REG - DP Aircraft I Ltd - Interim Report and Accounts
29/09/2022 07:01
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RNS Number : 0662B DP Aircraft I Limited 29 September 2022
28 September 2022
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 2022 (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
748863
Sarah Felmingham / Chris Copperwaite
DP AIRCRAFT I LIMITED
UNAUDITED CONDENSED CONSOLIDATED INTERIM REPORT
FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2022
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$ 0.025 at 30 June 2022
Earnings per Share US$ 0.0143 for the period ended 30 June 2022
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
Website www.dpaircraft.com (http://www.dpaircraft.com)
SUMMARY
COMPANY OVERVIEW
DP Aircraft I Limited (the 'Company') was incorporated with limited liability
in Guernsey under the Companies (Guernsey) Law, 2008 on 5 July 2013 with
registered number 56941.
The Company was established to invest in aircraft. The Company is a holding
company, and made its investment in aircraft held through two wholly owned
subsidiary entities, DP Aircraft Guernsey III Limited and DP Aircraft Guernsey
IV Limited (collectively and hereinafter, the 'Borrowers'), each being a
Guernsey incorporated company limited by shares and one intermediate lessor
company, DP Aircraft UK Limited (the 'Lessor'), a UK incorporated private
limited company. The Company and its consolidated subsidiaries, DP Aircraft
Guernsey III Limited, DP Aircraft Guernsey IV Limited and DP Aircraft UK
Limited comprise the consolidated Group (the 'Group').
Pursuant to the Company's Prospectus dated 27 September 2013, the Company
offered 113,000,000 ordinary shares of no-par value in the capital of the
Company at an issue price of US$ 1.00 per share by means of a placing. The
Company's Shares were admitted to trading on the Specialist Fund Segment 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
in the capital of the Company at an issue price of US$ 1.0589 per 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.
In total there are 209,333,333 ordinary shares in issue with voting rights.
In addition to the equity raised per above, the Group also utilised external
debt to fund the 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 independent non-executive directors. The directors of the
Board are responsible for managing the business affairs of the Company and
Group in accordance with the Articles of Incorporation and have overall
responsibility for the Company's and Group's activities, including portfolio
and risk management 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 the 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 current technology legacy
aircraft. The Board has taken steps to reduce its own travelling and
maximises the use of virtual meetings within the board and with all its key
service providers.
CORONAVIRUS ('COVID-19')
COVID-19 has had a significant impact on the airline sector, and by extension
the aircraft leasing sector. More information is provided below and in the
Asset Manager's Report.
THAI AIRWAYS INTERNATIONAL PCL ('THAI AIRWAYS' / 'THAI')
The suspension of travel due to COVID-19 in 2020 resulted in Thai Airways
entering into business rehabilitation. The Central Bankruptcy Court approved
Thai's Business Rehabilitation plan on 15 June 2021, the rehabilitation
process is currently ongoing. Please refer to the Asset Manager Report 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
agreed by both parties as 15 June 2021.
The new lease terms provide for a power by the hour ('PBH') arrangement until
31 December 2022 (i.e., rent will be payable by reference to actual monthly
utilisation of the Thai aircraft and engine), with scaled back monthly fixed
lease payments thereafter until 2026 that reflect reduced rates now seen in
the market. The lease term was extended for a further 3 years to 9 December
2029, with further scaled back monthly lease payments starting from January
2027, the extension is however subject to the Group retaining a right of early
termination in December 2026 after consulting the Lenders. Given the
uncertainty around the extension of the lease term, the lease term is
considered to be the period to 9 December 2026.
A corresponding agreement was reached with the bank providing finance for the
aircraft leased to Thai Airways as detailed below. Note, under the terms
agreed with the lending banks, the Company is (i) permitted a monthly payment
of US$ 70,000 out of the monies received by the Group from Thai Airways
through the PBH arrangement and (ii) restricted from holding more than US$
1,200,000 in cash at any time, with any excess in either case paid over to the
lending banks. This will continue when the PBH period ends.
DEKABANK DEUTSCHE GIROZENTRALE AND THREE OTHER CONSORTIUM MEMBERS ('DekaBank')
In May 2021, the Group and DekaBank amended and restated the existing loan
facility agreements in respect of the Thai aircraft to accommodate the new
lease terms. Repayments of principal are being deferred until after the end of
the PBH arrangement, 31 December 2022; and the Group and DekaBank will enter
discussions towards the end of the PBH arrangement to determine how to
schedule interest payments, principal repayments and a final balloon
repayment, having regard for both the income being received by the Group in
respect of the Thai aircraft, and the running costs of the Group and its
subsidiaries. Based on the amended and restated loan agreements in place, post
the PBH period monthly payments of interest and principal will be limited to
net lease rental monies available for application towards the loan, and the
final balloon repayment will be settled out of proceeds from sale of the
aircraft at the end of the lease term.
From the effective date (date loan agreement was amended and restated)
interest is charged on the deferred principal at the percentage rate per annum
equal to the sum of five per cent (5.0%) per annum (which, for the avoidance
of doubt, includes the Margin) plus SONIA (previously LIBOR up to 31 December
2021) for the applicable period (such rate to be determined by the Facility
Agent). Prior to the end of the PBH arrangement, DekaBank and the Group will
enter into negotiations to fix the interest rate for the period post the PBH
Arrangement.
Prior to the loan amendment detailed above, the Group and DekaBank had agreed
that the Group would only be required to make interest payments on its
borrowings relating to the assets leased to Thai, with no concomitant capital
repayment obligation; and that the Group would make no dividend payments while
deferrals remained outstanding under those borrowings.
IMPAIRMENT
In line with each reporting date, but more relevant in light of the
developments of COVID-19 and market capitalisation of US$ 5.2 million at 30
June 2022, a detailed impairment assessment of the aircraft has been
undertaken. Following this review an impairment of US$ nil (31 December 2021:
US$ nil) was booked against the aircraft. See note 3 for further details
regarding the impairment and comments under Highlights where commented
regarding the difference between net asset value and market capitalisation.
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 comprise of PBH rentals until 31 December 2022 with fixed
monthly rentals thereafter which show that the Group has sufficient cash and
resources to cover 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 taken into account:-
· the positive outlook for Thai Airways with both Thai aircraft in a
full return to service condition and earning materially more power by the hour
revenue to date than anticipated. 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 that Thai state
owned banks will provide new loans and cash infusions of US$2.3bn to Thai.
Furthermore, the Thai Government has stated that it plans to preserve its 40%
holding in Thai which may grow further but will not exceed 50%;
· the expectation that DekaBank which made loans to the Group (with
certain loan concessions) will continue supporting the Group. Currently the
Group is deferring repayments of principal and this will continue up to 31
December 2022 per the amended loan agreements in place. Furthermore, in
accordance with the same amended and restated loan agreements, the Group and
DekaBank will enter discussions in the last quarter of 2022 to determine how
to schedule interest payments, principal repayments and a final balloon
repayment, having regard for both the income being received by the Group in
respect of the Thai aircraft, and the running costs of the Group and its
subsidiaries. Effectively, based on these amended and restated loan agreements
in place, post the PBH period monthly payments of interest and principal will
be limited to net lease rental monies available for application towards the
loan, and the final balloon repayment will be settled out of proceeds from
sale of the aircraft at the end of the lease term; and
· the successful equity fund raise in July 2022. The Group successfully
concluded a US$750,000 equity raise which was supported by many of the largest
shareholders and will be used for working capital purposes.
The Directors are not aware of any material uncertainties that may cast
significant doubt upon the Group's ability to continue as a going concern.
DISTRIBUTION POLICY
Under normal circumstances, the Company aims to provide Shareholders with an
attractive total return comprising income, from distributions through the
period of the Company's ownership of the Assets, and capital, upon any sale of
the Assets. The Company targets a quarterly distribution in February, May,
August, and November of each year. The target distribution is US$ 0.0225 per
Share per quarter. The target dividends are targets only and should not be
treated as an assurance or guarantee of performance or a profit forecast.
Investors should not place any reliance on such target dividends or assume
that the Company will make any distributions at all.
Due to the impact of COVID-19 on the aviation industry and therefore our
lessee, the Board suspended the payment of dividends from 3 April 2020 until
further notice. The suspension remains in place to date. Note, any lease
rental payments received by the Company in respect of the Thai aircraft are
expected to be applied exclusively towards the running costs of the Company
and its subsidiaries, and interest payments and principal repayments to the
Thai lenders (DekaBank), which means that there is no realistic prospect of
the Company's shareholders receiving a dividend or other distribution. The
Board and its advisers will be consulting with shareholders in the future with
a view to determining the best course of action to take for the future of the
Company.
HIGHLIGHTS
PROFIT FOR THE PERIOD
The profit for the period ended 30 June 2022 is US$ 2,998,596 and profit per
share is US$ 0.0143. The loss for the period ended 30 June 2021 was US$
24,171,431 and loss per share was US$ 0.1155.
The results for the period ended 30 June 2022 are mainly driven by rental
income earned of US$ 7,575,435 (30 June 2021: US$ 12,915,197), a provision on
straight lining lease asset of US$ 1,106,575 (30 June 2021: US$ 12,508,499)
and finance costs incurred of US$ 2,194,840 (30 June 2021: US$ 4,314,137).
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$ 0.1880 at 30 June 2022 (31 December 2021: US$
0.1737). The price per share for the same dates was US$ 0.025 (31 December
2021: US$ 0.01). NAV per share has increased due to the profit made during the
interim period (see above). The NAV excluding the financial effects of the
straight-lining lease asset was US$ 0.1493 per Share at 30 June 2022 (31
December 2021: US$ 0.1509).
The straight-lining lease asset will reduce to nil over time. The NAV
excluding the straight-lining lease asset 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 2022 As at 31 December 2021
US$ US$ per share US$ US$ per share
NAV per the financial statements 39,350,718 0.1880 36,352,122 0.1737
Less: Straight-lining lease asset (9,112,927) (0.0435) (4,772,296) (0.0228)
Add: Provision on straight-lining lease asset 1,001,511 0.0048 - -
NAV excluding straight-lining lease asset 31,239,302 0.1493 31,579,826 0.1509
As at 30 June 2022, the price per share was US$ 0.025 which is significantly
lower than the NAV per share above. The reason for the difference is due to
the fact that the market price per share reflects other factors such as market
sentiment that cannot be accounted for in a set of annual financial
statements. The main asset in the Group, the aircraft, has been assessed for
impairment (see note 3) 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. Therefore, the low share price is
not indicative of a need for further impairment to the assets of the Group.
INTERIM DIVIDENDS
As a result of the COVID-19 pandemic impact on global aviation and especially
its lessee, the Group suspended dividends from 3 April 2020 until further
notice to help preserve liquidity. Further details on the impact of the
COVID-19 pandemic can be found within the Summary and the Asset Manager's
Report.
Furthermore, in accordance with the amended loan agreement with DekaBank, the
Group will make no dividend payments while loan deferrals remained outstanding
under the amended loan agreement.
OFFICIAL LISTING
The Company's Shares were first admitted to trading on the Specialist Fund
Segment of the London Stock Exchange on 4 October 2013.
CHAIRMAN'S STATEMENT
I am pleased to present Shareholders with the Interim Report of the Group for
the period ended 30 June 2022.
The profit per share for the period was US$ 0.0143 compared to a loss per
share of US$ 0.1155 for the same period last year. The net asset value per
share at the period end was US$ 0.1880 compared to US$ 0.1737 at 31 December
2021.
IFRS requires rental income to be recognised on a straight line basis over the
remaining lease period and consequently the accounting treatment has resulted
in some income being recognised earlier than would normally be the case. In
addition, IFRS requires a provision to be made against that additional income
which has been estimated based on recent credit reports on Thai. Please refer
to Highlights which explains the net impact of this on the NAV as at 30 June
2022, NAV per share as at 30 June 2022 is more by US$ 0.0387 per share (31
December 2021: US$ 0.0228).
During the period we have seen an improvement in the global aviation market
following the challenges resulting from the effects of the Covid-19 pandemic
on its operations.
The Thai aircraft are operational and we expect both Thai aircraft to be
utilised on a regular basis during 2022. Income has been received under the
new Power by the Hour (PBH) arrangement which is in place until the end of
2022. We then operate under scaled back monthly lease payments thereafter
until 9 December 2026, reflecting the reduced lease rates now seen in the
market. As previously noted, the lease term may be extended by a further 3
years to 9 December 2029, with further scaled back monthly lease payments
starting from January 2027, and the Group retaining a right of early
termination in December 2026 after consultation with the Lenders.
Repayments of loan principal are deferred until after the end of the PBH
arrangement and the Group and the Lenders will shortly enter into discussions
to determine how best to structure debt service and to measure the final
balloon repayment, having regard for both the income being received by the
Group under both the PBH and fixed rentals arrangement in respect of the Thai
Assets, the running costs of the Company and its subsidiaries and the interest
rates prevailing at that time.
As previously noted, there is no realistic prospect of the Company's
shareholders receiving a dividend or other distributions prior to the end of
the lease term. The key uncertainty remains the outlook for the airline
industry particularly with higher fuel prices and the impact of inflation
resulting from the Ukraine conflict and a slowing economy on travel demand,
its impact upon Thai and its financial position and upon aircraft values in
general and the Boeing 787-8 in particular.
The Company raised $750,000 in equity following a successful tap issue in
July. Some service providers and the directors will continue to defer some
amounts due. The focus of the Company remains the preservation of the Group's
long-term financial stability and assets notwithstanding the challenges noted
above.
I would like to thank the Board for their continued significant support over
the period. Thanks also go to the team at the Asset Manager and Administrator
for their considerable support and assistance. I would like to thank our
Investors for their continued support in the Company and its subsidiaries. The
Board and its advisers will continue consulting with investors.
Jon Bridel
Chairman
ASSET MANAGER'S REPORT
THE AIRLINE MARKET
COVID-19 pandemic in brief
The Covid-19 pandemic still impacts travelling, both domestic and
international, around the globe. Although travel restrictions have been lifted
during the last months and demand for flights is increasing faster than
Airlines have expected, it still has a significant impact on the airline
industry, including airline restructurings and bankruptcies. The number of
stored widebody aircraft worldwide remains high. Even with increased
vaccination coverage worldwide, different virus variants can still lead to
increased infection rates and new travel restrictions imposed by various
governments. It is impossible to determine the total impact on the airline and
aviation industry or when all Covid-19 restrictions might be globally lifted.
The world passenger traffic collapsed with unprecedented decline in history as
shown in the picture below.
Source: ICAO: "Effects of Novel Coronavirus (COVID‐19) on Civil Aviation:
Economic Impact Analysis"; 12th September 2022
The severe impact of the pandemic compared to other major events in history is
shown in the graph above. The total passenger numbers are slightly recovering
from year to year but it will take some more time to get back to pre-Covid
numbers.
Year 2022 Outlook
The impact of Covid-19 on world scheduled passenger traffic for the year 2022
(estimated results), compared to pre-Covid 2019 levels is:
o Overall reduction of 22% to 24% of seats offered by airlines
o Overall reduction of 1,186 to 1,271 million passengers (-26 % to -28%)
o Approx. USD164 to 176 billion loss of gross passenger operating revenues
of airlines
International passenger traffic (2022 vs. 2019)
o Overall reduction of 31% to 34 % of seats offered by airlines
o Overall reduction of 628 to 627 million passengers (-33% to -36%)
o Approx. USD118 to 127 billion loss of gross operating revenues of airlines
The below fact sheet is provided by IATA on a regular basis and shows
statistics about the airline industry as of June 2022.
June 2022
System-wide global commercial airlines 2019 2020 2021E 2022F
REVENUES, $ billion 838 382 506 782
% change y-o-y 3.2% -54.4% 32.4% 54.5%
% change vs 2019 -39.6% -6.7%
Passenger, $ billion 607 189 239 498
Cargo, $ billion 100.8 138.5 204.1 191.0
Traffic volumes
Passenger growth, RPK, %ch y-o-y 4.1% -65.8% 21.9% 97.6%
% ch vs 2019 -58.3% -17.6%
Sched passenger numbers, millions 4,543 1,807 2,185 3,781
Cargo growth, CTK+MTK, %ch y-o-y -3.2% -9.9% 18.7% 4.4%
%ch vs 6.9% 11.7%
2019
Cargo tonnes, millions 61.5 55.4 65.6 68.4
World economic growth, %ch y-o-y 2.5% -3.5% 5.8% 3.4%
Passenger yield, %ch y-o-y -3.7% -9.1% 3.8% 5.6%
Cargo yield %ch y-o-y -8.2% 52.5% 24.2% -10.4%
EXPENSES, $ billion 795 493 552 796
% change y-o-y 3.7% -37.9% 11.8% 44.4%
% change vs 2019 -30.6% 0.2%
Fuel, $ billion 190 80 103 192
% of expenses 24% 16% 19% 24%
Crude oil price, Brent, $/b 65.0 41.8 70.7 101.2
Jet kerosene price, $/b 79.7 46.6 77.8 125.5
Fuel consumption, billion gallons 95 52 60 84
CO2 emissions, million tonnes 905 495 577 809
Non-fuel, $ billion 605 413 448 604
cents per ATK (non-fuel unit cost) 39.2 48.1 44.9 42.7
% change y-o-y -0.3% 22.7% -6.7% -4.9%
Capacity growth, atk, %ch y-o-y 3.1% -44.3% 16.3% 41.7%
%ch vs 2019 -35.3% -8.2%
Flights, million 38.9 16.9 20.1 33.8
Break-even weight load factor, % ATK 66.4% 76.8% 67.2% 69.3%
Weight load factor achieved, % ATK 70.0% 59.5% 61.7% 68.1%
Passenger load factor achieved, % ASK 82.6% 65.2% 67.0% 77.4%
OPERATING PROFIT, $ billion 43.2 -110.8 -45.2 -14.4
% margin 5.2% -29.0% -8.9% -1.8%
June 2022
System-wide global commercial airlines 2019 2020 2021E 2022F
NET PROFIT, $ billion 26.4 -137.7 -42.1 -9.7
% margin 3.1% -36.0% -8.3% -1.2%
per departing passenger, $ 5.80 -76.22 -19.26 -2.58
RETURN ON INVESTED CAPITAL, % 5.8% -19.3% -8.0% -2.5%
Sources: ICAO, IATA, The Airline Analyst, Datastream, Platts.
Updated: 06/2022
Financial Results
System-wide global commercial airlines EBIT margin, % revenues Net profit, $ billion
2019 2020 2021E 2022F 2019 2020 2021E 202
2F
Global 5.2% -29.0% -8.9% -1.8% 26.4 -137.7 -42.1 -9.7
Regions
North America 9.6% -27.3% -5.9% 1.9% 17.4 -35.1 -2.2 8.8
Europe 4.8% -27.1% -8.8% -2.6% 6.5 -34.5 -11.9 -3.9
Asia-Pacific 3.7% -34.3% -13.5% -5.9% 4.9 -45.0 -15.2 -8.9
Middle East -5.2% -24.3% -11.4% -3.0% -1.5 -9.4 -4.7 -1.9
Latin America 2.9% -28.5% -9.0% -2.8% -0.7 -11.9 -6.9 -3.2
Africa 1.0% -16.9% -6.8% -2.8% -0.3 -1.8 -1.1 -0.7
Sources: IATA estimates for regions. IATA forecast for 2022.
Updated: 06/2022
Traffic Results
System-wide global commercial airlines Passenger traffic (RPK) Passenger capacity (ASK)
% change vs previous year % change vs 2019 % change vs previous year %
chang
e vs
2019
2019 2020 2021E 2022F 2019 2020 2021E 2022F
Global 4.1% -65.8% -58.3% -17.6% 3.4% -56.6% -48.6% -12.0%
Regions
North America 4.0% -65.1% -39.7% -5.0% 2.9% -50.3% -29.8% -0.5%
Europe 4.2% -69.5% -61.2% -17.3% 3.5% -62.3% -51.2% -10.0%
Asia-Pacific 4.7% -62.0% -66.8% -26.3% 4.4% -53.8% -56.6% -18.5%
Middle East 2.3% -72.1% -68.8% -20.9% 0.1% -63.0% -55.5% -19.5%
Latin America 4.2% -62.5% -47.4% -5.8% 3.0% -59.0% -43.9% -6.8%
Africa 4.7% -68.2% -62.9% -28.0% 4.5% -62.1% -55.1% -24.8%
Source and Note: IATA. Includes domestic and international traffic, and all
commercial airlines. Historical data are subject to revision.
Updated: 06/2022
Outlook & Conclusion
The Covid-19 pandemic continues to put significant burden on airlines. Even if
the travel bans are gradually lifted resulting from a worldwide mass
vaccination, it will take years until capacity and numbers of passenger will
return to pre-Covid-19 levels. The longer the pandemic continues, the more the
industry will rely on governmental and creditor support. As most of the
governmental support - if any - are in form of credits, airlines` financial
results will be negatively impacted for the next years, even if passenger
travel might already have returned to pre-Covid-19 levels. Some governments
only granted their support subject to the power of co-decision making which
impacts the airline´s flexibility and results in conflicts of interest
regarding future strategic measurements.
All outlooks shared in this report are based on historic data and assumptions
made by industry experts. It should be considered as a potential guideline.
From a historical point of view, the airline industry has proven to be
resilient and has recovered from all previous crises and up to date 2022 shows
a slight recovery compared to the previous year. However, recovery will take
significantly longer as the decline in passenger traffic is not only driven by
an economic downturn but a global continuing pandemic. According to McKinsey,
these aspects will lead to the necessity of adapting to long-term changes. For
example, business travel has been partially substituted by video conferences
and might never recover to pre-Covid-19 levels, as many companies
significantly progressed in digitalisation and take advantage of travel cost
reductions.
Clearly, this time the recovery period will take significantly longer than
average to return to pre-Covid-19 levels and as long as the pandemic lasts and
most of the travel restrictions remain in place, the number of airlines filing
for bankruptcy and restructuring will continue to increase. As the pandemic is
continuing, it is impossible to assess the total impact of the Covid-19
pandemic at the current stage.
THE LESSEE
Thai Airways International Public Company Limited
Impact from Covid-19 pandemic
· According to data from Cirium 40 aircraft are in operation and 51
aircraft are stored.
· Thailand ends almost all travel restrictions - from July 1, only one
Covid-related document is required (vaccination or test)
Restructuring and Rehabilitation Process since 31(st) December 2021
· 30(th) December 2021: Thai Airways has continued to repay all its
creditors. As of 15 November, the repayment stood at nearly THB 130 billion
(3.87 billion USD) and no default of any clauses under its rehabilitation plan
has occurred
· 28(th) February 2022: Thai Airways swings into positive financial
territory (pre-tax profit of $1.6 billion) for the full-year 2021 compared to
a 3.8 billion loss in 2020
· 01(st) April 2022: Thai Airways has repaid about one third of its
THB410 billion debt
· 04(th) July 2022: Thai Airways is targeting to complete its debt and
capital restructuring within 2024. The airline expects their shares likely to
be traded on the stock exchange again in 2025
Quarterly financial results
Source: Cirium; Thai Airways International "Fleet"; 21(st) September 2022
Outlook & Opportunities post-Covid-19 pandemic - The "New Thai Airways"
· Measures to be taken
o Reduction of fleet (other than the B787) and aircraft types to minimise
maintenance costs and increase crew efficiency; different aircraft types put
up for sale, including A300s, A330s and A340s
o Amendment of aircraft leases with more favourable terms and lease rates,
e.g. Power-by-the Hour contracts
o Adjustment of flight routes and cancellation of low return flights
o Downsizing the workforce and flattening the hierarchy
· Capital raise of about USD 1.5 billion necessary to repay the debt
· Fleet of 86 aircraft and five different aircraft types in 2025;
phasing-out Boeing 747s
· Thai expects to return to profits in 2023 and to state shareholder
equity above zero in 2030
· Thailand´s economy is dependent on tourism and Thai Airways benefits
from measures initiated by the Government to stimulate tourism arrivals
Comments & conclusions
Thai Airways is dependent on the tourism sector, particularly on in-bound
tourism which has been severely impacted by the Covid-19 pandemic. The carrier
remains contingent on any decision made by the Government to elevate or soften
travel restrictions. The Thai Government´s decision to ease almost all travel
restrictions is a step forward in the rehabilitation process of tourism in
Thailand.
The mid- and long-term impacts of the Ukraine-Russian-conflict are not yet
measurable to their full extent and depend on the developments in the near
time future. In any case we are monitoring the situation and will take
necessary actions to respond accordingly.
Thai's decision to keep the B787 in their future fleet is backed by the fact
that both DP Aircraft owned B787s have been brought back into commercial
service. Having a fleet of modern aircraft, including B787s and A350s,
supports Thai to compete with other carriers and base operations on a
competitive cost level, particularly if jet fuel prices increase over time.
Nevertheless, there is no guarantee for the airline's survival. However, it
might be considered that the carrier's long-term existence is in the country's
interest as tourism counted for one-fifth of the country's national income
(pre-Covid-19).
THE ASSETS
Update B787
· 787 deliveries resumed on 10(th) August after a 15-month long break
imposed by the FAA due to manufacturing issues
· Following a recent review of the market, Ascend, by Cirium's Value
Review Board, increased Current Market Values by up to 5% and Current Market
Lease Rates by up to 17% for all variants of the 787, reflecting strengthening
demand for the type as global recovery continues. In constant-age terms,
market values are still down over 25% on pre-pandemic levels, but it seems
that the trend is now upwards
· The orderbook stands at 409 aircraft destined for 50 airline
customers. There are an additional 30 unplaced lessor commitments, a further
41 orders for unannounced customers, and one BBJ.
Assets & Operations
Overview
Both aircraft TQC and TQD are kept in a technical condition that allows them
to be used in commercial operations. They both have a valid Certificate of
Airworthiness and are based at Bangkok Airport. Depending on the current
passenger demand, from time to time, one of the aircraft is kept in short-term
storage if the capacity is not needed. During this storage, the aircraft are
preserved in accordance with the manufacturer's procedures.
As of now (September 22(nd), 2022) TQC and TQD (including all four engines,
that are currently installed on the airframes) are used for flight operations
on international routes.
Aircraft operations Thai Airways
HS-TQC HS-TQD
Cabin layout 24 business class seats
240 economy class seats
Last physical inspection
Date 18.02.2022 18.02.2022
Place Bangkok Airport (BKK)
Airframe status
(31(st) August 2022)
Total flight hours 19,269 17,836
Total flight cycles 4,202 3,985
Hours/cycles ratio since delivery 4.6 4.5
Titled Engines Report
As of 31(st) August 2022 HS-TQC HS-TQD
ESN 10239 ESN 10243 ESN 10244 ESN 10248
Total time [flight hours] 17,348 15,375 13,382 19,105
Total flight cycles 3,822 3,143 3,068 4,077
Location On-wing On-wing On-wing On-wing
As the titled engine 10240 was declared a total loss, the asset manager worked
with Thai Airways to appropriately replace that engine. A replacement engine
(ESN10243) had been suggested and the process of reviewing the respective
records and physical condition had been completed. The discussion about the
commercial aspects with Rolls Royce and Thai Airways took much longer than
expected due to the rehabilitation process. Nevertheless, the title change was
successfully completed on 1st of April 2022 and the new title engine
(ESN10243) is already installed on the aircraft. The complete technical
process of the engine replacement, including testing, was supported, and
monitored closely by the asset manager´s on-site team.
On the 5th of May 2022, HS-TQC suffered an aborted take-off run due to an
engine related warning message on the flight deck. During the technical
troubleshooting, Thai airways found a defect valve at the air control system
of ESN 10243. In accordance with the applicable task in the aircraft
maintenance manual, the engine was removed from the aircraft. The engine
manufacturer reviewed all data and declared the engine as airworthy without
further work necessary. The engine was installed back onto TQC on 31st of
August and is now in regular operation.
Asset Manager´s actions ensured asset value
Keeping the assets under management in the best possible condition and in
accordance with the manufacturer's requirement is the top priority for DS
Aviation as DP Aircraft´s Asset Manager. Given the unfortunate combination of
the two circumstances of Trent 1000 issues and the Covid-19 pandemic, TQC and
TQD had been stored in the past. As of now both aircraft are in operational
service. Nevertheless, the restructuring process of the company is still
ongoing. These facts, accompanied by the experiences from working with Thai
Airways in the past months, still make intensive monitoring necessary,
including the support by an on-site technical team. Whenever not in operation,
the aircraft are periodically inspected to check the technical condition
during maintenance events or short-term storage periods. Furthermore, through
the on-site team, it is possible to get an overall view of the current
situation at Thai Airways, which is very helpful.
Comments and Conclusions
As per the analysis above, the effects of the Covid-19 Pandemic are still
present in the entire aviation industry and will also impact the market for
future years. As of July 2022, still approx. 20% of the global widebody fleet
is stored, primarily affecting the largest widebodies like the A380 or ageing
aircraft like the A340 and A330. On the other hand, the latest generation
widebodies A350 and Boeing 787 have recovered much better and show storage
rates less than 10%.
Besides the Covid related issues, there are some issues affecting the
manufacturer side, especially the widebody market. Airbus is facing problems
with the surface coating of its A350 models, and Boeing has discovered several
production problems with the B787. Also, the 777X, as the subsequent widebody
development, is facing issues that will delay the first deliveries at least
until late 2023, which is still subject to Certification by the FAA and other
local authorities. Additionally, the global shortage of electronic components,
the increased cost of sourcing raw materials for the production lines, and
international political disputes and skills shortages hurt the aircraft and
engine manufacturers, suppliers, and the MRO industry. These problems with the
delivery of new aircraft and the respective uncertainties focus on the
existing aircraft. Airlines need to postpone the decommissioning of older
airframes and might need to extend their usage to bridge the time until newly
produced jets are ready to enter service. In some cases, this will not be
possible, and even if so, the later fleet renewal will lead to increased
operating costs (fuel burn, maintenance, etc.) and could be an additional
burden for some airlines.
All the above-mentioned factors will, especially in the future, require close
monitoring of the assets' condition and the need to put all efforts to keep
the value of the aircraft. Nevertheless, the Boeing 787 is well-positioned for
the near and mid-term future in the passenger market. The aircraft benefits
from its latest generation technology and has a strong position in the market,
with more than 1000 units delivered up to now.
DIRECTORS' INFORMATION
Jonathan (Jon) Bridel, Non-Executive Chairman (57)
Jon is a Guernsey resident and is currently a non-executive director of SME
Credit Realisation Fund Limited (in wind down) which is listed on the Main
Market of the London Stock Exchange. Other companies include Fair Oaks Income
Fund Limited. Jon was previously Managing Director of Royal Bank of Canada's
investment businesses in the Channel Islands and served as a director on other
RBC companies including RBC Regent Fund Managers Limited. Prior to joining
RBC, Jon served in a number of senior management positions in banking,
specialising in credit and corporate finance and private businesses as Chief
Financial Officer in London, Australia and Guernsey having previously worked
at Price Waterhouse Corporate Finance in London.
Jon graduated from the University of Durham with a degree of Master of
Business Administration, holds qualifications from the Institute of Chartered
Accountants in England and Wales (1987) where he is a Fellow, the Chartered
Institute of Marketing and the Australian Institute of Company Directors. Jon
is a Chartered Marketer and a Member of the Chartered Institute of Marketing,
a Chartered Director and Fellow of the Institute of Directors and a Chartered
Fellow of the Chartered Institute for Securities and Investment.
Jeremy Thompson, Non-Executive Director (67)
Jeremy Thompson is a Guernsey resident with sector experience in Finance,
Telecoms, Aerospace and Oil & Gas. He acts as a non-executive director to
a number of businesses which include three private equity funds and to an
Investment Manager serving the listed NextEnergy Solar Fund Limited. In
addition, Jeremy is also a non-executive director of London listed Riverstone
Energy Limited. Between 2005 and 2009 he was a director of multiple businesses
within a London based private equity group. This entailed board positions on
both private, listed and SPV companies and highly successful exits. Prior to
that he was CEO of four autonomous global businesses within Cable &
Wireless PLC and earlier held CEO roles within the Dowty Group. Jeremy has
studied and worked in the UK, USA and Germany.
Jeremy currently serves as chairman of the States of Guernsey Renewable Energy
Team and is a commissioner of the Alderney Gambling Control Commission. He
is also an independent member of the Guernsey Tax Tribunal panel. Jeremy is an
engineering graduate of Brunel (B.Sc) and Cranfield (MBA) Universities and
attended the UK's senior defence course (Royal College of Defence Studies). He
holds the Institute of Directors (IoD) Certificate and Diploma in Company
Direction and is an associate of the Chartered Institute of Arbitration. He
completed an M.Sc in Corporate Governance in 2016 and qualified as a Chartered
Company Secretary in 2017.
Harald Brauns, Non-Executive Director (68)
Harald is a German banker with extensive experience in the specialised lending
sector. He joined NORD/LB Hannover, Germany in 1977 with a first engagement in
the shipping segment. In 1985 he started the aircraft finance activities for
the bank from scratch. As the Global Head of Aircraft Finance, he built
successively a team of more than 40 dedicated aviation experts located in
Hannover, New York and Singapore. Focused on an asset-based business model
with sophisticated solutions for selected clients he and his team advanced to
global leaders in commercial aircraft finance with an exposure of well above
US$ 10 billion split over a portfolio of 650 aircraft assets. After more than
35 years in the aviation industry Harald retired in October 2019. He is a
resident in Germany and was appointed as a non-executive director of the
Company with effect from 1 November 2019.
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 2022.
Geopolitical and economic risks
The Company leases aircraft to a customer in Thailand exposing it to (i)
Thailand's varying economic, social, legal and geopolitical risks, (ii)
instability of Thailand markets and (iii) the impact of global health
pandemics and other global market disruptions. The Directors continue to
monitor the development of COVID-19 and are continuing to assess the impact on
the Company. Exposure to Thailand's jurisdiction may adversely affect the
Company's future performance, position and growth potential if Thailand's
economy does not perform well or if laws and regulations that have an adverse
impact on the aviation industry are passed in Thailand. The adequacy and
timeliness of the Company's response to emerging risks in this jurisdiction is
of critical importance to the mitigation of their potential impact on the
Company.
The Geopolitical risk surrounding the Russian invasion of Ukraine and the
subsequent fall-out have the potential to impact travel and/or travellers'
willingness to travel which in turn could impact the volume of traffic to and
from Thailand.
Exposure to the commercial airline industry
As a supplier to and partner of the airline industry, the Group is exposed to
the financial condition of the airline industry as it leases its aircraft to
commercial airline customers. The financial condition of the airline industry
is affected by, among other things, geopolitical events, outbreaks of
communicable pandemic diseases and natural disasters, fuel costs and the
demand for air travel. To the extent that any of these factors adversely
affect the airline industry they may result in (i) downward pressure on lease
rates and aircraft values, (ii) higher incidences of lessee defaults,
restructuring, and repossessions and (iii) inability to lease aircraft on
commercially acceptable terms.
Thai Airways
Thai went into debt rehabilitation on 27 May 2020 and the business
rehabilitation plan was approved on 15 June 2021 by the Central Bankruptcy
Court of Thailand. There is risk that the business rehabilitation plan does
not achieve the desired results, and this would have an adverse impact on the
entity's lease arrangements with Thai Airways which is the core source of
income for the Group.
The continuing impact of COVID-19 and the conflict between Russia and Ukraine
is likely to impact passenger numbers for Thai given the reduced Chinese,
Russia and regional demand. This is particularly relevant for the Group given
the aircraft leased to Thai Airways is under a PBH arrangement up to 31
December 2022. There is no guarantee that the Group will continue to receive
any rental payments from Thai Airways during this period.
COVID-19 Impact
The COVID-19 pandemic continues to put a significant burden on the airline
industry. Even as travel bans are gradually being lifted, it will take years
until capacity and numbers of passenger return to pre-COVID-19 levels.
Expectations are that capacity will not return to pre-COVID-19 levels before
2024. This uncertainty as to when capacity will return to normal levels and
the possibility of further strains which could again result in lockdowns and
travel bans pose a risk to the Group.
Asset risk
The Company's Assets as at period 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 this
risk. Any lasting impact of the COVID-19 situation 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 & 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 going well with Thai having made
significant improvements. The Moody's credit rating of DekaBank is Aa2 (2021:
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. In mitigation, Thai Airways is an
international full-service carrier and is important to Thailand's economy and
as such it is unlikely that the Government will not provide it with the
necessary support to see it through its restructure. However, there is no
guarantee and hence a significant risk remains.
Liquidity risk
In order to finance the purchase of the Assets, the Group entered into loan
agreements. Pursuant to the loan agreements, the lenders are given first
ranking security over the Assets. Under the provisions of each of the loan
agreements, the Borrowers are required to comply with loan covenants and
undertakings. A failure to comply with such covenants or undertakings may
result in the relevant lenders recalling the relevant loan. In such
circumstances, the Group may be required to remarket the relevant Asset
(either sell or enter into a subsequent lease) to repay the outstanding
relevant loan and/or re-negotiate the loan terms with the relevant lender.
Boeing
Company exposure to Boeing in terms of ongoing guarantees and commitments
could be negatively impacted with any problems Boeing faces with its aircraft.
Problems for Boeing may result in it failing to fulfil its obligations.
Rolls Royce
Company exposure to Rolls Royce in terms of ongoing guarantees and commitments
could be negatively impacted with the Trent 1000 engine issues and as yet the
financial impact upon Rolls Royce in terms of financial compensation, loss of
capacity and loss of orders is not known. The Company believes that its
engines will actually benefit from the current maintenance and refurbishments
underway. Announcements by Rolls Royce have implied that the low pressure
turbine and other issues are now under control.
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 2022 ("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
Director
Director
INDEPENDENT REVIEW REPORT TO THE MEMBERS OF DP AIRCRAFT I LIMITED
Conclusion
We have been engaged by the Group to review the Group's condensed set of
consolidated financial statements in the half-yearly financial report for the
six months ended 30 June 2022 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 a summary of significant
accounting policies and other explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of consolidated financial statements in the
half-yearly financial report for the six months ended 30 June 2022 is not
prepared, in all material respects in accordance with International Accounting
Standard 34 Interim Financial Reporting ("IAS 34") as issued by the
International Accounting Standards Board ("IASB") and the Disclosure Guidance
and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority
("the UK FCA").
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued by the IASB. A
review of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing and consequently does not enable us
to obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit
opinion.
We read the other information contained in the half-yearly financial report to
identify material inconsistencies with the information in the condensed set of
consolidated financial statements and to identify any information that is
apparently materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the review. If we become
aware of any apparent material misstatements or inconsistencies we consider
the implications for our report.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention that causes us to believe that the directors
have inappropriately adopted the going concern basis of accounting, or that
the directors have identified material uncertainties relating to going concern
that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However, future events or conditions may cause the Group to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the Group will continue in operation.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
The directors are responsible for preparing the condensed set of consolidated
financial statements included in the half-yearly financial report in
accordance with IAS 34 as issued by the IASB.
The annual financial statements of the Group for the year ended 31 December
2021 are prepared in accordance with international accounting standards.
INDEPENDENT REVIEW REPORT TO THE MEMBERS OF DP AIRCRAFT I LIMITED (CONTINUED)
Directors' responsibilities (continued)
In preparing the condensed set of consolidated financial statements, the
directors are responsible for assessing the Group's ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the directors either intend
to liquidate the Group or to cease operations, or have no realistic
alternative but to do so.
Our responsibility
Our responsibility is to express to the Group a conclusion on the condensed
set of consolidated financial statements in the half-yearly financial report
based on our review.
Our conclusion, including our conclusions relating to going concern, are based
on procedures that are less extensive than audit procedures, as described in
the Basis for conclusion section of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Group in accordance with the terms of our
engagement to assist the Group in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the Group
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Group for our review work, for this
report, or for the conclusions we have reached.
KPMG
28 September 2022
Chartered Accountants
1 Harbourmaster Place
IFSC
Dublin
Ireland
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
For the six-month period ended 30 June 2022
30 June 2022 30 June 2021
(unaudited) (unaudited)
Notes US$ US$
Revenue
Lease rental income 4 7,575,435 12,915,197
Expenses
Asset management fees 21 (233,862) (525,325)
General and administrative expenses 5 (566,886) (1,750,546)
Depreciation 9 (478,271) (87,581)
Provision on straight lining lease asset 12 (1,106,575) (12,508,499)
(2,385,594) (14,871,951)
Operating Profit/(Loss) 5,189,841 (1,956,754)
Net losses on financial assets at fair value 10 - (8,547,935)
Gain on derivatives at fair value 19 - 459,015
Loss on loss of control of subsidiary undertakings 2 - (9,874,940)
Dividend income - 9,549
Finance costs 6 (2,194,840) (4,314,137)
Finance income 9,158 11,693
Net finance costs (2,185,682) (22,256,755)
Profit/(Loss) before tax 3,004,159 (24,213,509)
Taxation 7 (5,563) 42,078
Profit/(Loss) for the period 2,998,596 (24,171,431)
Total Comprehensive Income/(Loss) for the period 2,998,596 (24,171,431)
US$ US$
Profit/(Loss) per Share for the period - basic and diluted 8 0.0143 (0.1155)
All the items in the above statement derive from continuing operations.
The notes form an integral part of these interim financial statements.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
As at 30 June 2022
30 June 2022 31 December 2021
(unaudited) (audited)
Notes US$ US$
NON-CURRENT ASSETS
PPE - Aircraft & Related Components 9 125,946,569 126,424,840
Restricted cash 11 14,843,101 14,465,329
Total non-current assets 140,789,670 140,890,169
CURRENT ASSETS
Cash and cash equivalents - available for use 913,380 1,179,211
Restricted cash 11 2,301,761 2,788,517
Trade and other receivables 12 9,308,792 5,023,512
Total current assets 12,523,933 8,991,240
TOTAL ASSETS 153,313,603 149,881,409
EQUITY
Share capital 17 210,556,652 210,556,652
Accumulated losses (171,205,934) (174,204,530)
Total equity 39,350,718 36,352,122
NON-CURRENT LIABILITIES
Bank borrowings 16 90,396,871 98,304,863
Maintenance reserves liability 13 14,829,296 14,460,682
Total non-current liabilities 105,226,167 112,765,545
CURRENT LIABILITIES
Bank borrowings 16 8,049,720 136,010
Share based payment liability 15 344,896 310,715
Trade and other payables 14 342,102 317,017
Total current liabilities 8,736,718 763,742
TOTAL LIABILITIES 113,962,885 113,529,287
TOTAL EQUITY AND LIABILITIES 153,313,603 149,881,409
The financial statements were approved by the Board of Directors and were
authorised for issue on 28 September 2022. They were signed on its behalf by:
Jon 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 2022
30 June 2022 30 June 2021
(unaudited) (unaudited)
US$ US$
Profit/(Loss) for the period 2,998,596 (24,171,431)
Adjusted for:
Depreciation 478,271 87,581
Finance costs 2,194,840 4,314,137
Income tax expense/(recovery) 5,563 (42,078)
Loss on loss of control of subsidiary undertakings - 9,874,940
Net losses on financial assets at fair value - 8,547,935
Gain on derivatives at fair value - (459,015)
Provision on straight lining lease asset 1,106,575 12,508,499
Straight-lining rental income (4,340,631) (12,901,531)
Changes in:
Increase in maintenance provision 368,614 -
Increase in trade and other payables 19,522 270,978
Increase in share based payment liability 34,181 -
Increase in trade and other receivables (1,051,224) (1,738)
NET CASH FLOW FROM/(USED IN) OPERATING ACTIVITIES 1,814,307 (1,971,723)
INVESTING ACTIVITIES
Sale proceeds of investments held at fair value - 4,069,880
Cash impact on loss of control of subsidiary undertakings - (5,456,182)
Restricted cash movement 108,984 1,490,797
NET CASH FLOW FROM/(USED IN) INVESTING ACTIVITIES 108,984 104,495
FINANCING ACTIVITIES
Bank loan principal repaid - (274,173)
Bank loan interest paid (2,189,122) (2,469,951)
Swap interest paid - (301,761)
NET CASH FLOW USED IN FINANCING ACTIVITIES (2,189,122) (3,045,885)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,179,211 6,949,167
Decrease in cash and cash equivalents (265,831) (4,913,113)
CASH AND CASH EQUIVALENTS AT END OF PERIOD 913,380 2,036,054
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 2022
Share Accumulated Total
Capital Losses Equity
US$ US$ US$
As at 1 January 2021 210,556,652 (152,345,457) 58,211,195
Total comprehensive Loss for the period
Loss for the period - (24,171,431) (24,171,431)
Total Comprehensive Loss - (24,171,431) (24,171,431)
As at 30 June 2021 (unaudited) 210,556,652 (176,516,888) 34,039,764
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
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 2022
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 209,333,333 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 2022 to 30 June 2022
have been prepared in accordance with International Accounting Standard
('IAS') 34 'Interim Financial Reporting' issued by the International
Accounting Standards Board ('IASB') and the Disclosure and Transparency Rules
(the 'DTRs') of the UK's Financial Conduct Authority (the 'FCA').
The 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 2021. The Group's annual financial
statements for the year ended 31 December 2021 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 2021 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 2022.
These are non-statutory financial statements. The last statutory financial
statements were issued on 27 April 2022.
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 2021 which have a material impact on the interim financial
statements.
In the prior year the Group lost control of DP Aircraft Ireland Limited, DP
Aircraft Guernsey I Limited and DP Aircraft Guernsey II Limited which resulted
in derecognition of the assets and liabilities of these entities from 26
February 2021, and recognition of a loss on loss of control of US$ 9,874,940
in the Statement of Comprehensive Income. DP Aircraft Guernsey I Limited and
DP Aircraft Guernsey II Limited are now in voluntary liquidation.
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 comprise of PBH rentals until 31 December 2022 with fixed
monthly rentals thereafter which 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 statement.
In making this conclusion, the Directors have also taken into account:-
· the positive outlook for Thai Airways with both Thai aircraft in a
full return to service condition and earning materially more power by the hour
revenue to date than anticipated. 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 that Thai state
owned banks will provide new loans and cash infusions to Thai. Furthermore,
the Thai Government has stated that it plans to preserve its 40% holding in
Thai which may grow further but will not exceed 50%;
· the expectation that DekaBank which made loans to the Group (with
certain loan concessions) will continue supporting the Group. Currently the
Group is deferring repayments of principal and this will continue up to 31
December 2022 per the amended loan agreements in place. Furthermore, in
accordance with the same amended and restated loan agreements, the Group and
DekaBank will enter discussions in the last quarter of 2022 to determine how
to schedule interest payments, principal repayments and a final balloon
repayment, having regard for both the income being received by the Group in
respect of the Thai aircraft, and the running costs of the Group and its
subsidiaries. Effectively, based on these amended and restated loan agreements
in place, post the PBH period monthly payments of interest and principal will
be limited to net lease rental monies available for application towards the
loan, and the final balloon repayment will be settled out of proceeds from
sale of the aircraft at the end of the lease term; and
· the successful equity fund raise in July 2022. The Group successfully
concluded a US$750,000 equity raise which was supported by many of the largest
shareholders and will be used for working capital purposes.
The Directors are not aware of any material uncertainties that may cast
significant doubt upon the Group's ability to continue as a going concern.
Prior year reclassification adjustment
Prior year restricted cash comprising maintenance reserves of US$ 14,465,329
as at 31 December 2021 has been reclassified from current assets to
non-current assets, the prior year balance sheet presentation has been updated
to reflect this adjustment. The reclassification adjustment has no effect on
prior year retained earnings.
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 2022 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 2 independent
appraisers given the aircraft have a lease with a full-life return condition
attached to them. The board considered it appropriate not to apply any
discounts and adjustments for these aircraft given the specific circumstances
of these aircraft.
Thai Aircraft
The board considered all possible valuation ranges and concluded that the
aircraft were not impaired as at 30 June 2022 given the recoverable amount was
greater than the book value of the aircraft. Therefore, no impairment loss has
been recognised during the period ended 30 June 2022 (30 June 2021: US$ nil).
The board also considered if there was an indication that the prior periods'
Thai aircraft accumulated impairment of US$ 58,839,697 had reversed in full or
partially during the period and concluded that based on the possible ranges of
the aircraft valuations, there was no reversal during the period ended 30 June
2022.
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. In making a judgement regarding these estimates the
Directors will consider previous sales of similar aircraft and other available
aviation information. The Group engages three Independent Expert Valuers each
year to provide a valuation of the Assets and take into account the average of
the three valuations provided. In performing their valuations, the Independent
Expert Valuers will have regard to factors such as the prevailing market
conditions (which may impact on the resale value of the Assets), the leases
(including the scheduled rental payments and remaining scheduled term of the
leases) and the creditworthiness of the lessees. Accordingly, any early
termination of the leases may impact on the valuation of the Assets.
The two aircraft leased to Thai Airways International were acquired in 2015
and had a useful economic life of 12 years at acquisition. The useful economic
life since acquisition of 12 years is unchanged as at period end. As at 30
June 2022, the remaining useful life of the aircraft is 4.5 years (31 December
2021: 5 years).
Residual value estimates of the Aircraft were determined by the full life
inflated values at the end of the leases from three external valuations and
discounted by the inflation rate incorporated into those valuations.
The full life inflated 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". An aircraft's full life value is
founded in the historical trend of values and in the projection of value trend
and presumes an arm's-length, cash transaction between willing, able and
knowledgeable parties, acting prudently, with an absence of duress and with a
reasonable period of time available for marketing. The full life inflated
values used within the interim financial statements match up the two lease
termination dates and have been discounted by the inflation rate incorporated
into the valuations. The residual value of the aircraft does not represent
the current fair value of the aircraft.
The residual value estimates at the end of each year are used to determine the
aircraft depreciation of future periods. The residual value estimates of the
leases for the aircraft as at 31 December 2021 was US$ 121,750,421 (31
December 2020: US$125,572,493), carrying value as at 31 December 2021 was US$
126,424,840 (31 December 2020: US$ 126,000,000). As a result, the year
ending 31 December 2022 and future aircraft depreciation charges for aircraft,
with all other inputs staying constant, will be US$ 956,542 (2021: US$
175,160). The actual aircraft depreciation charge for 2023 onwards will vary
based on the residual value estimates as at 31 December 2022.
Lease term
The Thai lease agreements were amended such that the lease term may be
extended by three years to 9 December 2029 (the "Extension Period") with
further scaled back monthly lease payments starting from January 2027, subject
to the Group retaining a right of early termination in December 2026 after
consulting the Lenders. The Directors have applied judgement to determine the
lease term i.e., period to 9 December 2026 or period to 9 December 2029. At
commencement of the amended leases, there was no reasonable certainty that the
lenders would approve an extension of the lease given decision would depend on
facts and circumstances around the time of extension. Therefore, the Directors
concluded that the lease term was the period to 9 December 2026, same period
as before the lease modification
4) LEASE RENTAL INCOME
Period ended Period ended
30 June 2022 30 June 2021
US$ US$
Variable rent (PBH rent) 3,234,804 13,666
Fixed (straight-lining) rental income 4,340,631 12,901,531
Total lease rental income 7,575,435 12,915,197
All lease rental income was derived from Thai Airways and the related two
Boeing 787-8 aircraft leased to them.
The lease terms provide for a power by the hour ('PBH') arrangement until 31
December 2022 (i.e., rent will be payable by reference to actual monthly
utilisation of the Thai aircraft), with monthly fixed lease payments of US$
510,000 per month thereafter until 2026. The monthly PBH rent amount is capped
at US$ 510,000.
The lease term may be extended by three years to 9 December 2029 (the
"Extension Period") with further scaled back monthly lease payments starting
from January 2027, the extension is however subject to the Group retaining a
right of early termination in December 2026 after consulting the Lenders. As
detailed in note 3, the lease term was determined to be the period to 9
December 2026, see note 3 for further details.
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 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
Boeing 787-8 Boeing 787-8 Total
Serial No: 35320 Serial No: 36110
30 June 2021 US$ US$ US$
< 1 year - - -
1 to 2 years 3,060,000 3,060,000 6,120,000
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 6,120,000 6,120,000 12,240,000
>5 years 2,698,065 2,035,846 4,733,911
24,118,065 23,455,846 47,573,911
5) GENERAL AND ADMINISTRATIVE EXPENSES
30 June 2022 30 June 2021
(unaudited) (unaudited)
US$ US$
Administration fees 166,472 232,631
Aircraft agency fees 5,556 5,951
Aircraft security trustee fees 5,934 8,918
Aircraft valuation fees 4,119 2,874
Audit fees 41,089 41,585
Broker fees on sale of NAS shares - 8,140
Company broker fees 83,951 83,951
Directors' fees and expenses 112,438 119,063
Foreign exchange losses (6,292) 412
Insurance costs, including directors' 54,355 12,492
IT and printing costs 16,970 6,154
Legal fees 3,157 4,724
Liquidation costs in relation to DPAG I & II - 19,488
Miscellaneous costs 4,157 8,887
Registrar fees 12,253 9,567
Regulatory fees 5,947 11,700
Restructuring fees in relation to NAS 20,175 334,774
Restructuring fees in relation to Thai 34,502 835,299
Tax advice fees 2,103 3,936
Total general and administrative expenses 566,886 1,750,546
6) FINANCE COSTS
30 June 2022 30 June 2021
(unaudited) (unaudited)
US$ US$
Loan interest 2,194,840 3,146,054
Total finance costs at effective interest rate* 2,194,840 3,146,054
Swap interest paid and payable - 228,277
Swap breakage costs - 939,806
Total finance costs 2,194,840 4,314,137
* On liabilities measured at amortised cost
7) TAXATION
With the exception of DP Aircraft UK Limited, all companies within the Group
are exempt from taxation in Guernsey and are charged an annual exemption fee
of £1,200 each (2021: £1,200).
DP Aircraft UK Limited is subject to taxation at the applicable rate in the
United Kingdom. The tax charge during the period ended 30 June 2022 was US$
5,563 (period 1 January 2021 to 30 June 2021: tax credit of US$ 42,078). 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 0.14% is not material and the
reconciliation is not relevant to the understanding of the Company's results
for the period end.
8) PROFIT/(LOSS) PER SHARE
30 June 2022 30 June 2021
(unaudited) (unaudited)
US$ US$
Profit/(Loss) for the period 2,998,596 (24,171,431)
Weighted average number of shares 209,333,333 209,333,333
Profit/(Loss) per share 0.0143 (0.1155)
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 2022 (unaudited) (unaudited) (unaudited)
US$ US$ US$
COST
As at 1 January and 30 June 2022 238,731,161 17,398,493 256,129,654
ACCUMULATED DEPRECIATION
As at 1 January 2022 53,466,624 8,200,047 61,666,671
Charge for the period 478,271 - 478,271
As at 30 June 2022 53,944,895 8,200,047 62,144,942
IMPAIRMENT
As at 1 January 2022 58,839,697 9,198,446 68,038,143
Charge for the period - - -
As at 30 June 2022 58,839,697 9,198,446 68,038,143
CARRYING AMOUNT
As at 30 June 2022 125,946,569 - 125,946,569
Aircraft Lease Premium Total
31 December 2021 (audited) (audited) (audited)
US$ US$ US$
COST
As at 1 January and 31 December 2021 238,731,161 17,398,493 256,129,654
ACCUMULATED DEPRECIATION
As at 1 January 2021 53,291,464 8,200,047 61,491,511
Charge for the period 175,160 - 175,160
As at 31 December 2021 53,466,624 8,200,047 61,666,671
IMPAIRMENT
As at 1 January 2021 58,839,697 9,198,446 68,038,143
Charge for the period - - -
As at 31 December 2021 58,839,697 9,198,446 68,038,143
CARRYING AMOUNT
As at 31 December 2021 126,424,840 - 126,424,840
As detailed in note 3, as at 30 June 2022 there are no further impairments to
the aircraft. There are also no reversals of prior year impairments.
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) INVESTMENTS HELD AT FAIR VALUE
30 June 2022 31 December 2021
(unaudited) (audited)
US$ US$
Opening balance - 15,630,526
Additions - -
Disposal proceeds - (4,069,880)
Realised loss - (1,252,152)
Unrealised fair value loss to date of loss of control - (7,295,783)
Loss of control of subsidiary undertakings - (3,012,711)
Closing balance - -
Fair value movement is made up as follows:
Realised loss - (1,252,152)
Unrealised loss - (7,295,783)
Closing balance - (8,547,935)
The investment in Norwegian Air Shuttle was derecognised in the prior period
as a result of loss of control of the assets and liabilities of DP Aircraft
Guernsey I Limited and DP Aircraft Guernsey II Limited in the prior period.
11) RESTRICTED CASH
30 June 2022 31 December 2021
(unaudited) (audited)
US$ US$
Non-current assets
Maintenance reserves 14,843,101 14,465,329
14,843,101 14,465,329
Current assets
Security deposit accounts 90 90
Lease rental accounts 2,301,671 2,788,427
2,301,761 2,788,517
Total restricted cash 17,144,862 17,253,846
Maintenance reserves collected, in line with the lease agreement, are to be
used solely to cover costs related to the maintenance of the two Thai
aircraft.
The majority of security deposits were transferred to Lease
Rental Accounts during the prior period and are being used to service loan
payments due to DekaBank in accordance with the DekaBank financing
arrangements. Monies received into the Lease Rental Accounts during the PBH
and fixed rent period are to be transferred into Borrower Rental Accounts and
applied in a specific manner as agreed between DekaBank and the Group.
Access to the Lease Rental Accounts, Security deposit
accounts and Maintenance reserves accounts is physically restricted by
DekaBank therefore these monies are classified as restricted cash.
12) TRADE AND OTHER RECEIVABLES
30 June 2022 31 December 2021
(unaudited) (audited)
US$ US$
Prepayments 46,523 110,996
Rent receivable 870,853 140,220
Reimbursable costs 280,000 -
Straight-lining lease asset 9,112,927 4,772,296
Total trade and other receivables 10,310,303 5,023,512
Less: Lifetime Expected Credit Loss provision
Straight-lining lease asset 1,001,511 -
Total provision 1,001,511 -
Net trade and other receivables 9,308,792 5,023,512
The Group has assessed the straight-lining lease asset for impairment. This
balance represents the result of straight-lining of future fixed Thai lease
payments over the lease term. The Group has performed an assessment on the
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
2022 is US$ 1,001,511 (31 December 2021: US$ nil). For the remaining
receivables, the Group has concluded that these are not material thus any
provision, if any, would also be immaterial and so no further assessment is
necessary.
Movements in the impairment provision for trade receivables
are as follows:
30 June 2022 31 December 2021
(unaudited) (audited)
US$ US$
Opening provision - 10,111,605
Increase during the period/year 1,106,575 12,508,499
Receivable written off (105,064) (22,620,104)
Closing provision 1,001,511 -
In the prior year, due to amendment of the lease agreements with Thai, rental
due between 1 January 2021 and 14 June 2021 of US$ 12,508,499 was provided for
and fully written off during the 2021 year together with the opening
provision. In the current period the provision increased by US$ 1,106,575 and
rental due from Thai of US$ 105,064 was written off as agreed per the Engine
Exchange Agreement entered into on 1 April 2022.
13) MAINTENANCE RESERVES LIABILITY
30 June 2022 31 December 2021
(unaudited) (audited)
US$ US$
Maintenance reserves - Thai Airways 14,829,296 14,460,682
Total maintenance reserves 14,829,296 14,460,682
Maintenance reserves liability relates to funds received from Thai Airways
reserved for covering the cost of maintenance.
14) TRADE AND OTHER PAYABLES
30 June 2022 31 December 2021
(unaudited) (audited)
US$ US$
Accruals and other payables 336,539 317,017
Corporation tax payable 5,563 -
Total trade and other payables 342,102 317,017
15) SHARE BASED PAYMENT LIABILITY
30 June 2022 31 December 2021
(unaudited) (audited)
US$ US$
Asset manager fees share-based payment liability 138,790 92,018
Director fees share-based payment liability 206,106 218,697
344,896 310,715
Currently 20% of asset management fees, 10% of director annual base fees and
all additional director fees above the base fee are being deferred and the
intention is for these deferred fees to be settled by way of issue of shares
of the Company in the future at a share price to be determined in the future.
There is however no formal agreements in place to this effect therefore
reported fees due as share based payment liability given might be settled in
cash future circumstances permitting. There has been no settlement of any of
the fees via the issue of equity in the current period (30 June 2021: US$
nil).
The share-based payment expense related to asset management fees for the
period is US$ 46,772 (30 June 2021: US$ 45,632) and this forms part of the
asset management fee line item in the Condensed Statement of Comprehensive
Income. Refer to note 21 for further details.
The share-based payment expense related to director fees for the period is US$
11,045 (30 June 2021: US$ 11,906) and this forms part of the general and
administrative expenses line item in the Condensed Statement of Comprehensive
Income. Refer to note 20 for further details.
16) BANK BORROWINGS
30 June 2022 31 December 2021
(unaudited) (audited)
US$ US$
Current liabilities: bank interest payable and bank borrowings 8,049,720 136,010
Non-current liabilities: bank borrowings 90,396,871 98,304,863
Total liabilities 98,446,591 98,440,873
The borrowings are repayable as follows:
30 June 2022 31 December 2021
(unaudited) (audited)
US$ US$
Interest payable 141,728 136,010
Within one year 7,907,992 -
In two to five years 90,396,871 98,304,863
After five years - -
Total bank borrowings 98,446,591 98,440,873
The table below analyses the movements in the Group's bank borrowings:
30 June 2022 31 December 2021
(unaudited) (audited)
US$ US$
Opening balance 98,304,863 180,676,613
Loan modification adjustment - 432,976
Repayment of loan - (274,173)
Loss of control of subsidiary undertakings - (82,530,553)
Principal bank borrowings 98,304,863 98,304,863
Interest payable 141,728 136,010
Total bank borrowings 98,446,591 98,440,873
The table below sets out an analysis of net debt and the movements in net debt
for the period ended 30 June 2022 and 30 June 2021:
Cash and cash equivalents Derivative Instrument
US$ Principal Interest US$ Net Debt
US$ US$ US$
At 1 January 2022 1,179,211 (98,304,863) (136,010) - (97,261,662)
Cash flows (265,831) - 2,189,122 - 1,923,291
Non cash:-
Interest charge - - (2,194,840) - (2,194,840)
At 30 June 2022 913,380 (98,304,863) (141,728) - (97,533,211)
Cash and cash equivalents Principal Interest Derivative Instrument* Net Debt
US$ US$ US$ US$ US$
At 1 January 2021 6,949,167 (180,676,613) (238,969) (4,257,198) (178,223,613)
Cash flows (5,769,956) 274,173 4,595,529 301,759 (598,495)
Non cash: -
Fair value movement - - - 459,015 459,015
Termination - - - 4,664,507 4,664,507
Interest charge - - (4,727,053) (228,277) (4,955,330)
Penalty fees (939,806) (939,806)
Loan modification adjustment - (432,976) - - (432,976)
Loss of control of assets and liabilities - 82,530,553 234,483 - 82,765,036
At 31 December 2021 1,179,211 (98,304,863) (136,010) - (97,261,662)
DekaBank Deutsche Girozentrale
During the year ended 31 December 2015 the Company utilised the proceeds from
the placing and the proceeds of two separate loans from DekaBank Deutsche
Girozentrale ('DekaBank') of US$ 78,500,000 each to fund the purchase of two
Boeing 787-8 aircraft. The balance on the loans at 30 June 2022 was US$
98,446,591 (31 December 2021: US$ 98,440,873).
The committed term of each loan was from the drawdown date until the date
falling twelve years from the Delivery Date of the relevant Asset. Each Loan
was to be amortised with repayments every month in arrears over the term in
amounts as set out in a schedule agreed by the Company and the Lenders.
Amortisation will be on an annuity-style (i.e., mortgage-style) basis.
Interest on each DekaBank loan is payable in arrears on the last day of each
interest period, which is one month long. Interest on the loan accrues at a
fixed rate of 4.10 per cent including a margin of 1.95 per cent per annum. If
any amount is not paid by the Borrower when due under the loan agreements,
overdue interest will accrue on such amount at the then current rate
applicable to the loan plus 2.0 per cent per annum. No overdue interest
accrued on unpaid amounts during the period as there was an agreement to defer
principal repayments as mentioned below. Note, the deferred principal has its
own interest terms different to the above.
The two DekaBank loans entered into by the Group to complete the purchase of
the two Thai aircraft are cross collateralised. Each of the loan is secured by
way of security taken over the two Thai aircraft and enforce security over
both Assets. This means that a default on one loan places both aircraft 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.
On 6 May 2021, subsequent to the new lease arrangements entered into by the
Company and Thai as described in note 4, the Company and DekaBank have amended
and restated the existing loan facility agreements in respect of the Thai
aircraft to accommodate the new lease terms. Repayments of any principal will
be deferred until the end of the PBH arrangement, 31 December 2022; and the
Company and DekaBank will enter into discussions at that time to determine how
best to schedule interest payments, principal -
repayments and a final balloon repayment, having regard for both the income
being received by the Company in respect of the Thai aircraft, and the running
costs of the Company and its subsidiaries. Effectively, post the PBH period
repayment of principal including the principal to be agreed as mentioned above
shall be deferred further and such deferred principal is to be repaid only to
the extent that amounts are available for application towards such deferred
principal.
From May 2021 interest is charged on the deferred principal at the percentage
rate per annum equal to the sum of five per cent (5.0%) per annum (which,
for the avoidance of doubt, includes the Margin) plus LIBOR/SONIA for the
applicable period (such rate to be determined by the Facility Agent).
Prior to the loan amendment detailed above, the Company and DekaBank had
agreed that the Company would only be required to make interest payments on
its borrowings relating to the assets leased to Thai, with no concomitant
capital repayment obligation; and that the Company would make no dividend
payments while deferrals remained outstanding under those borrowings.
The two loans related to the two Thai aircraft have a final maturity date of
29 October 2026 and 9 December 2026 respectively.
17) SHARE CAPITAL
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
Period ended 30 June 2021 (unaudited) Subordinated
Administrative Ordinary
Share Shares Total
Issued and fully paid (no par value): Number Number Number
Shares as at 1 January 2021 and 30 June 2021 1 209,333,333 209,333,334
US$ US$ US$
Share capital as at 1 January 2022 and 30 June 2021 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.
18) DIVIDENDS
The dividends declared and paid during the period ended 30 June 2022 are US$
nil (30 June 2021: US$ nil).
19) 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.
Derivative instruments held at fair value
In the prior period, the Group held interest rate swaps which were valued on a
recurring basis and were categorised within level 2 of the fair value
hierarchy required by IFRS 13. The interest rate swaps were terminated in the
prior period.
20) RELATED PARTY TRANSACTIONS
The Directors of the Company received total fees from the Group as follows:
Current fee 30 June 2022 30 June 2021
(annual) (unaudited) (unaudited)
£ US$ US$
Jon Bridel (Chairman) 66,000 42,412 44,545
Jeremy Thompson (Chairman of the Audit Committee and Senior Independent 53,700 34,508 37,864
Director)
Harald Brauns (Chairman of the 53,800 34,572 36,654
Management Engagement Committee)
Total 173,500 111,492 119,063
*Note: Directors fees were agreed in GBP, the financial statements
are presented in USD
Director fees are made up as follows:
30 June 2022 30 June 2021
(unaudited) (unaudited)
US$ US$
Base annual fees (cash) 100,447 107,157
Share based payment expense (note 16) 11,045 11,906
Total 111,492 119,063
10% of base fees and all extra fees are currently 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 2021: USD nil). Refer to note 15 for further
details.
The Directors receive the following base annual fees:
· Jon Bridel, Chairman £66,000 per annum;
· Jeremy Thompson, Chairman of the Audit Committee and Senior
Independent Director £53,700 per annum; and
· Harald Brauns £53,800 per annum.
The Directors' interests in the shares of the Company are
detailed below:
30 June 2022 31 December 2021
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 - -
21) MATERIAL CONTRACTS
Asset Management Agreementssss
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.
20% of asset management fees are currently being deferred to be settled in
cash or by way of issue of equity of the Company in the future at a share
price to be determined in the future. See below and refer to note 21 for
further details.
In the period to 30 June 2022 asset management fees totalled US$ 233,862 (30
June 2021 US$ 525,325) of which US$ 170,487 was due as at 30 June 2022 (31
December 2021: US$ 122,941). US$ 46,772 (30 June 2021 US$ 45,632) of the asset
management fees expense is a share-based payment expense and of the total
asset management fees balance due as at period end, US$ 138,790 (31 December
2021: US$ 92,018) is a share-based payment liability (see note 15).
22) 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.
23) SUBSEQUENT EVENTS
Subsequent to period end, DP Aircraft I Limited raised gross proceeds of
$750,000 through the issue of 30,000,000 new ordinary shares in the capital of
the Company at a price of US$0.025 per new ordinary share which were issued to
the investors on 13 July 2022 under tap issue. Immediately following
admission, the Company's issued share capital will consist of 239,333,333
Ordinary Shares with voting rights.
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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