Delaware
|
94-3263974
|
|
(State or Other Jurisdiction of Incorporation or Organization)
|
(IRS Employer Identification No.)
|
Title of each class
|
Name of each exchange on which registered
|
Common Stock, par value $0.001 per share
|
NYSE American Exchange
|
·
|
The Company’s business plans and strategies, including its continued focus on acquiring used regional aircraft, any potential for
acquiring and managing new types and models of regional aircraft, and its expectation that most of its future growth will be outside of North America;
|
·
|
Matters related to the Company’s merger with JetFleet Holding Corp. ("JHC"), which was completed on October 1, 2018, and the
anticipated impact of the merger on the Company and its performance, including any changes to the Company’s risk profile now that the Company has internalized the management services previously performed for the Company by JetFleet
Management Corp. ("JMC"), a subsidiary of JHC, and the expectation that the combination effected by the merger could be accretive to the Company and create value for the stockholders of the combined post-merger company;
|
·
|
Certain industry trends and their impact on the Company and its performance, including: increasing competition that results in
higher acquisition prices for many of the aircraft types that the Company has targeted to buy and, at the same time, downward pressure on lease rates for these aircraft; relatively lower market demand for older aircraft types that are no
longer in production, which could cause certain of the Company’s aircraft to remain off lease for significant periods of time; and expectations of shakeouts of weaker carriers in economically troubled regions, which could impact the
financial condition and viability of certain of the Company’s customers, and as a result, their demand for the Company’s aircraft and their ability to fulfill their lease commitments and other obligations to the Company under existing
leases;
|
·
|
Expectations about the Company’s future liquidity, cash flow and capital requirements;
|
·
|
The Company’s ability to comply with its credit facility (the “Credit Facility”), recently established term loans (the “Term
Loans”) and other outstanding debt instruments, including making payments of principal and interest thereunder as and when required and complying with the financial and other covenants included in these instruments;
|
·
|
The Company’s ability to access additional sources of capital in the future as and when needed, in the amounts desired, on terms
favorable to the Company, or at all;
|
·
|
The expected impact of existing or known threatened legal proceedings;
|
·
|
The effect on the Company and its customers of complying with applicable government and regulatory requirements in the numerous
jurisdictions in which the Company and its customers operate;
|
·
|
The Company’s cyber vulnerabilities and the anticipated effects on the Company if a cybersecurity threat or incident were to
materialize;
|
·
|
General economic, market, political and regulatory conditions, including anticipated changes in these conditions and the impact of
such changes on customer demand and other facets of the Company’s business; and
|
·
|
The impact of the foregoing on the prevailing market price and trading volume of the Company’s common stock.
|
December 31,
2018
|
December 31,
2017
|
|||||||
Number of aircraft and engines held for lease
|
18
|
24
|
||||||
Weighted average fleet age
|
11.1 years
|
11.4 years
|
||||||
Weighted average remaining lease term
|
58 months
|
58 months
|
||||||
Aggregate fleet net book value
|
$
|
184,019,900
|
$
|
195,098,200
|
|
For the Years Ended December 31,
|
|||||||
2018
|
2017
|
|||||||
Average portfolio utilization
|
92
|
%
|
93
|
%
|
December 31, 2018
|
December 31, 2017
|
|||||||||||||||
Type
|
Number
owned
|
% of net book value
|
Number
owned
|
% of net book value
|
||||||||||||
Turboprop aircraft:
|
||||||||||||||||
Bombardier Dash-8-400
|
2
|
13
|
%
|
2
|
7
|
%
|
||||||||||
Bombardier Dash-8-300
|
2
|
5
|
%
|
3
|
6
|
%
|
||||||||||
Saab 340B Plus
|
-
|
-
|
%
|
4
|
3
|
%
|
||||||||||
Saab 340B
|
-
|
-
|
%
|
1
|
1
|
%
|
||||||||||
Regional jet aircraft:
|
||||||||||||||||
Canadair 900 (*)
|
5
|
39
|
%
|
5
|
38
|
%
|
||||||||||
Embraer 175
|
3
|
16
|
%
|
3
|
16
|
%
|
||||||||||
Canadair 1000
|
2
|
14
|
%
|
2
|
15
|
%
|
||||||||||
Canadair 700
|
3
|
12
|
%
|
3
|
13
|
%
|
||||||||||
Engines:
|
||||||||||||||||
Pratt & Whitney 150A
|
1
|
1
|
%
|
1
|
1
|
%
|
||||||||||
|
December 31, 2018
|
December 31, 2017
|
|||||||||||||||
Region
|
Net book value
|
% of
net book value
|
Net book value
|
% of
net book value
|
||||||||||||
Europe
|
$
|
110,069,000
|
60
|
%
|
$
|
92,108,500
|
47
|
%
|
||||||||
North America
|
68,485,400
|
37
|
%
|
72,270,700
|
37
|
%
|
||||||||||
Asia
|
5,465,500
|
3
|
%
|
6,082,100
|
3
|
%
|
||||||||||
Off lease
|
-
|
-
|
%
|
24,636,900
|
13
|
%
|
||||||||||
$
|
184,019,900
|
100
|
%
|
$
|
195,098,200
|
100
|
%
|
For the Years Ended December 31,
|
||||||||||||||||
2018
|
2017
|
|||||||||||||||
Region
|
Number
of lessees
|
% of
operating
lease revenue
|
Number
of lessees
|
% of
operating
lease revenue
|
||||||||||||
Europe
|
4
|
59
|
%
|
4
|
52
|
%
|
||||||||||
North America
|
4
|
37
|
%
|
5
|
29
|
%
|
||||||||||
Africa
|
-
|
-
|
1
|
12
|
%
|
|||||||||||
Asia
|
1
|
4
|
%
|
1
|
4
|
%
|
||||||||||
Australia
|
-
|
-
|
1
|
3
|
%
|
ASSETS
|
||||||||
December 31,
|
December 31,
|
|||||||
2018
|
2017
|
|||||||
Assets:
|
||||||||
Cash and cash equivalents
|
$
|
1,542,500
|
$
|
8,657,800
|
||||
Securities
|
121,000
|
-
|
||||||
Accounts receivable, including deferred rent of $869,600 and $707,300 at
December 31, 2018 and December 31, 2017, respectively
|
3,967,200
|
3,825,100
|
||||||
Finance leases receivable
|
15,250,900
|
23,561,000
|
||||||
Aircraft and aircraft engines held for lease, net of accumulated
depreciation of $36,675,500 and $33,234,200 at
December
31, 2018 and December 31, 2017, respectively
|
184,019,900
|
195,098,200
|
||||||
Assets held for sale
|
10,223,300
|
4,966,500
|
||||||
Property, equipment and furnishings, net of accumulated
depreciation of $2,200 at December 31, 2018
|
69,100
|
-
|
||||||
Favorable lease acquired, net of accumulated amortization of $61,700 at
December 31, 2018
|
863,300
|
-
|
||||||
Deferred tax asset
|
254,900
|
|||||||
Prepaid expenses and other assets
|
840,100
|
301,300
|
||||||
Total assets
|
$
|
217,152,200
|
$
|
236,409,900
|
||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
Liabilities:
|
||||||||
Accounts payable and accrued expenses
|
$
|
1,025,600
|
$
|
645,200
|
||||
Accrued payroll
|
78,600
|
-
|
||||||
Notes payable and accrued interest, net of unamortized debt issuance
costs of $674,300 and $2,216,000 at December 31, 2018 and
December 31, 2017, respectively
|
131,092,200
|
145,598,200
|
||||||
Maintenance reserves
|
28,527,500
|
26,942,800
|
||||||
Accrued maintenance costs
|
463,300
|
1,275,300
|
||||||
Security deposits
|
3,367,800
|
3,147,900
|
||||||
Unearned revenues
|
3,274,800
|
2,447,500
|
||||||
Deferred income taxes
|
7,537,100
|
8,533,700
|
||||||
Income taxes payable
|
497,400
|
452,600
|
||||||
Total liabilities
|
175,864,300
|
189,043,200
|
||||||
Commitments and contingencies (Note 9)
|
||||||||
Stockholders’ equity:
|
||||||||
Preferred stock, $0.001 par value, 2,000,000 shares
authorized, no shares issued and outstanding
|
-
|
-
|
||||||
Common stock, $0.001 par value, 10,000,000 shares authorized,
1,545,884 and 1,416,699 outstanding at December 31, 2018 and
December 31, 2017, respectively
|
1,800
|
1,600
|
||||||
Paid-in capital
|
16,782,800
|
14,780,100
|
||||||
Retained earnings
|
27,540,600
|
35,621,800
|
||||||
44,325,200
|
50,403,500
|
|||||||
Treasury stock at cost, 213,332 and 213,300 shares at December 31, 2018
and December 31, 2017, respectively
|
(3,037,300
|
)
|
(3,036,800
|
)
|
||||
Total stockholders’ equity
|
41,287,900
|
47,366,700
|
||||||
Total liabilities and stockholders’ equity
|
$
|
217,152,200
|
$
|
236,409,900
|
For the Years Ended December 31,
|
||||||||
2018
|
2017
|
|||||||
Revenues and other income:
|
||||||||
Operating lease revenue
|
$
|
27,637,500
|
$
|
29,002,700
|
||||
Maintenance reserves revenue, net
|
1,629,000
|
3,886,900
|
||||||
Finance lease revenue
|
1,251,000
|
1,571,500
|
||||||
Net (loss)/gain on disposal of assets
|
(3,408,700
|
)
|
791,500
|
|||||
Net gain on sales-type finance leases
|
-
|
297,400
|
||||||
Other income
|
7,600
|
3,800
|
||||||
27,116,400
|
35,553,800
|
|||||||
Expenses:
|
||||||||
Depreciation
|
12,637,100
|
12,025,600
|
||||||
Interest
|
9,506,000
|
7,753,200
|
||||||
Management fees
|
4,482,800
|
6,109,200
|
||||||
Provision for impairment in value of aircraft
|
2,971,500
|
1,002,100
|
||||||
Professional fees, general and administrative and other
|
2,343,800
|
1,945,100
|
||||||
Maintenance
|
636,000
|
2,924,300
|
||||||
Salaries and employee benefits
|
592,300
|
-
|
||||||
Insurance
|
383,700
|
271,300
|
||||||
Other taxes
|
90,200
|
90,300
|
||||||
Settlement loss
|
2,527,000
|
-
|
||||||
36,170,400
|
32,121,100
|
|||||||
(Loss)/income before income tax benefit
|
(9,054,000
|
)
|
3,432,700
|
|||||
Income tax benefit
|
(972,800
|
)
|
(3,966,500
|
)
|
||||
Net (loss)/income
|
$
|
(8,081,200
|
)
|
$
|
7,399,200
|
|||
(Loss)/earnings per share:
|
||||||||
Basic
|
$
|
(5.58
|
)
|
$
|
5.10
|
|||
Diluted
|
$
|
(5.58
|
)
|
$
|
5.10
|
|||
Weighted average shares used in
(loss)/earnings per share computations:
|
||||||||
Basic
|
1,449,261
|
1,449,576
|
||||||
Diluted
|
1,449,261
|
1,449,576
|
Number of Common Stock Shares Outstanding
|
Common
Stock
|
Paid-in
Capital
|
Retained
Earnings
|
Treasury
Stock
|
Total
|
|||||||||||||||||||
Balance, December 31, 2016
|
1,566,699
|
$
|
1,600
|
$
|
14,780,100
|
$
|
28,222,600
|
$
|
(504,100
|
)
|
$
|
42,500,200
|
||||||||||||
Repurchase of shares
|
(150,000
|
)
|
-
|
-
|
-
|
(2,532,700
|
)
|
(2,532,700
|
)
|
|||||||||||||||
Net income
|
-
|
-
|
-
|
7,399,200
|
- |
7,399,200
|
||||||||||||||||||
Balance, December 31, 2017
|
1,416,699
|
1,600
|
14,780,100
|
35,621,800
|
(3,036,800
|
)
|
47,366,700
|
|||||||||||||||||
Acquisition of JHC by AeroCentury
|
129,217
|
200
|
2,002,700
|
-
|
-
|
2,002,900
|
||||||||||||||||||
Common stock shares held by JHC prior to the acquisition of JHC and retained as treasury stock
|
(32
|
)
|
-
|
-
|
-
|
(500
|
)
|
(500
|
)
|
|||||||||||||||
Net loss
|
-
|
-
|
-
|
(8,081,200
|
)
|
-
|
(8,081,200
|
)
|
||||||||||||||||
Balance December 31, 2018
|
1,545,884
|
$
|
1,800
|
$
|
16,782,800
|
$
|
27,540,600
|
$
|
(3,037,300
|
)
|
$
|
41,287,900
|
For the Years Ended December 31,
|
||||||||
2018
|
2017
|
|||||||
Operating activities:
|
||||||||
Net (loss)/income
|
$
|
(8,081,200
|
)
|
$
|
7,399,200
|
|||
Adjustments to reconcile net (loss)/income to net cash
|
||||||||
provided by operating activities:
|
||||||||
Net loss/(gain) on disposal of assets
|
3,408,700
|
(791,500
|
)
|
|||||
Net gain on sales-type finance leases
|
-
|
(297,400
|
)
|
|||||
Non-cash income
|
(42,700
|
)
|
-
|
|||||
Depreciation
|
12,637,100
|
12,025,600
|
||||||
Amortization
|
61,700
|
-
|
||||||
Provision for impairment in value of aircraft
|
2,971,500
|
1,002,100
|
||||||
Non-cash interest
|
1,615,500
|
1,012,300
|
||||||
Settlement loss
|
2,527,000
|
-
|
||||||
Deferred income taxes
|
(1,390,000
|
)
|
(4,296,800
|
)
|
||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
(537,400
|
)
|
1,000,700
|
|||||
Finance leases receivable
|
(133,100
|
)
|
(510,700
|
)
|
||||
Prepaid expenses and other
|
(457,800
|
)
|
(123,500
|
)
|
||||
Taxes receivable
|
22,500
|
-
|
||||||
Accounts payable and accrued expenses
|
1,802,700
|
(572,000
|
)
|
|||||
Accrued payroll
|
(14,800
|
)
|
-
|
|||||
Accrued interest on notes payable
|
(147,100
|
)
|
188,100
|
|||||
Maintenance reserves and accrued costs
|
3,552,600
|
(2,171,000
|
)
|
|||||
Security deposits
|
(4,100
|
)
|
(232,300
|
)
|
||||
Unearned revenue
|
827,300
|
608,500
|
||||||
Income taxes payable
|
(677,200
|
)
|
329,400
|
|||||
Net cash provided by operating activities
|
17,941,200
|
14,570,700
|
||||||
Investing activities:
|
||||||||
Proceeds from sale of aircraft and aircraft engines held for lease,
net of re-sale fees
|
11,688,400
|
12,741,200
|
||||||
Proceeds from sale of assets held for sale, net of re-sale fees
|
4,945,200
|
193,000
|
||||||
Investment in direct financing leases
|
-
|
(7,614,200
|
)
|
|||||
Purchases of aircraft and aircraft engines
|
(22,844,300
|
)
|
(32,063,100
|
)
|
||||
Acquisition of JHC, net of cash acquired
|
(2,875,100
|
)
|
-
|
|||||
Net cash used in investing activities
|
(9,085,800
|
)
|
(26,743,100
|
)
|
||||
Financing activities:
|
||||||||
Issuance of notes payable – Credit Facility
|
21,000,000
|
35,900,000
|
||||||
Repayment of notes payable – Credit Facility
|
(32,600,000
|
)
|
(12,000,000
|
)
|
||||
Debt issuance costs
|
(70,000
|
)
|
(1,152,500
|
)
|
||||
Repayment of notes payable – special purpose financing
|
(4,300,700
|
)
|
(4,111,700
|
)
|
||||
Net cash (used in)/provided by financing activities
|
(15,970,700
|
)
|
18,635,800
|
|||||
Net (decrease)/increase in cash and cash equivalents
|
(7,115,300
|
)
|
6,463,400
|
|||||
Cash and cash equivalents, beginning of year
|
8,657,800
|
2,194,400
|
||||||
Cash and cash equivalents, end of year
|
$
|
1,542,500
|
$
|
8,657,800
|
December 31,
2018
|
December 31,
2017
|
|||||||
Gross minimum lease payments receivable
|
$
|
17,107,100
|
$
|
27,074,400
|
||||
Less unearned interest
|
(1,856,200
|
)
|
(3,513,400
|
)
|
||||
Finance leases receivable
|
$
|
15,250,900
|
$
|
23,561,000
|
Years ending December 31
|
||||
2019
|
$
|
4,885,500
|
||
2020
|
4,208,600
|
|||
2021
|
4,805,000
|
|||
2022
|
3,208,000
|
|||
$
|
17,107,100
|
December 31, 2018
|
December 31, 2017
|
|||||||||||||||
Type
|
Number
Owned
|
% of net book value
|
Number
owned
|
% of net book value
|
||||||||||||
Regional jet aircraft
|
13
|
81
|
%
|
13
|
82
|
%
|
||||||||||
Turboprop aircraft
|
4
|
18
|
%
|
10
|
17
|
%
|
||||||||||
Engines
|
1
|
1
|
%
|
1
|
1
|
%
|
Years ending December 31
|
||||
2019
|
$
|
28,357,100
|
||
2020
|
25,773,700
|
|||
2021
|
18,672,300
|
|||
2022
|
16,714,700
|
|||
2023
|
13,031,900
|
|||
Thereafter
|
21,610,600
|
|||
$
|
124,160,300
|
For the Years Ended December 31,
|
||||||||
Operating Lease Revenue
|
2018
|
2017
|
||||||
Europe and United Kingdom
|
$
|
16,258,800
|
$
|
14,941,100
|
||||
North America
|
10,119,100
|
8,506,700
|
||||||
Africa
|
-
|
3,306,100
|
||||||
Asia
|
1,259,600
|
1,251,300
|
||||||
Australia
|
-
|
997,500
|
||||||
$
|
27,637,500
|
$
|
29,002,700
|
December 31,
|
||||||||
Net Book Value of Aircraft and Aircraft Engines Held for Lease
|
2018
|
2017
|
||||||
Europe and United Kingdom
|
$
|
110,069,000
|
$
|
92,108,500
|
||||
North America
|
68,485,400
|
72,270,700
|
||||||
Off lease
|
-
|
24,636,900
|
||||||
Asia
|
5,465,500
|
6,082,100
|
||||||
$
|
184,019,900
|
$
|
195,098,200
|
For the Years Ended December 31,
|
||||||||
Finance Lease Revenue
|
2018
|
2017
|
||||||
Africa
|
$
|
832,800
|
$
|
1,180,600
|
||||
United Kingdom
|
418,200
|
390,900
|
||||||
$
|
1,251,000
|
$
|
1,571,500
|
|
December 31,
2018
|
December 31,
2017
|
|||||||
Credit Facility:
|
||||||||
Principal
|
$
|
122,400,000
|
$
|
134,000,000
|
||||
Unamortized debt issuance costs
|
(674,300
|
)
|
(2,216,000
|
)
|
||||
Accrued interest
|
139,300
|
278,900
|
||||||
Special purpose financing:
|
||||||||
Principal
|
9,211,200
|
13,511,900
|
||||||
Accrued interest
|
16,000
|
23,400
|
||||||
$
|
131,092,200
|
$
|
145,598,200
|
|
December 31, 2018
|
December 31, 2017
|
|||||||||||||||||||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||||||||||||||
Money market funds
|
$
|
656,400
|
$
|
656,400
|
$
|
-
|
$
|
-
|
$
|
6,151,900
|
$
|
6,151,900
|
$
|
-
|
$
|
-
|
Consideration paid in the merger:
|
||||
Cash consideration
|
$
|
2,915,000
|
||
ACY stock consideration
|
2,003,000
|
|||
4,918,000
|
||||
Fair value of assets acquired/(liabilities assumed):
|
||||
Cash
|
40,000
|
|||
Securities
|
121,000
|
|||
Accounts & note receivable
|
28,000
|
|||
Prepaid expenses
|
157,000
|
|||
Property, equipment and furnishings
|
79,000
|
|||
Office leasehold
|
925,000
|
|||
Accounts payable
|
(85,000
|
)
|
||
Accrued vacation
|
(93,000
|
)
|
||
Taxes payable
|
(722,000
|
)
|
||
Deferred taxes
|
(138,000
|
)
|
||
312,000
|
||||
Excess of consideration paid over net assets acquired
|
4,606,000
|
|||
Waiver of JMC Margin payable |
(1,517,000 | ) | ||
Settlement of payable to JMC |
(562,000 | ) | ||
Settlement Loss on Management Agreement with JMC
|
$
|
2,527,000
|
Years ending December 31
|
||||
2019
|
$
|
193,500
|
||
2020
|
196,400
|
|||
2021
|
199,300
|
|||
2022
|
101,100
|
|||
$
|
690,300
|
For the Years Ended December 31,
|
||||||||
2018
|
2017
|
|||||||
Current tax provision:
|
||||||||
Federal
|
$
|
-
|
$
|
-
|
||||
State
|
3,200
|
800
|
||||||
Foreign
|
414,000
|
329,500
|
||||||
Current tax provision
|
417,200
|
330,300
|
||||||
Deferred tax (benefit)/provision:
|
||||||||
Federal
|
(1,270,400
|
)
|
1,159,700
|
|||||
State
|
(26,100
|
)
|
35,100
|
|||||
Foreign
|
(93,500
|
)
|
(111,300
|
)
|
||||
Net legislative change in corporate tax rate
|
-
|
(5,380,300
|
)
|
|||||
Deferred tax benefit
|
(1,390,000
|
)
|
(4,296,800
|
)
|
||||
Total income tax benefit
|
$
|
(972,800
|
)
|
$
|
(3,966,500
|
)
|
For the Years Ended December 31,
|
||||||||
2018
|
2017
|
|||||||
Income tax provision at statutory federal income tax rate
|
$
|
(1,901,400
|
)
|
$
|
1,167,100
|
|||
State tax (benefit)/provision, net of federal benefit
|
(44,500
|
)
|
33,100
|
|||||
Non-deductible Merger expenses
|
647,200
|
213,500
|
||||||
Non-deductible management and acquisition fees
|
325,900
|
-
|
||||||
Net legislative change in corporate tax rate
|
-
|
(5,380,200
|
)
|
|||||
Total income tax benefit
|
$
|
(972,800
|
)
|
$
|
(3,966,500
|
)
|
December 31,
|
||||||||
2018
|
2017
|
|||||||
Deferred tax assets:
|
||||||||
Current and prior year tax losses
|
$
|
4,065,100
|
$
|
3,362,100
|
||||
Maintenance reserves
|
3,100,800
|
2,810,200
|
||||||
Foreign tax credit
|
611,900
|
295,800
|
||||||
Deferred interest expense
|
81,800
|
-
|
||||||
Deferred maintenance, bad debt allowance and other
|
92,500
|
38,800
|
||||||
Alternative minimum tax credit
|
45,500
|
45,500
|
||||||
Deferred tax assets
|
7,997,600
|
6,552,400
|
||||||
Deferred tax liabilities:
|
||||||||
Accumulated depreciation on aircraft and aircraft engines
|
(14,773,800
|
)
|
(14,591,000
|
)
|
||||
Deferred income
|
(320,600
|
)
|
(495,100
|
)
|
||||
Favorable Lease
|
(185,400
|
)
|
-
|
|||||
Net deferred tax liabilities
|
$
|
(7,282,200
|
)
|
$
|
(8,533,700
|
)
|
December 31,
|
||||||||
2018
|
2017
|
|||||||
Balance at January 1
|
$
|
-
|
-
|
|||||
Additions for prior years’ tax positions
|
85,400
|
-
|
||||||
Balance at December 31
|
$
|
85,400
|
-
|
For the Years Ended December 31,
|
||||||||
2018
|
2017
|
|||||||
Net (loss)/income
|
$
|
(8,081,200
|
)
|
$
|
7,399,200
|
|||
Weighted average shares outstanding for the period used in computation of basic and diluted (loss)/earnings per share
|
1,449,261
|
1,449,576
|
||||||
Basic (loss)/earnings per share
|
$
|
(5.58
|
)
|
$
|
5.10
|
|||
Diluted (loss)/earnings per share
|
$
|
(5.58
|
)
|
$
|
5.10
|
For the Years Ended December 31,
|
||||||||
2018
|
2017
|
|||||||
Management fees
|
$
|
4,482,800
|
$
|
6,109,200
|
||||
Acquisition fees
|
494,400
|
850,500
|
||||||
Remarketing fees
|
-
|
51,100
|
(a)(2) |
All financial statement schedules have been omitted because the required information is presented in the consolidated financial statements or is not
applicable.
|
Exhibit
Number |
Description
|
2.1§
|
|
3.1.1^
|
|
3.1.2^
|
|
3.1.3
|
|
3.2
|
|
4.1
|
Reference is made to Exhibit 3.1.4.
|
4.2
|
|
10.1+
|
|
10.2
|
|
10.3
|
|
10.4
|
|
10.5
|
|
10.6
|
|
21.1
|
|
24.1
|
|
31.1
|
|
31.2
|
|
32.1*
|
|
32.2*
|
|
101.INS
|
XBRL Instance Document
|
101.SCH
|
XBRL Schema Document
|
101.CAL
|
XBRL Calculation Linkbase Document
|
101.LAB
|
XBRL Label Linkbase Document
|
101.PRE
|
XBRL Presentation Linkbase Document
|
101.DEF
|
XBRL Definition Linkbase Document
|
Signature
|
Title
|
Dated
|
/s/ Michael G. Magnusson
|
Director and President of the Registrant (Principal Executive Officer)
|
March 18, 2019
|
Michael G. Magnusson
|
||
/s/ Toni M. Perazzo
|
Director and Senior Vice President-Finance and Secretary of the Registrant (Principal Financial and Accounting Officer)
|
March 18, 2019
|
Toni M. Perazzo
|
|
|
/s/ Evan M. Wallach
|
Director and Chairman of the Board of Directors of the Registrant
|
March 18, 2019
|
Evan M. Wallach
|
||
/s/ Roy E. Hahn
|
Director
|
March 18, 2019
|
Roy E. Hahn
|
||
/s/ David P. Wilson
|
Director
|
March 18, 2019
|
David P. Wilson
|
1.1 |
Defined Terms
|
1.2 |
Accounting Terms
|
1.3 |
UCC
|
1.4 |
Construction
|
1.5 |
USA Patriot Act Notice
|
1.6 |
Rounding
|
2.1 |
Revolving Loans
|
2.2 |
Payment of Interest; Interest Rate
|
2.3 |
Maximum Rate of Interest
|
2.4 |
Fees
|
2.5 |
Late Payments
|
2.6 |
Repayment and Prepayment
|
2.7 |
Term
|
2.8 |
Early Termination or Reduction
|
2.9 |
Note and Accounting
|
2.10 |
Manner of Payment
|
2.11 |
Application of Payments
|
2.12 |
Use of Proceeds
|
2.13 |
All Obligations to Constitute One Obligation
|
2.14 |
Authorization to Make Loans
|
2.15 |
Authorization to Debit Accounts
|
2.16 |
Agent’s Right to Assume Funds Available for Revolving Loans
|
2.17 |
Withholding of Taxes
|
2.18 |
Optional Increase to the Revolving Commitment.
|
3.1 |
Grant of Security Interest
|
3.2 |
Priority of Agent’s Security Interest
|
3.3 |
Agent’s Rights
|
3.4 |
Power of Attorney
|
3.5 |
Grant of License to Use Intellectual Property Collateral
|
3.6 |
Reinstatement
|
3.7 |
Release of Security Interest
|
4.1 |
Conditions Precedent to Closing
|
4.2 |
Conditions to All Loans
|
5.1 |
Corporate Existence; Compliance with Law
|
5.2 |
Executive Offices; Corporate or Other Names; Conduct of Business
|
5.3 |
Authority; Compliance with Other Agreements and Instruments and Government
Regulations
|
5.4 |
No Governmental Approvals Required
|
5.5 |
Subsidiaries
|
5.6 |
Financial Statements
|
5.7 |
No Other Liabilities; No Material Adverse Changes
|
5.8 |
Title To and Location of Property
|
5.9 |
Intellectual Property
|
5.10 |
Litigation
|
5.11 |
Binding Obligations
|
5.12 |
No Default
|
5.13 |
ERISA
|
5.14 |
Regulation U; Investment Company Act
|
5.15 |
Disclosure
|
5.16 |
Tax Liability
|
5.17 |
Hazardous Materials
|
5.18 |
Security Interests
|
5.19 |
Insurance
|
5.20 |
Leases and Equipment
|
5.21 |
Cape Town Convention
|
5.22 |
Depreciation Policies
|
5.23 |
Swap Contracts
|
5.24 |
Eligible Leases
|
5.25 |
Preservation of International Interests and Liens
|
5.26 |
Solvency
|
5.27 |
Anti-Corruption Laws; Sanctions
|
6.1 |
Payment of Taxes and Other Potential Liens
|
6.2 |
Preservation of Existence
|
6.3 |
Maintenance of Property
|
6.4 |
Maintenance of Insurance
|
6.5 |
Compliance with Applicable Law
|
6.6 |
Inspection Rights
|
6.7 |
Keeping of Records and Books of Account
|
6.8 |
Compliance with Agreements
|
6.9 |
Use of Proceeds
|
6.10 |
Hazardous Materials Laws
|
6.11 |
Future Subsidiaries
|
6.12 |
Payment of Obligations
|
6.13 |
Conduct of Business
|
6.14 |
Further Assurances; Schedule Supplements
|
6.15 |
Financial Covenants
|
6.16 |
Subordination of Third Party Fees
|
6.17 |
Maintenance of Borrowing Base
|
6.18 |
Placards
|
6.19 |
Maintenance of Current Depreciation Policies
|
6.20 |
Preservation of International Interests and Liens
|
6.21 |
Maintenance of JMC Management Agreement
|
6.22 |
Interest Rate Protection
|
6.23 |
Maintenance of Eligible Collateral
|
6.24 |
Maintenance of Records
|
6.25 |
Excluded Assets
|
7.1 |
Modification of Formation Documents
|
7.2 |
Failure to Act/Duty to Act
|
7.3 |
Modification of Debt
|
7.4 |
Transfers to Restricted Subsidiaries
|
7.5 |
Disposition of Property
|
7.6 |
Mergers
|
7.7 |
Hostile Acquisitions
|
7.8 |
Distributions
|
7.9 |
ERISA
|
7.10 |
Change in Nature of Business; Change in Control
|
7.11 |
Swap Contracts
|
7.12 |
Liens and Negative Pledges
|
7.13 |
Indebtedness and Guaranteed Indebtedness
|
7.14 |
Transactions with Affiliates
|
7.15 |
Subsidiary Indebtedness
|
7.16 |
Restricted Subsidiaries
|
7.17 |
New Shareholders
|
7.18 |
Redemptions; Dividends
|
7.19 |
Investments
|
7.20 |
Additional Bank Accounts
|
8.1 |
Reports and Notices
|
8.2 |
Budgets
|
8.3 |
Other Reports
|
9.1 |
Events of Default
|
9.2 |
Remedies
|
9.3 |
Waivers by Borrower
|
9.4 |
Proceeds
|
11.1 |
Alternative Dispute Resolution Agreement
|
11.2 |
No Limitation on Remedies
|
11.3 |
Inconsistency
|
12.1 |
Complete Agreement; Modification of Agreement
|
12.2 |
Reimbursement and Expenses
|
12.3 |
Indemnity
|
12.4 |
No Waiver
|
12.5 |
Severability; Drafting
|
12.6 |
Conflict of Terms
|
12.7 |
Notices
|
12.8 |
Binding Effect; Assignment
|
12.9 |
Right of Setoff
|
12.10 |
Sharing of Setoffs
|
12.11 |
Section Titles
|
12.12 |
Counterparts
|
12.13 |
Time of the Essence
|
12.14 |
GOVERNING LAW; VENUE
|
12.15 |
WAIVER OF JURY TRIAL
|
12.16 |
Amendments; Consents
|
12.17 |
Foreign Lenders and Participants
|
12.18 |
Acknowledgement and Consent to Bail-In of EEA Financial Institutions
|
12.19 |
Disclaimer of Fiduciary Obligations
|
12.20 |
Electronic Transmissions.
|
13.1 |
Appointment and Authorization and Delegation of Duties
|
13.2 |
Lenders’ Credit Decisions
|
13.3 |
Agent and Affiliates
|
13.4 |
Proportionate Interest in any Collateral
|
13.5 |
Action by Agent
|
13.6 |
Liability of Agent
|
13.7 |
Indemnification
|
13.8 |
Successor Agent
|
13.9 |
Collateral Matters
|
13.10 |
No Obligations of Borrower
|
14.1 |
Eurodollar Costs and Related Matters
|
14.2 |
Capital Adequacy
|
14.3 |
Federal Reserve System/Wire Transfers
|
14.4 |
Assignment of Commitments Under Certain Circumstances; Duty to Mitigate
|
Schedule A |
Revolving Commitment – Pro Rata Share
|
Schedule 1.1a |
Advance Rates
|
Schedule 1.1b |
Eligible Leases
|
Schedule 1.1c |
Equipment
|
Schedule 1.1d |
Excluded Assets
|
Schedule 1.1e |
Material Contracts
|
Schedule 1.1f |
Permitted Indebtedness
|
Schedule 1.1g |
Permitted Liens/Liens of Record
|
Schedule 1.1h |
Schedule of Documents
|
Schedule 1.1i |
Spot Market Assets
|
Schedule 5.2 |
Executive Offices; Corporate or Other Names; Conduct of Business
|
Schedule 5.7 |
No Other Liabilities; No Material Adverse Changes
|
Schedule 5.9 |
Trade Names
|
Schedule 5.10 |
Litigation
|
Schedule 5.17 |
Hazardous Materials
|
Schedule 5.19 |
Insurance
|
Schedule 5.22 |
Depreciation Policies
|
Schedule 6.4 |
Insurance as of the Closing Date
|
Schedule 7.13 |
Indebtedness and Guaranteed Indebtedness existing on the Closing Date
|
Schedule 7.19 |
Investments Existing as of the Closing Date
|
Exhibit A |
Form of Borrowing Base Certificate
|
Exhibit B |
Form of Borrowing Notice
|
Exhibit C |
Form of Compliance Certificate
|
Exhibit D |
Form of Commitment Assignment and Acceptance
|
Exhibit E |
Form of Mortgage
|
Exhibit F |
Form of Beneficial Interest Pledge Agreement
|
Exhibit G |
Form of Owner Trustee Mortgage
|
Exhibit H |
Form of Owner Trustee Guaranty
|
Exhibit I |
Form of Placard
|
·
|
Tier I: There
shall be no limit on the percentage of Eligible Collateral that is Located in the USA, Canada, EU, UK, Japan, South Korea, Australia, New Zealand or South Africa.
|
·
|
Tier II: No more
than 35% of the borrowing Base shall arise from Eligible Collateral Located in the following countries (on an aggregate basis): any country in Asia that is not included in Tier I or III; any Caribbean country; any Central American
country not included in Tier I or III; any South American country not included in Tier I or III; any European country not included in Tier I or III; or any Middle Eastern country not included in Tier I or III.
|
·
|
Tier III: No more
than 10% of the Borrowing Base shall arise from eligible Collateral Located in the following countries (on an aggregate basis): any African country not included in Tier I or II, Afghanistan, Bolivia, Ecuador, India, Iraq, Lebanon,
Mongolia, Myanmar, Nepal, Pakistan, Russia, Sri Lanka, Venezuela, or Yemen.
|
·
|
Further, at no time shall the Borrowing Base arising from Eligible Collateral Located in Tier II and Tier III
countries (on an aggregate basis) exceed 35%.
|
·
|
For purposes of this definition, an Equipment is deemed “Located” in a particular country if (i) with respect to an Equipment subject to an Eligible Lease, such country is the country of domicile for the Lessee under such Eligible Lease as set forth in the
Eligible Lease and, if the Lessee’s country of domicile is not set forth in the Eligible Lease, such country is where such Lessee’s executive offices are located, and (ii) with respect to an Equipment that is Off-Lease, such Equipment is
registered on that country’s aircraft registry.
|
·
|
The Geographic Concentration Limit shall be calculated without taking into consideration the Spot Market
Assets.
|
TABLE 1
|
|||
Level
|
Pricing Leverage Ratio
|
Applicable LIBOR Margin
|
Applicable Base Rate Margin
|
I
|
< 3.00x
|
3.25%
|
2.25%
|
II
|
> 3.00x – < 3.25x
|
3.50%
|
2.50%
|
III
|
> 3.25x
|
3.75%
|
2.75%
|
(i)
|
Any Lender that is entitled to an exemption from or reduction of withholding Tax with
respect to payments made under any Loan Document shall deliver to Borrower and Agent, at the time or times reasonably requested by Borrower or Agent, such properly completed and executed documentation reasonably requested by Borrower or
Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by Borrower or Agent, shall deliver such other documentation prescribed by Applicable
Law or reasonably requested by Borrower or Agent as will enable Borrower or Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in
the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 2.17(f)(ii)(A), 2.17(f)(ii)(B) and 2.17(f)(ii)(D) below) shall not be required if in the Lender's reasonable judgment such completion, execution or submission would subject such Lender to any material
unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.
|
(ii)
|
Without limiting the generality of the foregoing, in the event that Borrower is a U.S.
Person,
|
(A)
|
any Lender that is a U.S. Person shall deliver to Borrower and Agent on or prior to the
date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of Borrower or Agent), an executed copy of IRS Form W-9 certifying that such Lender is exempt from U.S. federal
backup withholding tax;
|
(B)
|
any Foreign Lender shall comply with Section 12.17.
|
(C)
|
any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to
Borrower and Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request
of Borrower or Agent), executed copies of any other form prescribed by Applicable Law as a basis for claiming exemption from or a reduction in U.S. Federal withholding Tax, duly completed, together with such supplementary documentation as
may be prescribed by Applicable Law to permit Borrower or Agent to determine the withholding or deduction required to be made; and
|
(D)
|
if a payment made to a Lender under any Loan Document would be subject to U.S. federal
withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to
Borrower and Agent at the time or times prescribed by law and at such time or times reasonably requested by Borrower or Agent such documentation prescribed by Applicable Law (including as prescribed by Section 1471(b)(3)(C)(i) of the
Code) and such additional documentation reasonably requested by Borrower or Agent as may be necessary for Borrower and Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender's
obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (D), "FATCA" shall include any amendments made to FATCA after the date of this Agreement.
|
(a)
|
If an Excluded Asset is no longer pledged as collateral for any Permitted Excluded
Subsidiary Financing and such Asset remains owned by the Excluded Subsidiary, Borrower shall promptly notify the Agent thereof and cause the Excluded Subsidiary to become a Subsidiary hereunder by causing its assets to be subjected to a
Lien securing the Obligations, including its execution of a Subsidiary Guaranty and Security Agreement, and will take such actions as shall be necessary or shall be requested by the Lenders to grant and perfect such Liens.
|
(b)
|
Except as provided in subsection (c) below, if the sale or disposition of an Excluded
Asset generates funds in excess of the amount sufficient to prepay or repay the Permitted Excluded Subsidiary Financing secured by such Excluded Asset and pay the third-party costs associated with such prepayment or repayment and sale
(the “Excess Proceeds”), Borrower shall promptly notify the Agent thereof and either (i) cause such Excluded Subsidiary to become a Subsidiary
hereunder in accordance with Subsection 6.25(a), or (ii) cause the Excess Proceeds to be transferred to Borrower’s possession such that, in either case, the Excess Proceeds become part of the Collateral.
|
(c)
|
So long as the loan tranche under the Term Loan Facility owing by any of the Excluded
Subsidiaries which owns the Aircraft described on Schedule 1.1d and bearing serial numbers, respectively, 19002 (the “Air Nostrum 1 Aircraft”), 19003 (the “Air Nostrum 2 Aircraft ”
and, together with Air Nostrum 1 Aircraft, the “Air Nostrum Aircraft”), or 15129 (“Adria Aircraft”) (with such Excluded Subsidiaries referred to herein, respectively, as the “Air Nostrum 1 Borrower”,
the “Air Nostrum 2 Borrower” and the “Adria Borrower”,
with the Air Nostrum 1 Borrower and Air Nostrum 2 Borrower referred to herein together as the “Air Nostrum Borrower”) remains outstanding, then the
following shall apply:
|
(1)
|
With respect to Excess Proceeds from Aircraft that is an Excluded Asset other than Air
Nostrum Aircraft and Adria Aircraft, such Excess Proceeds may be applied as provided in the Term Loan Facility, which provides for the application of such Excess Proceeds, promptly following availability, to be used, to either (x) prepay
(in full or in part) the indebtedness under the Term Loan Facility by such Excluded Subsidiary that owns such Aircraft or any other Excluded Subsidiary, or (y) if the loan tranche owing by Adria Borrower under the Term Loan Facility is
then outstanding, deposit such Excess Proceeds in a cash collateral account for repayment of the Adria Debt established under the Term Loan Facility (the “Adria
Cash Collateral Account”).
|
(2)
|
With respect to Excess Proceeds from either Air Nostrum Aircraft, such Excess Proceeds
shall, promptly following availability, be used, (x) first, to satisfy the loan tranche under the Term Loan Facility owing by the other Air Nostrum (and owing by either Air Nostrum 1 Borrower or Air Nostrum 2 Borrower) to the extent such
loan tranche is then outstanding, and (y) second, to satisfy the loan tranche thereunder secured by the Adria Aircraft (and owing by the Adria Borrower), which must be done by upon receipt of such Excess Proceeds, unless Borrower obtains
Agent’s prior written consent for the deposit of such Excess Proceeds into the Adria Cash Collateral Account.
|
(3)
|
With respect to Excess Proceeds from the Adria Aircraft, (x) if the indebtedness under the
Term Loan Facility owing by Air Nostrum 1 Borrower or Air Nostrum 2 Borrower is then outstanding, then such Excess Proceeds may be used to prepay (in full or in part) the indebtedness under the Term Loan Facility by the Air Nostrum
Borrower or the other Excluded Subsidiary owning the Aircraft leased to Republic Airline, Inc., and (y) if the indebtedness under the Term Loan Facility owing by Air Nostrum 1 Borrower and Air Nostrum 2 Borrower is then no longer
outstanding, Borrower shall comply with subsection (b) above and such Excess Proceeds shall become Collateral.
|
(d)
|
Once the applicable loan tranches of the Term Loan Facility secured by the Air Nostrum
Aircraft and the Adria Aircraft and repaid, such Aircraft shall no longer be part of the Excluded Assets and the Excluded Subsidiaries owning such Aircraft are no longer borrowers under the Term Loan Facility.
|
12.
|
MISCELLANEOUS
|
Lender
|
Commitment
|
Pro Rata Share
|
MUFG Union Bank, N.A.
|
$37,000,000
|
25.52%
|
Umpqua Bank
|
$35,000,000
|
24.14%
|
Zions Bancorporation, N.A. (fka ZB, N.A.) dba California Bank & Trust
|
$30,000,000
|
20.69%
|
U.S. Bank National Association
|
$28,000,000
|
19.31%
|
Columbia State Bank
|
$15,000,000
|
10.34%
|
TOTAL:
|
$145,000,000
|
100.00%
|
Equipment Type
|
Leased Advance Rate*
|
Off-Lease Advance Rate
|
Maximum Days Off-Lease at Leased Advance Rate
|
Bombardier (Canadair Regional Jet Series 700, 705 and 900)
|
75%
|
40%
|
180
|
Bombardier (deHavilland
Dash 8Q-400 Series) |
75%
|
40%
|
180
|
ATR (Aerei da Transporto Regionale 42 and 72 Series)
|
75%
|
40%
|
180
|
Bombardier (deHavilland
Dash 8Q-300 Series) |
60%
|
0%
|
180
|
Embraer
(E-175/190/195) |
75%
|
40%
|
180
|
Embraer
(E-145) |
40%
|
0%
|
180
|
Leased Spare Engines
|
70%
|
0%
|
180
|
Spot Market Assets that are part of the Collateral
|
60% for initial 180 day period after the Closing Date (or, for Engine FA0041, after designation as Spot Market Asset if so
designated);
25% thereafter until 270 days after the Closing Date (or designation for Engine FA0041); and
0% after the 270 day period
|
N/A
|
N/A
|
Serial
|
|||
number
|
Model
|
Lessee
|
|
15128
|
CRJ900
|
Adria Airways
|
|
15207
|
CRJ900
|
Adria Airways
|
|
15215
|
CRJ900
|
Adria Airways
|
|
10165
|
Bombardier CRJ700
|
American Airlines
|
|
10171
|
Bombardier CRJ700
|
American Airlines
|
|
10178
|
Bombardier CRJ700
|
American Airlines
|
|
145126
|
Embraer 145
|
BMI
|
|
145134
|
Embraer 145
|
BMI
|
|
145201
|
Embraer 145
|
BMI
|
|
4205
|
Bombardier Q400
|
Croatia Airlines
|
|
4211
|
Bombardier Q400
|
Croatia Airlines
|
|
546
|
deHavilland DHC 8-300
|
Island Aviation
|
|
15055
|
Bombardier CRJ705
|
Jazz
|
|
FA0041
|
Pratt & Whitney Engine
|
NTE Aviation
|
|
406
|
deHavilland DHC 8-300
|
Skyward
|
|
407
|
deHavilland DHC 8-300
|
Skyward
|
|
20202
|
Fokker 50
|
Skyward
|
|
236
|
deHavilland DHC 8-300
|
Wideroe
|
|
Serial
|
|||
Manufacturer
|
number
|
Model
|
Lessee
|
Bombardier
|
15128
|
CRJ900
|
Adria Airways
|
Bombardier
|
15207
|
CRJ900
|
Adria Airways
|
Bombardier
|
15215
|
CRJ900
|
Adria Airways
|
Bombardier
|
10165
|
CRJ700
|
American Airlines
|
Bombardier
|
10171
|
CRJ700
|
American Airlines
|
Bombardier
|
10178
|
CRJ700
|
American Airlines
|
Embraer
|
145126
|
145
|
BMI
|
Embraer
|
145134
|
145
|
BMI
|
Embraer
|
145201
|
145
|
BMI
|
Bombardier
|
4205
|
Q400
|
Croatia Airlines
|
Bombardier
|
4211
|
Q400
|
Croatia Airlines
|
Bombardier
|
546
|
DHC 8-300
|
Island Aviation
|
Bombardier
|
15055
|
CRJ705
|
Jazz
|
Bombardier
|
406
|
DHC 8-300
|
Skyward
|
Bombardier
|
407
|
DHC 8-300
|
Skyward
|
Fokker
|
20202 (*)
|
Fokker 50
|
Skyward
|
Bombardier
|
236
|
DHC 8-300
|
Wideroe
|
Pratt & Whitney
|
FA0041 (**)
|
PW150A
|
NTE Aviation
|
Bombardier
|
238
|
DHC 8-300
|
Spot Market Asset
|
Saab
|
449
|
Saab 340B Plus
|
Spot Market Asset
|
Saab
|
454
|
Saab 340B Plus
|
Spot Market Asset
|
Saab
|
453 (***)
|
Saab 340B Plus
|
Part out
|
Bombardier
|
4020 (***)
|
Q400
|
Part out
|
Pratt & Whitney
|
FA0137(***)
|
PW150A
|
Part out
|
(*) Not Eligible Collateral and not included in Borrowing Base due to aircraft type.
|
|||
(**) May be designated as Spot Market Asset before March 31, 2019.
|
|||
(***) Not Eligible Collateral and not included in Borrowing Base.
|
1. |
Bombardier CRJ 1000 series Aircraft with msn 19002 (with two (2) GE model CF34-8C5 Engines, esn 194897 & 194896)
|
2. |
Bombardier CRJ 1000 series Aircraft with msn 19003 (with GE model CF34-8C5 Engines, esn 194975 & 194976)
|
3. |
Embraer E-175 series Aircraft with msn 17000168 (with two (2) GE model CF34-8E5 Engines, esn 193478 & 193479)
|
4. |
Embraer E-175 series Aircraft with msn 17000172 (with two (2) GE model CF34-8E5 Engines, esn 193484 & 193489)
|
5. |
Embraer E-175 series Aircraft with msn 17000173 (with two (2) GE model CF34-8E5 Engines, esn 193492 & 193499)
|
6. |
Bombardier CRJ-900 series Aircraft with msn 15129 (with two (2) GE model CF34-8C5 Engines, esn 194584 & 194585)
|
#
|
SN
|
Mfg.
|
Model
|
1
|
238
|
Bombardier
|
DHC-8-311
|
2
|
321*
|
Saab
|
340B
|
3
|
449
|
Saab
|
340B Plus
|
4
|
454
|
Saab
|
340B Plus
|
5
|
4019*
|
Bombardier
|
DHC-8-402
|
6
|
4021*
|
Bombardier
|
DHC-8-402
|
Name of Lessee
|
Insurance Certificate
|
Type of Insurance
|
||
236
|
Wideroe’s Flyveselskap AS
|
Marsh
|
Hull/ All Risks
Liability
War Risk
|
|
238
|
Wideroe’s Flyveselskap AS
|
Marsh
|
Hull/ All Risks
Liability
War Risk
|
|
406
|
Skyward Express Limited
|
Fred Black Insurance Brokers, Ltd
|
Hull/ All Risks
Liability
War Risk
|
|
407
|
Skyward Express Limited
|
Fred Black Insurance Brokers, Ltd
|
Hull/ All Risks
Liability
War Risk
|
|
546
|
Island Aviation Limited
|
Global Insurance Brokers, Ltd
|
Hull/ All Risks
Liability
War Risk
|
|
4205
|
Croatia Airlines d.d.
|
Albatros Vericherungsdienste GmbH
|
Hull/ All Risks
Liability
War Risk
|
|
4211
|
Croatia Airlines d.d.
|
Albatros Vericherungsdienste GmbH
|
Hull/ All Risks
Liability
War Risk
|
|
10165
|
American Airlines, Inc.
|
Willis Tower Watson
|
Hull/ All Risks
Liability
War Risk
|
|
10171
|
American Airlines, Inc.
|
Willis Tower Watson
|
Hull/ All Risks
Liability
War Risk
|
|
10178
|
American Airlines, Inc.
|
Willis Tower Watson
|
Hull/ All Risks
Liability
War Risk
|
|
15055
|
Jazz Aviation, LP
|
Marsh
|
Hull/ All Risks
Liability
War Risk
|
|
15128
|
Adria Airways d.d.
|
Albatros Vericherungsdienste GmbH
|
Hull/ All Risks
Liability
War Risk
|
|
15207
|
Adria Airways d.d.
|
Albatros Vericherungsdienste GmbH
|
Hull/ All Risks
Liability
War Risk
|
|
15215
|
Adria Airways d.d.
|
Albatros Vericherungsdienste GmbH
|
Hull/ All Risks
Liability
War Risk
|
|
20202
|
Skyward Express Limited
|
Fred Black Insurance Brokers, Ltd
|
Hull/ All Risks
Liability
War Risk
|
|
145126
|
Airline Investment Limited
|
Albatros Vericherungsdienste GmbH
|
Hull/ All Risks
Liability
War Risk
|
|
145134
|
Airline Investment Limited
|
Albatros Vericherungsdienste GmbH
|
Hull/ All Risks
Liability
War Risk
|
|
145201
|
Airline Investment Limited
|
Albatros Vericherungsdienste GmbH
|
Hull/ All Risks
Liability
War Risk
|
|
FA0041 (Engine)
|
NTE Aviation LLC
|
JMB Insurance Agency
|
Spares All Risks
Liability
War Risk
|
|
ACY Off-lease
Assets:
449, 454
|
JetFleet Management Corp and AeroCentury Corp
|
Crystal and Company, Inc
|
Possessed, Spares and Equipment
Hull/ Liability |
|
ACY
Company Policy
|
JetFleet Management Corp and AeroCentury Corp
|
Crystal and Company, Inc
|
Premises and Products Liability
|
|
ACY
Company Policy
|
AeroCentury Corp.
|
Acord
|
Directors’ and Officers’ Liability Insurance
|
a.
|
Guaranty dated as of December 31, 2018 in favor of Republic Airline, Inc. related to Lease Agreement [N109Q]
and documents executed in connection therewith.
|
b.
|
Guaranty dated as of December 31, 2018 in favor of Republic Airline, Inc. related to Lease Agreement [N110Q]
and documents executed in connection therewith.
|
c.
|
Guaranty dated as of December 31, 2018 in favor of Republic Airline, Inc. related to Lease Agreement [N111Q]
and documents executed in connection therewith.
|
d.
|
Deed of Amendment and Restatement dated February 8, 2019, among ACY SN 19003 Limited, Air Nostrum, Lineas
Aereas Del Mediterraneo, S.A., and Borrower, with respect to the lease of Aircraft bearing serial number 19002.
|
e.
|
Deed of Amendment and Restatement dated February 8, 2019, among ACY SN 19003 Limited, Air Nostrum, Lineas
Aereas Del Mediterraneo, S.A., and Borrower, with respect to the lease of Aircraft bearing serial number 19003.
|
f.
|
Indemnity Agreement dated as of February 8, 2019 among Borrower, Norddeutsche Landesbank Girozentrale, New
York Branch, the “participants” party thereto, and Wilmington Trust Company.
|
g.
|
Membership Interest Pledge Agreement, between Borrower and Wilmington Trust Company, dated February 8, 2019,
with respect to the Borrower’s membership interest in ACY SN 15129 LLC.
|
h.
|
Membership Interest Pledge Agreement, between Borrower and Wilmington Trust Company, dated February 8, 2019,
with respect to the Borrower’s membership interest in ACY E-175 LLC.
|
i.
|
Membership Interest Pledge Agreement, between Borrower and Wilmington Trust Company, dated February 8, 2019,
with respect to the Borrower’s membership interest in ACY SN 19002 Limited.
|
j.
|
Membership Interest Pledge Agreement, between Borrower and Wilmington Trust Company, dated February 8, 2019,
with respect to the Borrower’s membership interest in ACY SN 19003 Limited.
|
I. BORROWING BASE
|
||
Borrower’s Borrowing Base as of the Determination Date is $___________, calculated as:1
|
||
1. (i) Bombardier (CRJ Series 700, 705 and 900; deHavilland Dash 8Q-400); ATR 42 and 72; Embraer 175/190/195 Aircraft subject to Eligible Lease (or Off-Lease for not more
than 180 days)
|
$
|
|
(ii) times 75%
|
× .75
|
|
(a) Total Borrowing Base amount for Bombardier (CRJ Series 700, 705 and 900; deHavilland Dash
8Q-400); ATR 42 and 72; Embraer 175/190/195 Aircraft subject to Eligible Lease (or Off-Lease for not more than 180 days) [1(i) × 1(ii)]
|
$_________
|
|
2. (i) Bombardier (CRJ Series 700,
705 and 900; deHavilland Dash 8Q-400); ATR 42 and 72; Embraer 175/190/195 Aircraft not subject to Eligible Lease for more than 180 days
|
$
|
|
(ii) times 40%
|
× .40
|
|
(a) Total Borrowing Base amount for Bombardier (CRJ Series 700, 705 and 900; deHavilland Dash
8Q-400); ATR 42 and 72; Embraer 175/190/195 Aircraft not subject to Eligible Lease for more than 180 days [2(i) × 2(ii)]
|
$ |
|
3. (i) Leased Spare Engines (or
Off-Lease for not more than 180 days)
|
$
|
|
(ii) times 70%
|
× .70
|
|
(a) Total Borrowing Base amount for Leased Spare Engines (or Off-Lease for not more than 180
days) [3(i) × 3(ii)]
|
$_________ |
|
4. (i) Bombardier (deHavilland Dash 8Q-300) Aircraft subject to Eligible Lease (or Off-Lease for not more than 180 days)
|
$ |
|
(ii) times 60%
|
× .60
|
|
(a) Total Borrowing Base amount for Bombardier (deHavilland 8Q-300) Aircraft subject to
Eligible Lease (or Off-Lease for not more than 180 days) [4(i) x 4(ii)]
|
$_________ |
|
5. (i) Embraer (E‑145) Aircraft
subject to Eligible Lease (or Off-Lease for not more than 180 days)
|
$ |
|
(ii) times 40%
|
× .40
|
|
(a) Total Borrowing Base amount for Embraer (E‑145) Aircraft subject to Eligible Lease (or
Off-Lease for not more than 180 days) [5(i) x 5(ii)]
|
$_________ |
|
6. (i) Spot Market Assets (180 day
period from designation)
|
$ |
|
(ii) times 60%
|
× .60
|
|
(a) Total Borrowing Base amount for Spot Market Assets (180 days) [6(i) x 6(ii)]
|
$_________ |
|
7. (i) Spot Market Assets (180
days – 270 days from designation)
|
$ |
|
(ii) times 25%
|
× .25
|
|
(a) Total Borrowing Base amount for Spot Market Assets (270 days) [7(i) x 7(ii)]
|
$ |
$_________ |
BORROWING BASE:
[1(a)+2(a)+3(a)+4(a)+5(a)+6(a)+7(a)]:
|
$_________ |
|
II. BORROWING AVAILABILITY
|
||
Borrower’s Borrowing Availability under the Revolving Commitment as of the Determination Date is $___________,
calculated as the lesser of the following (1 or 2):
|
||
1. Maximum Amount
($145,000,000.00 subject to
Sections 2.8 and 2.18 of the Loan Agreement) |
$_________ |
|
Or
|
||
2. Borrowing Base Availability
|
||
(i) Borrowing Base (above)
|
$
|
|
(ii) less amount outstanding
as of the Determination Date under the Credit Facility
|
- $
|
|
(iii) less the total amount
of deferred rent and maintenance reserves due to the Borrower from any Lessee or former Lessee pursuant to a Deferral Agreement
|
- $
|
|
(iv) less the Maintenance
Reserve Amount
|
- $
|
|
BORROWING BASE
AVAILABILITY
|
$_________
|
|
BORROWING
AVAILABILITY
[Lesser of II.1 or II.2 above]: |
$_________ |
AEROCENTURY CORP., a Delaware corporation [Printed name] |
Aircraft
|
Appraised Value
|
Percentage of Borrowing Base
|
Located
|
Age (Years)
|
Aircraft
|
Appraised Value
|
Located
|
Age (Years)
|
BASE RATE LOAN
|
LIBOR RATE LOAN, FOR A LIBOR LOAN PERIOD OF ________ MONTHS3
|
1. Pricing Leverage Ratio (for purposes of Section 2.2.1(c))
|
|||
Total Debt (all indebtedness of Borrower or a Subsidiary, recourse and non-recourse)
|
$
|
||
divided by
|
|||
Tangible Net Worth (as calculated for Section 6.15.6 below)
|
$
|
||
Ratio of Total Debt to Tangible Net Worth
|
$
|
||
2. Section 6.15.1: Maximum Leverage Ratio
|
|||
A ratio of Funded Debt to Tangible Net Worth ("Maximum Leverage Ratio") as of Determination Date of not more than 3.75x (3.50x after September 30, 2019), calculated as follows:
|
|||
Funded Debt means all indebtedness, liabilities,
and obligations for which Borrower has recourse liability, now existing or hereafter arising, for money borrowed by Borrower or a Subsidiary whether or not evidenced by any note, indenture, or agreement (including, without limitation, the
Notes and any indebtedness for money borrowed from an Affiliate), as determined in accordance with GAAP, consistently applied
|
$
|
||
Tangible Net Worth means the following with respect to Borrower and its Subsidiaries:
|
|||
(a) total assets
|
$
|
||
(b) less total liabilities
|
$
|
||
(c) less intangibles (excluding gains and losses from fair value of derivatives charges whether or not included in other comprehensive income or
net income)
|
$
|
||
Tangible Net Worth
|
$
|
||
Ratio of Funded Debt to Tangible Net Worth
|
|
3. Section 6.15.2: Interest Coverage Ratio
|
|||
As of the Determination Date an Interest Coverage Ratio of at least 2.25x, calculated on a twelve (12) month trailing
basis as follows:
|
|||
EBITDA equal to the sum of the
following (calculated on a twelve month trailing basis):
|
|||
(a) Net income (loss)
|
$
|
|
|
(b) plus Interest Expense
|
|||
(c) plus Taxes
|
$
|
|
|
(d) plus depreciation
|
$
|
|
|
(e) plus amortization
|
$
|
|
|
(f) plus Fleet Renewal Expenses (not to exceed $6,500,000 in aggregate)
|
$
|
||
(g) plus the Merger Settlement Loss (not to exceed $5,000,000 in aggregate)
|
$
|
||
(h) plus for each Fiscal Quarter in which a Merger Expense is incurred, such Merger Expense incurred in the trailing consecutive 12 months (not
to exceed $2,400,000 in aggregate)
|
$
|
||
Consolidated EBITDA
|
$
|
||
Divided by the
calculation resulting from:
(a) consolidated Interest Expense (including imputed interest related to Capital Lease Obligations) |
$
|
|
|
(b) less non-cash amounts for debt discounts, other financing costs and
amortization of amendment fees
|
$
|
|
|
Consolidated Cash Interest Expense
|
$
|
||
Ratio of Consolidated EBITDA to Consolidated Cash Interest Expense
|
|
4. Section 6.15.3: Debt Service Coverage Ratio
|
|||
A Debt Service Coverage Ratio of at
least 1.05x, calculated on a twelve month trailing basis as follows:
|
|||
Consolidated Adjusted EBITDA
equal to the sum of the following (calculated on a twelve month trailing basis):
|
|||
(i) Consolidated EBITDA (as calculated for Section 6.15.2 above)
|
$
|
||
(ii) less Taxes paid in cash
|
|||
(iii) plus Maintenance Expense
|
|||
(iv) plus Pro Forma EBITDA*
|
|||
Consolidated Adjusted EBITDA
|
$
|
||
Consolidated Total Debt Service equal to the sum of:
|
|||
(i) Phantom Amortization (equal to 8.0% of Total Debt)
|
$
|
||
(ii) plus Consolidated Cash Interest Expense (as calculated for Section 6.15.2)
|
$
|
||
(iii) plus Consolidated Maintenance Expense
|
$
|
||
Total Debt Service
|
$
|
||
Ratio of Consolidated Adjusted EBITDA to Consolidated Total Debt Service
|
|||
* Pro Forma EBITDA (relates to Eligible Equipment subject to a Lease for less than one year)
|
5. Section 6.15.4: Minimum Recourse Debt Interest
Coverage Ratio (Required following closing of Term Loan Facility)
|
|||
A Minimum Recourse Debt Interest
Coverage Ratio of at least 2.25x calculated as follows:
|
|||
Consolidated EBITDA (as calculated for Section 6.15.2
above)
|
$
|
||
less EBITDA from Excluded Entities
|
$
|
||
Borrower Only EBITDA
|
$
|
||
divided by the calculation resulting from:
|
|||
Consolidated Cash Interest Expense (as calculated for Section
6.15.2 above)
|
$
|
||
less Cash Interest Expense for Non-Recourse Debt
|
$
|
||
Recourse Cash Interest Expense
|
$
|
||
Ratio of Borrower Only EBITDA to Recourse Cash Interest Expense
|
|||
6. Section 6.15.5: Minimum Recourse Debt Service
Coverage Ratio (Required following closing of Term Loan Facility)
|
|||
A Minimum Recourse Debt Interest Service
Ratio of at 1.05x, calculated as follows:
|
|||
Consolidated Adjusted EBITDA as calculated for Section
6.14.3 above)
|
$
|
||
Less EBITDA from Excluded
Subsidiaries
|
$
|
||
Borrower Only Adjusted EBITDA
|
|||
divided by the calculation resulting from:
|
|||
(i) Recourse Phantom Amortization (equal to 8.0% of Funded Debt)
|
$
|
||
(ii) plus Recourse Cash Interest Expense (as calculated for Section 6.15.4 above)
|
$
|
||
(iii) plus Maintenance Expense
|
$
|
||
Borrower Only Debt Service
|
$
|
||
Ratio of Borrow Only Adjusted EBITDA to Borrower Only Debt Service
|
7. Section 6.15.6: Minimum Tangible Net Worth
|
|||
Tangible Net Worth as calculated in Section
6.15.1
|
$
|
||
Minimum Tangible Net Worth equal to the sum of:
|
|||
(i) 85% of Tangible Net Worth at June 30, 2018
|
$
|
||
(ii) plus
50% of Net Income reported in each successive Fiscal Quarter with no deduction for any losses
|
$
|
||
(iii) plus 100%
of net proceeds from any additional equity offering in excess of $5,000,000
|
$
|
||
(iv) plus 50%
of any incremental additive equity associated with any Acquisition
|
$
|
||
(v) less Merger
Shareholder Equity Reduction (not to exceed $2,800,000 in aggregate)
|
$
|
||
(vi) less Fleet
Renewal Expenses (not to exceed $6,500,000 in aggregate)
|
$
|
||
Total Minimum Tangible Net Worth
|
$
|
||
Excess (deficient) Tangible Net Worth Compared to Total Minimum Tangible Net Worth
|
$
|
No net loss as of the end of any Fiscal Quarter
|
|||
Net income calculated according to GAAP on a twelve (12) month trailing basis.*
|
$
|
||
* Net loss will exclude (i) the Merger Settlement
Loss (not to exceed $5,000,000 in aggregate), (ii) Merger Expenses for the calculation for the Fiscal Quarter in which such Merger Expenses were incurred (not to exceed $2,4000,000 in aggregate) and (iii) Fleet Renewal Expenses (not to
exceed $6,500,000 in aggregate).
|
9. Section 6.15.8: Utilization
|
|||
Utilization Rate shall be at least 75% calculated on a twelve month trailing basis and excluding Spot Market Assets.
|
|||
Utilization Rate equals:
|
|||
(i) Number
of days each item of Equipment is subject to an Eligible Lease during the measuring period multiplied by such Equipment’s Appraised
Value
|
|||
(ii) divided by the number of days such item of Equipment is owned multiplied by such Equipment’s Appraised Value
|
|||
Utilization Rate
|
10. Section 6.15.9: Revenue Concentration Limit
|
|||
No more than 25% of Borrower’s annual operating lease revenue may be from any one Lessee nor may more than 42% through the fiscal
quarter ended September 30, 2019 and 40% for each fiscal quarter ended December 31, 2019 and thereafter of Borrower’s annual operating lease revenue be from any two Lessees, calculated on a twelve month trailing basis; provided, however,
that for purposes of calculating compliance with this section, the operating lease revenue attributable to Eligible Assets acquired but not subject to a Lease for one full year and included in Borrower’s total annual operating lease revenue
shall be deemed to be the product of (x) the monthly rental set forth in such Lease multiplied by (y) twelve (12).** Operating lease
revenue for this Section 6.15.9 shall include rents under finance
leases as if they are accounted for as operating leases.
|
|||
Revenue Concentration from One Lessee equals:
|
|||
(i) Borrower’s
annual operating lease revenue (excluding maintenance reserves) from largest grossing Lessee
|
$
|
||
(ii) divided by total annual operating lease revenue (excluding maintenance reserves)
|
$
|
||
Revenue Concentration from One Lessee
|
|||
Revenue Concentration from Two Lessees equals:
|
|||
(i) Borrower’s
annual operating lease revenue (excluding maintenance reserves) from two largest grossing Lessees
|
$
|
||
(ii) divided by total annual operating lease revenue (excluding maintenance reserves)
|
$
|
||
Revenue Concentration from Two Lessees
|
|||
** Enclosed herewith is the
revenue concentration calculation for each Lessee
|
Dated: ____________________
|
Printed Name and Title of Senior Officer of AeroCentury Corp. |
(2) |
Each payment received or to be received by Party A in connection with this Agreement will be effectively connected with the conduct of a trade or business by
it in the United States; and
|
(3) |
It is a “foreign person” as that term is used in section 1.6041-4(a)(4) of the U.S. Treasury Regulations.
|
(1) |
Party B is a corporation for U.S. federal income tax purposes and is organized under the laws of the State of Delaware.
|
(2) |
It is a “U.S. person” (as that term is used in section 1.1441-4(a)(3)(ii) of United States Treasury Regulations) for U.S. federal income tax purposes and an
exempt recipient under Treasury Regulation Section
|
Party A
|
For Transactions entered into through Party A’s New
York office, a complete, accurate and executed United States Internal Revenue Service Form W-8ECI, or any successor of such form.
|
(i) Upon execution and delivery of this Agreement, (ii) promptly upon reasonable demand by
Party B, and (iii) promptly upon learning that any such tax form previously provided by Party A has become
obsolete or incorrect.
|
Party B
|
A correct and complete U.S. Internal Revenue Service Forms W-9, signed in original.
|
(i) Upon execution and delivery of this Agreement, (ii) promptly upon reasonable demand by
Party B, and (iii) promptly upon learning that any such tax form previously provided by Party B has become
obsolete or incorrect.
|
Party required to deliver document
|
Form/Document/Certificate
|
Date by
which to be delivered
|
Covered by Section 3(d) Representation
|
|||
Party A
|
Annual Report of Mitsubishi
UFJ Financial Group containing audited, consolidated financial statements certified by
independent certified public accountants and prepared in accordance with generally
accepted accounting principles in the country in which such party is organized
|
Upon request, to the extent not already provided by Party A at its website http://www.mufg
.jp/english/
|
Yes
|
Party required to deliver document
|
Form/Document/Certificate
|
Date by
which to be delivered
|
Covered by Section 3(d) Representation
|
|||
Party B
|
Annual Report of Party B containing audited, consolidated financial statements certified by
independent certified public accountants and prepared in accordance with generally accepted accounting principles in the country in which such party and is organized
|
Upon request,
to the extent not
already
provided by
Party A at its
website
http://www.aero century.com/
|
Yes
|
|||
Party B
|
Quarterly Financial Statements of Party B containing unaudited, consolidated financial
statements of such party's first three fiscal quarter prepared in accordance
with generally accepted accounting principles in the country in which such party is organized
|
Upon request,
to the extent not
already
provided by
Party A at its
website
http://www.aero century.com/
|
Yes
|
|||
Party B
|
Certified copies of all corporate, partnership or membership authorizations, as the case may
be, and any other documents with respect to the execution, delivery and performance of this
Agreement and any Credit Support
Document
|
Upon execution and delivery of this Agreement
|
Yes
|
|||
Party A and
Party B
|
Certificate of authority executed by a duly authorized officer of the party certifying the
name, authority and specimen signatures of individuals executing this Agreement on its behalf.
|
Upon execution and delivery of this Agreement and thereafter upon request of the other party
|
Yes
|
(a) |
Address for Notices. For the
purpose of Section 12(a) of this Agreement:- Address for notices or communications to Party A:
|
(h) |
Governing Law; Jurisdiction. This Agreement and any and all controversies arising out of or in relation to this Agreement shall be governed by and construed in
accordance with the laws of the State of New York (without reference to its conflict of laws doctrine).
|
(k) |
Absence of Litigation. For the
purpose of Section 3(c):- "Specified Entity" means in relation to Party A, none;
|
(m) |
Additional Representation will
apply. For the purpose of Section 3 of this Agreement, each of the following will constitute an Additional Representation:-
|
(f) |
Terms Relating to Premium. Article
3, Section 3.4 of the FX Definitions is hereby amended by the addition of the following as a new paragraph (c) of the FX Definitions.
|
(i) |
Premium Netting. Except for Premium netting in
respect of (i) the same Transaction, (ii) the same currency or (iii) a pair of Transactions entered into on the same day, there shall be no Premium netting.
|
Fixed Rate Payer Payment Dates:
|
The last calendar day of February and the 29th calendar day of March, April, May, June, July, August, September, October, November,
December and January in each year from and including 29 April, 2019 up to and including the Termination Date, subject to adjustment in accordance with the Modified Following Business Day Convention.
|
Business Day for Fixed Amount Payments: |
A day, other than Saturday or Sunday, on which banks and foreign exchange markets are open for business in NEW YORK and LONDON.
|
Rounding Convention: |
All payments to be rounded to the nearest Cent(with one half of a Cent being rounded up)
|
Floating Rate Payer Payment Dates: |
The last calendar day of February and the 29th calendar day of March, April, May, June, July, August, September, October, November,
December and January in each year from and including 29 April, 2019 up to and including the Termination Date, subject to adjustment in accordance with the Modified Following Business Day Convention.
|
Floating Rate Option: |
USD-LIBOR-BBA, provided however, the following change is made to the definitions of "USD-LIBOR-BBA" and
|
Business Day for Floating Amount Payments: |
A day, other than Saturday or Sunday, on which banks and foreign exchange markets are open for business in NEW YORK and LONDON.
|
RoundingConvention: |
All payments to be rounded to the nearest Cent(with one half of a Cent being rounded up)
|
For payments in USD: |
Any payments due to yourselves in relation to this Swap Transaction, will be made in accordance with your Standard Settlement
Instructions, where these are held by MUFG. If these are not currently held by MUFG or are not relevant to this Swap Transaction, please advise under separate cover.
|
DDDDD |
Very truly yours, MUFG Bank, Ltd.
|
Business Day for Fixed Amount Payments: |
A day, other than Saturday or Sunday, on which banks and foreign exchange markets are open for business in NEW YORK and LONDON.
|
Rounding Convention: |
All payments to be rounded to the nearest Cent(with one half of a Cent being rounded up)
|
Floating Rate Option: |
USD-LIBOR-BBA, provided however, the following change is made to the definitions of "USD-LIBOR-BBA" and and "USD-LIBOR-Reference Banks" as it appears in the 2006
ISDA Definitions: the term "two London Banking Days preceding that Reset Date" shall be replaced with "two New York and London
Banking Days preceding thatReset Date"
|
Business Day forFloating Amount Payments: |
A day, other than Saturday or Sunday, on which banks and foreign exchange markets are open for business in NEW YORK and LONDON.
|
Rounding Convention: |
All payments to be rounded to the nearest Cent(with one half of a Cent being rounded up)
|
For payments in USD: |
Any payments due to yourselves in relation to this Swap Transaction, will be made in accordance with your Standard Settlement
Instructions, where these are held by MUFG. If these are not currently held by MUFG or are not relevant to this Swap Transaction, please advise under separate cover.
|
DDDDD |
Very truly yours,
MUFG Bank, Ltd.
|
|
I, Michael G. Magnusson, certify that:
|
|
1. I have reviewed this annual report on Form 10-K of AeroCentury Corp.;
|
|
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:
|
|
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
|
|
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
|
|
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
|
|
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
|
March 18, 2019
|
By:
|
/s/ Michael G. Magnusson | |
Name: Michael G. Magnusson | |||
Title: President & Chief Executive Officer | |||
|
I, Toni M. Perazzo, certify that:
|
|
1. I have reviewed this annual report on Form 10-K of AeroCentury Corp.;
|
|
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:
|
|
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
|
|
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
|
|
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
|
|
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
|
March 18, 2019
|
By:
|
/s/ Toni M. Perazzo | |
Name: Toni M. Perazzo | |||
Title: Sr. V.P. Finance & Chief Financial Officer | |||
|
(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and
|
|
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the
dates and for the periods indicated.
|
March 18, 2019
|
By:
|
/s/ Michael G. Magnusson | |
Name: Michael G. Magnusson | |||
Title: President and Chief Executive Officer | |||
|
(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and
|
|
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the
dates and for the periods indicated.
|
March 18, 2019
|
By:
|
/s/ Toni M. Perazzo | |
Name: Toni M. Perazzo | |||
Title: Sr. Vice President -Finance and Chief Financial Officer | |||
Document and Entity Information - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Mar. 18, 2019 |
Jun. 29, 2018 |
|
Document and Entity Information [Abstract] | |||
Entity Registrant Name | AEROCENTURY CORP | ||
Entity Central Index Key | 0001036848 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Shell Company | false | ||
Entity Filer Category | Non-accelerated Filer | ||
Entity Small Business | true | ||
Entity Emerging Growth Company | false | ||
Entity Ex Transition Period | false | ||
Entity Public Float | $ 19,051,000 | ||
Entity Common Stock, Shares Outstanding | 1,545,884 | ||
Document Type | 10-K | ||
Amendment Flag | false | ||
Document Period End Date | Dec. 31, 2018 | ||
Document Fiscal Year Focus | 2018 | ||
Document Fiscal Period Focus | FY |
Consolidated Balance Sheets (Parenthetical) - USD ($) |
Dec. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Assets: | ||
Accounts receivable, deferred rent | $ 220,100 | $ 707,300 |
Aircraft and aircraft engines held for lease, accumulated depreciation | 36,675,500 | 33,234,200 |
Accumulated depreciation | 2,200 | |
Accumulated amortization, favorable lease acquired | 61,700 | 0 |
Liabilities: | ||
Unamortized debt issuance costs | $ 674,300 | $ 2,216,000 |
Stockholders' equity: | ||
Preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Preferred stock, authorized (in shares) | 2,000,000 | 2,000,000 |
Preferred stock, issued (in shares) | 0 | 0 |
Preferred stock, outstanding (in shares) | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Common stock, authorized (in shares) | 10,000,000 | 10,000,000 |
Common stock, outstanding (in shares) | 1,545,884 | 1,416,699 |
Treasury stock (in shares) | 213,332 | 213,300 |
Consolidated Statements of Cash Flows (Parenthetical) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
Supplemental Cash Flow Information [Abstract] | ||
Interest paid | $ 8,173,900 | $ 6,642,300 |
Income taxes paid | 1,063,200 | $ 800 |
Value of equity consideration | 2,002,900 | |
Repurchase of shares (in shares) | 150,000 | |
Repurchase of shares | $ 2,532,700 | |
JHC [Member] | ||
Supplemental Cash Flow Information [Abstract] | ||
Income taxes paid | $ 627,000 | |
Shares issued related to acquisition (in shares) | 129,217 |
Organization and Summary of Significant Accounting Policies |
12 Months Ended | ||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||
Organization and Summary of Significant Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||
Organization and Summary of Significant Accounting Policies |
AeroCentury Corp. (“AeroCentury”) is a Delaware corporation incorporated in 1997. AeroCentury together with its consolidated subsidiaries is referred to as the “Company.” In August 2016, AeroCentury formed two wholly-owned subsidiaries, ACY 19002 Limited (“ACY 19002”) and ACY 19003 Limited (“ACY 19003”) for the purpose of acquiring aircraft using a combination of cash and third-party financing (“UK LLC SPE Financing” or “special purpose financing”) separate from AeroCentury’s credit facility (the “Credit Facility”). The UK LLC SPE Financing was repaid in full in February 2019 as part of a refinancing involving new non-recourse term loans totaling approximately $44.3 million (“Term Loans”) made to ACY 19002, ACY 19003 and two other newly formed special purpose subsidiaries of AeroCentury. See Note 14 for more information about the Term Loans. On October 1, 2018, AeroCentury acquired JetFleet Holding Corp. (“JHC”) in a reverse triangular merger (“Merger”) for consideration of approximately $2.9 million in cash and 129,217 shares of common stock of AeroCentury, as determined pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) entered into by AeroCentury, JHC and certain other parties in October 2017. JHC is the sole shareholder of JetFleet Management Corp. (“JMC”), which is an integrated aircraft management, marketing and financing business and the manager of the assets owned by the Company. Upon completion of the Merger, JHC became a wholly-owned subsidiary of the Company, and as a result, JHC's results are included in the Company's consolidated financial statements beginning on October 1, 2018. In November 2018, AeroCentury formed two wholly-owned subsidiaries, ACY SN 15129 LLC (“ACY 15129”) and ACY E-175 LLC (“ACY E-175”), for the purpose of refinancing four of the Company’s aircraft using the Term Loans. Because the Term Loans did not close until February 2019, the subject aircraft remained as collateral under the Credit Facility as of December 31, 2018, and ACY 15129 and ACY E-175 had no activity in 2018. Financial information for AeroCentury and its consolidated subsidiaries is presented on a consolidated basis in accordance with accounting principles generally accepted in the United States of America (“GAAP”) based upon the continuation of the business as a going concern. All intercompany balances and transactions have been eliminated in consolidation.
The Company’s consolidated financial statements have been prepared in accordance with GAAP. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable for making judgments that are not readily apparent from other sources. The most significant estimates with regard to these consolidated financial statements are the residual values and useful lives of the Company’s long-lived assets, the amount and timing of future cash flows associated with each asset that are used to evaluate whether assets are impaired, accrued maintenance costs, accounting for income taxes, and the amounts recorded as allowances for doubtful accounts.
The Company considers highly liquid investments readily convertible into known amounts of cash, with original maturities of 90 days or less from the date of acquisition, as cash equivalents.
At December 31, 2018, the Company owned 121 shares of non-voting preferred stock in a non-public company. The stock has a cumulative preferred annual dividend of 10% and a liquidation value of $1,000 per share, but may not be liquidated before January 1, 2019. Because the Company owns a minority share of the non-voting preferred stock, the company’s results are not consolidated with those of the Company. The Company has elected to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
The Company’s interests in aircraft and aircraft engines are recorded at cost, which includes acquisition costs. Since inception, the Company has typically purchased only used aircraft and aircraft engines. It is the Company’s policy to hold aircraft for approximately twelve years unless market conditions dictate otherwise. Therefore, depreciation of aircraft is initially computed using the straight-line method over the anticipated holding period to an estimated residual value based on appraisal. For an aircraft engine held for lease as a spare, the Company estimates the length of time that it will hold the aircraft engine based upon estimated usage, repair costs and other factors, and depreciates it to the appraised residual value over such period using the straight-line method. The Company periodically reviews plans for lease or sale of its aircraft and aircraft engines and changes, as appropriate, the remaining expected holding period for such assets. Estimated residual values are reviewed and adjusted periodically, based upon updated estimates obtained from an independent appraiser. Decreases in the fair value of aircraft could affect not only the current value, discussed below, but also the estimated residual value. Assets that are held for sale are not subject to depreciation and are separately classified on the balance sheet. Such assets are carried at the lower of their carrying value or estimated fair values, less costs to sell.
In connection with the Company’s acquisition of JHC, as discussed in Note 8, the Company recognized that the current lease of its office facilities had rents that are substantially below the market for such office space. Consequently, the Company recorded $925,000 as the value of below-market rents at the October 1, 2018 date of the JHC acquisition, and is amortizing such amount on a level basis over the remaining term of the office lease, including two one-year bargain renewal options. The Company recorded $61,700 of amortization in 2018 and will recognize $246,700 of amortization annually through 2021 and $123,200 in the first half of 2022.
The Company’s interests in equipment are recorded at cost and depreciated using the straight-line method over five years. The Company’s leasehold improvements are recorded at cost and amortized using the straight-line method over the shorter of the lease term or the estimated useful lives of the respective assets.
The Company reviews assets for impairment when there has been an event or a change in circumstances indicating that the carrying amount of a long-lived asset may not be recoverable. In addition, the Company routinely reviews all long-lived assets for impairment semi-annually. Recoverability of an asset is measured by comparison of its carrying amount to the future estimated undiscounted cash flows (without interest charges) that the asset is expected to generate. Estimates are based on currently available market data and independent appraisals and are subject to fluctuation from time to time. If these estimated future cash flows are less than the carrying value of an asset at the time of evaluation, any impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Fair value is determined by reference to independent appraisals and other factors considered relevant by management. Significant management judgment is required in the forecasting of future operating results that are used in the preparation of estimated future undiscounted cash flows and, if different conditions prevail in the future, material write-downs may occur. As discussed in Note 7, the Company recorded impairment provisions totaling $2,971,500 and $1,002,100 in 2018 and 2017, respectively.
Costs incurred in connection with debt financing are deferred and amortized over the term of the debt using the effective interest method or, in certain instances where the differences are not material, using the straight-line method. Costs incurred in connection with the Credit Facility are deferred and amortized using the straight-line method. Commitment fees for unused funds are expensed as incurred.
The Company’s leases are typically structured so that if any event of default occurs under a lease, the Company may apply all or a portion of the lessee’s security deposit to cure such default. If such application of the security deposit is made, the lessee typically is required to replenish and maintain the full amount of the deposit during the remaining lease term. All of the security deposits received by the Company are refundable to the lessee at the end of the lease upon satisfaction of all lease terms.
As part of the process of preparing the Company’s consolidated financial statements, management estimates income taxes in each of the jurisdictions in which the Company operates. This process involves estimating the Company’s current tax exposure under the most recent tax laws and assessing temporary differences resulting from differing treatment of items for tax and GAAP purposes. These differences result in deferred tax assets and liabilities, which are included in the balance sheet. Management also assesses the likelihood that the Company’s deferred tax assets will be recovered from future taxable income, and, to the extent management believes it is more likely than not that some portion or all of the deferred tax assets will not be realized, the Company establishes a valuation allowance. To the extent the Company establishes a valuation allowance or changes the allowance in a period, the Company reflects the corresponding increase or decrease within the tax provision in the statement of operations. Significant management judgment is required in determining the Company’s future taxable income for purposes of assessing the Company’s ability to realize any benefit from its deferred taxes. After considering the Company’s significant amounts of net deferred tax liabilities which are future reversing taxable temporary differences, the Company has determined that no valuation allowance is required for its deferred tax assets. The Company accrues non-income based sales, use, value added and franchise taxes as other tax expense in the statement of operations.
Revenue from leasing of aircraft assets pursuant to operating leases is recognized on a straight-line basis over the terms of the applicable lease agreements. Deferred payments are recorded as accrued rent when the cash rent received is lower than the straight-line revenue recognized. Such receivables decrease over the term of the applicable leases. Interest income is recognized on finance leases based on the interest rate implicit in the lease and the outstanding balance of the lease receivable. Maintenance reserves retained by the Company at lease-end are recognized as maintenance reserves revenue. In instances where collectability is not reasonably assured, the Company recognizes revenue as cash payments are received. The Company estimates and charges to income a provision for bad debts based on its experience with each specific customer, the amount and length of payment arrearages, and its analysis of the lessee’s overall financial condition. If the financial condition of any of the Company’s customers deteriorates, it could result in actual losses exceeding any estimated allowances. The Company had no allowance for doubtful accounts at December 31, 2018 and 2017.
The Company does not have any comprehensive income other than the revenue and expense items included in the statement of operations. As a result, comprehensive income equals net income for the years ended December 31, 2018 and 2017.
As of December 31, 2018, the Company had three aircraft subject to sales-type finance leases and three aircraft subject to direct financing leases. All six leases contain lessee bargain purchase options at prices substantially below the subject assets’ estimated residual values at the exercise date for the options. Consequently, the Company has classified each of these six leases as finance leases for financial accounting purposes. For such finance leases, the Company reports the discounted present value of (i) future minimum lease payments (including the bargain purchase option) and (ii) any residual value not subject to a bargain purchase option, as a finance lease receivable on its balance sheet, and accrues interest on the balance of the finance lease receivable based on the interest rate inherent in the applicable lease over the term of the lease. For each of the three sales-type finance leases, the Company recognized as a gain or loss the amount equal to (i) the net investment in the sales-type finance lease plus any initial direct costs and lease incentives less (ii) the net book value of the subject aircraft at inception of the applicable lease. The Company recognized interest earned on finance leases in the amount of $1,251,000 and $1,571,500 in 2018 and 2017, respectively.
Maintenance costs under the Company’s triple net leases are generally the responsibility of the lessees. Some of the Company’s leases require payment of maintenance reserves, which are based upon lessee-reported usage and billed monthly, and are intended to accumulate and be applied by the Company toward reimbursement of most or all of the cost of the lessees’ performance of certain maintenance obligations under the leases. Such reimbursements reduce the associated maintenance reserve liability. Maintenance reserves are characterized as either refundable or non-refundable depending on their disposition at lease-end. The Company retains non-refundable maintenance reserves at lease-end, even if the lessee has met all of its obligations under the lease, including any return conditions applicable to the leased asset, while refundable reserves are returned to the lessee under such circumstances. Any reserves retained by the Company at lease -end are recorded as revenue at that time. Accrued maintenance costs include (i) maintenance for work performed for off-lease aircraft, which is not related to the release of maintenance reserves received from lessees and which is expensed as incurred, and (ii) lessor maintenance obligations assumed and recognized as a liability upon acquisition of aircraft subject to a lease with such provisions.
The Company periodically enters into various derivative instruments to mitigate its exposure to variable interest rate obligations, although it was not a party to any such instruments in 2017 or 2018. Although all such transactions are entered into for such a purpose, hedge accounting is only applied where specific criteria have been met and the transaction is highly effective and has been designated as a hedge at inception. Generally, the effects of derivative transactions are recorded in earnings for the period in which they arise, although the effective portion of a hedged transaction is reported as a component of other comprehensive income and is reclassified into earnings in the period in which the transaction being hedged affects earnings.
Topic 606 In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 that created the new Topic 606 (“Topic 606”) in the Accounting Standards Codification (“ASC”). Topic 606 also included numerous conforming additions and amendments to other Topics within the ASC. Topic 606 established new rules that affect the amount and timing of revenue recognition for contracts with customers, but does not affect lease accounting and reporting. As such, adoption of these provisions has not affected the Company's lease revenues. The Company adopted Topic 606 as of January 1, 2018 using the modified retrospective method of transition. Since most of the Company’s revenues arise from its lease contracts, which are not affected by the new standard, and since the Company’s revenue recognition for other sources of revenue is generally the same as it was under previous accounting standards, adoption of Topic 606 in the current year, using the modified retrospective approach, has had no effect on its consolidated financial statements. ASU 2016-01 In January 2016, the FASB issued ASU 2016-01, Income Statement - Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities ("ASU 2016-01"). ASU 2016-01 was issued to enhance the reporting model for financial instruments to provide the users of financial statements with more useful information for decisions. Effective January 1, 2018, the Company adopted ASU 2016-01 and applied the provisions of the standard prospectively within the consolidated financial statements for the year ended December 31, 2018, which includes the Company no longer disclosing the method or significant assumptions used to estimate the fair value for its securities measured at amortized cost on the consolidated balance sheet. The adoption of the ASU did not have an effect on the Company's consolidated financial statements. ASU 2016-02 In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 is effective for public companies for years beginning after December 15, 2018, although early adoption is permitted. The Company has not adopted ASU 2016-02 early. ASU 2016-02 substantially modifies lessee accounting for leases, requiring that lessees recognize lease assets and liabilities for leases extending beyond one year. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard requires a lessor to classify leases as sales-type, finance, or operating. A lease will be treated as sales-type if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a finance lease. If the lessor does not convey risks and rewards or control, an operating lease results. The Company adopted the standard on January 1, 2019, electing to apply its provisions on the date of adoption and to record the cumulative effect as an adjustment to retained earnings. The Company evaluated the guidance and noted that lessor accounting is similar to the current model; however, the guidance does impact the Company’s existing operating lease obligation. In addition, the Company has elected to apply practical expedients permitted by the standard, under which the Company will not have to reevaluate the classification of its existing leases or its capitalized initial direct costs. As a result of application of the practical expedients, the Company was not required to alter the classification or carrying value of its leased or finance lease assets. The Company was required to record a lease obligation of approximately $600,000 in connection with the lease of its headquarters, and to increase the capitalized leasehold interest / right of use asset by a similar amount upon adoption. There was no effect on retained earnings recorded as a result of adoption of the standard. ASU 2016-13 The FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), in June of 2016 (“ASU 2016-13”). ASU 2016-13 provides that financial assets measured at amortized cost are to be presented as a net amount, reflecting a reduction for a valuation allowance to present the amount expected to be collected (the “current expected credit loss” model of reporting). As such, expected credit losses will be reflected in the carrying value of assets and losses will be recognized before they become probable, as is required under the Company’s present accounting practice. In the case of assets held as available for sale, the amount of the valuation allowance will be limited to an amount that reflects the marketable value of the debt instrument. This amendment to GAAP is effective for fiscal years beginning after December 15, 2019 (for the Company, its 2020 year) unless elected earlier, and adoption is to be reflected as a cumulative effect on the first date of adoption. The Company does not expect to early adopt ASU 2016-13. ASU 2017-12 In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). ASU 2017-12 is effective for public companies for years beginning after December 15, 2018, and will therefore be effective for the Company’s 2019 year and interim periods. The revised guidance includes reduced limitations on items that can be hedged to more closely align hedge accounting with entities’ risk management activities through changes to designation and measurement guidance as well as new disclosure requirements of balance sheet and income statement information designed to increase the transparency of the impact of hedging. Since the Company has not entered into in any derivative transactions in 2017 and 2018, adoption of ASU 2017-12 will not have any material effect on the Company’s financial statements. The Company is continuing to evaluate the impact of any transactions entered into in 2019. SAB 118 In December of 2017, the United States enacted the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), which had numerous effects on U.S. corporate taxation, including reducing the federal corporate tax rate to 21%, substantially modifying the U.S. taxation of international investments and transactions, and repealing the alternative minimum tax. In December of 2017, the Staff of the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides that companies should reflect in their financial statements the effects of the change in tax law in which the accounting is complete, as such completion occurs; provisional amounts for such effects for which the company can determine a reasonable estimate, as such estimates can be made; and continued accounting under the provisions of the law as it existed before enactment of the Tax Act for such effects for which no reasonable estimate under the new law can be made, until such a reasonable estimate is available and a provisional amount can be reported. Under SAB 118, in no event should the period during which a company is obtaining, preparing, and analyzing the information needed to complete the accounting for the effects of the change in tax law exceed one year from enactment (the “measurement period”), or the fourth quarter of 2018. The Company has reflected the effects of the Tax Act in these consolidated financial statements, and the Company did not record any additional amounts in 2018 for the year ended December 31, 2017 to account for the effects of the change in tax law due to the Tax Act. |
Finance Leases Receivable |
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Finance Leases Receivable [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Finance Leases Receivable |
During 2018, a customer that leased six of the Company’s aircraft under sales-type finance leases purchased three of those aircraft in amounts equal to the outstanding balance under the applicable finance leases. The purchase price was paid in the form of (i) $1,088,700 in cash, (ii) $1,675,100 of maintenance reserves previously paid to the Company for one of the purchased aircraft and (iii) $2,618,100 of maintenance reserves previously paid to the Company for two aircraft that remain under sales-type finance leases with the customer. Such reserves are no longer available to the customer for reimbursement of maintenance claims under the applicable lease provisions pursuant to which the reserves were paid. The Company did not record a gain or loss on the sale of the aircraft. At December 31, 2018 and December 31, 2017, the net investment included in sales-type finance leases and direct financing leases receivable were as follows:
As of December 31, 2018, minimum future payments receivable under finance leases were as follows:
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Aircraft and Aircraft Engines Held for Lease or Sale |
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Aircraft and Aircraft Engines Held for Lease or Sale [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Aircraft and Aircraft Engines Held for Lease or Sale |
At December 31, 2018 and December 31, 2017, the Company’s aircraft and aircraft engines held for lease consisted of the following:
During 2018 and 2017, the Company used cash of $22,844,300 and $32,063,100, respectively, for the purchase and capital improvement of aircraft. During 2018, the Company purchased two aircraft subject to operating leases. During the same period, the Company sold four aircraft held for lease for cash and recorded net losses totaling $2,426,600. The Company also reclassified four aircraft from held for lease to held for sale. During 2018, the Company recorded $1,629,000 in maintenance reserves revenue resulting from cash received from the former lessee of three aircraft that were returned to the Company during 2017. Such payments were for unpaid maintenance reserves, as well as amounts due pursuant to the return conditions of the applicable leases. The Company did not accrue unpaid reserves or return condition amounts at the time of lease termination based on management’s evaluation of the creditworthiness of the lessee and, therefore, accounted for them as income when received. None of the Company’s aircraft and engines held for lease were off -lease at December 31, 2018. As discussed below, the Company has three off-lease aircraft that were reclassified as held for sale during 2018. As of December 31, 2018, minimum future lease revenue payments receivable under noncancelable operating leases were as follows:
During 2018, the Company sold an aircraft that was previously held for lease and for which the Company had recorded an impairment provision of $1,835,800 during 2018. The Company recorded a loss of $1,072,400 related to the sale. Assets held for sale at December 31, 2018 consist of three off-lease turboprop aircraft and airframe parts from two turboprop aircraft. During 2018, the Company recorded impairment provisions totaling $1,135,700 for the three aircraft and reclassified them from assets held for lease to assets held for sale. During 2018, the Company received $1,280,100 in cash and accrued $133,100 in receivables for parts sales. These amounts were accounted for as follows: $779,700 reduced accounts receivable for parts sales accrued in 2017, $543,200 reduced the carrying value of the parts, and $90,300 was recorded as gains in excess of the carrying value of the parts. During 2017, the Company received $193,100 from the sale of parts and accrued receivables totaling $779,700 for 2017 parts sales, payment for which was received in 2018. Of such amounts, $885,400 reduced the carrying value of the parts and $87,400 was recorded as gains in excess of the carrying value of the parts. |
Operating Segments |
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Operating Segments |
The Company operates in one business segment, the leasing of regional aircraft to foreign and domestic regional airlines, and therefore does not present separate segment information for lines of business. Approximately 28% and 21% of the Company’s operating lease revenue was derived from lessees domiciled in the United States during 2018 and 2017, respectively. All revenues relating to aircraft leased and operated internationally, with the exception of rent payable in Euros for two of the Company’s aircraft, are denominated and payable in U.S. dollars. The tables below set forth geographic information about the Company’s operating lease revenue and net book value for leased aircraft and aircraft equipment, grouped by domicile of the lessee:
The table below sets forth geographic information about the Company’s finance lease revenue, grouped by domicile of the lessee:
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Concentration of Credit Risk |
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Concentration of Credit Risk [Abstract] | |||
Concentration of Credit Risk |
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits and receivables. The Company places its deposits with financial institutions and other creditworthy issuers and limits the amount of credit exposure to any one party. For the year ended December 31, 2018, the Company had five significant customers, four of which individually accounted for 30%, 21%, 15% and 13%, respectively, of operating lease revenue and one of which accounted for 67% of finance lease revenue. For the year ended December 31, 2017, the Company had five significant customers, four of which individually accounted for 28%, 20%, 14% and 11%, respectively, of operating lease revenue and one of which accounted for 75% of finance lease revenue. At December 31, 2018, the Company had receivables from three customers totaling $3,413,500 and representing 87% of the Company’s total accounts receivable. In early 2019 through the date of this report, the Company has received payments totaling $1,564,800 related to these receivables. At December 31, 2017, the Company had receivables from four customers totaling $2,959,200 and representing 77% of the Company’s total accounts receivable, as well as receivables totaling $779,700 for parts sales related to its aircraft held for sale. |
Notes Payable and Accrued Interest |
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Notes Payable and Accrued Interest |
At December 31, 2018 and December 31, 2017, the Company’s notes payable and accrued interest consisted of the following:
The Company’s Credit Facility is provided by a syndicate of banks and is secured by all of the assets of the Company, including its aircraft and engine portfolio, except for the aircraft that serve as collateral for the Company’s UK LLC SPE Financing. As discussed in Note 14, in February 2019, the Credit Facility, which had availability of $170 million (with the ability for the Company to request an increase up to $180 million) and was to mature on May 31, 2019, was extended to February 19, 2023, reduced to $145 million (with the ability for the Company to request an increase up to $160 million) and amended in certain other respects, including with respect to certain of the Company’s financial covenants thereunder. Also in February 2019, the Company refinanced, with new non-recourse Term Loans totaling $44,310,000, four aircraft that previously served as collateral under the Credit Facility and two aircraft that served as collateral for the UK LLC SPE Financing, as discussed in (b) UK LLC SPE Financing below. As of September 30, 2018, the Company was not in compliance with the interest coverage, debt service coverage and revenue concentration covenants under the Credit Facility. The Company obtained a waiver from the Credit Facility lenders in November 2018 for the September 30, 2018 noncompliance. There were no fees or penalties related to the waiver. In addition, based on appraisals obtained in October 2018 for four assets held for sale, the Company had a borrowing base deficiency of approximately $1,400,000 at September 30, 2018. The Company cured the deficiency in October 2018 by making a principal payment of $2,000,000 on the Credit Facility. As of December 31, 2018 the Company was not in compliance with the interest coverage, debt service coverage, no -net -loss and revenue concentration covenants under the Credit Facility. The noncompliance resulted primarily from the Company recording aircraft impairment charges on aircraft and losses on sale of aircraft totaling $3,408,700 during 2018. The February 2019 amendment to the Credit Facility discussed above and in Note 14 cured the December 31, 2018 noncompliance and revised the compliance requirements through the extended maturity date of the Credit Facility. The unused amount of the Credit Facility was $47,600,000 and $36,000,000 as of December 31, 2018, and December 31, 2017, respectively. The weighted average interest rate on the Credit Facility was 5.92% and 5.21% at December 31, 2018 and December 31, 2017, respectively.
In August 2016, the Company acquired two regional jet aircraft using cash and financing separate from the Credit Facility. The separate UK LLC SPE Financing resulted in note obligations of $9,805,600 and $9,804,300, which were being paid from a portion of the rent payments on the related aircraft leases through October 3, 2020 and November 7, 2020, respectively, and which bore interest at the rate of 4.455% per annum. The borrower under each note obligation was the special purpose subsidiary of AeroCentury that owns each aircraft. The notes were collateralized by the aircraft and were recourse only to the special purpose entity borrower and its aircraft asset, subject to standard exceptions for this type of financing. Payments due under the notes consisted of quarterly principal and interest. The combined balance of the principal amount and accrued interest owed on these notes at December 31, 2018 and December 31, 2017 was $9,227,200 and $13,535,300, respectively. As discussed in Note 14, in February 2019, the UK LLC SPE Financing was repaid and cancelled in full when the Company refinanced the aircraft securing the UK LLC SPE Financing with the proceeds from the Term Loans. |
Fair Value Measurements |
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Fair Value Measurements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements |
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs, to the extent possible. The fair value hierarchy under GAAP is based on three levels of inputs. Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis The following table shows, by level within the fair value hierarchy, the Company’s assets at fair value as of December 31, 2018 and December 31, 2017:
There were no transfers between Level 1 and Level 2 in either 2018 or 2017, and there were no transfers into or out of Level 3 during 2018 or 2017. As of December 31, 2018, and December 31, 2017, there were no liabilities that were required to be measured and recorded at fair value on a recurring basis. Assets Measured and Recorded at Fair Value on a Nonrecurring Basis The Company determines fair value of long-lived assets held and used, such as aircraft and aircraft engines held for lease and these and other assets held for sale, by reference to independent appraisals, quoted market prices (e.g., offers to purchase) and other factors. These are considered Level 3 within the fair value hierarchy. An impairment charge is recorded when the Company believes that the carrying value of an asset will not be recovered through future net cash flows and that the asset’s carrying value exceeds its fair value. The Company recorded impairment charges totaling $2,673,300 on four of its aircraft held for sale in 2018, which had an aggregate fair value of $9,900,000. The Company also recorded an impairment charge of $298,200 on one of its aircraft held for lease in 2018. The Company recorded impairment charges of $1,002,100 on five of its assets held for lease in 2017. Fair Value of Other Financial Instruments The Company’s financial instruments, other than cash and cash equivalents, consist principally of finance leases receivable, amounts borrowed under the Credit Facility and notes payable under special purpose financing. The fair value of accounts receivable, accounts payable and the Company’s maintenance reserves and accrued maintenance costs approximates the carrying value of these financial instruments because of their short-term maturities. The fair value of finance lease receivables approximates the carrying value as discussed in Note 1(n). Borrowings under the Company’s Credit Facility bear floating rates of interest that reset periodically to a market benchmark rate plus a credit margin. The Company believes the effective interest rate under the Credit Facility approximates current market rates for such indebtedness at the dates of the consolidated balance sheets, and therefore that the outstanding principal and accrued interest of $122,539,300 and $134,278,900 at December 31, 2018 and December 31, 2017, respectively, approximate their fair values on such dates. The fair value of the Company’s outstanding balance of its Credit Facility is categorized as Level 3 under the GAAP fair value hierarchy. Before their repayment in February 2019 in connection with the Term Loans refinancing (see Note 14), the amounts payable under the Company’s UK LLC SPE Financing were payable through the fourth quarter of 2020 and bore a fixed rate of interest, as described in Note 6(b). The Company believes the effective interest rate under the special purpose financing approximates current market rates for such indebtedness at the dates of the consolidated balance sheets, and therefore that the outstanding principal and accrued interest of $9,227,200 and $13,535,300 approximate their fair values at December 31, 2018 and December 31, 2017, respectively. Such fair value is categorized as Level 3 under the GAAP fair value hierarchy. |
Acquisition of Management Company |
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Acquisition of Management Company [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of Management Company |
In October 2017, AeroCentury, JHC and certain other parties entered into the Merger Agreement for the acquisition of JHC by AeroCentury for consideration of approximately $2.9 million in cash and 129,217 shares of common stock of AeroCentury, as determined pursuant to the Merger Agreement. JHC is the sole shareholder of JMC, which is the manager of the Company’s assets as described in Note 13 below. The Merger was consummated on October 1, 2018. AeroCentury’s common stock issued as consideration in the Merger was offered and sold pursuant to an exemption from registration under Section 3(a)(10) of the Securities Act of 1933, as the California Department of Business Oversight (the “DBO”) had issued a permit for the issuance of such securities to JHC’s shareholders on February 22, 2018 after a fairness hearing before the DBO. As a subsidiary of the Company, JHC’s results are included in the Company’s consolidated financial statements beginning on October 1, 2018. In April 2018, subsequent to the execution of the Merger Agreement for the acquisition of JHC, which was signed in October 2017, the Company, JHC and JMC entered into a waiver and reimbursement agreement (the “Waiver/Reimbursement Agreement”), pursuant to which JHC and JMC agreed to waive their right to receive management and acquisition fees (“Contract Fees”) otherwise owed by the Company to JMC pursuant to the Management Agreement for all periods after March 31, 2018 and until the consummation of the Merger, and in return, the Company agreed to reimburse JMC for expenses incurred in providing management services set forth under the Management Agreement. As a result of the Waiver/Reimbursement Agreement, the Company became responsible for all expenses incurred by JMC in managing the Company as of April 1, 2018, including employee salaries, office rent and all other general and administrative expenses. As a result of the Merger, the Company assumed all of JHC’s assets, comprised primarily of securities, prepaid expenses and an office lease, as well as liabilities of approximately $0.9 million. During the years ended December 31, 2018 and 2017, the Company accrued $485,000 and $619,400, respectively, of expenses related to the Merger transaction. Such expenses are included in professional fees, general and administrative and other in the Company’s consolidated statements of operations. During the fourth quarter of 2018, the Company also recorded a settlement loss of $2,527,000 related to the Merger. The settlement loss amount was estimated using an income approach. The Company assessed the contractual terms and conditions of the previous management agreement between the company and JMC (the “Management Agreement”) as compared to current market conditions and the historical and expected financial performance of the Company and JMC. Based on the analysis performed, the Company determined that the contractual payment terms were above market rates. The present value of the expected differential between payments previously required by the Management Agreement and those that would be required if the contract reflected current market terms was calculated over the Management Agreement contractual term. As the management fee previously paid by the Company was deemed to be above market and the settlement of this pre-existing relationship resulted in a loss, the loss was recognized in the consolidated statement of operations at the acquisition date and reduced the estimated purchase consideration transferred. The Company did not recognize any goodwill on its acquisition of JHC because the only customer relationship JHC had was through its contract with the Company for management of the Company's assets, and the Comapny cannot recognize goodwill attributable to its relationship with itself. The following table shows the allocation of the purchase price paid by the Company for its acquisition of JHC, the assets and liabilities that were assumed as a result of the Merger and calculation of the settlement loss.
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Commitments and Contingencies |
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Dec. 31, 2018 | ||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies [Abstract] | ||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies |
The Company leases its office space under a lease expiring June 30, 2020 and a storage facility on a monthly basis. Effective June 1, 2018, the Company agreed to amend its office lease to reduce the size of the rented office space and to provide two consecutive, 1-year renewal options. The amended monthly lease commitment for the office space includes an amount for base rent and operating expenses (including utilities and insurance costs). The Company estimates that the future minimum lease commitments for its office space, including both the base rent and operating expenses, and storage facility are as follows:
The projected annual rent expenses shown above are based on periodic increases to the base rental rate provided in the amended lease for the office space. Total rent expense for the post-Merger period in 2018, which included rent for a storage facility rented on a monthly basis, was $82,300. Total rent expense was $0 in 2017. In the ordinary course of the Company’s business, the Company may be subject to lawsuits, arbitrations and administrative proceedings from time to time. The Company believes that the outcome of any existing or known threatened proceedings, even if determined adversely, should not have a material adverse effect on the Company's business, financial condition, liquidity or results of operations. |
Stockholder Rights Plan |
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Dec. 31, 2018 | |||
Stockholder Rights Plan [Abstract] | |||
Stockholder Rights Plan |
In December 2009, AeroCentury’s Board of Directors adopted a stockholder rights plan granting a dividend of one stock purchase right for each share of AeroCentury’s common stock outstanding as of December 18, 2009, and AeroCentury entered into a rights agreement dated December 1, 2009 in connection therewith. The rights become exercisable only upon the occurrence of certain events specified in the rights agreement, including the acquisition of 15% of AeroCentury’s outstanding common stock by a person or group in certain circumstances. Each right allows the holder, other than an “acquiring person,” to purchase one one-hundredth of a share (a unit) of Series A Preferred Stock of AeroCentury at an initial purchase price of $97.00 under circumstances described in the rights agreement. The purchase price, the number of units of preferred stock and the type of securities issuable upon exercise of the rights are subject to adjustment. The rights expire at the close of business on December 1, 2019 unless earlier redeemed or exchanged. Until a right is exercised, the holder thereof, as such, has no rights as a stockholder of AeroCentury, including the right to vote or to receive dividends. |
Income Taxes |
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Income Taxes [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes |
The items comprising the Company’s income tax provision are as follows:
Total income tax (benefit)/expense differs from the amount that would be provided by applying the statutory federal income tax rate to pretax earnings as illustrated below:
Temporary differences and carry-forwards that give rise to a significant portion of deferred tax assets and liabilities as of December 31, 2018 and 2017 were as follows:
Consolidated deferred federal income taxes arise from temporary differences between the valuation of assets and liabilities as determined for financial reporting purposes and federal income tax purposes and are measured at enacted tax rates. On December 22, 2017, the Tax Act was signed into law. Among other things, the Tax Act reduced the Company’s corporate federal tax rate to a flat 21% for years after 2017. As a result, the Company’s deferred tax items are measured at an effective federal tax rate of 21% as of December 31, 2018 and December 31, 2017. Although realization is not assured, management believes it is more likely than not that the entire deferred federal income tax asset will be realized. The amount of the deferred federal income tax assets considered realizable could be reduced in the near term if estimates of future taxable income are reduced. Beginning in 2018, the Tax Act also imposes a new provision designed to tax global intangible low-taxed income ("GILTI"), which requires the inclusion, in the Company's U.S. income tax return, of foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. Per guidance issued by the FASB, companies can either account for deferred taxes related to GILTI or treat tax arising from GILTI as a period cost. Both are acceptable methods subject to an accounting policy election. On December 31, 2018, the Company finalized its policy and has elected to use the period cost method for GILTI. In 2018, the Company did not account for any GILTI inclusion as its Canadian subsidiary was not material. The federal operating loss carryovers totaled approximately $19 million, of which $16 million will be available to offset 100% of annual taxable income in future years and may be carried over through 2035 and $3 million will be available to offset 80% of annual taxable income in future years and may be carried forward indefinitely. The current year state operating loss carryovers of approximately $327,000 will be available to offset taxable income in the two preceding years and in future years through 2038. The Company expects to utilize the net operating loss carryovers remaining at December 31, 2018 in future years. During the year ended December 31, 2018, the Company had pre-tax loss from domestic sources of approximately $6.0 million and pre-tax loss from foreign sources of approximately $3.1 million. The Company had pre-tax income from domestic sources of approximately $2.2 million and pre-tax income from foreign sources of approximately $1.2 million for the year ended December 31, 2017. The foreign tax credit carryover will be available to offset federal tax expense in future years through 2028. The Tax Act repealed the corporate alternative minimum tax for tax years beginning after 2017. In addition, beginning in 2018, the Company’s alternative minimum tax credit (“MTC”) will be available to offset federal tax expense and is refundable in an amount equal to 50% of the excess MTC for the tax year over the amount of the credit allowable for the year against regular tax liability. In 2021, any remaining MTC will be fully refundable. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2014. At December 31, 2018, the Company had a balance of accrued tax, penalties and interest in accounts payable and taxes payable totaling $85,400 related to unrecognized tax benefits on its non-U.S. operations. The Company does not anticipate any significant changes to the unrecognized tax benefits within twelve months of this reporting date. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
The Company accounts for interest related to uncertain tax positions as interest expense, and for income tax penalties as tax expense. |
Computation of (Loss)/Earnings Per Share |
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Computation of (Loss)/Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Computation of (Loss)/Earnings Per Share |
Basic and diluted earnings per share are calculated as follows:
Basic (loss)/earnings per common share is computed using net (loss)/income and the weighted average number of common shares outstanding during the period. Diluted (loss)/earnings per common share is computed using net (loss)/income and the weighted average number of common shares outstanding, assuming dilution. Weighted average common shares outstanding, assuming dilution, include potentially dilutive common shares outstanding during the period. |
Related Party Transactions |
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Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions |
See the description of the Merger Agreement between the Company and JHC in Note 8 above, pursuant to which the Company acquired JHC in the Merger and JHC became a wholly owned subsidiary of the Company on October 1, 2018. Before completion of the Merger, the Company’s portfolio of aircraft assets were managed and administered under the terms of a management agreement with JMC (the “Management Agreement”), which is an integrated aircraft management, marketing and financing business. Certain officers of the Company were also officers of JHC and JMC and held significant ownership positions in both JHC and the Company, and JHC was also a significant stockholder of AeroCentury. Under the Management Agreement, JMC received a monthly management fee based on the net asset value of the Company’s assets under management. JMC also received an acquisition fee for locating assets for the Company. Acquisition fees were included in the cost basis of the asset purchased. JMC also received a remarketing fee in connection with the re-lease or sale of the Company’s assets. Remarketing fees were amortized over the applicable lease term or included in the gain or loss on sale. In April 2018, subsequent to the execution of the Merger Agreement, the Company, JHC and JMC entered into a waiver and reimbursement agreement (the “Waiver/Reimbursement Agreement”), pursuant to which JHC and JMC agreed to waive their right to receive Contract Fees otherwise owed by the Company to JMC pursuant to the Management Agreement for all periods after March 31, 2018 and until the consummation of the Merger, and in return, the Company agreed to reimburse JMC for expenses (“Management Expense”) incurred in providing management services set forth under the Management Agreement. As a result, the Company has been responsible for all expenses incurred by JMC in managing the Company’s assets beginning April 1, 2018 and will continue to be responsible for all such expenses in all periods after the Merger, and no Contract Fees have been or will be payable by the Company to JMC for the period from April 1 through September 30, 2018. Notwithstanding the Waiver/Reimbursement Agreement, the Company accrued as an expense the Contract Fees that would have been due under the Management Agreement through September 30, 2018. For the nine months ended September 30, 2018, Contract Fees exceeded the Management Expense by $1,023,000 of management fees and $494,000 of acquisition fees (collectively, the “JMC Margin”). The amount of the JMC Margin payable was waived and included in the acquisition accounting for the calculation of the settlement loss that the Company recognized upon closing the Merger (see Note 8). Contract Fees incurred during the 2018 and 2017 were as follows:
In March 2017, the Company exchanged one of its engines for 150,000 shares of common stock of AeroCentury held by a holder of more than 5% of AeroCentury’s then-outstanding common stock. The Company recorded no gain or loss related to the exchange. |
Subsequent Events |
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Dec. 31, 2018 | |||
Subsequent Events [Abstract] | |||
Subsequent Events |
On February 8, 2019, the Company, through four wholly owned subsidiary limited liability companies (“LLC Borrowers”), entered into the Term Loans with Norddeutsche Landesbank Girozentrale, New York Branch (“Term Loan Lender”) that provides for six separate term loans with an aggregate principal amount of $44.3 million. Each of the Term Loans is secured by a first priority security interest in a specific aircraft (“Term Loan Collateral Aircraft”) owned by an LLC Borrower, the lease for such aircraft, and a pledge by the Company of its membership interest in each of the LLC Borrowers, pursuant to a Security Agreement (the “Security Agreement”) among the LLC Borrowers and Wilmington Trust Company, as Security Trustee, and certain pledge agreements. The interest rates payable under the Term Loans vary by aircraft, and are based on a fixed margin above either 30-day or 3-month LIBOR. The proceeds of the Term Loans were used to pay off Company debt from its purchase of the Term Loan Collateral Aircraft. The maturity of each Term Loan varies by aircraft, with the first Term Loan maturing in October 2020 and the last Term Loan maturing in May 2025. The debt under the Term Loans is expected to be fully amortized by rental payments received by the LLC Borrowers from the lessees of the Term Loan Collateral Aircraft during the terms of their respective leases and remarketing proceeds. The Term Loans include covenants that impose various restrictions and obligations on the LLC Borrowers, including covenants that require the LLC Borrowers to obtain the Lender’s consent before they can take certain specified actions. Events of default under the Term Loans and the Security Agreement include, among others: any failure by the LLC Borrowers to make payments thereunder when due; certain defaults by the lessees of the Term Loan Collateral Aircraft under their lease agreements for such aircraft; any misrepresentation by an LLC Borrower in the Term Loans agreement or the Security Agreement or failure by an LLC Borrower to perform its obligations thereunder; the occurrence of certain bankruptcy events; any lapse or failure to maintain insurance coverage on the Term Loan Collateral Aircraft; and any suspension or cessation of business of an LLC Borrower or the Company. If such an event of default occurs, subject to certain cure periods for certain events of default, the Lender would have the right to terminate its obligations under the Term Loans, declare all or any portion of the amounts then outstanding under the Term Loans to be accelerated and due and payable, and/or exercise any other rights or remedies it may have under applicable law, including foreclosing on the assets that serve as security for the Term Loans. On February 19, 2019, the Company entered into a Third Amended and Restated Loan and Security Agreement to the Credit Facility which, among other things, extended the maturity date of the Credit Facility with the lenders thereunder from May 31, 2019 to February 19, 2023; decreased the maximum availability thereunder from $170 million (with the ability for the Company to request an increase up to $180 million) to $145 million (with the ability for the Company to request an increase to up to $160 million); and modified certain of the Company’s financial ratio covenants. Borrowings under the Credit Facility will continue to bear interest at floating rates that reset periodically to a market benchmark rate plus a credit margin, and the Company will also continue to be obligated to pay a quarterly fee on any unused portion of the Credit Facility at a rate of 0.50%. The Credit Facility requires that within 30 days after closing of the financing, the Company must enter into an interest rate protection derivative instrument with respect to $50 million of the outstanding loan balance at closing. The borrowings under the Credit Facility are secured by a first priority lien in all of the Company's assets, including the Company’s aircraft portfolio, except those aircraft that are subject to the Term Loans. The Credit Facility requires the Company to comply with certain covenants relating to payment of taxes, preservation of existence, maintenance of property and insurance, and periodic financial reporting, as well as compliance with several financial ratio covenants. The Credit Facility restricts the Company with respect to certain corporate level transactions and transactions with affiliates or subsidiaries without consent of the lenders. Events of default under the Loan Agreement include failure to make a required payment within three business days of a due date or to comply with other obligations under the Credit Facility (subject to specified cure periods for certain events of default), a default under other indebtedness of the Company, and a change in control of the Company. Remedies for default under the Credit Facility include acceleration of the outstanding debt and exercise of any remedies available under applicable law, including foreclosure on the collateral securing the borrowings under the Credit Facility. |
Organization and Summary of Significant Accounting Policies (Policies) |
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Organization and Summary of Significant Accounting Policies [Abstract] | |||
The Company and Basis of Presentation |
AeroCentury Corp. (“AeroCentury”) is a Delaware corporation incorporated in 1997. AeroCentury together with its consolidated subsidiaries is referred to as the “Company.” In August 2016, AeroCentury formed two wholly-owned subsidiaries, ACY 19002 Limited (“ACY 19002”) and ACY 19003 Limited (“ACY 19003”) for the purpose of acquiring aircraft using a combination of cash and third-party financing (“UK LLC SPE Financing” or “special purpose financing”) separate from AeroCentury’s credit facility (the “Credit Facility”). The UK LLC SPE Financing was repaid in full in February 2019 as part of a refinancing involving new non-recourse term loans totaling approximately $44.3 million (“Term Loans”) made to ACY 19002, ACY 19003 and two other newly formed special purpose subsidiaries of AeroCentury. See Note 14 for more information about the Term Loans. On October 1, 2018, AeroCentury acquired JetFleet Holding Corp. (“JHC”) in a reverse triangular merger (“Merger”) for consideration of approximately $2.9 million in cash and 129,217 shares of common stock of AeroCentury, as determined pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) entered into by AeroCentury, JHC and certain other parties in October 2017. JHC is the sole shareholder of JetFleet Management Corp. (“JMC”), which is an integrated aircraft management, marketing and financing business and the manager of the assets owned by the Company. Upon completion of the Merger, JHC became a wholly-owned subsidiary of the Company, and as a result, JHC's results are included in the Company's consolidated financial statements beginning on October 1, 2018. In November 2018, AeroCentury formed two wholly-owned subsidiaries, ACY SN 15129 LLC (“ACY 15129”) and ACY E-175 LLC (“ACY E-175”), for the purpose of refinancing four of the Company’s aircraft using the Term Loans. Because the Term Loans did not close until February 2019, the subject aircraft remained as collateral under the Credit Facility as of December 31, 2018, and ACY 15129 and ACY E-175 had no activity in 2018. Financial information for AeroCentury and its consolidated subsidiaries is presented on a consolidated basis in accordance with accounting principles generally accepted in the United States of America (“GAAP”) based upon the continuation of the business as a going concern. All intercompany balances and transactions have been eliminated in consolidation. |
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Use of Estimates |
The Company’s consolidated financial statements have been prepared in accordance with GAAP. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable for making judgments that are not readily apparent from other sources. The most significant estimates with regard to these consolidated financial statements are the residual values and useful lives of the Company’s long-lived assets, the amount and timing of future cash flows associated with each asset that are used to evaluate whether assets are impaired, accrued maintenance costs, accounting for income taxes, and the amounts recorded as allowances for doubtful accounts. |
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Cash and Cash Equivalents |
The Company considers highly liquid investments readily convertible into known amounts of cash, with original maturities of 90 days or less from the date of acquisition, as cash equivalents. |
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Securities |
At December 31, 2018, the Company owned 121 shares of non-voting preferred stock in a non-public company. The stock has a cumulative preferred annual dividend of 10% and a liquidation value of $1,000 per share, but may not be liquidated before January 1, 2019. Because the Company owns a minority share of the non-voting preferred stock, the company’s results are not consolidated with those of the Company. The Company has elected to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. |
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Aircraft Capitalization and Depreciation |
The Company’s interests in aircraft and aircraft engines are recorded at cost, which includes acquisition costs. Since inception, the Company has typically purchased only used aircraft and aircraft engines. It is the Company’s policy to hold aircraft for approximately twelve years unless market conditions dictate otherwise. Therefore, depreciation of aircraft is initially computed using the straight-line method over the anticipated holding period to an estimated residual value based on appraisal. For an aircraft engine held for lease as a spare, the Company estimates the length of time that it will hold the aircraft engine based upon estimated usage, repair costs and other factors, and depreciates it to the appraised residual value over such period using the straight-line method. The Company periodically reviews plans for lease or sale of its aircraft and aircraft engines and changes, as appropriate, the remaining expected holding period for such assets. Estimated residual values are reviewed and adjusted periodically, based upon updated estimates obtained from an independent appraiser. Decreases in the fair value of aircraft could affect not only the current value, discussed below, but also the estimated residual value. Assets that are held for sale are not subject to depreciation and are separately classified on the balance sheet. Such assets are carried at the lower of their carrying value or estimated fair values, less costs to sell. |
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Favorable Lease Acquired |
In connection with the Company’s acquisition of JHC, as discussed in Note 8, the Company recognized that the current lease of its office facilities had rents that are substantially below the market for such office space. Consequently, the Company recorded $925,000 as the value of below-market rents at the October 1, 2018 date of the JHC acquisition, and is amortizing such amount on a level basis over the remaining term of the office lease, including two one-year bargain renewal options. The Company recorded $61,700 of amortization in 2018 and will recognize $246,700 of amortization annually through 2021 and $123,200 in the first half of 2022. |
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Property, Equipment and Furnishings |
The Company’s interests in equipment are recorded at cost and depreciated using the straight-line method over five years. The Company’s leasehold improvements are recorded at cost and amortized using the straight-line method over the shorter of the lease term or the estimated useful lives of the respective assets. |
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Impairment of Long-lived Assets |
The Company reviews assets for impairment when there has been an event or a change in circumstances indicating that the carrying amount of a long-lived asset may not be recoverable. In addition, the Company routinely reviews all long-lived assets for impairment semi-annually. Recoverability of an asset is measured by comparison of its carrying amount to the future estimated undiscounted cash flows (without interest charges) that the asset is expected to generate. Estimates are based on currently available market data and independent appraisals and are subject to fluctuation from time to time. If these estimated future cash flows are less than the carrying value of an asset at the time of evaluation, any impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Fair value is determined by reference to independent appraisals and other factors considered relevant by management. Significant management judgment is required in the forecasting of future operating results that are used in the preparation of estimated future undiscounted cash flows and, if different conditions prevail in the future, material write-downs may occur. As discussed in Note 7, the Company recorded impairment provisions totaling $2,971,500 and $1,002,100 in 2018 and 2017, respectively. |
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Deferred Financing Costs and Commitment Fees |
Costs incurred in connection with debt financing are deferred and amortized over the term of the debt using the effective interest method or, in certain instances where the differences are not material, using the straight-line method. Costs incurred in connection with the Credit Facility are deferred and amortized using the straight-line method. Commitment fees for unused funds are expensed as incurred. |
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Security Deposits |
The Company’s leases are typically structured so that if any event of default occurs under a lease, the Company may apply all or a portion of the lessee’s security deposit to cure such default. If such application of the security deposit is made, the lessee typically is required to replenish and maintain the full amount of the deposit during the remaining lease term. All of the security deposits received by the Company are refundable to the lessee at the end of the lease upon satisfaction of all lease terms. |
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Taxes |
As part of the process of preparing the Company’s consolidated financial statements, management estimates income taxes in each of the jurisdictions in which the Company operates. This process involves estimating the Company’s current tax exposure under the most recent tax laws and assessing temporary differences resulting from differing treatment of items for tax and GAAP purposes. These differences result in deferred tax assets and liabilities, which are included in the balance sheet. Management also assesses the likelihood that the Company’s deferred tax assets will be recovered from future taxable income, and, to the extent management believes it is more likely than not that some portion or all of the deferred tax assets will not be realized, the Company establishes a valuation allowance. To the extent the Company establishes a valuation allowance or changes the allowance in a period, the Company reflects the corresponding increase or decrease within the tax provision in the statement of operations. Significant management judgment is required in determining the Company’s future taxable income for purposes of assessing the Company’s ability to realize any benefit from its deferred taxes. After considering the Company’s significant amounts of net deferred tax liabilities which are future reversing taxable temporary differences, the Company has determined that no valuation allowance is required for its deferred tax assets. The Company accrues non-income based sales, use, value added and franchise taxes as other tax expense in the statement of operations. |
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Revenue Recognition, Accounts Receivable and Allowance for Doubtful Accounts |
Revenue from leasing of aircraft assets pursuant to operating leases is recognized on a straight-line basis over the terms of the applicable lease agreements. Deferred payments are recorded as accrued rent when the cash rent received is lower than the straight-line revenue recognized. Such receivables decrease over the term of the applicable leases. Interest income is recognized on finance leases based on the interest rate implicit in the lease and the outstanding balance of the lease receivable. Maintenance reserves retained by the Company at lease-end are recognized as maintenance reserves revenue. In instances where collectability is not reasonably assured, the Company recognizes revenue as cash payments are received. The Company estimates and charges to income a provision for bad debts based on its experience with each specific customer, the amount and length of payment arrearages, and its analysis of the lessee’s overall financial condition. If the financial condition of any of the Company’s customers deteriorates, it could result in actual losses exceeding any estimated allowances. The Company had no allowance for doubtful accounts at December 31, 2018 and 2017. |
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Comprehensive Income |
The Company does not have any comprehensive income other than the revenue and expense items included in the statement of operations. As a result, comprehensive income equals net income for the years ended December 31, 2018 and 2017. |
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Finance Leases |
As of December 31, 2018, the Company had three aircraft subject to sales-type finance leases and three aircraft subject to direct financing leases. All six leases contain lessee bargain purchase options at prices substantially below the subject assets’ estimated residual values at the exercise date for the options. Consequently, the Company has classified each of these six leases as finance leases for financial accounting purposes. For such finance leases, the Company reports the discounted present value of (i) future minimum lease payments (including the bargain purchase option) and (ii) any residual value not subject to a bargain purchase option, as a finance lease receivable on its balance sheet, and accrues interest on the balance of the finance lease receivable based on the interest rate inherent in the applicable lease over the term of the lease. For each of the three sales-type finance leases, the Company recognized as a gain or loss the amount equal to (i) the net investment in the sales-type finance lease plus any initial direct costs and lease incentives less (ii) the net book value of the subject aircraft at inception of the applicable lease. The Company recognized interest earned on finance leases in the amount of $1,251,000 and $1,571,500 in 2018 and 2017, respectively. |
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Maintenance Reserves and Accrued Maintenance Costs |
Maintenance costs under the Company’s triple net leases are generally the responsibility of the lessees. Some of the Company’s leases require payment of maintenance reserves, which are based upon lessee-reported usage and billed monthly, and are intended to accumulate and be applied by the Company toward reimbursement of most or all of the cost of the lessees’ performance of certain maintenance obligations under the leases. Such reimbursements reduce the associated maintenance reserve liability. Maintenance reserves are characterized as either refundable or non-refundable depending on their disposition at lease-end. The Company retains non-refundable maintenance reserves at lease-end, even if the lessee has met all of its obligations under the lease, including any return conditions applicable to the leased asset, while refundable reserves are returned to the lessee under such circumstances. Any reserves retained by the Company at lease -end are recorded as revenue at that time. Accrued maintenance costs include (i) maintenance for work performed for off-lease aircraft, which is not related to the release of maintenance reserves received from lessees and which is expensed as incurred, and (ii) lessor maintenance obligations assumed and recognized as a liability upon acquisition of aircraft subject to a lease with such provisions. |
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Interest Rate Hedging |
The Company periodically enters into various derivative instruments to mitigate its exposure to variable interest rate obligations, although it was not a party to any such instruments in 2017 or 2018. Although all such transactions are entered into for such a purpose, hedge accounting is only applied where specific criteria have been met and the transaction is highly effective and has been designated as a hedge at inception. Generally, the effects of derivative transactions are recorded in earnings for the period in which they arise, although the effective portion of a hedged transaction is reported as a component of other comprehensive income and is reclassified into earnings in the period in which the transaction being hedged affects earnings. |
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Recent Accounting Pronouncements |
Topic 606 In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 that created the new Topic 606 (“Topic 606”) in the Accounting Standards Codification (“ASC”). Topic 606 also included numerous conforming additions and amendments to other Topics within the ASC. Topic 606 established new rules that affect the amount and timing of revenue recognition for contracts with customers, but does not affect lease accounting and reporting. As such, adoption of these provisions has not affected the Company's lease revenues. The Company adopted Topic 606 as of January 1, 2018 using the modified retrospective method of transition. Since most of the Company’s revenues arise from its lease contracts, which are not affected by the new standard, and since the Company’s revenue recognition for other sources of revenue is generally the same as it was under previous accounting standards, adoption of Topic 606 in the current year, using the modified retrospective approach, has had no effect on its consolidated financial statements. ASU 2016-01 In January 2016, the FASB issued ASU 2016-01, Income Statement - Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities ("ASU 2016-01"). ASU 2016-01 was issued to enhance the reporting model for financial instruments to provide the users of financial statements with more useful information for decisions. Effective January 1, 2018, the Company adopted ASU 2016-01 and applied the provisions of the standard prospectively within the consolidated financial statements for the year ended December 31, 2018, which includes the Company no longer disclosing the method or significant assumptions used to estimate the fair value for its securities measured at amortized cost on the consolidated balance sheet. The adoption of the ASU did not have an effect on the Company's consolidated financial statements. ASU 2016-02 In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 is effective for public companies for years beginning after December 15, 2018, although early adoption is permitted. The Company has not adopted ASU 2016-02 early. ASU 2016-02 substantially modifies lessee accounting for leases, requiring that lessees recognize lease assets and liabilities for leases extending beyond one year. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard requires a lessor to classify leases as sales-type, finance, or operating. A lease will be treated as sales-type if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a finance lease. If the lessor does not convey risks and rewards or control, an operating lease results. The Company adopted the standard on January 1, 2019, electing to apply its provisions on the date of adoption and to record the cumulative effect as an adjustment to retained earnings. The Company evaluated the guidance and noted that lessor accounting is similar to the current model; however, the guidance does impact the Company’s existing operating lease obligation. In addition, the Company has elected to apply practical expedients permitted by the standard, under which the Company will not have to reevaluate the classification of its existing leases or its capitalized initial direct costs. As a result of application of the practical expedients, the Company was not required to alter the classification or carrying value of its leased or finance lease assets. The Company was required to record a lease obligation of approximately $600,000 in connection with the lease of its headquarters, and to increase the capitalized leasehold interest / right of use asset by a similar amount upon adoption. There was no effect on retained earnings recorded as a result of adoption of the standard. ASU 2016-13 The FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), in June of 2016 (“ASU 2016-13”). ASU 2016-13 provides that financial assets measured at amortized cost are to be presented as a net amount, reflecting a reduction for a valuation allowance to present the amount expected to be collected (the “current expected credit loss” model of reporting). As such, expected credit losses will be reflected in the carrying value of assets and losses will be recognized before they become probable, as is required under the Company’s present accounting practice. In the case of assets held as available for sale, the amount of the valuation allowance will be limited to an amount that reflects the marketable value of the debt instrument. This amendment to GAAP is effective for fiscal years beginning after December 15, 2019 (for the Company, its 2020 year) unless elected earlier, and adoption is to be reflected as a cumulative effect on the first date of adoption. The Company does not expect to early adopt ASU 2016-13. ASU 2017-12 In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). ASU 2017-12 is effective for public companies for years beginning after December 15, 2018, and will therefore be effective for the Company’s 2019 year and interim periods. The revised guidance includes reduced limitations on items that can be hedged to more closely align hedge accounting with entities’ risk management activities through changes to designation and measurement guidance as well as new disclosure requirements of balance sheet and income statement information designed to increase the transparency of the impact of hedging. Since the Company has not entered into in any derivative transactions in 2017 and 2018, adoption of ASU 2017-12 will not have any material effect on the Company’s financial statements. The Company is continuing to evaluate the impact of any transactions entered into in 2019. SAB 118 In December of 2017, the United States enacted the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), which had numerous effects on U.S. corporate taxation, including reducing the federal corporate tax rate to 21%, substantially modifying the U.S. taxation of international investments and transactions, and repealing the alternative minimum tax. In December of 2017, the Staff of the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides that companies should reflect in their financial statements the effects of the change in tax law in which the accounting is complete, as such completion occurs; provisional amounts for such effects for which the company can determine a reasonable estimate, as such estimates can be made; and continued accounting under the provisions of the law as it existed before enactment of the Tax Act for such effects for which no reasonable estimate under the new law can be made, until such a reasonable estimate is available and a provisional amount can be reported. Under SAB 118, in no event should the period during which a company is obtaining, preparing, and analyzing the information needed to complete the accounting for the effects of the change in tax law exceed one year from enactment (the “measurement period”), or the fourth quarter of 2018. The Company has reflected the effects of the Tax Act in these consolidated financial statements, and the Company did not record any additional amounts in 2018 for the year ended December 31, 2017 to account for the effects of the change in tax law due to the Tax Act. |
Finance Leases Receivable (Tables) |
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||
Finance Leases Receivable [Abstract] | |||||||||||||||||||||||||||||||||||||
Net Investment Included in Finance Leases and Direct Financing Leases Receivable | At December 31, 2018 and December 31, 2017, the net investment included in sales-type finance leases and direct financing leases receivable were as follows:
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Minimum Future Payments Receivable Under Finance Leases | As of December 31, 2018, minimum future payments receivable under finance leases were as follows:
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Aircraft and Aircraft Engines Held for Lease or Sale (Tables) |
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Dec. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Aircraft and Aircraft Engines Held for Lease or Sale [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Aircraft and Aircraft Engines Held for Lease | At December 31, 2018 and December 31, 2017, the Company’s aircraft and aircraft engines held for lease consisted of the following:
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Minimum Future Lease Revenue Payments Receivable | As of December 31, 2018, minimum future lease revenue payments receivable under noncancelable operating leases were as follows:
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Operating Segments (Tables) |
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Dec. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating Segments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Geographic Information of Operating and Finance Lease Revenue | The tables below set forth geographic information about the Company’s operating lease revenue and net book value for leased aircraft and aircraft equipment, grouped by domicile of the lessee:
The table below sets forth geographic information about the Company’s finance lease revenue, grouped by domicile of the lessee:
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Net Book Value of Aircraft and Aircraft Engines Held for Lease |
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Notes Payable and Accrued Interest (Tables) |
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Dec. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Payable and Accrued Interest [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Payable and Accrued Interest | At December 31, 2018 and December 31, 2017, the Company’s notes payable and accrued interest consisted of the following:
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Fair Value Measurements (Tables) |
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Dec. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets Measured and Recorded at Fair Value on a Recurring Basis | The following table shows, by level within the fair value hierarchy, the Company’s assets at fair value as of December 31, 2018 and December 31, 2017:
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Acquisition of Management Company (Tables) |
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Acquisition of Management Company [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets and Liabilities Assumed as a Result of the Merger and Calculation of Settlement Loss | The following table shows the allocation of the purchase price paid by the Company for its acquisition of JHC, the assets and liabilities that were assumed as a result of the Merger and calculation of the settlement loss.
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Commitments and Contingencies (Tables) |
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Dec. 31, 2018 | ||||||||||||||||||||||||||||||||||||
Commitments and Contingencies [Abstract] | ||||||||||||||||||||||||||||||||||||
Future Minimum Rental Payments for Operating Leases | The Company estimates that the future minimum lease commitments for its office space, including both the base rent and operating expenses, and storage facility are as follows:
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Income Taxes (Tables) |
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Dec. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Provision | The items comprising the Company’s income tax provision are as follows:
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Income Tax Reconciliation | Total income tax (benefit)/expense differs from the amount that would be provided by applying the statutory federal income tax rate to pretax earnings as illustrated below:
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Deferred Tax Assets and Liabilities | Temporary differences and carry-forwards that give rise to a significant portion of deferred tax assets and liabilities as of December 31, 2018 and 2017 were as follows:
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Unrecognized Tax Benefits | A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
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Computation of (Loss)/Earnings Per Share (Tables) |
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Computation of (Loss)/Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic and Diluted Earnings Per Share | Basic and diluted earnings per share are calculated as follows:
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Related Party Transactions (Tables) |
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Dec. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Related Party Fees | Contract Fees incurred during the 2018 and 2017 were as follows:
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Organization and Summary of Significant Accounting Policies, Company and Basis of Presentation (Details) |
12 Months Ended | ||||
---|---|---|---|---|---|
Nov. 30, 2018
Subsidiary
Aircraft
|
Oct. 01, 2018
USD ($)
shares
|
Aug. 31, 2016
Subsidiary
|
Dec. 31, 2018
Subsidiary
shares
|
Feb. 08, 2019
USD ($)
|
|
Company and Basis of Presentation [Abstract] | |||||
Number of wholly owned subsidiaries formed | Subsidiary | 2 | 2 | 4 | ||
Number of aircraft to be refinanced | Aircraft | 4 | ||||
JHC [Member] | |||||
Company and Basis of Presentation [Abstract] | |||||
Consideration paid in cash | $ 2,915,000 | ||||
Equity consideration (in shares) | shares | 129,217 | 129,217 | |||
Subsequent Event [Member] | Term Loans [Member] | |||||
Company and Basis of Presentation [Abstract] | |||||
Non-recourse term loan | $ 44,310,000 |
Organization and Summary of Significant Accounting Policies, Marketable Securities (Details) - $ / shares |
12 Months Ended | |
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Dec. 31, 2018 |
Dec. 31, 2017 |
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Securities [Abstract] | ||
Number of shares of non-voting preferred stock | 0 | 0 |
Noncontrolling Interest [Member] | ||
Securities [Abstract] | ||
Number of shares of non-voting preferred stock | 121 | |
Percentage of cumulative preferred annual dividend | 10.00% | |
Liquidation value of preferred stock (in dollars per share) | $ 1,000 |
Organization and Summary of Significant Accounting Policies, Finance Leases (Details) |
12 Months Ended | |
---|---|---|
Dec. 31, 2018
USD ($)
Aircraft
Lease
|
Dec. 31, 2017
USD ($)
|
|
Finance Leases [Abstract] | ||
Number of aircraft with sales type finance leases | 3 | |
Number of aircraft with direct financing leases | 3 | |
Number of finance leases | Lease | 6 | |
Interest earned on finance lease | $ | $ 1,251,000 | $ 1,571,500 |
Organization and Summary of Significant Accounting Policies, Recent Accounting Pronouncements (Details) |
12 Months Ended |
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Dec. 31, 2018
USD ($)
| |
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
Federal corporate tax rate | 21.00% |
ASU 2016-02 [Member] | |
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
Operating lease, liability | $ 600,000 |
Operating lease, right to use assets | $ 600,000 |
ASU 2018-02 [Member] | |
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
Federal corporate tax rate | 21.00% |
Finance Leases Receivable (Details) |
12 Months Ended | |
---|---|---|
Dec. 31, 2018
USD ($)
Aircraft
Lease
|
Dec. 31, 2017
USD ($)
|
|
Finance Leases Receivable [Abstract] | ||
Number of aircraft with sales type finance leases | Lease | 6 | |
Number of aircraft sold | Aircraft | 3 | |
Cash proceeds from sale of aircraft | $ 1,088,700 | |
Proceeds from sale of aircraft from maintenance reserves on one purchased aircraft | 1,675,100 | |
Proceeds from sale of aircraft from maintenance reserves from two leased aircraft | 2,618,100 | |
Net Investment Included in Finance Leases and Direct Financing Leases Receivable [Abstract] | ||
Gross minimum lease payments receivable | 17,107,100 | $ 27,074,400 |
Less unearned interest | (1,856,200) | (3,513,400) |
Finance leases receivable | 15,250,900 | $ 23,561,000 |
Minimum Future Payments Receivable under Finance Leases [Abstract] | ||
2019 | 4,885,500 | |
2020 | 4,208,600 | |
2021 | 4,805,000 | |
2022 | 3,208,000 | |
Total | $ 17,107,100 |
Notes Payable and Accrued Interest, Components (Details) - USD ($) |
Dec. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Credit Facility [Abstract] | ||
Unamortized debt issuance costs | $ (674,300) | $ (2,216,000) |
Special purpose financing [Abstract] | ||
Notes payable and accrued interest | 131,092,200 | 145,598,200 |
UK LLC SPE Financing [Member] | ||
Special purpose financing [Abstract] | ||
Note obligation | 9,211,200 | 13,511,900 |
Accrued interest | 16,000 | 23,400 |
Credit Facility [Member] | ||
Credit Facility [Abstract] | ||
Principal | 122,400,000 | 134,000,000 |
Unamortized debt issuance costs | (674,300) | (2,216,000) |
Special purpose financing [Abstract] | ||
Accrued interest | $ 139,300 | $ 278,900 |
Notes Payable and Accrued Interest, UK LLC SPE Financing (Details) - UK LLC SPE Financing [Member] |
Aug. 31, 2016
USD ($)
Aircraft
|
Dec. 31, 2018
USD ($)
|
Dec. 31, 2017
USD ($)
|
---|---|---|---|
UK LLC SPE Financing [Abstract] | |||
Note obligation | $ 9,211,200 | $ 13,511,900 | |
Principal and interest due | $ 9,227,200 | $ 13,535,300 | |
Regional Jet Aircraft [Member] | |||
UK LLC SPE Financing [Abstract] | |||
Number of aircraft purchased | Aircraft | 2 | ||
October 3, 2020 [Member] | |||
UK LLC SPE Financing [Abstract] | |||
Note obligation | $ 9,805,600 | ||
Interest rate per annum | 4.455% | ||
November 7, 2020 [Member] | |||
UK LLC SPE Financing [Abstract] | |||
Note obligation | $ 9,804,300 | ||
Interest rate per annum | 4.455% |
Commitments and Contingencies (Details) |
12 Months Ended | |
---|---|---|
Dec. 31, 2018
USD ($)
Option
|
Dec. 31, 2017
USD ($)
|
|
Commitments and Contingencies [Abstract] | ||
Number of bargain renewal options | Option | 2 | |
Renewal period | 1 year | |
Future Minimum Lease Commitments [Abstract] | ||
2019 | $ 193,500 | |
2020 | 196,400 | |
2021 | 199,300 | |
2022 | 101,100 | |
Total | 690,300 | |
Total rent expense | $ 82,300 | $ 0 |
Stockholder Rights Plan (Details) - $ / shares |
12 Months Ended | |
---|---|---|
Dec. 31, 2018 |
Dec. 31, 2009 |
|
Class of Stock, Adjustment [Abstract] | ||
Number of stock purchase right for each share as dividends under plan (in shares) | 1 | |
Percentage of stock acquisition for exercise of rights as specified in right agreement | 15.00% | |
Series A Preferred Stock [Member] | ||
Class of Stock, Adjustment [Abstract] | ||
Number of shares to be purchased by each right exercised (in shares) | 0.01 | |
Initial purchase price of unit under right agreement (in dollars per share) | $ 97.00 |
Computation of (Loss)/Earnings Per Share (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
Basic and diluted earnings per share [Abstract] | ||
Net (loss)/income | $ (8,081,200) | $ 7,399,200 |
Weighted average shares outstanding for the period used in computation of basic and diluted (loss)/earnings per share | 1,449,261 | 1,449,576 |
Basic (loss)/earnings per share (in dollars per share) | $ (5.58) | $ 5.10 |
Diluted (loss)/earnings per share (in dollars per share) | $ (5.58) | $ 5.10 |
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