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ACG posts $830 million 1Q net profit after tax-status change

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Published: May 12, 2017

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US aircraft lessor Aviation Capital Group (ACG) posted an $ 830 million net profit for first-quarter 2017. The result includes AGC’s receipt of an $ 891 million tax benefit related to the elimination of the company’s net deferred tax liability―a result of the company’s March 31 change in tax status from a corporation to a limited liability company (LLC).

“The conversion to an LLC structure increases our equity base, thereby strengthening our balance sheet and allowing us to continue to grow and execute on our business plan, while at the same time providing a more tax efficient structure for our parent, Pacific Life,” ACG CEO Khanh Tran said March 31.

The company, now known as Aviation Capital Group LLC, is a wholly owned subsidiary of Pacific Life Aviation Holdings, itself a wholly owned subsidiary of Newport Beach, California-based Pacific Life Insurance Co.

With the tax-status conversion, AGC will be taxed as a partnership for US income-tax purposes. “Therefore, for periods after March 31, 2017, we will be a flow-through entity for US tax purposes and not subject to federal or state income tax at the partnership level,” AGC explained in a note to its Q1 financial statement, released May 11. “Instead, our members will be responsible for income taxes on our US federal and state taxable income.”

AGC’s equity profile on March 31, the end of the first quarter, totaled $ 2.7 billion, compared to $ 1.9 billion at the end of 2016. For 2016, AGC reported a full-year net profit of $ 78 million, down 11.4% from $ 88 million the previous year.

ACG reported $ 232.7 million in revenue for 1Q 2017, down 1.7% from 1Q 2016. Quarterly expenses rose 35.6% year-over-year to $ 286.6 million, leaving AGC with an operating loss of $ 53.9 million, reversed from a $ 25.3 million operating profit in 1Q 2016. ACG’s impairment of aircraft expenses more than tripled to $ 125 million during the quarter, compared to a year ago.

As of March 31, AGC’s portfolio comprised 267 owned and managed aircraft, including 123 Airbus A320-family aircraft; three Airbus A330s; 128 Boeing 737-family aircraft; 10 refurbished Boeing 757s and three Boeing 767s.

The company has firm orders and commitments for 159 aircraft from manufacturers and third parties, including 61 A320neo-family aircraft; 21 A320ceos; 60 737 MAX-family aircraft; seven Boeing 787s; eight current-engine 737s; one Boeing 777; and one refurbished 757.

AGC said the weighted average age of its owned portfolio aircraft is six years. AGC expects to take delivery of 32 new aircraft in 2017.

AGC’s first-quarter transactions included a long-term lease agreement with LOT Polish Airlines for three new 787-9s, slated for delivery in March 2018.

AGC also has a sale and lease-back agreement with Vietnam-based low-cost carrier (LCC) Jetstar Pacific for 10 new A320-200s, with the first two expected to be delivered in June 2017 and the remaining eight slated for the third and fourth quarters of 2017.

The lessor further has a long-term lease agreement with Vietnam Airlines for six new A321neos slated for delivery in 2018-19.

Mark Nensel mark.nensel@penton.com

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