REG - DP Aircraft I Ltd - Annual Report and Accounts
28/04/2023 07:00
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RNS Number : 7815X DP Aircraft I Limited 28 April 2023
28 April 2023
DP Aircraft I Limited (the 'Company')
Annual Report and Accounts
The Company is pleased to provide a copy of the Audited Consolidated Financial
Statements of the Company for the year ended 31 December 2022 (the "Annual
Report"), which is available from the Company's registered office and will
shortly be available to view or download from the Company's website
www.dpaircraft.com (http://www.dpaircraft.com)
For further information, please contact:
Aztec Financial Services (Guernsey) Limited +44(0) 1481
748833
Sarah Felmingham / Chris Copperwaite
DP AIRCRAFT I LIMITED
ANNUAL REPORT AND AUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
CONTENTS
3 Fact Sheet
4 Summary
7 Highlights
8 Chairman's Statement
10 Asset Manager's Report
20 Directors
21 Directors' Report
30 Report of the Audit Committee
33 Statement of Principal Risks and Uncertainties
36 Statement of Directors' Responsibilities
37 Independent Auditor's Report to the shareholders of DP
Aircraft I Limited
43 Consolidated Statement of Comprehensive Income
44 Consolidated Statement of Financial Position
45 Consolidated Statement of Cash Flows
46 Consolidated Statement of Changes in Equity
47 Notes to the Consolidated Financial Statements
74 Company Information
75 Appendix 1 - Alternative Investment Fund Managers
Directive
FACT SHEET
Ticker
DPA
Company Number
56941
ISIN Number
GG00BBP6HP33
SEDOL Number
BBP6HP3
Traded
Specialist Fund Segment ('SFS') of the London Stock Exchange
SFS Admission Date
4-Oct-13
Share Price
US$ 0.045 at 31 December 2022
Profit per
Share
US$ 0.03 for the year ended 31 December 2022
Country of Incorporation
Guernsey
Current Ordinary Shares in Issue
239,333,333
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
HS-TQD
HS-TQC
Aircraft Serial Number
35320
36110
Aircraft Type and Model
B787-8
Lessees
Thai Airways International
Public Company Limited ('Thai Airways')
Website
www.dpaircraft.com
(http://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 made its investment in aircraft held through two wholly owned
subsidiary entities, 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 one intermediate lessor
company, DP Aircraft UK Limited (the 'Lessor'), a UK incorporated private
limited company. The Company and its consolidated subsidiaries, DP Aircraft
Guernsey III Limited, DP Aircraft Guernsey IV Limited and DP Aircraft UK
Limited comprise the consolidated Group (the 'Group').
Pursuant to the Company's Prospectus dated 27 September 2013, the Company
offered 113,000,000 ordinary shares of no par value in the capital of the
Company at an issue price of US$ 1.00 per share by means of a Placing. The
Company's shares were admitted to trading on the Specialist Fund Segment
(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.
On 13 July 2022 the Company raised gross proceeds of $750,000 through the
issue of 30,000,000 new ordinary shares in the capital of the Company at a
price of US$0.025 per new ordinary share. The new ordinary shares were
admitted to trading on the Specialist Fund Segment of the London Stock
Exchange on 15 July 2022.
In total there are now 239,333,333 Ordinary Shares in issue with voting
rights.
In addition to the equity raised above in 2013 and 2015, 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 and Group'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.
SUMMARY (CONTINUED)
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)
The Group recognises the Paris Agreement on climate change. The Group operates
NTA ('New Technology Aircraft') - specifically Boeing 787-8's equipped with
Rolls Royce Trent-1000 engines which are 20% more fuel efficient on a
revenue-per-kilometre basis than similar comparable current technology legacy
aircraft. The Board has taken steps to reduce its own travelling and
maximises the use of virtual meetings within the board and with all its key
service providers.
CORONAVIRUS ('COVID-19')
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.
THAI AIRWAYS INTERNATIONAL PCL ('THAI AIRWAYS' / 'THAI')
The suspension of travel due to COVID-19 in 2020 resulted in Thai Airways
entering into business rehabilitation. The Central Bankruptcy Court approved
Thai's Business Rehabilitation plan on 15 June 2021. The rehabilitation
process is currently ongoing, please refer to the Asset Manager Report on
pages 10 to 19 for more details regarding the rehabilitation process.
The Group signed a Letter of Intent ('LOI') dated 1 March 2021 with Thai
Airways under which the parties agreed to amend the lease terms that existed
then. The actual lease agreement reflecting the terms set out in the LOI was
signed on 1 April 2022. The effective date for the lease modification was
agreed by both parties as 15 June 2021.
The new lease terms provided for a power by the hour ('PBH') arrangement until
31 December 2022 (with rent payable by reference to actual monthly utilisation
of the Thai aircraft and engines), with scaled back monthly fixed lease
payments thereafter until October 2026 for aircraft MSN 36110 and December
2026 for aircraft MSN 35320 reflecting reduced market rates in the long-haul
market. The lease term can be extended for a further 3 years to October and
December 2029 respectively, with further scaled back monthly lease payments
starting from November 2026 and January 2027. The Extension Period is however
subject to agreement with the Group after consulting the Lenders. Given the
uncertainty around the lease extension, the lease terms are considered to be
the period up to October and December 2026.
A corresponding agreement was reached with the lenders as detailed below.
DEKABANK DEUTSCHE GIROZENTRALE AND THREE OTHER CONSORTIUM MEMBERS ('DekaBank')
On 6 May 2021, subsequent to the LOI being entered into by the Group and Thai
as described above, the Group and DekaBank amended and restated the existing
loan facility agreements in respect of the Thai aircraft to accommodate the
new lease terms, First Amendment and Restatement to the Loan Agreements.
Repayments of principal were deferred until after the end of the PBH
arrangement (31 December 2022), and a new repayment schedule was to be
renegotiated close to the end of the PBH arrangement.
On 7 February 2023, the Group and DekaBank entered into a Second Amendment and
Restatement to the Loan Agreement in which the parties agreed on the following
main terms:
SUMMARY (CONTINUED)
DEKABANK DEUTSCHE GIROZENTRALE AND THREE OTHER CONSORTIUM MEMBERS ('DekaBank')
(CONTINUED)
· the total loan amount outstanding was split into two tranches:
o Facility A loan of US$ 61,144,842 made up of MSN 35320 loan of US$
31,099,453 and MSN 36110 loan of US$ 30,045,389. The Facility A loan amortizes
to a combined balloon of US$ 33,947,878 and represents the scheduled debt.
o Facility B loan of US$ 35,504,024 (non-amortizing), made up of MSN 35320
loan of US$ 17,366,650 and MSN 36110 loan of US$ 18,137,374. The Facility B
loan will be settled as a balloon payment at the end of the loan term in 2026.
· USD 2.36m of surplus cash generated under the PBH period was used to
immediately repay debt on the amortizing Facility A loan in February 2023,
while an agreed cash reserve of US$ 500,000 per aircraft will be retained to
cover unforeseen costs going forward.
· the interest rate swap currently in place for the scheduled debt was
dissolved at no net gain or loss.
· the MSN 35320 and MSN 36110 Facility A loans bear fixed interest
rates of 6.61% and 6.89% respectively.
· the MSN 35320 and MSN 36110 Facility B loans bear fixed interest
rates of 5.26% and 5.42% respectively.
· from the monthly fixed lease rental of US$ 510,000 per aircraft
(which denotes the maximum amount the Company can earn in operations per
month), US$ 475,000 is legally restricted so that those funds are only payable
to the lenders, and US$ 35,000 per aircraft can be retained by the company to
contribute towards ongoing fixed costs of the Company.
Due to the limited liquidity position of the Group, restructuring fees
associated with the second amendment and restatement will be paid after the
eventual remarketing of the aircraft, subject to surplus sales proceeds being
realised.
IMPAIRMENT
In line with each reporting date, but more relevant in light of the continuing
impact of COVID-19 and market capitalisation of US$ 10.8 million at 31
December 2022, a detailed impairment assessment of the aircraft was
undertaken. Following this review an impairment of US$ nil (31 December 2021:
US$ nil) was booked against the aircraft. See note 3 for further details
regarding the impairment and comments under Highlights on page 7 where comment
regarding the difference between net asset value and market capitalisation.
DISTRIBUTION POLICY
Under normal circumstances, the Group 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 originally targeted a quarterly distribution in
February, May, August, and November of each year. The target distribution was
US$ 0.0225 per share per quarter. The dividends were targets only with no
assurance or guarantee of performance or 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
lessor, the Board suspended the payment of dividends from 3 April 2020 until
further notice. This suspension remains in place to date. 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 as a priority towards interest and principal repayments to
the DekaBank. Given this backdrop the Company feels that there is no
realistic prospect of the Company's shareholders receiving a dividend or other
distribution during the remaining lease period. The Board and its advisers
will continue to consult with shareholders and its advisors in the future with
a view to determining the best course of action to take for the future of the
Company.
HIGHLIGHTS
RESULTS FOR THE YEAR
Results for the year ended 31 December 2022 is a profit after tax of US$
7,660,823 (profit per share US$ 0.03). For the year ended 31 December 2021
there was a loss after tax of US$ 21,859,073 (loss per share US$ 0.10).
The results for the period ended 31 December 2022 are mainly driven by rental
income earned of US$ 16,462,372 (31 December 2021: US$ 18,391,211), a
provision on straight lining lease asset of US$ 1,591,516 (31 December 2021:
US$ 12,508,499) and finance costs incurred of US$ 4,860,305 (31 December 2021:
US$ 5,869,097).
Refer to page 43 for full details of results for the period.
NET ASSET VALUE ('NAV')
The NAV for the reporting period was US$ 0.18692 per share at 31 December 2022
(31 December 2021: US$ 0.17366). NAV per share has increased due to the profit
made during the year (see above). The NAV excluding the financial effects of
the straight-lining lease asset was US$ 0.13662 per share at 31 December 2022
(31 December 2021: US$ 0.15086).
The straight-lining lease asset represents the result of straight lining of
future fixed Thai lease payments over the lease term and will reduce to nil
over time. Therefore, the NAV excluding the straight-lining lease asset is
presented to provide what the Directors consider to be a more relevant
assessment of the Group's net asset position.
As of 31 December 2022 As at 31 December 2021
US$ US$ per share US$ US$ per share
NAV per the financial statements 44,736,121 0.18692 36,352,122 0.17366
Less: Straight-lining lease asset (13,525,502) (0.05651) (4,772,296) (0.0228)
Add Provision for straight lining lease asset 1,486,453 0.00621 - -
NAV excluding straight-lining lease asset 32,697,072 0.13662 31,579,826 0.15086
As at 31 December 2022 the price per share was US$ 0.045 which is
significantly lower than the NAV per share above. The reason for the
difference is due to the market price per share reflecting other factors such
as market sentiment that cannot be accounted for in a set of annual financial
statements. The main asset in the Group, the aircraft, has been assessed for
impairment (see note 3) - with no resulting impairment for the period. Other
significant assets comprise cash and receivables whose values are considered
to be reflective of fair value due to their short-term nature. Therefore, the
low share price is not indicative of a need for further impairment to the
assets of the Group.
DIVIDENDS
As previously outlined the result of the Coronavirus pandemic on global
aviation and particularly on its lessees; the company suspended dividends on 3
April 2020 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. Furthermore, in accordance with
the second amended loan agreement with DekaBank, the Group will make no
dividend payments while loan deferrals remained outstanding under the amended
loan agreement.
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 Group for
the year ended 31 December 2022.
The profit per share for the year was US$ 0.03429 compared to a loss per share
of US$ 0.10442 for the same period last year. The net asset value per share at
the year end was US$ 0.18692 compared to US$ 0.17366 at 31 December 2021.
IFRS requires rental income to be recognised on a straight-line basis over the
remaining lease period and consequently the accounting treatment has resulted
in some income being recognised earlier than would normally be the case. In
addition, IFRS requires a provision to be made against that additional income
which has been estimated based on recent credit reports on Thai. Please refer
to page 7 which explains the net impact of this on the profit for the period
and the NAV of US$ 0.0503 per share.
The Company raised $750,000 in equity following a successful tap issue in
July. Some service providers and the directors will continue to defer some
amounts due. The focus of the Company remains the preservation of the Group's
long-term financial stability and asset values. The Company believes the 787
remains an attractive asset.
During the period we have seen an improvement in the global aviation market
following the challenges resulting from the effects of the COVID-19 pandemic
on its operations. Today, the slight optimism we were experiencing at the
beginning of 2022 has continued. However, some challenges remain. The
resultant pressures from the Ukraine war have created additional pressures
beyond Covid for the aviation industry not least on jet fuel price increases.
The combined situation of Covid impacting Chinese inbound tourism to Thailand
and the loss of Russian tourists following the Ukraine war has had a negative
impact on tourism - Thailand's biggest industry - in 2022. With Covid
restrictions in China being lifted there is cause for some optimism in tourism
numbers from that sector in 2023.
Our aircraft utilisation during the year was above expectation and the
resulting Power by the Hour (PBH) income was higher than expected. From 2023
our aircraft are operating on fixed monthly lease payments with Thai until
December 2026, reflecting the reduced lease rates now seen in the market.
As previously noted, the lease term on the leases may be extended by a further
3 years to October 2029 for aircraft MSN 36110 and December 2029 for aircraft
MSN 35320, with further scaled back monthly lease payments starting from
November 2026 and January 2027 respectively, and the Group retaining a right
of early termination in October and December 2026 after consultation with the
Lenders. Both aircraft are being well utilised and serving markets in the
Asian region from Thai's Bangkok hub.
Long-haul travel has picked up in nearly all markets growing the demand for
wide body aircraft. Delayed deliveries for new equipment like Boeing's 787 and
777-8/9 are further strengthening this demand. Thai is currently progressing
through its Rehabilitation Plan and it is expected this may be successfully
concluded in early Q2 2024. Thai is also expected to raise further equity over
the coming year.
This would allow us to take advantage of upcoming opportunities and manage the
company into a sustainable position. The Board and the Asset Manager remain
fully committed to extract the highest possible value for shareholders in this
process.
After a significant amount of work undertaken by the Board, the Group has
concluded the Loan restructuring with the Lenders and a final balloon
repayment of $69.5 million for both loans was announced in March.
CHAIRMAN'S STATEMENT (CONTINUED)
As previously noted, there is no realistic prospect of the Company's
shareholders receiving a dividend or other distribution prior to the end of
the lease term. The key uncertainty remains the outlook for Thai and the
airline industry particularly with higher fuel prices, the impact of inflation
and a slowing economy on travel demand and the knock on effect these factors
may have on aircraft values and Thai.
I would like to thank the Board and its service providers for their continued
significant support over the period. I would like to thank our Investors for
their continued support in the Group. The Board and its advisers will continue
consulting with investors on an ongoing basis.
Jonathan Bridel
Chairman
ASSET MANAGER'S REPORT
THE AIRLINE MARKET
General overview of current airline industry situation
As COVID-19 rules are relaxed and more passengers travel, revenues are
increasing. The International Air Transport Association (IATA) predicts that
the global airline industry will return to profitability in 2023, despite
continued worries about financial losses brought on by pandemics, rising
prices, and cost constraints. Although 2022 presented a number of difficulties
for airlines, including growing operational expenses, labour shortages,
strikes, and disruptions in major global hubs, they were nevertheless able to
reduce losses due to the rise in demand for air travel combined with
significant operational cost cutting measures. Airlines are anticipated to
have a comparatively small net profit of $4.7 billion in 2023, or a net profit
margin of 0.6%. This would represent the industry's first profit since 2019,
when net profits totalled $26.4 billion (3.1% net profit margin). In 2022,
airline net losses are expected to be $6.9 billion (an improvement on the $9.7
billion loss for 2022 in IATA's June outlook). Which in turn is significantly
better than losses of $42.0 billion and $137.7 billion that were realized in
2021 and 2020 respectively.
A return to industry profitability in 2023 (Expectation)
Source: IATA Economics chart of the week, 9(th) December 2022
However, the Russian invasion of Ukraine and the subsequent sanctions imposed
upon the country have brought with them myriad challenges for the aviation
industry, just as it was recovering from the crippling effects of the Covid-19
lockdowns. As an associated result of the war between Russia and Ukraine jet
fuel prices have increased. As such costs represent between 20% to 25% of
total operational costs this has presented further financial challenges. The
jet fuel price rose by more than 70% during the first 6 months of 2022,
marking one of the steepest increases since 2002, and causing unprecedent
pressure in terms of cost management for the airline industry. The
cancellation of flights, the longer routes, the higher fuel costs and rising
inflation are only some of the reasons behind the increase in air ticket
prices.
Covid-19's effects can still be seen in the aviation sector. The demand for
flights was undoubtedly enhanced by removing travel restrictions. Despite this
rise in demand, it is still impossible to estimate the airline's overall
effects. The severe impact of the pandemic compared to other major events in
history is shown in the graph below. The total passenger numbers are slightly
recovering from year to year, but it will take time to get back to pre-Covid
numbers. The chart below chart shows the total number of passenger numbers are
slightly recovering from year to year.
ASSET MANAGER'S REPORT (CONTINUED)
THE AIRLINE MARKET (CONTINUED)
Source: ICAO: "Effects of Novel Coronavirus (COVID‐19) on Civil Aviation:
Economic Impact Analysis"; 27(th) January 2023
Year 2022 outlook
The impact of COVID-19 on world scheduled passenger traffic for year 2022
(estimated results), compared to pre-COVID 2019 levels:
· Overall reduction of 25% to 26% of seats offered by airlines
· Overall reduction of 1,278 to 1,281 million passengers (-28% to -29%)
· Approx. USD 174 to 175 billion loss of gross passenger operating
revenues of airlines
International Passenger Traffic (2022 vs. 2019)
· Overall reduction of 33% to 34% of seats offered by airlines
· Overall reduction of 658 to 660 million passengers (-35% to -36%)
· Approx. USD 123 to 124 billion loss of gross operating revenues of
airlines
ASSET MANAGER'S REPORT (CONTINUED)
THE AIRLINE MARKET (CONTINUED)
The below fact sheet from December 2022 is the latest version available and
therefore added here. This sheet is provided by IATA on a regular basis and
shows statistics about the airline industry as of December 2022. The next
update will be available in June 2023.
Fact Sheet- December 2022
System-wide global commercial airlines 2020 2021 2022F 2023F
REVENUES, $ billion 382 506 727 779
% change y-o-y -54.4% 32.4% 43.6% 7.1%
% change vs 2019 -39.6% -13.2% -7.0%
Passenger, $ billion 189 239 438 522
Cargo, $ billion 138.5 204.2 201.4 149.4
Traffic volumes
Passenger growth, RPK, %ch y-o-y -65.8% 21.8% 69.4% 21.1%
-58.3% -29.4% -14.5%
% ch vs 2019
Cargo growth, CTK+MTK, %ch y-o-y -9.9% 18.8% -8.0% -4.1%
7.0% -1.6% 4.8%
%ch vs 2019
Cargo tonnes, millions 55.4 65.6 60.3 57.7
World economic growth, %ch y-o-y -3.5% 5.8% 2.9% 1.3%
Passenger yield, %ch y-o-y -9.1% 3.8% 8.4% -1.7%
Cargo yield %ch y-o-y 52.5% 24.2% 7.2% -22.6%
EXPENSES, $ billion 493 551 737 776
% change y-o-y -37.9% 11.8% 33.6% 5.3%
% change vs 2019 -30.6% -7.3% -2.4%
Fuel, $ billion 80 103 222 229
% of expenses 16% 19% 30% 30%
Crude oil price, Brent, $/b 41.8 70.7 103.2 92.3
Jet kerosene price, $/b 46.6 77.8 138.8 111.9
Fuel consumption, billion gallons 52 60 73 80
Non-fuel, $ billion 413 448 515 547
cents per ATK (non-fuel unit cost) 48.1 44.9 41.7 39.8
% change y-o-y 22.7% -6.7% -7.2% -4.5%
Capacity growth, atk, %ch y-o-y -44.3% 16.2% 23.7% 11.1%
-35.3% -19.9% 59.7%
%ch vs 2019
Flights, million 16.9 20.1 27.9 32.4
Break-even weight load factor, % ATK 76.8% 67.2% 68.3% 68.6%
Weight load factor achieved, % ATK 59.5% 61.7% 67.5% 68.9%
Passenger load factor achieved, % ASK 65.2% 66.9% 78.9% 81.0%
OPERATING PROFIT, $ billion -110.8 -45.1 -9.3 3.2
% margin -29.0% -8.9% -1.3% 0.4%
ASSET MANAGER'S REPORT (CONTINUED)
THE AIRLINE MARKET (CONTINUED)
Fact Sheet- December 2022 (continued)
System-wide global commercial airlines 2020 2021 2022F 2023F
NET PROFIT, $ billion -137.7 -42.0 -6.9 4.7
% margin -36.0% -8.3% -1.0% 0.6%
per departing passenger, $ -76.22 -19.20 -2.02 1.11
RETURN ON INVESTED CAPITAL, % -19.3% -8.0% -1.7% 0.6%
Source: ICAO, IATA, The Airline Analyst, Datastream, Platts. Updated:
12/2022 Next Update: 06/2023
Financial Results
System-wide commercial
airlines EBIT margin, % revenues Net profit, $ billion global
2020 2021 2022F 2023F 2020 2021 2022F 2023F
Global -29.0% -8.9% -1.3% 0.4% -137.7 -42.0 -6.9 4.7
Regions
North America -27.3% -5.9% 2.4% 3.3% -35.1 -2.3 9.9 11.4
Europe -27.1% -9.0% -1.3% 0.6% -34.5 -12.1 -3.1 0.6
Asia-Pacific -34.3% -13.2% -8.2% -4.7% -45.0 -14.8 -10.0 -6.6
Middle East -24.3% -11.4% -1.1% 0.8% -9.4 -4.7 -1.1 0.3
Latin America -28.5% -9.1% -2.4% -0.6% -11.9 -7.0 -2.0 -0.8
Africa -16.9% -6.8% -4.2% -1.1% -1.8 -1.1 -0.6 -0.2
Sources: IATA estimates for regions. IATA forecast for 2022 and 2023.
Traffic Results
Passenger traffic (RPK) Passenger capacity (ASK)
System-wide Global commercial % change vs previous year % change vs 2019 % change vs previous year % change vs 2019
airlines
2020 2021 2022E 2023F 2020 2021 2022E 2023F
Global -65.8% 21.8% -29.4% -14.5% -56.6% 18.7% -26.1% -12.9%
Regions
North America -65.1% 74.7% -8.6% -2.8% -50.3% 41.1% -6.3% -1.1%
Europe -69.5% 27.5% -18.6% -11.3% -62.3% 29.8% -16.0% -10.9%
Asia-Pacific -62.0% -12.8% -55.7% -29.2% -53.8% -6.0% -48.9% -24.5%
Middle East -72.1% 8.5% -20.7% -2.2 -63.0% 21.2% -22.0% -5.5%
Latin America -62.5% 40.5% -12.6% -4.4% -59.0% 37.3% -11.4% -5.8%
Africa -68.2% 17.0% -32.3% -13.7% -62.1% 18.5% -31.1% -16.1%
Source and Note: IATA. Includes domestic and international traffic, and all
commercial airlines. Historical data are subject
to revision.
Updated: 12/2022 Next Update: 06/2023
ASSET MANAGER'S REPORT (CONTINUED)
THE AIRLINE MARKET (CONTINUED)
Russia-Ukraine War in brief
The escalation of the conflict between Ukraine and Russia has significant
implications on the aviation industry. Governments have adopted economic
sanctions that specifically target the industry and closed large areas of air
space, fuel is trading at a historical high and fear of continued warfare is
affecting the already fragile air passenger demand. The combination of the
sanctions and the air bans has forced several airline companies to either
suspend or reroute their flights. Russia's flagship airline, Aeroflot, has
announced it is halting all its international flights, except those to
Belarus, and the country's second-biggest airline, S7, has also suspended its
international flights. GlobalData's Tourism Demands and Flows Database shows
that Turkey, China, Kazakhstan, Thailand, the United Arab Emirates (UAE),
Spain, Azerbaijan, Ukraine, Georgia and Italy are the top ten destinations in
terms of international departures from Russia by number of travellers in 2021,
with the modes of transport including air, land, sea and rail. Russia has in
turn banned airlines in most of those countries from entering or flying over
Russia. Several airlines from countries not directly impacted by sanctions
have also temporarily reduced flights to/from Russia, for example in Japan and
South Korea. In 2021, international traffic between Russia and the rest of the
world accounted for 5.2% of global international traffic, but only 1.3% of
global total traffic. International air traffic to and from Russia accounted
for 5.7% of total European traffic in 2021.
( )
( )
( )
( )
( )
( )
Recovery in Airline Industry
The International Air Transport Association (IATA) announced that the air
travel recovery continued through November 2022. Total traffic in November
2022 (measured in revenue passenger kilometers or RPKs) rose 41.3% compared to
November 2021. Globally, traffic is now at 75.3% of November 2019 levels.
International traffic rose 85.2% versus November 2021. The Asia-Pacific
continued to report the strongest year-over-year results with all regions
showing improvement compared to the prior year. November 2022 international
RPKs reached 73.7% of November 2019 levels. Domestic traffic for November 2022
was up 3.4% compared to November 2021 with travel restrictions in China
continuing to dampen the global result. Total November 2022 domestic traffic
was at 77.7% of the November 2019 level.
Asia-Pacific airlines had a 373.9% rise in November 2022 traffic compared to
November 2021, which was the strongest year-over-year rate among the regions.
Capacity rose 159.2% and the load factor was up 35.9 percentage points to
79.2%.
ASSET MANAGER'S REPORT (CONTINUED)
THE AIRLINE MARKET (CONTINUED)
Recovery in Airline Industry
Source: IATA, Press release No: 02, 09(th) January 2023.
Outlook & Conclusion
Due to less travel restrictions around the world in 2022 compared to 2021,
there was an increase in air traffic. However, the airline industry is still
struggling to get back to the 2019 levels. It is expected that the airline
industry will regain profitability for the first time post Covid-19 but not to
2019 levels.
Geographically, Russia has always been the major over fly route for
Asia-Europe flights and because of the war some flights have longer duration
(or have been cancelled) than which results in greater fuel consumption.
According to IATA, Europe-Asia and Asia-North America were the most heavily
impacted markets routes.
All outlooks shared in this report are based on historic data and assumptions
made by industry experts. It should be considered as a potential guideline.
From a historical point of view, the airline industry has proven to be
resilient and has recovered from all previous crises and up to the end of 2022
shows a slow growing recovery compared to the previous year. To sum up, the
airline industry has already suffered a lot from the Covid-19 pandemic and now
war in Ukraine has made the recovery more challenging.
ASSET MANAGER'S REPORT (CONTINUED)
THE LESSEE
Thai Airways International Public Company Limited
Overview
· Thai Airways International has received court approval for its
proposed amendment to its business rehabilitation plan, paving the way for it
to meet financial indicators to exit business rehabilitation.
· Thai Airways International and its subsidiaries made a pre-tax loss
of Bt4.96 billion ($137 million) in the third quarter ended 30 September, as
compared with a profit of Bt40 billion in the year-ago period.
· Thai Airways International is planning to recruit over 300 cabin crew
to support the noteworthy growth in travel demand.
· According to data from Cirium 43 aircraft are in operation and 47
aircraft are stored.
· Thai Airways International is in process of returning to service
three Airbus A330s previously earmarked for sale, to meet capacity needs, and
is exploring the viability of reactivating some of its A380s.
Year-2022 financial results (in Baht)
Consolidated Financial Statement Separate Financial Statements
2022 2021 2022 2021
Total Revenues 105.21 bn 89.98 bn 97.68 bn 88.95 bn
Revenues from Passenger and excess baggage 73.41 bn 5.53 bn 64.86 bn 3.28 bn
Revenue from Freight and mail 23.78 bn 10.98 bn 23.74 bn 10.91 bn
Total Expenses 94.09 bn 28.20 bn 82.78 bn 23.61 bn
Profit from operating activities 11.12 bn 61.78 bn 14.91 bn 65.34 bn
Profit (loss) before income tax expense (1.68) bn 52.33 bn 1.24 bn 55.49 bn
Income tax income 1.43 bn 2.78 bn 1.45 bn 2.78 bn
Profit (loss) for the years (251.61) m 55.11 bn 2.69 bn 58.27 bn
Total Assets 198.18 bn 161.22 bn 198.29 bn 162.65 bn
Total Liabilities 269.20 bn 232.46 bn 261.79 bn 229.32 bn
Source: THAI's Financial Statements Year-2022
Thai Restructuring and Rehabilitation Process summary since 31st December
2021.
· 13th February 2023: Thai Airways International will resume flights to
Beijing and Shanghai from March, as it plans to ramp up frequencies to China
to about one fifth of pre-pandemic levels.
· 13(th) December 2022: Thai Airways International has appointed
Cherdchome Therdsteerasukdi as its new chief financial officer, effective 1
February.
· 2nd December 2022: Thai Airways International and Singapore Airlines
have signed a memorandum of understanding (MoU) to codeshare on certain
routes.
· 8th November 2022: Thai Airways International is again seeking bids
for the outright purchase of six used Boeing 777-200s.
ASSET MANAGER'S REPORT (CONTINUED)
THE LESSEE (CONTINUED)
Thai Restructuring and Rehabilitation Process summary since 31st December 2021
(continued)
· 21st October 2022: Thailand's Central Bankruptcy Court approved the
amendments on 20 October 2022, which cover measures to shore up liquidity
primarily through a capital restructuring, Thai indicates in a same-day filing
to the Stock Exchange of Thailand. This will see it increasing registered
capital amounting to a total of nearly Bt315 billion ($8.2 billion).
· 04th July 2022: Thai Airways is targeting to complete its debt and
capital restructuring within 2024. The airline expects their shares likely to
be traded on the stock exchange in 2025 again.
Outlook & Opportunities - The "New Thai Airways"
· Measures to be taken
o Thai Airways International is in process of returning to service three
Airbus A330s previously earmarked for sale, to meet capacity needs, and is
exploring the viability of reactivating some of its A380s.
o Coming to end at the amendment of favourable interim lease contract (e.g.,
Power-by-the Hour contracts) and entering again into fixed rate lease
contracts.
· Capital raise of about USD 1.5 billion necessary to repay debt.
· Fleet of 86 aircraft and five different aircraft types in 2025.
· Thai expects to return to profit in 2023 and to state shareholder
equity above zero by 2030.
· Thailand´s economy is dependent on tourism and Thai Airways benefits
from measures initiated by the Government to stimulate tourism arrivals.
Comments & conclusions
The tourism industry in Thailand was one of the most negatively affected
industries by the COVID-19 pandemic. With the globally wide-spread COVID-19
outbreak, the Thai tourism industry was heavily affected. In 2022, the Thai
government eased COVID-19 restrictions, resulting in an increase of the annual
volume of airport passengers in Thailand in 2022. The recovery of the tourism
sector is expected to be further bolstered in 2023 by the return of Chinese
visitors. In 2022, the number of tourist arrivals amounted to around 11.15
million, which drastically increased from the previous year of only 0.43
million. The tourism industry in Thailand was one of the most negatively
affected industries by the COVID-19 pandemic. Furthermore, in 2022, the number
of airport passengers in Thailand amounted to approximately 63 million
representing a significant increase from the previous year.
Despite the global issues, Thai Airways generated revenues of 105.21 Billion
Baht by December 2022 year end this compares to revenues of 89.98 Billion Baht
during 2021. This serves to highlight the growing market demand and the
gradual improving progress of Thai Airways.
In these times of rising flight demand even though the cost is increasing, a
fleet of new and efficient aircraft is a very important factor for a
successful airline operation. With the two DP Aircraft owned Rolls Royce Trent
1000 equipped 787-8's belonging to the latest generation airframes these
combine fuel efficient operations with best-in-class passenger comfort. They
are the right equipment for Thai Airways and can be flexibly used also on most
routes including those with lower demand that does not justify using a larger
widebody aircraft.
ASSET MANAGER'S REPORT (CONTINUED)
THE ASSETS
Update B787
· Up to now, 7x B787 were ordered in 2023 and 3 x B787 were delivered
to customers during 2023.
· During 2022, the total number of B787 orders were 139 and Boeing
delivered 31 B787 in 2022.
· The orderbook currently shows a backlog of 516 aircraft.
· Currently, 986 aircraft are in-service and only 27 are in storage
which shows the growing demand of this type of aircraft and big importance of
this aircraft type during the recovery of the airline industry after the COVID
pandemic.
Assets & Operations
Overview
Both our aircraft HS-TQC and HS-TQD are currently in regular commercial
service within the international route (mostly withing Asia-Pacific region) of
Thai Air Airways and are based at Bangkok Airport. The aircraft are equipped
with overhead cabin and overhead flight crew rest to allow operation on
international long-haul routes. Thai Airways has announced its winter schedule
that commenced on October 30, 2022 and ran through March 25, 2023. The newly
listed schedule connects to 34 destinations across Europe, Australia and Asia.
AIRCRAFT OPERATIONS Thai Airways
HS-TQC HS-TQD
Cabin Layout 24 Business Class Seats
240 Economy Class Seats
LAST PHYSICAL INSPECTION
Date 18.02.2022 18.02.2022
Place Bangkok Airport (BKK)
AIRFRAME STATUS
(31(st) January 2023)
Total Flight Hours 20,515 18,588
Total Flight Cycles 4,519 4,105
Hours/cycles ratio since delivery 4.5 4.5
Titled Engines Report
As of 31(st) October 2022 HS-TQC HS-TQD
ESN 10239 ESN 10243 ESN 10244 ESN 10248
Total Time [Flight Hours] 18,938 15,729 14,870 19,585
Total Flight Cycles 4,139 16,175 3,389 4,197
Location On-wing On-wing (HS-TQD) On-wing (HS-TQE) In maintenance at SEASL in Singapore
ASSET MANAGER'S REPORT (CONTINUED)
THE ASSETS (CONTINUED)
Asset Manager´s actions ensured asset value
Regular monitoring to make sure that the Aircraft are in service and keeping
the Aircraft under the best condition in accordance with the manufacturer's
requirement is the top priority for DS Aviation as DP Aircraft´s Asset
Manager. HS-TQD is currently in regular commercial service alongside with
HS-TQC. Two aircraft inspections were carried out on HS-TQD in January and
February 2023 to make sure that the aircraft gets back to commercial service
in the best possible condition and in full compliance with all requirements of
the lease and the manufacturer manuals. DS Aviation continues to have an "on
demand" contract with the on-site service provider. Their expertise and
manpower are available whenever the circumstance calls for it, ensuring prompt
and efficient support on the spot.
Comments and Conclusions
The Thai economy is anticipated to reach its pre-pandemic level in 2022
(results not yet published) when final results become available, but due to
external challenges, the rate of expansion will be slower than anticipated in
2023. As both aircraft are in regular commercial service and Thai Airways
re-enters into fixed lease rate contracts after completing the PBH-period. The
resumption of a monthly fixed lease can be considered to be one of the
satisfactory achievements from Thai Airways. In addition to the progress, Thai
Airways International has received court approval for its proposed amendment
to its business rehabilitation plan, which, amongst others consisted of the
increase in registered capital of no more than 31,500 million shares with the
goal of making the capital positive to create stability in the financial
position. This would result in Thai's securities being readmitted for trading
on the stock exchange again.
Regarding the route profile of the assets, although Thai Airways announced to
setting up their flight operation in Europe, Australia and Asia, the assets
are principally operating mid-range flights within Asia due to due to the high
demand for smaller passenger capacity of the 787-8 compared with the larger
widebody aircraft. Thai Airways International intend to reactivate three A330s
to meet the market demand and are exploring the viability of reactivating some
of its A380s which indicates that the demand is rising quicker than expected
and the need for aircraft is strong.
As a result of the foregoing, the asset manager continues to keep a watchful
eye on the assets and maintains the on-site staff in the background to respond
swiftly in case of any unforeseen events because the recovery process is still
delicate and dependent on numerous external factors.
DIRECTORS
Jonathan (Jon) Bridel, Non-Executive Chairman (58), appointed 10 July 2013
Jon is a Guernsey resident and is currently a non-executive director of SME
Credit Realisation Fund Limited (in wind down) which is 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 (67), appointed 10 July 2013
Jeremy Thompson is a Guernsey resident. 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 (68), appointed 1 November 2019
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 billion 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 2022.
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 two subsidiary
entities, 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 one intermediate lessor company, DP
Aircraft UK Limited (the 'Lessor'), a UK incorporated private limited company.
The Company and its consolidated subsidiaries, DP Aircraft Guernsey III
Limited, DP Aircraft Guernsey IV Limited and DP Aircraft UK Limited comprise
the consolidated Group (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.
For the year ended 31 December 2022 the Group made a profit of US$ 7,660,823
(31 December 2021: loss of US$ 21,859,073). The loss in the prior year was the
result of significantly high expected credit losses on receivables, net losses
of financial assets at fair value and loss on loss of control of assets,
liabilities and subsidiaries. There have been no such high losses in the
financial year under review. As a result, the group made a profit during the
period ended 31 December 2022, see page 43 for full results for the year.
Notwithstanding the requirement for the aircraft to be parked in the past due
to Trent 1000 issues there are no incidents to bring to the attention of
Shareholders concerning the operation of the Thai aircraft. Inspections have
revealed no matters of concern. The aircraft have been operational for most of
the 2022 year and are currently in regular commercial use. Rolls Royce are
continuing to address the Trent 1000 engine warranty related issues which have
not impacted the Company. A more detailed review of the business and prospects
is contained in detail in the Asset Manager's Report on pages 10 to 19.
Results and Dividends
The profit for the year ended 31 December 2022 was US$ 7,660,823 (31 December
2021: loss of US$ 21,859,073).
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.
On 3 April 2020, the Company announced a suspension of dividends until further
notice due to the impact of Covid-19 in global aviation and especially with
long haul operations. The suspension is continuing and due to recent
developments as noted in Summary report on pages 4 to 6, there is no realistic
prospect of the Company's shareholders receiving a dividend or other
distribution.
Subsequent Events
Refer to note 23 for further details regarding Subsequent Events.
DIRECTORS' REPORT (CONTINUED)
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 2022
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 2022 31 December 2021
Connected parties of Jon Bridel 90,000 90,000
Jeremy Thompson 15,000 15,000
Harald Brauns - -
Principal Risks and Uncertainties
The Statement of Principal Risks and Uncertainties are as described on pages
33 to 35.
Substantial Shareholdings
The Directors note the following substantial interests in the Company's share
capital as at 31 December 2022 (10% and more shareholding):
o M&G Investments 59,633,421 shares - 24.92 %
o West Yorkshire PF 22,804,367 shares - 9.53 %
As at the date of this report there have been no significant changes in the
above list of substantial shareholdings.
The Board
The Board consists of three directors, all of whom are non-executive. Mr
Bridel and Mr Thompson satisfy all the criteria for assessing director
independence set out by the Association of Investment Companies ("AIC") and
adopted by the Board. Although they have served on the Board for almost ten
years, respectively, it is the opinion of the other member of the Board that
they both continue to demonstrate objective and independent thought processes
during Board meetings and in their dealings with the Asset Manager, and
therefore consider them both to be independent, despite their long service.
Jeremy Thompson was appointed as Senior Independent Director (the 'SID') on 1
April 2016.
During the year ended 31 December 2022 the Board had a breadth of experience
relevant to the Company and a balance of skills and experience.
The Board recognises the importance of diversity and will evaluate applicants
to fill any 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. The Board has not stipulated a
maximum term of any directorship.
DIRECTORS' REPORT (CONTINUED)
Board Independence and Disclosure
The Board is composed entirely of independent Directors, who meet as required
without the presence of the Asset Manager or service providers to scrutinise
the achievement of agreed goals, objectives and monitor performance. Through
the Audit Committee and the Management Engagement Committee they are able to
ascertain the integrity of financial information and confirm that all
financial controls and risk management systems are robust and analyse the
performance of the Asset Manager and other service providers on a regular
basis.
The Directors have challenged the Asset Manager throughout the year under
review and for the purposes of assessing compliance with the AIC Code, the
Board as a whole considers that each Director is independent of the Asset
Manager and free from any business or other relationship that could materially
interfere with the exercise of their independent judgment. If required, the
Board is able to access independent professional advice. Open communication
between the Asset Manager and the Board is facilitated by regular Board
meetings, to which the Asset Manager is invited to attend and update the Board
on the current status of the Company's aircraft, along with ad hoc meetings as
required.
The Board has met very frequently during the Covid and post Covid period and
have been actively engaged in negotiating revised agreements with its lending
group and Thai. Jon Bridel and Jeremy Thompson have served for nine years
and together with Harald Brauns have acted independently and in the best
interests of the Company. The Board is now focused on using its experience to
work with the Asset Manager to maximise value for shareholders.
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 was re-elected at the AGM on 29 July 2022. Harald
Brauns 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. This is 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. A Management Engagement Committee,
chaired by Harald Brauns has been established to further this safeguarding. At
each quarterly meeting the Board will table and review a risk matrix. Issues
identified as a result of this review are discussed and action plans put in
place as is necessary. There is nothing to highlight from the reviews of these
reports as at the date of this report.
DIRECTORS' REPORT (CONTINUED)
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 regular contact by email and video calls as well
as meeting to consider specific matters of a transactional nature. There is
regular contact with the Secretary and administrator.
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 attended No of audit committee 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 over 20 ad-hoc Board, Management 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.
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.
Base annual fees are as follows:
Annual Fees Oct 22 to Dec 22 Jan 22 to Sept 22 Jan 21 to Dec 21
Jonathan Bridel £61,750 £66,000 £66,000
Jeremy Thompson £49,450 £53,700 £53,700
Harald Brauns £49,450 £53,800 £53,800
Director fees have now been reduced by 10% which was the portion being
deferred and possibly payable in shares. The reduction in fees is effective 1
October 2022.
DIRECTORS' REPORT (CONTINUED)
Directors' Remuneration (continued)
In the prior year, in recognition of the extra services performed by the
Directors and the significant increase of committed time during 2021 due to
the Group's circumstances, the board earned extra fees of £65,000 which were
not paid in cash but deferred to be possibly settled by the issue of shares.
No additional fees were earned by the board during the 2022 financial period.
Additional Fees 2022 2021
Jonathan Bridel - £25,000
Jeremy Thompson - £20,000
Harald Brauns - £20,000
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 2022 31 December 2021
£ US$ equivalent £ US$ equivalent
Jonathan Bridel (Chairman) 64,937 80,701 91,000 121,613
Jeremy Thompson (Audit Committee Chairman) 52,637 65,503 73,700 98,493
Harald Brauns (Management Engagement Committee Chairman) 48,229 60,064 75,050 100,298
165,803 206,268 239,750 320,404
Up to 30 September 2022, 10% of base fees and all extra fees were not paid by
way of cash payments but were deferred to be settled in the future or to be
paid by way of equity. There has been no settlement of director remuneration
via the issue of equity in the current year (2021: nil) and the deferred fees
remain outstanding as at 31 December 2022 (see note 13).
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.
Base remuneration is paid monthly 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 £200,000 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.
DIRECTORS' REPORT (CONTINUED)
Internal Controls and Risk Management Review (continued)
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, Chartered Accountants have indicated their willingness to continue in
office.
Going Concern
The Directors believe that it is appropriate to prepare these financial
statements on the going concern basis due to current cash flow forecasts which
include fixed rentals and show that the Group has sufficient cash and
resources to cover operating costs for a period of at least 12 months from the
signing of these financial statement.
In making this conclusion, the Directors have also taken into account: -
· the positive outlook for Thai Airways with both Thai aircraft in a
full return to service condition and now earning fixed rentals. There is an
expectation, based on commentary by the Thai Administrator responsible for the
rehabilitation of Thai Airways, that Thai Airways will continue to be viable
and will be able to meet the terms of the revised lease agreements. This
position regarding Thai's viability is further enhanced by the announcement on
9 August 2022 that Thai state-owned banks will provide new loans and cash
infusions to Thai. Furthermore, the Thai Government has stated that it plans
to preserve its 40% holding in Thai which may grow further but will not exceed
50%; and
· the expectation that DekaBank which made loans to the Group (with
certain loan concessions) will continue supporting the Group. The loan
agreement with DekaBank was amended and restated in February 2023. Per the
amended terms, monthly payments of interest and principal will be limited to
net lease rental monies available for application towards the loans of US$
475,000 per loan and the final balloon repayments will be settled out of
proceeds from sale of the aircraft at the end of the lease term if the loan is
not refinanced. The US$ 475,000 equates to a monthly lease rental of US$
510,000 less US$ 35,000 paid to the Company as a contribution towards its
costs.
DIRECTORS' REPORT (CONTINUED)
Going Concern (continued)
The Directors are not aware of any material uncertainties that may cast
significant doubt upon the Group's ability to continue as a going concern.
Viability Statement
As with previous reports the Directors regularly assess the viability of the
Group with respect to the impact of potential risks the Group faces and the
Group's current position.
The Group has been in extensive negotiations with its lenders during the year
and subsequent to the year end. In February 2023, the Group and DekaBank
entered into Second Amendment and Restatement to the Loan Agreements in which
the parties agreed to new repayment schedules for the loans in place. Under
the revised repayment schedules, monthly payments of interest and principal
will be limited to net lease rental
monies available for application towards the loans of US$475,000 per loan and
the final balloon repayments will be settled out of proceeds from sale of the
aircraft at the end of the lease term. These new repayment terms are in line
with the lease agreements in place and so the terms are beneficial to the
group.
The PBH period on the Thai Airways leases expired on 31 December 2022 and now
the Group will be receiving fixed monthly rental payments of US$510,000 per
aircraft from Thai effective January 2023. This is in line with the amended
lease agreements finalised and signed on 1 April 2022. US$35,000 per aircraft
of the fixed monthly rental payments will be retained by the Group to
contribute to ongoing fixed costs, the remainder will be used to cover
principal and interest payable on the DekaBank loans per above.
Both aircraft have been operational for most of the 2022 year and are
currently in regular commercial use. With both aircraft operational, this not
only means the aircraft are earning revenue, but it also means that if Thai
were to default, the aircraft are in the best possible condition for either a
re-lease or a sale. The viability and therefore continuation of the Group
looks positive save any major, likely force majeure, scenarios.
Mindful of the significant challenges which could still impact the airline
industry, Thai Airways in particular and the Company, the Company has extended
its viability period to June 2024 assuming Thai Airways continue to meet its
lease payment obligations and certain service providers continue to defer some
of their fees as agreed. The Group is required to present a plan for
refinancing or similar to the lenders before the expiry of the current loan
facilities in the last quarter of 2026. The Directors will consider their
options after the viability period.
Foremost amongst the near-term risks faced by the Group, is the successful
emergence from restructuring of Thai Airways and the recovery from Covid
related restrictions to Thai's tourist economy. So far, the news from Thai
Airways has been positive, the Thai Administrator (Planner) responsible for
the rehabilitation of Thai has outlined that he feels that the measures taken
have materially addressed major cost areas (fleet size reduction, staff cuts,
pay cuts, property rationalisation) and further that Thai have raised a
reasonable amount of capital from asset sales. The Directors note that whilst
they believe that Thai Airways has a strong possibility of successfully
completing the rehabilitation, there is no guarantee of this. The Directors
continue to monitor the developments of the rehabilitation process and the
impact on the Group.
The Directors regularly consider and assess the viability of the Company and
take into account the Company's current position and the potential impact of
the principal risks outlined below. The Directors have considered the impact
of the Russian invasion of Ukraine on the Group and concluded that to date
there has been no material impact on the operations of the Group serve for
indirect impacts such as rising fuel costs.
DIRECTORS' REPORT (CONTINUED)
Viability Statement (continued)
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 next AGM of the Company will be held in Guernsey at a date that will
communicated in the future 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. 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. 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.
On 29 July 2022 at the Company's last AGM, 22.34% of total votes cast were
cast against resolution 4 (to approve the Directors' remuneration report as
set out in the 2021 Annual Report) and against resolution 5 (to approve the
Directors' Remuneration Policy for the year ending 31 December 2022 as set out
in the 2021 Annual Report). The Company noted that it would reflect and
continue to consult with shareholders in this respect.
The Company has subsequently discussed the matter with shareholders who wished
to engage further and explained the reason for higher director fees in 2021
was due to the significant extra work required by the Board to restructure
lease and loan agreements resulting from the significant revenue reduction due
to the impact of the Covid pandemic on the Company's Lessees. Notwithstanding
the higher fees payable, to date no additional fees and some annual fees have
not been paid due to restrictions imposed by the Lenders as part of the loan
restructuring. The Company also highlighted that additional fees would be
unlikely in 2022 notwithstanding the considerable time still invested.
The Board is thankful to all shareholders for their continuous support.
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' REPORT (CONTINUED)
Directors' Share Dealings
The Board has agreed to adopt and implement the Market Abuse Regulation for
Directors' dealings. The Board will be responsible for taking all proper and
reasonable steps to ensure compliance with the Market Abuse Regulation.
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 page 74 .
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$ 107 million
at 31 December 2022) 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$ 107
million at 31 December 2022), 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.
Environmental, social and governance (ESG)
The Group recognises the Paris Agreement on climate change. The Group operates
NTA ('New Technology Aircraft') - specifically Boeing 787-8's equipped with
Rolls Royce Trent-1000 engines which are 20% more fuel efficient on a
revenue-per-kilometre basis than similar comparable current technology legacy
aircraft. The Board continue to implement steps to reduce its own travelling
and maximises the use of virtual meetings within the board and with all its
key service providers.
Jonathan Bridel
Jeremy Thompson
Director
Director
REPORT OF THE AUDIT COMMITTEE
On the following pages, we present the Audit Committee (the 'Committee')
Report for 2022, 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.
REPORT OF THE AUDIT COMMITTEE (CONTINUED)
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);
· Assessing straight lining lease asset for impairment;
· 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 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 43 to 46, 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.
REPORT OF THE AUDIT COMMITTEE (CONTINUED)
Conclusion and Recommendation (continued)
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 a customer in Thailand exposing it to (i)
Thailand's varying economic, social, legal and geopolitical risks, (ii)
instability of Thailand markets and (iii) the impact of global health
pandemics and other global market disruptions. The Directors continue to
monitor the development of COVID-19 and are continuing to assess the impact on
the Company. Exposure to Thailand's jurisdiction may adversely affect the
Company's future performance, position and growth potential if Thailand's
economy does not perform well or if laws and regulations that have an adverse
impact on the aviation industry are passed in Thailand. The adequacy and
timeliness of the Company's response to emerging risks in this jurisdiction is
of critical importance to the mitigation of their potential impact on the
Company.
The Geopolitical risk surrounding the Russian invasion of Ukraine and the
subsequent fall-out have the potential to impact travel and/or travellers'
willingness to travel which in turn could impact the volume of traffic to and
from Thailand.
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.
Thai Airways
Thai went into debt rehabilitation on 27 May 2020 and the business
rehabilitation plan was approved on 15 June 2021 by the Central Bankruptcy
Court of Thailand. There is risk that the business rehabilitation plan does
not achieve the desired results, and this would have an adverse impact on the
entity's lease arrangements with Thai Airways which is the core source of
income for the Group.
The continuing impact of COVID-19 and the conflict between Russia and Ukraine
has the potential to impact Thai's business rehabilitation plan and adversely
impact the Group. This is particularly relevant for the Group given the
aircraft leased to Thai Airways is the sole source of income for the Group.
COVID-19 Impact
The COVID-19 pandemic continues to put a significant burden on the airline
industry. Even as travel bans are gradually being lifted, it may take years
until capacity and numbers of passenger return to pre-COVID-19 levels.
Expectations are that capacity will not return to pre-COVID-19 levels before
2024. This uncertainty as to when capacity will return to normal levels and
the possibility of further strains which could again result in lockdowns and
travel bans pose a risk to the Group.
Asset risk
The Company's Assets as at year end comprise of two Boeing 787-8 aircraft. The
Group bears the risk of selling or re-leasing the 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 and address this
risk. Any lasting impact of the COVID-19 situation on both aircraft demand and
lease rates are at present unknown.
STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES (CONTINUED)
Asset risk (continued)
There is no guarantee that, upon expiry or cessation of the leases, the Assets
could be sold or re-leased 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 its Asset
Manager 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 counterparty is Thai
Airways as lessee and provider of income and DekaBank Deutsche Girozentrale
('DekaBank') as holder of the Group's cash and restricted cash. The lessee
does not maintain a credit rating. Thai Airways is currently in the early
stages of implementing a rehabilitation plan. The Moody's credit rating of
DekaBank is Aa2 (2021: Aa2).
There is no guarantee that the business rehabilitation process of Thai Airways
will be successful even though developments to date have been positive.
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 amended
lease agreement entered into in 2022.
Any failure by Thai Airways to pay any amounts when due could 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 Thailand'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.
Refinancing risk
The Group is required to present a plan for refinancing or similar to the
lenders before the expiry of the current loan facilities in the last quarter
of 2026. There is a risk that the Group will not be able to replace the
DekaBank debt obligation with new debt before the expiry of the current loan
facilities. If not able to refinance, the Group would have to dispose the
aircraft to settle the loan and there is no guarantee that the Assets could be
sold for an amount that would enable shareholders to realise a capital profit
on their investment or to avoid a loss.
Liquidity risk
In order to finance the purchase of the Assets, the Group entered into loan
agreements. 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.
STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES (CONTINUED)
Boeing
The Company is exposed to Boeing being able to resolve any identified 787
related problems which the FAA or other regulatory bodies designate as
restricting commercial operations. At present no such restrictions exist. The
787 is considered a latest generation aircraft type which has pioneered areas
including the extensive use of carbon fibre in its fuselage and wing
construction.
Rolls Royce
The Company has exposure to Rolls Royce as suppliers of the Trent 1000 engines
in terms of ongoing support. Announcements by RR have implied that the
low-pressure turbine (LPT) and other known previous engine performance issues
have been resolved. The Trent 1000 is a highly fuel-efficient engine,
representing the latest engine technology. As such the Company is exposed to
any future as yet unknown performance issues. This situation is partially
mitigated by Thai using Rolls Royce Total Care and by the Asset Manager having
oversight of performance issues from both physical and desktop checks.
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
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF DP AIRCRAFT I LIMITED
Report on the audit of the financial statements
Opinion
We have audited the consolidated financial statements ("the financial
statements") of DP Aircraft I Limited ('the Company') and its consolidated
undertakings (collectively 'the Group') for the year ended 31 December 2022,
which comprise the consolidated statement of financial position, the
consolidated statement of comprehensive income, consolidated statement of
changes in equity and consolidated statement of cash flows and related notes,
including the summary of significant accounting policies set out in note 2.
The financial reporting framework that has been applied in their preparation
is Guernsey Law, UK adopted international accounting standards and, as regards
the Company financial statements, as applied in accordance with the provisions
of the Companies (Guernsey) Law 2008 and UK adopted international accounting
standards.
In our opinion:
• the financial statements give a true and fair view of the state of
the Group's affairs as at 31 December 2022 and of the Group's profit for the
year then ended;
• the Group financial statements have been properly prepared in
accordance with UK adopted international accounting standards;
• the financial statements have been 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
(UK) ("ISAs (UK)") and applicable law. Our responsibilities under those
standards are further described in the Auditor's responsibilities for the
audit of the financial statements section of our report. We believe that the
audit evidence we have obtained is a sufficient and appropriate basis for our
opinion. Our audit opinion is consistent with our report to the audit
committee.
We were appointed as auditor by the directors for the year ended 31 December
2014. The period of total uninterrupted engagement is for the eight financial
years ended 31 December 2022. We have fulfilled our ethical responsibilities
under, and we remain independent of the Group in accordance with UK ethical
requirements, including the Financial Reporting Council (FRC)'s Ethical
Standard as applied to listed public interest entities.
During the year we identified a breach of certain aspects of the ethical
requirements relating to the provision of prohibited tax services to
subsidiaries of the Company. Notwithstanding the aforementioned we have
concluded that our objectivity has not been compromised and the firm and the
engagement team are independent of the Company. The firm no longer provides
these prohibited services.
Conclusions relating to going concern
The directors have prepared the financial statements on the going concern
basis as they do not intend to liquidate the Group or to cease their
operations, and as they have concluded that the Group's financial position
means that this is realistic. They have also concluded that there are no
material uncertainties that could have cast significant doubt over their
ability to continue as a going concern for at least a year from the date of
approval of the financial statements ("the going concern period").
INDEPENDENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF DP AIRCRAFT I LIMITED
(CONTINUED)
Report on the audit of the financial statements (continued)
Conclusions relating to going concern (continued)
In auditing the financial statements, we have concluded that the directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. Our evaluation of the directors'
assessment of the entity's ability to continue to adopt the going concern
basis of accounting included.
We evaluated the directors' assessment of the entity's ability to continue to
adopt the going concern basis of accounting. In our evaluation of the
Directors' conclusions, we considered the inherent risks to the Group's
business model and analysed how those risks might affect the Group's financial
resources or ability to continue operations over the going concern period.
The risk that we considered most likely to adversely affect the Group's
available financial resources over this period is the ability of the Group's
lessee to continue to meet its contractual lease obligations.
As this is a risk that could potentially cast significant doubt on the Group's
ability to continue as a going concern, we considered sensitivities over the
level of available financial resources indicated by the Group's financial
forecasts taking account of reasonably possible (but not unrealistic) adverse
effects that could arise from these risks individually and collectively. We
evaluated the achievability of the actions the Directors consider they would
take to improve the position should the risks materialise.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group's ability to continue as
a going concern for a period of at least twelve months from the date when the
financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to
going concern are described in the relevant sections of this report.
However, as we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent with judgements
that were reasonable at the time they were made, the absence of reference to a
material uncertainty in this auditor's report is not a guarantee that the
Group will continue in operation.
Detecting irregularities including fraud
We identified the areas of laws and regulations that could reasonably be
expected to have a material effect on the financial statements and risks of
material misstatement due to fraud, using our understanding of the entity's
industry, regulatory environment and other external factors and inquiry with
the directors. In addition, our risk assessment procedures included:
• Inquiring with the directors as to the Group's policies and
procedures regarding compliance with laws and regulations, identifying,
evaluating and accounting for litigation and claims, as well as whether they
have knowledge of non-compliance or instances of litigation or claims.
• Inquiring of directors as to the Group's policies and procedures to
prevent and detect fraud, as well as whether they have knowledge of any
actual, suspected or alleged fraud.
• Inquiring of directors regarding their assessment of the risk that
the financial statements may be materially misstated due to irregularities,
including fraud.
• Reading Board and audit committee minutes.
We discussed identified laws and regulations, fraud risk factors and the need
to remain alert among the audit team.
INDEPENDENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF DP AIRCRAFT I LIMITED
(CONTINUED)
Report on the audit of the financial statements (continued)
Detecting irregularities including fraud (continued)
Firstly, the Group is subject to laws and regulations that directly affect the
financial statements including companies and financial reporting legislation.
We assessed the extent of compliance with these laws and regulations as part
of our procedures on the related financial statement items, including
assessing the financial statement disclosures and agreeing them to supporting
documentation when necessary.
Secondly, the Group is subject to many other laws and regulations where the
consequences of non-compliance could have a material effect on amounts or
disclosures in the financial statements, for instance through the imposition
of fines or litigation. We identified the following areas as those most likely
to have such an effect: ongoing compliance with listing rules given the
regulated nature of the Group's activities.
Auditing standards limit the required audit procedures to identify
non-compliance with these non-direct laws and regulations to inquiry of the
directors and inspection of regulatory and legal correspondence, if any. These
limited procedures did not identify actual or suspected non-compliance
We assessed events or conditions that could indicate an incentive or pressure
to commit fraud or provide an opportunity to commit fraud. As required by
auditing standards, we performed procedures to address the risk of management
override of. On this audit we do not believe there is a fraud risk related to
revenue recognition.
In response to the fraud risks, we also performed procedures including:
• Identifying journal entries and other adjustments to test based on
risk criteria and comparing the identified entries to supporting
documentation.
• Assessing significant accounting estimates for bias
• Assessing the disclosures in the financial statements
As the Group is regulated, our assessment of risks involved obtaining an
understanding of the legal and regulatory framework that the Group operates
and gaining an understanding of the control environment including the entity's
procedures for complying with regulatory requirements.
Owing to the inherent limitations of an audit, there is an unavoidable risk
that we may not have detected some material misstatements in the financial
statements, even though we have properly planned and performed our audit in
accordance with auditing standards. For example, the further removed
non-compliance with laws and regulations (irregularities) is from the events
and transactions reflected in the financial statements, the less likely the
inherently limited procedures required by auditing standards would identify
it.
In addition, as with any audit, there remains a higher risk of non-detection
of irregularities, as these may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal controls. We are
not responsible for preventing non-compliance and cannot be expected to detect
non-compliance with all laws and regulations.
Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were
of most significance in the audit of the financial statements and include the
most significant assessed risks of material misstatement (whether or not due
to fraud) identified by us, including those which had the greatest effect on:
the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were addressed in
the context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these
matters.
INDEPENDENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF DP AIRCRAFT I LIMITED
(CONTINUED)
Report on the audit of the financial statements (continued)
Valuation of PPE - Aircraft & related components $125.5 million (2021:
$126.4 million)
Refer to page 49, (accounting policy), pages 53 and 54 (significant estimates)
and page 57 and 58 (financial disclosures)
The key audit matter How the matter was addressed in our audit
At 31 December 2022, the carrying value of the Group's aircraft portfolio, In relation to the audit of the impairment assessment of aircraft and related
including related components amounted to $125.5 million or 79% of total components, the procedures we undertook included, amongst others:
assets.
The Group applies the requirements of IAS-36 Impairment of Assets ('IAS-36')
in order to determine whether it is necessary to recognise an impairment loss We obtained an understanding of, and tested the design and implementation,
on any aircraft and related assets. of the key control around the impairment assessment of aircraft and related
components being the consideration and approval by the Board of Directors of
There is a significant risk relating to the valuation of aircraft given the the impairment assessment.
judgemental nature of the assumptions and the inputs to the impairment model
that require consideration by the Board of Directors.
We inquired of the Board of Directors about plans for aircraft disposals or
other actions 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 of the independent valuers to validate the current market
values to the impairment model and compared to the other independent valuers
reports to determine the were reasonable.
We evaluated the Board of Directors identification and reasonableness 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 (including
current market value) into the model were in agreement with those that we had
evaluated.
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.
As a result of the procedures performed, we found the Groups judgements around
current market values were reasonable.
INDEPENDENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF DP AIRCRAFT I LIMITED
(CONTINUED)
Report on the audit of the financial statements (continued)
Our application of materiality and an overview of the scope of our audit
Materiality for the Group financial statements as a whole was set at $1.15m
(2021: $0.7m), determined with reference to a benchmark of total assets (of
which it represents 0.75% (2021: 0.5%)).
In applying our judgement in determining the most appropriate benchmark, the
factors, which had the most significant impact were:
• our understanding that one of the principal considerations for
investors in assessing the financial performance is the value of the Group's
assets; and
• the stability of the Group, resulting from its nature, where the
Group is in its life cycle and the industry in which the Group operates.
In applying our judgement in determining the percentage to be applied to the
benchmark, the following qualitative factors, had the most significant impact,
increasing our assessment of materiality:
• the increased stability of the business environment in which it
operates
We applied Group materiality to assist us determine the overall audit strategy
Performance materiality
In line with our audit methodology, our procedures on individual account
balances and disclosures were performed to a lower threshold, performance
materiality, so as to reduce to an acceptable level the risk that individually
immaterial misstatements in individual account balances add up to a material
amount across the financial statements as a whole.
Performance materiality was set at 75% (2021: 75%) of materiality for the
financial statements, which equates to $0.86m (2021: $0.5m) for the Group.
Audit misstatement posting threshold
We reported to the Audit Committee any corrected or uncorrected identified
misstatements exceeding $0.06m, in addition to other identified misstatements
that warranted reporting on qualitative grounds.
Other information
The directors are responsible for the other information presented in the
Annual Report together with the financial statements. The other information
comprises the information included in the Fact Sheet, Summary, Highlights,
Chairmans Statement, Asset Manager's Report, Director's Report, Report of the
Audit Committee, Statement of Principal Risks and Uncertainties, Company
Information and Appendix 1 - Alternative Investment Fund Directive. The
financial statements and our auditor's report thereon do not comprise part of
the other information. Our opinion on the financial statements does not cover
the other information and, accordingly, we do not express an audit opinion or,
except as explicitly stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider
whether, based on our financial statements audit work, the information therein
is materially misstated or inconsistent with the financial statements or our
audit knowledge. Based solely on that work we have not identified material
misstatements in the other information.
INDEPENDENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF DP AIRCRAFT I LIMITED
(CONTINUED)
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.
Respective responsibilities and restrictions on use
Responsibilities of directors for the financial statements
As explained more fully in the directors' responsibilities statement set out
on page 32, the directors are responsible for: the preparation of the
financial statements including being satisfied that they give a true and fair
view; such internal control as they 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 they either intend to
liquidate the Group or to cease operations, or have no realistic alternative
but to do so.
Auditor's 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, other irregularities or error, and to issue an opinion in an auditor's
report. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists. Misstatements can arise from
fraud, other irregularities 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.
A fuller description of our responsibilities is provided on the FRC's website
at www.frc.org.uk/auditorsresponsibilities.
The purpose of our audit work and to whom we owe our responsibilities
Our report is made solely to the Company's members, 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 members those matters
we are required to state to them in an auditor's 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 and the Company's members, as
a body, for our audit work, for this report, or for the opinions we have
formed.
Niall
Naughton
27 April 2023
for and on behalf of
KPMG
Chartered Accountants, Statutory Audit Firm
1 Harbourmaster Place
IFSC
Dublin 1
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2022
Year ended Year ended
31 Dec 2022 31 Dec 2021
Notes US$ US$
Income
Lease rental income 4 16,462,372 18,391,211
16,462,372 18,391,211
Expenses
Asset management fees 22 (471,590) (757,254)
General and administrative expenses 5 (1,094,587) (2,640,895)
Expected credit loss on straight lining lease asset 11 (1,486,453) -
Expected credit loss write off 11 (105,063) (12,508,499)
Depreciation 9 (958,760) (175,160)
(4,116,453) (16,081,808)
Operating profit 12,345,919 2,309,403
Finance costs 6 (4,860,305) (5,869,097)
Net losses on financial assets at fair value - (8,547,935)
Loss on loss of control of assets, liabilities and subsidiary undertaking - (9,874,940)
Dividend income/Other Income 1,552 57,902
Finance income 194,906 21,358
Net finance costs (4,663,847) (24,212,712)
Profit/(loss) before tax 7,682,072 (21,903,309)
Taxation 7 (21,249) 44,236
Profit/(loss) for the year 7,660,823 (21,859,073)
Total Comprehensive Income/(Loss) for the period 7,660,823 (21,859,073)
Earnings per Share for the year - basic and diluted 8 0.03429 (0.10442)
All income is attributable to the Ordinary Shares of the Company.
The notes on pages 47 to 73 form an integral part of these financial
statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2022
* Restated * Restated
31 Dec 2022 31 Dec 2021 1 Jan 2021
Notes US$ US$ US$
NON-CURRENT ASSETS
PPE- Aircraft & Related Components 9 125,466,080 126,424,840 126,600,000
Trade and other receivables 11 8,935,454 4,772,296 -
Restricted Cash 10 14,979,197 14,465,329 15,547,974
Total non-current assets 149,380,731 145,662,465 142,147,974
CURRENT ASSETS
Aircraft held for sale - - 82,000,000
Investments held at fair value - - 15,630,526
Trade and other receivables 11 3,857,514 251,216 45,930
Restricted cash 10 4,175,280 2,788,517 11,890,358
Cash and cash equivalents 1,479,541 1,179,211 6,949,167
Total current assets 9,512,335 4,218,944 116,515,981
TOTAL ASSETS 158,893,066 149,881,409 258,663,955
EQUITY
Share Capital 15 211,279,828 210,556,652 210,556,652
Retained deficit 16 (166,543,707) (174,204,530) (152,345,457)
TOTAL EQUITY 44,736,121 36,352,122 58,211,195
NON-CURRENT LIABILITIES
Bank borrowings 14 80,779,172 98,304,863 -
Maintenance provision 12 14,829,296 14,460,682 14,460,682
Total non-current liabilities 95,608,468 112,765,545 14,460,682
CURRENT LIABILITIES
Bank borrowings 14 17,707,184 136,010 180,915,582
Derivative instrument liabilities - - 4,183,715
Trade and other payables 13 841,293 627,732 892,781
Total current liabilities 18,548,477 763,742 185,992,078
TOTAL LIABILITIES 114,156,945 113,529,287 200,452,760
TOTAL EQUITY AND LIABILITIES 158,893,066 149,881,409 258,663,955
* Comparative information has been restated due to reclassification
adjustments, see note 24 for further information.
The financial statements on pages 43 to 73 were approved by the Board of
Directors and were authorised for issue on 27 April 2023. They were signed on
its behalf by:
Jonathan Bridel
Jeremy Thompson
Chairman
Director
The notes on pages 47 to 73 form an integral part of these financial
statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2022
Year ended Year ended
Notes 31 Dec 2022 31 Dec 2021
US$ US$
Profit/(loss) for the year 7,660,823 (21,859,073)
Adjusted for:
Depreciation and amortisation 9 958,760 175,160
Finance costs 6 4,860,305 6,328,112
Gain on derivatives at fair value 6 - (459,015)
Loss on financial assets at fair value - 8,547,935
Taxation 7 21,249 (44,236)
Loss on loss of control of assets, liabilities and subsidiary undertaking - 9,874,940
Straight lining rental income 4 (8,753,206) (4,772,296)
Expected credit loss 11 105,063 12,508,499
Provision on straight lining lease asset 11 1,486,453 -
Tax-paid - (54,388)
Changes in:
Increase in maintenance reserves 12 368,614 -
Increase/(decrease) in trade and other payables 13 192,312 (92,942)
Increase in trade and other receivables 11 (607,766) (12,713,785)
NET CASH FLOW FROM/ (USED IN) OPERATING ACTIVITIES 6,292,607 (2,561,089)
INVESTING ACTIVITIES
Loss of control of subsidiary undertakings - (5,456,182)
Sales of investments in Norwegian - 4,069,880
Restricted cash (1,900,631) 3,348,896
NET CASH FLOW (USED IN)/ FROM INVESTING ACTIVITIES (1,900,631) 1,962,594
FINANCING ACTIVITIES
Share issue proceeds 750,000 -
Share issue costs (26,824) -
Bank loan principal repaid 14 - (274,173)
Bank loan interest paid 14 (4,814,822) (4,595,529)
Swap interest paid 14 - (301,759)
NET CASH FLOW USED IN FINANCING ACTIVITIES (4,091,646) (5,171,461)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,179,211 6,949,167
Increase/(decrease) in cash and cash equivalents 300,330 (5,769,956)
CASH AND CASH EQUIVALENTS AT END OF YEAR 1,479,541 1,179,211
The notes on pages 47 to 73 form an integral part of these financial
statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2022
Retained Total
Share capital deficit Equity
Note US$ US$ US$
As at 1 January 2022 210,556,652 (174,204,530) 36,352,122
Total comprehensive income for the year
Profit for the year - 7,660,823 7,660,823
Total comprehensive income - 7,660,823 7,660,823
Transactions with owners
Issue of ordinary shares 750,000 - 750,000
Share issue costs paid (26,824) - (26,824)
As at 31 December 2022 211,279,828 (166,543,707) 44,736,121
As at 1 January 2021 210,556,652 (152,345,457) 58,211,195
Total comprehensive income for the year
Loss for the year - (21,859,073) (21,859,073)
Total comprehensive loss - (21,859,073) (21,859,073)
As at 31 December 2021 210,556,652 (174,204,530) 36,352,122
The notes on pages 47 to 73 form an integral part of these financial
statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
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 III Limited, DP Aircraft Guernsey IV Limited
(collectively and hereinafter, the 'Borrowers'), each being a Guernsey
incorporated company limited by shares and one intermediate lessor company, DP
Aircraft UK Limited (the 'Lessor'), a UK incorporated private limited company
respectively. The Company and its subsidiaries (the Borrowers and the Lessor)
comprise the Group.
DP Aircraft I Limited (the 'Company') was incorporated on 5 July 2013 with
registered number 56941. The Company is admitted to trading on the Specialist
Fund Segment of the London Stock Exchange.
The Share Capital of the Company comprises 239,333,333 Ordinary Shares (2021:
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 27 April 2023.
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') and the Disclosure and Transparency Rules (the 'DTRs') of the
UK's Financial Conduct Authority (the 'FCA').
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$) which is
also the functional currency of the Company and its subsidiaries.
Going Concern
The Directors believe that it is appropriate to prepare these financial
statements on the going concern basis due to current cash flow forecasts which
include fixed rentals and show that the Group has sufficient cash and
resources to cover operating costs for a period of at least 12 months from the
signing of these financial statement.
In making this conclusion, the Directors have also taken into account:-
· the positive outlook for Thai Airways with both Thai aircraft
airworthy and earning fixed rentals. There is an expectation, based on
commentary by the Thai Administrator responsible for the rehabilitation of
Thai Airways, that Thai Airways will continue to be viable and will be able to
meet the terms of the revised lease agreements. This position regarding Thai's
viability is further enhanced by the announcement on 9 August 2022 that Thai
state owned banks will provide new loans and cash infusions to Thai.
Furthermore, the Thai Government has stated that it plans to preserve its 40%
holding in Thai which may grow further but will not exceed 50%; and
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
a) Basis of preparation (continued)
Going Concern (continued)
· the expectation that DekaBank which made loans to the Group (with
certain loan concessions) will continue supporting the Group. The loan
agreement with DekaBank was amended and restated in February 2023. Per the
amended terms, monthly payments of interest and principal will be limited to
net lease rental monies available for application towards the loans of US$
475,000 per loan and the final balloon repayments will be settled out of
proceeds from sale of the aircraft at the end of the lease term if the loan is
not refinanced. The US$ 475,000 equates to a monthly lease rental of US$
510,000 per aircraft less US$ 35,000 paid to the Company as a contribution
towards its costs.
The Directors are not aware of any material uncertainties that may cast
significant doubt upon the Group's ability to continue as a going concern.
New standards, interpretations and amendments effective from 1 January 2022
The below new standards, amendments to standards and interpretations are
effective for annual periods beginning on 1 January 2022 and have no material
impact on the financial statements:
· Reference to the Conceptual Framework (Amendments to IFRS 3)
· Property, Plant and Equipment - Proceeds before Intended Use
(Amendments to IAS 16)
· Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS
37)
· Annual Improvements to IFRS Standards 2018-2020
New standards, interpretations and amendments in issue but not yet effective
The below new standards, amendments to standards and interpretations that are
effective for annual periods beginning after 1 January 2023 are not expected
to have a material impact on the financial statements:
· Classification of Liabilities as Current or Non-Current (Amendments
to IAS 1)
· Disclosure of Accounting Policies (Amendments to IAS 1)
· Definition of Accounting Estimates (Amendments to IAS 8)
· Deferred Tax related to Assets and Liabilities arising from a Single
Transaction (Amendments to IAS 12)
· IFRS 17 Insurance Contracts
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.
When control of a subsidiary undertaking is lost, the assets and liabilities
of that subsidiary are deconsolidated at the date of loss of control and a
resulting loss or gain on loss of control is reported in profit or loss.
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
c) Taxation
The Company and the Guernsey subsidiaries are exempt from taxation in Guernsey
and are charged an annual exemption fee of £1,200 (2021: £1,200). This is
treated as an operating expense.
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 (PPE) - 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 Thai Airways International were acquired in 2015
and had a useful economic lease life of 12 years at acquisition. The useful
economic lease life since acquisition of 12 years is unchanged as at year end.
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 at the beginning of each year, 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 36, the Group's aircraft and related components 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 (discounted cashflows) 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
e) 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 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 are classified as held at amortised cost.
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
e) Financial Instruments (continued)
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. Where the modification is not substantial, the existing loan is
not derecognised. Any difference arising on modification is recognised as a
gain or loss within the statement of comprehensive income regardless of
whether the modification is substantial or not.
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 reserves are recorded in the consolidated statement of financial
position during the term of the lease as a liability. 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.
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:
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
e) Financial Instruments (continued)
Fair value measurement (continued)
· 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.
f) Share capital
Shares are classified as equity. Incremental costs directly attributable to
the issue of shares are recognised as a deduction from equity to the extent
they are incremental costs directly attributable to the equity transaction
that otherwise would have been avoided.
g) Dividends
Dividends are recognised as a liability in the financial statements in the
period in which they become obligations of the Company.
h) 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. Fixed rental income from operating leases is
recognised on a straight-line basis over the term of the lease. Variable
rental income is accounted for on an accrual basis. Any modifications to
operating leases are accounted for as a new lease from the effective date of
the modification, considering any prepaid or accrued lease payments relating
to the original lease as part of the lease payments for the new lease.
Initial direct costs incurred in setting up a lease are capitalised to
Property, Plant and Equipment and amortised over the lease term.
i) Expenses
Expenses are accounted for on an accrual basis.
j) Finance costs and finance income
Interest expense 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
k) 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.
l) 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 2022
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:
Significant estimates
Impairment of property, plant and equipment
As with each reporting date, but more relevant in light of the continuing impact of COVID-19, a detailed impairment assessment of the aircraft has been undertaken.
IAS 36 requires an assessment of the aircraft carrying value versus the
recoverable amount i.e., the higher of the value in use and fair value less
cost to sell. In considering the impairment of the Thai aircraft, the board
concluded that the fair value less costs to sell was the recoverable amount.
The fair value less costs to sell used in the assessment is based on the
full-life market value of each aircraft as determined by 2 independent
appraisers given the aircraft have a lease with a full-life return condition
attached to them. 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 valuation ranges and concluded that the Thai
aircraft were not impaired as at 31 December 2022 given the fair value less
costs to sell was greater than the book value of the aircraft. 2 independent
appraisers determined that the full life market value of the aircraft as at 31
December 2022 ranges from US$ 57.6mil to US$ 74.3 mil. Note, every appraiser
has its own opinion of the market and how the market will develop. On a
specific aircraft type one appraiser might be more favourable compared to
another firm and vice versa. In addition, appraisers obtain their market
information from different sources
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
3) SIGNIFICANT JUDGEMENTS AND ESTIMATES
(CONTINUED)
Significant estimates (continued)
Impairment of property, plant and equipment (continued)
and use different calculation models. This has an influence on future and
current market values hence the wide range. Therefore, there is no wrong or
right estimate of future and current market values. In order to eliminate
peaks in one or the other direction we take the average of the 2 appraisers in
determining market values for the aircraft. This approach is consistent with
the approach adopted by other market participants (lessors, lenders, etc) and
is consistent with prior periods. Given the nature and life of our aircraft we
consider this approach to be reasonable. The average market value less selling
costs for each aircraft is more than each aircraft's carrying value.
Therefore, no impairment loss has been recognised during the financial year
ended 31 December 2022 (31 December 2021: US$ nil).
The board also considered if there was any indication that the accumulated
impairment recognised in previous years on Thai aircraft of US$ 58,839,697 had
reversed partially or in full. The board has concluded that based on the
possible ranges of the aircraft valuations, there was no reversal during the
year ended 31 December 2022.
The aircraft are currently in a half-life state which means the airframe,
engines, landing gear and other major time/cycle limited components are
halfway through their various overhaul and /or life cycles. Note that the
aircraft will be returned in a full-life condition on termination of the
leases hence full-life market value was used in the impairment assessment. If
the Group had used the half-life market value in assessing impairment, the
aircraft would be impaired by US$ 30,003,182 (31 December 2021: US$
24,577,855) in total.
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 (appraisers) 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.
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
(October 2026 and December 2026) 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 for
aircraft as at 31 December 2022 was US$ 120,247,838 (31 December 2021: US$
121,750,421), carrying value as at 31 December 2022 was US$ 125,466,080 (31
December 2021: US$ 126,424,840). As a result, the year ending 31 December 2023
and future aircraft depreciation charges for aircraft, with all other inputs
staying constant, will be US$ 1,343,497 (2022: US$ 958,760). The actual
aircraft depreciation charge for 2024 onwards will vary based on the residual
value estimates as at 31 December 2023.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
4) LEASE RENTAL INCOME
Year ended Year ended
31 December 2022 31 December 2021
US$ US$
Variable rental (PBH rent) income 7,709,166 1,110,416
Fixed rental income - 12,508,499
Straight lining rental income 8,753,206 4,772,296
Total lease rental income 16,462,372 18,391,211
All lease rental income was derived from Thai Airways and the related two
Boeing 787-8 aircraft leased to them. Variable rental income only started
being earned in mid-2021 subsequent to lease amendments. Also, the aircraft
were less operational in 2021 compared to 2022. As a result, variable rental
income for 2021 is less compared to 2022. Furthermore, subsequent to the lease
amendment in mid-2021, the Group ceased recognising fixed rental income and
started recognising straight lining rental income hence the results as
disclosed in the table above.
The lease terms provide for a power by the hour ('PBH') arrangement until 31
December 2022 (i.e., rent will be payable by reference to actual monthly
utilisation of the Thai aircraft), with monthly fixed lease payments of US$
510,000 per month thereafter until 2026. The monthly PBH rent amount is capped
at US$ 510,000.
The lease term may be extended by three years to October 2029 for aircraft MSN
36110 and December 2029 for aircraft MSN 35320 (the "Extension Period") with
further scaled back monthly lease payments starting from November 2026 and
January 2027 respectively. The Extension Period is however subject to
agreement with the Group after consulting the Lenders. The lease term has been
determined to be the period to October 2026 and December 2026 which is the
non-cancellable term of each aircraft lease.
The contracted cash lease rental payments to be received under non-cancellable
operating leases at the reporting date are:
Boeing 787-8 Boeing 787-8
Serial No: 35320 Serial No: 36110 Total
31 Dec 2022 US$ US$ US$
2023 6,120,000 6,120,000 12,240,000
2024 6,120,000 6,120,000 12,240,000
2025 6,120,000 6,120,000 12,240,000
2026 5,758,065 5,067,097 10,825,162
>2027 - - -
24,118,065 23,427,097 47,545,162
31 Dec 2021 US$ US$ US$
2022 - - -
2023 6,120,000 6,120,000 12,240,000
2024 6,120,000 6,120,000 12,240,000
2025 6,120,000 6,120,000 12,240,000
2026 5,758,065 5,067,097 10,825,162
>2027 - - -
24,118,065 23,427,097 47,545,162
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
4) LEASE RENTAL INCOME (CONTINUED)
US$13,525,502 (31 December 2021: US$ 4,772,296) of the future contracted lease
rental payments are recognised as a straight lining lease asset as at year
end.
5) GENERAL AND ADMINISTRATIVE EXPENSES
Year ended Year ended
31-Dec-22 31-Dec-21
US$ US$
Administration fees 305,896 438,198
Aircraft agency fees 12,033 12,000
Aircraft valuation fees 9,092 9,170
Aircraft security trustee fees 12,000 17,985
Audit fees 73,056 89,991
Company broker fees 167,902 167,902
Consultancy fees 8,501 -
Broker fees on sale of NAS shares - 8,140
Directors' fees and expenses 212,593 326,650
Insurance costs, including directors' insurance 100,873 71,318
Foreign exchange 4,974 21,736
IT and printing costs 22,378 6,376
Legal fees 3,157 3,326
Liquidation costs in relation to DPAG I & II - 19,488
Marketing fees - 4,175
Miscellaneous costs 8,399 6,118
Registrar fees 28,738 21,454
Regulatory fees 8,040 23,098
Restructuring fees in relation to NAS 19,664 290,278
Restructuring fees in relation to Thai 93,107 1,094,936
Tax advice fees 4,184 8,556
Total general and administrative expenses 1,094,587 2,640,895
6) FINANCE COSTS
Year ended Year ended
31 December 2022 31 December 2021
US$ US$
Loan interest payable 4,860,305 4,727,053
Loan modification adjustment - 432,976
Total finance costs at effective interest rate* 4,860,305 5,160,029
Swap interest paid - 228,277
Swap breakage costs - 939,806
4,860,305 6,328,112
Gain on derivative at fair value (note 14) - (459,015)
Total finance costs 4,860,305 5,869,097
*On liabilities measured at amortised cost.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
7) TAXATION
With the exception of DP Aircraft UK Limited, all companies within the Group
are exempt from taxation in Guernsey and are charged an annual exemption fee
of £1,200 each (2021: £1,200).
DP Aircraft UK Limited are subject to taxation at the applicable rate in the
United Kingdom. The amount of taxation during the year ended 31 December 2022
was US$ 21,249 (2021: refund of US$ 44,236). 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 expenses is not material. The effective tax rate based on tax
charge for the year is 0.0028% (2021: (0.0021%))
8) EARNINGS PER SHARE
Year ended Year ended
31 December 2022 31 December 2021
US$ US$
Profit/(Loss) for the year 7,660,823 (21,859,073)
Weighted average number of shares 223,388,128 209,333,333
Earnings per Share 0.03429 (0.10442)
9) PROPERTY, PLANT & EQUIPMENT - AIRCRAFT & RELATED
COMPONENTS
Aircraft Lease Premium Total
US$ US$ US$
COST
As at 1 January 2022 and 31 December 2022 238,731,161 17,398,493 256,129,654
ACCUMULATED DEPRECIATION / AMORTISATION
As at 1 January 2022 53,466,624 8,200,047 61,666,671
Charge for the year 958,760 - 958,760
As at 31 December 2022 54,425,384 8,200,047 62,625,431
IMPAIRMENT
As at 1 January 2022 58,839,697 9,198,446 68,038,143
Charge for the year - - -
As at 31 December 2022 58,839,697 9,198,446 68,038,143
CARRYING AMOUNT
As at 31 December 2022 125,466,080 - 125,466,080
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
9) PROPERTY, PLANT & EQUIPMENT - AIRCRAFT & RELATED
COMPONENTS (CONTINUED)
Aircraft Lease Premium Total
US$ US$ US$
COST
As at 1 January 2021 and 31 December 2021 238,731,161 17,398,493 256,129,654
ACCUMULATED DEPRECIATION / AMORTISATION
As at 1 January 2021 53,291,464 8,200,047 61,491,511
Charge for the year 175,160 - 175,160
As at 31 December 2021 53,466,624 8,200,047 61,666,671
IMPAIRMENT
As at 1 January 2021 58,839,697 9,198,446 68,038,143
Charge for the year - - -
As at 31 December 2021 58,839,697 9,198,446 68,038,143
CARRYING AMOUNT
As at 31 December 2021 126,424,840 - 126,424,840
As at year end PPE is comprised of two aircraft leased to Thai Airways. 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 Thai Airways and Thai Airways has
an obligation to return the Assets in a full life condition. However, after
expiry or termination of the leases with Thai, the cost of repair and
maintenance will fall upon the Group. Therefore, after expiry or termination
of the Thai leases, the Group may bear higher costs and the terms of any
subsequent leasing arrangements (including terms for repair, maintenance and
insurance costs relative to those agreed under the leases) may be less
favourable, which could reduce the overall distributions paid to the
shareholders.
Refer to note 3 for details regarding residual value estimates. The Group
depreciates the aircraft on a straight-line basis over the remaining lease
term. The lease term has been determined to end in 2026.
As detailed in note 3, as at 31 December 2022 there is no impairment to the
aircraft and there are no indications of reversal of prior year impairment
either. Refer to note 3 for further details.
The loans entered into by the Group to complete the purchase of the two Thai
aircraft are cross collateralised. Each of the loans are secured by way of
security taken over each of the two aircraft.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
10) RESTRICTED CASH
2022 *2021 Restated
Current assets US$ US$
Security deposit accounts 91 90
Lease rental accounts 4,175,189 2,788,427
4,175,280 2,788,517
Non-current assets
Maintenance reserves accounts* 14,979,197 14,465,329
Total restricted cash 19,154,477 17,253,846
*The comparative maintenance reserves accounts balance has been reclassified
from current to non-current, see note 24 for further information.
Maintenance reserves collected, in line with the lease
agreement, are to be used solely to cover costs related to the maintenance of
the two Thai aircraft.
The majority of security deposits were transferred to
Lease Rental Accounts during the prior period and are being used to service
loan payments due to DekaBank in accordance with the DekaBank financing
arrangements. Monies received into the Lease Rental Accounts during the PBH
and fixed rent period are to be transferred into Borrower Rental Accounts and
applied in a specific manner as agreed between DekaBank and the Group.
Access to the Lease Rental Accounts, Security deposit
accounts and Maintenance reserves accounts is physically restricted by
DekaBank therefore these monies are classified as restricted cash.
11) TRADE AND OTHER RECEIVABLES
2022 *2021 Restated
US$ US$
Prepayments 82,333 110,996
Rent receivable 671,586 140,220
Straight-lining lease asset 13,525,502 4,772,296
Total trade and other receivables 14,279,421 5,023,512
Less: Expected credit loss on straight lining lease asset (1,486,453) -
Net trade and other receivables 12,792,968 5,023,512
Current and non-current split as at year end is as follows:
2022 2021
Current assets US$ US$
Prepayments 82,333 110,996
Rent receivable 671,586 140,220
Straight-lining lease asset 3,103,595 -
3,857,514 251,216
Non-current assets
Straight-lining lease asset* 8,935,454 4,772,296
Trade and other receivables 12,792,968 5,023,512
*The comparative straight-lining lease asset balance has been reclassified
from current to non-current, see note 24 for further information.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
11) TRADE AND OTHER RECEIVABLES (CONTINUED)
The Group has assessed the straight-lining lease asset
for impairment. This balance represents the result of straight lining of
future fixed Thai lease payments over the lease term. The Group has performed
an assessment on the straight-lining lease asset taking into account current
and future information relating to the airline industry as well as the lessee
specifically and concluded that the impairment provision as at 31 December
2022 is US$ 1,486,453 (31 December 2021: US$ nil). For the remaining
receivables, the Group has concluded that these are not material thus any
provision, if any, would also be immaterial and so no further assessment is
necessary.
Movements in the impairment provision for trade
receivables is as follows:
2022 2021
US$ US$
Opening provision - 10,111,605
Expected credit loss on straight lining lease asset 1,486,453 -
Expected credit loss on lease receivable 105,063 12,508,499
Lease receivable written off (105,063) (22,620,104)
Closing provision 1,486,453 -
In the prior year, due to amendment of the lease agreements with Thai, rental
due between 1 January 2021 and 14 June 2021 of US$ 12,508,499 was provided for
and fully written off during the 2021 year together with the opening
provision. In the current period the provision increased by US$ 1,486,453 and
rental due from Thai of US$ 105,063 was written off as agreed per the Engine
Exchange Agreement entered into on 1 April 2022.
12) MAINTENANCE PROVISION
2022 2021
US$ US$
Maintenance provision - Thai Airways 14,829,296 14,460,682
Total maintenance 14,829,296 14,460,682
Maintenance reserves liability relates to funds received from Thai Airways
reserved for covering the cost of maintenance.
13) TRADE AND OTHER PAYABLES
2022 2021
US$ US$
Accruals and other payables 221,749 218,934
Asset Manager fees payable (note 22) 218,033 122,941
Broker fees payable 167,902 67,160
Director fees payable (note 21) 212,360 218,697
Taxation payable 21,249 -
Total trade and other payables 841,293 627,732
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
14) BANK BORROWINGS
US$ US$
Current liabilities: Bank interest payable and Bank borrowings 17,707,184 136,010
Non-current liabilities: Bank borrowings 80,779,172 98,304,863
Total liabilities 98,486,356 98,440,873
The borrowings are repayable as follows:
Interest payable 181,493 136,010
Within one year 17,525,691 -
In two to five years 80,779,172 98,304,863
After five years - -
Total Bank borrowings 98,486,356 98,440,873
The table below analyses the movements in the Group's bank borrowings:
2022 2021
US$ US$
Opening balance 98,304,863 180,676,613
Loan modification adjustment - 432,976
Repayment of loan - (274,173)
Loss of control of subsidiary undertakings - (82,530,553)
Principal Bank borrowings 98,304,863 98,304,863
Interest payable 181,493 136,010
Total Bank borrowings 98,486,356 98,440,873
The table below sets out an analysis of net debt and the movements in net debt
for the year ended 31 December 2022
Cash and cash equivalents Principal Interest Derivative Instrument Net Debt
US$ US$ US$ US$ US$
At 1 January 2022 1,179,211 (98,304,863) (136,010) - (97,261,662)
Cash flows 300,330 - 4,814,822 - 5,115,152
Non cash: -
Interest charge - - (4,860,305) - (4,860,305)
At 31 December 2022 1,479,541 (98,304,863) (181,493) - (97,006,815)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
14) BANK BORROWINGS (CONTINUED)
Cash and cash equivalents Principal Interest Derivative Instrument Net Debt
US$ US$ US$ US$ US$
At 1 January 2021 6,949,167 (180,676,613) (238,969) (4,257,198) (178,223,613)
Cash flows (5,769,956) 274,173 4,595,529 301,759 (598,495)
Non cash: -
Fair value movement - - - 459,015 459,015
Termination - - - 4,664,507 4,664,507
Interest charge - - (4,727,053) (228,277) (4,955,330)
Penalty fee - - - (939,806) (939,806)
Loan modification adjustment - (432,976) - - (432,976)
Loss of control of assets, liabilities and subsidiary undertaking - 82,530,553 234,483 - 82,765,036
At 31 December 2021 1,179,211 (98,304,863) (136,010) - (97,261,662)
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 on 31 December 2022 was US$
98,486,356 (31 December 2021: US$ 98,440,873).
In accordance with the Amendment and Restatement to the Loan Agreements dated
6 May 2021, repayments of any principal were to be deferred until the end of
the PBH arrangement i.e., 31 December 2022. Interest on the non-deferred
principal of the loans was to accrue at a fixed rate of 4.10 per cent and
interest on the deferred principal was to accrue at a rate per annum equal to
the sum 5.0% per annum plus LIBOR/SONIA for the applicable period (such rate
to be determined by the Facility Agent).
On 7 February 2023 the Group and DekaBank entered into a Second Amendment and
Restatement to the Loan Agreements. The new terms agreed are as follows:
· the total loan amount outstanding was split into two tranches:
o Facility A loan of US$ 61,144,842 made up of MSN 35320 loan of US$
31,099,453 and MSN 36110 loan of US$ 30,045,389. The Facility A loan amortizes
to a combined balloon of US$ 33,947,878 and represents the scheduled debt.
o Facility B loan of US$ 35,504,024 (non-amortizing), made up of MSN 35320
loan of US$ 17,366,650 and MSN 36110 loan of US$ 18,137,374. The Facility B
loan will be settled as a balloon payment at the end of the loan term in 2026.
· the MSN 35320 and MSN 36110 Facility A loans bear fixed interest
rates of 6.61% and 6.89% respectively.
· the MSN 35320 and MSN 36110 Facility B loans bear fixed interest
rates of 5.26% and 5.42% respectively.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
14) BANK BORROWINGS (CONTINUED)
· from the monthly fixed lease rental of US$ 510,000 per aircraft
(which denotes the maximum amount the Company can earn in operations per
month), US$ 475,000 is legally restricted so that those funds are only payable
to the lenders, and US$ 35,000 per aircraft can be retained by the company to
contribute towards ongoing fixed costs of the Company.
The MSN 35320 loan and the MSN 36110 loan have a final maturity date of 9
December 2026 and 29 October 2026 respectively.
The two DekaBank loans (MSN 35320 loan and MSN 36110 loan referred to as the
third and fourth loan) entered into by the Group to complete the purchase of
the two Thai aircraft (referred to as 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.
Also, please refer to note 23 for further details regarding amendment and
restatement of the loan agreement after 31 December 2022.
15) SHARE CAPITAL
Company's authorised share capital is unlimited.
Year ended 31 December 2022 Subordinated
Administrative Ordinary
Share Shares Total
Issued and fully paid (no par value shares): Number Number Number
Shares as at 1 January 2022 1 209,333,333 209,333,334
Share issued during the year - 30,000,000 30,000,000
Shares as at 31 December 2022 1 239,333,333 239,333,334
US$ US$ US$
Share capital as at 1 January 2022 - 210,556,652 210,556,652
Proceeds from issue of shares 750,000 750,000
Issue cost paid - (26,824) (26,824)
Share capital as at 31 December 2022 - 211,279,828 211,279,828
Year ended 31 December 2021 Subordinated
Administrative Ordinary
Share Shares Total
Issued and fully paid (no par value shares): Number Number Number
Shares as at 1 January 2021 and 31 December 2021 1 209,333,333 209,333,334
US$ US$ US$
Share capital as at 1 January 2021 and 31 December 2021 - 210,556,652 210,556,652
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
15) SHARE CAPITAL (CONTINUED)
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.
On 13 July 2022 the Company raised gross proceeds of $750,000 through the
issue of 30,000,000 new ordinary shares in the capital of the Company at a
price of US$0.025 per new ordinary share.
16) RESERVES
The movements in the Group's reserves are shown on page 46.
Retained deficit comprises accumulated profits and losses over time and is
taken to this reserve which may be utilised for the payment of dividends if
overall in a profitable position.
17) DIVIDENDS
The dividends declared and paid during the year ended 31 December 2022 are US$
nil (31 December 2021: US$ nil).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
18) 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 2022
DP Aircraft Guernsey III Limited 21 May 2015 Guernsey 100%
DP Aircraft Guernsey IV Limited 21 May 2015 Guernsey 100%
DP Aircraft UK Limited 14 April 2015 United Kingdom 100%
19) FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The following table details the categories of financial instruments held by
the Group at the reporting date:
2022 2021
US$ US$
Cash and cash equivalents 1,479,541 1,179,211
Restricted cash 19,154,477 17,253,846
Trade and other receivables (excluding prepayments and straight-lining lease 671,586 140,220
asset)
Financial assets measured at amortised cost 21,305,604 18,573,277
Financial liabilities
Bank borrowings 98,486,356 98,440,873
Maintenance provision 14,829,296 14,460,682
Trade and other payables (excluding tax) 841,293 627,732
Financial liabilities measured at amortised cost 114,156,945 113,529,287
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 as
at year end comprised of cash and cash equivalents, restricted cash,
maintenance reserves payable and bank loans.
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 and 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.
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
19) FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
Credit risk
Credit risk is the risk that a significant counterparty will default on its
contractual obligations. The Group's main counterparty during the year was
Thai Airways as lessee and provider of income. The Group, through the Asset
Manager, mitigates credit risk related to Thai Airways through regular
monitoring of Thai's use of the aircraft, review of Thai's financial position,
performance, and prospects and through a general review of the performance of
the airline market.
The Group assesses the probability of Thai defaulting under different
scenarios and the losses that would be incurred under those different
scenarios. The probability of each default scenario occurring and the related
loss that would be incurred under that scenario is determined taking into
account Thai's historic financial position, performance and future prospects.
The general performance of the Thai economy and the overall airline industry
is also considered in the assessment.
There are gross lease rentals receivable from Thai at 31 December 2022, US$
671,586 (2021: US$ 140,220). A full lifetime ECL was recognised for the lease
rentals receivable from Thai in the prior year however no ECL has been
recognised for the balance due as at year end (see note 11). Furthermore, the
Group has also recognised a gross straight lining lease asset as at 31
December 2022 of US$ 13,525,502 (31 December 2021: US$ 4,772,296). A provision
is recognised against this straight lining lease asset as at 31 December 2022
of US$ 1,486,453 (31 December 2021: US$ nil). Refer to note 11 for further
details.
Whilst the board expect that the approved Thai rehabilitation plan will
succeed, the final outcome of these proceedings is unknown. Failure of any
material part of the rehabilitation plan may have an adverse impact on its
ability to comply with its obligations under the lease (see note 4 for details
re obligations of lessee).
Cash and restricted cash are all held at DekaBank. The credit rating of
DekaBank is Aa2 (2021: 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. The bank borrowings have the most significant interest impact on
the Group. As detailed in note 14, post year end the Group's bank borrowings
were amended and restated. As part of the amendment and restatement, interest
rates were set at fixed rates. Therefore, the Group's interest rate exposure
is currently limited only to the restricted cash and bank balances which earn
an immaterial amount of interest. As a result, the Group has no material
exposure to interest rate risk subsequent to year end.
A 0.25% increase or decrease in interest rates on all interest-bearing
financial instruments would result in an increase or decrease in net finance
costs for the year of US$ 194,177 (2021: US$ 199,680).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
19) FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
The following table details the Group's exposure to interest rate risk as at
year end:
Non-interest
Fixed rate Variable rate bearing
31 December 2022 instruments instruments instruments Total
US$ US$ US$ US$
Restricted cash - 19,154,477 - 19,154,477
Trade and other receivables (excluding prepayments and straight-lining lease - - 671,586 671,586
asset)
Cash and cash equivalents - 1,479,541 - 1,479,541
Total financial assets - 20,634,018 671,586 21,305,604
Trade and other payables - - (820,044) (820,044)
Maintenance reserves - - (14,829,296) (14,829,296)
Bank borrowings* (62,800,839) (35,504,024) (181,493) (98,486,356)
Total financial liabilities (62,800,839) (35,504,024) (15,830,833) (114,135,696)
Total interest rate sensitivity gap (62,800,839) (14,870,006)
*Interest is charged on the deferred portion of the loan based on a variable
rate and a fixed rate for the loan portion not deferred.
Non-interest
Fixed rate Variable rate bearing
31 December 2021 instruments instruments instruments Total
US$ US$ US$ US$
Restricted cash - 17,253,846 - 17,253,846
Trade and other receivables (excluding prepayments and straight-lining lease - - 140,220 140,220
asset)
Cash and cash equivalents - 1,179,211 - 1,179,211
Total financial assets - 18,433,057 140,220 18,573,277
Trade and other payables - - (627,732) (627,732)
Maintenance reserves - - (14,460,682) (14,460,682)
Bank borrowings (77,208,294) (21,096,569) (136,010) (98,440,873)
Total financial liabilities (77,208,294) (21,096,569) (15,224,424) (113,529,287)
Total interest rate sensitivity gap (77,208,294) (2,663,512)
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
19) FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
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 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 Thai
Airways, there is a risk that the Group will not be able to remarket the Thai
Assets successfully within the remarketing period specified in the loan
agreements and that 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 Dekabank 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 equivalent to the existing leases, which may have
an adverse effect on the Group and its ability to meet its investment
objective and its dividend target. Accordingly, were any or all of the Assets
to be re-leased on less favourable terms, this may have an adverse effect on
the Group and its share price. The Group monitors the impact of its
obligations, including the Dekabank loan, on liquidity through cash flow
forecasts which are prepared on a monthly basis.
As detailed in note 23, post year end the Group has successfully renegotiated
an amendment to the Dekabank loans and new terms were agreed. The new terms
agreed change the liquidity profile of the Group compared the analysis shown
below. Under the new terms, total loan repayments will be US$ 950,000 per
month (US$ 475,000 for each of the two loans), see note 23 for further
details.
The following table details the contractual maturity analysis of the Group's
financial liabilities as at 31 December 2022. The amounts are contractual
undiscounted cash flows and therefore will not agree directly to the balances
in the statement of financial position as at 31 December 2022.
31 December 2022 Next 12 months 2-5 years After 5 years Total
US$ US$ US$ US$
Bank borrowings and interest (20,172,088) (92,309,392) - (112,481,480)
Maintenance provision - (14,829,296) - (14,829,296)
Trade and other payables (841,293) - - (841,293)
Total (21,013,381) (107,138,688) - (128,152,069)
31 December 2021 Next 12 months 2-5 years After 5 years Total
US$ US$ US$ US$
Bank borrowings and interest (4,302,804) (103,353,004) - (107,655,808)
Maintenance provision - (14,460,682) - (14,460,682)
Trade and other payables (627,732) - - (627,732)
Total (4,930,536) (117,813,686) - (122,744,222)
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-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
19) FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
Liquidity risk (continued)
Liquidity risk management
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.
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.
20) FAIR VALUE MEASUREMENT
The accounting policies and basis of measurement in respect of financial
instruments are detailed in note 2.
Financial assets and financial liabilities at amortised cost
The fair value of cash and cash equivalents, trade and other receivables
(excluding prepayment and straight lining lease asset), restricted cash and
interest payable approximate their carrying amounts due to the short-term
maturities of these instruments.
Derivative instruments held at fair value
In the prior period, the Group held interest rate swaps which were valued on a
recurring basis and were categorised within level 2 of the fair value
hierarchy required by IFRS 13. The interest rate swaps were terminated in the
prior period.
21) RELATED PARTY TRANSACTIONS
The Directors who served during the year received the following remuneration:
Year ended 31 December 2022 Year ended 31 December 2021
US$ US$
Jonathan Bridel (Chairman) 80,701 121,613
Jeremy Thompson (Chairman of the Audit Committee and Senior Independent 60,064 98,493
Director)
Harald Brauns (Chairman of the Management Engagement Committee) 65,503 100,298
Total 206,268 320,404
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
21) RELATED PARTY TRANSACTIONS (CONTINUED)
Up to 30 September 2022, 10% of base fees and all extra fees were not paid by
way of cash payments but were deferred to be settled in the future or to be
paid by way of equity. There has been no settlement of director remuneration
via the issue of equity in the current year (2021: nil) and the deferred fees
remain outstanding as at 31 December 2022 (see note 13).
Directors' expenses totalling US$ 1,273 were paid during the year ended 31
December 2022 (2021: US$ 63), with US$ nil due to be paid at the year-end (31
December 2021: US$ nil).
Base annual fees are as follows:
Annual Fees Oct 22 to Dec 22 Jan 22 to Sept 22 Jan 21 to Dec 21
Jonathan Bridel £61,750 £66,000 £66,000
Jeremy Thompson £49,450 £53,700 £53,700
Harald Brauns £49,450 £53,800 £53,800
*Note: Directors fees were agreed in GBP, the financial statements are
presented in USD
Director fees has been reduced by 10% which was the portion being deferred and
possibly payable in shares. The reduction in fees is effective 1 October 2022.
In recognition of the additional work performed in relation to the Group's
circumstances, the board have earned extra fees of £nil (31 December 2021:
£65,000) split as follows: -
Additional Fee 2022 2021
Jonathan Bridel - £25,000
Jeremy Thompson - £20,000
Harald Brauns - £20,000
*Note: Directors fees were agreed in GBP, the financial statements are
presented in USD
Director's shareholdings in the Company are detailed in the Directors' Report
and Directors' received dividends of US$ nil during the year (31 December
2021: US$ nil).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
22) MATERIAL CONTRACTS
Asset Management Agreement
The Asset Management Agreement dated 19 September 2013, between the Group and
DS Aviation was initially amended on 5 June 2015 to reflect the acquisition of
two new aircraft. A second amendment via a side letter, effective 1 January
2021, was made to the Asset Management Agreement on 7 May 2021.
Disposal fee
The initial amendment provides a calculation methodology for the disposal fee
which will only become payable when all four of the Assets (first two
currently under receivership and second two currently held by the Group) have
been sold after the expiry of the second 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.
Per the second amendment, payment of any Disposal Fee per above (if any) in
connection with the sale of any of the Assets that were under receivership is
subordinated to the DekaBank loans and will only become payable after the
loans (including the deferred element) have been repaid or prepaid in full.
The disposal fee is a cash-settled payment to the Asset Manager. There is no
disposal fee expected to be payable as at 31 December 2022 (31 December 2021:
US$ nil).
Management fees
The Asset Manager is paid a monthly base fee of US$ 15,085 (US$ 16,666 up to
31 December 2020) per asset in respect of the two Assets that are currently
held by the Group, increasing by 2.5 per cent per annum from May 2021.
As consideration for the Asset Manager agreeing to a reduction of the monthly
base fee in respect of the two Assets that are currently held by the Group,
the Company agreed that, when permissible as advised by the corporate broker,
the Asset Manager shall receive an allocation of shares in the Company
determined to be of a value equivalent to the reduction in the monthly base
fee with respect to the two Assets. The share allocation will be carried out
using a share price for the conversion which is fair and reasonable as advised
by corporate broker.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
22) MATERIAL CONTRACTS
Asset Management Agreement
Management fees (continued)
In the year ended 31 December 2022 Asset Management fees totalled US$ 471,590
(2021: US$ 757,254) of which US$ 218,033 (note 13) was due at 31 December 2022
(31 December 2021: US$ 122,941).
Administration Agreement
The Administrator of the Company is Aztec Financial Services (Guernsey)
Limited. Aztec Financial Services (Guernsey) Limited and Aztec Financial
Services (UK) Limited provide administration services to the Company's
underlying subsidiaries. These administrator companies are collectively known
as the "Administrators". Total fees charged by the Administrators during the
period were US$ 305,896 (31 December 2021: US$ 438,198) of which US$ 57,711
remained payable at 31 December 2022 (31 December 2021: US$ 46,876).
The Administrators have the right to be reimbursed from the Company for any
reasonable out of pocket expenses incurred in carrying out their
responsibilities.
Directors' fees
Details of the fees paid to the Directors are included in note 21.
23) SUBSEQUENT EVENTS
On 7 February 2023, the Group and DekaBank entered into a Second Amendment and
Restatement to the Loan Agreement in which the parties agreed on the following
main terms:
· the total loan amount outstanding was split into two tranches:
o Facility A loan of US$ 61,144,842 made up of MSN 35320 loan of US$
31,099,453 and MSN 36110 loan of US$ 30,045,389. The Facility A loan amortizes
to a combined balloon of US$ 33,947,878 and represents the scheduled debt.
o Facility B loan of US$ 35,504,024 (non-amortizing), made up of MSN 35320
loan of US$ 17,366,650 and MSN 36110 loan of US$ 18,137,374. The Facility B
loan represents the deferred debt and will be settled as a balloon payment at
the end of the loan term.
· US$ 2.36m of surplus cash generated under the PBH period was used to
immediately repay debt on the amortizing Facility A loan in February 2023,
while an agreed cash reserve of US$ 500,000 per aircraft will be retained to
cover unforeseen costs going forward.
· the interest rate swap currently in place for the scheduled debt was
dissolved at no net gain or loss.
· the MSN 35320 and MSN 36110 Facility A loans bear fixed interest
rates of 6.61% and 6.89% respectively.
· the MSN 35320 and MSN 36110 Facility B loans bear fixed interest
rates of 5.26% and 5.42% respectively.
· from the monthly fixed lease rental of US$ 510,000 per aircraft
(which denotes the maximum amount the Company can earn in operations per
month), US$ 475,000 is legally restricted so that those funds are only payable
to the lenders, and US$ 35,000 per aircraft can be retained by the company to
contribute towards ongoing fixed costs of the Company.
Due to the limited liquidity position of the Group, restructuring fees
associated with the second amendment and restatement will be paid after the
eventual remarketing of the aircraft, subject to surplus sales proceeds being
realized.
DP Aircraft Guernsey I Limited and DP Aircraft Guernsey II Limited were
voluntarily liquidated on 20 February 2023.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2022
24) PRIOR YEAR RECLASSIFICATION
In preparing these financial statements, the Group discovered that restricted
cash comprising maintenance reserves and the straight lining lease asset
included in trade and other receivables were erroneously presented as current
assets when should have been reported as non-current assets given these were
not expected to be realised within 12 months after the reporting period.
The errors have been corrected by reclassifying each of the affected financial
statement line items for prior periods from current to non-current as follows:
1 January 2021 As previously reported Reclassification adjustment
As Restated
NON-CURRENT ASSETS US$ US$ US$
PPR - Aircraft & Related Components 126,600,000 - 126,600,000
Restricted Cash - 15,547,974 15,547,974
Total non-current assets 126,600,000 15,547,974 142,147,974
CURRENT ASSET
Assets held for sale 82,000,000 - 82,000,000
Investment held at fair value 15,630,526 - 15,630,526
Trade and other receivables 45,930 - 45,930
Restricted Cash 27,438,332 (15,547,974) 11,890,358
Cash and cash equivalents 6,949,167 - 6,949,167
Total current assets 132,063,955 (15,547,974) 116,515,918
TOTAL ASSETS 258,663,955 - 258,663,955
31 December 2021 As previously reported Reclassification adjustment
As Restated
NON-CURRENT ASSETS US$ US$ US$
PPR - Aircraft & Related Components 126,424,840 - 126,424,840
Trade and other receivables - 4,772,296 4,772,296
Restricted Cash - 14,465,329 14,465,329
Total non-current assets 126,424,840 19,237,625 145,662,465
CURRENT ASSET
Trade and other receivables 5,023,512 (4,772,296) 251,216
Restricted Cash 17,253,846 (14,465,329) 2,788,517
Cash and cash equivalents 1,179,211 - 1,179,211
Total current assets 23,456,569 (19,237,625) 4,218944
TOTAL ASSETS 149,881,409 - 149,881,409
The reclassification adjustment has no impact on retained earnings, operating
profit, earnings per share or any other primary statements.
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
APPENDIX 1 - ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE
REGULATORY REFERENCE DOCUMENT NAME, PAGE AND REFERENCE
AIFMD Article 23(1)
(a) a description of the investment strategy and objectives of the AIF; Prospectus, page 38, Information on the Company.
if the AIF is a feeder AIF, information on where the master AIF Not applicable.
is established;
if the AIF is a fund of funds, information on where the Not applicable.
underlying funds are established;
a description of the types of assets in which the AIF may invest; Prospectus, page 38, Information on the Company.
the investment techniques that the AIF, or the AIFM on behalf of Prospectus, page 38, Information on the Company.
the AIF, may employ and all associated risks;
Prospectus, pages 18-31, disclosure of risk factors.
any applicable investment restrictions; Prospectus, page 8.
the circumstances in which the AIF may use leverage; Prospectus, page 20, Risk of Debt Financing.
the types and sources of leverage permitted and the associated Prospectus, page 20, Risk of Debt Financing.
risks;
any restrictions on the use of leverage and any collateral and Prospectus, page 20, Risk of Debt Financing.
asset reuse arrangements; and
the maximum level of leverage which the AIFM is entitled to Prospectus, page 20, Risk of Debt Financing.
employ on behalf of the AIF;
(b) a description of the procedures by which the AIF may change its investment Prospectus, page 38, Investment Policy.
strategy or investment policy, or both;
(c) a description of the main legal implications of the contractual Prospectus, page 80, Part IX, Loans and Loan Agreements.
relationship entered into for the purpose of investment, including information
on jurisdiction, the applicable law and the existence or absence of any legal Prospectus, page 142, Part IV, Definitions.
instruments providing for the recognition and enforcement of judgments in the
territory where the AIF is established;
(d) the identity of the AIFM, the AIF's depositary, the auditor and any other Prospectus, page 36, Directors and Advisers.
service providers and a description of their duties and the investors' rights;
Prospectus, page 152 (h).
(e) a description of how the AIFM complies with the AIFMD's requirements Prospectus, page 151 (g).
relating to professional liability risk;
APPENDIX 1 - ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE (CONTINUED)
REGULATORY REFERENCE DOCUMENT NAME, PAGE AND REFERENCE
AIFMD Article 23(1)
(f) a description of:
any AIFM management function delegated by the AIFM; Not applicable.
any safe-keeping function delegated by the depositary; Not applicable.
the identify of each delegate appointed; and Not applicable.
any conflicts of interest that may arise from such delegations; Not applicable.
(g) a description of the AIF's valuation procedure and of the pricing Prospectus, page 152 (i).
methodology for valuing assets, including the methods used in valuing any
hard-to-value assets;
(h) a description of the AIF's liquidity risk management, including the Prospectus, page 152 (j).
redemption rights of investors in normal and exceptional circumstances, and
the existing redemption arrangements with investors;
(i) a description of all fees, charges and expenses, and the maximum Prospectus, pages 48-50, Fees and Expenses.
amounts directly or indirectly borne by investors;
(j) a description of how the AIFM ensures a fair treatment of investors; Prospectus, page 152 (l).
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 such preferential treatment; and Prospectus, page 152 (l).
where relevant, their legal or economic links with the AIF or Not applicable.
AIFM;
(k) the latest annual report Contained in this document.
(l) the procedure and conditions for the issue and sale of units or Prospectus, page 44, Further Issue of Shares.
shares;
(m) the latest net asset value of the AIF or the latest market price of the The Company's shares are traded on the London Stock Exchange so the latest
unit or share of the AIF; share price should be available on www.londonstockexchange.com
(http://www.londonstockexchange.com) .
APPENDIX 1 - ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE (CONTINUED)
REGULATORY REFERENCE DOCUMENT NAME, PAGE AND REFERENCE
AIFMD Article 23(1)
(n) where available, the historical performance of the AIF; Not applicable.
(o) the identity of any prime broker; Prospectus, page 152 (o).
a description of any material arrangements of the AIF with its Prospectus, page 152 (o).
prime brokerage firm and the way any conflicts of interest are managed;
the provision in the contract with the depositary on the Prospectus, page 151 (a).
possibility of transfer and reuse of AIF assets; and
information about any transfer of liability to the prime Prospectus, page 152 (o).
brokerage firm that may exist; and
(p) a description of how and when the information required under Art. 23(4) Information may be disclosed in the Company's annual report or by the Company
and Art. 23(5) of the AIFMD will be disclosed. publishing the relevant information on the Company's website
(http://www.dpaircraft.com (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 of leverage which the AIFM may employ on Not applicable as no changes to the maximum level of leverage.
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 employed by that AIF. The leverage employed by AIF is US$ 98,462,379 as at 31 December 2022.
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