TIDMDPA
RNS Number : 5428J
DP Aircraft I Limited
19 August 2019
DP AIRCRAFT I LIMITED
UNAUDITED CONDENSED CONSOLIDATED INTERIM REPORT
FOR THE SIX MONTH PERIODED 30 JUNE 2019
COMPANY OVERVIEW
DP Aircraft I Limited (the 'Company') was incorporated with
limited liability in Guernsey under the Companies (Guernsey) Law,
2008 on 5 July 2013 with registered number 56941.
The Company was established to invest in aircraft. The Company
is a holding company, and makes its investment in aircraft through
four wholly owned subsidiary entities, DP Aircraft Guernsey I
Limited, DP Aircraft Guernsey II Limited, DP Aircraft Guernsey III
Limited and DP Aircraft Guernsey IV Limited (collectively and
hereinafter, the 'Borrowers'), each being a Guernsey incorporated
company limited by shares and two intermediate lessor companies, DP
Aircraft Ireland Limited and DP Aircraft UK Limited (the
'Lessors'), an Irish incorporated private limited company and a UK
incorporated private limited company respectively. The Company and
its subsidiaries (the Borrowers and the Lessors) comprise the Group
(the 'Group').
Pursuant to the Company's Prospectus dated 27 September 2013,
the Company offered 113,000,000 Ordinary Shares of no par value in
the capital of the Company at an issue price of US$ 1.00 per Share
by means of a Placing. The Company's Shares were admitted to
trading on the Specialist Fund Segment of the London Stock Exchange
on 4 October 2013.
On 5 June 2015, the Company offered 96,333,333 Ordinary Shares
of no par value in the capital of the Company at an issue price of
US$ 1.0589 per Share by means of a Placing. These Shares were
admitted to trading on the Specialist Fund Segment of the London
Stock Exchange on 12 June 2015.
In total there are 209,333,333 Ordinary Shares in issue with
voting rights.
INVESTMENT OBJECTIVE
The Company's investment objective is to obtain income and
capital returns for its Shareholders by acquiring, leasing and
then, when the Board considers it appropriate, selling aircraft
(the 'Asset' or 'Assets').
DP Aircraft I Limited owns two Boeing 787-8 aircraft,
manufacturer serial number (MSN) 35304 and MSN 35305, both on a
long-term lease with Norwegian Air Shuttle ASA as well as two
Boeing 787-8 aircraft, MSN 35320 and MSN 36110, both on a long term
lease with Thai Airways International PCL (the 'Assets').
THE BOARD
The Board comprises independent non-executive directors. The
directors of the Board are responsible for managing the business
affairs of the Company and Group in accordance with the Articles of
Incorporation and have overall responsibility for the Company's and
Group's activities, including portfolio and risk management while
the asset management of the Group is undertaken by DS Aviation GmbH
& Co. KG (the 'Asset Manager').
THE ASSET MANAGER
The Asset Manager has undertaken to provide the asset management
services to the Company and Group under the terms of an asset
management agreement but does not undertake any regulated
activities for the purpose of the UK Financial Services and Markets
Act 2000.
BREXIT
Refer to note 21 of the financial statements for the Directors'
considerations of the impact of Brexit on the Company.
DISTRIBUTION POLICY
The Company aims to provide Shareholders with an attractive
total return comprising income, from distributions through the
period of the Company's ownership of the Assets, and capital, upon
any sale of the Assets. The Company targets a quarterly
distribution in February, May, August and November of each year.
The target distribution is US$ 0.0225 per share per quarter. Two
quarterly dividends have been paid during the period ended 30 June
2019 and one has been paid subsequent to the period end, each
meeting the US$ 0.0225 per share target. The target dividends are
targets only and should not be treated as an assurance or guarantee
of performance or a profit forecast. Investors should not place any
reliance on such target dividends or assume that the Company will
make any distributions at all.
FACT SHEET
Ticker DPA
Company Number 56941
ISIN Number GG00BBP6HP33
SEDOL Number BBP6HP3
Traded Specialist Fund Segment ('SFS') of the
SFS Admission Date London Stock Exchange
Share Price 4-Oct-13
Earnings per share US$ 0.913 at 30 June 2019
Country of Incorporation US$ 0.0558 for the period ended 30 June
Current Shares in Issue 2019
Administrator and Company Guernsey
Secretary 209,333,333
Asset Manager Aztec Financial Services (Guernsey) Limited
Auditor DS Aviation GmbH & Co. KG
Corporate Broker KPMG, Chartered Accountants
Aircraft Registrations Canaccord Genuity Limited
LN-LNA
LN-LNB
HS-TQD
Aircraft Serial Numbers HS-TQC
35304
35305
35320
Aircraft Type and Model 36110
Lessees Boeing 787-8
Norwegian Air Shuttle ASA ('Norwegian'
or 'NAS')
Website Thai Airways International Public Company
Limited ('Thai Airways')
www.dpaircraft.com
HIGHLIGHTS
PROFIT FOR THE PERIOD
Profit for the period ended 30 June 2019 is US$ 11,688,490 and
Earnings per Share is US$ 0.0558 per Share. The profit for the
period ended 30 June 2018 was US$ 10,533,504 and Earnings per Share
was US$ 0.0503.
NET ASSET VALUE ('NAV')
The NAV per Share was US$ 1.0199 at 30 June 2019 (31 December
2018: US$ 1.0217).
Although the fair values of the derivatives will move over their
terms, at maturity the derivatives fair values will reduce to nil.
The NAV excluding swap instruments is therefore presented to
provide what the Directors consider to be a more relevant
assessment of the Group's net asset position.
As at 30 June 2019 As at 31 December 2018
US$ US$ per share US$ US$ per share
NAV per the financial
statements 213,497,369 1.0199 213,872,974 1.0217
Add back:
Derivative instruments
payable 2,490,300 0.0119 (153,795) (0.0007)
Swap interest payable 1,350 - 7,711 -
NAV excluding swap instruments 215,989,019 1.0318 213,726,890 1.0210
INTERIM DIVIDS
Dividends were declared on:
Date Dividend reference period Dividend per Share Payment date
17 January 2019 Quarter ended 31 December US$ 0.0225 per 14 February 2019
2018 Share
23 April 2019 Quarter ended 31 March US$ 0.0225 per 16 May 2019
2019 Share
08 July 2019 Quarter ended 30 June 2019 US$ 0.0225 per 15 August 2019
Share
OFFICIAL LISTING
The Company's Shares were first admitted to trading on the
Specialist Fund Segment of the London Stock Exchange on 4 October
2013.
CHAIRMAN'S STATEMENT
I am pleased to present Shareholders with the Interim Report of
the Company for the six-month period to 30 June 2019.
The Lessees have continued to meet their lease obligations.
There are no material incidents to bring to the attention of
Shareholders concerning the operation of the aircraft, inspections
have revealed no matters of concern and the Company and group
continues to report a healthy performance.
The Earnings per Share for the period was US$ 0.0558 compared to
US$ 0.0503 for the same period last year. The first interim
dividend for 2019 was paid on 16 May 2019, with the second interim
dividend being declared on 08 July 2019 and paid on 15 August
2019.
The outlook for the airline industry for 2019 remains positive,
with it being expected to be the tenth year in a row of airline
profits according to the International Air Transport Association.
However, the organisation downgraded its expectations of global net
profits from US$ 35.5 billion to US$ 28 billion in 2019. This was
largely as a result of slower growth in world trade as well as
increasing costs, particularly in fuel, labour and infrastructure.
Yields continue to remain under pressure, although constant
compared to 2018. Unit costs, excluding fuel, are anticipated to
increase by 7.4% whereas overall revenues are expected to grow by
6.5%. Passenger numbers are expected to increase from 4.4 billion
to 4.6 billion.
Due to a bottleneck by Rolls-Royce with regards to spare engines
and shop visit slots, both Thai Airways aircraft had been parked
for a number of months during the period. However, TQC returned
back into service at the end of March 2019 and TQD returned back
into service end of May 2019. The airline continues to fulfil all
of its lease obligations in full.
During the period ended 31 March 2019 Thai's operating revenues
were THB 49.8 billion compared to THB 53.5 billion for the previous
comparable period. Operating losses were THB 828 million compared
to an operating profit of THB 3.8 billion in the first quarter
2018. Net profit was THB 445 million compared to THB 2.7 billion
for the previous comparable period. Thai Airways continues to focus
on its revised 2018-2022 transformation plan to exit the business
rehabilitation process. The current focus is to deliver a
profitable business performance and to improve service quality and
customer satisfaction.
I am pleased to advise that the economy cabins of both aircraft
leased to NAS were refurbished during November 2018 and January
2019. NAS continues to focus on management of costs and effective
use of its aircraft. It has been affected by the ongoing grounding
of all B737-MAX aircraft and NAS has successfully reached an
agreement with Rolls-Royce regarding settlement of compensation.
NAS has a challenging period ahead and the company is monitoring
the airline's outlook. During the period, the LNA Norwegian Airways
aircraft had been parked due to Trent 1000 engines issues; however,
the airline continued their lease payments and to fulfil all lease
obligations in full. It is not clear at this time when the Trent
1000 issues will be resolved.
During the period ended 31 March 2019 NAS operating revenues
were NOK 7.99 billion compared to NOK 6.99 billion for the previous
comparable period. Operating losses were NOK 1.46 billion compared
to NOK 2.22 billion. Net loss was NOK 1.49 billion compared to NOK
0.05 billion. NAS has shifted its focus from growth to
profitability which is evidenced by the reduced capacity growth in
the first quarter 2019 and a cost saving programme has also been
implemented.
I would like to thank our Investors for their continued support
in the Company. My fellow Directors and I are available via our
Company Secretary, whose details can be found at the end of this
report.
Jon Bridel
Chairman
ASSET MANAGER'S REPORT
The Aviation Market - Overview and Development
2019 is expected to be the tenth year in a row of airline
profits according to the International Air Transport Association
(IATA). However, the organisation downgraded its expectations of
global net profits from USD 35.5 billion to USD 28.0 billion in
2019. The IATA also re-stated the 2018 global net profit estimate
to USD 30.0 billion (previous assumption USD 32.3 billion). The
change mainly results from slower growth in world trade as well as
increasing costs, particularly of fuel but also of labour and
infrastructure. For 2019, yields continue to remain under pressure
but constant compared to 2018. The continuing trade war between the
U.S. and China might further weaken global trade resulting in a
stagnation in cargo volume. Overall costs are anticipated to
increase by 7.4 per cent whereas overall revenues are expected to
grow by 6.5 per cent. Passenger numbers are expected to increase
from 4.4 billion to 4.6 billion.
Airlines' ancillary revenues are anticipated to be USD 92.9
billion in 2018, which is an increase of 312 per cent since 2010.
Once a crucial revenue stream in the business model of low-cost
carriers, legacy carriers' profitability has become more and more
dependent on ancillary revenues too, especially in an environment
of fierce competition. Besides traditional ancillary revenues such
as seat reservations, baggage fees or fast-track access, additional
offered products are accommodation arrangements, car hire or
special pet care services. Low-cost airlines generally have leaner
corporate structures and are able to respond faster to changes in
customer needs and preferences. Legacy carriers generally have a
more complex ticket distribution process in place, and consequently
ancillary products atop the traditional ones, can partly only be
sold via their website but not by travel agents or third-party
websites. However, different initiatives have been launched and
digital services are available to support airlines to move from
selling tickets to selling a travel experience via various
distribution channels. According to IATA many people enjoy highly
digitised life experiences and are therefore willing to share
personal information, as they believe they may get targeted offers
in return.
In 2019, European carriers are expected to generate a total net
profit of USD 8.1 billion compared to USD 9.4 billion in 2018.
Break-even load factors are the highest amongst all regions and are
anticipated to be 70.2 per cent on average. Capacity is assumed to
increase by 5.6 per cent, whereas demand is anticipated to increase
by only 4.9 per cent. Carriers of the Asia-Pacific region are
anticipated to deliver a total net profit of USD 6.0 billion
compared to USD 7.7 billion in 2018. Demand is assumed to increase
by 6.3 per cent, being the strongest growth amongst all regions,
and to outperform capacity growth of 5.7 per cent.
The recently published Boeing Outlook (Current Market Outlook
2019-2038) expects deliveries of 44,040 aircraft with a market
value of USD 6,810 billion within the next 20 years. Widebody
aircraft and freighter deliveries will account for more than 40 per
cent of the total market value. 17,390 aircraft deliveries are
expected to be for airlines in the Asia Pacific region and 8,990
deliveries for European airlines. Annual global fleet growth is
anticipated to be 3.4 per cent on average. Both Boeing and Airbus
(Global Market Forecast 2018-2037) forecast that the global
passenger and freighter fleet will double within the next 20 years.
According to Airbus the total fleet will grow by 2.3 times within
the next 20 years. In 2019, 1,770 new aircraft will be delivered
with a value of USD 80 billion according to IATA. About half of
these deliveries will replace older, less fuel-efficient aircraft.
The global fleet would consequently increase by 3.6 per cent to
more than 30,500 commercial aircraft until year's end.
The Aviation Market - Overview and Development (continued)
Discussions regarding climate change intensified recently in
some European countries. Aviation accounts for about two per cent
of global CO2 emission. The airline industry, represented by IATA,
agreed on three main objectives to minimise CO2 emissions: to
improve fuel efficiency from 2019 to 2020 by 1.5 per cent,
stabilise CO2 emission on 2020 level (carbon neutral growth) and to
reduce CO2 emission to 2005 levels by 2050. In 2016, the Carbon
Offsetting and Reduction Scheme for International Aviation (CORSIA)
had been adopted by the UN specialised agency ICAO (International
Civil Aviation Organization), which is based in Montreal (Canada).
Consequently, aviation is the first single industry agreeing to a
global market-based measure in the climate change field. The
objective of CORSIA is not to slow down any technological,
operational or infrastructural progress but to provide additional
support to mitigate CO2 emissions and to freeze them at 2020
levels. Since 1 January 2019, all airline operators are obliged to
report emissions for international flights. From 2021 on, all
flights between countries which are volunteering to take part, and
from 2027 on, all international flights (there exist some
exceptions such as for example, small island developing states)
will become subject to the offsetting requirements.
The Assets - Four Dreamliner Boeing 787-8s
Boeing has delivered 859 Boeing 787 Dreamliner aircraft, of
which 361 aircraft are B787-8s, 467 aircraft are B787-9s and 31 are
B787-10s (as of 30 June 2019). These deliveries had been made to 54
customers consisting of airlines and lessors. In 2019, two new
customers of this aircraft type placed orders: Bamboo Airways
(Vietnam) and Lufthansa (Germany). The number of total orders for
the B787 family now amounts to 1,441 aircraft from a total of 74
customers.
Thai Airways' B787-8 offers a total of 264 seats, of which 24
are business and 240 economy class seats. The carrier operates this
aircraft type to destinations such as Vienna, Seoul and Hanoi. A
bottleneck by Rolls-Royce in regard to spare engines and shop visit
slots and the engine manufacturers' engine shops being busy with
upgrades on the Trent engines, had certain effects on Thai Airways'
Boeing 787 fleet. Some of the aircraft, including TQC and TQD, had
been parked. However, TQC returned back into service at the end of
March 2019 and TQD returned back into service end of May 2019. Our
technical inspector completed an interim storage inspection on 24
October 2018 at Bangkok International Airport and concluded that
both aircraft had been stored in accordance with the applicable
storage requirements. The next annual inspection is scheduled for
October 2019.
Norwegian has equipped its B787-8 fleet with a total of 291
seats, of which 32 are premium economy and 259 economy class seats.
This type of aircraft is used to fly from Europe to destinations in
Asia and America, amongst others Los Angeles, New York and Fort
Lauderdale. On 26 February 2019 and 27 February 2019 respectively,
aircraft LNB and LNA were physically inspected at Copenhagen
Airport. Our inspector considers the aircraft and the technical
records to be in good condition with no significant defects or
airworthiness related issues. Aircraft LNB flight DY-7055 from
Copenhagen (Denmark) to Orlando (USA) on 13 May 2019, was diverted
to Goose Bay due to a problem with the left-hand engine. The crew
performed a safe landing in Goose Bay with the left hand thrust
lever at idle. The left-hand engine is not the originally installed
engine and as such is not owned by DP Aircraft. On 6 June 2019, the
aircraft returned back to service. Since the end of May 2019,
aircraft LNA is parked in the United Kingdom at Prestwick Airport
due to the above-mentioned bottleneck by Rolls-Royce in providing
spare engines. The temporary storage does not release Norwegian to
pay lease rentals. The airline continues to fulfil all of its lease
obligations in full.
The charts below give a short overview of the utilisation of
airframe and engines of each of the four aircraft.
AIRFRAME STATUS Norwegian Air Shuttle
(31(st) May 2019)
LN-LNA LN-LNB
---------------------- ----------------------
TOTAL May 2019 TOTAL May 2019
----------- --------- ----------- ---------
Flight Hours 29,177 404 29,417,553 216
----------- --------- ----------- ---------
Flight Cycles 3,386 45 3,483 23
----------- --------- ----------- ---------
Average Monthly Utilisation 410 hours --- 425 hours ---
48 cycles 50 cycles
----------- --------- ----------- ---------
Flight Hours/Flight Cycles 8.99 :
Ratio 8.62 : 1 1 8.45 : 1 9.39 : 1
----------- --------- ----------- ---------
ENGINE DATA Norwegian Air Shuttle
(31(st) May 2019)
LN-LNA LN-LNB
-------------------------- --------------------------
Engine Serial Number 10118 10119 10130 10135
------------ ------------ ------------ ------------
Engine Manufacturer Rolls-Royce Rolls-Royce Rolls-Royce Rolls-Royce
------------ ------------ ------------ ------------
Engine Type and Model Trent 1000 Trent 1000 Trent 1000 Trent 1000
------------ ------------ ------------ ------------
Total Time [Flight
Hours] 21,762 22,396 18,284 24,553
------------ ------------ ------------ ------------
Total Flight Cycles 2,582 2,674 2,040 2,828
------------ ------------ ------------ ------------
Location LN-LNE LN-LNF LN-LNB LN-LNG
------------ ------------ ------------ ------------
AIRFRAME STATUS Thai Airways International
(30(th) June 2019)
HS-TQC HS-TQD
----------------------- -----------------------
TOTAL June 2019 TOTAL June 2019
----------- ---------- ----------- ----------
Flight Hours 16,093 258 14,048 343
----------- ---------- ----------- ----------
Flight Cycles 3,460 50 3,293 82
----------- ---------- ----------- ----------
Average Monthly Utilisation 288 hours --- 257 hours ---
65 cycles 60 cycles
----------- ---------- ----------- ----------
Flight Hours/Flight Cycles
Ratio 4.42 : 1 5.16 : 1 4.27 : 1 4.18 : 1
----------- ---------- ----------- ----------
ENGINE DATA Thai Airways International
(30(th) June 2018)
HS-TQC HS-TQD
-------------------------- --------------------------
Engine Serial Number 10239 10240 10244 10248
------------ ------------ ------------ ------------
Engine Manufacturer Rolls-Royce Rolls-Royce Rolls-Royce Rolls-Royce
------------ ------------ ------------ ------------
Engine Type and Model Trent 1000 Trent 1000 Trent 1000 Trent 1000
------------ ------------ ------------ ------------
Total Time [Flight
Hours] 12,599 10,518 11,035 14,068
------------ ------------ ------------ ------------
Total Flight Cycles 2,930 2,583 2,675 3,196
------------ ------------ ------------ ------------
Location HS TQD In shop In shop HS-TQA
------------ ------------ ------------ ------------
The Lessees
Norwegian Air Shuttle ASA
Norwegian Air Shuttle ASA is the 3rd largest low-cost carrier in
Europe and the 5th largest worldwide. It operates on short-,
medium- and long-haul routes. As of 30 June 2019, the fleet
comprised 162 aircraft, including 36 B787 aircraft. In the second
quarter 2019, the carrier received two B787-9 Dreamliner aircraft.
In 2018, the airline transported more than 37 million passengers,
an increase of 13 per cent over the previous year and took delivery
of 11 Dreamliners. The low-cost carrier operates a network of more
than 500 routes to over 150 destinations including more than 60
intercontinental city pairs. This year, Norwegian Air Shuttle had
been awarded 'Europe's Leading Low-Cost Airline 2019' for the fifth
consecutive year at the annual World Travel Awards. The airline had
also been awarded 'World's Best Low Cost Long-Haul Airline' by
SkyTrax World Airline Awards. Norwegian Airlines is the first low
cost airline which introduced free Wi-Fi on intercontinental routes
in 2019.
2Q - KEY FIGURES
[billion NOK] 2Q2019 2Q2018 Change
Operating Revenues 12,182 10,228 + 19 %
------- ------- ---------
EBITDAR 2,210 1,619 + 36 %
------- ------- ---------
Operating Result 623 154 + 306 %
------- ------- ---------
Net Result 83 300 - 72 %
------- ------- ---------
Capacity - ASK
(million) 27,074 25,633 + 6 %
------- ------- ---------
Demand - RPK (million) 23,819 22,242 + 7 %
------- ------- ---------
Load Factor 88.0 % 86.8 % + 1.2 pp
------- ------- ---------
During the second quarter of 2019, operating revenues increased
by 19 per cent to NOK 12.18 billion (USD 1.43 billion) whereas
passenger numbers remained stable compared to the second quarter
2018. Operating profit increased by 306 per cent to NOK 623 million
(USD 73 million). The operating result was negatively impacted by a
loss of NOK 74 from jet fuel hedges and a loss of NOK 50 million
from currency effects. Net profit decreased by 72 per cent to NOK
83 million (USD 10 million). Results benefitted from a gain of NOK
174 million from the sale of shares in Lilienthal to Norwegian
Finans Holding ASA (NOFI) including the license to use the name and
logo of Norwegian for the period of five years in Europe. Beyond
this date, additional license fees will apply. In January 2019,
Norwegian implemented the new lease accounting standard
International Financial Reporting Standard 16 ('IFRS 16'). This has
an impact on the Statement of Financial Position and Statement of
Comprehensive Income as upon other terms, operating leases are
entering the Statement of Financial Position. Amongst others, IFRS
16 negatively affected EBT by NOK 183 million, increased additional
interest expenses by NOK 426 million and reduced net costs on
depreciation and aircraft leases by NOK 177 million in the second
quarter 2019. There are further effects as for example on lease
liabilities, net assets and the equity ratio. Without IFRS 16, the
equity ratio at the end of the second quarter would have been 6.0
per cent instead of 3.2 per cent. Transition effects on total
non-current assets amounted to NOK 32,797 million.
Moreover, second quarter results 2019 benefitted from the Easter
shift if compared to the second quarter the previous year. While
unit costs excluding fuel increased by 2 per cent, unit revenue and
yield improved by 13 per cent and 11 per cent respectively. The
average sector length grew by 5 per cent and ancillary revenues per
passengers increased by 15 per cent. As capacity grew by 6 per cent
and demand by 7 per cent, the passenger load factor improved by 1.2
percentage points to 88.0 per cent. Revenues from travel
originating the United States became the largest share of the
company's revenues. Travel originating Norway and Spain rank second
and third. The second quarter emphasis Norwegian's move to reduce
growth.
The grounding of the B737MAX aircraft impacted the second
quarter results by NOK 400 million (USD 47 million). The carrier
currently assumes that the B737MAX returns to service in October
and that the grounding might impact annual results by NOK 700
million. Norwegian stated to request compensation from Boeing but
no agreement had been signed yet and it is not clear when the
Boeing 737MAX will be allowed to return into commercial service.
The airline rebooks affected passengers within its own network and
wet-leases aircraft. The total effect of the grounding cannot be
conclusively determined yet. Deliveries of B737MAXs are put on hold
and total aircraft deliveries for 2019 are expected to decrease
from 16 to 6 aircraft. This in turn would reduce capital
expenditure ('Capex') which is currently estimated to be USD 1.2
billion in 2019.
1st HALF - KEY
FIGURES
[million NOK] 1H2019 1H2018 Change
Operating Revenues 20,173 17,221 + 17 %
-------- -------- ---------
EBITDAR 2,297 738 + 211 %
-------- -------- ---------
Operating Result - 836 - 2,073 - 60 %
-------- -------- ---------
Net Result - 1,407 254 ---
-------- -------- ---------
Capacity - ASK
(million) 50,531 45,628 + 11 %
-------- -------- ---------
Demand - RPK (million) 42,813 39,129 + 9 %
-------- -------- ---------
Load Factor 84.7 % 85.8 % - 1.1 pp
-------- -------- ---------
Norwegian closed the first half of 2019 with an operating loss
of NOK 836 million (USD 98 million) compared to an operating loss
of NOK 2,073 in the same period the last year. The net loss
amounted to NOK 1,407 million (USD 165 million) compared to a net
profit of NOK 254 million. Operating revenues increase by 17 per
cent to NOK 20.17 billion (USD 2.36 billion). Capacity growth
outperformed the increase in demand and the load factor dropped
from 85.8 per cent to 84.7 per cent. Passenger numbers increased by
4 per cent to 18.09 million and the average stage length increased
to 1,867 kilometres, up 4 per cent. Ancillary revenues per
passengers increased by 10 per cent to NOK 177 (USD 21). Unit costs
excluding fuel decreased by 2 per cent whereas unit revenue and
yield grew by 6 per cent and 7 per cent respectively. Cash and cash
equivalents as at 30th June 2019 stood at NOK 1.69 billion (USD 198
million). Norwegian signed an agreement to sell two Boeing 737-800
aircraft which is assumed to have a cash effect of USD 21 million
in the second half of 2019. Receivables are NOK 4 billion above
normalised levels due to holdbacks from credit card acquirers.
Norwegian announced early 2019, that they had reached an agreement
with Rolls-Royce regarding the Trent 1000 issues, having a positive
effect in 2019.
In the first half 2019, the low-cost carrier stated cost
reductions of NOK 1,021 million (USD 120 million) through the
implemented cost saving programme, named #Focus2019, which is
intended to contribute savings of at least NOK 2 billion in total
during the year. The programme includes, amongst others, network
optimisation, crewing efficiency, refinancing of aircraft
deliveries and the divesting of several aircraft on order. The
airline reduced Capex to USD 1.2 billion in 2019 and USD 1.3
billion in 2020.
Norwegian Air Shuttle shifted its focus from growth to
profitability. This became significantly evident in the second
quarter 2019. Capacity growth was 6 per cent compared to 48 per
cent in the same quarter 2018 and is anticipated to further reduce
speed. Estimated capacity growth for 2019 had been downgraded from
a range between 5 to 10 per cent to a range between 0 to 5 per
cent. In February 2019, Norwegian completed a NOK 3 billion (USD
349 million) fully underwritten rights issue to strengthen the
balance sheet and comply with equity covenants. Moreover, this year
Norwegian started operations from Dublin to Hamilton International
Airport which is about 80 kilometres south of Toronto and the
carrier's first Canadian destination. Norwegian announced with the
half year results the step down of Bjorn Kjos, CEO and founder of
Norwegian. The 72-year-old held the position as CEO for 17 years
and will take a role as advisor. Geir Karlsen, CFO of Norwegian,
will take over the position as CEO on an interim basis. In July
2019, Norwegian Air Argentina applied for eleven routes between
Argentina and the U.S. after both countries had been concluded a
liberalisation bilateral air services agreement.
Eurowings announced to virtually interline with Norwegian and
SunExpress on European routes. Although passengers need to re-check
in their luggage on transfer routes, they will benefit from having
one ticket and therefore guaranteed transportation should the
connecting flight not been reached due to delays on previous flight
sectors. The launch date of the cooperation had not been announced
yet. Eurowings has no extensive network to Nordic destinations but
operates flights to Copenhagen, Goteborg, Oslo and Stockholm where
passengers would then transfer to Norwegian's Nordic network.
Norwegian is exposed to normal business risks such as
fluctuations in fuel prices and currencies, fierce competition,
operational risks (as for example the Boeing 737MAX grounding),
Brexit and regulatory issues. Besides, Norwegian is aware that it
is exposed to a liquidity risk, amongst others regarding
commitments for future aircraft deliveries, lease commitments and
the refinancing or paying back of its NOK 2.4 billion bond due at
the end of the year. Regarding the bond maturity, the carrier
identified various potential sources of financing, including
amongst others the divestment of aircraft, the shareholding in Bank
Norwegian and improved operational performance. The carrier does
not intent to raise more equity. To reduce the liquidity risk, the
airline performed the previous mentioned rights issue, and has
followed, as mentioned above, a strategic change from growth to
profitability, including postponements of aircraft deliveries,
divesting aircraft, network optimisation and the implementation of
#Focus2019.
Thai Airways International PCL
Thai Airways International Public Company Limited, full-service
network carrier and flag carrier of the Kingdom of Thailand is
majority-owned by the Thai Government (Ministry of Finance) (51.03
per cent). In 2018, Thai Airways International, including its
subsidiary Thai Smile, transported more than 24 million passengers.
As at 31 March 2019, the fleet comprised 103 active aircraft of
which 83 were wide-body aircraft. Thai and Thai Smile operate
routes to nearly 80 destinations in 34 countries, including 13
destinations in eleven European countries. In 2019, Thai Airways is
ranking again in the top ten of 'the World's Best Airlines' by
Skytrax. In the category 'The World's Best Airline Cabin Crew' and
'World's Best Airport Services', Thai Airways was voted fourth best
and second-best airline respectively. Additionally, the carrier was
rated number one in the category 'Best Airline Staff in Asia'.
Annual - KEY FIGURES 2018 2017 Change
[billion THB]
Operating Revenues 199.5 191.9 + 3.9 %
------- ------- ----------
Operating Result - 9.0 2.9 ---
------- ------- ----------
Net Result - 11.6 - 2.1 - 451.7 %
------- ------- ----------
Capacity - ASK
(million) 93,131 90,498 + 2.9 %
------- ------- ----------
Demand - RPK (million) 72,315 71,634 + 1.0 %
------- ------- ----------
Load Factor 77.6 % 79.2 % - 1.6 pp
------- ------- ----------
Passengers (million) 24.32 24.56 - 1.0 %
------- ------- ----------
Thai Airways closed the financial year 2018 with a net loss of
THB 11.6 billion (USD 358 million) compared to a net loss of THB
2.1 billion (USD 64 million) in the previous year. Total operating
revenues increased by 3.9 per cent to THB 199.5 billion (USD 6.16
billion) whereas passenger and excess baggage revenues increased by
1.8 per cent totalling THB 160.3 billion and freight and mail
revenues grew by 10.2 per cent to THB 22.3 billion. Revenues from
other activities, including amongst others catering and cargo
handling services, increased by 10.4 per cent to THB 13.4 billion
and other income grew by 69.3 per cent to THB 3.5 billion. Other
income includes gains from sale of unusable property and shares in
Royal Orchid Hotel (Thailand) PCL. Total operating expenses
increased by 10.3 per cent to a total of THB 208.6 billion (USD 6.4
billion). Fuel and oil expenses increased by 19.7 per cent compared
to 2017 while the average fuel price increased by 30.1 per cent.
The carrier stated an operating loss of THB 9.0 billion (USD 278
million) compared to an operating profit of THB 2.9 billion in the
previous year. Aircraft utilisation remained stable at 12.0 block
hours a day. While capacity increased by 2.9 per cent, demand grew
by 1.0 per cent and the load factor decreased by 1.6 percentage
points to 77.6 per cent. The number of transported passengers
decreased by 1.0 per cent to 24.32 million.
Annual results of Thai Airways have been impacted by one-time
expenses, including an impairment loss of assets and aircraft
amounting to THB 3.5 billion and gains on foreign currency exchange
of THB 911 million. Thai's results have been further affected by
raising fuel prices, fierce competition, repair and maintenance
costs, the lease of aircraft and spare parts as well as higher
depreciation and amortisation costs. A further effect on results
derives from a change in the accounted residual values of aircraft
and engines from 10 per cent to 6 per cent (in accordance with TAS
16 (Thai Accounting Standard)). That resulted in an increase of
around THB 3.1 billion in operating expenses (depreciation
expenses). Results were also affected by the bottleneck of spare
engines due to the Trent 1000 issues which presupposed Thai to
temporary park part of its Dreamliner fleet.
In 2018, the airline declared a new vision as part of its
transformation: 'National Premium Airline with Touches of Thai and
Effective Management for Sustainable Profitability'. This comprises
the core values of customer satisfaction, world-class service and
value creation for all stakeholders. In line with the objective of
sustainable growth, Thai Airways signed code share agreements with
NOK Airlines on secondary routes (from Bangkok Don Muang Airport),
Bangkok Airways (ten domestic and six international routes) and
Shenzhen Airlines (three international routes) and moved some
routes to its subsidiary Thai Smile. The latter expanded routes to
strengthen its network to destinations in China, India and the
member states of the Association of Southeast Asian Nations
(ASEAN).
Q1 - KEY FIGURES
[billion THB] 1Q 2019 1Q 2018 Change
Operating Revenues 49.8 53.5 - 6.9 %
-------- -------- ---------
Operating Result - 0.8 3.8 ---
-------- -------- ---------
Net Result 0.4 2.7 - 83.6 %
-------- -------- ---------
Capacity - ASK
(million) 22,871 23,535 - 2.8 %
-------- -------- ---------
Demand - RPK (million) 18,362 18,969 - 3.2 %
-------- -------- ---------
Load Factor 80.3 % 80.6 % - 0.3 pp
-------- -------- ---------
Passengers (million) 6.29 6.25 + 0.6 %
-------- -------- ---------
In the first quarter 2019, Thai Airways stated a net profit of
THB 445 million (USD 14 million); down by 83.6 per cent. Total
operating revenues decreased by 6.9 per cent to THB 49.8 billion
(USD 1.567 million) while total operating expenses increased by 2.0
per cent to THB 50.6 billion (USD 1.59 million) compared to the
same quarter in the previous year. Operating expenses regarding
depreciation and amortization increased by 7.3 per cent compared to
the same quarter 2018. The increase is mainly conditional on the
change in the estimate residual value of aircraft and spare
engines. The carrier stated an operating loss of THB 828 million
(USD 26 million) compared to an operating profit of THB 3.8 billion
in the first quarter in the previous year. Capacity decreased by
2.8 per cent and demand by 3.2 percent respectively. The load
factor therefore decreased by 0.3 percentage points to 80.3 per
cent. The passenger yield was THB 2.20, down by 4.3 per cent.
Aircraft utilisation grew by 5.0 per cent to an average of 12.5
block hours per day. Net results benefitted from a gain on foreign
currency of THB 1.4 billion and a gain from change in ownership of
THB 273 million. As Thai Airways did not exercise its right to
purchase ordinary shares of NOK Airlines in the course of NOK's
capital increase in January 2019, Thai's share in NOK decreased
from 21.80 per cent to 15.94 per cent. This is recognised in the
balance sheet as gain on change in ownership interest. Impairment
loss of assets and aircraft decreased from THB 2,473 million in the
first quarter 2018 to THB 213 million in the first quarter 2019. As
at the end of the quarter, the airline held 21 decommissioned
aircraft for sale. Cash and cash equivalents stood at THB 13.69
billion (USD 431 million) and total assets amounted to THB 267.28
billion (USD 8.42 billion).
Although the number of total international tourists travelling
to Thailand increased by 1.9 per cent during the first quarter
2019, the number of Chinese tourists (accounting for nearly 30 per
cent of total foreign tourists in Thailand) declined by 2.1 per
cent. The decline in Chinese tourist numbers is still the aftermath
of the boat tragedy in Phuket in 2018 and the effect of US trade
barriers. On 27th February 2019, the Pakistani airspace was closed
for several days forcing Thai Airways to cancel flights not only to
and from Pakistan but also to and from Europe. Two of three
Pakistani destinations Thai Airways used to serve before, remain
suspended until at least end of June. Another decrease in capacity
compared to the previous first quarter resulted from the reduction
of frequencies to Sydney and Brisbane as well as the cancellation
of the route Bangkok - Tehran. The main reason for Thai's active
fleet being four aircraft less than in the first three months of
the previous year derives from the shortage of available spare
engines by Rolls-Royce affecting Thai's B787 fleet.
For 2019, the airline expects increasing passenger numbers as a
result of various governmental promotions to increase tourism;
amongst others through the free visa on arrival policy for 21
countries and the promotion of secondary destinations. Thai Airways
also expects further recovery of the number of Chinese tourists. On
3rd May 2019, Thai Airways raised THB 10 billion (USD 313 million)
through an unsecured debenture issue for institutional and high net
worth investors. The coupon rates between 2.35 per cent and 4.65
per cent have tenures between one and 15 years. The debenture
received an A-rating by the rating agency TRIS which is aware of
the fact that Thai's debt to capitalisation ratio remains high. The
raised capital will be used to refinance maturing debt and
investments. In July 2019, Thai Airways will increase its daily
flights to Fukuoka in Japan to ten times a week and in in October,
the airline will launch flights to Sendai becoming the airline's
sixth destination in Japan.
Thai Airways continues to focus on its revised 2018-2022
transformation plan to exit the business rehabilitation process.
The current focus is to deliver a profitable business performance
and to improve service quality and customer satisfaction. In 2020,
the airline aims at being ranked among the world's top 5 airlines
and the reduction of negative retained earnings by 2022. Moreover,
Thai Airways has a long-term 10-year strategy in place (2017 -
2026). The airline's five strategic objectives of the
implementation plan include: Aggressive profit, business portfolio,
customer experience, digital technology and effective human capital
management. The 2018-2022 fleet plan had been revised and renamed
as 2019-2026 fleet acquisition plan which had been approved by the
Board of Directors in January 2019 and now awaits governmental
approval. The acquisition of aircraft mainly focusses on replacing
aircraft of 20 or more years of age. Due to the governmental
elections taking place in the first half 2019, decision-making had
been delayed. Furthermore, Thai and Thai Smile will work closer
together to profit from synergies and offer better onward
connections to and from Thai Airways routes. Thai Smile applied in
June 2019 to become a Connecting Partner of the Star Alliance in
2020.
Thai Airways identified various risk factors for 2019, amongst
others natural disasters, accidents where tourists are involved,
and trade wars. Furthermore, growing market shares of low-cost
carriers as well as fluctuation risks of fuel price, foreign
exchange rates and interest levels put yields under pressure. Thai
Airways has implemented Enterprise Risk Management (ERM) in 2003
which has also been integrated into the airlines business
rehabilitation plan to support enhanced efficiency and
proactiveness.
DS Aviation GmbH & Co. KG
Member of Dr. Peters Group
Stockholmer Allee 53
44269 Dortmund, Germany
DIRECTORS
Jonathan (Jon) Bridel, Non-Executive Chairman (54)
Jon is a Guernsey resident and is currently a non-executive
director of The Renewables Infrastructure Group Limited (FTSE 250),
Starwood European Real Estate Finance Limited, Sequoia Economic
Infrastructure Income Fund Limited (FTSE 250) and SME Credit
Realisation Fund Limited which are listed on the Main Market of the
London Stock Exchange. Other companies include Fair Oaks Income
Fund Limited. Jon was previously Managing Director of Royal Bank of
Canada's investment businesses in the Channel Islands and served as
a director on other RBC companies including RBC Regent Fund
Managers Limited. Prior to joining RBC, Jon served in a number of
senior management positions in banking, specialising in credit and
corporate finance and private businesses as Chief Financial Officer
in London, Australia and Guernsey having previously worked at Price
Waterhouse Corporate Finance in London.
Jon graduated from the University of Durham with a degree of
Master of Business Administration, holds qualifications from the
Institute of Chartered Accountants in England and Wales (1987)
where he is a Fellow, the Chartered Institute of Marketing and the
Australian Institute of Company Directors. Jon is a Chartered
Marketer and a Member of the Chartered Institute of Marketing, a
Chartered Director and Fellow of the Institute of Directors and a
Chartered Fellow of the Chartered Institute for Securities and
Investment.
Jeremy Thompson, Non-Executive Director (64)
Jeremy Thompson is a Guernsey resident with sector experience in
Finance, Telecoms, Aerospace and Oil & Gas. He acts as a
non-executive director to a number of businesses which include
three private equity funds and to an Investment Manager serving the
listed NextEnergy Solar Fund Limited. In addition Jeremy is also a
non-executive director of Riverstone Energy Limited (FTSE 250).
Between 2005 and 2009 he was a director of multiple businesses
within a London based private equity group. This entailed board
positions on both private, listed and SPV companies and highly
successful exits. Prior to that he was CEO of four autonomous
global businesses within Cable & Wireless PLC and earlier held
CEO roles within the Dowty Group. Jeremy has studied and worked in
the UK, USA and Germany.
Jeremy currently serves as chairman of the States of Guernsey
Renewable Energy Team and is a commissioner of the Alderney
Gambling Control Commission. He is also an independent member of
the Guernsey Tax Tribunal panel. Jeremy is a graduate of Brunel
(B.Sc) and Cranfield (MBA) Universities and was an invited member
to the UK's senior defence course (Royal College of Defence
Studies). He holds the Institute of Directors (IoD) Certificate and
Diploma in Company Direction and is an associate of the Chartered
Institute of Arbitration. He completed an M.Sc in Corporate
Governance in 2016 and qualified as a Chartered Company Secretary
in 2017.
Angela Behrend-Görnemann, Non-Executive Director (62)
Angela started her career with Hapag-Lloyd AG and was, from 1984
until 2015, employed with HSH Nordbank AG, Hamburg, Germany as the
Global Head of Aviation Finance and Global Head of Transportation
Finance. In this function she was responsible for Aviation, Rail
and Infrastructure Finance with more than 100 employees in teams in
New York, London, Hamburg, Kiel, Singapore and Shanghai. She
initiated the foundation of the Dublin based Aviation Asset Manager
Amentum Capital. Between 2007 and 2011 she was Class B Manager and
member of the Investment Committee of HSH Global Aircraft I
S.a.r.l, Luxembourg, a closed ended Aircraft Fund. She has
extensive experience in the transportation and banking industries
with more than 20 years experience in aviation. Angela is resident
in Germany.
STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES
Asset risk
The Company's Assets comprise of four Boeing 787-8 aircraft.
The Boeing 787-8 is a relatively new generation of aircraft and
therefore there is insufficient experience and data currently
available to be able to give a complete assessment of the long-term
use and operation of the aircraft. The Group is exposed to the used
aircraft market of the Boeing 787-8, which at this time is
untested.
There is no guarantee that, upon expiry of the leases, the
Assets could be sold for an amount that would enable shareholders
to realise a capital profit on their investment or to avoid a loss.
Costs regarding any future re-leasing of the assets would depend
upon various economic factors and would be determinable only upon
an individual re-leasing event.
Market risk
The airline industry is particularly sensitive to changes in
economic conditions and is highly competitive; risks affecting the
airline industry generally could affect the ability of Norwegian or
Thai Airways to comply with their respective obligations under the
Leases (or any subsequent lease).
Key personnel risk
The ability of the Company to achieve its investment objective
is significantly dependent upon the advice of certain key personnel
at DS Aviation GmbH & Co. KG; there is no guarantee that such
personnel will be available to provide services to the Company for
the scheduled term of the Lease or following the termination of the
Lease. However, Key Man clauses within the Asset Management
Agreement do provide a base line level of protection against this
risk.
Credit risk & Counterparty risk
Credit risk is the risk that a counterparty will default on its
contractual obligations. The Group's most significant
counterparties are Norwegian and Thai Airways as lessees and
providers of income and Norddeutsche Landesbank Girozentrale
('NordLB') and DekaBank Deutsche Girozentrale ('DekaBank') as
holder of the Group's cash and restricted cash. The lessees do not
maintain individual corporate credit ratings. The credit rating of
NordLB is Baa2 (2018: Baa2) and the credit rating of DekaBank is
Aa2 (2018: Aa2).
Norwegian's stated strategy of providing low-cost long haul
flights may not be successful; failure of this strategy, or of any
other material part of Norwegian's business including its financing
strategy combined with ambitious growth objectives, may adversely
affect Norwegian's ability to comply with its obligations under the
leases.
There is no guarantee that the business model of Thai Airways
will be successful. Failure of any material part of the business
model may have an adverse impact on its ability to comply with its
obligations under the leases.
Any failure by Norwegian or Thai Airways to pay any amounts when
due would have an adverse effect on the Group's ability to comply
with its obligations under the loan agreements, could ultimately
have an impact on the Company's ability to pay dividends and could
result in the lenders enforcing their security and selling the
relevant Assets on the market potentially negatively impacting the
returns to investors. In mitigation, Norwegian is the second
largest airline in Scandinavia and the third largest low-cost
airline in Europe and Thai Airways is an International full service
carrier. The group also holds security deposits in the amount of
US$ 13,264,420 (31 December 2018: US$ 13,264,420) as collateral for
lessees' obligations.
Maintenance reserves are being paid by the lessees to the
manufacturers The Boeing Company ('Boeing') and Rolls Royce plc
('Rolls Royce') under Gold and Total Care Agreements. Failure of
the manufacturers to fulfil their respective obligations might
adversely affect the lessees' compliance under the leases. The
credit rating of Boeing is A2 (2018: A2) and the credit rating of
Rolls Royce is A3 (2018: A3).
Liquidity risk
In order to finance the purchase of the Assets, the Group has
entered into four separate loan agreements pursuant to which the
Group has borrowed an initial amount of US$ 316,600,000 in total.
Pursuant to the loan agreements, the lenders are given first
ranking security over the Assets. Under the provisions of each of
the loan agreements, the Borrowers are required to comply with loan
covenants and undertakings. A failure to comply with such covenants
or undertakings may result in the relevant lenders recalling the
relevant loan. In such circumstances, the Group may be required to
sell the relevant Asset to repay the outstanding relevant loan.
Emerging Risks
Norwegian Air Shuttle 'NAS'
NAS has undergone an ambitious growth programme and its
subsequent financial results reflect ongoing challenges. It has
appointed a new CFO and has curtailed further expansion, is selling
aircraft, closing some bases and has completed a financing round,
which was over subscribed, raising US$ 352 million to assist with
the company's ongoing funding requirements.
Unfortunately, the grounding of the 737-Max aircraft by Boeing
and global certification authorities has been unwelcome but NAS has
taken steps to keep capacity in place by deferring the sale of
aircraft, leasing aircraft and seeking compensation from
Boeing.
Thai Airways
Elections have taken place in Thailand recently. It is not felt
that these will impact the airline industry but these matters are
continually monitored. Rolls Royce have recently completed a
maintenance agreement with Thai Airways to provide a regional
maintenance centre for their engines.
Boeing
Company exposure to Boeing in terms of ongoing guarantees and
commitments could be negatively impacted with the recent 737-Max
groundings and as yet the financial impact upon Boeing in terms of
financial compensation and potential loss of orders is not known
although it is expected these matters will be resolved.
Rolls Royce
Company exposure to Rolls Royce in terms of ongoing guarantees
and commitments could be negatively impacted with the recent Trent
1000 engine issues and as yet the financial impact upon Rolls Royce
in terms of financial compensation, loss of capacity and loss of
orders is not known. The Company believes that its engines will
actually benefit from the current maintenance and refurbishments
under way.
Brexit
The current uncertainty regarding Brexit is likely resulting in
travellers delaying reservations. This will likely have a short
term impact upon profitability of certain airlines operating to and
from the UK, including NAS. Refer to note 21 of the financial
statements for the Directors considerations of the impact of Brexit
on the Company.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
For the six months ended 30 June 2019
The Directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules (the 'DTR') of the UK's Financial Conduct
Authority (the 'UK FCA').
In preparing the condensed set of financial statements included
within the half-yearly financial report, the directors are required
to:
- prepare and present the condensed set of financial statements
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU and the DTR of the UK FCA;
- ensure the condensed set of financial statements has adequate
disclosures;
- select and apply appropriate accounting policies; and
- make accounting estimates that are reasonable in the
circumstances.
The directors are responsible for designing, implementing and
maintaining such internal controls as they determine is necessary
to enable the preparation of the condensed set of financial
statements that is free from material misstatement whether due to
fraud or error.
We confirm that to the best of our knowledge:
(1) the condensed set of consolidated financial statements
included within the half-yearly financial report of DP Aircraft I
Limited ('the company') for the six months ended 30 June 2019 (the
'interim financial information') which comprises Condensed
Consolidated statement of comprehensive income, consolidated
statement of financial position, consolidated statement of cash
flows, condensed consolidated statement of changes in equity and
the related explanatory notes, have been presented and prepared in
accordance with IAS 34, Interim Financial Reporting, as adopted by
the European Union, and the DTR of the UK FCA.
(2) The interim financial information presented, as required by
the DTR of the UK FCA, includes:
a. an indication of important events that have occurred during
the first six months of the financial year, and their impact on the
condensed set of financial statements;
b. a description of the principal risks and uncertainties for
the remaining six months of the financial year;
c. related parties' transactions that have taken place in the
first six months of the current financial year and that have
materially affected the financial position or the performance of
the enterprise during that period; and
d. any changes in the related parties' transactions described in
the last annual report that could have a material effect on the
financial position or performance of the enterprise in the first
six months of the current financial year.
On behalf of the board
Director Director
INDEPENT REVIEW REPORT TO THE MEMBERS OF DP AIRCRAFT I
LIMITED
Introduction
We have been engaged by DP Aircraft I Limited (the "company") to
review the condensed set of consolidated financial statements in
the half-yearly financial report for the six months ended 30 June
2019 which comprises the Condensed Consolidated Statement of
Comprehensive Income, Condensed Consolidated Statement of Financial
Position, Condensed Consolidated Statement of Cash Flows, Condensed
Consolidated Statement of Changes in Equityand the related
explanatory notes. Our review was conducted in accordance with the
International Standard on Review Engagements ("ISRE") 2410, 'Review
of Interim Financial Information Performed by the Independent
Auditor of the Entity'.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of consolidated
financial statements in the half-yearly financial report for the
six months ended 30 June 2019 is not prepared in accordance with
IAS 34 Interim Financial Reporting as adopted by the EU and the
Disclosure Guidance and Transparency Rules ("the DTR") of the UK's
Financial Conduct Authority ("the UK FCA").
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA. Theannual financial statements of the
companyare prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The directors are
responsible for ensuring that the condensed set of consolidated
financial statements included in this half-yearly financial report
has been prepared in accordance with IAS 34 Interim Financial
Reporting as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of consolidated financial statements in the
half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with the International
Standard on Review Engagements 2410 Review of Interim Financial
Information Performed by the Independent Auditor of the Entity. A
review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
and consequently does not enable us to obtain assurance that we
would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
We read the other information contained in the half-yearly
financial report to identify material inconsistencies with the
information in the condensed set of consolidated financial
statements and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the review. If
we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Killian Croke 19 August 2019
For and on behalf of
KPMG
Chartered Accountants, Statutory Audit Firm
1 Harbourmaster Place
IFSC
Dublin 1
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
For the six month period ended 30 June 2019
30 June 2019 30 June 2018
(unaudited) (unaudited)
Note US$ US$
Revenue
Lease rental income 4 28,626,892 28,688,669
Amortisation of intangible asset -
aircraft lease premium 10 (2,181,009) (2,181,009)
--------------------------------------------------- ----- ------------ -------------
26,445,883 26,507,660
Expenses
Asset management fees 19 (500,012) (487,816)
Asset Manager's disposal fee 19 (137,189) (159,308)
General and administrative expenses 5 (452,451) (491,792)
Depreciation 10 (8,858,182) (9,481,279)
(9,947,834) (10,620,195)
Operating profit 16,498,049 15,887,465
Finance costs 6 (4,986,849) (5,587,252)
Finance income 7 231,772 254,251
--------------------------------------------------- ----- ------------ -------------
Net Finance Costs (4,755,077) (5,333,001)
Profit before tax 11,742,972 10,554,464
Taxation 8 (54,482) (20,960)
Profit for the period 11,688,490 10,533,504
--------------------------------------------------- ----- ------------ -------------
Other Comprehensive Income / (Expense)
Items that are or may be reclassified
to profit or loss
Cash flow hedges - changes in fair
value 17 (2,635,461) 2,049,291
Cash flow hedges - reclassified to
profit or loss 17 (8,636) 399,351
--------------------------------------------------- ----- ------------ -------------
Total Other Comprehensive Income (2,644,097) 2,448,642
--------------------------------------------------- ----- ------------ -------------
Total Comprehensive Income for the
period 9,044,393 12,982,146
--------------------------------------------------- ----- ------------ -------------
US$ US$
Earnings per Share for the period
- basic and diluted 9 0.0558 0.0503
--------------------------------------------------- ----- ------------ -------------
All the items in the above statement derive from continuing
operations.
The notes form an integral part of these financial
statements.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
As at 30 June 2019
30 June 2019 31 December
2018
(unaudited) (audited)
Note US$ US$
NON-CURRENT ASSETS
Property, Plant and Equipment
- Aircraft 10 383,259,793 392,117,975
Intangible Asset - Aircraft
Lease Premium 10 28,560,490 30,741,499
Derivative instrument assets 17 - 153,795
----------------------------------- ----- ------------- ------------
Total non-current assets 411,820,283 423,013,269
CURRENT ASSETS
Cash and cash equivalents 11,753,653 11,122,182
Restricted cash 11 32,582,269 30,657,524
Trade and other receivables 13 432,888 354,127
Total current assets 44,768,810 42,133,833
TOTAL ASSETS 456,589,093 465,147,102
----------------------------------- ----- ------------- ------------
EQUITY
Share Capital 15 210,556,652 210,556,652
Retained Earnings 5,431,015 3,162,525
Hedging Reserve (2,490,300) 153,797
Total equity 213,497,367 213,872,974
NON-CURRENT LIABILITIES
Bank borrowings 14 177,280,390 190,531,701
Maintenance reserves 18,552,143 16,756,567
Security deposits 13,264,420 13,264,420
Derivative instrument liabilities 17 2,490,300 -
Asset Manager's disposal
fee 19 1,993,835 1,856,644
----------------------------------- ----- ------------- ------------
Total non-current liabilities 213,581,088 222,409,332
CURRENT LIABILITIES
Bank borrowings 14 26,523,190 25,983,973
Deferred income 4 2,598,555 2,579,881
Trade and other payables 12 388,893 300,942
----------------------------------- ----- ------------- ------------
Total current liabilities 29,510,638 28,864,796
TOTAL LIABILITIES 243,091,726 251,274,128
----------------------------------- ----- ------------- ------------
TOTAL EQUITY AND LIABILITIES 456,589,093 465,147,102
----------------------------------- ----- ------------- ------------
The financial statements on were approved by the Board of
Directors and were authorised for issue on 19 August 2019. They
were signed on its behalf by:
Jon Bridel Jeremy Thompson
Chairman Director
The notes form an integral part of these financial
statements.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
For the six month period ended 30 June 2019
30 June 2019 30 June 2018
(unaudited) (unaudited)
US$ US$
Profit for the period 11,688,490 10,533,504
Adjusted for:
Depreciation 8,858,182 9,481,279
Amortisation 2,181,009 2,181,009
Amortisation of deferred finance costs 146,003 146,033
Finance costs 4,840,846 5,441,219
Income tax expense 54,482 20,960
Changes in:
Increase in maintenance provision 1,795,576 2,947,582
Increase/ (Decrease) in deferred income 18,674 (43,103)
Increase in Asset Manager's performance
fee 137,191 159,308
(Decrease)/ Increase in accruals and
other payables 39,829 (3,710)
(Increase)/ Decrease in receivables (78,761) (21,210)
NET CASH FLOW FROM OPERATING ACTIVITIES 29,681,521 30,842,871
--------------------------------------------- ------------- -------------
INVESTING ACTIVITIES
Restricted cash (1,924,745) (3,541,422)
--------------------------------------------- ------------- -------------
NET CASH FLOW USED IN INVESTING ACTIVITIES (1,924,745) (3,541,422)
--------------------------------------------- ------------- -------------
FINANCING ACTIVITIES
Dividends paid (9,420,000) (9,420,000)
Bank loan principal repaid (12,807,754) (12,233,704)
Bank loan interest paid (4,899,825) (5,044,227)
Swap interest received/(paid) 2,274 (434,277)
NET CASH FLOW USED IN FINANCING ACTIVITIES (27,125,305) (27,132,208)
--------------------------------------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 11,122,182 9,442,220
Increase in cash and cash equivalents 631,471 169,241
--------------------------------------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT OF
PERIOD 11,753,653 9,611,461
--------------------------------------------- ------------- -------------
The notes form an integral part of these financial
statements.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(UNAUDITED)
For the six month period ended 30 June 2019
Share Retained Hedging Total
Capital Earnings Reserve Equity
Note US$ US$ US$ US$
As at 1 January 2018 210,556,652 676,034 (1,563,055) 209,669,631
Total comprehensive
income for the period
Profit for the period - 10,533,504 - 10,533,504
Other comprehensive
income - - 2,448,642 2,448,642
--------------------------------- ----- ------------ ------------ ------------ ------------
Total comprehensive
income - 10,533,504 2,448,642 12,982,146
-------------------------------- -------------------- ------------ ------------ ------------
Transactions with owners
of the Company
Dividends 16 - (9,420,000) - (9,420,000)
As at 30 June 2018 (unaudited) 210,556,652 1,789,538 885,587 213,231,777
--------------------------------- ----- ------------ ------------ ------------ ------------
As at 1 January 2019 210,556,652 3,162,525 153,797 213,872,974
Total comprehensive
income for the period
Profit for the period - 11,688,490 - 11,688,490
Other comprehensive
income - - (2,644,097) (2,644,097)
--------------------------------- ----- ------------ ------------ ------------ ------------
Total comprehensive
income - 11,688,490 (2,644,097) 9,044,393
-------------------------------- -------------------- ------------ ------------ ------------
Transactions with owners
of the Company
Dividends 16 - (9,420,000) - (9,420,000)
As at 30 June 2019 (unaudited) 210,556,652 5,431,015 (2,490,300) 213,497,367
--------------------------------- ----- ------------ ------------ ------------ ------------
The notes form an integral part of these financial
statements.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
For the six month period ended 30 June 2019
1) GENERAL INFORMATION
The unaudited condensed consolidated financial statements (the
'financial statements') incorporate the results of the Company and
that of wholly owned subsidiary entities, DP Aircraft Guernsey I
Limited, DP Aircraft Guernsey II Limited, DP Aircraft Guernsey III
Limited, DP Aircraft Guernsey IV Limited (collectively and
hereinafter, the 'Borrowers'), each being a Guernsey Incorporated
company limited by shares and two intermediate lessor companies, DP
Aircraft Ireland Limited and DP Aircraft UK Limited (the
'Lessors'), an Irish incorporated private limited company and a UK
incorporated private limited company respectively. The Company and
its subsidiaries (the Borrowers and the Lessors) comprise the
Group.
DP Aircraft I Limited (the 'Company') was incorporated on 5 July
2013 with registered number 56941. The Company is admitted to
trading on the Specialist Fund Segment of the London Stock
Exchange.
The Share Capital of the Company comprises 209,333,333 Ordinary
Shares of no par value and one Subordinated Administrative Share of
no par value.
The Company's investment objective is to obtain income and
capital returns for its Shareholders by acquiring, leasing and
then, when the Board considers it appropriate, selling
aircraft.
2) SIGNIFICANT ACCOUNTING POLICIES
a) Basis of preparation
The financial statements for the period 1 January 2019 to 30
June 2019 have been prepared in accordance with International
Accounting Standard (IAS) 34, 'Interim Financial Reporting' as
adopted by the European Union and the Disclosure and Transparency
Rules (the 'DTRs') of the UK's Financial Conduct Authority (the
'FCA').
The financial statements do not include all the information and
disclosures required in the annual financial statements and should
be read in conjunction with the Group's annual report and
consolidated financial statements for the year ended 31 December
2018. The Group's annual financial statements for the year ended 31
December 2018 have been prepared in accordance with International
Financial Reporting Standards ('IFRS') as adopted by the European
Union and are available on the Company's website or from the
Company Secretary.
The financial statements have been prepared on the basis of the
accounting policies set out in the Group's annual consolidated
financial statements for the year ended 31 December 2018 but also
taking into account any new policies that will be applied in the
Group's annual consolidated financial statements for the year ended
31 December 2019.
The Directors considered all new standards, amendments and
interpretations to existing standards effective for the financial
statements for the six month period ended 30 June 2019. The major
new standards and their
impact on the financial statements are detailed below:-
IFRS 16 Leases
IFRS 16 Leases is the IASB's replacement of IAS 17 Leases which
eliminates the classification by a lessee of leases as either
operating or finance. Instead all leases are treated in a similar
way to finance leases in accordance with IAS 17. The standard's
approach to lessor accounting is substantially unchanged from IAS
17.
When the Company acts as a lessor, it determines at the
inception of the lease whether it is a finance lease or an
operating lease. To classify each lease, the Company makes an
assessment of whether the lease transfers substantially all the
risks and rewards incidental to ownership of the underlying assets.
If this is the case, the lease if a finance lease; if not, the
lease is an operating lease. In reaching this conclusion, the
Company considers certain indicators such as whether the lease is
for the majority of the useful economic life of the asset.
The accounting policies applicable to the Company in the
comparative period were not different from IFRS 16. As such there
has been no change to their classification as operating leases or
their measurement.
Going Concern
After making enquiries, the Directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. The Directors
believe the Group is well placed to manage its business risks
successfully as the interest on the Group's loans have been fixed
with the bank or via an interest rate swap and the lease rental
income and supplemental rental income have been set at an aggregate
absolute income stream in excess of the Group's expenses,
distributions and finance costs.
3) SIGNIFICANT JUDGEMENTS AND ESTIMATES
The preparation of unaudited condensed consolidated financial
statements in compliance with IAS 34 requires management to make
judgements, estimates and assumptions about the carrying amount of
assets and liabilities that are not readily apparent from their
sources.
The adoption of IFRS 16 has resulted in management considering
the impact of change in classification of leases as either
operating or finance. As detailed in the annual financial
statements for the year ended 31 December 2018 no material changes
to judgements and estimates were expected. There have been no other
material revisions to the significant judgements made by management
or the nature and amount of changes in estimates of amounts
reported in the annual financial statements for the year ended 31
December 2018.
4) LEASE RENTAL INCOME
30 June 2019 30 June 2018
(unaudited) (unaudited)
US$ US$
Deferred income brought forward 2,579,881 2,641,658
Lease rental income received 28,645,566 28,645,566
Deferred income carried forward (2,598,555) (2,598,555)
--------------------------------- ------------- -------------
Total lease rental income 28,626,892 28,688,669
--------------------------------- ------------- -------------
The contractual cash lease rental payments to be received under
non-cancellable operating lease at the reporting date are:
Next 12 months 2 to 5 years After 5 years Total
30 June 2019 US$ US$ US$ US$
Boeing 787-8 Serial
No: 35304 14,886,012 59,544,048 14,406,805 88,836,865
Boeing 787-8 Serial
No: 35305 14,947,440 59,789,760 16,759,561 91,496,761
Boeing 787-8 Serial
No: 35320 13,745,640 54,982,560 33,218,630 101,946,830
Boeing 787-8 Serial
No: 36110 13,712,040 54,848,160 30,852,090 99,412,290
--------------------- --------------- ------------- -------------- ------------
57,291,132 229,164,528 95,237,086 381,692,746
--------------------- --------------- ------------- -------------- ------------
Next 12 months 2 to 5 years After 5 years Total
30 June 2018 US$ US$ US$ US$
Boeing 787-8 Serial
No: 35304 14,886,012 59,544,048 29,292,817 103,722,877
Boeing 787-8 Serial
No: 35305 14,947,440 59,789,760 31,707,001 106,444,201
Boeing 787-8 Serial
No: 35320 13,745,640 54,982,560 46,964,270 115,692,470
Boeing 787-8 Serial
No: 36110 13,712,040 54,848,160 44,564,130 113,124,330
--------------------- --------------- ------------- -------------- ------------
57,291,132 229,164,528 152,528,218 438,983,878
--------------------- --------------- ------------- -------------- ------------
5) GENERAL AND ADMINISTRATIVE EXPENSES
30 June 2019 30 June 2018
(unaudited) (unaudited)
US$ US$
Legal and professional fees 116,480 141,166
Directors fees and expenses 116,375 117,581
Administration fees 136,090 155,315
Insurance 26,810 17,993
Audit fees 21,510 34,044
Other fees and expenses 35,186 25,693
----------------------------------- ------------- -------------
Total general and administrative
expenses 452,451 491,792
----------------------------------- ------------- -------------
6) FINANCE COSTS
30 June 2019 30 June 2018
(unaudited) (unaudited)
US$ US$
Loan interest paid
and payable 4,849,482 5,041,868
Amortisation of deferred finance costs 146,003 146,033
------------------------------------------------- ------------- -------------
Total finance costs at effective interest
rate* 4,995,485 5,187,901
Cash flow hedges reclassified
from other comprehensive income (8,636) 399,351
-------------------------------------------- --- ------------- -------------
Total finance costs 4,986,849 5,587,252
------------------------------------------------- ------------- -------------
* On liabilities measured at amortised cost
7) FINANCE INCOME
30 June 2019 30 June 2018
(unaudited) (unaudited)
US$ US$
Bank interest received 231,772 254,251
Total finance income 231,772 254,251
------------------------- ------------- -------------
8) TAXATION
With the exception of DP Aircraft Ireland Limited and DP
Aircraft UK Limited, all companies within the Group are exempt from
taxation in Guernsey and are charged an annual exemption fee of
GBP1,200 each (2018: GBP1,200).
DP Aircraft Ireland Limited and DP Aircraft UK Limited are
subject to taxation at the applicable rate in Ireland and the
United Kingdom respectively. The amount of taxation charged during
the period ended 30 June 2019 was US$ 54,482 (period 1 January 2018
to 30 June 2018: US$ 20,960). The Directors do not expect the
taxation payable to be material to the Group.
A tax reconciliation has not been presented in these financial
statements as the effective tax rate of 0.5% is not material and
the reconciliation is not relevant to the understanding of the
Company's results for the period end.
9) EARNINGS PER SHARE
30 June 2019 30 June 2018
(unaudited) (unaudited)
US$ US$
Profit for the period 11,688,490 10,533,504
Weighted average number of shares 209,333,333 209,333,333
Earnings per share 0.0558 0.0503
------------------------------------ ------------- -------------
There are no instruments in issue that could potentially dilute
earnings per Ordinary Share in future periods.
10) PROPERTY, PLANT, EQUIPMENT & INTANGIBLE ASSETS - AIRCRAFT & LEASE PREMIUM
Aircraft Lease Premium Total
(unaudited) (unaudited) (unaudited)
US$ US$ US$
COST
As at 1 January and 30 June
2019 476,751,161 46,979,793 523,730,954
--------------------------------- ------------ -------------- ------------
ACCUMULATED DEPRECIATION
As at 1 January 2019 84,633,186 16,238,294 100,871,480
Charge for the period 8,858,182 2,181,009 11,039,191
As at 30 June 2019 93,491,368 18,419,303 111,910,671
--------------------------------- ------------ -------------- ------------
CARRYING AMOUNT
As at 30 June 2019 383,259,793 28,560,490 411,820,283
--------------------------------- ------------ -------------- ------------
COST
As at 1 January and 31 December
2018 476,751,161 46,979,793 523,730,954
--------------------------------- ------------ -------------- ------------
ACCUMULATED DEPRECIATION
As at 1 January 2018 65,772,211 11,876,274 77,648,485
Charge for the year 18,860,975 4,362,020 23,222,995
As at 31 December 2018 84,633,186 16,238,294 100,871,480
--------------------------------- ------------ -------------- ------------
CARRYING AMOUNT
As at 31 December 2018 392,117,975 30,741,499 422,859,474
--------------------------------- ------------ -------------- ------------
The Boeing 787-8 is a new generation of aircraft. Due to the new
type of design, in particular in respect of innovative materials
and technology, there is currently insufficient experience and data
available to be able to give a complete assessment of the long-term
use and operation of the aircraft. There is a risk that the newly
developed materials may be found to be less efficient or durable
than expected and thereby may lead to higher maintenance and repair
costs. Under the terms of the Leases, the cost of repair and
maintenance of the Assets will be borne by Norwegian and Thai
Airways. However, upon expiry or termination of the leases, the
cost of repair and maintenance will fall upon the Group. Therefore
upon expiry of the leases, the Group may bear higher costs and the
terms of any subsequent leasing arrangement (including terms for
repair, maintenance and insurance costs relative to those agreed
under the leases) may be adversely affected, which could reduce the
overall distributions paid to the Shareholders.
The first aircraft was acquired in June 2013, the second
aircraft acquired in August 2013 and the third and fourth aircraft
were acquired in June 2015. All four of the aircraft are used as
collateral for the loans as detailed in note 14.
10) PROPERTY, PLANT, EQUIPMENT & INTANGIBLE ASSETS - AIRCRAFT & LEASE PREMIUM (CONTINUED)
The estimated residual value of the Boeing 787-8 Assets as at
the end of their respective leases in 2025 and 2026 have been
supported by independent experts as at 31 December 2018. The
residual value will depend upon a variety of factors including
actual or anticipated fluctuations in the results of the airline
industry, market perception of the airline industry, general
economic and social and political development, changes in industry
conditions, fuel prices or rates of inflation.
The residual value estimates at the end of each year are used to
determine the aircraft depreciation of future periods. The residual
value estimates of the leases for the aircraft as at 31 December
2018 was US$ 255,350,464 (31 December 2017: US$249,761,681). As a
result, the year ending 31 December 2019 and future aircraft
depreciation charges, with all other inputs staying constant, will
be US$ 17,865,508 (2018: US$ 18,860,975). The aircraft depreciation
charge for 2020 onwards will vary based on the residual value
estimates as at 31 December 2019.
The future cash in-flows for the Assets (excluding the assets
residual value in the event of a sale) have been fixed at a set
rate as agreed between the Group and the lessees.
The loans entered into by the Group to complete the purchase of
the first two aircraft are cross collateralised. Each of the loans
are secured by way of security taken over each of the first
aircraft and the second aircraft.
The loans entered into by the Group to complete the purchase of
the second two aircraft are cross collateralised. Each of the loans
are secured by way of security taken over each of the third
aircraft and the fourth aircraft.
11) RESTRICTED CASH
30 June 2019 31 December 2018
(unaudited) (audited)
US$ US$
Security Deposits 13,560,170 13,476,273
Maintenance reserves 19,022,099 17,181,251
Total restricted
cash 32,582,269 30,657,524
----------------------- ------------- -----------------
The security deposits held have been provided by the two lessees
in accordance with the lease agreements, Norwegian Air Shuttle ASA
has provided a security deposit of US$ 6,400,000 and Thai Airways
International PCL has provided a security deposit of US$
6,864,420.
12) TRADE AND OTHER PAYABLES
30 June 2019 31 December 2018
(unaudited) (audited)
US$ US$
Swap interest payable 1,350 7,711
Accruals and other
payables 279,899 240,070
Taxation payable 107,644 53,161
Total trade and other payables 388,893 300,942
--------------------------------- --- ------------- -----------------
13) TRADE AND OTHER RECEIVABLES
30 June 2019 31 December 2018
(unaudited) (audited)
US$ US$
Prepayments and other receivables 432,888 354,127
Total trade and other receivables 432,888 354,127
-------------------------------------- ------------- -----------------
14) BANK BORROWINGS
30 June 2019 31 December 2018
(unaudited) (audited)
US$ US$
Current liabilities: bank interest
payable and bank borrowings 26,523,190 25,983,973
Non-current liabilities: bank
borrowing 177,280,390 190,531,701
Total liabilities 203,803,580 216,515,674
------------------------------------- ------------- -----------------
The borrowings are repayable as follows:
30 June 2019 31 December 2018
(unaudited) (audited)
US$ US$
Interest payable 330,210 380,553
Within one year 26,192,980 25,603,420
In two to five years 117,799,521 115,090,480
After five years 59,480,869 75,441,221
Total bank borrowings 203,803,580 216,515,674
------------------------- -------------- -----------------
The table below analyses the movements in the Group's bank
borrowings:
30 June 2019 31 December 2018
(unaudited) (audited)
US$ US$
Opening balance 216,135,121 240,534,196
Repayment of loan (12,807,754) (24,692,716)
Amortisation of deferred finance
costs 146,003 293,641
-------------------------------------- ---------------- -----------------
Principal bank borrowings 203,473,370 216,135,121
Interest payable 330,210 380,553
Total bank borrowings 203,803,580 216,515,674
------------------------------------- ---------------- -----------------
The table below sets out an analysis of net debt and the
movements in net debt for the period ended 30 June 2019:
Cash and Derivative
cash equivalents Principal Interest Instrument* Net Debt
At 1 January
2019 11,122,182 (216,135,121) (380,553) 146,083 (205,247,409)
Cash flows 631,471 12,807,754 4,899,825 (2,272) 18,336,778
Non cash:-
Fair value movement - - - (2,644,097) (2,644,097)
Amortisation
of
deferred finance
costs - (146,003) - - (146,003)
Interest charge - - (4,849,482) 8,636 (4,840,846)
------------------ -------------- ------------ ------------- --------------
At 30 June 2019 11,753,653 (203,473,370) (330,210) (2,491,650) (194,541,577)
------------------ -------------- ------------ ------------- --------------
The table below sets out an analysis of net debt and the
movements in net debt for the period ended 30 June 2018:
Cash and Derivative
cash equivalents Principal Interest Instrument* Net Debt
At 1 January
2018 9,442,220 (240,534,196) (382,775) (1,623,845) (233,098,596)
Cash flows 169,241 12,233,704 5,044,227 434,274 17,881,446
Non cash:-
Fair value movement - - - 2,448,642 2,448,642
Amortisation
of
deferred finance
costs - (146,033) - - (146,033)
Interest charge - - (5,041,868) (399,351) (5,441,219)
------------------ -------------- ------------ ------------- --------------
At 30 June 2018 9,611,461 (228,446,525) (380,416) 859,720 (218,355,760)
------------------ -------------- ------------ ------------- --------------
The balance of unamortised deferred finance costs at 30 June
2019 was US$ 1,995,488 (30 June 2018: US$ 2,289,101).
*Including interest payable of US$ 1,350 (30 June 2018: US$
25,865).
Loans
During the year ended 31 December 2015 the Company utilised the
proceeds from the placing and the proceeds of two separate loans
from DekaBank Deutsche Girozentrale ('DekaBank') of US$ 78,500,000
each to fund the purchase of two Boeing 787-8 aircraft. The balance
on the loans at 30 June 2019 was US$ 109,439,320 (31 December 2018:
US$ 115,714,801).
During the period ended 31 December 2014 the Company utilised
the proceeds from the initial public offering and the proceeds of
two separate loans from Norddeutsche Landesbank Girozentrale
('NordLB') of US$ 79,800,000 each to fund the purchase of two
Boeing 787-8 aircraft. The balance on the loans at 30 June 2019 was
US$ 94,364,260 (31 December 2018: US$ 100,800,873).
All of the loans will be fully amortised with monthly repayments
in arrears over the term until the scheduled expiry of each
respective lease. There have been no defaults or breaches under the
loan agreements (2018: none).
Structure and term
The committed term of each loan is from the drawdown date until
the date falling twelve years from the Delivery Date of the
relevant Asset. Each Loan will be amortised with repayments every
month in arrears over the term in amounts as set out in a schedule
agreed by the Company and the Lenders. Amortisation will be on an
annuity-style (i.e. mortgage-style) basis.
Interest
Interest on each DekaBank loan is payable in arrears on the last
day of each interest period, which is one month long. Interest on
the loan accrues at a fixed rate of 4.10 per cent including a
margin of 1.95 per cent per annum. If any amount is not paid by the
Borrower when due under the loan agreements, interest will accrue
on such amount at the then current rate applicable to the loan plus
2.0 per cent per annum.
Interest on each NordLB loan is payable in arrears on the last
day of each interest period, which is one month long (the 'Interest
Period'). Interest on each Loan accrues at a floating rate of
interest which is calculated using LIBOR for the length of the
Interest Period and a margin of 2.6 per cent per annum (the 'Loan
Margin') ('Loan Floating Rate'). For the purposes of calculating
the Loan Floating Rate, if on the date when LIBOR is set prior to
the beginning of an Interest Period it is not possible for LIBOR to
be determined by reference to a screen rate at the time that LIBOR
is to be set for that Interest Period (a 'Market Disruption
Event'), the amount of interest payable to each affected Loan
Lender during the Interest Period will be the aggregate of each
Lender's cost of funds during that monthly period and the Loan
Margin. If any amount is not paid by the Borrower when due under
the Loan Transaction Documents, interest will accrue on such amount
at the then current rate applicable to the Loan plus 2.0 per cent
per annum. The Group has entered into an ISDA-standard hedging
arrangement with NordLB as hedging provider in connection with the
Loans, in order to provide for a fixed interest rate of 5.06% and
5.08% to be payable in respect of the loans throughout the whole
term.
Cross Collateralisation
The DekaBank loans entered into by the Group to complete the
purchase of the third and fourth Assets are cross collateralised.
Each of the third and fourth loan is secured by way of security
taken over the third and fourth Assets and enforce security over
both Assets. This means that a default on one loan places both of
the Assets at risk.
Similarly the NordLB loans entered into by the Group to complete
the purchase of the first two Assets are cross collateralised. Each
of the first and second loan is secured by way of security taken
over the first and second Assets and enforce security over both
Assets. This means that a default on one loan places both of the
Assets at risk.
Following the enforcement of security and sale of the aircraft,
the remaining proceeds, if any, may be substantially lower than
investors' initial investment in the Company.
15) SHARE CAPITAL
Period ended 30 June 2019 Subordinated
(unaudited)
Administrative Ordinary
Share Shares Total
Issued and fully paid: Number Number Number
Shares as at 1 January and 30
June 2019 1 209,333,333 209,333,334
------------------------------------- --------------- ------------ ------------
Share capital: US$ US$ US$
Share capital as at 1 January
and 30 June 2019 1 210,556,651 210,556,652
------------------------------------- --------------- ------------ ------------
Period ended 30 June 2018
(unaudited)
Subordinated
Administrative Ordinary
Share Shares Total
Issued and fully paid: Number Number Number
Shares as at 1 January and 30
June 2018 1 209,333,333 209,333,334
------------------------------------- --------------- ------------ ------------
Share capital: US$ US$ US$
Share capital as at 1 January and
30 June 2018 1 210,556,651 210,556,652
------------------------------------- --------------- ------------ ------------
Subject to the applicable company law and the Company's Articles
of Incorporation, the Company may issue an unlimited number of
shares of par value and/or no par value or a combination of
both.
On 12 June 2015 a total of 96,333,333 shares were issued under
the placing at an issue price of US$ 1.0589 per share raising gross
proceeds of US$ 102 million. Total issue costs were US$ 2.3 million
which included the 1.5% placing commission paid to Canaccord
Genuity as placing agent.
On 10 June 2013 a total of 113,000,000 shares were issued under
the initial public offering placing at an issue price of US$ 1 per
share raising gross proceeds of US$ 113 million. Total issue costs
were US$ 2.1 million which included the 1.5% placing commission
paid to Canaccord Genuity as placing agent.
The Subordinated Administrative Share is held by the Asset
Manager.
Holders of Subordinated Administrative Shares are not entitled
to participate in any dividends and other distributions of the
Company. On a winding up of the Company the holders of the
Subordinated Administrative Shares are entitled to an amount out of
the surplus assets available for distribution equal to the amount
paid up, or credited as paid up, on such shares after payment of an
amount equal to the amount paid up, or credited as paid up, on the
Ordinary Shares to the Shareholders. Holders of Subordinated
Administrative Shares shall not have the right to receive notice of
and have no right to attend, speak and vote at general meetings of
the Company except if there are no Ordinary Shares in
existence.
The Directors are entitled to issue and allot C Shares. No C
Shares have been issued since the Company was incorporated.
16) DIVIDS
During the period ended 30 June 2019 the Company declared and
paid the following dividends:
Dividend
Dividend reference Shares per share Paid Declaration Payment date
period date
US$ US$
Quarter ended 17 January 14 February
31 December 2018 209,333,333 0.0225 4,710,000 2019 2019
Quarter ended 23 April
31 March 2019 209,333,333 0.0225 4,710,000 2019 16 May 2019
9,420,000
-------------------- ------------ ---------- ---------- ------------ -------------
A quarterly dividend of US$ 4,710,000 (US$ 0.0225 per share) for
the quarter ended 30 June 2019 was paid on 15 August 2019. In
accordance with IAS 10, this dividend has not been recognised in
these financial statements.
During the period ended 30 June 2018 the Company declared and
paid the following dividends:
Dividend
Dividend reference Shares per share Paid Declaration Payment date
period date
US$ US$
Quarter ended 18 January 15 February
31 December 2017 209,333,333 0.0225 4,710,000 2018 2018
Quarter ended 18 April
31 March 2018 209,333,333 0.0225 4,710,000 2018 17 May 2018
9,420,000
-------------------- ------------ ---------- ---------- ------------ -------------
17) FAIR VALUE MEASUREMENT
Financial assets and financial liabilities at amortised cost
The fair value of cash and cash equivalents, trade and other
receivables, restricted cash and interest payable approximate their
carrying amounts due to the short term maturities of these
instruments.
The fair value of floating rate borrowings is estimated by
discounting future cash flows using rates currently available for
debt of similar returns and remaining maturities and therefore the
carrying value approximates fair value.
The fair value of fixed rate borrowings is estimated by
discounting future principal and interest cash flows, discounted at
the market rate of interest at the reporting date. The fair value
of the loans is US$ 102,780,267 (31 December 2018: US$
105,600,273).
The fixed rate loans have been categorised within level 3 of the
fair value hierarchy. The fair value of the fixed rate loans for
disclosure purposes have been determined by discounting future cash
flows at a rate of 6.20% (31 December 2018: 6.21%). An increase in
the discount rate would decrease the fair value of the fixed rate
loans.
Financial liabilities designed as hedging instruments
The fair value of the Group's derivative interest rate swaps are
determined by reference to the mid-point on the yield curves
prevailing on the reporting date and represent the net present
value of the differences between the contracted and the valuation
rate when applied to the projected balances to the period from the
reporting date to the contracted expiry date.
The interest rate swaps are valued on a recurring basis and have
been categorised within level 2 of the fair value hierarchy
required by IFRS 13.
The following table details the contractual undiscounted cash
flows of the interest rate swaps:
As at 30 June 2019 Next 12 months 2 to 5 years After 5 years Total
US$ US$ US$ US$
Floating rate receivable 4,131,863 8,704,611 452,381 13,288,855
Fixed rate payable (4,562,627) (10,854,836) (656,776) (16,074,239)
-------------------------- --------------- ------------- -------------- -------------
Interest rate swaps (430,764) (2,150,225) (204,395) (2,785,384)
-------------------------- --------------- ------------- -------------- -------------
As at 30 June 2018 Next 12 months 2 to 5 years After 5 years Total
US$ US$ US$ US$
Floating rate receivable 4,973,549 11,691,867 1,596,988 18,262,404
Fixed rate payable (5,276,824) (13,895,232) (2,179,007) (21,351,063)
-------------------------- --------------- ------------- -------------- -------------
Interest rate swaps (303,275) (2,203,365) (582,019) (3,088,659)
-------------------------- --------------- ------------- -------------- -------------
As at 30 June 2019, the unrealised aggregate loss on the fair
value of the interest rate swaps was US$ 2,490,300 (31 December
2018: aggregate gain of US$ 153,795).
Transfers between levels
The Company determines whether transfers have occurred between
levels in the hierarchy by re-assessing categorisation based on the
lowest level input that is significant to the fair value
measurement as a whole at the end of each reporting period.
There were no transfers between level 1 and level 2 fair value
measurements and no transfers into or out of level 3 fair value
measurements during the six month period ended 30 June 2019 or in
the year ended 31 December 2018.
18) RELATED PARTY TRANSACTIONS
The Directors of the Company received total fees from the Group
as follows:
Current 30 June 2019 30 June 2018
fee
(unaudited) (unaudited)
US$ US$
Jon Bridel (Chairman) GBP64,000 39,328 39,054
Jeremy Thompson (Chairman of the
Audit Committee and Senior Independent
Director) GBP52,000 32,038 31,921
Angela Behrend-Görnemann (Chairman
of the Management Engagement Committee) EUR74,100 40,204 39,641
------------------------------------------ ---------- ------------- -------------
Total 111,570 110,616
------------------------------------------ ---------- ------------- -------------
Between 1 April 2018 until 31 March 2019 the Directors received
the following fees:
-- Jon Bridel, Chairman GBP57,900 per annum;
-- Jeremy Thompson, Chairman of the Audit Committee and Senior
Independent Director GBP47,300 per annum; and
-- Angela Behrend-Görnemann, Chairman of the Management
Engagement Committee EUR68,300 per annum.
Following the Directors annual review of the Directors' fees and
subsequent approval at the Company's AGM on 16 July 2019, with
effect from 1 April 2019 the Directors receive the following
fees:
-- Jon Bridel, Chairman GBP64,000 per annum;
-- Jeremy Thompson, Chairman of the Audit Committee and Senior
Independent Director GBP52,000 per annum; and
-- Angela Behrend-Görnemann, Chairman of the Management
Engagement Committee EUR74,100 per annum.
The Directors' interests in the shares of the Company are
detailed below:
30 June 2019 31 December 2018
Number of Number of
ordinary shares ordinary shares
Jon Bridel 7,500 7,500
Jeremy Thompson 15,000 15,000
Angela Behrend-Görnemann - -
19) MATERIAL CONTRACTS
Asset Management Agreement
The Asset Management Agreement, dated 19 September 2013, between
the Company and DS Aviation was amended on 5 June 2015 to reflect
the acquisition of the two new aircraft.
The amended agreement provides a calculation methodology for the
disposal fee which will only become payable when all four of the
Assets have been sold after the expiry of the fourth Thai Airways
lease in December 2026. The fee will be calculated as a percentage
of the aggregate net sale proceeds of the four Assets, such
percentage rate depending upon the Initial Investor Total Asset
Return per share being the total amount distributed to an initial
investor by way of dividend, capital return or otherwise over the
life of the Company. If each of the Assets is sold subsequent to
the expiry of their respective leases, the percentage rate shall
be:
-- Nil if the Initial Investor Total Asset Return per share is less than 205%,
-- 1.5% if the Initial Total Asset Return per share equals or
exceeds 205% but is less than 255%,
-- 2% if the Initial Total Asset Return per share equals or
exceeds 255% but is less than 305%, or
-- 3% if the Initial Total Asset Return per share equals or exceeds 305%.
In the event that any of the Assets is sold prior to the expiry
of its lease the percentage hurdles set out above will be adjusted
on the following basis:
(i) an amount will be deducted in respect of each Asset sold
prior to the expiry of its lease, equal to the net present value of
the aggregate amount of dividends per share that were targeted to
be paid but were not paid as a result of the early divestment of
the relevant Asset; and
(ii) a further amount will be deducted, in respect of each Asset
sold prior to the expiry of its lease, equal to the amount by which
the proportion of the non-dividend component of the relevant
percentage hurdle attributable to the relevant Asset would need to
be reduced in order to meet its net present value.
The disposal fee is a cash-settled payment to the Asset Manager.
In determining the provision for the financial statements, the
Directors have estimated the fee that will be payable on disposal
of the assets. This is then discounted and recognised straight line
over the period until the estimated payment date. The provision for
the disposal fee at 30 June 2019 was US$ 1,993,833 (31 December
2018: US$ 1,856,644) and the discount rate used was 2.00% (31
December 2018: 2.69%).
The Asset Manager is paid a base fee which is US$ 21,354 per
month in respect of the first two Assets increasing by 2.5% per
annum and US$ 16,666 per month in respect of the second two Assets
increasing by 2.5% per annum from May 2016. In the six month period
ended 30 June 2019 Asset Management fees totalled US$ 500,012 (six
month period ended 30 June 2018 US$ 487,816) of which US$ 83,934
were due at 30 June 2019 (31 December 2018: US$ 81,886).
Pursuant to the agreement, the Asset Manager received an
arrangement fee of US$ 2.72 million in respect of the acquisition
of the first two assets in the period ended 31 December 2014, and
an arrangement fee of US$ 2.07 million in respect of the
acquisition of the third and fourth assets in the year ended 31
December 2015.
20) SEGMENTAL INFORMATION
The Group is engaged in one operating segment, being acquiring,
leasing and subsequent selling of Aircraft. The geographical
location of the Assets of the Group is Norway and Thailand, where
the Assets are registered. The income arising from the lease of the
Assets originates from two lessees, one in Norway and one in
Thailand.
21) BREXIT
On 31 October 2019 the United Kingdom ('UK') has stated its
intent to leave the European Union ('EU') - 'Brexit'. The terms of
the withdrawal agreement between the UK and EU have not yet been
finalised and consequently the impact, if any on the Company and/or
its lessees cannot, at this time, be determined with any certainty.
The Company has not identified any likely material effect of
Brexit, and no actions to-date have been identified as being
required to be taken in this regard. The impact, if any, of Brexit
on the Company remains subject to review and oversight by the Board
as the Brexit negotiations develop and the form of a withdrawal
agreement is determined. Set out below are some observations on
Brexit as it relates to the Company:
-- DPA is an internally managed, non-EU AIF;
-- DPA has not relied on EU regulations to market the shares in
the Company to EU investors, rather all shares have been promoted
and sold under the UK private placement exemption only;
-- All placements of shares to-date have been to UK
institutional investors, not to EU institutional or retail
investors, although some EU investors have subsequently purchased
shares independently in the Company;
-- No commitment or obligation was provided in any Prospectus
issued by the Company to attain non-UK EU authorisation; and
-- The UK's exit from the EU is at this stage not expected to
impact the Company's operations, its capital structure or its
regulatory status.
The Company has also identified some potential risks that may
result from Brexit although it is not possible to quantify any
outcome or plan of action at this stage:
-- Impact upon airline, maintenance, components and safety
regulations as the UK leaves the EU regulatory framework in these
regards - in particular the possible impact on one of the lessees
given the significant number of flights that it operates from the
UK; and
-- Possible changes to tax treatment as it relates to the UK no longer being part of the EU.
22) SUBSEQUENT EVENTS
On 9 July 2019 the Company declared a dividend in respect of the
quarter ended 30 June 2019 of US$ 0.0225 per ordinary share to
holders of shares on the register at 26 July 2019. The ex-dividend
date was 25 July 2019 with payment on 15 August 2019.
COMPANY INFORMATION
Directors Jonathan Bridel
Jeremy Thompson
Angela Behrend-Görnemann
Registered Office East Wing
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3PP
Channel Islands
Asset Manager DS Aviation GmbH & Co. KG
Stockholmer Allee 53
44269 Dortmund
Germany
Solicitors to the Company Norton Rose Fulbright LLP
(as to English Law) 3 More London Riverside
London
SE1 2AQ
United Kingdom
Advocates to the Company to 23 Ogier
July 2018 Ogier House
(as to Guernsey law) St Julian's Avenue
St Peter Port
Guernsey
GY1 1WA
Channel Islands
Advocates to the Company from 23 Mourant Ozannes
July 2018 Royal Chambers
(as to Guernsey law) St Julian's Avenue
St Peter Port
Guernsey
GY1 4HP
Channel Islands
Auditor KPMG, Chartered Accountants
1 Harbourmaster Place
IFSC
Dublin 1
Ireland
Administrator and Company Secretary
Aztec Financial Services (Guernsey)
Limited
East Wing
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3PP
Corporate Broker Channel Islands
Canaccord Genuity Limited
88 Wood Street
London
EC2V 7QR
United Kingdom
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR LLFLRTVIALIA
(END) Dow Jones Newswires
August 19, 2019 12:30 ET (16:30 GMT)
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