates for each aircraft ordered. These dates can change for a variety of reasons, however for the last several years, manufacturing delays have significantly delayed the planned purchases of our aircraft on order with the Boeing and Airbus. Currently, the most significant delivery delays that we are experiencing are with regards to our aircraft orders for Boeing aircraft. Boeing has experienced significant aircraft delivery delays related to the 737 MAX aircraft stemming from the worldwide grounding of the 737 MAX beginning inMarch 2019 . This has resulted in material delivery delays of 737 MAX aircraft from our orderbook. A majority of the world's aviation authorities have re-certified the 737 MAX aircraft during the last two years, with the majority of these re-certifications taking place in 2021. Since re-certification began, we have been able to take delivery of 20 737 MAX aircraft. This is significantly below our original purchase order for 60 737 MAX aircraft during this time period. However, with a majority of the re-certification work completed, we expect production rates and aircraft deliveries to normalize for the 737 MAX during the next few years. During 2020, Boeing began to experience manufacturing issues on its 787 aircraft. These issues have resulted in significant aircraft delivery delays. During the last two years we had originally contracted with Boeing for the delivery of 22 787 aircraft to deliver between 2020 and 2021, however due to these manufacturing related issues we only took delivery of five 787 aircraft during this period. Currently, Boeing has paused 787 deliveries and is currently unable to forecast when they will resume. Accordingly, it is difficult to forecast how many 787s we will ultimately take delivery of in 2022. Our leases typically provide that we and our airline customer each have a cancellation right related to certain aircraft delivery delays. Our purchase agreements with Boeing and Airbus also generally provide that we and the manufacturer each have cancellation rights that typically parallel our cancellation rights in our leases. Our leases and our purchase agreements with Boeing and Airbus generally provide for cancellation rights starting at one year after the original contractual delivery date, regardless of cause. 37 -------------------------------------------------------------------------------- Table of Contents We believe that the majority of our 787 aircraft deliveries and a few of our 737 MAX aircraft in our orderbook will be delayed more than 12 months, which would give us, our airline customers and Boeing the right to cancel these aircraft commitments. We are working with Boeing and the respective airlines to find commercial solutions to prevent cancellation rights from being exercised and ultimately, to take delivery of these aircraft. The following table, which is subject to change based on Airbus and Boeing delivery delays, shows the number of new aircraft scheduled to be delivered as ofDecember 31, 2021 , and gives effect to our conversion of three Boeing 787 aircraft to 18 737 MAX aircraft in February 2022, along with the lease placements of such aircraft as ofFebruary 17, 2022 . As noted above, we expect delivery delays for all aircraft deliveries in our orderbook. We remain in discussions with Boeing and Airbus to determine the extent and duration of delivery delays, but we are not yet able to determine the full impact of the delivery delays. Total number of lease Number of aircraft in Delivery Year placements our orderbook % Leased 2022 85 85 100.0 % 2023 82 84 97.6 % 2024 71 97 73.2 % 2025 13 50 26.0 % 2026 - 46 - % Thereafter - 69 - % Total 251 431
Aviation industry and sources of income
Our revenues are principally derived from operating leases with airlines throughout the world. As ofDecember 31, 2021 , we had a globally diversified customer base of 118 airlines in 60 different countries, with over 95% of our business revenues from airlines domiciled outside of theU.S. , and we anticipate that most of our revenues in the future will be generated from foreign customers. Performance of the commercial airline industry is linked to global economic health and development. Despite the disruption caused to the commercial airline industry by the COVID-19 pandemic since early 2020, global air travel continues to recover. TheInternational Air Transport Association ("IATA") reported that passenger traffic was up 80% in the month ofDecember 2021 relative to the prior year, as many domestic markets and some international markets reopened with the rise in vaccination distribution over the course of the year. Global domestic passenger traffic in 2021 improved significantly relative to the prior year, and was 28% lower than 2019 as compared to 49% lower in 2020. Domestic markets have experienced faster recovery than international markets in 2021 given generally more relaxed travel restrictions. Total 2021 passenger traffic was 58% lower than 2019 as compared to 66% lower in 2020, primarily due to slower recovery in international passenger traffic. We believe vaccination progress and the advent of new therapeutic treatments as well as easing of travel restrictions will continue to reduce the impact of the COVID-19 pandemic on air passenger traffic and the commercial airline industry. Although the industry is gradually recovering from the impacts of the COVID-19 pandemic, our airline customers may continue to experience financial difficulties in 2022 and potentially longer, which could result in additional requests for lease accommodations, requests to return aircraft early and lease defaults. We also continue to expect more airline reorganizations, liquidations, or other forms of bankruptcies, which may include our aircraft customers and result in the early return of aircraft or changes in our lease terms. A small number of our lessees were subject to various forms of insolvency proceedings. As ofDecember 31, 2021 , approximately 72% of the net book value of our fleet are leased to flag carriers or airlines that have some form of governmental ownership; however, this does not guarantee our ability to collect contractual rent payments. We believe that having a large portion of the net book value of our fleet on lease with flag carriers or airlines with some form of governmental ownership, coupled with the overall quality of our aircraft and security deposits and maintenance reserves under our leases will help mitigate our customer default risk.
The impacts of the COVID-19 pandemic, including border restrictions and other travel limitations, initially reduced demand for some aircraft in our fleet, resulting in lower lease rates, especially for large -carriers. However, in the second half of
38 -------------------------------------------------------------------------------- Table of Contents 2021, we experienced increased demand for our aircraft. The overall increased demand, coupled with rising interest rates and inflation, are providing catalysts for a rising lease rate environment and we are seeing this in the marketplace. Lease rates can be influenced by several factors including impacts of epidemic diseases, changes in the competitive landscape of the aircraft leasing industry, evolving international trade matters, and aircraft delivery delays and therefore, are difficult to project or forecast. We and airlines around the world have continued to experience delivery delays from Boeing, as discussed above in "Our Fleet." Aircraft manufacturer delays have impacted the growth of our company as well as the growth of our airline customers and airline profitability and we expect delivery delays to continue. As a result of continued manufacturing delays, our aircraft delivery schedule could continue to be subject to material changes and delivery delays could potentially extend well into 2022 and beyond. Global economic conditions are also impacting the aircraft leasing industry. Fuel costs have increased significantly in 2022 compared to pandemic lows and interest rates are also expected to increase in 2022. Many manufacturers and airlines, including Boeing and some of our lessees, are also currently experiencing wage negotiations and/or pilot shortages, which are likely to increase their operating costs. While these events have not impacted our lessees' ability to make lease payments to date, or Boeing's ability to meet its contractual obligations to us, if our lessees and manufacturers are not able to effectively manage increased operating costs, it could impact our financial results and cash flows. We believe the aircraft leasing industry has remained resilient over time across a variety of global economic conditions and remain optimistic about the long-term fundamentals of our business. We expect the aviation industry to recover over time from the impact of COVID-19, and because of the COVID-19 pandemic, some aircraft lessors may ultimately consolidate or cease operations. In addition, as a result of the COVID-19 pandemic, some airlines have accelerated their plans to retire older, less fuel-efficient aircraft that have higher maintenance costs in the current environment. We anticipate that airlines will continue to accelerate the retirement of these types of aircraft, ultimately increasing demand for newer aircraft over time. We also anticipate that when airlines need to add new aircraft to their fleet, they will increasingly elect to lease aircraft instead of purchasing aircraft to reduce capital requirements and manage other operating expenses, and that we will benefit from that trend. We expect a number of these trends to continue for 2022 and beyond.
Cash and capital resources
Overview
We ended 2021 with available liquidity of$7.9 billion which is comprised of unrestricted cash of$1.1 billion and undrawn balances under our unsecured revolving credit facility of$6.8 billion . We finance the purchase of aircraft and our business operations using available cash balances, internally generated funds, including through aircraft sales and trading activity, and an array of financing products. We aim to maintain investment-grade credit metrics and focus our debt financing strategy on funding our business on an unsecured basis with primarily fixed-rate debt from public bond offerings. Unsecured financing provides us with operational flexibility when selling or transitioning aircraft from one airline to another. We also have the ability to seek debt financing secured by our assets, as well as financings supported through theExport-Import Bank of the United States and other export credit agencies for future aircraft deliveries. We also issued preferred stock with a total aggregate stated value of$850.0 million . Our access to a variety of financing alternatives including unsecured public bonds, private capital, bank debt, secured financings and preferred stock issuances serves as a key advantage in managing our liquidity. Aircraft delivery delays as a product of the COVID-19 pandemic and other manufacturer delays are expected to further reduce our aircraft investment and debt financing needs for the next six to twelve months and potentially beyond. We continue to monitor COVID-19 and its impact on our overall liquidity position and outlook. We have a balanced approach to capital allocation based on the following priorities, ranked in order of importance: first, investing in modern, in-demand aircraft to profitably grow our core aircraft leasing business while maintaining strong fleet metrics and creating sustainable long-term shareholder value; second, maintaining our investment grade balance sheet utilizing unsecured debt as our primary form of financing; and finally, in lockstep with the aforementioned priorities, returning excess cash to shareholders through our dividend policy as well as regular evaluation of share repurchases, as appropriate. We ended 2021 with total debt outstanding of$17.2 billion as ofDecember 31, 2021 compared to$16.7 billion in 2020. Our unsecured debt outstanding increased to$17.1 billion as ofDecember 31, 2021 from$16.4 billion as ofDecember 31, 2020 . Our unsecured debt as a percentage of total debt increased to 99.2% as ofDecember 31, 2021 from 98.2% as ofDecember 31, 2020 . 39 -------------------------------------------------------------------------------- Table of Contents Material Cash Sources and Requirements We believe that we have sufficient liquidity from available cash balances, cash generated from ongoing operations, available borrowings under our unsecured revolving credit facility and general ability to access the capital markets for opportunistic public bond offerings to satisfy the operating requirements of our business through at least the next 12 months. Our material cash sources include:
• Unrestricted cash: we ended 2021 with
•Lease cash flows: We ended 2021 with$30.9 billion in committed minimum future rental payments comprised of$14.8 billion in contracted minimum rental payments on the aircraft in our existing fleet and$16.1 billion in minimum future rental payments related to aircraft which will deliver between 2022 through 2025. These rental payments are a primary driver of our short and long-term operating-cash-flow. As ofDecember 31, 2021 , our minimum future rentals on non-cancellable operating leases for the year 2022 was$2.1 billion . For further detail on our minimum future rentals for 2023 and thereafter, see "Notes to Consolidated Financial Statements" under "Item 8. Financial Statements and Supplementary Data" in this Annual Report on Form 10-K. •Unsecured revolving credit facility: Our$6.8 billion revolving credit facility is currently syndicated across 53 financial institutions from various regions of the world, diversifying our reliance on any individual lending institution. The current final maturity for the facility isMay 2025 , although we expect to refinance this facility in advance of this date. The facility contains standard investment grade covenants and does not condition our ability to borrow on the lack of a material adverse effect to us or the general economy. •Senior unsecured bonds: We are a frequent issuer in the investment grade capital markets, opportunistically issuing unsecured bonds, primarily through our Medium-Term Note Program at attractive cost of funds. In 2021, we issued$3.7 billion of Medium-Term Notes with a weighted average interest rate of 1.27% and we expect to have continued access to the investment grade bond market in the future. •Aircraft sales: Proceeds from the sale of aircraft help supplement our liquidity position. Although we have scaled back our aircraft sales activity in recent years, assuming aircraft deliveries continue to improve, we are targeting to sell approximately$750.0 million in aircraft for 2022. •Other sources: In addition to the above, we generate liquidity through other sources of debt financing (including unsecured and secured bank term loans), issuances of preferred stock and cash received from security deposits and maintenance reserves. Our material cash requirements are primarily for the purchase of aircraft and debt service payments, along with our general operating expenses. The amount of our cash requirements depends on a variety of factors, including, the ability of aircraft manufacturers to meet their contractual delivery obligations to us, the ability of our lessees to meet their contractual obligations with us, the timing of aircraft sales from our fleet, the timing and amount of our debt service obligations, potential acquisitions, and the general economic environment in which we operate. 40 -------------------------------------------------------------------------------- Table of Contents Our material cash requirements as ofDecember 31, 2021 are as follows: 2022 2023 2024 2025 2026 Thereafter Total (in thousands) Long-term debt obligations$ 2,133,882 $ 2,490,951 $ 2,892,276 $ 2,313,889 $ 3,456,845 $ 3,916,176 $ 17,204,019 Interest payments on debt outstanding(1) 485,115 430,603 355,149 283,628 187,168 305,769
2,047,432
Purchase commitments(2) (3) 6,533,876 5,399,461 5,571,342 3,041,583 2,730,867 4,454,212
27,731,341
Total$ 9,152,873 $ 8,321,015
(1) Future interest payments on floating rate debt are estimated using floating rates in effect atDecember 31, 2021 . (2) Purchase commitments reflect future Boeing and Airbus aircraft deliveries based on information currently available to us based on contractual documentation. Purchase commitments include only the costs of aircraft in our committed orderbook and do not include costs of aircraft that we have the right to purchase through memorandums of understanding or letters of intent. (3) Due to the expected aircraft delivery delays, we expect approximately$1.3 billion of our purchase commitments will be subject to cancellation, at our option, by the time of delivery. The above table does not include any tax payments we may pay nor any dividends we may pay on our preferred stock or common stock. Based on our expected cash sources and requirements for 2022, we expect that we will continue to access the capital markets for public bond offerings in 2022 to meet our cash requirements for aircraft deliveries and debt service obligations. While we have planned our aircraft investments for the remainder of 2022 and beyond based on currently expected delivery schedules, given the current industry circumstances, our aircraft delivery schedule could continue to be subject to material changes. In any case, our aircraft investments will be less than what we planned prior to the pandemic, which will slow our revenue growth, but will further improve our strong liquidity position. The actual delivery dates of the aircraft in our commitments table and expected time for payment of such aircraft may differ from our estimates and could be further impacted by the pace at which Boeing and Airbus can deliver aircraft, among other factors. We expect to make approximately$3.5 billion to$4.5 billion in aircraft investments during 2022, which reflects a high degree of uncertainty around the Boeing 787 program as well as other potential production delays. As ofDecember 31, 2021 , we were in compliance in all material respects with the covenants contained 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 costs of certain financings.
Our liquidity plans are subject to a number of risks and uncertainties, including those described in “Item 1A. Risk Factors” of this Annual Report on Form 10-K.
Cash Flows Our cash flows provided by operating activities increased by 26.3% or$286.7 million to$1.4 billion in 2021, as compared to$1.1 billion in 2020. Our cash flow provided by operating activities during the year endedDecember 31, 2021 was higher due to the growth of our fleet and an increase in our cash collections as compared to the year endedDecember 31, 2020 . Our cash flow used in investing activities was$3.1 billion and$2.5 billion for the years endedDecember 31, 2021 and 2020, respectively, which resulted primarily from the purchase of aircraft. Our cash flow provided by financing activities was$1.1 billion for the year endedDecember 31, 2021 , which resulted primarily from the issuance of senior unsecured notes and preferred stock which were used to acquire aircraft investments. Our cash flow provided by financing activities was$2.9 billion for the year endedDecember 31, 2020 , which resulted primarily from the issuance of unsecured notes partially offset by the repayment of outstanding debt. 41
-------------------------------------------------------------------------------- Table of Contents Debt Our debt financing was comprised of the following as ofDecember 31, 2021 and 2020: December 31, 2021 December 31, 2020 (U.S. dollars in thousands, except percentages) Unsecured Senior notes$ 16,892,058 $ 15,583,544 Term financings 167,000 811,550 Total unsecured debt financing 17,059,058 16,395,094 Secured Term financings 126,660 276,032 Export credit financing 18,301 24,955 Total secured debt financing 144,961 300,987 Total debt financing 17,204,019 16,696,081 Less: Debt discounts and issuance costs (181,539) (177,743)
Debt financing, net of haircuts and issue costs
$ 16,518,338 Selected interest rates and ratios: Composite interest rate(1) 2.79 % 3.13% Composite interest rate on fixed rate debt(1) 2.90 % 3.26% Percentage of total debt at fixed rate 94.80 % 93.02%
(1) This rate does not include the effect of initial fees, facility fees, undrawn fees or the amortization of debt discounts and issue costs.
We believe that, as ofDecember 31, 2021 , we were in compliance in all material respects with the covenants in our debt agreements, including minimum consolidated shareholders' equity, minimum consolidated unencumbered assets, and an interest coverage ratio test.
Senior unsecured notes (including medium term note program)
As ofDecember 31, 2021 , we had$16.9 billion in aggregate principal amount of senior unsecured notes outstanding with remaining terms ranging from less than one month to 8.92 years and bearing interest at fixed rates ranging from 0.70% to 4.625%, with two notes bearing interest at a floating rate of three-month LIBOR plus 0.35% and a floating rate of LIBOR plus 1.125%. As ofDecember 31, 2020 , we had$15.6 billion in aggregate principal amount of senior unsecured notes outstanding bearing interest at fixed rates ranging from 2.25% to 4.625%, with one note bearing interest at a floating rate of three-month LIBOR plus 0.67% and one note bearing interest at a floating rate of LIBOR plus 1.125%. During the year endedDecember 31, 2021 , we issued$3.7 billion in aggregate principal amount of Medium-Term Notes comprised of (i)$750.0 million in aggregate principal amount of 0.70% Medium-Term Notes due 2024, (ii)$1.2 billion in aggregate principal amount of 1.875% Medium-Term Notes due 2026, (iii)$600.0 million in aggregate principal amount of Medium-Term Notes due 2022 bearing interest at a floating rate of three-month LIBOR plus 0.35%, (iv)$600.0 million in aggregate principal amount of 0.80% Medium-Term Notes due 2024, and (v)$500.0 million in aggregate principal amount of 2.10% Medium-Term Notes due 2028.
In
42 -------------------------------------------------------------------------------- Table of Contents Public senior notes (including Medium-Term Note Program). Of our$16.9 billion aggregate principal amount of senior unsecured notes outstanding as ofDecember 31, 2021 , approximately$16.8 billion of such notes have been registered with theSEC . All of our fixed rate public senior notes may be redeemed at our option in part or in full at any time and from time to time prior to maturity at the redemption prices specified in such public senior notes. Our public senior notes also require us to offer to purchase all of the notes at a purchase price equal to 101% of the principal amount of the notes, plus accrued and unpaid interest if a "change of control repurchase event" (as defined in the applicable indenture or supplemental indenture) occurs. Each of the indentures and the applicable supplemental indentures (collectively the "indentures") governing these public senior notes requires us to comply with certain covenants, including restrictions on our ability to (i) incur liens on assets and (ii) merge, consolidate or transfer all or substantially all of our assets. The covenants contained in all of the indentures governing our public senior notes are subject to certain exceptions and qualifications set forth in the applicable indenture. In addition, the indentures governing all of our public senior notes outstanding as ofDecember 31, 2021 also provide for customary events of default. If any event of default occurs, any amount then outstanding under the relevant indentures may immediately become due and payable. These events of default are subject to certain exceptions and qualifications set forth in the indentures. OnMay 7, 2021 , we renewed and refreshed our Medium-Term Note Program, under which we may issue, from time to time, up to$15.0 billion of debt securities designated as our Medium-Term Notes, Series A. All of our public senior notes issued since 2019 have consisted of Medium-Term Notes, Series A, issued under our Medium-Term Note Program. As ofFebruary 17, 2022 , we had$10.6 billion remaining capacity under our Medium-Term Note Program.
Unsecured revolving credit facility
From
Borrowings under the Revolving Credit Facility accrue interest at either (a) LIBOR plus a margin of 1.05% per year or (b) an alternative base rate plus a margin of 0.05% per year, subject, in each case, to increases or decreases based on declines or improvements in the credit ratings for our debt. We are required to pay a facility fee of 0.20% per year (also subject to increases or decreases based on declines or improvements in the credit ratings for our debt) in respect of total commitments under the Revolving Credit Facility. Borrowings under the Revolving Credit Facility are used to finance our working capital needs in the ordinary course of business and for other general corporate purposes. In 2021, we entered into an amendment and four new lender supplements to our Revolving Credit Facility, which extended the final maturity date toMay 5, 2025 and increased the total size of the facility to approximately$6.8 billion , representing an increase of 13.3% fromDecember 31, 2020 . As ofDecember 31, 2021 , lenders held revolving commitments totaling approximately$6.1 billion that mature onMay 5, 2025 , commitments totaling$575.0 million that mature onMay 5, 2023 and commitments totaling$105.0 million that mature onMay 5, 2022 . The Revolving Credit Facility provides for certain covenants, including covenants that limit our subsidiaries' ability to incur, create, or assume certain unsecured indebtedness, and our subsidiaries' abilities to engage in certain mergers, consolidations, and asset sales. The Revolving Credit Facility also requires us to comply with certain financial maintenance covenants including minimum consolidated shareholders' equity, minimum consolidated unencumbered assets, and an interest coverage test. In addition, the Revolving Credit Facility contains customary events of default. In the case of an event of default, the lenders may terminate the commitments under the Revolving Credit Facility and require immediate repayment of all outstanding borrowings.
Preferred shares
OnMarch 5, 2019 , we issued 10,000,000 shares of 6.15% Fixed-to-Floating Non-Cumulative Perpetual Preferred Stock, Series A (the "Series A Preferred Stock"),$0.01 par value, with an aggregate liquidation preference of$250.0 million ($25 per share). See "Item 8. Financial Statements - Note 4, Shareholders' Equity," in this Annual Report on Form 10-K for the year endedDecember 31, 2021 for a discussion of the Series A Preferred Stock dividend rate. We may redeem shares of the Series A Preferred Stock at our 43 -------------------------------------------------------------------------------- Table of Contents option, in whole or in part, from time to time, on or afterMarch 15, 2024 , for cash at a redemption price equal to$25.00 per share, plus any declared and unpaid dividends to, but excluding, the redemption date, without accumulation of any undeclared dividends. We may also redeem shares of the Series A Preferred Stock at our option under certain other limited conditions. The Series A Preferred Stock ranks on a parity with the Series B and Series C Preferred Stock. OnMarch 2, 2021 , we issued 300,000 shares of 4.65% Fixed Rate Reset Non-Cumulative Perpetual Preferred Stock, Series B (the "Series B Preferred Stock"),$0.01 par value, with an aggregate liquidation preference of$300.0 million ($1,000 per share). We will pay dividends on the Series B Preferred Stock only when, as and if declared by our board of directors. Dividends will accrue, on a non-cumulative basis, on the stated amount of$1,000 per share at a rate per annum equal to: (i) 4.65% throughJune 15, 2026 , and payable quarterly in arrears beginning onJune 15, 2021 , and (ii) the Five-yearU.S. Treasury Rate as of the applicable reset dividend determination date plus a spread of 4.076% per reset period fromJune 15, 2026 and reset every five years and payable quarterly in arrears. We may redeem shares of the Series B Preferred Stock at our option, in whole or in part, from time to time, on any dividend payment date on or afterJune 15, 2026 , for cash at a redemption price equal to$1,000 per share, plus any declared and unpaid dividends, without accumulation of any undeclared dividends. We may also redeem shares of the Series B Preferred Stock at our option under certain other limited conditions. The Series B Preferred Stock ranks on a parity with the Series A Preferred Stock and the Series C Preferred Stock. InOctober 2021 , we issued 300,000 shares of 4.125% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series C (the "Series C Preferred Stock"),$0.01 par value, with an aggregate liquidation preference of$300.0 million ($1,000 per share). We will pay dividends on the Series C Preferred Stock only when, as and if declared by our board of directors. Dividends will accrue, on a non-cumulative basis, on the stated amount of$1,000 per share at a rate per annum equal to: (i) 4.125% throughDecember 15, 2026 , and payable quarterly in arrears beginning onDecember 15, 2021 , and (ii) the Five-yearU.S. Treasury Rate as of the applicable reset dividend determination date plus a spread of 3.149% per reset period fromDecember 15, 2026 and reset every five years and payable quarterly in arrears. We may redeem shares of the Series C Preferred Stock at our option, in whole or in part, from time to time, on any dividend payment date on or afterDecember 15, 2026 , for cash at a redemption price equal to$1,000 per share, plus any declared and unpaid dividends, without accumulation of any undeclared dividends. We may also redeem shares of the Series C Preferred Stock at our option under certain other limited conditions. The Series C Preferred Stock ranks on a parity with the Series A and Series B Preferred Stock.
The following table summarizes the cash dividends per share that were paid in 2021 on our outstanding Series A, Series B and Series C Preferred Shares:
Payment dates
Title of each class March 15, 2021 June 15, 2021 September 15, 2021 December 15, 2021 Series A Preferred Stock$ 0.384375 $ 0.384375 $ 0.384375 $ 0.384375 Series B Preferred Stock $ -$ 13.304167 $ 11.625 $ 11.625 Series C Preferred Stock $ - $ - $ - $ 7.104167
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 or trusts for the purpose of leasing aircraft or facilitating borrowing arrangements which are consolidated. We have non-controlling interests in two investment funds in which we own 9.5% of the equity of each fund. We account for our interest in these funds under the equity method of accounting due to our level of influence and involvement in the funds. Also, we manage aircraft that we have sold through our Thunderbolt platform. In connection with the sale of these aircraft portfolios through our Thunderbolt platform, we hold non-controlling interests of approximately 5.0% in two entities. These investments are accounted for under the cost method of accounting. 44 -------------------------------------------------------------------------------- Table of Contents Impact of LIBOR Transition OnMarch 5, 2021 , the Chief Executive of theU.K. Financial Conduct Authority , which regulates LIBOR, publicly announced that no new contracts usingU.S. dollar LIBOR should be entered into afterDecember 31, 2021 , and that publication of certain tenors ofU.S. dollar LIBOR (including overnight and one, three, six and 12 months) will permanently cease afterJune 30, 2023 . Inthe United States , efforts to identify a set of alternativeU.S. dollar reference interest rates are ongoing, and the Alternative Reference Rate Committee ("ARRC") has recommended the use of a Secured Overnight Funding Rate ("SOFR"). SOFR is different from LIBOR in that it is a backward-looking secured rate rather than a forward-looking unsecured rate. For cash products and loans, the ARRC has also recommended Term SOFR, which is a forward-looking SOFR based on SOFR futures and may in part reduce differences between SOFR and LIBOR. As ofDecember 31, 2021 , we had approximately$0.9 billion of floating rate debt outstanding that used either one or three-month LIBOR as the applicable reference rate to calculate the interest on such debt, of which$80.5 million is set to mature afterJune 30, 2023 . Additionally, our perpetual Series A Preferred Stock is set to accrue dividends at a floating rate determined by reference to three-month LIBOR, if available, beginningMarch 15, 2024 . While all of our agreements governing LIBOR-linked debt obligations and Series A Preferred Stock obligations that are set to mature afterJune 30, 2023 contain LIBOR transition fallback provisions, the lack of a standard market practice and inconsistency in fallback provisions in recent years is reflected across the agreements governing our floating rate debt and Series A Preferred Stock. For example, our Revolving Credit Facility contains benchmark replacement language with respect to LIBOR largely based on ARRC's recommendation of Term SOFR, and our Series A Preferred Stock contains LIBOR fallback provisions that will allow us to determine an alternative reference rate selected by the central bank, reserve bank, monetary authority or any similar institution that is consistent with market practice regarding a substitute for three-month LIBOR. For our Series A Preferred Stock, if we determine there is no such alternative reference rate, then we must select an independent financial advisor to determine a substitute rate for LIBOR, and if an independent financial advisor cannot determine an alternative reference rate, the dividend rate, business day convention and manner of calculating dividends applicable during the fixed-rate period of the Series A Preferred Stock will be in effect. The implementation of a substitute reference rate for the calculation of interest rates under our LIBOR linked debt and Series A Preferred Stock obligations may cause us to incur expenses in effecting the transition and may result in disputes with our lenders or holders of Series A Preferred Stock over the appropriateness or comparability to LIBOR of the substitute reference rate selected. However, we do not expect the LIBOR transition impact will have a material effect on our financial results based on our anticipated LIBOR linked outstanding debt and Series A Preferred Stock atJune 30, 2023 . If the rate used to calculate interest on our outstanding floating rate debt that currently uses LIBOR and our Series A Preferred Stock were to increase by 1.0% either as a result of an increase in LIBOR or the result of the use of an alternative reference rate determined under the fallback provisions in the applicable debt agreement when LIBOR is discontinued, we would expect to incur additional interest expense and preferred dividends of$9.0 million and$2.5 million , respectively on such indebtedness and our Series A Preferred Stock as ofDecember 31, 2021 on an annualized basis.
Credit ratings
Our superior long-term and corporate credit ratings help us reduce our cost of funds and expand our access to capital at attractive prices. Our long-term debt financing strategy is focused on continuing to raise unsecured debt in the global investment grade banking and capital markets.
The following table summarizes our current credit ratings:
Long-term Corporate Date of Last
Rating Agency Debt Rating Outlook Ratings Action
Kroll Bond Ratings A- A- Negative March 25, 2021
Standard and Poor's BBB BBB Stable April 7, 2021
Fitch Ratings BBB BBB Stable July 1, 2021
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.
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Results of Operations
Year Ended Year Ended Year Ended
December 31, 2021 December 31, 2020 December 31, 2019
(in thousands,
except for amounts and percentages per share and per share) Revenue Rental of flight equipment
$ 2,003,337 $ 1,946,620 $ 1,916,869
Aircraft sales, trading, and other 85,052 68,819 100,035
Total revenues 2,088,389 2,015,439 2,016,904
Expenses
Interest 462,396 431,733 397,320
Amortization of debt discounts and issuance costs 50,620 43,025 36,691
Interest expense 513,016 474,758 434,011
Depreciation of flight equipment 882,562 780,691 702,810
Selling, general, and administrative 125,279 95,684 123,653
Stock-based compensation 26,516 17,628 20,745
Total expenses 1,547,373 1,368,761 1,281,219
Income before taxes 541,016 646,678 735,685
Income tax expense (104,384) (130,414) (148,564)
Net income $ 436,632 $ 516,264 $ 587,121
Preferred stock dividends (28,473) (15,375) (11,958)
Net income available to common stockholders $ 408,159 $ 500,889 $ 575,163
Earnings per share of common stock
Basic $ 3.58 $ 4.41 $ 5.14
Diluted $ 3.57 $ 4.39 $ 5.09
Weighted-average shares of common stock outstanding
Basic 114,050,578 113,684,782 111,895,433
Diluted 114,446,093 114,014,021 113,086,323
Other financial data
Pre-tax profit margin 25.9 % 32.1 % 36.5 %
Adjusted net income before income taxes(1) $ 589,679 $ 691,956 $ 781,163
Adjusted pre-tax profit margin(1) 28.2 % 34.3 % 38.7 %
Adjusted diluted earnings per share before income
taxes(1) $ 5.15 $ 6.07 $ 6.91
Pre-tax return on common equity 8.6 % 11.3 % 14.2 %
Adjusted pre-tax return on common equity(1) 9.8 % 12.4 % 15.4 %
(1)Adjusted net income before income taxes (defined as net income available to
common stockholders excluding 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), adjusted pre-tax profit
margin (defined as adjusted net income before income taxes divided by total
revenues), 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) and adjusted pre-tax return on common equity (defined
as adjusted net income before income taxes divided by average common
shareholders' equity) are measures of operating performance that are not defined
by GAAP and should not be considered as an alternative to net income available
to common stockholders, pre-tax profit margin, earnings per share, diluted
earnings per share and pre-tax return on common equity, or any other performance
measures derived in accordance with GAAP. Adjusted net income before income
taxes, adjusted pre-tax profit margin, adjusted
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diluted earnings per share before income taxes and adjusted pre-tax return on
common equity 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 pre-tax profit margin, adjusted diluted earnings per share
before income taxes and adjusted pre-tax return on common equity 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 pre-tax profit
margin, adjusted diluted earnings per share before income taxes and adjusted
pre-tax return on common equity, 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 pre-tax
profit margin, adjusted diluted earnings per share before income taxes and
adjusted pre-tax return on common equity do not reflect our cash expenditures or
changes in our cash requirements for our working capital needs. In addition, our
calculation of adjusted net income before income taxes, adjusted pre-tax profit
margin, adjusted diluted earnings per share before income taxes and adjusted
pre-tax return on common equity may differ from the adjusted net income before
income taxes, adjusted pre-tax profit margin, adjusted diluted earnings per
share before income taxes and adjusted pre-tax return on common equity, or
analogous calculations of other companies in our industry, limiting their
usefulness as a comparative measure.
The following table presents the calculation of the adjusted pre-tax profit margin (in thousands, except percentages):
Year Ended
December 31,
2021 2020 2019
(unaudited)
Reconciliation of the numerator for adjusted pre-tax
profit margin (net income available to common
stockholders to adjusted net income before income
taxes):
Net income available to common stockholders $ 408,159 $ 500,889 $ 575,163
Amortization of debt discounts and issuance costs 50,620 43,025 36,691
Stock-based compensation 26,516 17,628 20,745
Provision for income taxes 104,384 130,414 148,564
Adjusted net income before income taxes $ 589,679
$691,956
Denominator for adjusted pre-tax profit margin: Total revenues 2,088,389 2,015,439 2,016,904 Adjusted pre-tax profit margin(a) 28.2 % 34.3 % 38.7 %
(a) Adjusted pre-tax profit margin is adjusted net profit before income taxes divided by total revenue
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The following table shows the calculation of adjusted diluted earnings per share
before income taxes (in thousands, except share and per share amounts):
Year Ended
December 31,
2021 2020 2019
(unaudited)
Reconciliation of the numerator for adjusted diluted
earnings per share (net income available to common
stockholders to adjusted net income before income
taxes):
Net income available to common stockholders $ 408,159 $ 500,889 $ 575,163
Amortization of debt discounts and issuance costs 50,620 43,025 36,691
Stock-based compensation 26,516 17,628 20,745
Provision for income taxes 104,384 130,414 148,564
Adjusted net income before income taxes $ 589,679
Denominator for adjusted diluted earnings per share: Weighted average diluted common shares outstanding
114,446,093 114,014,021 113,086,323 Adjusted diluted earnings per share before income taxes(b)$ 5.15
(b) Adjusted diluted earnings per share before income taxes is adjusted net income before income taxes divided by weighted average diluted ordinary shares outstanding
The following table shows the calculation of the adjusted pre-tax return on common equity (in thousands, except percentages):
Year Ended
December 31,
2021 2020 2019
(unaudited)
Reconciliation of the numerator for adjusted pre-tax
return on common equity (net income available to
common stockholders to adjusted net income before
income taxes):
Net income available to common stockholders $ 408,159 $ 500,889 $ 575,163
Amortization of debt discounts and issuance costs 50,620 43,025 36,691
Stock-based compensation 26,516 17,628 20,745
Provision for income taxes 104,384 130,414 148,564
Adjusted net income before income taxes $ 589,679
$691,956
Denominator for adjusted pre-tax return on common equity: Common shareholders' equity as of the beginning of the period$ 5,822,341 $ 5,373,544 $ 4,806,900 Common shareholders' equity as of the end of the period 6,158,568 5,822,341 5,373,544 Average common shareholders' equity$ 5,990,455
Adjusted pre-tax return on common equity(c) 9.8 % 12.4 % 15.4 %
(c) Adjusted pre-tax return on common equity is calculated as adjusted net income before income taxes divided by average common shareholders’ equity
48 --------------------------------------------------------------------------------
Table of Contents 2021 Compared to 2020 Rental revenue During the year endedDecember 31, 2021 , we recorded$2.0 billion in rental revenue, which included amortization expense related to initial direct costs, net of overhaul revenue of$2.3 million , as compared to$1.95 billion , which included amortization expense related to initial direct costs, net of overhaul revenue of$31.9 million for the year endedDecember 31, 2020 . Our owned fleet increased to 382 aircraft with a net book value of$22.9 billion as ofDecember 31, 2021 from 332 aircraft with a net book value of$20.4 billion as ofDecember 31, 2020 . The increase in total revenues was primarily driven by the growth in our fleet and an increase in our cash collections. The impact of cash basis accounting and lease restructurings for the year endedDecember 31, 2021 resulted in a decrease in revenue of$72.7 million and$132.5 million , respectively.
Aircraft sales, trading and other income
Aircraft sales, trading, and other revenue totaled$85.1 million for the year endedDecember 31, 2021 compared to$68.8 million for the year endedDecember 31, 2020 . During the year endedDecember 31, 2021 , we recorded approximately$24.0 million related to the sale of three aircraft. In addition, we recorded approximately$34.0 million in gains related to the sale to a third party of certain unsecured claims related to Aeromexico's insolvency proceedings. During the year endedDecember 31, 2020 , we recorded approximately$31.1 million related to lease termination fees and the sale of eight aircraft and also recorded$14.0 million in other revenue related to the repurchase of$206.1 million in senior notes.
Interest expense
Interest expense totaled$513.0 million for the year endedDecember 31, 2021 compared to$474.8 million for the year endedDecember 31, 2020 . The increase was primarily due to an increase in our aggregate debt balance driven by the growth of our fleet and the increase in our liquidity position, partially offset by a decrease in our composite interest rate. We ended the year with$7.9 billion in available liquidity. We expect that our interest expense will increase as our average debt balance outstanding continues to increase. We also expect that the rising interest rate environment could lead to an increase in our composite cost of funds, which would increase our interest expense.
Depreciation expense
We recorded$882.6 million in depreciation expense of flight equipment for the year endedDecember 31, 2021 compared to$780.7 million for the year endedDecember 31, 2020 . The increase in depreciation expense for 2021 compared to 2020 was primarily attributable to the growth of our fleet during the last twelve months.
Selling, general and administrative expenses
We recorded selling, general, and administrative expenses of$125.3 million for the year endedDecember 31, 2021 compared to$95.7 million for the year endedDecember 31, 2020 . Selling, general, and administrative expense as a percentage of total revenue increased to 6.0% for the year endedDecember 31, 2021 compared to 4.7% for the year endedDecember 31, 2020 . The increase in selling, general and administrative expenses was primarily due to the increase in business activity and increased expenses related to transition of aircraft.
Taxes
For the years ended
Net income available to ordinary shareholders
For the year endedDecember 31, 2021 , we reported consolidated net income available to common stockholders of$408.2 million , or$3.57 per diluted share, compared to a consolidated net income available to common stockholders of$500.9 million , or$4.39 per 49 -------------------------------------------------------------------------------- Table of Contents diluted share, for the year endedDecember 31, 2020 . Despite the growth of our fleet, our net income available to common stockholders and diluted earnings per share decreased due to the impact of lease restructurings and cash basis accounting.
Adjusted net profit before income taxes
For the year endedDecember 31, 2021 , we recorded adjusted net income before income taxes of$589.7 million , or$5.15 per diluted share, compared to an adjusted net income before income taxes of$692.0 million , or$6.07 per diluted share, for the year endedDecember 31, 2020 . Our adjusted net income before income taxes and adjusted diluted earnings per share before income taxes decreased for the year endedDecember 31, 2021 as compared to 2020, primarily due to the impact of lease restructurings and cash basis accounting.
2020 vs. 2019
Rental income
As ofDecember 31, 2020 , we owned 332 aircraft, with a net book value of$20.4 billion , and recorded$1.95 billion in rental revenue for the year then ended, which included amortization expense related to initial direct costs, net of overhaul revenue of$31.9 million . In the prior year, as ofDecember 31, 2019 , we owned 292 aircraft with a net book value of$18.7 billion and recorded$1.92 billion in rental revenue for the year endedDecember 31, 2019 , which included overhaul revenue, net of amortization of initial direct costs, of$11.1 million . The increase in rental revenue was primarily due to the increase in net book value of our fleet to$20.4 billion as ofDecember 31, 2020 from$18.7 billion as ofDecember 31, 2019 , partially offset by approximately$49.4 million of rental revenue we were not able to recognize because collection was not reasonably assured for certain of our leases and the impact of lease restructurings entered into during the period, which decreased our total revenue by approximately$49.2 million for the year endingDecember 31, 2020 .
Aircraft sales, trading and other income
Aircraft sales, trading, and other revenue totaled$68.8 million for the year endedDecember 31, 2020 , of which$31.1 million was related to the sale of eight aircraft and lease termination fees recognized during the year then ended. In addition, we recorded$14.0 million in other revenue related to the repurchase of$206.1 million in senior notes. Aircraft sales, trading and other revenue totaled$100.0 million for the year endedDecember 31, 2019 , of which$67.8 million was related to the sale of 30 aircraft from our fleet and lease termination fees recognized during 2019. The decrease in our aircraft sales, trading, and other revenue for the year 2020 compared to 2019 is primarily due to fewer aircraft sales. Interest expense Interest expense totaled$474.8 million for the year endedDecember 31, 2020 compared to$434.0 million for the year endedDecember 31, 2019 . The increase was primarily due to an increase in our aggregate debt balance driven by the growth of our fleet and the increase in our liquidity position, partially offset by the decrease in our composite interest rate. We ended the year with an available liquidity balance of$7.7 billion . 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$780.7 million in depreciation expense of flight equipment for the year endedDecember 31, 2020 compared to$702.8 million for the year endedDecember 31, 2019 . The increase in depreciation expense for 2020 compared to 2019 was primarily attributable to the growth of our fleet.
Selling, general and administrative expenses
We recorded selling, general, and administrative expenses of$95.7 million for the year endedDecember 31, 2020 compared to$123.7 million for the year endedDecember 31, 2019 . Selling, general, and administrative expense as a percentage of total revenue decreased to 4.7% for the year endedDecember 31, 2020 compared to 6.1% for the year endedDecember 31, 2019 . The decrease in selling, general and administrative expenses is primarily due to lower transactional costs incurred and a decrease in operating expenses during the period. 50 --------------------------------------------------------------------------------
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Net income available to ordinary shareholders
For the year endedDecember 31, 2020 , we reported consolidated net income available to common stockholders of$500.9 million , or$4.39 per diluted share, compared to a consolidated net income available to common stockholders of$575.2 million , or$5.09 per diluted share, for the year endedDecember 31, 2019 . Despite the continued growth of our fleet, our net income available to common stockholders decreased for the year 2020 as compared to 2019, due to the decrease in our revenues as described above and an increase in depreciation and interest expense, partially offset by a decrease in selling, general and administrative expenses.
Adjusted net profit before income taxes
For the year endedDecember 31, 2020 , we recorded adjusted net income before income taxes of$692.0 million , or$6.07 per diluted share, compared to an adjusted net income before income taxes of$781.2 million , or$6.91 per diluted share, for the year endedDecember 31, 2019 . Adjusted net income before income taxes decreased for year 2020 as compared to 2019, primarily due to a decrease in total revenues as described above and an increase in depreciation and interest expense, partially offset by a decrease in selling, general and administrative expenses.
Critical accounting estimates
We believe the following critical accounting estimates can have a significant impact on our results of operations, financial position, and financial statement disclosures, and may require subjective and complex estimates and judgments.
flight equipment
Flight equipment under operating lease is stated at cost less accumulated
depreciation. Purchases, major additions and modifications, and interest on
deposits during the construction phase are capitalized. We generally depreciate
passenger aircraft on a straight-line basis over a 25-year life from the date of
manufacture to a 15% residual value. Changes in the assumption of useful lives
or residual values for aircraft could have a significant impact on our results
of operations and financial condition. At the time flight equipment is retired
or sold, the cost and accumulated depreciation are removed from the related
accounts and the difference, net of proceeds, is recorded as a gain or loss.
Major aircraft improvements and modifications incurred during an off-lease
period are capitalized and depreciated over the remaining life of the flight
equipment. In addition, costs paid by us for scheduled maintenance and overhauls
are capitalized and depreciated over a period to the next scheduled maintenance
or overhaul event. Miscellaneous repairs are expensed when incurred.
Our management team evaluates on a quarterly basis the need to perform an
impairment test whenever facts or circumstances indicate a potential impairment
has occurred. An assessment is performed whenever events or changes in
circumstances indicate that the carrying amount of an aircraft may not be
recoverable. Recoverability of an aircraft's carrying amount is measured by
comparing the carrying amount of the aircraft to future undiscounted net cash
flows expected to be generated by the aircraft. The undiscounted cash flows
consist of cash flows from currently contracted leases, future projected lease
rates, and estimated residual or scrap values for each aircraft. We develop
assumptions used in the recoverability analysis based on our knowledge of active
lease contracts, current and future expectations of the global demand for a
particular aircraft type, potential for alternative use of aircraft and
historical experience in the aircraft leasing market and aviation industry, as
well as information received from third-party industry sources. The factors
considered in estimating the undiscounted cash flows are affected by changes in
future periods due to changes in contracted lease rates, economic conditions,
technology, and airline demand for a particular aircraft type. In the event that
an aircraft does not meet the recoverability test and the aircraft's carrying
amount falls below estimated values from third-party industry sources, the
aircraft will be recorded at fair value in accordance with our Fair Value
Policy, resulting in an impairment charge. Deterioration of future lease rates
and the residual values of our aircraft could result in impairment charges which
could have a significant impact on our results of operations and financial
condition.
We record flight equipment at fair value if we determine the carrying value may
not be recoverable. We principally use the income approach to measure the fair
value of aircraft. The income approach is based on the present value of cash
flows from contractual lease agreements and projected future lease payments,
including contingent rentals, net of expenses, which extend to the end of the
aircraft's economic life in its highest and best use configuration, as well as a
disposition value based on expectations of market participants. These valuations
are considered Level 3 valuations, as the valuations contain significant
non-observable inputs.
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