REG - DP Aircraft I Ltd - Half-year Report
20/09/2023 07:00
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RNS Number : 9870M DP Aircraft I Limited 20 September 2023
20 September 2023
DP Aircraft I Limited (the 'Company')
Interim Report and Accounts
The Company is pleased to provide a copy of the Unaudited Condensed
Consolidated Interim Report for the six-month period ended 30 June 2023 (the
"Interim 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 748831
Sarah Felmingham / Chris Copperwaite
DP AIRCRAFT I LIMITED
UNAUDITED CONDENSED CONSOLIDATED INTERIM REPORT
FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2023
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$ 0.055 at 30 June 2023
Earnings per Share US$ (0.0170) for the period ended 30 June 2023
Country of Incorporation Guernsey
Current Ordinary Shares in Issue 209,333,333
Administrator and Company Secretary Aztec Financial Services (Guernsey) Limited
Asset Manager DS Aviation GmbH & Co. KG
Auditor KPMG, Chartered Accountants
Corporate Broker Investec Bank Plc
Aircraft Registration 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
subsidiaries, 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 at an issue price of US$
1.00 per ordinary share by means of a placing. The Company's ordinary shares
were admitted to trading on the Specialist Fund Segment 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 of no-par value
at an issue price of US$ 1.0589 per ordinary share by means of a placing.
These 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 US$750,000, due to
lender restrictions on the DPA 1 Limited Topco balance, through the issue of
30,000,000 additional ordinary shares in the capital of the Company at a price
of US$0.025 per share. These additional 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, the Group also utilised
external debt to fund the initial acquisition of the aircraft. Further details
are given within this summary section.
INVESTMENT OBJECTIVE
The Company's investment objective is to obtain income and capital returns for
its shareholders by acquiring, leasing and then, when the Board considers it
appropriate, selling aircraft (the 'Asset' or 'Assets').
THE BOARD
The Board comprises of independent Directors (the 'Directors') or (the
'Board'). 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 while the asset management
of the Group is undertaken by DS Aviation GmbH & Co. KG (the 'Asset
Manager').
THE ASSET MANAGER
The Asset Manager has undertaken to provide asset management 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.
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 legacy engine 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 continues to have 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 for
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 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 respectively. 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, the 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 (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 is 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 is a 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.
· 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 cost.
· 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 Loan Agreement 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
developments of COVID-19 and market capitalisation of US$ 13.16 million at 30
June 2023, a detailed impairment assessment of the aircraft has been
undertaken. Following this review an impairment of US$ nil (31 December 2022:
US$ nil) was booked against the aircraft. See note 3 for further details
regarding the impairment and comments under the Highlights 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 Board and its advisors feel 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
advisors 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
LOSS FOR THE PERIOD
The loss for the period ended 30 June 2023 is US$ 4,072,482 and loss per share
is US$ 0.0170. The profit for the period ended 30 June 2022 was US$ 2,998,596
and profit per share was US$ 0.0143.
The results for the period ended 30 June 2023 are mainly driven by rental
income earned of US$ 4,340,629 (30 June 2022: US$ 7,575,435) and finance costs
incurred of US$ 7,495,940 (30 June 2022: US$ 2,194,840). The increase of
finance costs is a result of an adjustment required by IFRS to reflect the
modification to the loan terms in February 2023. The modification adjustment
for the modification to the loans in February 2023 totalled US$ 5,042,029 and
increased both finance costs and the loans payable at the point of
modification and resulted in an overall loss for the period. This adjustment
essentially recognises a loss now due to the less favourable terms (primarily
interest rate increases) under the modified terms compared to the original
terms. As a result of this adjustment, interest will be recognised at the
lower original effective interest rate as opposed to the higher modified
interest rate going forward. The decrease in rent was due to the variable rent
period ending on 31 December 2022. For the period to 30 June 2023, the entity
only earned fixed rental income.
Refer to the Condensed Consolidated Statement of Comprehensive Income for full
details of results for the period.
NET ASSET VALUE ('NAV')
The NAV per share was US$ 0.1699 at 30 June 2023 (31 December 2022: US$
0.1869) and the price per share was US$ 0.055 (31 December 2022: US$ 0.045).
NAV per share decreased due to the loss made during the interim period (see
above). The NAV excluding the financial effects of the straight-lining lease
asset and the loan modification adjustment was US$ 0.1471 per share at 30 June
2023 (31 December 2022: US$ 0.1384).
The straight-lining lease asset and the loan modification adjustment will
reduce to nil over time. The NAV excluding the straight-lining lease asset and
loan modification adjustment is therefore presented to provide what the
Directors consider to be a more relevant assessment of the Group's net asset
position.
As at 30 June 2023 As at 31 December 2022
US$ US$ per share US$ US$ per share
NAV per the financial statements 40,663,639 0.1697 44,736,121 0.1869
Less: Straight-lining lease asset (11,785,090) (0.0492) (13,525,502) (0.0565)
Add: Provision on straight-lining lease asset 1,295,181 0.0054 1,486,453 0.0062
Add: Loan modification adjustment 5,042,029 0.0211 - -
NAV excluding straight-lining lease asset 35,215,759 0.1471 32,697,072 0.1366
As at 30 June 2023, the price per share was US$ 0.055 which is significantly
lower than the NAV per share above, excluding the straight-lining lease asset
and the loan modification adjustment. The main asset in the Group, the
aircraft, have been assessed for impairment (see note 3) and found not to be
impaired. Other significant assets comprise cash and receivables whose values
are considered to be reflective of fair value due to their short-term nature.
INTERIM DIVIDENDS
As previously outlined, as a result of the impact of the COVID-19 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
Asset Manager's 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 Loan Agreement.
OFFICIAL LISTING
The Company's ordinary 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 period ended 30 June 2023.
The loss per share for the period was US$ 0.0170 compared to a profit per
share of US$ 0.0143 for the same period last year. The net asset value per
share at the period end was US$ 0.1699 compared to US$ 0.1869 at 31 December
2022.
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. Similarly,
IFRS requires a loan modification adjustment to be accounted for when loan
terms are amended but the amendment is not deemed substantial. The adjustment
for the modification to the loans in February 2023 totalled US$ 5,042,029 and
increased both finance costs and the loans payable at the point of
modification and resulted in an overall loss for the period. This adjustment
essentially recognises a loss now due to the less favourable terms (primarily
interest rate increases) under the modified terms compared to the original
terms. As a result of this adjustment, interest will be recognised at the
lower original effective interest rate as opposed to the higher interest
modified rate going forward. Please refer to the Highlights which explains the
net impact of these IFRS adjustments on the profit for the period and the NAV
at the end of the period.
After a significant amount of work undertaken by the Board during the period,
the Group concluded the Loan restructuring with the Lenders and a final
balloon repayment of $69.5 million for both loans was announced in March for
the end of the loan periods in 2026.
With respect to ongoing working capital requirements, some service providers
and the Directors have deferred some significant amounts due to extend the
period before another equity raise is required. The focus of the Company
remains the preservation of the Group's long-term financial stability and
asset values. The Company believes the Boeing 787 remains an attractive asset
and notes recent transactions in the market though transparency around
transaction values is not currently available. Boeing 787 wide body production
is still behind historic levels and delayed deliveries for new Boeing's 787
are further strengthening this demand. Both aircraft must be returned in full
life condition at the end of their leases.
HS-TQC and HS-TQD have had consistent utilisation over the period with
utilisation being exclusively in the Asian region. Thai's operating health
appears much stronger as it works towards ending its rehabilitation process,
projected to occur in 2024. Thai have also noted their intention to lease more
aircraft as a measure of their increased confidence. Thai is also expected to
raise further equity over the coming year as noted in their recent
announcement.
There has been a continued improvement in the global aviation market following
the challenges resulting from the effects of the COVID-19 pandemic. Recent
sentiment on airline and related stocks has been more optimistic. The Ukraine
war has not had as significant an impact on the industry as expected. With
COVID-19 restrictions in China being lifted there is cause for some optimism
in tourism numbers from that market in Thailand going forward.
Our aircraft are now operating on fixed monthly lease payments with Thai until
October/December 2026, reflecting the reduced lease rates negotiated earlier.
As previously noted, the lease term was extended by a further 3 years to
October/December 2029, with further scaled back monthly lease payments
starting from November 2026/January 2027, and the Group retaining a right of
early termination in October/December 2026 after consultation with the
Lenders. The current finance arrangements end during 2026. At the end of the
leases in 2029, unless terminated early in 2026 as allowed in the
aforementioned sentences above, the aircraft are required to be returned in
full life condition.
The Board and the Asset Manager remain fully committed to extract the highest
possible value for shareholders in this process and are focussed on actions to
improve and preserve the value of the assets.
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, though the
position of Thai has improved considerably, the impact of inflation on the
travel industry and the knock-on effect these factors may have on aircraft
values and lease rentals.
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. I am especially grateful to the Board and our key service
providers for their continued significant support over the period and going
forward.
Jonathan Bridel
Chairman
ASSET MANAGER'S REPORT
THE AIRLINE MARKET
As almost all countries around the world have lifted COVID-19 restrictions and
passenger traffic is continuously increasing, the recovery of the airline
industry more than doubled from expectations published by IATA in December
2022. However, there are still challenges facing the aviation business,
including the rising inflation rate, the conflict between Russia and the
Ukraine, problems with the supply chains, and high regulatory costs. Despite
these facts, Director General of IATA, Willie Walsh believes that airline
financial performance in 2023 is beating expectations since there are several
positive developments such as China lifting COVID-19 restrictions earlier than
anticipated and high but moderated jet fuel prices. Stored widebody aircraft
are steadily going back to service. The industry recovery for Asia-Pacific
carriers is underway as a sharp rise in both passenger volumes and capacity is
expected to be reflected in a sizeable improvement in 2023 financial results.
Global
· Current Situation
o Fleet utilisation is back to pre-Covid level
o Passenger demand (measured in RPK) in June 2023 increased to 94% of
pre-Covid levels
o In comparison to demand performance from the prior year, the worldwide air
freight market continues to drop, albeit more slowly
o At the current stage, according to IATA, the Russia-Ukraine conflict has
no major impact on airlines´ profitability
· Outlook
o Air passenger demand in 2024 is expected to be stronger and around 4%
higher than 2019
o The cargo market is expected to decline in volume under pre-pandemic
level, but revenues remaining above
o Boeing predicts that over 42,000 new aircraft will be needed over the next
20 years - an increase of 3.5% compared to Boeing´s last year outlook - with
an approximate value of USD 8 trillion
2019 2020 2021 (actuals) 2022 (estimated) 2023 (forecasted)
(actuals)
(actuals)
Revenues [billion USD] 838 384 509 732 803
Passenger Revenue [billion USD] 607 189 239 430 546
Net Result [billion USD] 26.4 - 137.7 - 41.9 - 3.6 9.8
Operating Profit [billion USD] 43.2 - 110.8 - 45.1 10.1 22.4
Capacity (ASK) --- - 57% + 19% + 40% + 25%
[% change vs. previous year]
Demand (RPK) --- - 66% + 22% + 64% + 28%
[% change vs. previous year]
Passenger Load Factor 83% 65% 67% 79% 81%
Source: IATA June 2023
Asia
· Current Situation
o All economies in the region have lifted Covid travel restrictions
o An increase of 363% rise on full year international 2022 traffic (measured
in RPK) while capacity (measured in ASK) grew by 130% compared to 2021,
maintaining the strongest year-over-year rate among the regions
o In June 2023, demand on international routes continued to show a positive
development but is still 29% lower than pre-pandemic levels (June 2019)
o A nearly threefold increase in demand for Asia-Pacific airlines in May
2023 compared to the same month in the previous year as China's reopening
gained traction; nevertheless, Chinese outbound-international travel (ASK) is
still less than half compared the pre-pandemic levels (June 2019 vs. June
2023)
· Outlook
o Net loss for 2023 is expected to amount to USD 6.1 billion compared to a
net loss of USD 13.5 billion in 2022
o Growth both in demand and capacity in 2023 is anticipated to be about 63%
and 49% respectively, the strongest among the regions
o Airlines expected to fully recover to pre-pandemic levels in 2024
Outlook & Conclusion
The aviation industry is undoubtedly recovering from the COVID-19 pandemic
faster than anticipated; the IATA upgraded their outlook this June. Even with
a minimal net profit margin, the return to net profitability represents a
significant accomplishment despite the existing drawback factors such as high
inflation, weaker corporate earnings, and the impact of Russia's invasion of
Ukraine. Several favourable occurrences, such as China lifting COVID-19
limitations earlier than anticipated and high but moderated jet fuel prices,
contribute to higher profitability. Repairing damaged financial balance sheets
and giving investors sustainable returns on their capital will continue to be
difficult for many airlines, given that they only make approximately $2.25 per
passenger on average. Most airlines have yet to pay back the entire government
assistance provided to airlines in the form of credits for recovering from the
COVID-19 outbreak. As a result, the financial performance and ability to
moderate strategic decisions are still affected. Further supply chain
shortages might also slow the recovery as aircraft and engine deliveries or
repairs and overhaul activities might be delayed.
The aviation industry is recovering at a reasonable rate, even if the recovery
in the Asia-Pacific region is slower than average due to a delayed lifting of
travel restrictions. The recovery is also reflected in the increase of placing
orders for new aircraft; for instance, Lufthansa ordered 22 A350s and Boeing
787s, IndiGo ordered 500 A320-family aircraft, Emirates plans to order 150
aircraft, and Thai is looking for narrow- and widebody aircraft.
From a historical perspective, the aviation industry has shown itself to be
resilient, having recovered from all past crises, and the first quarter of
2023 indicates a quick rebound compared to the prior year. However, the
airline business remains frail to temporary downturns. Even if at the current
stage IATA does not see any severe impact of the Ukraine war on airlines´
profitability, it remains a serious threat with the possibility of rising
inflation rates, the expansion to other regions or the extension of airspace
closures, etc.
IATA's General Director Willie Walsh put it in a nutshell: "Airline financial
performance in 2023 is beating expectations.… resilience is the story of the
day, and there are many good reasons for optimism".
THE LESSEE - THAI AIRWAYS INTERNATIONAL PUBLIC COMPANY LIMITED
Overview
· 34 international destinations during winter 2022/2023 (main season in
Thailand); popular routes are currently, amongst others, to Japan and South
Korea
· 1(st) March 2023: Thai reopened flights to China, offering 14 weekly
flights to five destinations
· 51 aircraft in operation, 23 aircraft in storage and one aircraft
(B787-9) on order [including Thai Smile]
Source: Cirium: "Thai Airways International Fleet Summary"; 1(st) July 2023;
including operational, stored and ordered aircraft and including Thai Smile
o Due to increasing demand, one B777-200ER was reintroduced into service in
the first quarter and two "new" A350-900s (stored at Airbus since 2019)
scheduled to be delivered during the second quarter with the first one
delivered mid-May
o Four A320ceos had been transferred in the second quarter 2023 from Thai
Smile to Thai in line with the below mentioned merger
· Top five international arrivals 2022 had been from Malaysia, India,
Singapore, the United States and South Korea resulting in the fact that
South-East Asian routes are the focus of Thai Airways
· The airline is recruiting cabin crews to meet increasing demand of
air travel in accordance with the guidelines of the Company´s plan
· Chai Eamsiri had been promoted to the position as CEO effective 1(st)
February 2023; previously he acted as Thai Airways´ CFO
· Thai returned to profitability in the mid of the second quarter 2022
· Main threats identified by Thai are currently resulting from high oil
prices, the entrance of new market players and a high level of inflation which
might negatively impact consumers´ purchasing
Restructuring and Rehabilitation Process since 31(st) December 2022
· 1(st) quarter 2023: Operations according to the Business
Rehabilitation Plan
· 1(st) January 2023: Lease rates of aircraft, at least in regard to
HS-TQC and HS-TQD, switched back from airlines´ favourable interim PBH
(Power-by-the Hour) arrangements to monthly fixed lease rates
· 24(th) February 2023: The Plan Administrators announced the approval
of the Financial Statements 2022 and the suspension of dividend payments
Restructuring and Rehabilitation Process since 31(st) December 2022
· As of 30 April 2023: Thai Airways International repaid THB 3.20
billion (appr. USD 94 million) to creditors in line with its Business
Rehabilitation Plan
· 17(th) May 2023: The merger of Thai Smile into Thai Airways has been
approved by the Creditor´s Committee as part of the rehabilitation process to
strengthen operation and take advantage of synergies; awaiting approval of the
Civil Aviation Authority of Thailand
· Supporting the rehabilitation process, Thai has sold ten B747-400s
and nine A340s, is about to sign purchase and sale contracts for six
B777-300ER aircraft and offers another 12 aircraft for sale (B777-200s and
A380s)
· Thai Airways is around 70 per cent through its Business
Rehabilitation Plan and expects to formally exit the process in 2024; earlier
than originally anticipated
Financial & operational performance in brief
[billion THB] 1Q2023 1Q2022 Change
Operating Revenues 41.51 11.18 + 271 %
- Passenger and excess baggage 34.98 4.48 + 682 %
- Freight and mail 4.36 5.22 - 16 %
- Other businesses 1.96 1.34 + 46%
- Other income 0.21 0.15 + 41%
Operating Expenses 28.47 14.13 + 98 %
- Fuel and oil 12.05 4.25 + 148 %
- Non-fuel operating costs 16.42 10.10 + 63 %
Operating Result excl. One-Time Items 9.49 - 5.36
Net Result 12.51 - 3.25
Capacity - ASK (million) 13,298 6,007 + 121 %
Demand - RPK (million) 11,110 1,952 + 469 %
Load Factor 83.5 % 32.5 % + 51 pp
Passengers (million) 3.52 1.02 + 245 %
Passenger Yield THB/RPK 3.14 2.27 + 38 %
Aircraft Utilisation [block hours] 12.3 7.9 + 56 %
Number of Aircraft 86 87 - 1 %
Increase in Cash & Cash Equivalents 8.38 0.50 + 1,576 %
Current Ratio (consolidated)* 2.21 0.80
* Current Ratio = Current Assets/Current Liabilities
Outlook & Opportunities post-COVID-19 pandemic
· As Thailand´s economy is dependent on tourism, Thai Airways benefit
from measures initiated by the Government to stimulate tourism arrivals
· No travel restrictions concerning COVID-19; Thailand welcomed 6.5
million foreign tourists in the first quarter 2023; an increase of over 1,000%
compared to the same quarter in the previous year
· Thailand expects 25 million foreign visitors in 2023 representing 66
per cent of the pre-Covid level (2019)
· Thai Airways plans to grow its fleet by 30 widebody jets as tourists
return to Thailand with expectations of receiving the first aircraft by 2026;
their request for proposal would be send out to Boeing and Airbus with no
decision made yet on numbers nor preferred OEM
· Thai and Turkish Airlines signed a memorandum of understanding to
improve connectivity between Asia and Europe via Istanbul; Thai will start a
daily connection between Bangkok and Istanbul in December 2023
· THAI targets to generate a small net profit in 2023 of about THB 10
million (USD 300,000)
· Thai Airways anticipates shareholder equity to turn positive in 2024
as otherwise the company might be delisted from the Stock Exchange of Thailand
if an extension of the deadline would not be granted
Comments & conclusions
Thai Airways is dependent on the tourism sector, particularly on in-bound
tourism and contingent on any decision made by the Government to elevate or
soften travel restrictions. Consequently, the implementation of the
"fully-reopen-to-tourism" regulation by the Tourism Authority of Thailand
supports the airline´s growth of passengers, revenues and operational income.
The number of foreign visitors to Thailand is significantly increasing since
2022, although it has not reached pre-pandemic levels yet. The financial
results of the first quarter 2023 look promising, however Thai Airways will
have to prove profitability on the longer term.
Thai´s fleet expansion plans by A321neo's and new generation wide-body
aircraft will be essential to remain competitive on both the cost and the
comfort level in the long run. Though, deciding for the B787 would be a
positive sign that Thai plans to continue with this aircraft type.
The effects of the Ukraine-Russian conflict in the medium and long term are
not yet fully quantifiable but at the current stage, Thai Airways suffers from
its burden. As the carrier currently does not operate flights to Russia, it
cannot benefit from the increasing number of Russian tourists, although
already ranking top 2 since the beginning of 2023 (as of 26th February 2023).
Furthermore, it might even concede with less favourable flight routes from and
to Europe or the Middle East, suffers from high oil prices and might be
impacted by high inflation rates decreasing people´s purchasing power.
Although creditors have suffered significant losses in the course of Thai´s
Rehabilitation Plan (the Plan), it gives comfort that Thai Airways is in line
with the Plan and also on track with repaying the creditors. Thai Airways
expects to formally exit the process of business rehabilitation early in 2024,
which would enable the carrier to be more flexible on decisions concerning
their operation, growth, and strategic decisions., Nevertheless, to justify
completely the survival of the Airline, its successful exit from the business
rehabilitation process, and its further strategic direction, ability to
quickly adapt to market changes will be significant. However, it could be
considered that the carrier's long-term viability is in the country's interest
as tourism counted for one-fifth of the country's GDP (pre-COVID).
THE ASSETS
Update Boeing 787
· As of 31(st) July 2023, 154 Boeing 787s were ordered during the
current year; including 12 of the B787-8 variant
· As of 31(st) July 2023, 35 Boeing 787s were delivered during the
year, including seven aircraft of the B787-8s; the orderbook showed a 684
backlog of the Dreamliner, including 31 of the B787-8 variant
· As at 3(rd) July 2023, the B787 was part of the fleet of 69 airlines
· Boeing has to delay again deliveries of B787 aircraft, this time due
to the occurrence of a nonconforming condition of the horizontal stabilizer;
there is no action at this time for the B787s in service - Boeing's technical
team is in the process of performing inspections and analysis to identify the
scope and severity of the shims and gaps, to determine if any fleet action
will be required
· As at 3(rd) July 2023, out of 1,042 Boeing 787 aircraft (excluding
aircraft on order and option), only 15 aircraft were listed to be in storage
Source: Cirium: "Fleet Analyzer"; 3(rd) July 2023
Assets & Operations
Overview
Both Assets, HS-TQC and HS-TQD, are based at Bangkok International Airport and
operated by Thai Airways on their regular flight operations. The Assets are
deployed on international routes, exclusively within the Asia-Pacific area, to
destinations such as Manila, Jakarta and Hyderabad.
The utilisation of TQC and TQD as well as their respective titled engines is
shown in the following tables:
AIRCRAFT OPERATIONS Thai Airways
HS-TQC HS-TQD
Cabin Layout 24 Business Class Seats
240 Economy Class Seats
LAST PHYSICAL INSPECTION
Date 24(th) February 2022 3(rd) February 2023
Place Bangkok Airport (BKK)
AIRFRAME STATUS (31(st) July 2023)
Total Flight Hours 22,411 20,545
Average Monthly Utilisation Since Delivery FH 213 198
Total Flight Cycles 5,112 4,695
Average Monthly Utilisation Since Delivery FC 49 45
Hours/Cycles Ratio Since Delivery 4.38 4.38
TITLED ENGINES HS-TQC HS-TQD
(31(st) July 2023)
ESN 10239 ESN 10243 ESN 10244 ESN 10248
Total Time [Flight Hours] 20,833 16,645 16,780 19,858
Total Flight Cycles 4,732 3,482 3,968 4,197
Location On-wing Sent to SAESL for repair HS-TQE Hold as spare
The utilisation of ESN 10243 was common during the last few months until
mid-March 2023. On 24th March 2023, the engine ESN 10243 was removed due to
IPC Stage 8 blade damage found. DS Aviation closely followed up with Thai to
figure out the next steps for getting the engine back to service. The prior
planned induction of ESN 10243 at the Rolls-Royce facility in Singapore
(SAESL), planned for 11th July moved to 12th November 2023 as Rolls Royce has,
amongst others, supply chain issues which affect the shop capacity. The engine
completion date is currently scheduled for 8th April 2024. Moreover, during
replacing the ESN 10240 with ESN 10243, it was contractually agreed with Thai
Airways that the AD (Airworthiness Directives)-2019-0286 would be included in
the work scope of the next shop visit of ESN 10243.
On 13th December 2022, the title engine ESN 10248 was removed due to HPT Blade
damage found during a scheduled borescope inspection. The asset manager
arranged an immediate inspection with the on-site inspection team and figured
out that ESN 10248 has to be inducted into a shop for repair. The engine was
sent to SAESL for a shop visit in mid-January 2023 and returned in May to Thai
Airways. The engine is currently held as a spare. These issues have not
impacted lease payments.
THE ASSETS
Asset Manager´s actions ensure asset value
Regular monitoring is the top priority for DS Aviation as DP Aircraft's Asset
Manager to make sure that the aircraft are in service, and that the Lessee is
keeping the aircraft in the best condition per the manufacturer's and Lessor's
requirements.
Therefore, both aircraft are inspected regularly by DS Aviation technical
staff or on-site representatives in case the inspection is urgent. Two
aircraft inspections were carried out on HS-TQD in December 2022 and February
2023 to ensure the aircraft gets back to commercial service in the agreed
condition and fully complies with all lease and manufacturer manuals. DS
Aviation's on-site representative inspected the aircraft on 3rd February 2023
at Bangkok International Airport. During the inspection, the aircraft was
parked on the apron in preparation for returning to commercial operations. The
aircraft returned after two test flights to service on 5th February 2023.
Aircraft HS-TQC was inspected on 24th February 2022 at Bangkok International
Airport by DS Aviation's on-site representative. The aircraft had been entered
into storage on 13th February 2022 and parked on the apron. The aircraft
returned to service in April 2022, and the next inspection is planned to be
performed in the second half of 2023.
Considering the past, it is essential to monitor the Lessee's activities
including both aircraft as well as the overall activities. Even after Thai
Airways returned to paying fixed lease rates beginning of 2023, it is
important to ensure a prompt exchange of updated information. Because of this,
DS Aviation continues to have an "on-demand" contract with the on-site service
provider. Their expertise and workforce are available whenever the
circumstance calls for it, ensuring prompt and efficient support on the spot.
HS-TQC and HS-TQD both are currently in regular commercial service.
Comments and Conclusions
The aviation sector is recovering from COVID-19, nevertheless the
post-pandemic effects will continue to have an impact on the market in coming
years. In the past months passenger numbers increased resulting in a rising
demand for wide-body capacity. However, design issues (e.g., A350),
non-conforming parts or material (e.g. B787) as well as the first delivery of
new aircraft models (e.g. B777-9) resulted in decreased delivery rates or
groundings. After Airbus has changed the design of the A350 copper foil
layering between the carbon fuselage and exterior paint and an attempt to
match the growing demand, production rates of the A330neo and A350 model will
be increased in the coming year, at the expense of narrowbody delivery rates.
This might make sense as according to Airbus, the supply chain for narrow-body
aircraft is a fragile bottle-neck. Additionally, the aircraft and engine
manufacturers, suppliers, and the MRO (Maintenance, Repair and Overhaul)
industry are negatively impacted by the global shortage of electronic
components, the higher cost of obtaining raw materials for the production
lines, international political conflicts, and a lack of skilled workers.
Therefore, many airlines such as Lufthansa, Qatar Airways and Thai Airways
have reactivated or have decided to reactivate further widebody aircraft,
noticeably A380s, A340s and B777s, and delay their decommissioning. This will
result in an increasing average fleet age and a shift of deliveries in later
years. This in turn, might result in higher operating costs, mainly regarding
fuel consumption and maintenance, being a hardship for some
airlines.
The recovery of new generation twin-aisle aircraft, such as B787, A350,
A330neo, with the number of aircraft at the end of the first quarter 2023
being a quarter larger than pre-COVID-19 (end of 2019), had been significantly
quicker than of older twin jets. The latest generation of widebody aircraft,
including B787s, are almost out of storage as only 1.5% of the global B787
fleet is still in storage which shows the significant demand of this type of
aircraft and its important role during the post pandemic recovery. The
aircraft benefits from its latest generation technology, its strong position
in the market with an active fleet of more than 1000 units and new orders
being placed. However, to keep the asset value, still requires close
monitoring of the market and the assets' condition.
DIRECTORS' INFORMATION
Jonathan (Jon) Bridel, Chairman (58), appointed 10 July 2013
Jon is a Guernsey resident and is currently a non-executive director of Fair
Oaks Income Fund Limited. Jon was previously managing director of Royal Bank
of Canada's ('RBC') 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, Director (68) 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, an investment
manager serving the listed NextEnergy Solar Fund Limited and London listed
Riverstone Energy Limited. 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 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, Director (69), 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
resident in Germany and was appointed as a director of the Company with effect
from 1 November 2019.
STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES
These are the principal risks and uncertainties that the Group is facing and
expects to continue facing in the second half of 2023.
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 impact of COVID-19 and 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. 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 consequences have the potential to impact travel and/or travellers'
willingness to travel which in turn could affect the volume of traffic to and
from Thailand. The new Thai government led by PM Thavisin and the return from
exile of former PM Thaksin provides an unknown backdrop in terms of political
stability. However, it is clear though that tourism is a major part of the
Thai economy.
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 could have an adverse impact on the
entity's lease arrangements, with Thai Airways which is the core source of
income for the Group.
Thai is under the contractual obligation to return the aircraft in full life
condition. The additional requirement to cash collateralize the obligation by
payment of Maintenance Reserves was waived in the novated lease agreement.
This leaves the company with the risk that in case of a Thai default under the
lease the aircraft may not be returned in a full life status.
In addition, 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 are the sole source of income for
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 pandemic on both aircraft demand and
lease rates are at present unknown.
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 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 and 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 implementing a
rehabilitation plan and to date things are progressing well with Thai having
made significant improvements. The Moody's credit rating of DekaBank is Aa2
(2022: Aa2).
There is no guarantee that the business rehabilitation process of Thai Airways
will continue to 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 Thai's ability to comply with its obligations under
the LOI entered into during March 2021 and the subsequent 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. Thai Airways is however 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. 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
Assets 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 by selling or entering into a subsequent lease) to repay the
outstanding relevant loan and/or re-negotiate the loan terms with the relevant
lender.
Boeing
The Company is exposed to Boeing's ability 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 ("RR") 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 unknown performance issues. This situation is partially mitigated
by Thai using RR 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 half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules ('the DTR')
of the UK's Financial Conduct Authority ('the UK FCA').
In preparing the condensed set of consolidated financial statements included
within the half-yearly financial report, the Directors are required to:
· prepare and present the condensed set of consolidated financial
statements in accordance with IAS 34 Interim Financial Reporting issued by the
International Accounting Standards Board ('IASB') and the DTR of the UK FCA;
· ensure the condensed set of consolidated financial statements has
adequate disclosures;
· select and apply appropriate accounting policies; and
· make accounting estimates that are reasonable in the circumstances.
· assess the Group's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the Directors either intend to
liquidate the Group or to cease operations, or have no realistic alternative
but to do so.
The Directors are responsible for designing, implementing and maintaining such
internal controls as they determine is necessary to enable the preparation of
the condensed set of consolidated financial statements that is free from
material misstatement whether due to fraud or error.
We confirm that to the best of our knowledge:
(1) The condensed set of consolidated financial statements included within
the half-yearly financial report of DP Aircraft I Limited for the six months
ended 30 June 2023 (the 'Interim Financial Information'), which comprises
condensed consolidated statement of comprehensive income, condensed
consolidated statement of financial position, condensed consolidated statement
of cash flows, condensed consolidated statement of changes in equity and the
related explanatory notes, have been presented and prepared in accordance with
IAS 34, Interim Financial Reporting, as issued by the IASB and the DTR of the
UK FCA.
(2) The Interim Financial Information presented, as required by the DTR of
the UK FCA, includes:
a. an indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed set of
Interim Financial Statements;
b. a description of the principal risks and uncertainties for the
remaining six months of the financial year;
c. related parties' transactions that have taken place in the first
six months of the current financial year and that have materially affected the
financial position or the performance of the enterprise during that period;
and
d. any changes in the related parties' transactions described in the
last annual report that could have a material effect on the financial position
or performance of the enterprise in the first six months of the current
financial year.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Group's website.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions
On behalf of the Board
Jon Bridel
Jeremy Thompson
Chairman
Director
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
For the six-month period ended 30 June 2023
30 June 2023 30 June 2022
(unaudited) (unaudited)
Notes US$ US$
Income
Lease rental income 4 4,340,629 7,575,435
Expenses
Asset management fees 19 (239,709) (233,862)
General and administrative expenses 5 (609,451) (566,886)
Depreciation 9 (671,749) (478,271)
Expected credit loss movement on straight lining lease 11 191,272 (1,106,575)
asset
(1,329,637) (2,385,594)
Operating Profit 3,010,992 5,189,841
Other income 2,791 -
Finance costs 6 (7,495,940) (2,194,840)
Finance income 409,675 9,158
Net finance costs (7,083,474) (2,185,682)
(Loss)/Profit before tax (4,072,482) 3,004,159
Taxation 7 - (5,563)
(Loss)/Profit for the period (4,072,482) 2,998,596
Total Comprehensive (Loss)/Income for the period (4,072,482) 2,998,596
US$ US$
(Loss)/Profit per Share for the period - basic and diluted 8 (0.0170) 0.0143
All income is attributable to the Ordinary Shares of the Company.
The notes form an integral part of these Interim Financial Statements.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
As at 30 June 2023
30 June 2023 31 December 2022
(unaudited) (audited)
Notes US$ US$
NON-CURRENT ASSETS
PPE - Aircraft & Related Components 9 124,794,331 125,466,080
Trade and other receivables 11 7,372,984 8,935,454
Restricted cash 10 15,328,535 14,979,197
Total non-current assets 147,495,850 149,380,731
CURRENT ASSETS
Cash and cash equivalents - available for use 1,095,150 1,479,541
Restricted cash 10 1,059,961 4,175,280
Trade and other receivables 11 3,155,009 3,857,514
Total current assets 5,310,120 9,512,335
TOTAL ASSETS 152,805,970 158,893,066
EQUITY
Share capital 15 211,279,828 211,279,828
Accumulated losses (170,616,189) (166,543,707)
TOTAL EQUITY 40,663,639 44,736,121
NON-CURRENT LIABILITIES
Bank borrowings 14 90,298,049 80,779,172
Maintenance provision 12 14,829,296 14,829,296
Trade and other payables 13 709,693 -
Total non-current liabilities 105,837,038 95,608,468
CURRENT LIABILITIES
Bank borrowings 14 6,078,377 17,707,184
Trade and other payables 13 226,916 841,293
Total current liabilities 6,305,293 18,548,477
TOTAL LIABILITIES 112,142,331 114,156,945
TOTAL EQUITY AND LIABILITIES 152,805,970 158,893,066
The financial statements were approved by the Board of Directors and were
authorised for issue on 19 September 2023. They were signed on its behalf by:
Jonathan Bridel
Jeremy Thompson
Chairman
Director
The notes form an integral part of these Interim Financial Statements.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
For the six-month period ended 30 June 2023
30 June 2023 30 June 2022
(unaudited) (unaudited)
US$ US$
Notes
Loss/Profit for the period (4,072,482) 2,998,596
Adjusted for:
Depreciation 671,749 478,271
9
Finance 7,495,940 2,194,840
costs
6
Income tax expense/(recovery) - 5,563
Provision on straight lining lease (191,272) 1,106,575
asset 11
Straight-lining rental 1,740,412 (4,340,631)
income
11
Changes in:
Increase in maintenance - 368,614
provision
12
(Decrease)/increase in trade and other payables 95,316 53,703
13
Decrease /(increase) in trade and other receivables 11 715,835 (1,051,224)
NET CASH FLOW FROM OPERATING ACTIVITIES 6,455,498 1,814,307
INVESTING ACTIVITIES
Restricted cash 2,765,981 108,984
movement
10
NET CASH FLOW FROM INVESTING ACTIVITIES 2,765,981 108,984
FINANCING ACTIVITIES
Bank loan principal (6,689,862) -
repaid
14
Bank loan interest (2,916,008) (2,189,122)
paid
14
NET CASH FLOW USED IN FINANCING ACTIVITIES (9,605,870) (2,189,122)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,479,541 1,179,211
Decrease in cash and cash equivalents (384,391) (265,831)
CASH AND CASH EQUIVALENTS AT END OF PERIOD 1,095,150 913,380
The notes form an integral part of these Interim Financial Statements.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
For the six-month period ended 30 June 2023
Share Accumulated Total
Capital Losses Equity
US$ US$ US$
As at 1 January 2022 210,556,652 (174,204,530) 36,352,122
Total comprehensive Income for the period
Profit for the period - 2,998,596 2,998,596
Total Comprehensive Income - 2,998,596 2,998,596
As at 30 June 2022 (unaudited) 210,556,652 (171,205,934) 39,350,718
Share Accumulated Total
Capital Losses Equity
US$ US$ US$
As at 1 January 2023 211,279,828 (166,543,707) 44,736,121
Total comprehensive loss for the period
Loss for the period - (4,072,482) (4,072,482)
Total Comprehensive loss - (4,072,482) (4,072,482)
As at 30 June 2023 (unaudited) 211,279,828 (170,616,189) 40,663,639
The notes form an integral part of these Interim Financial Statements.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the six-month period ended 30 June 2023
1) GENERAL INFORMATION
The unaudited condensed consolidated interim financial statements (the
'Interim 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 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.
2) SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
The Interim Financial Statements for the period 1 January 2023 to 30 June 2023
have been prepared in accordance with International Accounting Standard
('IAS') 34 'Interim Financial Reporting' issued by the International
Accounting Standards Board ('IASB') and the DTR of the UK FCA.
The Interim Financial Statements do not include all the information and
disclosures required in the annual financial statements and should be read in
conjunction with the Group's annual report and consolidated financial
statements for the year ended 31 December 2022. The Group's annual financial
statements for the year ended 31 December 2022 have been prepared in
accordance with International Financial Reporting Standards ('IFRS') issued by
the IASB and are available on the Company's website or from the Company
Secretary.
The Interim Financial Statements have been prepared on the basis of the
accounting policies set out in the Group's annual consolidated financial
statements for the year ended 31 December 2022 but also taking into account
any new policies that will be applied in the Group's annual consolidated
financial statements for the year ended 31 December 2023.
The Directors have concluded that there are no new standards, amendments to
standards and interpretations that are effective for annual periods beginning
on 1 January 2023 which have a material impact on the Interim Financial
Statements.
These are unaudited non-statutory interim financial statements and they have
not been reviewed by the auditors. The last audited statutory financial
statements were issued on 27 April 2023 in respect of the year ended 31
December 2022.
These unaudited condensed consolidated Interim Financial Statements as at and
for the six-month period ended 30 June 2023, have not been reviewed or audited
by the Group's auditor.
Going concern
The Directors believe that it is appropriate to prepare these Interim
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 Interim Financial Statements.
In making this conclusion, the Directors have also considered:
· 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
injections to Thai. Furthermore, the Thai Government has stated that it plans
to preserve its 40% holding in Thai Airways 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 loan 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.
· The continued support of the Board and certain service providers in
continued deferral of some of their fees.
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.
3) SIGNIFICANT JUDGEMENTS AND ESTIMATES
The preparation of unaudited condensed consolidated Interim Financial
Statements in compliance with IAS 34 requires management to make judgements,
estimates and assumptions about the carrying amount of assets and liabilities
that are not readily apparent from their sources.
Information about assumptions and estimation uncertainty at 30 June 2023, that
have a significant risk of resulting in a material adjustment to the carrying
amounts of assets and liabilities in the Interim Financial Statements for the
period are:
Significant estimates
Impairment of property, plant and equipment
As with each reporting date but more relevant in light of the developments of COVID-19, a detailed impairment assessment of the aircraft has been undertaken.
IFRS 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 two independent
appraisers given the aircraft have a lease with a contractual 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 30 June 2023, given the fair value less costs
to sell was greater than the book value of the aircraft. Two independent
appraisers determined that the full life market value of the aircraft as at 30
June 2023 ranged from US$ 59.1mil to US$ 75.9 mil. It should be noted that
each appraiser will have its own opinion of the market and how the market may
develop. On a specific aircraft type, one appraiser might be more optimistic
compared to another provider and vice versa. In addition, appraisers obtain
their market information from various sources and use different calculation
models. This may have influence on future and current market values, hence the
wide range. Therefore, there is no absolute estimate of future and current
market values. In order to minimise variance in estimates an average of the
two appraisals is used 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 the Company's aircraft this approach is considered 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 period ended 30 June 2023 (31 December
2022: US$ nil).
The Board also considered if there was any indication that the accumulated
impairment recognised in previous years on the 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
period ended 30 June 2023.
If the Group had used the half-life market value in assessing impairment, the
aircraft would be impaired by US$ 31,631,599 (31 December 2022: US$
30,003,182) in total. It should be noted 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 mentioned above.
Depreciation of aircraft
The Group depreciates the Assets on a straight-line basis over the remaining
lease life, taking into consideration the estimated residual value at the end
of the lease term. The Group engages 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 Assets 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 of the
leases for the aircraft as at 31 December 2022 was US$ 120,247,838
(31 December 2021: US$ 121,750,421) and 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.
4) LEASE RENTAL INCOME
30 June 2023 30 June 2022
(unaudited) (unaudited)
US$ US$
Variable rent (PBH rent) - 3,234,804
Straight lining rental income 4,340,629 4,340,631
Total lease rental income 4,340,629 7,575,435
All lease rental income was derived from Thai Airways and the related two
Boeing 787-8 aircraft leased to them.
Until 31 December 2022 the lease terms provided for a power by the hour
('PBH') arrangement (i.e., rent was payable by reference to actual monthly
utilisation of the Thai aircraft). After 31 December 2022, lease payments are
fixed at US$ 510,000 per month until October and December 2026 respectively
for each lease.
The lease term was 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 an early
termination option in 2026 if the Group after consulting its lenders decides
to do so. 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 contractual fixed future lease rentals to be received under
non-cancellable operating leases effective as at the reporting date are:
Boeing 787-8 Boeing 787-8 Total
Serial No: 35320 Serial No: 36110
30 June 2023 US$ US$ US$
< 1 year 6,120,000 6,120,000 12,240,000
1 to 2 years 6,120,000 6,120,000 12,240,000
2 to 3 years 6,120,000 6,120,000 12,240,000
3 to 4 years 2,698,065 2,007,097 4,705,162
4 to 5 years - - -
>5 years - - -
21,058,065 20,367,097 41,425,162
Boeing 787-8 Boeing 787-8 Total
Serial No: 35320 Serial No: 36110
30 June 2022 US$ US$ US$
< 1 year 3,060,000 3,060,000 6,120,000
1 to 2 years 6,120,000 6,120,000 12,240,000
2 to 3 years 6,120,000 6,120,000 12,240,000
3 to 4 years 6,120,000 6,120,000 12,240,000
4 to 5 years 2,698,065 2,007,097 4,705,162
>5 years - - -
24,118,065 23,427,097 47,545,162
5) GENERAL AND ADMINISTRATIVE EXPENSES
30 June 2023 30 June 2022
(unaudited) (unaudited)
US$ US$
Administration fees 121,307 166,472
Aircraft agency fees 5,523 5,556
Aircraft security trustee fees 7,047 5,934
Aircraft valuation fees 5,089 4,119
Audit fees 37,171 41,089
Company broker fees 83,951 83,951
Directors' fees and expenses 100,242 112,438
Foreign exchange losses 20,634 (6,292)
Insurance costs 46,174 54,355
IT and printing costs 10,664 16,970
Legal fees 5,194 3,157
Miscellaneous costs 11,511 4,157
Registrar fees 9,545 12,253
Regulatory fees 3,307 5,947
Restructuring fees in relation to NAS - 20,175
Restructuring fees in relation to Thai and loan agreement 142,092 34,502
Tax advice fees - 2,103
Total general and administrative expenses 609,451 566,886
6) FINANCE
COSTS
30 June 2023 30 June 2022
(unaudited) (unaudited)
US$ US$
Loan interest 2,453,911 2,194,840
Modification adjustment 5,042,029 -
Total finance costs 7,495,940 2,194,840
During the period there was a restructure of the loans advanced by DekaBank.
Management, in line with IFRS 9, assessed whether the modification was
substantial or not. The assessment was done on a quantitative basis and
compared the net present value of the modified cash flows per the amended loan
terms including any fees payable or receivable, discounted at the original
effective interest rate, against the carrying value of the loans prior to the
modification. A difference of 10% or more would have been considered
substantial as is advised in IFRS 9. Management concluded that the
modification was not substantial, and a modification adjustment, being the
difference between the net present value of the cash flows under the revised
terms discounted at the original agreement's effective interest rate and the
carrying value of the loans immediately prior to the modification, was made to
the existing loan in line with IFRS 9. This totalled US$ 5,042,029 and
increased both finance costs and the loans payable at the point of
modification. This adjustment essentially recognises a loss now due to the
less favourable terms (primarily interest rate increases) under the modified
terms compared to the original terms. As a result of this adjustment, interest
will be recognised at the lower original effective interest rate as opposed to
the higher modified interest rate going forward.
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 (2022: £1,200).
DP Aircraft UK Limited is subject to taxation at the applicable rate in the
United Kingdom. The tax charge during the period ended 30 June 2023 was US$
nil (period 1 January 2022 to 30 June 2022: tax credit of US$ 5,563). The
Directors do not expect the taxation payable or refundable to be material to
the Group.
A tax reconciliation has not been presented in these Interim Financial
Statements as the effective tax rate of 0.00% (30 June 2022: (0.14%)) is not
material and the reconciliation is not relevant to the understanding of the
Company's results for the period end.
8) (LOSS)/PROFIT PER SHARE
30 June 2023 30 June 2022
(unaudited) (unaudited)
US$ US$
(Loss)/Profit for the period (4,072,482) 2,998,596
Weighted average number of shares 239,333,333 209,333,333
(Loss)/Profit per share (0.0170) 0.0143
There are no instruments in issue that could potentially dilute earnings per
ordinary share in future periods.
9) PROPERTY, PLANT & EQUIPMENT - AIRCRAFT & RELATED
COMPONENTS
Aircraft Lease Premium Total
30 June 2023 (unaudited) (unaudited) (unaudited)
US$ US$ US$
COST
As at 1 January 2023 and 30 June 2023 238,731,161 17,398,493 256,129,654
ACCUMULATED DEPRECIATION
As at 1 January 2023 54,425,384 8,200,047 62,625,431
Charge for the period 671,749 - 671,749
As at 30 June 2023 55,097,133 8,200,047 63,297,180
IMPAIRMENT
As at 1 January 2023 58,839,697 9,198,446 68,038,143
Charge for the period - - -
As at 30 June 2023 58,839,697 9,198,446 68,038,143
CARRYING AMOUNT
As at 30 June 2023 124,794,331 - 124,794,331
Aircraft Lease Premium Total
31 December 2022 (audited) (audited) (audited)
US$ US$ US$
COST
As at 1 January 2022 and 31 December 2022 238,731,161 17,398,493 256,129,654
ACCUMULATED DEPRECIATION/AMORISATION
As at 1 January 2022 53,466,624 8,200,047 61,666,671
Charge for the period 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 period - - -
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
As at period end PPE is comprised of two aircraft leased to Thai Airways.
Under the terms of the leases that existed during the period, the cost of
repair and maintenance of the Assets is to be borne by Thai Airways and Thai
Airways has a contractual 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 30 June 2023, there is no impairment to the
aircraft and there are no indications of reversal of prior year impairments
either. Refer to note 3 for further details.
The loans entered into by the Group to complete the purchase of the two
aircraft are cross collateralised. Each of the loans are secured by way of
security taken over each of the two aircraft.
10) RESTRICTED CASH
30 June 2023 31 December 2022
(unaudited) (audited)
US$ US$
Non-current assets
Maintenance reserves 15,328,535 14,979,197
15,328,535 14,979,197
Current assets
Security deposit accounts 93 91
Lease rental accounts 1,059,868 4,175,189
1,059,961 4,175,280
Total restricted cash 16,388,496 19,154,477
Maintenance reserves held, are to be used solely to cover costs related to the
maintenance of the two aircraft. Effective 15 June 2021, the Group no longer
receives maintenance reserves contributions from the lessee in line with the
updated lease terms.
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 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
30 June 2023 31 December 2022
(unaudited) (audited)
US$ US$
Prepayments 38,084 82,333
Rent receivable - 671,586
Straight-lining lease asset 11,785,090 13,525,502
Total trade and other receivables 11,823,174 14,279,421
Less: Expected credit loss on straight lining lease asset (1,295,181) (1,486,453)
Net trade and other receivables 10,527,993 12,792,968
Current and non-current split as at year end is
as follows:
30 June 2023 31 December 2022
Current assets (unaudited) (audited)
US$ US$
Prepayments 38,084 82,333
Rent receivable - 671,586
Straight-lining lease asset 3,116,925 3,103,595
3,155,009 3,857,514
Non-current assets
Straight-lining lease asset 7,372,984 8,935,454
Trade and other receivables 10,527,993 12,792,968
The Group has assessed the straight-lining lease asset for
impairment. This balance represents the result of straight-lining of future
fixed lease payments over the lease term. The Group has performed an
assessment on the rent receivable and 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 30 June 2023 is US$ 1,295,181 (31 December 2022: US$ 1,486,453).
Movements in the impairment provision for trade
receivables are as follows:
30 June 2023 31 December 2022
(unaudited) (audited)
US$ US$
Opening provision 1,486,453 -
Expected credit loss on straight lining lease asset (191,272) 1,486,453
Expected credit loss on lease receivable - 105,063
Lease receivable written off - (105,063)
Closing provision 1,295,181 1,486,453
12) MAINTENANCE PROVISION
30 June 2023 31 December 2022
(unaudited) (audited)
US$ US$
Maintenance provision - Thai Airways 14,829,296 14,829,296
Total maintenance provision 14,829,296 14,829,296
Maintenance provision relates to funds received from Thai
Airways reserved for covering the cost of
maintenance of the aircraft.
13) TRADE AND OTHER PAYABLES
30 June 2023 31 December 2022
(unaudited) (audited)
US$ US$
Current
Accruals and other payables 140,688 221,749
Asset Manager fees payable 64,979 218,033
Broker fees payable - 167,902
Director fees payable - 212,360
Taxation payable 21,249 21,249
226,916 841,293
Non - Current
Asset Manager fees payable 234,277 -
Broker fees payable 251,853 -
Director fees payable 223,563 -
709,693 -
Total trade and other payables 936,609 841,293
14) BANK BORROWINGS
30 June 2023 31 December 2022
(unaudited) (audited)
US$ US$
Current liabilities: bank interest payable and bank borrowings 6,078,377 17,707,184
Non-current liabilities: bank borrowings 90,298,049 80,779,172
Total liabilities 96,376,426 98,486,356
The borrowings are repayable as follows:
30 June 2023 31 December 2022
(unaudited) (audited)
US$ US$
Interest payable 245,645 181,493
Within one year 5,832,732 17,525,691
In two to five years 90,298,049 80,779,172
After five years - -
Total bank borrowings 96,376,426 98,486,356
The table below analyses the movements in the Group's bank borrowings:
30 June 2023 31 December 2022
(unaudited) (audited)
US$ US$
Opening balance 98,304,863 98,304,863
Loan modification adjustment (Note 6) 5,042,029 -
Repayment of loan (6,689,862) -
Amortisation adjustment (526,249) -
Principal bank borrowings 96,130,781 98,304,863
Interest payable 245,645 181,493
Total bank borrowings 96,376,426 98,486,356
The tables below sets out an analysis of net debt and the movements in net
debt for the period ended 30 June 2023:
Cash and cash equivalents
US$ Principal Interest Net Debt
US$ US$ US$
At 1 January 2023 1,479,541 (98,304,863) (181,493) (97,006,815)
Cash flows (384,391) 6,689,862 2,916,009 9,221,480
Non cash:-
Modification adjustment - (5,042,029) - (5,042,029)
Amortisation adjustment - 526,249 (526,249) -
Interest charge - - (2,453,911) (2,453,911)
At 30 June 2023 1,095,150 (96,130,781) (245,644) (95,281,275)
The tables 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 Net Debt
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)
DekaBank Deutsche Girozentrale
During the year ended 31 December 2015, the Company utilised the proceeds from
the placing and the proceeds of two separate loans from DekaBank Deutsche
Girozentrale ('DekaBank') of US$ 78,500,000 each to fund the purchase of two
Boeing 787-8 aircraft. The balance on the loans at 30 June 2023 was US$
96,376,426 (31 December 2022: US$ 98,486,356).
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 Secured Overnight Financing Rate (SOFR) 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.
· 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 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.
15) SHARE CAPITAL
Period ended 30 June 2023 (unaudited) Subordinated
Administrative Ordinary
Share Shares Total
Issued and fully paid (no par value): Number Number Number
Shares as at 1 January 2023 and 30 June 2023 1 239,333,333 239,333,334
US$ US$ US$
Share capital as at 1 January 2023 and 30 June 2023 1 211,279,827 211,279,828
Period ended 30 June 2022 (unaudited) Subordinated
Administrative Ordinary
Share Shares Total
Issued and fully paid (no par value): Number Number Number
Shares as at 1 January 2022 and 30 June 2022 1 209,333,333 209,333,334
US$ US$ US$
Share capital as at 1 January 2022 and 30 June 2022 1 210,556,651 210,556,652
Subject to the applicable company law and the Company's Articles of
Incorporation, the Company may issue an unlimited number of shares of par
value and/or no-par value or a combination of both. The Subordinated
Administrative Share is held by 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.
The Directors are entitled to issue and allot C Shares. No C Shares have been
issued since the Company was incorporated.
16) DIVIDENDS
There were no dividends declared and paid during the period ended 30 June 2023
and 30 June 2022.
17) FAIR VALUE MEASUREMENT
Financial assets and financial liabilities at amortised cost
The fair value of cash and cash equivalents, trade and other receivables,
restricted cash and trade and other payables approximate their carrying
amounts due to the short-term maturities of these instruments.
18) RELATED PARTY TRANSACTIONS
The Directors of the Company received total fees from the Group as follows:
Current fee 30 June 2023 30 June 2022
(annual) (unaudited) (unaudited)
£ US$ US$
Jon Bridel (Chairman) 61,750 38,481 42,412
Jeremy Thompson (Chairman of the Audit and Risk Committee and Senior
Independent Director)
49,450 30,483 34,508
Harald Brauns (Chairman of the
Management Engagement Committee) 49,450 31,278 34,572
Total 160,650 100,242 111,492
*Note: Directors fees were agreed in GBP, the financial statements
are presented in US$
Up to 30 September 2022, 10% of base fees and all extra fees were being
deferred to be settled in the future via cash or by way of issue of equity of
the Company or both. There has been no settlement of Director remuneration via
the issue of equity in the current period (30 June 2022: US$ nil) and the
deferred fees remain outstanding as at 30 June 2023 (see note 13).
Directors' expenses totalling US$ 1,213 were paid during the year ended 30
June 2023 (30 June 2022: US$946), with US$ nil due to be paid at the year-end
(31 December 2022: US$ nil).
The Directors' interests in the shares of the Company are detailed below:
30 June 2023 31 December 2022
Number of Number of
ordinary shares ordinary shares
Jon Bridel and connected persons 90,000 90,000
Jeremy Thompson 15,000 15,000
Harald Brauns - -
19) MATERIAL CONTRACTS
Asset Management Agreement
The Asset Management Agreement dated 19 September 2013, between the Company
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 (two sold under
receivership in the prior period and second two currently held by the Group)
have been sold after the expiry of the second Thai Airways lease on 9 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 is sold prior to the expiry of its lease
the percentage hurdles set out above will be adjusted on the following basis:
(i) 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
(ii) 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 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 and hence no provision recognised within
these Interim Financial Statements.
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.
In the period to 30 June 2023 asset management fees totalled US$ 239,709 (30
June 2022 US$ 233,862) and US$ 299,256 was due as at 30 June 2023 (31
December 2022: US$ 218,033).
20) SEGMENTAL INFORMATION
The Group is engaged in one operating segment, being acquiring, leasing and
subsequent selling of aircraft. The geographical location of the Assets of the
Group is Thailand, where the Assets are registered. The income arising from
the lease of the Assets originates from a lessee based in Thailand.
21) SUBSEQUENT EVENTS
In order to align the Company's auditing arrangements with the location of its
business, the Board are proposing to change the KPMG entity which undertakes
the Company's audit. As a consequence, KPMG Channel Islands Limited has
indicated its willingness to assume the role of independent auditor, subject
to the satisfactory completion of applicable client and engagement acceptance
procedures, upon which KPMG Ireland will tender its resignation.
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
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