FLY Leasing restates financials; boon for engine lessors

Dino D'Amore
By Dino D'Amore May 3, 2016 11:24

FLY Leasing restates financials; boon for engine lessors

FLY Leasing has announced that it has addressed the issues raised by the Securities and Exchange Commission (SEC), which relate to its accounting for maintenance rights associated with its acquisition of on-lease aircraft. Fly has restated its previously issued financial statements for fiscal years 2014 and 2013 to reflect the resolution of these issues. FLY states that investors should “now rely on the Company’s restated financial statements for fiscal years 2014 and 2013 included in its Annual Report on Form 20-F for fiscal year 2015, which was filed today [May 2].”

FLY explains in its statement that “in prior years, when purchasing aircraft already on lease, the company, in line with industry practice, did not separately identify, measure and account for maintenance rights provisions in the leases. Following discussions with the staff of the SEC, the Company has been advised that it should separately identify, measure and account for maintenance rights. In addition, the Company has included certain other immaterial adjustments in its restated financial statements. None of the adjustments implicates misconduct with respect to the Company or its management. The Company’s restatement will not impact its ability to run its business or to borrow under its existing credit facilities.”

The adjustments to FLY’s financial statements for fiscal years 2014 and 2013 have had no material effect on reported cash flow from operations or on the company’s balance sheet. In the Company’s three most recent fiscal years, the net impact of these items on its statements of income was to increase net income and earnings per share:

•    Fiscal year 2015: increase in net income of $16.2 million, or $0.39 per diluted share
•    Fiscal year 2014: increase in net income of $4.1 million, or $0.10 per diluted share
•    Fiscal year 2013: increase in net income of $1.5 million, or $0.05 per diluted share

FLY says that it will report its first quarter earnings on Wednesday, May 18, 2016, and “will address any investor questions on these matters at that time.”

Meanwhile, in the modern age of dynamic fleet management this is a great market for companies that can store aircraft at short notice at key locations across the globe. This also means aircraft that can perform well in low fuel cost environments are rushing back into the skies. 747s and A320s have left storage en masse over recent years, which has provided a massive boost to the engine lessors as just about every V2500 is right now either in service with customers or it is being held back for essential reserve inventory by the lessors. The bottom line is, if the engine lessors wanted to go mad and put every V2500 into the market then they could most likely place the lot by the end of the day, which means the dynamics of supply and demand must surely dictate that the lease rates on V2500s has shot up in Q1 2016. So a V2500 with green time on is a great asset to have in your inventory. Engine lessors are having a fantastic 2016 to date that is for sure.

Another boost for the V2500 is on the way as, in a timely fashion, PACAVI Group has confirmed that it is moving forward with the company’s first-to-market Airbus A320/A321 passenger-to-freighter (P2F) conversion program.

Customers for the freighters include Colt Aviation/Colt Cargo, the Norwegian company Airline Management, and two more companies that cannot be revealed yet. An additional launch order has been issued by an undisclosed leasing customer. Colt has ordered two converted A321 freighters with an option for an additional one; Airline Management AS will acquire six A320 freighters.

The PACAVI Airbus A321 Freighter LITE will carry approximately 27 metric tons of cargo, flying routes of up to 3,500 nautical miles, depending on load weight. The Freighter LITE conversion includes a new 140-inch main deck cargo door, a Class E cargo interior, a 9G barrier and a manual cargo loading system.  A typical configuration would accommodate up to 13 88-inch x 125-inch x 82-inch unit load devices (ULDs) or pallets and one smaller container or 88-inch x 61.5-inch pallet, resulting in a main deck container volume of about 5,044 cubic feet and an additional lower deck cargo volume of 1,828 cubic feet.

Dino D'Amore
By Dino D'Amore May 3, 2016 11:24