TIDMDPA
RNS Number : 4529Y
DP Aircraft I Limited
13 May 2021
DP AIRCRAFT I LIMITED
ANNUAL REPORT AND AUDITED CONSOLIDATED FINANCIAL STATEMENTS
YEARED 31 DECEMBER 2020
FACT SHEET
Ticker DPA
Company Number 56941
ISIN Number GG00BBP6HP33
SEDOL Number BBP6HP3
Specialist Fund Segment ('SFS') of the
Traded London Stock Exchange
SFS Admission Date 04-Oct-13
Share Price US$ 0.06 at 31 December 2020
US$ 0.03 at 11 May 2021
US$ 0.74105 for the year ended 31 December
Loss per Share 2020
Country of Incorporation Guernsey
Current Ordinary Shares in
Issue 209,333,333
Administrator and Company
Secretary Aztec Financial Services (Guernsey) Limited
Asset Manager DS Aviation GmbH & Co. KG
Auditor KPMG, Chartered Accountants
Corporate Broker Investec Bank Plc
Aircraft Registration LN-LNA
LN-LNB
HS-TQD
HS-TQC
Aircraft Serial Number 35304
35305
35320
36110
Aircraft Type and Model B787-8
Norwegian Air Shuttle ASA ('Norwegian'
Lessees or 'NAS') - de-facto
terminated (see note 3a)
Thai Airways International Public Company
Limited ('Thai
Airways')
Website www.dpaircraft.com
SUMMARY
COMPANY OVERVIEW
DP Aircraft I Limited (the 'Company') was incorporated with
limited liability in Guernsey under the Companies (Guernsey) Law,
2008 on 5 July 2013 with registered number 56941.
The Company was established to invest in aircraft. The Company
is a holding company, and makes its investment in aircraft through
four wholly owned subsidiary entities, DP Aircraft Guernsey I
Limited, DP Aircraft Guernsey II Limited, DP Aircraft Guernsey III
Limited and DP Aircraft Guernsey IV Limited (collectively and
hereinafter, the 'Borrowers'), each being a Guernsey incorporated
company limited by shares and two intermediate lessor companies, DP
Aircraft Ireland Limited and DP Aircraft UK Limited (the
'Lessors'), an Irish incorporated company limited by shares and a
UK incorporated private limited company respectively. The Company
and its subsidiaries (the Borrowers and the Lessors) comprise the
Group.
Pursuant to the Company's Prospectus dated 27 September 2013,
the Company offered 113,000,000 Ordinary Shares of no par value in
the capital of the Company at an issue price of US$ 1.00 per Share
by means of a Placing. The Company's Shares were admitted to
trading on the Specialist Fund Segment (previously the Specialist
Fund Market) of the London Stock Exchange on 4 October 2013 and the
Company was listed on the Channel Islands Securities Exchange until
27 May 2015.
On 5 June 2015, the Company offered 96,333,333 Ordinary Shares
(the 'New Shares') of no par value in the capital of the Company at
an issue price of US$ 1.0589 per Share by means of a Placing. The
Company's New Shares were admitted to trading on the Specialist
Fund Segment of the London Stock Exchange on 12 June 2015.
In total there are 209,333,333 Ordinary Shares in issue with
voting rights.
In addition to the equity raised above, the Group also utilised
external debt to fund the initial acquisition of the aircraft.
Further details are given within this summary section.
INVESTMENT OBJECTIVE & POLICY
The Company's investment objective is to obtain income and
capital returns for its Shareholders by acquiring, leasing and
then, when the Board considers it appropriate, selling aircraft
(the 'Asset' or 'Assets').
THE BOARD
The Board comprises independent non-executive Directors. The
Directors of the Board are responsible for managing the business
affairs of the Company and Group in accordance with the Articles of
Incorporation and have overall responsibility for the Company's and
Group's activities, including portfolio and risk management. The
asset management activities of the Group are provided by DS
Aviation GmbH & Co. KG (the 'Asset Manager').
THE ASSET MANAGER
The Asset Manager has undertaken to provide the asset management
advisory services to the Company and Group under the terms of an
asset management agreement but does not undertake any regulated
activities for the purpose of the UK Financial Services and Markets
Act 2000.
BREXIT
The Directors do not expect that the recent United Kingdom
('UK') withdrawal from the European Union ('EU') will have a
significant impact on the Company given the nature of its
operations. However, they continue to monitor the airline industry
for any potential impact on the Company.
CORONAVIRUS ('COVID-19')
COVID-19 rapidly spread across the globe and continues to create
widespread restrictions on the ability of people to travel,
socialise and leave their homes. Global financial markets reacted
sharply to the pandemic and concerns remain regarding the long-term
economic impact that this may have on a global scale. COVID-19 has
had a significant impact on the airline sector, and by extension
the aircraft leasing sector. More information is provided below and
in the Asset Manager's Report.
NORWEGIAN AIR SHUTTLE ('NORWEGIAN' / 'NAS')
The subsidiary of NAS that is the lessee of the aircraft entered
Irish examinership on 18 November 2020 and Norwegian examinership
on 8 December 2020. As a result, the relevant Group subsidiaries
issued demand notices to NAS on 11 December 2020. Subsequently, the
relevant Group subsidiaries issued expense claims directly to the
Irish Examiner at a later time on 11 December 2020 and expense
claims issued to the Norwegian Examiner on 22 December 2020. The
claims are ongoing.
As detailed in note 3a the lease agreements with NAS were in the
judgement of the Directors de-facto terminated in December 2020.
Subsequent to year end, the subsidiary of NAS that is the lessee of
the aircraft went into liquidation following NAS's announcement
that it would be ceasing long-haul operations. Also, subsequent to
year end Norddeutsche Landesbank Girozentrale have exercised their
security enforcement rights and now have control of the NAS
aircraft as detailed in the Norddeutsche Landesbank Girozentrale
('NordLB') loan section below.
Prior to the lease termination detailed above, earlier in the
2020 year and following negotiations with Norwegian, the Group had
entered into a lease amendment completed on 28 May 2020, based on a
Letter of Undertaking ('LoU') that was entered into on 4 May 2020,
setting out the following terms:
-- All of Norwegian's cash payment obligations until 30 June
2020 were waived to the extent that they had not already been met;
and from July 2020 to March 2021 a PBH arrangement instead applied.
Under this arrangement, Norwegian would only pay lease rentals in
respect of the two assets which it has leased from the Company to
the extent that they actually operated them;
-- The PBH arrangement was to come to an end on 31 March 2021.
Thereafter Norwegian was to make monthly lease payments to the
Company again, at a reduced rate to that which had applied to June
2020, reflecting the downward pressure on market rates for lease
rentals that was widely anticipated in the aftermath of the
Covid-19 crisis; and
-- In addition to monthly lease rental payments, the Company was
also to receive equity in Norwegian, with the number of shares to
be calculated by reference to the monies which were waived and/or
forgone by the Company as a result of the waived outstanding
debtor, PBH arrangement and the reduced monthly rental amount that
would have applied from April 2021. The shares were to be provided
to the Company in two tranches, with the first tranche already
allotted in May 2020 and the second tranche was to be received in
April 2021. The first tranche of 154,189,711 shares (prior to a
share consolidation of 100 to 1) had lock-up dates attached
allowing partial sales in August 2020 and October 2020, with the
Company free to dispose of all such shares on any date falling on
or after 9 December 2020.
None of the first tranche shares were sold prior to the year
end. However, subsequent to year end and with consent from the
lenders, 525,000 of the first tranche of shares received have been
sold for proceeds of approximately US$ 4 million. The proceeds were
not up streamed to the Parent and serve as security for the NAS
lenders. No further sales were made prior to the lenders enforcing
their security rights over the remaining unsold shares and the
proceeds from the sale of the shares detailed above. The group is
uncertain as to how administration of the NAS lessee of the
aircraft will affect the second allocation of shares which were due
in April 2021 but have not yet been received. Due to this
uncertainty and the situation as at the year end, no value has been
attributed to the element of the second tranche shares that would
have been earned during 2020.
Whilst the High Court approved the survival plan for NAS and
related companies on 22 April 2021 this is not expected to have an
impact on the Group and the position in relation to the
aircraft.
NORDDEUTSCHE LANDESBANK GIROZENTRALE AND THREE OTHER CONSORTIUM
MEMBERS ('NordLB')
On 24 February 2021, NordLB declared an Event of Default under
the relevant loan agreements with the Company's two borrower
subsidiaries which meant that NordLB was entitled to enforce rights
under the relevant security documents. On 26 February 2021, the
Company received notices of security enforcement and loan
acceleration from NordLB ; and accordingly, receivers were
appointed in relation to the two NAS aircraft, the related lease
and contract rights, and the shares in the Irish special purpose
vehicle which holds title to the NAS aircraft. NordLB has therefore
taken control of the process of disposing of the two NAS aircraft,
with the proceeds of sale (along with relevant aircraft-specific
cash balances, claims against Norwegian and shares in Norwegian
held as security) being applied in the first instance to pay off
any outstanding amounts owed to the bank, and any balance remaining
thereafter being remitted to the relevant subsidiaries of the
Company.
These developments impact solely upon the two NAS aircraft; they
have no effect upon the Company's arrangements in respect of the
aircraft which it leases to Thai Airways; and there is no recourse
by NordLB to the Company itself.
During the year end 31 December 2020 and prior to the Event of
Default described above, NordLB as agent of the Company's lending
banks in respect of the assets leased to Norwegian, gave their
approval to the lease amendment that occurred during the year as
described on the previous page, and at the same time had agreed to
certain adjustments to the Company's repayment obligations per
Restructure Commitments entered into on 13 May 2020. Per the
Restructure Commitments, repayments of principal due during the
period from May 2020 to March 2021 were to be deferred, and the
profile of debt service for the period starting from 1 April 2021
was to be adjusted to reflect the proposed reduction in Norwegian's
monthly lease payments. All deferred amounts were to be repaid by
30 June 2025 at the latest (with prepayment permissible without
charge); and interest on deferred amounts was to be payable on a
floating rate base calculated as 1-Month Libor plus cost of funds
plus increased margin.
The Restructure Commitments mentioned above were subject to
formal loan documentation being entered into by 31 July 2020
otherwise they would not be effective. Post year end, the lender
notified the Company that the agreements set out in the
Restructuring Commitment had ceased to be effective given that
definitive loan documentation with respect to the Restructuring
Commitment had not been entered into by 31 July 2020 or
subsequently even though discussion had continued. Accordingly,
subsequent to the year end, the terms of the Loan Agreement prior
to the Restructure Commitments continue to be effective.
Concurrently with the inception of the loan transaction the
Company had entered into an ISDA Swap Agreement with NordLB. Under
the terms of the swap the Company is a fixed interest rate payer
and a floating interest rate payee. There was no change to the Swap
Agreement due to the Restructure Commitment mentioned above. The
event of default detailed above also extends to the ISDA Swap
Agreement.
As at year end, the group was in default as they missed loan
repayments when they were due thus the whole balance due to
Norddeutsche Landesbank has been classified as a current liability
as at year end.
THAI AIRWAYS INTERNATIONAL PCL ('THAI AIRWAYS' / 'THAI')
The suspension of travel due to Covid-19 caused significant
financial difficulties for Thai and ultimately resulted in Thai
defaulting on lease payments that were due for most of the second
half of the 2020 year. Due to these financial difficulties Thai
Airways entered business rehabilitation under Thailand's Central
Bankruptcy Court, with a view to a restructuring of the airline.
The first hearing to decide whether Thai Airways may formally enter
rehabilitation was held on 25 August 2020 and a second one on 14
September 2020. On the latter date, the Central Bankruptcy Court
granted Thai the business reorganisation petition and appointed
planners for the restructure.
In the next step, the planners worked on a business
rehabilitation plan that was submitted to the official receiver on
2 March 2021. Subsequently, the of cial receiver will send a copy
of the rehabilitation plan to the creditors for their consideration
and approval in the creditors' meeting. Once the rehabilitation
plan is approved by the creditors, the Court will then pass the
final verdict approving the plan and appointing the plan
administrator. Then Thai Airways will proceed to implement the
business reorganisation plan.
In January 2021 the Company signed a Letter of Intent ('LOI')
with Thai Airways under which the parties agreed to amend the
existing lease terms. The new terms provide for a power by the hour
('PBH') arrangement until the end of 2022 (i.e. rent will be
payable by reference to actual monthly utilisation of the Thai
aircraft), with scaled back monthly lease payments thereafter,
reflecting the reduced rates now seen in the market. The lease term
will be extended by 3 years to December 2029, after consulting the
Lenders with the Group retaining the right of early termination in
2026. The effective date for these amendments is yet to be
confirmed and is dependent on the timing of the approval of the
rehabilitation plan by the Central Bankruptcy Court of Thailand.
Thai Airways has also undertaken to ensure that the Thai aircraft
are airworthy and in flight ready condition in all respects by 30
June 2021, and on an ongoing basis. On 1 March 2021 a corresponding
agreement has been reached with the bank providing finance for the
aircraft leased to Thai airways as detailed below.
DEKABANK DEUTSCHE GIROZENTRALE AND THREE OTHER CONSORTIUM
MEMBERS ('Dekabank')
In light of the moratorium triggered by the Thai instigation of
debt proceedings on 27 May 2020, the Board and the lender,
Dekabank, concluded that Thai would not make any further lease
rental payments prior to the rehabilitation court hearing on 25
August 2020. Accordingly, the parties initially agreed that, for
the period from 29 June 2020 to 9 September 2020, the Company would
only be required to make interest payments on its borrowings
relating to the assets leased to Thai, with no concomitant capital
repayment obligation; and that the Company will make no dividend
payments while deferrals remain outstanding under those borrowings.
Subsequent to 9 September 2020, further one month extensions to the
interest only period were granted by the lenders however the
extensions were not to go beyond 31 January 2021 without the
express consent of the lenders. The aforementioned modifications to
the loan terms were not substantial. The interest payments were
sourced from the security deposits received by the Company from
Thai Airways in advance of the commencement of the relevant leases
that the Company has reserved under Reservation of Rights letters
provided to Thai.
On 6 May 2021, subsequent to the new lease arrangements entered
into by the Company and Thai as described above, the Company and
Dekabank have amended and restated the existing loan facility
agreements in respect of the Thai aircraft to accommodate the new
lease terms. Repayments of principal will be deferred until the end
of the PBH arrangement; and the Company and Dekabank will enter
into discussions at that time to determine how best to schedule
interest payments, principal repayments and a final balloon
repayment, having regard for both the income being received by the
Company in respect of the Thai aircraft, and the running costs of
the Company and its subsidiaries.
Whilst the loan agreement has been amended post year end, as at
the year end, the Group did not have the contractual right to defer
repayment of the Dekabank loans for at least a period of 12 months
and accordingly the loans have been classified as current within
the balance sheet.
GOING CONCERN
The Directors have considered the group's cash requirements for
a period of 12 months from the signing of these financial
statements. This forecast shows the likely need for further equity
to be raised to fund the period post 12 months and to allow for
other contingencies given the companies circumstances. However, the
Directors believe that it is appropriate to prepare these financial
statements under the going concern basis of preparation due
to:-
-- The continuing support of Dekabank which made loans to the
Group (with certain loan concessions);
-- The ongoing viability of Thai Airways, expectation that
Thailand's Central Bankruptcy Court will approve the revised lease
per the LOI and, the ability of Thai Airways to satisfy the terms
of the LOI for the revised lease;
-- The expectation that an equity fund raise will be successful based on liaison with sufficient shareholders;
-- Having regard to the limited recourse nature of the loans
which means NordLB debt default impacts solely upon the two NAS
aircraft and have no effect upon the Company's arrangements in
respect of the aircraft which it leases to Thai Airways; and there
is no recourse by NordLB to the Company itself ; and
-- The expectation that all operational requirements will continue to be fulfilled.
Refer to Going Concern on pages 30 to 31 for additional details
regarding going concern and related uncertainties. No adjustments
have been made to the financial statements in the event that the
Company was unable to continue as a going concern.
IMPAIRMENT
In line with each reporting date, but more relevant in light of
the developments of COVID-19, a detailed impairment assessment of
the aircraft and lease premiums have been undertaken. Following
this review an impairment of US$ 148,300,052 was booked against the
aircraft and US$ 22,017,459 against the lease premium (see note
3).
DISTRIBUTION POLICY
Under normal circumstances, the Company aimed to provide
Shareholders with an attractive total return comprising income,
from distributions through the period of the Company's ownership of
the Assets, and capital, upon any sale of the Assets. The Company
targets a quarterly distribution in February, May, August and
November of each year. The target distribution is US$ 0.0225 per
Share per quarter. One quarterly dividend has been paid during the
period ended 31 December 2020 meeting the US$ 0.0225 per Share per
quarter target. The target dividends are targets only and should
not be treated as an assurance or guarantee of performance or a
profit forecast. Investors should not place any reliance on such
target dividends or assume that the Company will make any
distributions at all.
Due to the impact of Covid-19 on the aviation industry and
therefore our lessors, the Board suspended the payment of dividends
from 3 April 2020 until further notice. Recent developments have
not improved the situation. As mentioned before, the lending bank
(NordLB) in relation to the Company's two aircraft leased to the
Norwegian group have declared an Event of Default and enforced
their security rights in respect of the NAS aircraft. This coupled
with the fact that any lease rental payments received by the
Company in respect of the Thai aircraft are expected to be applied
exclusively towards the running costs of the Company and its
subsidiaries, and interest
HIGHLIGHTS
RESULTS FOR THE YEAR
Results for the year ended 31 December 2020 is a loss after tax
of US$ 155,127,051 (loss per Share US$ 0.74105). For the year ended
31 December 2019 there was a profit after tax of US$ 23,169,069
(earnings per Share US$ 0.11068).
NET ASSET VALUE ('NAV')
The NAV was US$ 0.27808 per Share at 31 December 2020 (2019: US$
1.03041).
DIVIDS
Dividends were declared on:
Date Dividend reference period Dividend per Share Payment date
15 January 2020 Quarter ended 31 December US$ 0.0225 per 14 February 2020
2019 Share
As a result of the Coronavirus ('Covid-19') pandemic impact on
global aviation and especially its lessees, on 3 April 2020, the
company suspended dividends until further notice to help preserve
liquidity. Further details on the impact of the Covid-19 pandemic
can be found within the Summary, the Asset Manager's Report, and
the Directors' Report.
OFFICIAL LISTING
The Company's Shares were first admitted to trading on the
Specialist Fund Segment of the London Stock Exchange on 4 October
2013.
CHAIRMAN'S STATEMENT
I am pleased to present Shareholders with the Annual Report of
the Company for the year to 31 December 2020.
As investors will be aware the year has presented some
significant challenges to the global aviation market as it has
grappled to deal with the effects of the Covid-19 virus on their
operations. Airlines, irrespective of geography which serve
international routes have been consequentially impacted. Our
lessees, Norwegian Air Shuttle ('Norwegian') and Thai Airways
('Thai') have been no exception.
The outlook for the airline industry for the remainder of 2021
and beyond is for gradual improvement but has clearly been affected
by the Covid-19 virus and its subsequent variants impacting the
opening up of travel restrictions.
Regarding the two Boeing 787-8 aircraft, LN-LNA and LN-LNB (the
'Assets') leased to Torskefjorden Leasing Limited, part of
Norwegian, the pressure placed upon the aviation industry by the
Covid-19 crisis led to Norwegian defaulting in 2020 on its lease
payments to the Company from March in respect of the Assets.
Following protracted discussions, the Company agreed new terms in
principle with the banks providing loan finance in respect of the
Assets (the 'NAS Lenders'), and a revised set of lease terms was
signed between the Company and Norwegian during 2020.
The Company, with the advice and assistance of its asset manager
DS Aviation GmbH & Co. KG, had been working for a number of
months on a plan to return the Assets to flight ready condition and
to have the option, if the aircraft had not been sold by October
2021, to relocate the aircraft to a dryer climate in anticipation
that the Assets would need to be re-marketed. As part of that
process, dialogue continued with the NAS Lenders with a view to
securing the necessary financial latitude to allow that plan to
come to fruition.
As at the year end NAS were in full breach of the lease
agreements and the board had concluded that NAS had no intention to
continue the lease, with the lease termination discussions
commencing. With this in mind, prior to the year end the Board had
commenced a plan to have the aircraft in a ferry ready state
subject to the NAS Lenders assistance with the intention to sell
them prior to 31 October 2021. Accordingly, the aircraft have now
been classified as held for sale on the balance sheet.
The NAS Lenders declared an Event of Default under their loan
agreements with the Company's two borrower subsidiaries in February
2021.
The Company received notices of security enforcement and loan
acceleration from the NAS Lenders and accordingly, receivers were
appointed in relation to the Assets, the related lease and contract
rights, and the shares in the Irish special purpose vehicle which
holds title to the Assets. The NAS Lenders have therefore taken
control of the process of disposing of the Assets, with the
proceeds of sale (along with relevant aircraft-specific cash
balances, claims against Norwegian and shares in Norwegian held as
security) being applied in the first instance to pay off any
outstanding amounts owed to the NAS Lenders, and any balance
remaining thereafter being remitted to the relevant subsidiaries of
the Company.
As previously noted, these developments impact solely upon the
Assets; they have no effect upon the Company's arrangements in
respect of the aircraft which it leases to Thai Airways; and there
is no recourse by the NAS Lenders to the Company itself.
The aircraft are now being managed by advisors appointed by the
Receiver.
In March 2021 the Company announced it had signed a LOI with
Thai Airways under which the parties have agreed to amend the
existing lease terms. The new terms provide for a PBH arrangement
until the end of 2022 (i.e. rent will be payable by reference to
actual monthly utilisation of the Thai Assets), with scaled back
monthly lease payments thereafter, reflecting the reduced rates now
seen in the market.
The lease term will be extended by 3 years to December 2029,
after consulting the Lenders with the Group retaining a right of
early termination in October 2026. Thai Airways has also undertaken
to ensure that the Thai Assets are airworthy and in flight ready
condition in all respects by 30 June 2021.
On 6 May 2021, the Company and the Thai Lenders also amended and
restated the existing loan facility agreements in respect of the
Thai Assets, to accommodate the new lease arrangements described
above. Repayments of principal will be deferred until the end of
the PBH arrangement; and the Company and the Thai Lenders will
enter into discussions at that time to determine how best to
schedule interest payments, principal repayments and a final
balloon repayment, having regard for both the income being received
by the Company in respect of the Thai Assets, and the running costs
of the Company and its subsidiaries.
Whilst the loan agreement has been amended post year end, as at
the year end, the Group did not have the contractual right to defer
repayment of the Dekabank loans for at least a period of 12 months
and accordingly the loans have been classified as current within
the balance sheet in accordance with IFRS. On the basis the amended
loan terms have been concluded and Thai meet their obligations
under the new lease arrangements, the majority of these loans will
be reclassified as long term.
Given the Norwegian position and the fact that any lease rental
payments received by the Company in respect of the Thai Assets are
expected to be applied exclusively towards the running costs of the
Company and its subsidiaries, and interest payments and principal
repayments to the Thai Lenders, means that there is no realistic
prospect of the Company's shareholders receiving a dividend or
other distribution for the foreseeable future.
The Loss per Share for the year was US$ 0.74 per Share compared
to Earnings per Share of US$ 0.11 per Share last year. The net
asset value per Share at the year end was US$ 0.278 per Share
compared to US$ 1.03 last year. Both reductions reflect the
significant write down of asset values.
The situations identified above with regard to NAS and Thai and
their resolution, including certain operational matters of the
Parent have been determined by the Directors to represent a
material uncertainty that may cast doubt upon the Company's ability
to continue as a going concern (see pages 30 and 31). In this
respect, please also refer to the Viability Statement on page
32.
The focus of the Company is therefore to prioritise the
preservation of the Company's long-term financial stability,
although the challenges facing the Company are significant.
The Company therefore intends to undertake an equity tap issue
to provide additional finance to support the business going
forward. Following revised funding arrangements with the Thai
Lenders and following agreements whereby key service providers will
from 2021 reduce their fees and/or taking some fees by way of
equity in the Company where permissible, including all Board
members, the ongoing cash burn, once significant restructuring
costs have ceased, will be considerably reduced on an annual
basis.
I would like to thank the Board for their significant support
over the past year with some 75 board meetings and many other
management meetings taking place. Thanks also go to the team at the
Asset Manager and Administrator for their considerable support and
assistance.
I would like to thank our Investors for their continued support
in the Company. The Board and its advisers have been consulting
further with shareholders since March and will be consulting
further in the coming days.
Jon Bridel
Chairman
12 May 2021
ASSET MANAGER REPORT
THE AIRLINE MARKET
Covid-19 Pandemic in brief
The Covid-19 outbreak turning into a global pandemic continues
to have a significant impact on the airline industry. Airlines
globally are facing challenging and potentially existential times,
some have already collapsed. Different virus variants leading to
increased infection rates have added to travel restrictions imposed
by various governments. The number of stored aircraft worldwide
remains high.
The industry has welcomed the vaccine roll-out assuming that
this will support the market recovery and the relaxation of travel
restrictions. In conclusion the existence of virus variants as well
as progress in vaccination and rapid testing will largely determine
the total impact on the airline and aviation industry.
Global
-- Current Situation
o Largest decline in demand since WW2;
o Decrease of revenues through 2020/2021 by over a trillion
US-dollars;
o Anticipated cash burn of US$ 61 billion in 2Q 2020;
o Employment in the air transport sector declined by 51% in
2020; and
o US$ 173 billion of governmental aid during the first eleven
months of 2020.
-- Outlook
o Cargo demand was back to 2019-levels in January 2021;
o Passenger demand in 2021 expected to be less than 50% of 2019
level and to return to 2019-level not before 2024;
o Domestic markets anticipated to recover first;
o IATA considers the availability of vaccines being a potential
turning point in the second half 2021; and
o Recent travel behaviour of UK travellers shows that demand to
travel remains alive, bookings to Greece and Spain have more than
tripled after the announcement of easing lock-down
restrictions.
2019 2020 2020 2021
(Forecast (Forecast (Forecast
published published published
June 2020) November 2020) November 2020)
Passengers [billion] 4.5 2.2 1.8 2.8
----- ------------- ----------------- -----------------
Capacity (ASK) [% YoY] 3.4 (40.4) (57.6) 35.5
----- ------------- ----------------- -----------------
Demand (RPK) [% YoY] 4.2 (54.7) (66.3) 50.4
----- ------------- ----------------- -----------------
Passenger Load Factor
[%] 82.5 62.7 65.5 72.7
----- ------------- ----------------- -----------------
Freight & Mail [billion
tonne km] 254 211 225 254
----- ------------- ----------------- -----------------
Net Results [billion US$] 26.4 (84.3) (118.5) (38.7)
----- ------------- ----------------- -----------------
CO2 [million tonnes] 914 574 488 619
----- ------------- ----------------- -----------------
Fuel efficiency [litre
fuel/100 ATK*] 22.4 22.1 21.9 21.5
----- ------------- ----------------- -----------------
* Available Tonne Kilometre
Source: IATA, June 2020 and November 2020
Europe
Impact of Covid-19
-- 70% decline in overall demand (RPK) in 2020;
-- 62% drop in international capacity (ASK) in 2020;
-- Estimated net loss of US$ 12 billion in 2020;
-- Intra-European travel was hit hard by the second wave -
markets expected to open in phases; and
-- Passenger demand in 2021 expected to be 35% of 2019-levels.
Asia
Impact of Covid-19
-- 62% decline in overall demand (RPK) in 2020;
-- 55% drop in international capacity (ASK) in 2020;
-- Expected net loss of US$ 32 billion in 2020;
-- The domestic Chinese market already fully recovered in 2020; and
-- Passenger demand in 2021 expected to be 45% of 2019-levels.
Outlook & Conclusion
The airline business is suffering tremendously from the Covid-19
pandemic. Previous burdens on airlines caused by the worldwide
Boeing 737 MAX fleet grounding and the Trent 1000 issues now seem
quite trivial. Even if the level of coronavirus cases flattens and
travel bans are gradually lifted resulting from a worldwide mass
vaccination, it will take years until capacity and passenger
numbers return to pre-Covid-19 levels.
One of the challenges for airlines is to adapt to drastic
declines in demand as their cost structure shows a high percentage
of fixed costs. Lease rents are part of these fixed costs and
therefore more and more airlines have or are negotiating PBH rates
with lessors. While such contracts are favourable for airlines as
they only need to pay if they fly the respective aircraft and are
consequently generating revenues, it is less of a benefit for
lessors as they have significantly lower and unpredictable income.
Nevertheless, most lessors have agreed to such temporary
arrangements as demand for used aircraft is currently very weak and
repossessing or taking redelivery of an aircraft might be a much
higher financial burden over time.
The longer the pandemic continues, the more the industry will
rely on governmental and creditor support. As most of the
governmental support - if any - are in the form of credits,
airlines` financial results will be negatively impacted for years
to come, even if passenger travel returns to pre-COVID-19 levels.
It would also not be unlikely to see further consolidation in the
market. Looking at the chart above and comparing the 2020 forecast
made in June and November last year respectively, it becomes clear
that passenger travel and financial results in 2020 suffered more
than expected at the beginning of the pandemic.
All outlooks shared in this report are based on historic data
and assumptions made by industry experts. It can be considered as a
potential guideline. However, from a historical point of view, the
airline industry has proven to be resilient and has recovered from
all previous crises. Clearly, this time the recovery period will
take significantly longer than average to return to pre-Covid-19
levels and as long as the pandemic lasts and most of the travel
restrictions remain in place, the number of airlines filing for
bankruptcy and restructuring will continue to increase. As the
pandemic is still continuing, it is impossible to assess the total
impact of the Covid-19 pandemic at the current time.
THE LESSEES
This section focuses on the airlines' overall conditions. In
regard to the aircraft LNA and LNB; the lenders enforced security
and their appointed receivers Ernst & Young ('EY') took control
of the assets. For more information in this regard as well as any
individual agreements between Lessor, Lessee and Lenders concerning
the Thai transactions, please refer to the Chairman's
Statement.
Norwegian Air Shuttle ASA
It is now noted that with the appointment of the Receiver over
the NAS assets, the Asset Manager is no longer responsible for and
in control of the management of the NAS assets.
Impact from Covid-19 pandemic
-- Survival dependent on the outcome of the Examinership as well
as creditor and Governmental support;
-- After drastic cutbacks of staff and operational aircraft in
spring 2020, NAS announced in November the furlough of another
1,600 staff members and the reduction of the operational fleet down
to 15 narrow-body aircraft;
-- Capacity down by 96% in the fourth quarter 2020 compared to
the same quarter in the previous year;
-- Net loss of NOK 23 billion (about US$ 2.7 billion) in 2020; and
-- New competitors such as Flyr, Norse Atlantic and Wizz Air
gain access to the Norwegian market and potentially benefit from a
downsized Norwegian.
Restructuring and Examinership since 20 May 2020
-- 21 May 2020: The Lessor received shares in NAS due to the agreed debt-to equity-swap;
-- 3 November 2020: Lease Amendment Agreements signed between
Torskefjorden Leasing Ltd ('TLL') - subsidiary of NAS and the
Lessee of LNA and LNB, NAS and DP Aircraft Ireland based on the
terms and conditions of the LoU previously signed on 4 May
2020;
-- 9 November 2020: The Norway government decided to not approve
further support to NAS at this stage;
-- 18 November 2020: Norwegian Air International Ltd ('NAI'),
Arctic Aviation Assets DAC ('AAA') and some of AAA's subsidiaries
including Torskefjorden Leasing Ltd ('TLL'), the Lessee of LNA and
LNB, as well as NAS as related party entered into Irish
Examinership:
o Aircraft assets cannot be repossessed by lessors and airline
can continue operations;
o NAS Shares continue to be traded at the Oslo Stock
Exchange;
o Examiner Kieran Wallace of KPMG appointed by the Court;
and
o Objective: debt reduction, fleet downsizing, securing new
capital.
-- 24 November 2020: As the pandemic continues, the Norwegian
government extended the repayment date of state guarantee loans
from two to three years;
-- 8 December 2020: NAS entered into a reconstruction process
under Norwegian law which will co-exist with the Irish Examinership
process;
-- 14 January 2021: NAS presented its business plan and
announced the exit of long-haul operations;
o 15 January 2021: Order to winding up TLL which operated as
lessor of wide-body aircraft within the group;
o 21 January 2021: NAS announced that the Norwegian Government
will again support the airline subject to the fulfilment of certain
conditions;
o 22 January 2021: Examinership extended by 30 days at High
Court hearing;
o 28 January 2021: Norwegian made request to the High Court to
repudiate 36 aircraft leases, including the DP Aircraft owned
aircraft LNA and LNB;
-- 19 February 2021: High Court granted another 50 days extension;
-- 11 March 2021: NAS provided its restructuring plan to the Irish and Norwegian Courts; and
o 26 March 2021: High Court approved Norwegian's restructuring
plan after it had been supported by majority of creditors and
shareholders:
o The same proposal will undergo a creditor voting in Norway;
and
o Capital raise scheduled for May 2021.
Opportunities post-Covid-19 pandemic - The 'New Norwegian'
-- Renegotiated leases; service agreements and repayment schedules;
-- Resizing of fleet, cancelled orders and focus on proven and profitable routes;
-- Stronger focus on broader range of ancillaries as revenue driver;
-- Strengthening of intra-Nordic network and discontinuing long-haul operations; and
-- Potential increase in low-cost carriers' overall market share
as passengers are historically more price-sensitive during economic
downturns/recession.
Comments & conclusions
The gradually lifting of travel restriction within Europe was
short-lived and Norwegian like most other European carriers is
severely impacted by the decreasing passenger demand. The decision
by the Norwegian Government in January 2021, to offer support again
to the carrier, shows that Norway is still considering Norwegian
Air Shuttle as an important player deserving of further
support.
The survival of Norwegian Air Shuttle ASA remains beneficial for
DP Aircraft as Group is a shareholder in NAS resulting from the
debt-to-equity conversion. However, with no clear view on how and
how fast travel restrictions might again be lifted and demand
returning, it remains to be seen how viable the 'New Norwegian',
exiting Examinership and Reconstruction protection shortly, will
prove to be. As long as the Covid-19 pandemic continues, the future
of almost every airline seems uncertain, particular of the ones who
suffered financial difficulties before.
Thai Airways International Public Company Limited
Impact from Covid-19 pandemic
-- 14 aircraft in operation and 82 aircraft in storage;
-- Thai Airways entered business rehabilitation under the Central Bankruptcy Court of Thailand;
-- Shareholders equity as at 31 December 2020 remained negative:
o THB (128,665) million; and
o Appr. US$ (4,294) million.
-- Potential delisting from the SET ('Stock Exchange of Thailand') after three years; and
-- Sale of shares in Bangkok Aviation Fuel Services for an
amount of about US$ 90 million to generate cash.
Restructuring and Rehabilitation Process since 14(th) September
2020
-- 14 September 2020: The Central Bankruptcy Court approved
THAI's Business Reorganization Petition and the Planners have been
appointed;
-- 21 October 2020: Thai presented a broad plan to lessors
including fleet reductions and asked lessors for requests for
proposals ('RfPs') until 4 November 2020 including rental
reductions, PBH periods and other concessions;
-- 2nd November 2020: Deadline for creditor's application for
debt repayment; process of challenging amounts ongoing;
-- 5 January 2021: The Central Bankruptcy Court approved
extension of deadline regarding the business rehabilitation plan
until 2 February 2021;
-- 27 January 2021: The Central Bankruptcy Court approved
another extension for the submission of the business rehabilitation
plan until 2 March 2021;
-- 2 March 2021: The planners submitted Thai Airways' business
rehabilitation plan to the official receiver:
o The plan includes both a business plan and a financial plan
and it needs to be approved by the creditors;
o Following this, the official receiver will determine the date
in respect to the Creditors' Meeting; and
o Once the plan will have been approved by the Court, the
business rehabilitation plan can be implemented.
-- 2 March 2021: DP Aircraft signed a LOI with Thai Airways amending existing lease terms, e.g.
o PBH period until 31 December 2022;
o Scaled back lease rates on a monthly basis beginning 1 January
2023;
o Lease extension of three years with a termination right by the
Lessor; and
o DP Aircraft and Lenders agreed to amend and restate the
existing loan facility accordingly.
-- Scheduled on or about 12 May 2021: Voting of the creditors on
the business rehabilitation plan; and
-- Timeline for business rehabilitation also dependent on
potential objections submitted by creditors.
Outlook & Opportunities post-Covid-19 pandemic - The 'New
Thai Airways'
-- Four strategies:
o Network carrier with high quality services;
o Additional revenue generation through add-on services;
o Strict expense management including amended aircraft leases
and reduction of workforce; and
o Improved efficiency, including code sharing to extend domestic
network and connectivity.
-- Capital raise of about US$ 1.65 billion over the next two years;
-- Fleet of 86 aircraft and five different aircraft types in 2025 and phasing-out Boeing 747s;
-- A successful restructuring and favourable contract amendments
in respect of the airline could lead to a more efficient and lower
cost basis;
-- Even as Thai ceased to be a state enterprise, the Government
considers Thai as flag carrier and is aware of its significance of
continuing operations; and
-- As Thailand's economy is dependent on tourism, Thai might
benefit from measures initiated by the Government to stimulate
tourism arrivals, such as approved re-opening map, called 'sandbox'
for six Thai provinces by the Thai Government:
o April to June 2021: Mandatory 14 days quarantine for foreign
vaccinated tourists will be reduced to seven days; and
o 1 July 2021: Province of Phuket will reopen for foreign
vaccinated tourists without mandatory quarantine provided that
about 70% of the local populations will have received two
vaccinations.
Comments & conclusions
The airline is dependent on the tourism sector, particularly on
in-bound tourism which has been severely impacted by the Covid-19
pandemic. Chinese tourists count for the biggest share of foreign
tourists travelling to Thailand. The carrier remains dependent on
any decision made by the Government to elevate or soften travel
restrictions. The Thai Government supports all Thai carriers by
waiving parking fees as long as operations are suspended as well as
reduced parking, landing and air navigation fees for operating
carriers. Although any reduction in fees is welcome, this is only a
drop in the ocean.
The process of business rehabilitation under the Central
Bankruptcy Court of Thailand includes several protection
measurements, including the automatic stay, significantly limiting
any creditors' scope of actions but being beneficial to Thai
Airways. The process also facilitates cost cutting measurements
such as the lay-off of employees and aircraft redeliveries to
lessors. From the stakeholders` perspective, including creditors
and lessors, the final impact continues to remain unknown for the
time being and undoubtfully, most stakeholders and presumably all
operating lessors will suffer significant losses. Additionally,
most of the documents in connection with the rehabilitation process
are in Thai language which adds additional complexity and expenses
to international creditors.
Thai's intention to keep the B787 in their future fleet (subject
to approval of the business rehabilitation plan) is only welcomed
by DP Aircraft. Having a fleet of modern aircraft, including
amongst others A350s, supports Thai to compete with other carriers
and to base operations on a competitive cost level, particularly if
jet fuel prices increase over time.
Not all details of the rehabilitation plan and process under the
bankruptcy court have been outlined in detail to the creditors yet
and there is no guarantee for the airline's survival. However, it
might be considered that the carrier's long-term existence is in
the interest of the country and its government, whereas the
specific impact on stakeholders, including employees, creditors and
lessors, remains for the time being unknown. Finally, the
Governmental approved plan ('sandbox') might be a first step on the
long road of recovery of Thai Airways.
THE ASSETS
Update B787 production and supply
-- Production rate to be reduced to six aircraft monthly by 2021;
-- Consolidation of Boeing's two production facilities to South Carolina mid-2021; and
-- Significant lower deliveries in 2020 due to Covid19 pandemic.
Assets & Operations
Aircraft Storage
-- Aircraft TQC stored since 29 September 2019 at Bangkok Suvarnabhumi Airport (Thailand);
-- Aircraft TQD stored since 6 December 2019 at Bangkok Suvarnabhumi Airport (Thailand);
-- Aircraft LNA stored since 27 May 2019 at Glasgow-Prestwick Airport (United Kingdom);
-- Aircraft LNB stored since 17 September 2019 at Glasgow-Prestwick Airport (United Kingdom).
Initially, the availability of Rolls-Royce Trent 1000 spare
engines and the bottleneck of shop visit slots have impacted
airlines' Boeing 787 fleets and had been the reason why the DP
Aircraft owned four B787s entered temporarily into storage.
Nowadays, the main cause is the Covid-19 pandemic which is also
determining the in-service-dates of TQC and TQD.
Asset Overview
AIRCRAFT OPERATIONS Norwegian Air Shuttle Thai Airways
LN-LNA LN-LNB HS-TQC HS-TQD
-------------- ------------- -------------- --------------
Cabin Layout 32 Premium Economy Class 24 Business Class Seats
Seats 240 Economy Class Seats
259 Economy Class Seats
----------------------------- ------------------------------
LAST PHYSICAL INSPECTION
----------------------------- ------------------------------
Date 12 February 12 February 17 March 2021 17 March 2021
2021 2021
-------------- ------------- -------------- --------------
Place Prestwick Airport (PIK) Bangkok Airport (BKK)
----------------------------- ------------------------------
Type of inspection Follow-Up Inspection incl. Follow-Up Inspection
storage records
----------------------------- ------------------------------
AIRFRAME STATUS
(31 January 2021)
-------------- ------------- -------------- --------------
Total Flight Hours 29,177 30,925 16,873 15,536
-------------- ------------- -------------- --------------
Total Flight Cycles 3,386 3,652 3,814 3,598
-------------- ------------- -------------- --------------
Hours/cycles ratio
since delivery 8.62 8.47 4.42 4.32
-------------- ------------- -------------- --------------
Titled Engines Report
As at 26 February LN-LNA LN-LNB
2021
ESN 10118 ESN 10119 ESN 10130 ESN 10135
------------------ ------------------------- ---------------------- ---------------------
Total Time
[Flight Hours] 23,984 26,360 21,802 24,868
------------------ ------------------------- ---------------------- ---------------------
Total Flight
Cycles 2,818 3,102 2,422 2,864
------------------ ------------------------- ---------------------- ---------------------
Location Rolls-Royce LNF LNC Spare
Shop Derby;
UK
------------------ ------------------------- ---------------------- ---------------------
Remarks -- Scheduled -- LN-LNF stored -- LN-LNC stored -- GTES Engine
completion date: in Shannon; in Oslo; Norway Storage at Stansted
26 February Ireland -- Engine maintained Airport, UK
2021 -- Engine maintained by Norwegian -- Stored in
by Lufthansa -- Engine removal accordance with
Technik confirmed subject manufacturer's
-- Engine removal to availability requirements
after prior of engine stand -- Pick-up after
notice and availability prior notice
of engine stand
------------------ ------------------------- ---------------------- ---------------------
As at 28 March HS-TQC HS-TQD
2021
ESN 10239 ESN 10240 ESN 10244 ESN 10244
------------------ ------------------------- ------------------ ------------------
Total Time
[Flight Hours] 15,292 10,518 11,081 16,805
------------------ ------------------------- ------------------ ------------------
Total Flight
Cycles 3,433 2,583 2,681 3,690
------------------ ------------------------- ------------------ ------------------
Location On-wing Shop On-wing On-wing
------------------ ------------------------- ------------------ ------------------
Remarks -- Maintained -- ESN 10240 -- Maintained -- Maintained
by Thai beyond economical by Thai by Thai
-- Inducted repair; to be -- Inducted to -- Inducted to
to preservation replaced by Rolls-Royce preservation preservation
27 December -- ESN 10243 30 December 2020 30 December 2020
2020 installed on -- Installed -- Installed
-- Installed TQC 28 March on TQD 25 August on TQD 29 August
on TQC 22 August 2021 2020 2020
2020 -- Final test
and document
review of Replacement
Engine in progress
------------------ ------------------------- ------------------ ------------------
Since the titled engine ESN 10240 was declared a total loss, the
asset manager has worked together with Thai Airways to
appropriately replace that engine. A potentially suitable engine
was identified and the process of reviewing the respective records
and physical condition is in progress. If the suggested replacement
engine is acceptable, a title transfer will be performed. The
complete technical process of the engine replacement, including
testing, is supported and monitored closely by the asset manager's
on-site team. Apart from this, a temporary replacement engine was
installed on TQC in March 2021 to accommodate the ferry flight of
the aircraft to the maintenance facility located at the other
airport of Bangkok as well as any further commercial
operations.
Termination of Gold Care Agreement between Norwegian and
Boeing
Since the Gold Care Agreement between Norwegian Air Shuttle
(Boeing's only Gold Care customer) and Boeing had been terminated,
monthly Maintenance Reserves previously invoiced by Boeing are now
to be invoiced by the Lessor. Outstanding reserves held by Boeing
are to be transferred in cash or credited against maintenance
services to the Lessor.
Asset Managers actions to ensure asset value
Keeping the assets under management in the best possible
condition is the top priority for DS Aviation as DP Aircraft's
Asset Manager. Given the unfortunate combination of the two
circumstances of Trent 1000 issues and the Covid-19 pandemic, the
Fund's four aircraft are stored since different dates back in 2019.
This, including some findings during the inspections as well as NAS
and Thai undergoing restructuring, make a closer monitoring of the
assets essential. All efforts are being made to bring TQC and TQD
back in flight-ready condition as soon as possible (the same
applied in regard to LNA and LNB) and include, amongst others :
-- On-site representative;
-- Additional physical and records inspections as well as follow-up inspections;
-- Following-up on findings' rectification;
-- Back-to Birth records review;
-- Regular calls with Lessee; and
Negotiation of asset condition as part of restructuring
agreements.
Norwegian Air Shuttle
The annual physical inspection, including additional records
review, of LNA and LNB was performed 27 February 2020 at Prestwick
Airport. To follow-up on findings and to closely monitor the
aircraft during the extended grounding period, further three
inspections had been performed at Prestwick Airport between July
and August 2020. After Norwegian entered into Examinership in
November 2020, the asset manager increased its on-site presence to
three to four days weekly to ensure that both aircraft were kept in
an appropriate condition in accordance with the manufacturer's
requirements, that all necessary actions are carried out - both
from a technical and economical point of view - and to support the
allocation of all removed components being stored externally.
Additionally, a review of the records produced during the storage
was carried out. After assessing the current situation in January
2021, the on-site presence could be reduced to two days weekly.
Regular weekly up-date calls between the asset manager DS Aviation
and the Lessee have been taking place since June 2020.
Furthermore, DS Aviation set-up a line of action to bring back
the aircraft in flight-ready condition. This included the
relocation and reinstallation of the titled engines to the
respective aircraft LNA and LNB. All necessary actions required,
amongst others logistics, engine removal from other aircraft and
organisation of engine stands, had been planned in detail. Besides,
based on the above-mentioned allocation of all parts stored
externally, a plan of their respective reinstallation was set-up as
well.
DS Aviation was obliged to stop all these above-mentioned
actions on 27 February 2021 as the lenders took over control of the
assets themselves after enforcing their securities.
Thai Airways
Regarding TQC and TQD, the last annual inspection was performed
during the fourth quarter of 2019. As a result of the Covid-19
pandemic and prolonged storage of the aircraft, there has been
follow-up inspections performed in June and September 2020. As Thai
Airways entered into business rehabilitation, the asset manager DS
Aviation arranged for an on-site representation. At the beginning,
bi-weekly follow-up inspections were scheduled and performed
subject to Thai Airways' staff availability which was limited by
Covid-19 precautionary measurements. The key objective is to ensure
that both aircraft are kept in an appropriate condition in
accordance with the manufacturer's requirements during the storage.
Due to a close relationship between DS Aviation and Thai Airways
and the level of communication, the inspection interval was reduced
to monthly repetitions.
The current roadmap is that both aircraft will be brought back
to flight ready condition by Thai Airways and to be ferried to Don
Muang Airport (Bangkok) to undergo a heavy maintenance check in May
and June 2021 respectively. A ll efforts are being made to bring
both aircraft back into regular commercial operations as soon as
possible subject to any restrictions resulting from the Covid-19
pandemic (e.g. travel restrictions).
Comments and Conclusions
Covid-19 does not only impact airlines and the travel business
but as consequence also the manufacturers regarding their current
deliveries as well as their future order books. As some airlines
even downsize their fleet, they are reluctant in placing new orders
and look for opportunities to cancel orders or postpone deliveries.
Boeing announced stopping production of the B747 in 2020 and
further to postpone its first B777X delivery.
In the first instance, airlines mostly retired bigger and older
aircraft whereas efficient and new technology aircraft such as
B787s or A350s (as examples in the wide body segment) were less
impacted. However, as airline failures and airline restructurings
increase as a consequence of the continuing travel restrictions,
even new technology aircraft have entered the secondary market.
This in turn might be beneficial to speculators and new market
entrants, such as Norse Atlantic Airways, Flyr or Play, which are
now able to close aircraft lease deals at extremely low rates.
However, such times are challenging for manufacturers and operating
lessors alike. The enormous number of stored aircraft and the
increasing time in storage emphasises the importance to have, not
only for the airline but also lessors, a clear focus on the asset
and the maintenance itself. Storage does not only mean to park an
aircraft but also to follow a pre-defined storage programme by the
respective manufacturer. It is essential to closely monitor the
asset conditions and the storage programme, follow-up on any
findings and put all efforts to keep the value of the aircraft.
DIRECTORS
Jonathan (Jon) Bridel, Non-Executive Chairman (56)
Jon is a Guernsey resident and is currently a non-executive
director of The Renewables Infrastructure Group Limited (FTSE 250),
Sequoia Economic Infrastructure Income Fund Limited (FTSE 250) and
SME Credit Realisation Fund Limited (in wind down) which are listed
on the Main Market of the London Stock Exchange. Other companies
include Fair Oaks Income Fund Limited. Jon was previously Managing
Director of Royal Bank of Canada's investment businesses in the
Channel Islands and served as a director on other RBC companies
including RBC Regent Fund Managers Limited. Prior to joining RBC,
Jon served in a number of senior management positions in banking,
specialising in credit and corporate finance and private businesses
as Chief Financial Officer in London, Australia and Guernsey having
previously worked at Price Waterhouse Corporate Finance in
London.
Jon graduated from the University of Durham with a degree of
Master of Business Administration, holds qualifications from the
Institute of Chartered Accountants in England and Wales (1987)
where he is a Fellow, the Chartered Institute of Marketing and the
Australian Institute of Company Directors. Jon is a Chartered
Marketer and a Member of the Chartered Institute of Marketing, a
Chartered Director and Fellow of the Institute of Directors and a
Chartered Fellow of the Chartered Institute for Securities and
Investment.
Jeremy Thompson, Non-Executive Director (65)
Jeremy Thompson is a Guernsey resident with sector experience in
Finance, Telecoms, Aerospace and Oil & Gas. He acts as a
non-executive director to a number of businesses which include
three private equity funds and to an Investment Manager serving the
listed NextEnergy Solar Fund Limited. In addition, Jeremy is also a
non-executive director of London listed Riverstone Energy Limited.
Between 2005 and 2009 he was a director of multiple businesses
within a London based private equity group. This entailed board
positions on both private, listed and SPV companies and highly
successful exits. Prior to that he was CEO of four autonomous
global businesses within Cable & Wireless PLC and earlier held
CEO roles within the Dowty Group. Jeremy has studied and worked in
the UK, USA and Germany.
Jeremy currently serves as chairman of the States of Guernsey
Renewable Energy Team and is a commissioner of the Alderney
Gambling Control Commission. He is also an independent member of
the Guernsey Tax Tribunal panel. Jeremy is an engineering graduate
of Brunel (B.Sc) and Cranfield (MBA) Universities and attended the
UK's senior defence course (Royal College of Defence Studies). He
holds the Institute of Directors (IoD) Certificate and Diploma in
Company Direction and is an associate of the Chartered Institute of
Arbitration. He completed an M.Sc in Corporate Governance in 2016
and qualified as a Chartered Company Secretary in 2017.
Harald Brauns, Non-Executive Director (64)
Harald is a German banker with extensive experience in the
specialised lending sector. He joined NORD/LB Hannover, Germany in
1977 with a first engagement in the shipping segment. In 1985 he
started the aircraft finance activities for the bank from scratch.
As the Global Head of Aircraft Finance, he built successively a
team of more than 40 dedicated aviation experts located in
Hannover, New York and Singapore. Focused on an asset based
business model with sophisticated solutions for selected clients he
and his team advanced to global leaders in commercial aircraft
finance with an exposure of well above US$ 10 bn split over a
portfolio of 650 aircraft assets. After more than 35 years in the
aviation industry Harald retired in October 2019. He is a resident
in Germany and was appointed as a non-executive director of the
Company with effect from 1 November 2019.
DIRECTORS' REPORT
The Directors present their Annual Report and Audited
Consolidated Financial Statements for DP Aircraft I Limited for the
year ended 31 December 2020.
Principal Activity and Review of the Business
The Company's principal activity is to purchase, lease and then
sell Boeing 787-8 Aircraft (the 'Assets'). The Company wholly owns
six subsidiaries, DP Aircraft Guernsey I Limited, DP Aircraft
Guernsey II Limited, DP Aircraft Guernsey III Limited, DP Aircraft
Guernsey IV Limited, DP Aircraft Ireland Limited and DP Aircraft UK
Limited (together the 'Group').
The investment objective of the Group is to obtain income and
capital returns for the Company's shareholders by acquiring,
leasing and then, when the Board considers it appropriate, selling
the Assets.
The Company has made its investments in the Assets through its
subsidiaries.
The Ordinary Shares of the Company are currently trading on the
Specialist Fund Segment of the London Stock Exchange.
Due to the impact of Covid-19 on the airline industry, lease
agreements with Norwegian were amended during the year prior to the
lessee going into liquidation (further details in the Summary
report on page 5) and Thai went into debt rehabilitation which
triggered a moratorium on all payments due from Thai (further
details in the Summary report on page 7). As at 31 December 2020,
US$ 10,111,605 (2019: US$ Nil) was due from Thai and a lifetime
expected credit loss provision of US$ 10,111,605 (2019: US$ Nil)
has been recognised against the balance due as at year end, see
note 14 for further details. There were no amounts contractually
due from Norwegian as at 31 December 2020 however as documented in
the Summary report on page 5, the group was due to receive a second
allocation of NAS shares at the end of the PBH arrangement. The
group is uncertain as to how administration of the NAS lessee of
the aircraft will affect the second allocation of shares which was
due in April 2021. Due to this uncertainty and the situation as at
the year end, no value has been attributed to the element of the
second tranche shares that would have been earned during 2020.
As noted below under 'Subsequent Events', post year end the
Group has lost control of the two aircraft that were leased to
Norwegian, related rights under NAS leases as well as the related
NAS shares.
Notwithstanding the requirement for the aircraft to be parked
during the year for Trent 1000 repairs there are no incidents to
bring to the attention of Shareholders concerning the operation of
the aircraft. Inspections have revealed no matters of concern.
Rolls Royce are continuing to address the Trent 1000 engine
warranty related issues which have not impacted on the Company's
revenues. A more detailed review of the business and prospects is
contained in detail in the Asset Manager's Report on pages 13 to
23.
Results and Dividends
The loss for the year ended 31 December 2020 was US$ 155.1
million (year ended 31 December 2019, profit of US$ 23.17
million).
Under normal circumstances, the Company aims to provide
Shareholders with an attractive total return comprising income,
from distributions through the period of the Company's ownership of
the Assets, and capital, upon any sale of the Assets. The Company
targets a quarterly distribution in February, May, August and
November of each year. The target distribution is US$ 0.0225 per
Share per quarter. One quarterly dividend has been paid during the
year ended 31 December 2020. All the dividends paid to date have
met the US$ 0.0225 per Share target. The target dividends are
targets only and should not be treated as an assurance or guarantee
of performance or a profit forecast.
On 3 April 2020, the Company announced a suspension of dividends
until further notice due to Covid-19 impact. The suspension is
continuing and due to recent developments as noted in Summary
report on page 8, there is no
realistic prospect of the Company's shareholders receiving a
dividend or other distribution for the foreseeable future.
Subsequent Events
Refer to note 27 for further details regarding Subsequent
Events.
Directors
The Directors of the Company, who served during the year and to
date, are as shown below:
-- Jonathan Bridel;
-- Jeremy Thompson; and
-- Harald Brauns.
Directors' interests
The Directors interests in the shares of the Company as at 31
December 2020 are set out below and there have been no changes in
such interests up to the current date:
Number of Number of
ordinary shares ordinary shares
31 December 2020 31 December 2019
Jon Bridel and connected
parties 90,000 7,500
Jeremy Thompson 15,000 15,000
Harald Brauns - -
Principal Risks and Uncertainties
The Statement of Principal Risks and Uncertainties are as
described on pages 38 to 40.
Substantial Shareholdings
The Directors note the following substantial interests in the
Company's share capital as at 31 December 2020 (10% and more
shareholding):
-- M&G Investment Management 52,158,421 - 24.92%
As at the date of this report there have been no significant
changes in the above list of substantial shareholdings.
The Board
The Board comprises three non-executive Directors each of whom
are independent.
Jeremy Thompson was appointed as Senior Independent Director
(the 'SID') on 1 April 2016.
During the year ended 31 December 2020 the Board had a breadth
of experience relevant to the Company and a balance of skills
experience and age.
The Board recognises the importance of diversity and will
evaluate applicants to fill vacant positions regardless of gender
and without prejudice. Applicants will be assessed on their broad
range of skills, expertise and industry knowledge, and business and
other expertise. In view of the long-term nature of the Company's
investments, the Board believes that a stable board composition is
fundamental to run the Company properly. The Board has not
stipulated a maximum term of any directorship.
Directors
As the Company is not a FTSE 350 company, Directors were not
subject to annual election by the shareholders nor for the
requirement for the external audit contract to be put out to tender
every 10 years. Historically, the Directors had offered themselves
by rotation for re-election at each annual general meeting ('AGM').
Jon Bridel and Harald Brauns were re-elected at the AGM on 10 July
2020. Jeremy Thompson is offering himself for re-election at the
forthcoming AGM.
The Directors are on a termination notice of three months.
Directors' Duties and Responsibilities
The Board of Directors has overall responsibility for the
Company's affairs and is responsible for the determination of the
investment policy of the Company, resolving conflicts and for
monitoring the overall portfolio of investments of the Company. To
assist the Board in the day-to-day operations of the Company,
arrangements have been put in place for the performance of certain
of the day-to-day operations of the Company to third-party service
providers, such as the Asset Manager, Administrator and Company
Secretary, under the supervision of the Board. The Board receives
full details of the Company's assets, liabilities and other
relevant information in advance of Board meetings.
The Board undertakes an annual evaluation of its own performance
and the performance of its audit committee and individual
Directors, to ensure that they continue to act effectively and
efficiently and to fulfil their respective duties, and to identify
any training requirements. The results of the most recent
evaluation have been reviewed by the Chairman and his fellow
directors. No significant corporate governance issues arose from
this review.
The Board also undertakes an annual review of the effectiveness
of the Company's system of internal controls and the safeguarding
of shareholders' investments and the Company's assets. At each
quarterly meeting the Board will table and review a risk matrix.
There is nothing to highlight from the reviews of these reports as
at the date of this report.
Board Meetings
The Board meets at least four times a year to consider the
business and affairs of the Company for the previous quarter.
Between these quarterly meetings the Board keeps in contact by
email and telephone as well as meeting to consider specific matters
of a transactional nature. There is regular contact with the
Secretary.
The Directors are kept fully informed of investment and
financial controls and other matters that are relevant to the
business of the Company. The Directors also have access, where
necessary in the furtherance of their duties, to professional
advice at the expense of the Company.
The Board considers agenda items laid out in the Notice and
Agenda which are formally circulated to the Board in advance of any
meeting as part of the board papers. Such items include but are not
limited to; investment performance, share price performance, review
of marketing and shareholder communication. The Directors may
request any Agenda items to be added that they consider appropriate
for Board discussion. In addition, each Director is required to
inform the Board of any potential or actual conflict of interest
prior to Board discussion. Board meetings are attended by
representatives of the Asset Manager. The Company's corporate
brokers also attend to assist the Directors in understanding the
views of major shareholders about the Company.
Board Meeting attendance
The table below shows the attendance at Board meetings and Audit
Committee meetings during the year.
Director No of board meetings No of audit committee
attended meetings attended
Jonathan Bridel 4 4
Jeremy Thompson 4 4
Harald Brauns 4 4
--------------------- ----------------------
No. of meetings during the
year 4 4
--------------------- ----------------------
The Directors also attended 75 ad-hoc Board and Committee
meetings in addition to the regular quarterly meetings as shown in
the above table and the Chairman attended further meetings with
various stakeholders and on management related matters. The board
also attended committee meetings for the Management Engagement
Committee and the Nominations Committee The significant number of
meetings reflects the additional time the Directors spent due to
the significant industry developments and the resultant time spent
with advisors.
Directors' Remuneration
The remuneration of the non-executive Directors is reviewed on
an annual basis and compared with the level of remuneration for
directorships of funds with similar responsibilities and
commitments. It was subject to an independent consultant review in
2017.
In February 2020 the board reviewed the current director fee
levels (inclusive of all subsidiaries) and agreed that remuneration
levels of directors were set at the correct level, however it was
proposed that the Directors remuneration should be increased by
annual inflation amount of 3.2% in line with the latest published
independent fee survey. This increase was effective from 1 April
2020.
During the current and prior year each Director received the
following remuneration in the form of Directors' fees from Group
companies:
Year ended Year ended
31 December 2020 31 December 2019
GBP US$ equivalent GBP/EUR US$ equivalent
Jonathan Bridel (Chairman) 96,000 124,994 GBP62,475 80,035
Jeremy Thompson (Audit Committee
Chairman) 78,100 101,665 GBP50,825 65,112
Angela Behrend-Görnemann
- resigned 31 October 2019) - EUR 60,300 67,283
Harald Brauns (Management Engagement
Committee Chairman) 85,500 111,346 GBP9,500 12,591
------- --------------- ----------- ---------------
US$ 338,005 US$ 225,021
------- --------------- ----------- ---------------
Included in the table on the previous page is US$ 110,710
(GBP81,100) in relation to fees for extra services performed by the
Directors and the significant increase of committed time during
2020.
Although this is not finalised, it is currently the board's
intention where permissible to take the additional fees in respect
of 2020 together with 10% of the base fee from 2021 by way of
equity in the company.
There are no executive director service contracts in issue.
Remuneration Policy
All directors of the Company are non-executive and therefore
there are no incentive or performance schemes. Each director's
appointment is subject to an appointment letter and article 24 of
the Company's articles of association. Remuneration is paid
quarterly in arrears and reflects the experience, responsibility,
time, commitment and position on the main board as well as
responsibility for sitting on subsidiary boards when required. The
Chairman, Audit Chairman (SID) and other committee Chairman may
receive additional remuneration to reflect the increased level of
responsibility and accountability. The maximum amount of directors'
fees payable by the Company in any one year is currently set at
GBP200,000 in accordance with article 24. Remuneration may if
deemed appropriate also be payable for special or extra services if
required in accordance with article 24. This is defined as work
undertaken in connection with a corporate transaction including a
new prospectus to acquire, finance and lease an aircraft and/or
engines, managing a default, refinancing, sale or re-lease of
aircraft and for defending a takeover bid. This may include
reasonable travel time if applicable. The board may appoint an
independent consultant to review fees if it is considered an above
inflation rise may be appropriate.
Internal Controls and Risk Management Review
The Board is responsible for the Company's system of internal
control and for reviewing its effectiveness. The Board confirms
that there is an ongoing process for identifying, evaluating and
monitoring the significant risks faced by the Company.
The Board carries out an annual review of internal controls
including those of the administrator. The internal control systems
are designed to meet the Company's particular needs and the risks
to which it is exposed. Accordingly, the internal control systems
are designed to manage rather than eliminate the risk of failure to
achieve business objectives and by their nature can only provide
reasonable and not absolute assurance against misstatement and
loss.
The Directors of the Company clearly define the duties and
responsibilities of their agents and advisors. The appointment of
agents and advisers is conducted by the Board after consideration
of the quality of the parties involved and the Board monitors their
ongoing performance and contractual arrangements. Each service
provider is reviewed annually, and key risks and operating matters
are addressed as part of that review.
Dialogue with Shareholders
All holders of Shares in the Company have the right to receive
notice of, and attend, all general meetings of the Company, during
which the Directors are available to discuss issues affecting the
Company. The Directors are available to enter into dialogue with
shareholders and make themselves available for such purpose when
reasonably required. The Company believes such communications to be
important. Reports are provided to the Board of Directors on
shareholders' views about the Company and any issues or concerns
they might have.
Board Policy on Tenure and Independence
The Board has not yet formed a policy on tenure. However, it
does consider the independence of each director on an annual basis
during the performance evaluation process. All directors are
considered independent.
Auditor
KPMG, Ireland, Chartered Accountants have indicated their
willingness to continue in office.
Going Concern - Material Uncertainty
The Directors have prepared the financial statements for the
year ended 31 December 2020 on the going concern basis. However,
the Directors have identified the matters referred to below, in
addition to Company operational requirements that may not be within
the control of the Company, which indicate the existence of a
material uncertainty that may cast doubt on the entity's ability to
continue as a going concern and that the company may, as a
consequence, be unable to realise its assets and discharge its
liabilities in the normal course of business.
Covid-19 has resulted in widespread restrictions on the ability
of people to travel, socialise and leave their homes and has had a
material negative effect on the airline sector, and by extension
the aircraft leasing sector. The Company leased four (4) Boeing 787
aircraft (the 'Aircraft'), two each to Norwegian Air Shuttle ASA
('NAS') and Thai Airways International ('Thai'). The NAS lease
terminations are currently being finalised.
The application of the going concern basis of preparation is
dependent upon the Company's aircraft leasing and the related
financing activities as described below.
Thai - Leases and related Loans
The Thai Leases
Thai Airways rehabilitation process is currently ongoing, on 2
March 2021 a business rehabilitation plan was submitted for Thai
Airways and is being considered by the creditors for approval. On
that same date, the Company signed a LOI with Thai Airways under
which the parties agreed to amend the existing lease terms. The new
terms provide for a PBH arrangement until the end of next year
(i.e. rent will be payable by reference to actual monthly
utilisation of the Thai aircraft), with scaled back monthly lease
payments thereafter, reflecting the reduced rates now seen in the
market. The lease term will be extended by 3 years to December
2029, after consulting the Lenders retaining a right of early
termination in 2026. Thai Airways has also undertaken to ensure
that the Thai aircraft are airworthy and in flight ready condition
in all respects by 30 June 2021, and on an ongoing basis. A
corresponding agreement has been reached with the bank providing
finance for the aircraft leased to Thai airways, see below.
The Thai Loans
On 6 May 2021, following the new lease arrangements entered into
by the Company and Thai as described above, the Company and
Dekabank have amended and restructured the existing loan facility
agreements in respect of the Thai aircraft to accommodate the new
lease terms. Repayments of principal will be deferred until the end
of the PBH arrangement; and the Company and Dekabank will enter
into discussions at that time to determine how best to schedule
interest payments, principal repayments and a final balloon
repayment, having regard for both the income being received by the
Company in respect of the Thai aircraft, and the running costs of
the Company and its subsidiaries. The loan is secured by charges
over the two Thai aircraft and the underlying leases.
The Directors expect that the Thai rehabilitation plan will
succeed and, under the terms of the new lease to be entered into
with Thai based on the LOI signed on 2 March 2021 and the
corresponding agreement reached with the bank providing finance for
the aircraft leased to Thai airways (Dekabank), the Company will
have sufficient liquidity from (i) the lease payments from Thai and
(ii) utilising certain of its own funds to continue to meet all of
its obligations under the Thai Loans as well as operating costs for
the Group.
Norwegian Leases and related Loans
The NAS leases
The lease agreements with NAS were in the judgement of the
Directors de-facto terminated in December 2020 as detailed in note
3a. The Group has taken back control of the two aircraft that were
leased to Norwegian. The Group has submitted claims against NAS for
lease rentals due and other losses suffered but do not expect to
receive any compensation. See below for further information in
relation to the bank taking over rights under lease contracts.
The NAS Loans
As detailed under 'Subsequent Events', on 24 February 2021,
NordLB declared an Event of Default under the relevant loan
agreements with the Company's two borrower subsidiaries, enforced
rights under the relevant security documents and took control of
the process of disposing of the two NAS aircraft, with the proceeds
of sale (along with relevant aircraft-specific cash balances,
claims against Norwegian and shares in Norwegian held as security)
being applied in the first instance to pay off any outstanding
amounts owed to the bank, and any balance remaining thereafter
being remitted to the relevant subsidiaries of the Company. The
Directors consider it highly unlikely that Company will receive any
benefit from NordLB as a result of the aforementioned process as it
is expected that the bank will sell the aircraft at an amount
required to cover the loan.
These developments impact solely upon the two NAS aircraft; they
have no effect upon the Company's arrangements in respect of the
aircraft which it leases to Thai Airways; and there is no recourse
by NordLB to the Company itself.
Conclusion
The Directors have considered the Group's cash requirements for
a period of 12 months from the signing of these financial
statements. This forecast shows the likely need for further equity
to be raised to fund the period post 12 months and to allow for
other contingencies given the companies circumstances. However, the
Directors believe that it is appropriate to prepare these financial
statements under the going concern basis of preparation due to:
-- The continuing support of Dekabank which made loans to the
Group (with certain loan concessions);
-- The ongoing viability of Thai Airways, expectation that
Thailand's Central Bankruptcy Court will approve the revised lease
per the LOI and, the ability of Thai Airways to satisfy the terms
of the LOI for the revised lease;
-- The expectation that an equity fund raise will be successful based on liaison with sufficient shareholders;
-- Having regard to the limited recourse nature of the loans
which means NordLB debt default impacts solely upon the two NAS
aircraft and have no effect upon the Company's arrangements in
respect of the aircraft which it leases to Thai Airways; and there
is no recourse by NordLB to the Company itself ; and
-- The expectation that all operational requirements will continue to be fulfilled.
No adjustments have been made to the financial statements in the
event that the Company was unable to continue as a going
concern.
Viability Statement
As with previous reports the Directors regularly assess the
viability of the Company with respect to the impacts of the
potential, and in the case of this year some crystallised risks, it
faces.
The Company has been in extensive negotiations with both its
lenders and its lessees during the year and subsequent to the year
end. With both NAS and Thai entering restructuring arrangements the
Company has had no lease rental income from April 2020 (NAS
aircraft) and June 2020 (Thai aircraft) and in the case of NAS has
been faced with the lenders placing those assets into receivership.
There is no guarantee that any realised proceeds will allow any
repayment to the Company.
Whilst the Company has visibility of a (long) term lease with
Thai Airways stretching through a period to 2029 with an early
termination option in 2026 the Company still faces known events
which need to be overcome before the Directors can confidently
provide an assessment of viability beyond 12 months and even this
period is subject to material uncertainties including Company
operational requirements that may not be within the control of the
Company.
Foremost amongst the near term risks is the successful emergence
from restructuring of Thai and the recovery from Covid related
restrictions to their tourist economy and having the aircraft in an
operational state at the end of June 2021 (as requested by the Thai
Lenders). The Company has negotiated via its Asset Manager an
interim power by the hour (PBH) arrangement up to the end of 2022.
There is no guarantee at what level the Company's aircraft will be
utilised during this period and therefore no guaranteed income to
the Company until the commencement of the agreed conventional
monthly lease rentals from January 2023.
The Company will require continuing support from its
shareholders to ensure that it maintains sufficient funding to
allow it to face what still remains an uncertain future.
The respective Thai LOI's have been concluded and it is
important that both LOI's are converted to execution agreements
within the month of May.
The Directors regularly consider and assess the viability of the
Company and takes into account the Company's current position and
the potential impact of the principal risks outlined below.
Given the unprecedented circumstances caused by Covid-19, the
Directors have reviewed additional scenarios but it must be
stressed there are certain scenarios which will likely require
additional support of shareholders.
The Directors continue to consider that an investment in the
Company should be regarded as long term in nature and is suitable
only for sophisticated investors, investment professionals, high
net worth bodies corporate, unincorporated associations and
partnerships and trustees of high value trusts and private clients
(all of whom will invest through brokers), in each case, who can
bear the economic risk of a substantial or entire loss of their
investment and who can accept that there may be limited liquidity
in the Shares.
The Directors consider that the Notes to the Financial
Statements are integral to the support of the Viability
Statement.
Annual General Meeting
The AGM of the Company will be held in Guernsey on 1 July 2021
at East Wing, Trafalgar Court, Les Banques, St Peter Port,
Guernsey. The meeting will be held to, inter alia; receive the
Annual Report and Audited Consolidated Financial Statements; elect
and re-elect Directors; propose the reappointment of the auditor;
authorise the Directors to determine the auditor's remuneration;
approve the Directors' remuneration policy; authorise the Company
to issue and allot new shares and approve a partial disapplication
of the pre-emption rights to allow the Company to issue new shares
by way of tap issues. Given the ongoing challenges regarding
Covid-19, it is likely the AGM will be restricted to two
shareholders and shareholders are encouraged to vote in advance by
proxy. The formal notice of AGM will be issued to shareholders in
due course.
The Board continues to welcome engagement with its shareholders
and those who have questions relating directly to the business of
the AGM can forward their questions to the Company Secretary by
email to DPA@aztecgroup.co.uk by no later than one week before the
AGM, being 24 June 2021.
A Q&A reflecting the questions received and responses
provided will be made available on the Company's website at
www.dpaircraft.com as soon as practicable following the AGM.
Corporate Governance
The Company is not required to comply with any particular
corporate governance codes in the UK or Guernsey but the Directors
take corporate governance seriously and will have regard to
relevant corporate governance standards in determining the
Company's governance policies including without limitation in
relation to corporate reporting, risk management and internal
control procedures.
The Directors intend to comply, and ensure that the Company
complies, with any obligations under the Companies (Guernsey) Law,
2008 and the Articles to treat shareholders fairly as between
themselves.
Directors' Share Dealings
The Board has agreed to adopt and implement the Model Code for
Directors' dealings contained in the Listing Rules. The Board will
be responsible for taking all proper and reasonable steps to ensure
compliance with the Model Code.
Board Committees
The Board of Directors has established an audit committee, which
operates under detailed terms of reference, copies of which are
available on request from the Company Secretary. Details of the
Company Secretary are included within the Company information on
pages 98 and 99.
The Board have established a Management Engagement Committee
which reviewed the performance of the Asset Manager and the key
service providers at least annually and this review includes a
consideration of the service providers' internal controls, risk
management, operational management, information technology and
their effectiveness.
Alternative Investment Fund Managers Directive ('AIFMD')
In July 2013 the European Alternative Investment Fund Management
Directive ('AIFMD') came into effect with transitional provisions
until July 2014. The Company has been determined to be a
'self-managed' Guernsey Alternative Investment Fund ('AIF') and as
such will be treated as a non-EU AIFM for the purposes of the
Directive. The Company has registered with the Financial Conduct
Authority (and notified the Guernsey Financial Services Commission)
under the AIFMD (Marketing) Rules, 2013.
For a non-EU AIFM that has over EUR 100 million (equivalent to
US$ 123 million at 31 December 2020) of net assets under management
and also utilises leverage, certain Annual Investor Disclosures are
required.
For the purpose of AIFMD, the Company is a Self-Managed
Alternative Investment Fund Manager with assets above the EUR 100
million (equivalent to US$ 123 million at 31 December 2020), with
leverage, threshold.
AIFMD does not prescribe use of any one particular accounting
standard. However, the financial statements must be audited by an
auditor empowered by law to audit the accounts in accordance with
the EU Statutory Audit Directive.
The required disclosures for investors are contained within the
Financial Conduct Authority checklist and the Company's compliance
therewith can be found in Appendix 1 to these financial
statements.
Brexit
The Directors do not expect that the recent UK withdrawal from
the EU will have a significant impact on the Company given the
nature of its operations. However, they continue to monitor the
airline industry for any potential impact on the Company.
By order of the Board
Jonathan Bridel Jeremy Thompson
Director Director
REPORT OF THE AUDIT COMMITTEE
On the following pages, we present the Audit Committee (the
'Committee') Report for 2020, setting out the Committee's structure
and composition, principal duties and key activities during the
year. The Committee has reviewed the Company's financial reporting,
the independence and effectiveness of the independent auditor (the
'auditor') and the internal control and risk management systems of
service providers.
The Board is satisfied that for the period under review and
thereafter the Committee has recent and relevant commercial and
financial knowledge sufficient to satisfy the requirements of the
Committee's remit.
Structure and Composition
The Committee is chaired by Mr Thompson and its other members
are Mr Bridel and Mr Brauns.
The Committee conducts formal meetings not less than three times
a year. There were four meetings during the period under review and
multiple ad-hoc meetings. All Directors were present and forming
part of the quorum. The auditor is invited to attend those meetings
at which the annual and interim reports are considered.
Principal Duties
The role of the Committee includes:
-- Monitoring the integrity of the published financial statements of the Group;
-- Keeping under review the consistency and appropriateness of
accounting policies on a year to year basis;
-- Satisfying itself that the annual financial statements, the
interim statement of financial results and any other major
financial statements issued by the Group follow International
Financial Reporting Standards and give a true and fair view of the
Group and its subsidiaries' affairs; matters raised by the external
auditors about any aspect of the financial statements or of the
Group's internal control, are appropriately considered and, if
necessary, brought to the attention of the board, for
resolution;
-- Monitoring and reviewing the quality and effectiveness of the auditor and their independence;
-- Considering and making recommendations to the Board on the
appointment, reappointment, replacement and remuneration of the
Group's auditor;
-- Monitoring and reviewing the internal control and risk
management systems of the service providers; and
-- Considering at least once a year whether there is a need for an internal audit function.
The complete details of the Committee's formal duties and
responsibilities are set out in the Committee's terms of reference,
a copy of which can be obtained from the Secretary.
Independent Auditor
The Committee is also the forum through which the auditor
reports to the Board of Directors. The Committee reviews the scope
and results of the audit, its cost effectiveness and the
independence and objectivity of the auditor, with particular regard
to the terms under which it is appointed to perform non-audit
services including fees. The Committee has established pre-approval
policies and procedures for the engagement of KPMG, Ireland
('KPMG') to provide non-audit services. KPMG has been the
independent auditor from the date of the initial listing on the
Specialist Fund Segment of the London Stock Exchange.
The audit fees proposed by the auditor each year are reviewed by
the Committee taking into account the Group's structure, operations
and other requirements during the year and the Committee make
appropriate recommendations to the Board. The Committee considers
KPMG to be independent of the Company. The Committee also met with
the external auditors without the Asset Manager or Administrator
being present so as to provide a forum to raise any matters of
concern in confidence.
Evaluations or Assessments made during the year
The following sections discuss the assessments made by the
Committee during the year:
Significant Areas of Focus for the Financial Statements
The Committee's review of the interim and annual financial
statements focused on:
-- Valuation of the Company's Assets (more detail in relation to the approach is in note 3);
-- Lease and loan cash flows;
-- The financial statements giving a true and fair view and
being prepared in accordance with International Financial Reporting
Standards and the Companies (Guernsey) Law, 2008; and
-- Going concern and the viability statement including the
creation of scenario planning and review.
Effectiveness of the Audit
The Committee had formal meetings with KPMG during the period
under review:
-- Before the start of the audit to discuss formal planning,
discuss any potential issues and agree the scope that will be
covered; and
-- After the audit work was concluded to discuss any significant
matters such as those stated above.
The Board considered the effectiveness and independence of KPMG
by using a number of measures, including but not limited to:
-- The audit plan presented to them before the start of the audit;
-- The audit results report;
-- Changes to audit personnel;
-- The auditor's own internal procedures to identify threats to independence; and
-- Feedback from both the Asset Manager and Administrator.
Internal Audit
There is no internal audit function. As all of the Directors are
non-executive and all of the Company's administration functions
have been delegated to independent third parties, the Audit
Committee considers that there is no need for the Company to have
an internal audit function. However, this matter is reviewed
periodically.
Conclusion and Recommendation
After reviewing various reports such as the operation and risk
management framework and performance reports from the Directors and
the Asset Manager, and assessing the significant areas of focus for
the financial statements listed on pages 47 to 50, the Committee is
satisfied that the financial statements appropriately address the
critical judgements and key estimates (both in respect to the
amounts reported and the disclosures).
The Committee is also satisfied that the significant assumptions
used for assessing going concern and, determining the value of
assets and liabilities have been appropriately scrutinised,
challenged and are sufficiently robust. The independent auditor
reported to the Committee that no material misstatements were found
in the course of its work. Furthermore, the Administrator confirmed
to the Committee that they were not aware of any material
misstatements including matters relating to presentation.
The Committee confirms that it is satisfied that the independent
auditor has fulfilled its responsibilities with diligence and
professional scepticism. Following the completion of the financial
statements review process on the effectiveness of the independent
audit and the review of audit services, the Committee will
recommend that KPMG be reappointed at the next Annual General
Meeting.
For any questions on the activities of the Committee not
addressed in the foregoing, a member of the Committee will attend
each Annual General Meeting to respond to such questions.
By order of the Audit Committee
Jeremy Thompson
Audit Committee Chairman
STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES
Geopolitical and economic risks
The Company leases aircraft to customers in multiple
jurisdictions exposing it to (i) many and varying economic, social,
legal and geopolitical risks, (ii) instability in key markets and
(iii) global health pandemics. The Directors continue to monitor
the development of Covid-19 and are continuing to assess the impact
on the Company. Exposure to multiple jurisdictions may adversely
affect the Company's future performance, position and growth
potential. The adequacy and timeliness of the Company's response to
emerging risks in these jurisdictions are of critical importance to
the mitigation of their potential impact on the Company.
Exposure to the commercial airline industry
As a supplier to and partner of the airline industry, the Group
is exposed to the financial condition of the airline industry as it
leases its aircraft to commercial airline customers. The financial
condition of the airline industry is affected by, among other
things, geopolitical events, outbreaks of communicable pandemic
diseases and natural disasters, fuel costs and the demand for air
travel. To the extent that any of these factors adversely affect
the airline industry they may result in (i) downward pressure on
lease rates and aircraft values, (ii) higher incidences of lessee
defaults, restructuring, and repossessions and (iii) inability to
lease aircraft on commercially acceptable terms.
NAS
The lease agreements with NAS were in the judgement of the
Directors de-facto terminated in December 2020 as detailed in note
3a. The group has submitted claims against NAS for losses suffered
but do not expect to receive any compensation into the Group due to
the related lending bank enforcing their security rights over the
lease contracts after declaring an Event of Default post year
end.
Thai Airways
Thai went into debt rehabilitation during the year and the
process is still ongoing at the time of issue of these financial
statements. There is risk that the results of the rehabilitation
process will be unfavourable to the Group. Rental due up to 14
September 2020 are to be resolved as part of the rehabilitation and
there is no guarantee that the group will recover partially or in
full the amounts due. Furthermore, the terms agreed with Thai per
the LOI entered into post year end on 2 March 2021 are subject to
approval as part of the rehabilitation process as well. There is a
risk that these terms may not be approved as they are.
Some of Thai's 787's are grounded, including both the Company's
aircraft, in one case awaiting a replacement engine. The timing of
the replacement engine is under current negotiation and likely to
be tested and installed during Q2 2021. The storage conditions of
our aircraft are monitored to ensure the aircraft are protected to
industry standards.
The impact of the Covid-19 is likely to impact passenger numbers
for Thai given the reduced Chinese and regional demand.
Covid-19 Impact
COVID-19 has spread across the globe, with major outbreaks
across China, the Middle East, Europe and America, resulting in
widespread restrictions on the ability of people to travel,
socialise and leave their homes. COVID-19 has had a significant for
the airline sector, and by extension the aircraft leasing sector.
During the year both Lessee's have requested lease payment relief,
one has entered into restructuring and one going into liquidation
post year end. Given the continuing evolution of the significant
impact of, and the uncertainties created by COVID-19, this has
meant that this risk has now become the most significant.
Asset risk
The Company's Assets comprise of four Boeing 787-8 aircraft.
However, two aircraft that were leased to NAS have subsequent to
year end, been taken over by NordLB following NordLB declared an
Event of Default on its loan agreements and enforced its security
rights to the aircraft.
The Group bears the risk of selling or re-leasing the remaining
aircraft in its fleet at the end of their lease terms or if the
lease is terminated. If demand for aircraft decreases market lease
rates may fall, and should such conditions continue for an extended
period, it could affect the market value of aircraft in the fleet
and may result in an impairment charge. The Directors have engaged
an asset manager with appropriate experience of the aviation
industry to manage the fleet and remarket or sell aircraft as
required to reduce this risk. Any lasting impact of the Covid-19
situation on both aircraft demand and lease rated are at present
unknown.
There is no guarantee that, upon expiry or cessation of the
leases, the Assets could be sold or released for an amount that
would enable shareholders to realise a capital profit on their
investment or to avoid a loss. Costs regarding any future
re-leasing of the assets would depend upon various economic factors
and would be determinable only upon an individual re-leasing event.
Potential reconfiguration costs could in certain circumstances be
substantial.
Key personnel risk
The ability of the Company to achieve its investment objective
is significantly dependent upon the advice of certain key personnel
at DS Aviation GmbH & Co. KG; there is no guarantee that such
personnel will be available to provide services to the Company for
the scheduled term of the Leases or following the termination of
the Lease. However, Key Man clauses within the Asset Management
agreement do provide a base line level of protection against this
risk.
Credit risk & Counterparty risk
Credit risk is the risk that a significant counterparty will
default on its contractual obligations. The Group's most
significant counterparties are Norwegian and Thai Airways as
lessees and providers of income and Norddeutsche Landesbank
Girozentrale ('NordLB') and DekaBank Deutsche Girozentrale
('DekaBank') as holder of the Group's cash and restricted cash. The
lessees do not maintain a credit rating. Subsequent to the year end
the lessee of the NAS aircraft has gone into liquidation and the
lease terminations are in the process being finalised. Thai Airways
is currently undergoing a restructuring review. The credit rating
of NordLB is A3 (2019: A3) and the credit rating of DekaBank is Aa2
(2019: Aa2). NordLB has, post year end, declared an Event of
Default on its loan agreements and enforced its security rights,
see note 27 for further details.
There is no guarantee that the business rehabilitation process
of Thai Airways will be successful. Failure of any material part of
the business rehabilitation plan may have an adverse impact on its
ability to comply with its obligations under the leases or the LOI
entered into post year end.
Any failure by Thai Airways to pay any amounts when due would
have an adverse effect on the Group's ability to comply with its
obligations under the Dekabank loan agreements and could result in
the lenders enforcing their security and selling the relevant
Assets on the market potentially negatively impacting the returns
to investors. In mitigation, Thai Airways is an International
full-service carrier and is important to Thai's economy and as such
it is unlikely that the Government will not provide it with the
necessary support to see it through its restructure. However, there
is no guarantee and hence a significant risk remains.
Liquidity risk
In order to finance the purchase of the Assets, the Group has
entered into four separate loan agreements pursuant to which the
Group has borrowed an initial amount of US$ 316,600,000 in total.
Pursuant to the loan agreements, the lenders are given first
ranking security over the Assets. Under the provisions of each of
the loan agreements, the Borrowers are required to comply with loan
covenants and undertakings. A failure to comply with such covenants
or undertakings may result in the relevant lenders recalling the
relevant loan. In such circumstances, the Group may be required to
remarket the relevant Asset (either sell or enter into a subsequent
lease) to repay the outstanding relevant loan and/or re-negotiate
the loan terms with the relevant lender.
More detailed explanations of the above risks can be found
within note 23 to the Audited Consolidated Financial Statements on
pages 72 to 78 of this report. Also, please see Summary report page
5 for details regarding NordLB loan default and the resulting
actions taken by the lending bank.
Boeing
Company exposure to Boeing in terms of ongoing guarantees and
commitments could be negatively impacted with any ongoing 737-Max
problems and as yet the financial impact upon Boeing in terms of
financial compensation and potential loss of orders is not known
although it is expected these matters will be resolved in time.
Rolls Royce
Company exposure to Rolls Royce in terms of ongoing guarantees
and commitments could be negatively impacted with the Trent 1000
engine issues and as yet the financial impact upon Rolls Royce in
terms of financial compensation, loss of capacity and loss of
orders is not known. The Company believes that its engines will
actually benefit from the current maintenance and refurbishments
under way. Announcements by RR have implied that the LPT and other
issues are now under control.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the financial
statements in accordance with the applicable financial reporting
framework. They have decided to prepare the financial statements in
accordance with International Financial Reporting Framework
('IFRS'). The financial statements are required by law to comply
with the Companies (Guernsey) Law, 2008.
The Directors are also responsible for ensuring its Annual
Report and Audited Consolidated Financial Statement meet the
requirements of the UK's FCA Disclosure and Transparency Rules.
In preparing these financial statements, the Directors have:
-- Selected suitable accounting policies and applied them consistently;
-- Made judgements and estimates that are reasonable and prudent;
-- Stated whether they have been prepared in accordance with IFRS;
-- Assessed the Company's ability to continue as a going
concern, disclosing, as applicable, matters related to going
concern; and
-- Used the going concern basis of accounting unless they either
intend to liquidate the Company or cease operations or have no
realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting
records which disclose with reasonable accuracy at any time the
assets, liabilities, financial position and profit or loss of the
Company and which enable them to ensure that these financial
statements comply with IFRS and the Companies (Guernsey) Law, 2008.
They are also responsible for such internal controls as they
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error, and have a general responsible for safeguarding the
assets of the Company, and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the financial information included on the Company's website.
Legislation in Guernsey governing the preparation and dissemination
of financial statements may differ from legislation in other
jurisdictions.
Signed on behalf of the Board by
Jonathan Bridel Jeremy Thompson
Director Director
INDEPENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF DP AIRCRAFT I
LIMITED
1. Report on the Audit of the Financial Statements
Opinion
We have audited the consolidated financial statements of DP
Aircraft I Limited ("the Company") and its subsidiaries (together
and hereinafter the "Group") which comprise the consolidated
statement of financial position as at 31 December 2020, the
consolidated statement of comprehensive income, consolidated
statement of changes in equity and consolidated statement of cash
flows for the year then ended, and notes, comprising significant
accounting policies and other explanatory information.
In our opinion, the accompanying financial statements
-- give a true and fair view of the financial position of the
Group as at 31 December 2020, and of its financial performance and
its cash flows for the year then ended;
-- have been prepared in accordance with International Financial
Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB); and
-- have been properly prepared in accordance with the
requirements of the Companies (Guernsey) Law, 2008.
Basis for Opinion
We conducted our audit in accordance with International
Standards on Auditing (ISAs). Our responsibilities under those
standards are further described in the Auditors' Responsibilities
for the Audit of the Financial Statements section of our report. We
are independent of the Group in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in Guernsey together with the Financial Reporting
Council (FRC)'s Ethical Standard as applied to listed entities and
we have fulfilled our other ethical responsibilities in accordance
with these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Material Uncertainty Related to Going Concern
We draw attention to Note 2-a ('Significant Accounting Policies
- Basis of Preparation - Going Concern') in the financial
statements, which outlines the Group's dependencies on the ongoing
viability of Thai Airways and their ability to satisfy the letter
of intent entered into on 2 March 2021 which amended the existing
lease terms and the related agreement of the Group's lenders
(Dekabank) which amended the existing loan facility agreement to
accommodate the revised lease terms. The amended lease is subject
to the approval of the Thai courts and this approval alongside the
continuing support of Dekabank are key uncertainties in the coming
12 months. Furthermore, the directors consider that there is an
expectation that the Group will require further equity to be raised
in the period post 12 months from the date of approval of these
financial statements. These events or conditions indicate that a
material uncertainty exists that may cast significant doubt on the
Group's ability to continue as a going concern. Our opinion is not
modified in respect of this matter.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
consolidated financial statements of the current period. These
matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these
matters. In addition to the matter described in the Material
Uncertainty Related to Going Concern section, we have determined
the matters described below to be the key audit matters to be
communicated in our report.
Going Concern
Please see paragraph above "Material Uncertainty Related to
Going Concern".
Valuation of PPE - Aircraft & related components $126.6 million (2019: $400.6 million) /
Assets held for sale $82.0 million (2019: $nil)
Refer to page 51 (accounting policy) and page 70 (financial disclosures)
The key audit matter How the matter was addressed in our audit
At 31 December 2020, the carrying value of the Group's In relation to the audit of the impairment
aircraft portfolio, including related assessment of aircraft and related
components amounted to $208.6 million or 80% of total components,
assets. the procedures we undertook included,
The Group applies the requirements of IAS-36 Impairment amongst others:
of Assets ('IAS-36') in order to determine
whether it is necessary to recognise an impairment loss We obtained an understanding of and
on any aircraft and related assets. documented the key control around the
In relation to the assets classified as held for sale the impairment assessment
Group applies IFRS 5 and carries of aircraft and related components, testing
the assets at the lower of their carrying amount and fair the effectiveness of the design and
value less costs to sell. implementation
There is significant risk relating to the valuation of of the control, including consideration of
aircraft given the judgemental nature approval by the Board of Directors.
of the assumptions, and inputs to the impairment model,
including any adjustments made to We inquired of the Board of Directors about
the market values in the independent valuations obtained, plans for aircraft disposals or other
that require consideration by the actions
Board of Directors. that may negatively impact on aircraft
recoverable amounts.
We evaluated the (i) competence,
capabilities and objectivity of experts
employed by the
Group to provide aircraft current market
values and (ii) the appropriateness of
their work
as audit evidence. We obtained the current
market value reports from the independent
valuers
to validate these inputs to the impairment
model and compared to internal data sources
to
determine they were reasonable.
Furthermore, we obtained evidence of recent
market transactions
to support any adjustments made to these
values
We evaluated the Board of Directors
identification of impairment indicators,
and assessed
the methodology adopted in its impairment
model with reference to our understanding
of the
Group's business and the requirements of
IAS-36. We assessed the calculations
underlying the
impairment model by checking that the data
and assumptions input into the model were
in agreement
with those that we had evaluated.
We also evaluated the classification of
aircraft as held for sale.
We assessed for aircraft classified as Held
for Sale in accordance with IFRS 5 that
they were
carried at the lower of their carrying
value and fair value less costs to sell
with reference
to the market values in the independent
valuers reports.
We assessed the adequacy of the disclosures
made by the Group regarding the impairment
assessment
of aircraft and related components in the
financial statements for compliance with
the relevant
accounting standards. We assessed that the
events disclosed that occurred post year
end were
non-adjusting events in accordance with IAS
10
We have nothing to report on other matters on which we are
required to report by exception
We have nothing to report in respect of the following matters
where the Companies (Guernsey) Law, 2008 requires us to report to
you if, in our opinion:
-- the Company has not kept proper accounting records; or
-- the financial statements are not in agreement with the accounting records; or
-- we have not received all the information and explanations,
which to the best of our knowledge and belief are necessary for the
purpose of our audit.
Other information
The Directors are responsible for the other information. The
other information comprises the information included in the
Highlights, Chairman's Statement, Asset Managers Report, Report of
the Audit Committee, Statement of Principal Risks and
Uncertainties, and Company Information.
Our opinion on the financial statements does not cover the other
information and we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If, based
on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact.
We have nothing to report in this regard.
1. Respective responsibilities and restrictions on use
Responsibilities of the Directors and Those Charged with
Governance for the Financial Statements
The Directors are responsible for the preparation and fair
presentation of the financial statements in accordance with IFRS,
and for such internal control as the Directors determine is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error,
assessing the Group's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the
Directors either intend to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the
Group's financial reporting process.
Auditors' Responsibilities for the Audit of the Financial
Statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditors' report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
Auditors' Responsibilities for the Audit of the Financial
Statements (continued)
Further details relating to our work as auditor is set out in
the Scope of Responsibilities Statement contained in the appendix
to this report, which is to be read as an integral part of our
report.
Our report is made solely to the Company's Shareholders, as a
body, in accordance with section 262 of the Companies (Guernsey)
Law, 2008. Our audit work has been undertaken so that we might
state to the Company's Shareholders those matters we are required
to state to them in an auditors' report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company's Shareholders as a
body, for our audit work, for this report, or for the opinions we
have formed.
Niall Naughton 12 May 2021
for and on behalf of
KPMG
Chartered Accountants, Statutory Audit Firm
1 Harbourmaster Place
IFSC
Dublin 1
Appendix to the Independent Auditors' Report
Further information regarding the scope of our responsibilities
as auditor
As part of an audit in accordance with ISAs, we exercise
professional judgment and maintain professional scepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
-- Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Group's internal control.
-- Evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by the Directors.
-- Conclude on the appropriateness of the Directors' use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Group's
ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in
our auditors' report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained
up to the date of our auditors' report. However future events or
conditions may cause the Group's to cease to continue as a going
concern.
-- Evaluate the overall presentation, structure and content of
the financial statements, including the disclosures, and whether
the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
-- Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within
the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for
our audit opinion.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence,
and where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the (consolidated) financial
statements of the current period and are therefore the key audit
matters. We describe these matters in our auditors' report unless
law or regulation precludes public disclosure about the matter or
when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to outweigh
the public interest benefits of such communication.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2020
Year ended Year ended
31 December 31 December
2020 2019
Note US$ US$
Income
Lease rental income 4 47,285,233 57,383,604
Lease related income 5 41,334,854 -
----------------------------------------- ----- -------------- -------------
88,620,087 57,383,604
Expenses
Asset management fees 26 (1,032,327) (1,007,149)
Asset manager's disposal fee 26 2,479,634 (622,990)
General and administrative expenses 6 (2,472,196) (987,816)
Expected credit loss on receivables 14 (11,416,244) -
Depreciation and amortisation 10 (21,714,435) (22,227,528)
Impairment loss on aircraft and related
components 10 (170,317,511) -
(204,473,079) (24,845,483)
Operating (loss)/profit (115,852,992) 32,538,121
Finance costs 7 (15,724,086) (9,758,815)
Loss on financial assets at fair value 12 (24,859,692) -
Gain on derivatives at fair value 24 1,242,805 -
Finance income 107,930 446,665
----------------------------------------- ----- -------------- -------------
Net Finance Costs (39,233,043) (9,312,150)
(Loss)/Profit before tax (155,086,035) 23,225,971
Taxation 8 (41,016) (56,902)
(Loss)/Profit for the year (155,127,051) 23,169,069
----------------------------------------- ----- -------------- -------------
Other Comprehensive (Loss)/Income
Items that are or may be reclassified
to profit or loss
Cash flow hedges - changes in fair
value (3,462,554) (2,691,368)
Cash flow hedges - reclassified to
profit or loss 5,811,395 188,730
----------------------------------------- ----- -------------- -------------
Cash flow hedge loss 24 2,348,841 (2,502,638)
Total Other Comprehensive Income/(Loss) 2,348,841 (2,502,638)
----------------------------------------- ----- -------------- -------------
Total Comprehensive (Loss)/Income for
the year (152,778,210) 20,666,431
----------------------------------------- ----- -------------- -------------
(Loss)/Earnings per Share for the year
- basic and diluted 9 (0.74105) 0.11068
----------------------------------------- ----- -------------- -------------
All income is attributable to the Ordinary Shares of the
Company.
The notes on pages 51 to 97 form an integral part of these
financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2020
2020 2019
Note US$ US$
NON-CURRENT ASSETS
PPE - Aircraft & Related Components 10 126,600,000 400,631,946
Total non-current assets 126,600,000 400,631,946
CURRENT ASSETS
Assets held for sale 11 82,000,000 -
Investment held at fair value 12 15,630,526 -
Cash and cash equivalents 6,949,167 12,216,093
Restricted cash 13 27,438,332 34,563,671
Trade and other receivables 14 45,930 363,576
------------------------------------- ----- -------------- ------------
Total current assets 132,063,955 47,143,340
TOTAL ASSETS 258,663,955 447,775,286
------------------------------------- ----- -------------- ------------
EQUITY
Share Capital 19 210,556,652 210,556,652
Retained Earnings 20 (152,345,457) 7,491,594
Hedging Reserve 20 - (2,348,841)
Total equity 58,211,195 215,699,405
NON-CURRENT LIABILITIES
Bank borrowings 18 - 163,739,430
Maintenance reserves 15 14,460,682 20,207,622
Security deposits 15 - 13,264,420
Derivative instrument liabilities 24 - 2,348,843
Asset Manager disposal fee 26 - 2,479,634
------------------------------------- ----- -------------- ------------
Total non-current liabilities 14,460,682 202,039,949
CURRENT LIABILITIES
Bank borrowings 18 180,915,582 27,107,311
Derivative instrument liabilities 24 4,183,715 -
Deferred income 16 - 2,487,409
Trade and other payables 17 892,781 441,212
------------------------------------- ----- -------------- ------------
Total current liabilities 185,992,078 30,035,932
TOTAL LIABILITIES 200,452,760 232,075,881
------------------------------------- ----- -------------- ------------
TOTAL EQUITY AND LIABILITIES 258,663,955 447,775,286
------------------------------------- ----- -------------- ------------
The financial statements on pages 47 to 97 were approved by the
Board of Directors and were authorised for issue on 12 May 2021.
They were signed on its behalf by:
Jonathan Bridel Jeremy Thompson
Chairman Director
The notes on pages 51 to 97 form an integral part of these
financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2020
Year ended Year ended
31 December 31 December
2020 2019
US$ US$
(Loss)/profit for the year (155,127,051) 23,169,069
Adjusted for:
Depreciation and amortisation 21,714,435 22,227,528
Finance costs 15,724,086 9,758,815
Gain on derivatives at fair value (1,242,805) -
Loss on financial assets at fair value 24,859,692 -
Impairment loss on aircraft and related 170,317,511 -
components
Taxation 41,016 56,902
Expected credit loss on receivables 11,416,244 -
Changes in:
Decrease in security deposit (13,264,420) -
(Decrease)/increase in maintenance provision (5,746,940) 3,451,055
Decrease in deferred income (42,771,405) (92,472)
(Decrease)/increase in Asset Manager's
performance fee provision (2,479,634) 622,990
Increase in accruals and other payables 374,821 105,783
Increase in receivables (11,304,821) (9,449)
Income taxes paid (9,681) (42,774)
----------------------------------------------- -------------- -------------
NET CASH FLOW FROM OPERATING ACTIVITIES 12,501,048 59,247,448
----------------------------------------------- -------------- -------------
INVESTING ACTIVITIES
Restricted cash 7,125,339 (3,906,147)
----------------------------------------------- -------------- -------------
NET CASH FLOW FROM/(USED IN) INVESTING
ACTIVITIES 7,125,339 (3,906,147)
----------------------------------------------- -------------- -------------
FINANCING ACTIVITIES
Dividends paid (4,710,000) (18,840,000)
Bank loan principal repaid (11,700,921) (25,899,084)
Bank loan interest paid (6,981,540) (9,339,935)
Swap interest paid (1,500,852) (168,371)
NET CASH FLOW USED IN FINANCING ACTIVITIES (24,893,313) (54,247,390)
----------------------------------------------- -------------- -------------
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 12,216,093 11,122,182
(Decrease)/increase in cash and cash
equivalents (5,266,926) 1,093,911
----------------------------------------------- -------------- -------------
CASH AND CASH EQUIVALENTS AT OF
YEAR 6,949,167 12,216,093
----------------------------------------------- -------------- -------------
The notes on pages 51 to 97 form an integral part of these
financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2020
Retained Hedging Total
Share capital Earnings Reserve Equity
Note US$ US$ US$ US$
As at 1 January 2020 210,556,652 7,491,594 (2,348,841) 215,699,405
Total comprehensive income
for the year
Loss for the year - (155,127,051) - (155,127,051)
Other comprehensive income - - 2,348,841 2,348,841
---------------------------- ----- -------------- ----------------- --------------------- --------------
Total comprehensive loss - (155,127,051) 2,348,841 (152,778,210)
---------------------------- ----- -------------- ----------------- --------------------- --------------
Transactions with owners
of the Company
Dividends 21 - (4,710,000) - (4,710,000)
As at 31 December 2020 210,556,652 (152,345,457) - 58,211,195
---------------------------- ----- -------------- ----------------- --------------------- --------------
As at 1 January 2019 210,556,652 3,162,525 153,797 213,872,974
Total comprehensive income
for the year
Profit for the year - 23,169,069 - 23,169,069
Other comprehensive income - - (2,502,638) (2,502,638)
---------------------------- ----- -------------- ----------------- --------------------- --------------
Total comprehensive income - 23,169,069 (2,502,638) 20,666,431
---------------------------- ----- -------------- ----------------- --------------------- --------------
Transactions with owners
of the Company
Dividends 21 - (18,840,000) - (18,840,000)
As at 31 December 2019 210,556,652 7,491,594 (2,348,841) 215,699,405
---------------------------- ----- -------------- ----------------- --------------------- --------------
The notes form an integral part of these financial
statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
1) GENERAL INFORMATION
The consolidated audited financial statements ('financial
statements') incorporate the results of the Company and that of
wholly owned subsidiary entities, DP Aircraft Guernsey I Limited,
DP Aircraft Guernsey II Limited, DP Aircraft Guernsey III Limited,
DP Aircraft Guernsey IV Limited (collectively and hereinafter, the
'Borrowers'), each being a Guernsey Incorporated company limited by
shares and two intermediate lessor companies, DP Aircraft Ireland
Limited and DP Aircraft UK Limited (the 'Lessors'), an Irish
incorporated company limited by shares and a UK incorporated
private limited company respectively.
DP Aircraft I Limited (the 'Company') was incorporated on 5 July
2013 with registered number 56941. The Company is admitted to
trading on the Specialist Fund Segment of the London Stock
Exchange.
The Share Capital of the Company comprises 209,333,333 Ordinary
Shares (2018: 209,333,333) of no par value and one Subordinated
Administrative Share of no par value.
The Company's investment objective is to obtain income and
capital returns for its Shareholders by acquiring, leasing and
then, when the Board considers it appropriate, selling
aircraft.
The financial statements were approved by the Board of Directors
and authorised for issue on 12 May 2021.
2) SIGNIFICANT ACCOUNTING POLICIES
a) Basis of preparation
These financial statements are prepared in accordance with
International Financial Reporting Standards, International
Accounting Standards and Interpretations ('IFRS') issued by the
International Accounting Standards Board ('IASB').
The preparation of financial statements in accordance with IFRS
requires the use of certain critical accounting estimates. It also
requires the Directors to exercise judgement in applying the
Company's accounting policies. The areas where significant
judgements and estimates have been made in preparing the financial
statements and their effect are disclosed in note 3.
The financial statements are presented in United States Dollars
(US$) which is also the functional currency of the Company and its
subsidiaries.
Going Concern
The Directors have prepared the financial statements for the
year ended 31 December 2020 on the going concern basis of
preparations. However, the Directors have identified the matters
referred to below , in addition to Company operational requirements
that may not be within the control of the Company, which indicate
the existence of a material uncertainty that may cast doubt on the
entity's ability to continue as a going concern and that the
company may, as a consequence, be unable to realise its assets and
discharge its liabilities in the normal course of business.
Covid-19 has resulted in widespread restrictions on the ability
of people to travel, socialise and leave their homes and has had a
material negative effect on the airline sector, and by extension
the aircraft leasing sector. The Company leased four (4) Boeing 787
aircraft (the 'Aircraft'), two each to Norwegian Air Shuttle ASA
('NAS') and Thai Airways International ('Thai'). Post year end the
NordLB have enforced their security rights over the 2 NAS aircraft
and have taken control of them.
The application of the going concern basis of preparation is
dependent upon the Company's aircraft leasing and the related
financing activities as described below.
Thai - Leases and related Loans
The Thai Leases
Thai Airways rehabilitation process is currently ongoing, on 2
March 2021 a business rehabilitation plan was submitted for Thai
Airways and is being considered by the creditors for approval. On
that same date, the Company signed a LOI with Thai Airways under
which the parties agreed to amend the existing lease terms. The new
terms provide for a PBH arrangement until the end of next year
(i.e., rent will be payable by reference to actual monthly
utilisation of the Thai aircraft), with scaled back monthly lease
payments thereafter, reflecting the reduced rates now seen in the
market. The lease term will be extended by 3 years to December
2029, after consulting the Lenders retaining a right of early
termination in 2026. Thai Airways has also undertaken to ensure
that the Thai aircraft are airworthy and in flight ready condition
in all respects by 30 June 2021, and on an ongoing basis. A
corresponding agreement has been reached with the bank providing
finance for the aircraft leased to Thai airways, see below.
The Thai Loans
On 6 May 2021, following the new lease arrangements entered into
by the Company and Thai as described above, the Company and
Dekabank have amended and restated the existing loan facility
agreements in respect of the Thai aircraft to accommodate the new
lease terms. Repayments of principal will be deferred until the end
of the PBH arrangement; and the Company and Dekabank will enter
into discussions at that time to determine how best to schedule
interest payments, principal repayments and a final balloon
repayment, having regard for both the income being received by the
Company in respect of the Thai aircraft, and the running costs of
the Company and its subsidiaries. The loan is secured by charges
over the two Thai aircraft and the underlying leases.
The Directors expect that the Thai rehabilitation plan will
succeed and, under the terms of the new lease to be entered into
with Thai based on the LOI signed on 2 March 2021 and the
corresponding agreement reached with the bank providing finance for
the aircraft leased to Thai airways (Dekabank), the Company will
have sufficient liquidity from (i) the lease payments from Thai and
(ii) utilising certain of its own funds to continue to meet all of
its obligations under the Thai Loans as well as operating costs for
the group.
Norwegian Leases and related Loans
The NAS leases
The lease agreements with NAS were in the judgement of the
Directors de-facto terminated in December 2020 as detailed in note
3a. The Group has submitted claims against NAS for losses suffered
but do not expect to receive any compensation, see below with
regards NordLB bank taking over the rights under lease
contracts.
The NAS Loans
As detailed under 'Subsequent Events', NordLB declared an Event
of Default under the relevant loan agreements with the Company's
two borrower subsidiaries, enforced rights under the relevant
security documents and took control of the process of disposing of
the two NAS aircraft, with the proceeds of sale (along with
relevant aircraft-specific cash balances, claims against Norwegian
and shares in Norwegian held as security) being applied in the
first instance to pay off any outstanding amounts owed to the bank,
and any balance remaining thereafter being remitted to the relevant
subsidiaries of the Company. The Directors consider it highly
unlikely that Company will receive any benefit from NordLB as a
result of the aforementioned process as the bank will likely sale
for the minimal amount required to cover its loan.
These developments impact solely upon the two NAS aircraft; they
have no effect upon the Company's arrangements in respect of the
aircraft which it leases to Thai Airways; and there is no recourse
by NordLB to the Company itself.
Conclusion
The Directors have considered the group's cash requirements for
a period of 12 months from the signing of these financial
statements. This forecast shows the likely need for further equity
to be raised to fund the period post 12 months and to allow for
other contingencies given the companies circumstances. However, the
Directors believe that it is appropriate to prepare these financial
statements under the going concern basis of preparation due to:
-- The continuing support of Dekabank which made loans to the
Group (with certain loan concessions);
-- The ongoing viability of Thai Airways, expectation that
Thailand's Central Bankruptcy Court will approve the revised lease
per the LOI and, the ability of Thai Airways to satisfy the terms
of the LOI for the revised lease;
-- The expectation that an equity fund raise will be successful based on liaison with sufficient shareholders;
-- Having regard to the limited recourse nature of the loans
which means NordLB debt default impacts solely upon the two NAS
aircraft and have no effect upon the Company's arrangements in
respect of the aircraft which it leases to Thai Airways; and there
is no recourse by NordLB to the Company itself ; and
-- The expectation that all operational requirements will continue to be fulfilled.
No adjustments have been made to the financial statements in the
event that the Company was unable to continue as a going
concern.
New standards, interpretations and amendments effective from 1
January 2020
There are no new standards, amendments to standards and
interpretations that are effective for annual periods beginning on
1 January 2020 which have a material impact on the financial
statements.
New standards, interpretations and amendments in issue but not
yet effective
There are no new standards, amendments to standards and
interpretations that are effective for annual periods beginning
after 1 January 2021 which are expected to have a material impact
on the financial statements in future reporting periods.
b) Basis of consolidation
The financial statements incorporate the financial statements of
the Company and the subsidiary undertakings controlled by the
Company made up to 31 December each year. Control is achieved where
the Company has power over the investee, exposure or rights to
variable returns from its involvement with the investee and the
ability to use its power to affect the amount of the investor's
returns.
The results of subsidiary undertakings acquired or disposed of
during the year are included in the consolidated statement of
comprehensive income from the effective date of acquisition or up
to the effective date of disposal as appropriate.
All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
c) Taxation
The Company and the Guernsey subsidiaries are exempt from
taxation in Guernsey and are charged an annual
exemption fee of GBP 1,200 (2019: GBP1,200). This is treated as an operating expense.
DP Aircraft Ireland Limited is subject to resident taxes in
Ireland. DP Aircraft UK Limited is subject to income tax in the
United Kingdom.
Taxable profit differs from net profit as reported in the
statement of comprehensive income because it excludes items of
income and expense that are taxable or deductible in other years
and it further excludes items that are never taxable or deductible.
The Group's liability for current tax is calculated using tax rates
that have been enacted or substantially enacted by the reporting
date in the relevant jurisdictions.
d) Property, Plant and Equipment - Aircraft and Related Components
Upon delivery, aircraft (the 'Assets') are initially recognised
at cost plus initial direct costs which may be capitalised under
IAS 16. In accounting for property, plant and equipment, the Group
makes estimates about the expected useful lives, the fair value of
attached leases and the estimated residual value of aircraft. In
estimating useful lives, fair value of leases and residual value of
aircraft, the Group relies upon actual industry experience,
supported by estimates received from independent appraisers.
When an aircraft is acquired with a lease attached, an
evaluation of whether the lease is at fair value is undertaken. A
lease premium is recognised when it is determined that the acquired
lease terms are above fair value. Lease premiums are recognised as
a component of Aircraft and are amortised to profit or loss on a
straight-line basis over the term of the lease.
The two aircraft leased to Norwegian Air Shuttle ASA were
acquired in 2013 and had a useful economic lease life of 12 years
at acquisition. The two aircraft leased to Thai Airways
International were acquired in 2015 and had a useful economic lease
life of 12 years at acquisition.
The Group's policy is to depreciate the Assets over their
remaining lease life (given the intention to sell the Assets at the
end of each respective lease) to an appraised residual value at the
end of the lease. Residual values are reviewed annually, and such
estimates are supported by future values determined by three
external valuations and discounted by the inflation rate
incorporated into those valuations, see note 3 for further
details.
In accordance with IAS 16 - Property, Plant and Equipment, the
Group's aircraft that are to be held and used are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying value of the aircraft may not be recoverable. An
impairment review involves consideration as to whether the carrying
value of an aircraft including related assets is in excess of the
higher of its value in use and its fair value less costs to sell.
In such circumstances a loss is recognised as a write down of the
carrying value of the aircraft to the higher of value in use and
fair value less cost to sell. The review for recoverability has a
level of subjectivity and requires the use of judgement in the
assessment of estimated future cash flows associated with the use
of an item of property, plant and equipment and its eventual
disposition. See note 3 for further details regarding impairment
assessment.
e) Non-current assets held for sale
In line with IFRS 5 non-current assets are classified as held
for sale when:
-- They are available for immediate sale;
-- Management is committed to a plan to sell;
-- It is unlikely that significant changes to the plan will be
made or that the plan will be withdrawn;
-- An active programme to locate a buyer has been initiated;
-- The asset or disposal group is being marketed at a reasonable
price in relation to its fair value; and
-- A sale is expected to complete within 12 months from the date of classification.
Non-current assets classified as held for sale are measured at
the lower of:
-- Their carrying amount immediately prior to being classified
as held for sale in accordance with the group's accounting policy;
and
-- Fair value less costs of disposal.
Following their classification as held for sale, non-current
assets are not depreciated.
f) Financial Instruments
A financial instrument is recognised when the Group becomes a
party to the contractual provisions of the instrument. Regular way
purchases and sales of financial assets are accounted for at trade
date, i.e. the date that the Group commits itself to purchase or
sell the asset. Financial liabilities are derecognised if the
Group's obligations, specified in the contract, expire or are
discharged or cancelled. Financial assets are derecognised if the
Group's contractual rights to the cash flows from the financial
assets expire, are extinguished, or if the Group transfers the
financial assets to a third party and transfers all the risks and
rewards of ownership of the asset, or if the Group does not retain
control of the asset and transfers substantially all the risk and
rewards of ownership of the asset.
Under IFRS 9, on initial recognition, a financial asset is
classified as measured at:
-- Amortised cost;
-- Fair value through other comprehensive income ('FVOCI') - debt investment;
-- FVOCI - equity investment; or
-- Fair value through profit or loss ('FVTPL').
The classification of financial assets under IFRS 9 is generally
based on the business model in which a financial asset is managed
and its contractual cash flow characteristics. The Company only has
financial assets that are classified as amortised cost or
FVTPL.
Financial assets at amortised cost are initially measured fair
value plus transaction costs that are directly attributed to its
acquisition, unless it is a trade receivable without a significant
financing component which is initially measured at its transaction
price.
These assets are subsequently measured at amortised cost using
the effective interest method. The amortised cost is reduced by
impairment losses as detailed below.
Financial assets at amortised cost
A financial asset is measured at amortised cost if it meets both
of the following conditions and is not designated as at FVTPL:
-- It is held within a business model whose objective is to hold
assets to collect contractual cash flows; and
-- Its contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest on the
principal amount outstanding.
Trade and other receivables excluding shares in NAS receivable
are classified at amortised cost (see financial assets at FVTPL for
policy for shares in NAS receivable).
Fair values of financial assets at amortised cost, which are
determined for disclosure purposes, are calculated based on the
present value of future principal and interest cash flows,
discounted at the market rate of interest at the reporting
date.
Cash and cash equivalents comprise cash balances held for the
purpose of meeting short term cash commitments and investments
which are readily convertible to a known amount of cash and are
subject to an insignificant risk of changes in value.
Restricted cash comprises cash held by the Group, but which is
ring-fenced or used as security for specific financing
arrangements, and to which the Group does not have unfettered
access. Restricted cash includes monies received in relation to
maintenance provisions and security deposits.
Impairment of financial assets held at amortised cost
The Company has elected to apply the simplified model for trade
receivables, including lease receivables and maintenance reserve
receivables, as the trade receivables all have a maturity of less
than one year and do not contain a significant financing component.
Under the simplified approach the requirement is to always
recognise lifetime ECL.
Financial assets at FVTPL
All financial assets not classified as measured at amortised
cost or FVOCI are measured at FVTPL which includes derivative
financial assets, shares in NAS receivable and investments
held.
Financial assets at FVTPL are initially and subsequently
measured at fair value. The Company had originally designated its
derivative financial instruments as hedging instruments as detailed
below.
Hedge accounting
Hedge accounting is applied to certain risks in financial assets
and financial liabilities only where all of the following criteria
are met:
-- At the inception of the hedge there is formal designation and
documentation of the hedging relationship and the Group's risk
management objective and strategy for undertaking the hedge;
and
-- The hedge relationship meets all of the hedge effectiveness
requirements including that an economic relationship exists between
the hedged item and the hedging instrument, the credit risk effect
does not dominate the value changes, and the hedge ratio is
designated based on actual quantities of the hedged item and
hedging instrument.
The Directors have previously concluded, given that the critical
terms of the hedged item matched those of the hedging instrument in
terms of risk, timing and quantity, that the requirements of hedge
accounting are met for the Group's floating to fixed interest rate
swaps.
Cash flow hedges - interest rate swaps
The Company has two floating to fixed interest rate swaps in
order to provide for fixed rate interest to be payable in respect
of two of the bank loans. The effective portion of gains and losses
on the floating to fixed interest rate swaps are recognised in
other comprehensive income and accumulated in the cash flow hedge
reserve. The ineffective portion of gains and losses on the
floating to fixed interest rate swaps used to manage cash flow
interest rate risk are recognised in profit or loss within finance
expense or finance income.
However, the cumulative gains and losses recognised in other
comprehensive income are reclassified from the cash flow hedge
reserve to profit or loss using the effective interest method. From
date of discontinuation, movements in the fair value of the hedge
instrument are accounted for in profit or loss.
Hedge accounting is discontinued when:
-- The risk management objective of an entity for the hedging
relationship has changed - i.e., continuing to apply hedge
accounting would no longer reflect its risk management
objective;
-- The hedging instrument expires or is sold, terminated or
exercised; this excludes scenarios in which the expiry or
termination is a replacement or rollover of a hedging instrument
into another that is part of, and consistent with, the entity's
documented risk management objective - discontinuation would not be
required in these scenarios;
-- There is no longer an economic relationship between the
hedged item and hedging instrument; or
-- The effect of credit risk starts dominating the value changes
that result from the economic relationship.
If the hedge no longer meets the criteria for hedge accounting,
then the hedge accounting is discontinued prospectively. When hedge
accounting is discontinued, the amount that has been accumulated in
the hedging reserve remains in equity until it is reclassified to
profit or loss in the same period or periods as the hedged expected
future cash flows affect profit or loss. If the hedged future cash
flows are no longer expected to occur, then the amounts that have
been accumulated in the hedging reserve are immediately
reclassified to profit or loss.
Financial liabilities at amortised cost
Bank borrowings are recognised initially at fair value, net of
transaction costs incurred. Bank borrowings are subsequently stated
at amortised cost; any difference between the proceeds (net of
transaction costs) and the redemption value is recognised through
profit or loss in the consolidated statement of comprehensive
income over the period of borrowing using the effective interest
rate method. Bank borrowings are classified as current liabilities
unless the Group has an unconditional right to defer settlement of
the liability for at least one year after the reporting date.
Initial direct costs related to bank borrowings are capitalised,
presented net against the bank borrowings in the statements of
financial position and amortised to the statement of comprehensive
income over the period of the related loan as part of the effective
interest rate.
Where loans are modified, the modification is assessed in line
with IFRS 9 to determine whether the modification is substantial.
Where the modification is substantial, the existing loan is
derecognised and the new loan is recognised at fair value. Any
difference is recognised as a gain or loss within the statement of
comprehensive income.
NAS, has Boeing Gold Care cover and Rolls Royce Total Care
arrangements under which the majority of the maintenance payments
are made. In addition, maintenance reserves are lessee
contributions to a retention account held by the lessor which are
calculated by reference to the budgeted cost of maintenance and
overhaul events (the 'supplemental rentals'). They are intended to
ensure that at all times the lessor holds sufficient funds to cover
the proportionate cost of maintenance and overhaul of the Asset
relating to the life used on the airframe, engines and parts since
new or since the last overhaul. During the term of the lease, all
maintenance is required to be carried out at the cost of the
lessee, and maintenance provisions are required to be released only
upon receipt of satisfactory evidence that the relevant qualifying
maintenance or overhaul has been completed.
Maintenance provisions are recorded in the consolidated
statement of financial position during the term of the lease.
Reimbursements will be charged against this liability as qualifying
maintenance work is performed. Maintenance reserves are restricted
and not distributable until, at the end of the lease, the Group is
released from the obligation to make any further reimbursements in
relation to the aircraft, and the remaining balance of maintenance
provisions, if any, is released through profit or loss as lease
related income. On termination of the lease maintenance reserves
balance is also released to profit or loss as lease related
income.
Security deposits are paid by the lessee in accordance with the
terms of the lease contract, either in cash or in the form of a
letter of credit. These deposits are refundable to the lessee upon
expiration of the lease and, where such deposits are received in
cash, they are recorded in the consolidated statement of financial
position as a liability. The cash received related to security
deposits is presented as restricted cash in the consolidated
statement of financial position.
Trade and other payables are recognised initially at fair value
and subsequently measured at amortised cost using the effective
interest method.
Fair value measurement
The Group measures certain financial instruments such as
derivatives at fair value at the end of each reporting period using
recognised valuation techniques and following the principles of
IFRS 13.
The fair value measurement of the Group's financial assets and
liabilities utilises market observable inputs as far as possible.
Inputs used in determining fair value measurements are categorised
into different levels based on how observable the inputs used in
the valuation technique utilised are:
-- Level 1 - Quoted (unadjusted) market prices in active markets
for identical assets or liabilities;
-- Level 2 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is directly
or indirectly observable; and
-- Level 3 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable.
The classification of an item into the above levels is based on
the lowest level of the inputs used that has a significant effect
on the fair value measurement of the item.
g) Share capital
Shares are classified as equity. Incremental costs directly
attributable to the issue of shares are recognised as a deduction
from retained earnings.
h) Asset Manager's disposal fee provision
The disposal fee provision is measured at the present value of
the expenditure expected to be required to settle the obligation.
Changes in the estimated timing or amount of the expenditure or
discount rate are recognised in profit or loss in the statement of
comprehensive income when the changes arise.
i) Dividends
Dividends are recognised as a liability in the financial
statements in the period in which they become obligations of the
Company.
j) Lease rental income
Leases relating to the Aircraft are classified as operating
leases where the terms of the lease do not transfer substantially
all the risks and rewards of ownership to the lessee. Rental income
from operating leases is recognised on a straight-line basis over
the term of the lease.
Initial direct costs incurred in setting up a lease are
capitalised to Property, Plant and Equipment and amortised over the
lease term.
Rentals received in advance are accounted for a deferred income
and are released to Profit or Loss on a straight-line basis. Where
the lease is terminated prior to the lease term, any remaining
deferred income is released to the Statement of Comprehensive
Income.
k) Expenses
Expenses are accounted for on an accrual basis.
l) Finance costs and finance income
Interest payable is calculated using the effective interest rate
method. The effective interest method is a method of calculating
the amortised cost of a financial asset or liability and of
allocating interest income and expense over the relevant
period.
The effective interest rate is the rate that exactly discounts
estimated future cash receipts or payments (including all fees or
amounts paid or received that form an integral part of the
effective interest rate, including transaction costs and other
premiums or discounts) through the expected life of the financial
asset or liability.
m) Foreign currency translation
Transactions denominated in foreign currencies are translated
into US$ at the rate of exchange ruling at the date of the
transaction.
Monetary assets and liabilities denominated in foreign
currencies at the reporting date are translated into US$ at the
rate of exchange ruling at the reporting date. Foreign exchange
gains or losses arising on translation are recognised through
profit or loss in the consolidated statement of comprehensive
income.
n) Segmental reporting
The Directors are of the opinion that the Group is engaged in a
single segment of business, being acquiring, leasing and subsequent
selling of Aircraft. All significant operating decisions are based
upon analysis of the Group as one segment. The financial results
from this segment are equivalent to the financial statements of the
Group as a whole.
3) SIGNIFICANT JUDGEMENTS AND ESTIMATES
The preparation of financial statements in conformity with IFRS
requires that the Directors make estimates and assumptions that
affect the application of policies and reported amounts of assets
and liabilities, income and expenses. Such estimates and associated
assumptions are generally based on historical experience and
various other factors that are believed to be reasonable under the
circumstances and form the basis of making the judgements about
attributing values of assets and liabilities that are not readily
apparent from other sources.
Information about assumptions and estimation uncertainty at 31
December 2020 that have a significant risk of resulting in a
material adjustment to the carrying amounts of assets and
liabilities in the next financial year are:
a) Significant judgements
Going Concern
The Directors have considered the group's cash requirements for
a period of 12 months from the signing of these financial
statements. This forecast shows the likely need for further equity
to be raised to fund the period post 12 months and to allow for
other contingencies given the companies circumstances. However, the
Directors believe that it is appropriate to prepare these financial
statements under the going concern basis of preparation due to:
-- The continuing support of Dekabank which made loans to the
Group (with certain loan concessions);
-- The ongoing viability of Thai Airways, expectation that
Thailand's Central Bankruptcy Court will approve the revised lease
per the LOI and, the ability of Thai Airways to satisfy the terms
of the LOI for the revised lease;
-- The expectation that an equity fund raise will be successful based on liaison with sufficient shareholders;
-- Having regard to the limited recourse nature of the loans
which means NordLB debt default impacts solely upon the two NAS
aircraft and have no effect upon the Company's arrangements in
respect of the aircraft which it leases to Thai Airways; and there
is no recourse by NordLB to the Company itself ; and
-- The expectation that all operational requirements will continue to be fulfilled.
The ongoing difficult and uncertain situations of the aircraft
industry and hence the impact on the lessees has resulted in
significant reliance on the ongoing support of the lending banks.
No adjustments have been made to the financial statements in the
event that the group was unable to continue as a going concern.
NAS lease termination
As at the year end the board have concluded that the lease was
'de-facto' terminated as at the year end. This is on the basis that
prior to the year end, NAS had suspended all lease payments (since
May 2020) on both aircrafts, the lessee had filed for Examinership
in Ireland in November 2020 and had also not fulfilled certain
other obligations of the aircraft including safe storage. The board
considered that as at the year end, due to the above, NAS were in
full breach of the lease agreement and that NAS had no intention to
continue the leases. Whilst the lease was not formally terminated,
the board were in negotiations regarding the lease termination pre
year end. As a result, the board concluded that in substance a
'de-facto' lease termination has occurred and have therefore
accounted for a lease termination in these financial
statements.
Therefore, as at 31 December 2020 the group has released the
associated lease liabilities such as deferred income (notes 4, 5
and 16) and the maintenance reserves (notes 5 and 15) in full to
the Consolidated Statement of Comprehensive Income as at the
year-end.
Modification of borrowings
During the period there was a restructure of the loan advanced
by NordLB, the Directors have, in line with IFRS 9, assessed
whether the modification was substantial. If deemed substantial,
then the original loan liability would have been derecognised and a
new loan liability recognised. The assessment was done on a
quantitative basis and compared the net present value of the
modified cash flows including any fees payable or receivable
against the net present value of the remaining cash flows of the
loan prior to the modification, both discounted at the original
effective interest rate. A difference of 10% or more would have
been considered substantial as is advised in IFRS 9. Future cash
flows on the modified loan have been estimated with reference to 1-
month USD Libor forward curves and concluded that modification was
not substantial.
b) Significant estimates
Impairment of property, plant and equipment / fair value of held
for sale aircraft
As with each reporting date, but more relevant in light of the
developments of COVID-19, a detailed impairment assessment of the
aircraft and lease premiums have been undertaken.
IFRS requires an assessment of the aircraft carrying value
versus the higher of the value in use and fair value less cost to
sell. The lease encumbered value is the value of the aircraft on
lease, given a specified lease payment stream (rents and terms),
and estimated future base value adjusted for return condition at
lease termination, and an appropriate discount rate i.e., value in
use. Lease encumbered values have not been used for NAS aircraft
given leases were de-facto terminated in December 2020. For Thai
aircraft, the lease encumbered values based on expected revised
lease terms, are less than the market values and as such the
recoverable amount has been determined with reference to the market
value (fair value).
The board have considered the unencumbered aircraft valuations
provided by independent valuers which reflect the valuation should
the aircraft need to be re-let in the marketplace.
NAS Aircraft
The board have considered a range of potential outcomes for the
aircraft which included:
-- Current market value - current market values based on
independent valuations less adjustments to reflect the specific
situation of these two aircraft which include defaulting lessee,
de-facto lease terminations, aircraft parked without engines on and
parts to be returned, along with the distressed nature of the
aircraft creating a required time for sale that is not factored
into the independent valuations.
-- Soft market values - the board utilised the professional
valuations to establish the discounts between market values and
soft market values. Soft market values are those which reflect the
impact that of some imbalance in the supply / demand equation may
have on the specific aircraft. Such discount was then applied to
the average market value from the professional values as at 31
December 2020.
The board considered all possible ranges and concluded that in
the group's present circumstances that it was most appropriate to
value the aircraft at US$ 41 million each. This resulted in an
impairment of US$ 89,460,355 (2019: US$ Nil) in total for the two
NAS aircraft.
This impairment was undertaken prior to the aircraft being
transferred from property, plant and equipment to that of held for
sale. Due to this transfer occurring just before the year end the
board consider that there was no further adjustment required to the
carrying value as at the year end.
Thai Aircraft
In consideration the impairment of the Thai aircraft the board
considered both the value in use and the fair value less costs to
sell. The value in use is based on independent valuations with the
key estimation uncertainty is Thai's ability to pay the future
rental income. The fair value less costs to sell is based on the
current market values based on independent valuations without
adjustments. The board considered it appropriate not to apply any
discounts and adjustments for these aircraft given the specific
circumstances of these aircraft.
The board considered all possible ranges and concluded that in
the group's present circumstances that it was most appropriate to
value the aircraft at US$ 63.3 million each.
This resulted in an impairment of US$ 58,839,697 (2019: US$ Nil)
in total for the two Thai aircraft.
The total impairment loss recognised during the year ended 31
December 2020 for both Thai and Norwegian aircraft is US$
148,300,052 (2019: US$ Nil).
In line with IFRS, the lease premium has also been assessed for
impairment. The lease agreements with NAS were in the judgement of
the Directors de-facto terminated in December 2020 as detailed in
note 3a and as a result the remaining NAS lease premium has been
impaired in full.
Thai lease terms were revised post year end, the Company signed
a LOI with Thai Airways under which the parties agreed to amend the
existing lease terms. The new terms provide for a PBH arrangement
until the end of next year (i.e., rent will be payable by reference
to actual monthly utilisation of the Thai aircraft), with scaled
back monthly lease payments thereafter, reflecting the reduced
rates now seen in the market. Negotiations to revise the Thai lease
were ongoing as at year end and there was a strong expectation that
lease would be revised given Thai failing to pay lease payments due
under old lease. As the new lease was expected to included PBH and
reduced monthly payments to reflect market going forward, the
related Thai lease premium was no longer considered recoverable and
was written off in full as at the year end.
The result is in an impairment of US$ 12,819,013 (2019: US$ Nil)
for Norwegian and US$ 9,198,446 (2019: US$ Nil) for Thai being a
total of US$ 22,017,459 (2019: US$ Nil).
Depreciation of aircraft
As described in note 2, the Group depreciates the Assets on a
straight-line basis over the remaining lease life and taking into
consideration the estimated residual value at the end of the lease
term. The Group engage Independent Expert Valuers each year to
provide a valuation of the Assets and take into account the average
of the valuations provided.
Residual value estimates of the Aircraft were determined by the
full life inflated base values at the end of the leases from
external valuations and discounted by the inflation rate
incorporated into those valuations and the lease premium was
determined to have a US$ Nil residual value at the end of the
leases.
The full life inflated base value is the appraiser's opinion of
the underlying economic value of the aircraft in an open,
unrestricted, stable market environment with a reasonable balance
of supply and demand, and assumes full consideration of its
'highest and best use'. The full life inflated values used within
the financial statements match up the two lease termination dates
and have been discounted by the inflation rate incorporated into
the valuations. The residual value of the aircraft does not
represent the current fair value of the aircraft.
The residual value estimates at the end of each year are used to
determine the aircraft depreciation of future periods. The residual
value estimates of the leases for the aircraft not held for sale as
at 31 December 2020 was US$ 125,572,493 (31 December 2019: US$
132,158,208). As a result, the year ending 31 December 2021 and
future aircraft depreciation charges for aircraft note held for
sale, with all other inputs staying constant, will be US$ 175,160
(2019: US$ 10,635,167). The actual aircraft depreciation charge for
2022 onwards will vary based on the residual value estimates as at
31 December 2021.
Expected credit losses
The Directors have concluded that there has been a significant
decline in the credit quality of both lessees based on the factors
below.
Thai
-- As a result of the suspension of travel due to Covid-19 the
lessee defaulted on lease payments that were due during the period
and remained in default as at year end;
-- Thai Airways entered into debt rehabilitation during the year
and the rehabilitation proceedings are still ongoing.
-- As at the year end the lease agreement was being renegotiated
with Thai Airways. It was expected that lease rentals due up to 14
September 2020 would be settled as part of rehabilitation. An
immaterial amount, if anything, is expected to be recovered from
this in light of the ongoing impact of Covid-19 on the airline
sector;
-- During the negotiations, it was clear that Thai Airways was
not expecting to be required to pay lease rentals due for period
between 15 September 2020 and the new lease effective date; and
-- The security deposits paid by Thai were applied against
outstanding receivables during the year and not replenished due to
a lack of cash on the part of the lessee.
NAS
-- The security deposits paid by NAS were applied against
outstanding receivables during the year and not replenished due to
a cash shortfall on the part of the lessee;
-- The subsidiary of NAS that is lessee of the two aircraft
entered Irish examinership on 18 November 2020 and Norwegian
examinership on 8 December 2020 and subsequent to year end entered
into liquidation; and
-- The formal NAS lease termination process is currently being
finalised. Even though claims have been submitted to NAS for rental
due and other losses suffered the board considered it highly
unlikely that anything will be recovered given continuing impact of
Covid-19 on airline sector and NAS not currently have the support
of its Government.
As a result of the significant decline in the credit quality of
both lessees as set out above, the Directors have concluded that
there is a nil to minimal probability of lease receivables due as
at year end being recovered. Therefore, a full provision for
expected credit losses on lease rentals receivable as at year end
has been recognised in respect of both Thai and NAS (see note
14).
4) LEASE RENTAL INCOME
Year ended Year ended
31 December 31 December
2020 2019
US$ US$
Total lease rental income 47,285,233 57,383,604
--------------------------- ------------ ------------
All lease rental income was derived from two customers located
in Norway and Thailand and all four Assets are Boeing 787-8
aircraft. During the year ended 31 December 2020 the Group earned
the following amounts of rental income from these two
customers:
Year ended Year ended
31 December 31 December
2020 2019
US$ US$
Norway 19,790,602 29,852,203
Thailand 27,494,631 27,531,401
Total lease rental income 47,285,233 57,383,604
---------------------------- ------------ ------------
The contracted cash lease rental payments to be received under
non-cancellable operating leases at the reporting date excluding
receivables already recognised at year end are:
Next 12 2 to 5 years* After 5 years Total
months
31 December 2020 US$ US$ US$ US$
Boeing 787-8 Serial No: - - - -
35304**
Boeing 787-8 Serial No: - - - -
35305**
Boeing 787-8 Serial No:
35320*** 13,745,640 54,982,560 12,600,170 81,328,370
Boeing 787-8 Serial No:
36110*** 13,712,040 54,848,160 10,284,030 78,844,230
------------------------- ----------- -------------- -------------- ------------
27,457,680 109,830,720 22,884,200 160,172,600
------------------------- ----------- -------------- -------------- ------------
Next 12 months 2 to 5 years* After 5 years Total
31 December 2019 US$ US$ US$ US$
Boeing 787-8 Serial
No: 35304 14,886,012 59,544,048 6,963,799 81,393,859
Boeing 787-8 Serial
No: 35305 14,947,440 59,789,760 9,285,841 84,023,041
Boeing 787-8 Serial
No: 35320 13,745,640 54,982,560 26,345,810 95,074,010
Boeing 787-8 Serial
No: 36110 13,712,040 54,848,160 23,996,070 92,556,270
--------------------- --------------- -------------- -------------- ------------
57,291,132 229,164,528 66,591,520 353,047,180
--------------------- --------------- -------------- -------------- ------------
Years 2 to 5 have been aggregated in the above table as the
annual lease rental income contracted during this period is the
same as the annual lease rental income contract within the next 12
months.
**Due to the de-facto lease termination of the NAS aircraft no
future lease receipts have been included above.
***The numbers presented are based on the original lease
agreement that was effective as at 31 December 2020. As detailed
below, subsequent to the year end, a letter of intent has been
entered into which will modify the contractual cash flows. These
are not included in the table above.
The lease agreements with NAS were in the judgement of the
Directors de-facto terminated in December 2020 as detailed in note
3a and hence there will be no rentals received post year end in
relation to the Boeing 35304 and 35305 aircraft. Also, see note 18
for details regarding lending bank NordLB assuming contractual
rights under the lease with NAS due to an Event of Default being
declared post year end.
On 2 March 2021, the Company signed a LOI with Thai Airways
under which the parties agreed to amend the existing lease terms.
The new terms provide for a PBH arrangement until the end of next
year (i.e., rent will be payable by reference to actual monthly
utilisation of the Thai aircraft), with scaled back monthly lease
payments thereafter, reflecting the reduced rates now seen in the
market. The lease term will be extended by 3 years to December
2029, after consulting the Lenders retaining a right of early
termination in 2026. Therefore, future contractual rentals
receivable will not be as shown in the table above which represents
the year end position.
5) LEASE RELATED INCOME
Lease related income is made up as follows:
2020 2019
US$ US$
Maintenance reserves liability released 7,041,816 -
to Profit or Loss
Deferred income released to Profit 34,293,038 -
or Loss (note 16)
41,334,854 -
---------------------------------------- ----------- -----
As detailed in note 3a, there has been a termination of the NAS
leases as at 31 December 2020. As a consequence, there is no longer
an obligation in relation to the NAS maintenance reserves and so
the NAS maintenance reserve liability has been released to the
Consolidated Statement of Comprehensive Income as lease related
income as at year end. The released maintenance reserve liability
of US$ 7,041,816 comprises of prior year reserves and current year
additions to the reserves (see note 15) .
The lease agreements with NAS were in the judgement of the
Directors de-facto terminated in December 2020 as detailed in note
3a and as a result the deferred income in relation to the NAS
leases as at 31 December 2020 has been released in full to the
profit or loss account as lease related income.
6) GENERAL AND ADMINISTRATIVE EXPENSES
Year ended Year ended
31 December 31 December
2020 2019
US$ US$
Legal and professional fees 363,656 328,006
Restructuring fees 1,240,689 -
Directors' fees and expenses
(note 25) 339,023 236,475
Administration fees (note 26) 340,036 253,998
Insurance 47,956 50,185
Audit fees 97,694 53,371
Foreign exchange loss 21,295 20,693
Travel expenses 5,282 4,068
Other fees and expenses 16,565 41,020
------------------------------------ ------------ ------------
Total general and administrative
expenses 2,472,196 987,816
----------------------------------- ------------ ------------
The restructuring fees include professional fees in relation to
the renegotiation of the aircraft leases and associated bank
loans.
7) FINANCE COSTS
Year ended Year ended
31 December 31 December
2020 2019
US$ US$
Loan interest paid
and payable 6,903,447 9,276,444
Amortisation of deferred finance
costs 1,847,855 293,641
----------------------------------------- ------------ ------------
Total finance costs at effective
interest rate* 8,751,302 9,570,085
Cash flow hedge - discontinuation 1,161,389 -
(P/L)
Cash flow hedges reclassified
from OCI while hedge accounting
was applied 384,877 188,730
------------------------------------ --- ------------ ------------
10,297,568 9,758,815
Reserve reclassification on 5,426,518 -
hedge discontinuation
------------------------------------ --- ------------ ------------
Total finance costs 15,724,086 9,758,815
------------------------------------------ ------------ ------------
*On liabilities measured at amortised cost.
The realised element of the cash flow hedge continued to be
reclassified from Other Comprehensive Income to Profit or Loss up
to the point that the hedge accounting was discontinued being US$
384,877 up to 13 May 2020. Post that date, the fair value movement
of the cash flow hedge, including the interest paid or payable
element, has been accounted for directly in the Consolidated
Statement of Comprehensive Income. Also, the cumulative other
comprehensive income cash flow hedge reserve recognised up to the
date hedge accounting was discontinued has been reclassified in
full to the Consolidated Statement of Comprehensive Income as at
year end .
8) TAXATION
With the exception of DP Aircraft Ireland Limited and DP
Aircraft UK Limited, all companies within the Group are exempt from
taxation in Guernsey and are charged an annual exemption fee of
GBP1,200 each (2019: GBP1,200).
DP Aircraft Ireland Limited and DP Aircraft UK Limited are
subject to taxation at the applicable rate in Ireland and the
United Kingdom respectively. The amount of taxation paid during the
year ended 31 December 2020 was US$ 41,016 (2019: US$ 42,774). The
Directors do not expect the taxation payable to be material to the
Group.
A taxation reconciliation has not been presented in these
financial statements as the tax expense is not material. The
effective tax rate based on tax charge for the year is (0.027%)
(2019: 0.27%).
9) EARNINGS PER SHARE
Year ended Year ended
31 December 2020 31 December 2019
US$ US$
(Loss)/Profit for the year (155,127,051) 23,169,069
Weighted average number of
shares 209,333,333 209,333,333
(Loss)/Earnings per Share (0.74105) 0.11068
----------------------------- ----------------- -----------------
There are no instruments in issue that could potentially dilute
earnings per Ordinary Share in future years.
10) PROPERTY, PLANT AND EQUIPMENT- AIRCRAFT & RELATED COMPONENTS
Aircraft Lease Premium Total
US$ US$ US$
COST
As at 1 January 2020 476,751,161 46,979,793 523,730,954
Reclassified as held for sale (238,020,000) (29,581,300) (267,601,300)
----------------------------------------- -------------- -------------- --------------
As at 31 December 2020 238,731,161 17,398,493 256,129,654
----------------------------------------- -------------- -------------- --------------
ACCUMULATED DEPRECIATION / AMORTISATION
As at 1 January 2020 102,498,694 20,600,314 123,099,008
Charge for the year 17,352,415 4,362,020 21,714,435
Reclassified as held for sale (66,559,645) (16,762,287) (83,321,932)
----------------------------------------- -------------- -------------- --------------
As at 31 December 2020 53,291,464 8,200,047 61,491,511
----------------------------------------- -------------- -------------- --------------
IMPAIRMENT
As at 1 January 2020 - - -
Charge for the year 148,300,052 22,017,459 170,317,511
Reclassified as held for sale (89,460,355) (12,819,013) (102,279,368)
----------------------------------------- -------------- -------------- --------------
As at 31 December 2020 58,839,697 9,198,446 68,038,143
----------------------------------------- -------------- -------------- --------------
CARRYING AMOUNT
As at 31 December 2020 126,600,000 - 126,600,000
----------------------------------------- -------------- -------------- --------------
COST
As at 1 January 2019 and 31 December
2019 476,751,161 46,979,793 523,730,954
----------------------------------------- -------------- -------------- --------------
ACCUMULATED DEPRECIATION / AMORTISATION
As at 1 January 2019 84,633,186 16,238,294 100,871,480
Charge for the year 17,865,508 4,362,020 22,227,528
As at 31 December 2019 102,498,694 20,600,314 123,099,008
----------------------------------------- -------------- -------------- --------------
IMPAIRMENT
As at 1 January 2019 - - -
Charge for the year - - -
----------------------------------------- -------------- -------------- --------------
As at 31 December 2019 - - -
----------------------------------------- -------------- -------------- --------------
CARRYING AMOUNT
As at 31 December 2019 374,252,467 26,379,479 400,631,946
----------------------------------------- -------------- -------------- --------------
As at 31 December 2020 the NAS aircraft were classified to held
for sale, see note 11 for further details. The Thai aircraft
continue to be held for normal use within the group and therefore
remain classified PPE - Aircraft & Related Components.
Under the terms of the leases that existed during the year, the
cost of repair and maintenance of the Assets is to be borne by NAS
and Thai Airways. However, upon expiry or termination of the
leases, the cost of repair and maintenance will fall upon the
Group. Therefore, upon expiry or termination of the leases, the
Group may bear higher costs and the terms of any subsequent leasing
arrangement (including terms for repair, maintenance and insurance
costs relative to those agreed under the leases) may be adversely
affected, which could reduce the overall distributions paid to the
Shareholders. Following the de-facto lease termination with NAS the
responsibility for repair and maintenance have now fallen primarily
on the Group.
The first aircraft was acquired in June 2013, the second
aircraft acquired in August 2013 and the third and fourth aircraft
were acquired in June 2015. All four of the aircraft are used as
collateral for the loans as detailed in note 18.
The residual value estimates at the end of each year are used to
determine the aircraft depreciation of future periods. The
depreciation for the year ended 31 December 2020 is based on the
estimated residual value of the Boeing 787-8 Assets as at the end
of their respective leases in 2025 and 2026 which have been
supported by valuations by independent experts as at 1 January
2020. The residual value will depend upon a variety of factors
including actual or anticipated fluctuations in the results of the
airline industry, market perception of the airline industry,
general economic and social and political development, changes in
industry conditions, fuel prices or rates of inflation.
As detailed in note 3 the aircraft and lease premium have been
impaired during the period as a result of detailed impairment
assessments following the developments within the aircraft industry
and more specifically that of the lessees (see note 3 for further
details).
The loans entered into by the Group to complete the purchase of
the first two aircraft are cross collateralised. Each of the loans
are secured by way of security taken over each of the first
aircraft and the second aircraft. Refer to note 18 for details
regarding NordLB taking control of the first two aircraft post year
end due to an Event of Default being declared subsequent to the
year end.
The loans entered into by the Group to complete the purchase of
the second two aircraft are cross collateralised. Each of the loans
are secured by way of security taken over each of the third
aircraft and the fourth aircraft.
11) ASSETS HELD FOR SALE
The following major asset class has been classified as held for
sale in the consolidated statement of financial position on 31
December:
2020 2019
US$ US$
Property, Plant and Equipment - Aircraft 82,000,000 -
82,000,000 -
----------------------------------------- ----------- -----
The board have considered the requirements of IFRS 5 and have
concluded that the two NAS aircraft meet the definition of Held for
Sale as at 31 December 2020.
The carrying value of the asset held for sale represents the NAS
aircraft fair value less costs of disposal as at year end. The fair
value has been determined with reference to unobservable inputs
(see detail in note 3b for NAS aircraft) and is categorised within
level 3 of the IFRS 13 fair value hierarchy.
Refer to note 4 for details of NAS rental income recognised in
the statement of comprehensive income for the year ended 31
December 2020.
12) INVESTMENT HELD AT FAIR VALUE
2020 2019
US$ US$
Opening investment held at fair value - -
Additions 40,490,218 -
Unrealised fair value loss (24,859,692) -
-------------------------------------- ------------- -----
Balance as at year end 15,630,526 -
-------------------------------------- ------------- -----
The above represents the 1,541,897 shares (after stock
consolidation of 1 share for every 100 held) (31 December 2019: Nil
Shares) the Group received in Norwegian Air Shuttle ASA in relation
to rental income of US$ 40,283,995 (notes 4 and 16) and maintenance
reserves of US$ 206,223. This is a 3.90% (31 December 2019: Nil %)
shareholding in Norwegian at the period end. The number of shares
received were calculated by reference to the monies which are being
waived and/or forborne by the Company as a result of the waived
outstanding debtor and the reduced monthly rental amount from July
2020, as discounted back to the net present value at time of
issuance.
The shares had lock-up dates attached allowing partial sales in
August 2020 and October 2020, with the Company free to dispose of
all such shares on any date falling on or after 9 December 2020. No
shares were sold up to 31 December 2020.
The shares have been provided as collateral to the lending banks
in relation to the Norwegian Aircraft and post year end security
enforcement rights have been exercised.
Subsequent to the year end, and with consent from the lenders,
525,000 of the first tranche of shares received have been sold for
proceeds of approximately US$ 4 million. The proceeds received were
not up streamed to the Parent and serve as security for the NAS
lenders. The group is uncertain as to how administration of the NAS
lessee of the aircraft will affect the second allocation of shares
which was due in April 2021. Due to this uncertainty and the
situation as at the year end, no value has been attributed to the
element of the second tranche shares that would have been earned
during 2020.
See note 18 for further details regarding the lending bank,
NordLB assuming rights under the NAS shares held or receivable due
to an Event of Default subsequent to the year end.
13) RESTRICTED CASH
2020 2019
US$ US$
Security deposit account 5,054,768 13,633,876
Maintenance reserves
account 22,383,564 20,929,795
Total restricted cash 27,438,332 34,563,671
---------------------------- ----------- -----------
The security deposits held have been provided by the two lessees
in accordance with the lease agreements and are made up as
follows:
2020 2019
US$ US$
NAS security deposits - 6,400,000
Thai security deposits 5,054,768 7,233,876
Total security deposits 5,054,768 13,633,876
--------------------------- ---------- -----------
The Norwegian Air Shuttle ASA security deposit has been fully
used up during the period against rentals that were due for the
period March 2020 to May 2020 and has not been replenished so none
is refundable to NAS as at year end (see note 15).
The Thai Airways security deposit has been fully reserved and
applied against unpaid lease rentals per Reservation of Rights
letters served to Thai Airways in June 2020. However, in accordance
with the Dekabank financing arrangements the Thai amount reserved
has been kept in the security deposits bank account and is to be
used solely to service loan payments due to Dekabank and so remains
as restricted cash. Refer to note 18 for further details regarding
the Dekabank loan. Thai have not replenished the security deposit,
so none is refundable to Thai as at year end (see note 15).
Included in the maintenance reserves cash as at year end is US$
6,835,590 attributable to the NAS aircraft. In accordance with the
NordLB financing arrangements, the NAS amount reserved has been
kept in the maintenance reserves bank account and remains as
restricted cash.
As detailed in note 18, post year end NordLB after declaring an
Event of Default has taken control of, among other things, NAS
aircraft-specific cash balances. This balance together with any
relevant post year end movements are now under the control of
NordLB.
14) TRADE AND OTHER RECEIVABLES
2020 2019
US$ US$
Prepayments 45,930 68,606
Rent receivable 10,111,605 -
Maintenance reserve receivable - 294,970
------------------------------------------ ------------- ---------------------
Total trade and other receivables 10,157,535 363,576
------------------------------------------ ------------- ---------------------
Less: L ifetime Expected Credit
Loss provision
Rent receivable (10,111,605) -
------------------------------------ --- ------------- ---------------------
Total provision (10,111,605) -
----------------------------------- ---- ------------- ---------------------
Net trade and other receivables 45,930 363,576
------------------------------------------ ------------- ---------------------
Rent receivable is in relation to outstanding amounts due under
the Thai leases only and has been fully provided as shown
above.
The Group does not hold any collateral as security, see note 15
for further details regarding security deposits.
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses ('ECL') using a lifetime ECL provision for
trade receivables. To measure ECL the Group has split trade
receivables per lessee and assessed each lessee separately. The
expected loss rates applied are based on the Group's assessment of
the credit quality of each lessee as well as the impact of
Covid-19, current and future, on the airline sector and world as a
whole. Based on the assessment done of each lessee's credit risk
(see note 3) and how each lessee has been affected by Covid-19,
consider it appropriate to recognise lifetime ECL of the full value
of the rent receivable and lease asset, respectively.
Movements in the impairment allowance for trade receivables are
as follows:
2020 2019
US$ US$
Opening provision for ECL - -
Increase during the year 11,416,244 -
Receivable written off (1,304,639) -
-------------------------- ---- ------------ -----
At 31 December 10,111,605 -
-------------------------- ---- ------------ -----
Receivable written off is in relation to a portion of NAS lease
payments due up to 30 June 2020 that were written off as part of
the lease agreement restructure.
15) SECURITY DEPOSITS AND MAINTEANCE RESERVES LIABILITY
2020 2019
US$ US$
Security deposits :
Refundable to Norwegian - 6,400,000
Refundable to Thai Airways - 6,864,420
Total security deposits - 13,264,420
------------------------------ --------------------------------------- ------------------------
Both NAS and Thai defaulted on the leases during the year and so
the Company took over the security deposit monies and applied these
in full against rentals due. The security deposits utilised against
receivables were not replenished. As a result, there are no
security deposits refundable to each lessee as at year end. Also
see comments in note 13.
2020 2019
US$ US$
Maintenance reserves:
Refundable to Norwegian - 6,470,334
Refundable to Thai Airways 14,460,682 13,737,288
Total maintenance reserves 14,460,682 20,207,622
------------------------------ ------------------------------ -----------------------
As detailed in note 3a, there has been a termination of the NAS
leases as at 31 December 2020. As a consequence, there is no longer
an obligation in relation to the NAS maintenance reserves and so
the NAS maintenance reserve liability has been released to the
Consolidated Statement of Comprehensive Income as at year end. The
released maintenance reserve liability which comprises prior year
reserves and current year additions is recognized in profit or loss
as lease related income (see note 5) .
16) DEFERRED INCOME
2020 2019
US$ US$
Boeing 787-8 Serial No: 35304 - 560,226
Boeing 787-8 Serial No: 35305 - 562,538
Boeing 787-8 Serial No: 35320 - 332,556
Boeing 787-8 Serial No: 36110 - 1,032,089
Total deferred income - 2,487,409
-------------------------------- ------ ----------
The table below sets out the movements in deferred income for
the period ended 31 December 2020 reported in the cash flow
statement :
2020 2019
US$ US$
Opening balance (2,487,409) (2,579,881)
Shares received (non-cash) - (40,283,996) -
note 12
Movement in deferred income * 42,771,405 92,472
Closing balance - (2,487,409)
-------------------------------- ------------- --------------
* The movement in deferred income comprises deferred income
released to Profit or Loss on termination of the related lease of
US$ 34,293,038 (see note 5). The remaining amount is deferred
income released to rental income during the normal course of the
lease and is included in Profit or Loss as rental income.
During the year, the restructuring of Norwegian resulted in the
group receiving equity in Norwegian valued at US$ 40,283,996 which
included equity to settle amounts waived and/or forborne by the
group as a result of a reduced monthly rental amount from April
2021, as discounted back to the net present value at time of
issuance. More details are in note 12. On inception, this
represented income for future rentals for the aircraft and hence
was treated as deferred income. The lease agreements with NAS were
in the judgement of the Directors de-facto terminated in December
2020 as detailed in note 3a and as a result the deferred income in
relation to the NAS leases as at 31 December 2020 has been released
in full to the statement of comprehensive income as lease related
income (see notes 4 and 5). Therefore, this is no remaining NAS
deferred income as at year end.
For Thai Airways, rental is due to the group and hence no
deferred income as at year end.
The maturity analysis of the deferred income at the reporting
date are:
Next 12 months 2 to 5 years After 5 years Total
31 December 2020 US$ US$ US$ US$
Boeing 787-8 Serial - - - -
No: 35304
Boeing 787-8 Serial - - - -
No: 35305
Boeing 787-8 Serial - - - -
No: 35320
Boeing 787-8 Serial - - - -
No: 36110
--------------------- --------------- ------------- -------------- ----------
- - - -
--------------------- --------------- ------------- -------------- ----------
Next 12 months 2 to 5 years After 5 years Total
31 December 2019 US$ US$ US$ US$
Boeing 787-8 Serial
No: 35304 560,226 - - 560,226
Boeing 787-8 Serial
No: 35305 562,538 - - 562,538
Boeing 787-8 Serial
No: 35320 332,556 - - 332,556
Boeing 787-8 Serial
No: 36110 1,032,089 - - 1,032,089
--------------------- --------------- ------------- -------------- ----------
2,487,409 - - 2,487,409
--------------------- --------------- ------------- -------------- ----------
17) TRADE AND OTHER PAYABLES
2020 2019
US$ US$
Swap interest payable 73,483 28,070
Accruals and other payables 720,674 345,853
Taxation payable 98,625 67,289
-------------------------------- -------- --------
Total trade and other payables 892,781 441,212
-------------------------------- -------- --------
18) BANK BORROWINGS
2020 2019
US$ US$
Current liabilities: Bank interest payable
and bank borrowings 180,915,582 27,107,311
Non-current liabilities: bank borrowing - 163,739,430
-------------------------------------------- ------------ -------------
Total liabilities 180,915,582 190,846,741
-------------------------------------------- ------------ -------------
The borrowings are repayable as follows:
Interest payable 238,969 317,062
Within one year 180,676,613 26,790,249
In two to five years - 120,561,601
After five years - 43,177,829
Total bank borrowings 180,915,582 190,846,741
-------------------------------------------- ------------ -------------
The table below analyses the movements in the Group's bank
borrowings:
2020 2019
US$ US$
Opening balance 190,529,679 216,135,121
Repayment of loan (11,700,921) (25,899,083)
Amortisation of deferred finance
costs 1,847,855 293,641
---------------------------------- ------------- -------------
Principal bank borrowings 180,676,613 190,529,679
Interest payable 238,969 317,062
---------------------------------- ------------- -------------
Total bank borrowings 180,915,582 190,846,741
---------------------------------- ------------- -------------
The table below sets out an analysis of net debt and the
movements in net debt for the year ended 31 December 2020:
Cash and Derivative
cash equivalents Principal Interest Instrument* Net Debt
US$ US$ US$ US$ US$
At 1 January 2020 12,216,093 (190,529,679) (317,062) (2,376,913) (181,007,561)
Cash flows (5,266,926) 11,700,921 6,981,540 1,500,852 14,916,387
Non cash: -
Fair value movement - - - (1,834,871) (1,834,871)
Amortisation of
deferred finance
costs - (1,847,855) - - (1,847,855)
Interest charge - - (6,903,447) (1,546,266) (8,449,713)
------------------ -------------- ------------ ------------- --------------
At 31 December
2020 6,949,167 (180,676,613) (238,969) (4,257,198) (178,223,613)
------------------ -------------- ------------ ------------- --------------
*Including interest payable of US$ 73,483 (2019: US$ 28,070)
Cash and Derivative
cash equivalents Principal Interest Instrument* Net Debt
US$ US$ US$ US$ US$
At 1 January 2019 11,122,182 (216,135,121) (380,553) 146,083 (205,247,409)
Cash flows 1,093,911 25,899,083 9,339,935 168,372 36,501,301
Non cash: -
Fair value movement - - - (2,502,638) (2,502,638)
Amortisation of
deferred finance
costs - (293,641) - - (293,641)
Interest charge - - (9,276,444) (188,730) (9,465,174)
------------------ -------------- ------------ ------------- --------------
At 31 December
2019 12,216,093 (190,529,679) (317,062) (2,376,913) (181,007,561)
------------------ -------------- ------------ ------------- --------------
*Including interest payable of US$ 28,070 (2018: US$ 7,712)
Loans
The loans are split across two banks as follows:
2020 2019
US$ US$
DekaBank Deutsche Girozentrale 98,001,743 103,073,142
Norddeutsche Landesbank 82,913,839 87,773,599
Total loans 180,915,582 190,846,741
--------------------------------- --- ------------ ------------
a) Norddeutsche Landesbank Girozentrale
During the period ended 31 December 2014, the Company utilised
the proceeds from the initial public offering and the proceeds of
two separate loans from Norddeutsche Landesbank Girozentrale
('NordLB') of US$ 79,800,000 each to fund the purchase of two
Boeing 787-8 aircraft. The balance of both loans at 31 December
2020 was US$ 82,913,839 (31 December 2019: US$ 87,773,599).
The committed term of each loan was from the drawdown date until
the date falling twelve years from the Delivery Date of the
relevant Asset. Each Loan to be amortised with repayments every
month in arrears over the term in amounts as set out in a schedule
agreed by the Company and the Lenders. Amortisation will be on an
annuity-style (i.e. mortgage-style) basis.
Interest on each NordLB loan is payable in arrears on the last
day of each interest period, which is one month long (the 'Interest
Period'). Interest on each Loan accrues at a floating rate of
interest which is calculated using LIBOR for the length of the
Interest Period and a margin of 2.6 per cent per annum (the 'Loan
Margin') ('Loan Floating Rate'). For the purposes of calculating
the Loan Floating Rate, if on the date when LIBOR is set prior to
the beginning of an Interest Period it is not possible for LIBOR to
be determined by reference to a screen rate at the time that LIBOR
is to be set for that Interest Period (a 'Market Disruption
Event'), the amount of interest payable to each affected Loan
Lender during the Interest Period will be the aggregate of each
Lender's cost of funds during that monthly period and the Loan
Margin. If any amount is not paid by the Borrower when due under
the Loan Transaction Documents, interest will accrue on such amount
at the then current rate applicable to the Loan plus 2.0 per cent
per annum. The Group has entered into an ISDA-standard hedging
arrangement with NordLB as hedging provider in connection with the
Loans, in order to provide for a fixed interest rate of 5.06% and
5.08% to be payable in respect of the loans throughout the whole
term.
The NordLB loans entered into by the Group to complete the
purchase of the first two Assets are cross collateralised. Each of
the first and second loan is secured by way of security taken over
the first and second Assets and enforce security over both Assets.
This means that a default on one loan places both of the Assets at
risk. Following the enforcement of security and sale of the
aircraft, the remaining proceeds, if any, may be substantially
lower than investors' initial investment in the Company.
Post the Norwegian Aircraft lease restructure, the NordLB loan
was also restructured subject to entering into formal loan
documentation. Repayments of principal due during the period from
May 2020 to March 2021 were deferred, and the profile of debt
service for the period starting from 1 April 2021 was adjusted to
reflect the proposed reduction in Norwegian's monthly lease
payments.
All deferred amounts to be repaid by 30 June 2025 at the latest
(with prepayment permissible without charge); and interest on
deferred amounts payable on a floating rate basis calculated as
2.60% margin plus fixed fee of 1.50% plus cost of funds.
The shares in Norwegian (see note 12) were pledged to NordLB for
as long as loan deferrals were outstanding, and accordingly any
sale of shares during that time required the prior consent of the
banks.
The loans restructure mentioned on the previous page was subject
to formal loan documentation being entered into by 31 July 2020
otherwise they would not be effective. Post year end, the lender
notified the Company that the agreements set out in the
restructuring commitment had ceased to be effective given that
definitive loan documentation with respect to the restructuring
commitment had not been entered into by 31 July 2020. Accordingly,
subsequent to the year end, the terms of the Loan Agreement prior
to the Restructure Commitments are now effective again.
As at year end, the group was in default as they missed loan
repayments when they were due thus the whole balance due to
Norddeutsche Landesbank has been classified as a current liability
as at year end. Post year end, on 24 February 2021, NordLB formally
declared an Event of Default under the relevant loan agreements
with the Company's two borrower subsidiaries which meant that
NordLB was entitled to enforce rights under the relevant security
documents. On 26 February 2021, the Company received notices of
security enforcement and loan acceleration from NordLB , and
accordingly, receivers were appointed in relation to the two NAS
aircraft, the related lease and contract rights, the restricted
cash and the shares in the Irish special purpose vehicle which
holds title to the NAS aircraft. NordLB has therefore taken control
of the process of disposing of the two NAS aircraft, with the
proceeds of sale (along with relevant aircraft-specific cash
balances, claims against Norwegian and shares in Norwegian held as
security) being applied in the first instance to pay off any
outstanding amounts owed to the bank, and any balance remaining
thereafter being remitted to the relevant subsidiaries of the
Company.
These developments impact solely upon the two NAS aircraft; they
have no effect upon the Company's arrangements in respect of the
aircraft which it leases to Thai Airways; and there is no recourse
by NordLB to the Company itself.
a) DekaBank Deutsche Girozentrale
During the year ended 31 December 2015 the Company utilised the
proceeds from the placing and the proceeds of two separate loans
from DekaBank Deutsche Girozentrale ('DekaBank') of US$ 78,500,000
each to fund the purchase of two Boeing 787-8 aircraft. The balance
on the loans at 31 December 2020 was US$ 98,001,743 (31 December
2019: US$ 103,073,142).
The committed term of each loan was from the drawdown date until
the date falling twelve years from the Delivery Date of the
relevant Asset. Each Loan was to be amortised with repayments every
month in arrears over the term in amounts as set out in a schedule
agreed by the Company and the Lenders. Amortisation will be on an
annuity-style (i.e. mortgage-style) basis.
Interest on each DekaBank loan is payable in arrears on the last
day of each interest period, which is one month long. Interest on
the loan accrues at a fixed rate of 4.10 per cent including a
margin of 1.95 per cent per annum. If any amount is not paid by the
Borrower when due under the loan agreements, interest will accrue
on such amount at the then current rate applicable to the loan plus
2.0 per cent per annum. No interest accrued on unpaid amounts
during the period as there was an agreement to defer principal
repayments as mentioned below.
The DekaBank loans entered into by the Group to complete the
purchase of the third and fourth Assets are cross collateralised.
Each of the third and fourth loan is secured by way of security
taken over the third and fourth Assets and enforce security over
both Assets. This means that a default on one loan places both of
the Assets at risk. Following the enforcement of security and sale
of the aircraft, the remaining proceeds, if any, may be
substantially lower than investors' initial investment in the
Company.
In light of the moratorium triggered by the Thai instigation of
debt proceedings on 27 May 2020, the Board and the lender,
Dekabank, concluded that Thai would not make any further lease
rental payments prior to the rehabilitation court hearing on 25
August 2020. Accordingly, the parties initially agreed that, for
the period from 29 June 2020 to 9 September 2020, the Company would
only be required to make interest payments on its borrowings
relating to the assets leased to Thai, with no concomitant capital
repayment obligation; and that the Company will make no dividend
payments while deferrals remain outstanding under those borrowings.
Subsequent to 9 September 2020, further one month rolling
extensions to the interest only period were granted by the lenders
however the extensions were not to go beyond 31 January 2021
without the express consent of the lenders. The interest payments
were sourced from the security deposits received by the Company
from Thai Airways in advance of the commencement of the relevant
leases that the Company has reserved under
Reservation of Rights letters provided to Thai. Should an
extension not be granted, the deferred amounts of principal shall
become repayable upon demand by the Facility Agent on a repayment
date specified by the Facility Agent which falls at least one month
after the extension period end.
On 6 May 2021, subsequent to the new lease arrangements entered
into by the Company and Thai as detailed in note 4, the Company and
Dekabank have amended and restated the existing loan facility
agreements in respect of the Thai aircraft to accommodate the new
lease terms. Repayments of principal will be further deferred until
the end of the PBH arrangement; and the Company and Dekabank will
enter into discussions at that time to determine how best to
schedule interest payments, principal repayments and a final
balloon repayment, having regard for both the income being received
by the Company in respect of the Thai aircraft, and the running
costs of the Company and its subsidiaries.
Whilst the loan agreement has been amended post year end, as at
the year end, the Group did not have the contractual right to defer
repayment of the Dekabank loans for at least a period of 12 months
and accordingly the loans have been classified as current within
the balance sheet.
19) SHARE CAPITAL
The Company's authorised share capital is unlimited.
Year ended 31 December 2020
Subordinated
Administrative Ordinary
Share Shares Total
Issued and fully paid (no par value Number Number Number
shares):
Shares as at 1 January 2020 and 31
December 2020 1 209,333,333 209,333,334
---------------------------------------- --------------- ------------ ------------
US$ US$ US$
Share capital as at 1 January 2020 and
31 December 2020 - 210,556,652 210,556,652
---------------------------------------- --------------- ------------ ------------
Year ended 31 December 2019
Subordinated
Administrative Ordinary
Share Shares Total
Issued and fully paid (no par value Number Number Number
shares):
Shares as at 1 January 2019 and 31
December 2019 1 209,333,333 209,333,334
---------------------------------------- --------------- ------------ ------------
US$ US$ US$
Share capital as at 1 January 2019 and
31 December 2019 1 210,556,651 210,556,652
---------------------------------------- --------------- ------------ ------------
Subject to the applicable company law and the Company's Articles
of Incorporation, the Company may issue an unlimited number of
shares of par value and/or no par value or a combination of
both.
The Subordinated Administrative Share is held by DS Aviation
GmbH & Co. KG, (the Asset Manager).
Holders of Subordinated Administrative Shares are not entitled
to participate in any dividends and other distributions of the
Company. On a winding up of the Company the holders of the
Subordinated Administrative Shares are entitled to an amount out of
the surplus assets available for distribution equal to the amount
paid up, or credited as paid up, on such shares after payment of an
amount equal to the amount paid up, or credited as paid up, on the
Ordinary Shares to the Shareholders. Holders of Subordinated
Administrative Shares shall not have the right to receive notice of
and have no right to attend, speak and vote at general meetings of
the Company except if there are no Ordinary Shares in
existence.
Without prejudice to the provisions of the applicable company
law and without prejudice to any rights attached to any existing
shares or class of shares, or the provisions of the Articles of
Incorporation, any share may be issued with such preferred,
deferred or other rights or restrictions, as the Company may by
ordinary resolution, subject to or in default of any such
direction, as the Directors may determine.
The Directors are entitled to issue and allot C Shares. No C
Shares have been issued since the Company was incorporated.
20) RESERVES
The movements in the Group's reserves are shown on page 50.
Retained earnings comprises accumulated profits/losses over time
and is taken to this reserve which may be utilised for the payment
of dividends if overall in a profitable position.
The hedging reserve comprises the cumulative net change in the
value of hedging instruments used in cash flow hedges pending
subsequent recognition in profit or loss as the hedged cash flows
affect profit or loss.
21) DIVIDS
During the year ended 31 December 2020 the Company declared and
paid the following dividends:
Dividend
Dividend reference period Shares per Share Paid Payment date
US$ US$
Quarter ended 31 December 14 February
2019 209,333,333 0.0225 4,710,000 2020
As a result of the Coronavirus ('Covid-19') pandemic impact on
global aviation and especially its lessees, the Group has suspended
dividends until further notice to help preserve liquidity. As
mentioned before, the lending bank (NordLB) in relation to the
Company's two aircraft leased to the Norwegian group have declared
an Event of Default and enforced their security rights in respect
of the NAS aircraft. This coupled with the fact that any lease
rental payments received by the Company in respect of the Thai
aircraft are expected to be applied exclusively towards the running
costs of the Company and its subsidiaries, and interest payments
and principal repayments to the Thai lenders (Dekabank), means that
there is no realistic prospect of the Company's shareholders
receiving a dividend or other distribution for the foreseeable
future. The Board and its advisers will be consulting with
shareholders in the future with a view to determining the best
course of action to take for the future of the Company.
During the year ended 31 December 2019 the Company declared and
paid the following dividends:
Dividend
Dividend reference period Shares per Share Paid Payment date
US$ US$
Quarter ended 31 December 14 February
2018 209,333,333 0.0225 4,710,000 2019
Quarter ended 31 March
2019 209,333,333 0.0225 4,710,000 16 May 2019
Quarter ended 30 June
2019 209,333,333 0.0225 4,710,000 15 August 2019
Quarter ended 30 September 14 November
2019 209,333,333 0.0225 4,710,000 2019
---------------------------- ------------ ---------- ----------- ---------------
18,840,000
---------------------------- ------------ ---------- ----------- ---------------
22) INVESTMENT IN SUBSIDIARY UNDERTAKINGS
The Company's investments in subsidiaries, all of which have
been included in these consolidated financial statements, are as
follows:
Proportion of
Date of Country of ownership interest
Name Incorporation Incorporation at 31 December
2020
DP Aircraft Guernsey
I Limited 10 July 2013 Guernsey 100%
DP Aircraft Guernsey
II Limited 10 July 2013 Guernsey 100%
DP Aircraft Guernsey
III Limited 21 May 2015 Guernsey 100%
DP Aircraft Guernsey
IV Limited 21 May 2015 Guernsey 100%
Republic of
DP Aircraft Ireland Limited 27 June 2013 Ireland 100%
DP Aircraft UK Limited 14 April 2015 United Kingdom 100%
DP Aircraft Guernsey 1 Limited, DP Aircraft Guernsey II Limited
and DP Aircraft Ireland Limited have entered receivership post year
end following enforcement of NordLB security rights as detailed in
note 27.
23) FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The following table details the categories of financial
instruments held by the Company at the reporting date:
2020 2019
US$ US$
Financial assets
Investment held at fair value 15,630,526 -
Financial assets measured at fair value
through profit or loss 15,630,526 -
--------------------------------------------- ------------ ------------
Cash and cash equivalents 6,949,167 12,216,093
Restricted cash 27,438,332 34,563,671
Trade and other receivables (excluding
prepayments) - 294,970
Financial assets measured at amortised
cost 34,387,499 47,074,734
--------------------------------------------- ------------ ------------
Financial liabilities
Bank borrowings 180,915,582 190,846,742
Maintenance reserves 14,460,682 20,207,622
Security deposits - 13,264,420
Trade and other payables (excluding tax) 794,158 373,923
--------------------------------------------- ------------ ------------
Financial liabilities measured at amortised
cost 196,170,421 224,692,707
--------------------------------------------- ------------ ------------
Interest rate swaps 4,183,715 2,348,843
--------------------------------------------- ------------ ------------
Financial liabilities designated as hedging
instruments 4,183,715 2,348,843
--------------------------------------------- ------------ ------------
The primary risks arising from the Group's financial instruments
are capital management, credit risk, market risk and liquidity
risk. The principal nature of such risks is summarised below. The
Group's main financial instruments comprise of cash and cash
equivalents, investment held, four separate loan agreements and
interest rate swaps.
Capital Management
The capital managed by the Group comprises the ordinary shares
and the subordinated administrative shares. The Company is not
subject to externally imposed capital requirements.
Until Covid-19, the impact on the aircraft industry and the
lessees, income distributions were generally made quarterly,
subject to compliance with Applicable Law and regulations, in
February, May, August and November of each year. The Company aimed
to make a distribution to investors of US$ 0.0225 per Share per
quarter. There can be no guarantee that dividends will be paid to
Shareholders and, if dividends are paid, as to the timing and
amount of any such dividend. Any distribution of dividend to
Shareholders will be subject always to compliance with the
Companies (Guernsey) Law, 2008.
Before recommending any dividend, the Board will consider the
financial position of the Company and the impact on such position
of paying the proposed dividend. Dividends are declared and paid in
US Dollars.
As a result of the Covid-19 pandemic impact on global aviation
and especially its lessees, the Group has suspended dividends until
further notice to help preserve liquidity. Further details on the
impact of the Covid-19 pandemic can be found within the Directors'
Report.
Credit risk
Credit risk is the risk that a significant counterparty will
default on its contractual obligations. The Group's counterparties
during the year were Norwegian and Thai Airways as lessees and
providers of income. There are gross lease rentals receivable from
Thai at 31 December 2020, US$ 10,111,605 (2019: US$ Nil). There are
no lease income receivables due from NAS as at year end (2019: US$
Nil). A full lifetime ECL has been recognised for the lease rentals
receivable from Thai (see note 14).
Whilst the board expect that the Thai rehabilitation plan will
succeed, the final outcome of those proceedings is unknown. There
is no guarantee that Thailand's Central Bankruptcy Court will
approve Thai Airways' business rehabilitation petition. Failure of
any material part of the business model may have an adverse impact
on its ability to comply with its obligations under the current
leases or any proposed lease restructuring arrangements.
As detailed in note 4, on 2 March 2021 the Company signed a LOI
with Thai Airways under which the parties agreed to amend the
existing lease terms. The new terms provide for a PBH arrangement
until the end of 2022 (i.e., rent will be payable by reference to
actual monthly utilisation of the Thai aircraft), with scaled back
monthly lease payments thereafter, reflecting the reduced rates now
seen in the market. The lease term will be extended to December
2029, after consulting the Lenders retaining a right of early
termination in 2026. A corresponding agreement has been reached
with the bank (Dekabank) providing finance for the aircraft leased
to Thai Airways, see note 18.
During the year, the Company renegotiated its contractual
position with NAS and entered into an agreement whereby lease rates
were revised and rentals for the period July 2020 to March 2021
were to be received in shares to be issued in April 2021 if the
aircraft were not operated during that period. The aircraft were
not operated between July 2020 and year end thus rent in shares is
due as of 31 December 2020.
The lease agreements with NAS were in the judgement of the
Directors de-facto terminated in December 2020 as detailed in note
3a . Post year end, the subsidiary of NAS that is the lessee of the
aircraft went into liquidation. The lending bank for the aircraft
that were leased to NAS formally declared an Event of Default post
year end, enforced its security, and took over among other things
the rights of the group under the leases with NAS.
In advance of the commencement of the lease terms under the
leases, both Norwegian and Thai paid to the Group a security
deposit in respect of each Asset. These security deposits have been
applied against rentals that were due during the period and there
are no security deposits in place as at year end.
Cash and restricted cash are all held at NordLB and DekaBank.
The credit rating of NordLB is A3 (2019: A3) and the credit rating
of DekaBank is Aa2 (2019: Aa2). The lessees do not maintain a
credit rating.
The carrying amount of financial assets measured at amortised
cost recorded in the financial statements represents the Group's
maximum exposure to credit risk. The Group holds no collateral as
security or any other credit enhancements.
Market risk - interest rate risk
Interest rate risk arises on the Group's various
interest-bearing assets and liabilities from changes in the general
economic conditions of the market from time to time. In respect of
the floating rate loans advanced by NordLB for the purchase of the
first two Assets, the Directors have sought to mitigate this risk
by swapping the interest on each loan from a floating rate of
interest to a fixed rate of interest. The floating rate of interest
is calculated using LIBOR for the length of the interest period and
a margin of 2.6 per cent per annum and has been swapped for a fixed
rate of 5.06 per cent and 5.08 per cent for the duration of the
loans. The Group has entered into ISDA-standard hedging
arrangements with NordLB as hedging provider in order to provide
for fixed-rate interest for 12 years to be payable in respect of
the loan, funded by the fixed rental payments under the
corresponding lease. The interest rate swaps are not under a single
master netting agreement. As at 31 December 2020 the fair value of
the interest rate swaps was a payable of US$ 4,183,715 (2019: US$
2,348,843).
A 0.25% increase or decrease in interest rates would not have a
material impact on the Group due to the derivatives fixing the
interest rates paid by the group.
The following table details the Group's exposure to interest
rate risk:
Non-interest
Fixed rate Variable bearing
rate
31 December 2020 instruments instruments instruments Total
US$ US$ US$ US$
Restricted cash - 27,438,332 - 27,438,332
Cash and cash equivalents - 6,949,167 - 6,949,167
Total financial assets - 34,387,499 - 34,387,499
--------------------------------- -------------- ------------- ------------- --------------
Trade and other payables - - (794,158) (794,158)
( 14,460,682 ( 14,460,682
Maintenance reserves - - ) )
Security deposits - - - -
Notional interest rate
swap (74,678,094) 74,678,094 - -
NordLB loans - (82,804,726) (109,113) (82,185,747)
DekaBank loans (97,871,887) - (129,856) (97,175,621)
--------------------------------- -------------- ------------- ------------- --------------
Total financial liabilities (172,549,981) (8,126,632) (15,493,809) (196,170,421)
--------------------------------- -------------- ------------- ------------- --------------
Total interest rate sensitivity
gap (172,549,981) (26,260,868)
--------------------------------- -------------- -------------
Non-interest
Fixed rate Variable bearing
rate
31 December 2019 instruments instruments instruments Total
US$ US$ US$ US$
Restricted cash - 34,563,671 - 34,563,671
Cash and cash equivalents - 12,216,093 - 12,216,093
Trade receivables - - 363,576 363,576
--------------------------------- -------------- ------------- ------------- --------------
Total financial assets - 46,779,764 363,576 47,143,340
--------------------------------- -------------- ------------- ------------- --------------
Trade and other payables - - (373,923) (373,923)
Maintenance reserves - - (20,207,622) (20,207,622)
Security deposits - - (13,264,420) (13,264,420)
Notional interest rate
swap (88,486,779) 88,486,779 - -
NordLB loans - (87,605,404) (168,194) (87,773,598)
DekaBank loans (102,924,275) - (148,868) (103,073,143)
--------------------------------- -------------- ------------- ------------- --------------
Total financial liabilities (191,411,054) 881,375 (34,163,027) (224,692,706)
--------------------------------- -------------- ------------- ------------- --------------
Total interest rate sensitivity
gap (191,411,054) 47,661,139
--------------------------------- -------------- -------------
Market risk - foreign currency risk
The Group's exposure to foreign currency risk is not significant
as its cash flows are predominantly in US$ which is the functional
currency of the company and subsidiaries, and presentation currency
of the Group.
Market risk - price risk
Price risk represents the potential loss the group may suffer
through holding investments in securities. As at year end the Group
holds shares in Norwegian. The shares are pledged as security to
the NordLB thus can only be sold with the express consent of the
lender.
As at 31 December 2020, the total exposure to market price risk
is US$ 15,630,526 (2019: US$ Nil) being 100% of the value the
Group's financial assets measured at fair value through profit or
loss. The group is monitoring the NAS share price and is seeking
the most optimal time to realise the shares.
The effect of a 10% increase in the value of the investments
held and shares in NAS receivable at the reporting date would, all
other variables held constant, have resulted in an increase in
profit and net assets of US$ 1,734,920 (2019: US$ Nil). A 10%
decrease in value would, on the same basis, have decreased profit
and net assets by the same amount.
Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulty in meeting its obligations in respect of its financial
liabilities. The Group's main financial commitments are the loans
due to NordLB and DekaBank as well as meeting its ongoing operating
expenses.
Liquidity risk management
In the event that the Leases are terminated as a result of a
default by Norwegian or Thai Airways, there is a risk that the
Group will not be able to remarket the Assets successfully within
the remarketing period specified in the loan agreements and that
(after using the Liquidity Reserve) the Group will not have
sufficient liquidity to comply with its obligations under the Loan
Agreements. This may lead to a suspension in distributions paid on
the shares and/or a reduction in the value of the shares and have
an adverse effect on the Group and could ultimately result in the
lenders enforcing their security and selling the relevant Asset or
Assets on the market. There can be no guarantee that the Group will
be able to re-lease the Assets on terms as favourable as the
existing leases, which may have an adverse effect on the Group and
its ability to meet its investment objective and its dividend
target. The price paid by the Group for the Assets partly reflects
the terms of the leases to which the Assets are subject.
Accordingly, were any or all of the Assets to be re-leased on less
favourable terms, this may have an adverse effect on the value of
the Assets and therefore the share price.
The lease agreements with NAS were in the judgement of the
Directors de-facto terminated in December 2020 as detailed in note
3a and NordLB declared an Event of Default post year end, see note
18.
No right of redemption or repurchase
Shareholders have no right to have their shares redeemed or
repurchased by the Company at any time. Shareholders wishing to
realise their investment in the Company would be required to
dispose of their shares on the stock market. Accordingly, the
ability of shareholders to realise the Net Asset Value of, or any
value in respect of, their shares is mainly dependent on the
existence of a liquid market in the shares and the market price of
such shares.
Liquidity Proposal
Although the Company does not have a fixed life, the Articles
require that the Directors convene a Liquidity Proposal Meeting to
be held no later than 30 June 2026 at which a Liquidity Proposal in
the form of an ordinary resolution will be put forward proposing
that the Company should proceed to an orderly wind-up at the end of
the term of the leases. In the event the Liquidity Proposal is not
passed, the Directors will consider alternatives for the Company
and shall propose such alternatives at a general meeting of the
shareholders, including re-leasing the Assets, or selling the
Assets and reinvesting the capital received from the sale of the
Assets in other aircraft.
The following table details the contractual maturity analysis of
the Group's financial liabilities. The amounts are contractual
undiscounted cash flows and therefore will not agree directly to
the balances in the statement of financial position. Note however
that the bank loan and interest rate swaps have been included at
their carrying amounts as these are current as at year end and
don't have fixed dates of repayment.
31 December 2020 Next 12 months 2-5 years After 5 years Total
US$ US$ US$ US$
Bank borrowings and
interest (180,915,582) - - (180,915,582)
Interest rate swaps (4,183,715) - - (4,183,715)
Maintenance provision - - (14,460,682) (14,460,682)
Security deposit - - - -
Trade and other payables (892,783) - - (892,783)
-------------------------- --------------- ---------- -------------- --------------
Total (185,992,078) - (14,460,682) (200,452,760)
-------------------------- --------------- ---------- -------------- --------------
Next 12 After 5 years
31 December 2019 months 2-5 years Total
US$ US$ US$ US$
Bank borrowings and
interest (35,393,147) (141,413,457) (45,106,859) (221,913,463)
Interest rate swaps (817,348) (2,338,301) (82,671) (3,238,320)
Maintenance provision - - (20,207,622) (20,207,622)
Security deposit - - (13,264,420) (13,264,420)
Trade and other payables (373,923) - - (373,923)
-------------------------- ------------- -------------- -------------- --------------
Total (36,584,418) (143,751,758) (78,661,572) (258,997,748)
-------------------------- ------------- -------------- -------------- --------------
In addition to the bank loans, the Group may from time to time
use borrowings. To this end the Group may arrange an overdraft
facility for efficient cash management. The Directors intend to
restrict borrowings other than the bank loans to an amount not
exceeding 15 percent of the net asset value of the Group at the
time of drawdown. Borrowing facilities will only be drawn down with
the approval of the Directors on a case by case basis. The
Directors may also draw down on an overdraft facility for
extraordinary expenses determined by them, on the advice of DS
Aviation, to be necessary to safeguard the overall investment
objective. With the exception of the loans, the Directors have no
intention, as at the date of this report, to use such borrowings or
overdraft facility for structural investment purposes.
24) FAIR VALUE MEASUREMENT
The accounting policies and basis of measurement in respect of
financial instruments are detailed in note 2.
Financial assets at fair value through profit or loss
Investments are measured at fair value with reference to quoted
prices and so are categorised within level 1 of the IFRS 13 fair
value hierarchy.
Financial assets and financial liabilities at amortised cost
The fair value of cash and cash equivalents, trade and other
receivables, restricted cash and interest payable approximate their
carrying amounts due to the short-term maturities of these
instruments.
The fair value of floating rate borrowings (NordLB loan) was
estimated by discounting future principal and interest cash flows
by a market interest rate of interest at the reporting date. The
resulting fair value as at 31 December 2020 was US$ 72,800,000
(2019: US$ 82,185,74).
The fair value of fixed rate borrowings (Dekabank loan) was
estimated by discounting future principal and interest cash flows,
discounted by a market interest rate of interest at the reporting
date. The resulting fair value as at 31 December 2020 was US$
88,000,000 (2019: US$ 98,515,186).
The fixed and floating rate loans have been categorised within
level 3 of the fair value hierarchy in the current year.
Financial liabilities designated as hedging instruments
The fair value of the Group's derivative interest rate swaps is
determined by reference to the mid-point on the yield curves
prevailing on the reporting date and represent the net present
value of the differences between the contracted and the valuation
rate when applied to the projected balances to the period from the
reporting date to the contracted expiry date.
The interest rate swaps are valued on a recurring basis and have
been categorised within level 2 of the fair value hierarchy
required by IFRS 13.
The following table details the contractual undiscounted cash
flows of the interest rate swaps:
As at 31 December 2020 Next 12 months 2 to 5 years After 5 years Total
US$ US$ US$ US$
Floating rate receivable 1,881,220 3,388,735 - 5,269,955
Fixed rate payable (3,499,198) (5,977,750) - (9,476,948)
-------------------------- --------------- ------------- -------------- -------------
Interest rate swaps (1,617,978) (2,589,015) - (4,206,993)
-------------------------- --------------- ------------- -------------- -------------
As at 31 December 2019 Next 12 months 2 to 5 years After 5 years Total
US$ US$ US$ US$
Floating rate receivable 3,409,488 6,915,561 144,255 10,469,304
Fixed rate payable (4,226,835) (9,253,862) (226,925) (13,707,622)
-------------------------- --------------- ------------- -------------- -------------
Interest rate swaps (817,347) (2,338,301) (82,670) (3,238,318)
-------------------------- --------------- ------------- -------------- -------------
As at 31 December 2020, the fair value of the interest rate
swaps was a liability US$ 4,183,715 (31 December 2019: asset of US$
2,348,841). The movement in the interest rate swap liability fair
value is broken down as follows:
2020 2019
US$ US$
Balance as at beginning of the year 2,348,843 (153,795)
Movement through Other Comprehensive
Income 3,077,677 2,502,638
Movement through Profit or Loss (1,242,805) -
-------------------------------------- ------------ ----------
Balance as at year end 4,183,715 2,348,843
--------------------------------------- ------------ ----------
The cash flow hedge loss recognised in the Statement of
Comprehensive income is made up as follows:
2020 2019
US$ US$
Cash flow hedges - changes in fair
value (3,462,554) (2,691,368)
Cash flow hedges - reclassified
to profit or loss 384,877 188,730
-------------------------------------- ------------ ------------
Movement through Other Comprehensive
Income (3,077,677) (2,502,638)
Reserve reclassification on hedge
discontinuation 7 5,426,518 -
-------------------------------------- ------------ ------------
Cash flow hedge loss 2,348,841 (2,502,638)
-------------------------------------- ------------ ------------
Up to 13 May 2020 the hedging relationship between the interest
rate swap and the loan was effective and hedge accounting was being
applied. Movements in the fair value were being recognised in Other
Comprehensive Income and being accumulated in a Cash flow hedge
reserve. Post 13 May 2020, loan terms were varied but the terms of
the swap were not resulting in hedge accounting being discontinued
as there was no longer a direct economic relationship between the
hedged item and the hedging instrument . As a result, fair value
movements between 13 May 2020 and year end have been accounted for
directly in Profit or Loss and the cumulative OCI amount recognised
in the Cash flow hedge reserve up to the discontinuation date has
been recycled to Profit or Loss in full given at year end the
related loan is repayable on demand.
Transfers between levels
The Company determines whether transfers have occurred between
levels in the hierarchy by re-assessing categorisation based on the
lowest level input that is significant to the fair value
measurement as a whole at the end of each reporting period.
There were no transfers between level 1 and level 2 fair value
measurements and no transfers into or out of level 3 fair value
measurements during the year ended 31 December 2020 or in the year
ended 31 December 2019.
25) RELATED PARTY TRANSACTIONS
The Directors who served during the year received the following
remuneration:
Year ended Year ended
31 December 31 December
2020 2019
US$ US$
Jonathan Bridel (Chairman) 124,994 80,035
Jeremy Thompson (Chairman of the Audit Committee
and Senior Independent Director) 101,665 65,112
Angela Behrend-G ö rnemann* - (Previously
Chairman of the Management Engagement Committee,
resigned 31 October 2019) - 67,283
Harald Brauns (Chairman of the Management
Engagement Committee) 111,346 12,591
--------------------------------------------------- ------------- -------------
Total 338,005 225,021
--------------------------------------------------- ------------- -------------
The Directors who served during the year received the following
remuneration:
Du ring the year ended 31 December 2020, Directors' remuneration
totalled US$ 338,005 (year ended 31 December 2019: US$ 225,021)
with US$ 171,712 due at the year-end (2019: US$ 51,051). Directors'
expenses totalling US$ 1,018 were paid during the year ended 31
December 2020 (2019: US$ 11,454), with US$ Nil due to be paid at
the year-end (2019: US$ Nil).
In February 2020 the board reviewed the current director fee
levels (inclusive of all subsidiaries) and agreed that remuneration
levels of directors were set at the correct level, however it was
proposed that the Directors remuneration should be increased by
annual inflation amount of 3.2% in line with the latest published
independent fee survey. This increase was effective from 1 April
2020:
Annual Fee
Jonathan Bridel GBP66,000
Jeremy Thompson GBP53,700
Harald Brauns GBP58,800
In recognition of the additional work performed in 2020 in
relation to the group's circumstances, the board have earned extra
fees of US$ 110,710 (GBP81,100) split as follows:-
Additional Fee
Jonathan Bridel GBP30,000
Jeremy Thompson GBP24,400
Harald Brauns GBP26,700
Although this is not finalised, it is currently the board's
intention where permissible to take the additional fees in respect
of 2020 together with 10% of the base fee from 2021 by way of
equity in the company.
Director's shareholdings in the Company are detailed in the
Directors' Report and received dividends of US$ 506 during the year
(2019: US$ 2,025).
26) MATERIAL CONTRACTS
Asset Management Agreement
The Asset Management Agreement, dated 19 September 2013, between
the Company and DS Aviation was amended on 5 June 2015 to reflect
the acquisition of the two aircraft leased to Thai.
Disposal fee
The amended agreement provides a new calculation methodology for
the disposal fee which will only become payable when all four of
the Assets have been sold after the expiry of the fourth Thai
Airways lease in December 2026. The fee will be calculated as a
percentage of the aggregate net sale proceeds of the four Assets,
such percentage rate depending upon the Initial Investor Total
Asset Return per Share being the total amount distributed to an
initial investor by way of dividend, capital return or otherwise
over the life of the Company. If each of the Assets is sold
subsequent to the expiry of their respective leases, the percentage
rate shall be:
-- Nil if the Initial Investor Total Asset Return per Share is less than 205%;
-- 1.5% if the Initial Total Asset Return per Share equals or
exceeds 205% but is less than 255%;
-- 2% if the Initial Total Asset Return per Share equals or
exceeds 255% but is less than 305%; or
-- 3% if the Initial Total Asset Return per Share equals or exceeds 305%.
In the event that any of the Assets are sold prior to the expiry
of its lease the percentage hurdles set out above will be adjusted
on the following basis:
-- An amount will be deducted in respect of each Asset sold
prior to the expiry of its lease, equal to the net present value of
the aggregate amount of dividends per Share that were targeted to
be paid but were not paid as a result of the early divestment of
the relevant Asset; and
-- A further amount will be deducted, in respect of each Asset
sold prior to the expiry of its lease, equal to the amount by which
the proportion of the non-dividend component of the relevant
percentage hurdle attributable to the relevant Asset would need to
be reduced in order to meet its net present value.
The disposal fee is a cash-settled payment to the Asset Manager.
There is no disposal fee expected to be payable and hence the
brought forward provision of US$ 2,479,634 has been fully reversed
within these financial statements.
Management fees
The Asset Manager is paid a base fee which is US$ 21,354 per
month in respect of the first two Assets increasing by 2.5% per
annum and US$ 16,666 per month in respect of the second two Assets
increasing by 2.5% per annum from May 2016. In the year ended 31
December 2020 Asset Management fees totalled US$ 1,032,327 (2019:
US$ 1,007,149) of which US$ 87,240 was due at 31 December 2020
(2019: US$ 85,112).
Note, it has been agreed with the Asset Manager that management
fees payable in relation NAS aircraft will cease from 30 June 2021
after the appropriate handover to the new manager of the NAS
aircraft.
Administration Agreement
Effective from 1 January 2018, the Company Secretary receives a
fixed fee of GBP50,000 per annum. Any additional ad hoc meetings
are charged on a time spent basis. The Company Administrator
receives a fixed administration fee of the Company of GBP50,000 per
annum plus an additional fixed fee of GBP6,000 for each of the
wholly owned Guernsey subsidiaries. Additional work in excess of
the above is to be charged on a time spent basis or at a rate
agreed between the parties from time to time. Based upon the
GBP/US$ exchange rates on the value date of each payment, the total
fees charged by the administrator for the year ended 31 December
2020 were US$ 230,302 (2019: US$ 187,007).
Directors' fees
Details of the fees paid to the Directors are included in note
25.
27) SUBSEQUENT EVENTS
Norwegian - Lease and Loan arrangements
Subsequent to the year end, the NAS subsidiary that is lessee of
the aircraft went into liquidation following NAS's announcement
that it would be ceasing long-haul operations. The lease agreements
with NAS were in the judgement of the Directors de-facto terminated
in December 2020 as detailed in note 3a. The formal termination
process is currently being finalised.
Subsequent to year end, but before the Event of Default was
declared as per below, and with consent from the lenders, 525,000
shares of the first tranche of Norwegian shares received have been
sold for proceeds of approximately US$ 4 million. The proceeds were
not up streamed to the Parent and serve as security for the NAS
lenders.
On 24 February 2021, NordLB declared an Event of Default under
the relevant loan agreements with the Company's two borrower
subsidiaries which meant that NordLB was entitled to enforce rights
under the relevant security documents. On 26 February 2021, the
Company received notices of security enforcement and loan
acceleration from NordLB ; and accordingly, receivers were
appointed in relation to the two NAS aircraft, the related lease
and contract rights, and the shares in the Irish special purpose
vehicle which holds title to the NAS aircraft. NordLB has therefore
taken control of the process of disposing of the two NAS aircraft,
with the proceeds of sale (along with relevant aircraft-specific
cash balances, claims against Norwegian and shares in Norwegian
held as security) being applied in the first instance to pay off
any outstanding amounts owed to the bank, and any balance remaining
thereafter being remitted to the relevant subsidiaries of the
Company.
These developments impact solely upon the two NAS aircraft; they
have no effect upon the Company's arrangements in respect of the
aircraft which it leases to Thai Airways; and there is no recourse
by NordLB to the Company itself.
Thai Airways - Lease and Loan arrangements
On 2 March 2021, the same date that a business rehabilitation
plan was submitted for Thai, the Company signed a LOI with Thai
Airways under which the parties agreed to amend the existing lease
terms. The new terms provide for a PBH arrangement until the end of
2022 (i.e. rent will be payable by reference to actual monthly
utilisation of the Thai aircraft), with scaled back monthly lease
payments thereafter, reflecting the reduced rates now seen in the
market. The lease term will be extended by 3 years to December
2029, after consulting the Lenders retaining a right of early
termination in 2026. Thai Airways has also undertaken to ensure
that the Thai aircraft are airworthy and in flight ready condition
in all respects by 30 June 2021, and on an ongoing basis. A
corresponding agreement has been reached with the bank providing
finance for the aircraft leased to Thai airways, see below.
On 6 May 2021, following the new lease arrangements entered into
by the Company and Thai as described above, the Company and
Dekabank have amended and restated the existing loan facility
agreements in respect of the Thai aircraft to accommodate the new
lease terms. Repayments of principal will be deferred until the end
of the PBH arrangement; and the Company and Dekabank will enter
into discussions at that time to determine how best to schedule
interest payments, principal repayments, and a final balloon
repayment, having regard for both the income being received by the
Company in respect of the Thai aircraft, and the running costs of
the Company and its subsidiaries.
COMPANY INFORMATION
Directors Jonathan Bridel
Jeremy Thompson
Harald Brauns
Registered Office East Wing
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3PP
Channel Islands
Asset Manager DS Aviation GmbH & Co. KG
Stockholmer Allee 53
44269 Dortmund
Germany
Solicitors to the Company Norton Rose Fulbright LLP
(as to English law) 3 More London Riverside
London
SE1 2AQ
United Kingdom
Advocates to the Company Mourant
(as to Guernsey law) Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey
GY1 1HP
Channel Islands
Auditor KPMG, Chartered Accountants
1 Harbourmaster Place
IFSC
Dublin 1
Ireland
Administrator and Company Secretary Aztec Financial Services (Guernsey)
Limited
East Wing
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3PP
Channel Islands
Corporate Broker Investec Bank plc
30 Gresham Street
London
EC2V 7QN
United Kingdom
THE FOLLOWING PAGES DO NOT FORM PART OF THE AUDITED FINANCIAL
STATEMENTS
APPIX 1 - ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE
REGULATORY REFERENCE DOCUMENT NAME, PAGE AND REFERENCE
AIFMD Article 23(1)
(a) a description of the investment Prospectus, page 38, Information
strategy and objectives of the AIF; on the Company.
---------------------------------------------
if the AIF is a feeder AIF, information Not applicable.
on where the master AIF is established;
---------------------------------------------
if the AIF is a fund of funds, Not applicable.
information on where the underlying
funds are established;
---------------------------------------------
a description of the types of assets Prospectus, page 38, Information
in which the AIF may invest; on the Company.
---------------------------------------------
the investment techniques that Prospectus, page 38, Information
the AIF, or the AIFM on behalf of on the Company.
the AIF, may employ and all associated Prospectus, pages 18-31, disclosure
risks; of risk factors.
---------------------------------------------
any applicable investment restrictions; Prospectus, page 8.
---------------------------------------------
the circumstances in which the Prospectus, page 20, Risk of Debt
AIF may use leverage; Financing.
---------------------------------------------
the types and sources of leverage Prospectus, page 20, Risk of Debt
permitted and the associated risks; Financing.
---------------------------------------------
any restrictions on the use of Prospectus, page 20, Risk of Debt
leverage and any collateral and Financing.
asset reuse arrangements; and
---------------------------------------------
the maximum level of leverage which Prospectus, page 20, Risk of Debt
the AIFM is entitled to employ on Financing.
behalf of the AIF;
---------------------------------------------
(b) a description of the procedures Prospectus, page 38, Investment
by which the AIF may change its Policy.
investment strategy or investment
policy, or both;
---------------------------------------------
(c) a description of the main legal Prospectus, page 80, Part IX, Loans
implications of the contractual and Loan Agreements.
relationship entered into for the Prospectus, page 142, Part IV, Definitions.
purpose of investment, including
information on jurisdiction, the
applicable law and the existence
or absence of any legal instruments
providing for the recognition and
enforcement of judgments in the
territory where the AIF is established;
---------------------------------------------
(d) the identity of the AIFM, the Prospectus, page 36, Directors and
AIF's depositary, the auditor and Advisers.
any other service providers and Prospectus, page 152 (h).
a description of their duties and
the investors' rights;
---------------------------------------------
(e) a description of how the AIFM Prospectus, page 151 (g).
complies with the AIFMD's requirements
relating to professional liability
risk;
---------------------------------------------
REGULATORY REFERENCE DOCUMENT NAME, PAGE AND REFERENCE
AIFMD Article 23(1)
(f) a description of:
------------------------------------------
any AIFM management function delegated Not applicable.
by the AIFM;
------------------------------------------
any safe-keeping function delegated Not applicable.
by the depositary;
------------------------------------------
the identify of each delegate appointed; Not applicable.
and
------------------------------------------
any conflicts of interest that Not applicable.
may arise from such delegations;
------------------------------------------
(g) a description of the AIF's valuation Prospectus, page 152 (i).
procedure and of the pricing methodology
for valuing assets, including the
methods used in valuing any hard-to-value
assets;
------------------------------------------
(h) a description of the AIF's liquidity Prospectus, page 152 (j).
risk management, including the redemption
rights of investors in normal and
exceptional circumstances, and the
existing redemption arrangements
with investors;
------------------------------------------
(i) a description of all fees, charges Prospectus, pages 48-50, Fees and
and expenses, and the maximum amounts Expenses.
directly or indirectly borne by
investors;
------------------------------------------
(j) a description of how the AIFM Prospectus, page 152 (l).
ensures a fair treatment of investors;
------------------------------------------
whenever an investor obtains preferential
treatment or the right to obtain
preferential treatment, a description
of:
------------------------------------------
that preferential treatment; Prospectus, page 152 (l).
------------------------------------------
the type of investors who obtain Prospectus, page 152 (l).
such preferential treatment; and
------------------------------------------
where relevant, their legal or Not applicable.
economic links with the AIF or AIFM;
------------------------------------------
(k) the latest annual report Contained in this document.
------------------------------------------
(l) the procedure and conditions Prospectus, page 44, Further Issue
for the issue and sale of units of Shares.
or shares;
------------------------------------------
(m) the latest net asset value of The Company's shares are traded
the AIF or the latest market price on the London Stock Exchange so
of the unit or share of the AIF; the latest share price should be
available on www.londonstockexchange.com
.
------------------------------------------
REGULATORY REFERENCE DOCUMENT NAME, PAGE AND REFERENCE
AIFMD Article 23(1)
(n) where available, the historical Not applicable.
performance of the AIF;
----------------------------------------
(o) the identity of any prime broker; Prospectus, page 152 (o).
----------------------------------------
a description of any material arrangements Prospectus, page 152 (o).
of the AIF with its prime brokerage
firm and the way any conflicts of
interest are managed;
----------------------------------------
the provision in the contract with Prospectus, page 151 (a).
the depositary on the possibility
of transfer and reuse of AIF assets;
and
----------------------------------------
information about any transfer Prospectus, page 152 (o).
of liability to the prime brokerage
firm that may exist; and
----------------------------------------
(p) a description of how and when Information may be disclosed in
the information required under Art. the Company's annual report or by
23(4) and Art. 23(5) of the AIFMD the Company publishing the relevant
will be disclosed. information on the Company's website
( http://www.dpaircraft.com ) or
by the Company issuing an announcement
via a Regulatory Information Service.
----------------------------------------
AIFMD Article 23(5)
----------------------------------------
(a) any changes to the maximum level Not applicable as no changes to
of leverage which the AIFM may employ the maximum level of leverage.
on behalf of the AIF as well as
any right of the reuse of collateral
or any guarantee granted under the
leveraging arrangement;
----------------------------------------
(b) the total amount of leverage The total leverage employed at 31
employed by that AIF. December 2020 is US$ 187,624,941.
----------------------------------------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR UUVBRAOUVAAR
(END) Dow Jones Newswires
May 13, 2021 02:00 ET (06:00 GMT)
Dp Aircraft I (LSE:DPA)
Gráfica de Acción Histórica
De Feb 2024 a Mar 2024
Dp Aircraft I (LSE:DPA)
Gráfica de Acción Histórica
De Mar 2023 a Mar 2024