TIDMDPA
RNS Number : 9870M
DP Aircraft I Limited
20 September 2023
20 September 2023
DP Aircraft I Limited (the 'Company')
Interim Report and Accounts
The Company is pleased to provide a copy of the Unaudited
Condensed Consolidated Interim Report for the six-month period
ended 30 June 2023 (the "Interim Report"), which is available from
the Company's registered office and will shortly be available to
view or download from the Company's website www.dpaircraft.com
For further information, please contact:
Aztec Financial Services (Guernsey) Limited +44(0) 1481 748831
Sarah Felmingham / Chris Copperwaite
DP AIRCRAFT I LIMITED
UNAUDITED CONDENSED CONSOLIDATED INTERIM REPORT
FOR THE SIX-MONTH PERIODED 30 JUNE 2023
FACT SHEET
Ticker DPA
Company Number 56941
ISIN Number GG00BBP6HP33
SEDOL Number BBP6HP3
Traded Specialist Fund Segment ('SFS')
of the London Stock Exchange
SFS Admission Date 4-Oct-13
Share Price US$ 0.055 at 30 June 2023
Earnings per Share US$ (0.0170) for the period ended
30 June 2023
Country of Incorporation Guernsey
Current Ordinary Shares in Issue 209,333,333
Administrator and Company Secretary Aztec Financial Services (Guernsey)
Limited
Asset Manager DS Aviation GmbH & Co. KG
Auditor KPMG, Chartered Accountants
Corporate Broker Investec Bank Plc
Aircraft Registration HS-TQD
HS-TQC
Aircraft Serial Number 35320
36110
Aircraft Type and Model B787-8
Lessees Thai Airways International Public
Company Limited ('Thai Airways')
Website www.dpaircraft.com
SUMMARY
COMPANY OVERVIEW
DP Aircraft I Limited (the 'Company') was incorporated with
limited liability in Guernsey under the Companies (Guernsey) Law,
2008 on 5 July 2013 with registered number 56941.
The Company was established to invest in aircraft. The Company
is a holding company and made its investment in aircraft held
through two wholly owned subsidiaries, DP Aircraft Guernsey III
Limited and DP Aircraft Guernsey IV Limited (collectively and
hereinafter, the 'Borrowers'), each being a Guernsey incorporated
company limited by shares and one intermediate lessor company, DP
Aircraft UK Limited (the 'Lessor'), a UK incorporated private
limited company. The Company and its consolidated subsidiaries, DP
Aircraft Guernsey III Limited, DP Aircraft Guernsey IV Limited and
DP Aircraft UK Limited comprise the consolidated Group (the
'Group').
Pursuant to the Company's prospectus dated 27 September 2013,
the Company offered 113,000,000 ordinary shares of no-par value at
an issue price of US$ 1.00 per ordinary share by means of a
placing. The Company's ordinary shares were admitted to trading on
the Specialist Fund Segment of the London Stock Exchange on 4
October 2013 and the Company was listed on the Channel Islands
Securities Exchange until 27 May 2015.
On 5 June 2015, the Company offered 96,333,333 ordinary shares
of no-par value at an issue price of US$ 1.0589 per ordinary share
by means of a placing. These shares were admitted to trading on the
Specialist Fund Segment of the London Stock Exchange on 12 June
2015.
On 13 July 2022, the Company raised gross proceeds of
US$750,000, due to lender restrictions on the DPA 1 Limited Topco
balance, through the issue of 30,000,000 additional ordinary shares
in the capital of the Company at a price of US$0.025 per share.
These additional ordinary shares were admitted to trading on the
Specialist Fund Segment of the London Stock Exchange on 15 July
2022.
In total there are now 239,333,333 ordinary shares in issue with
voting rights.
In addition to the equity raised above in 2013, the Group also
utilised external debt to fund the initial acquisition of the
aircraft. Further details are given within this summary
section.
INVESTMENT OBJECTIVE
The Company's investment objective is to obtain income and
capital returns for its shareholders by acquiring, leasing and
then, when the Board considers it appropriate, selling aircraft
(the 'Asset' or 'Assets').
THE BOARD
The Board comprises of independent Directors (the 'Directors')
or (the 'Board'). The Directors of the Board are responsible for
managing the business affairs of the Company and Group in
accordance with the Articles of Incorporation and have overall
responsibility for the Company's and Group's activities, including
portfolio and risk management while the asset management of the
Group is undertaken by DS Aviation GmbH & Co. KG (the 'Asset
Manager').
THE ASSET MANAGER
The Asset Manager has undertaken to provide asset management
services to the Company and Group under the terms of an asset
management agreement but does not undertake any regulated
activities for the purpose of the UK Financial Services and Markets
Act 2000.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)
The Group recognises the Paris Agreement on climate change. The
Group operates NTA ('New Technology Aircraft'); specifically Boeing
787-8's equipped with Rolls Royce Trent-1000 engines which are 20%
more fuel efficient on a revenue-per-kilometre basis than similar
comparable legacy engine aircraft. The Board has taken steps to
reduce its own travelling and maximises the use of virtual meetings
within the Board and with all its key service providers.
CORONAVIRUS ('COVID-19 ')
COVID-19 continues to have a significant impact on the airline
sector, and by extension the aircraft leasing sector. More
information is provided below and in the Asset Manager's
Report.
THAI AIRWAYS INTERNATIONAL PCL ('THAI AIRWAYS' / 'THAI')
The suspension of travel due to COVID-19 in 2020 resulted in
Thai Airways entering into business rehabilitation. The Central
Bankruptcy Court approved Thai's Business Rehabilitation plan on 15
June 2021, the rehabilitation process is currently ongoing. Please
refer to the Asset Manager Report for details regarding the
rehabilitation process.
The Group signed a Letter of Intent ('LOI') dated 1 March 2021
with Thai Airways under which the parties agreed to amend the lease
terms that existed then. The actual lease agreement reflecting the
terms set out in the LOI was signed on 1 April 2022. The effective
date for the lease modification was 15 June 2021.
The new lease terms provided for a power by the hour ('PBH')
arrangement until 31 December 2022 (with rent payable by reference
to actual monthly utilisation of the Thai aircraft and engines),
with scaled back monthly fixed lease payments thereafter until
October 2026 for aircraft MSN 36110 and December 2026 for aircraft
MSN 35320 reflecting reduced market rates in the long-haul market.
The lease term can be extended for a further 3 years to October and
December 2029 respectively, with further scaled back monthly lease
payments starting from November 2026 and January 2027 respectively.
The Extension Period is however subject to agreement with the Group
after consulting the Lenders. Given the uncertainty around the
lease extension, the lease terms are considered to be the period up
to October and December 2026.
A corresponding agreement was reached with the lenders as
detailed below.
DEKABANK DEUTSCHE GIROZENTRALE AND THREE OTHER CONSORTIUM
MEMBERS ('DekaBank')
On 6 May 2021, subsequent to the LOI being entered into by the
Group and Thai as described above, the Group and DekaBank amended
and restated the existing loan facility agreements in respect of
the Thai aircraft to accommodate the new lease terms, the First
Amendment and Restatement to the Loan Agreements. Repayments of
principal were deferred until after the end of the PBH arrangement
(31 December 2022), and a new repayment schedule was to be
renegotiated close to the end of the PBH arrangement.
On 7 February 2023, the Group and DekaBank entered into a Second
Amendment and Restatement to the Loan Agreement (the 'Loan
Agreement') in which the parties agreed on the following main
terms:
-- the total loan amount outstanding was split into two tranches:
o Facility A is a loan of US$ 61,144,842, made up of MSN 35320
loan of US$ 31,099,453 and MSN 36110 loan of US$ 30,045,389. The
Facility A loan amortizes to a combined balloon of US$ 33,947,878
and represents the scheduled debt.
o Facility B is a loan of US$ 35,504,024 (non-amortizing), made
up of MSN 35320 loan of US$ 17,366,650 and MSN 36110 loan of US$
18,137,374. The Facility B loan will be settled as a balloon
payment at the end of the loan term in 2026.
-- US$ 2.36m of surplus cash generated under the PBH period was
used to immediately repay debt on the amortizing Facility A loan in
February 2023, while an agreed cash reserve of US$ 500,000 per
aircraft will be retained to cover unforeseen costs going
forward.
-- the interest rate swap currently in place for the scheduled debt was dissolved at cost.
-- the MSN 35320 and MSN 36110 Facility A loans bear fixed
interest rates of 6.61% and 6.89% respectively.
-- the MSN 35320 and MSN 36110 Facility B loans bear fixed
interest rates of 5.26% and 5.42% respectively.
-- from the monthly fixed lease rental of US$ 510,000 per
aircraft (which denotes the maximum amount the Company can earn in
operations per month), US$ 475,000 is legally restricted so that
those funds are only payable to the lenders and US$ 35,000 per
aircraft can be retained by the company to contribute towards
ongoing fixed costs of the Company.
Due to the limited liquidity position of the Group,
restructuring fees associated with the Loan Agreement will be paid
after the eventual remarketing of the aircraft, subject to surplus
sales proceeds being realised.
IMPAIRMENT
In line with each reporting date, but more relevant in light of
the developments of COVID-19 and market capitalisation of US$ 13.16
million at 30 June 2023, a detailed impairment assessment of the
aircraft has been undertaken. Following this review an impairment
of US$ nil (31 December 2022: US$ nil) was booked against the
aircraft. See note 3 for further details regarding the impairment
and comments under the Highlights regarding the difference between
net asset value and market capitalisation.
DISTRIBUTION POLICY
Under normal circumstances, the Group aims to provide
shareholders with an attractive total return comprising income,
from distributions through the period of the Company's ownership of
the Assets, and capital, upon any sale of the Assets. The Company
originally targeted a quarterly distribution in February, May,
August and November of each year. The target distribution was US$
0.0225 per share per quarter. The dividends were targets only with
no assurance or guarantee of performance or profit forecast.
Investors should not place any reliance on such target dividends or
assume that the Company will make any distributions at all.
Due to the impact of COVID-19 on the aviation industry and
therefore our lessor, the Board suspended the payment of dividends
from 3 April 2020 until further notice. This suspension remains in
place to date. Any lease rental payments received by the Company in
respect of the Thai aircraft are expected to be applied exclusively
towards the running costs of the Company and its subsidiaries, and
as a priority towards interest and principal repayments to the
DekaBank. Given this backdrop the Board and its advisors feel that
there is no realistic prospect of the Company's shareholders
receiving a dividend or other distribution during the remaining
lease period. The Board and its advisors will continue to consult
with shareholders and its advisors in the future, with a view to
determining the best course of action to take for the future of the
Company.
HIGHLIGHTS
LOSS FOR THE PERIOD
The loss for the period ended 30 June 2023 is US$ 4,072,482 and
loss per share is US$ 0.0170. The profit for the period ended 30
June 2022 was US$ 2,998,596 and profit per share was US$
0.0143.
The results for the period ended 30 June 2023 are mainly driven
by rental income earned of US$ 4,340,629 (30 June 2022: US$
7,575,435) and finance costs incurred of US$ 7,495,940 (30 June
2022: US$ 2,194,840). The increase of finance costs is a result of
an adjustment required by IFRS to reflect the modification to the
loan terms in February 2023. The modification adjustment for the
modification to the loans in February 2023 totalled US$ 5,042,029
and increased both finance costs and the loans payable at the point
of modification and resulted in an overall loss for the period.
This adjustment essentially recognises a loss now due to the less
favourable terms (primarily interest rate increases) under the
modified terms compared to the original terms. As a result of this
adjustment, interest will be recognised at the lower original
effective interest rate as opposed to the higher modified interest
rate going forward. The decrease in rent was due to the variable
rent period ending on 31 December 2022. For the period to 30 June
2023, the entity only earned fixed rental income.
Refer to the Condensed Consolidated Statement of Comprehensive
Income for full details of results for the period.
NET ASSET VALUE ('NAV')
The NAV per share was US$ 0.1699 at 30 June 2023 (31 December
2022: US$ 0.1869) and the price per share was US$ 0.055 (31
December 2022: US$ 0.045). NAV per share decreased due to the loss
made during the interim period (see above). The NAV excluding the
financial effects of the straight-lining lease asset and the loan
modification adjustment was US$ 0.1471 per share at 30 June 2023
(31 December 2022: US$ 0.1384).
The straight-lining lease asset and the loan modification
adjustment will reduce to nil over time. The NAV excluding the
straight-lining lease asset and loan modification adjustment is
therefore presented to provide what the Directors consider to be a
more relevant assessment of the Group's net asset position.
As at 30 June 2023 As at 31 December
2022
US$ US$ per US$ US$ per
share share
NAV per the financial statements 40,663,639 0.1697 44,736,121 0.1869
Less: Straight-lining lease
asset (11,785,090) (0.0492) (13,525,502) (0.0565)
Add: Provision on straight-lining
lease asset 1,295,181 0.0054 1,486,453 0.0062
Add: Loan modification adjustment 5,042,029 0.0211 - -
------------- -------------------- -------------- -------------
NAV excluding straight-lining
lease asset 35,215,759 0.1471 32,697,072 0.1366
------------- -------------------- -------------- -------------
As at 30 June 2023, the price per share was US$ 0.055 which is
significantly lower than the NAV per share above, excluding the
straight-lining lease asset and the loan modification adjustment.
The main asset in the Group, the aircraft, have been assessed for
impairment (see note 3) and found not to be impaired. Other
significant assets comprise cash and receivables whose values are
considered to be reflective of fair value due to their short-term
nature.
INTERIM DIVIDS
As previously outlined, as a result of the impact of the
COVID-19 pandemic on global aviation and particularly on its
lessees; the Company suspended dividends on 3 April 2020, until
further notice to help preserve liquidity. Further details on the
impact of the COVID-19 pandemic can be found within the Asset
Manager's Report. Furthermore, in accordance with the second
amended loan agreement with DekaBank, the Group will make no
dividend payments while loan deferrals remained outstanding under
the Loan Agreement.
OFFICIAL LISTING
The Company's ordinary shares were first admitted to trading on
the Specialist Fund Segment of the London Stock Exchange on 4
October 2013.
CHAIRMAN'S STATEMENT
I am pleased to present Shareholders with the Annual Report of
the Group for the period ended 30 June 2023.
The loss per share for the period was US$ 0.0170 compared to a
profit per share of US$ 0.0143 for the same period last year. The
net asset value per share at the period end was US$ 0.1699 compared
to US$ 0.1869 at 31 December 2022.
IFRS requires rental income to be recognised on a straight-line
basis over the remaining lease period and consequently the
accounting treatment has resulted in some income being recognised
earlier than would normally be the case. In addition, IFRS requires
a provision to be made against that additional income which has
been estimated based on recent credit reports on Thai. Similarly,
IFRS requires a loan modification adjustment to be accounted for
when loan terms are amended but the amendment is not deemed
substantial. The adjustment for the modification to the loans in
February 2023 totalled US$ 5,042,029 and increased both finance
costs and the loans payable at the point of modification and
resulted in an overall loss for the period. This adjustment
essentially recognises a loss now due to the less favourable terms
(primarily interest rate increases) under the modified terms
compared to the original terms. As a result of this adjustment,
interest will be recognised at the lower original effective
interest rate as opposed to the higher interest modified rate going
forward. Please refer to the Highlights which explains the net
impact of these IFRS adjustments on the profit for the period and
the NAV at the end of the period.
After a significant amount of work undertaken by the Board
during the period, the Group concluded the Loan restructuring with
the Lenders and a final balloon repayment of $69.5 million for both
loans was announced in March for the end of the loan periods in
2026.
With respect to ongoing working capital requirements, some
service providers and the Directors have deferred some significant
amounts due to extend the period before another equity raise is
required. The focus of the Company remains the preservation of the
Group's long-term financial stability and asset values. The Company
believes the Boeing 787 remains an attractive asset and notes
recent transactions in the market though transparency around
transaction values is not currently available. Boeing 787 wide body
production is still behind historic levels and delayed deliveries
for new Boeing's 787 are further strengthening this demand. Both
aircraft must be returned in full life condition at the end of
their leases.
HS-TQC and HS-TQD have had consistent utilisation over the
period with utilisation being exclusively in the Asian region.
Thai's operating health appears much stronger as it works towards
ending its rehabilitation process, projected to occur in 2024. Thai
have also noted their intention to lease more aircraft as a measure
of their increased confidence. Thai is also expected to raise
further equity over the coming year as noted in their recent
announcement.
There has been a continued improvement in the global aviation
market following the challenges resulting from the effects of the
COVID-19 pandemic. Recent sentiment on airline and related stocks
has been more optimistic. The Ukraine war has not had as
significant an impact on the industry as expected. With COVID-19
restrictions in China being lifted there is cause for some optimism
in tourism numbers from that market in Thailand going forward.
Our aircraft are now operating on fixed monthly lease payments
with Thai until October/December 2026, reflecting the reduced lease
rates negotiated earlier. As previously noted, the lease term was
extended by a further 3 years to October/December 2029, with
further scaled back monthly lease payments starting from November
2026/January 2027, and the Group retaining a right of early
termination in October/December 2026 after consultation with the
Lenders. The current finance arrangements end during 2026. At the
end of the leases in 2029, unless terminated early in 2026 as
allowed in the aforementioned sentences above, the aircraft are
required to be returned in full life condition.
The Board and the Asset Manager remain fully committed to
extract the highest possible value for shareholders in this process
and are focussed on actions to improve and preserve the value of
the assets.
As previously noted, there is no realistic prospect of the
Company's shareholders receiving a dividend or other distribution
prior to the end of the lease term. The key uncertainty remains the
outlook for Thai, though the position of Thai has improved
considerably, the impact of inflation on the travel industry and
the knock-on effect these factors may have on aircraft values and
lease rentals.
I would like to thank our Investors for their continued support
in the Group. The Board and its advisers will continue consulting
with investors on an ongoing basis. I am especially grateful to the
Board and our key service providers for their continued significant
support over the period and going forward.
Jonathan Bridel
Chairman
ASSET MANAGER'S REPORT
THE AIRLINE MARKET
As almost all countries around the world have lifted COVID-19
restrictions and passenger traffic is continuously increasing, the
recovery of the airline industry more than doubled from
expectations published by IATA in December 2022. However, there are
still challenges facing the aviation business, including the rising
inflation rate, the conflict between Russia and the Ukraine,
problems with the supply chains, and high regulatory costs. Despite
these facts, Director General of IATA, Willie Walsh believes that
airline financial performance in 2023 is beating expectations since
there are several positive developments such as China lifting
COVID-19 restrictions earlier than anticipated and high but
moderated jet fuel prices. Stored widebody aircraft are steadily
going back to service. The industry recovery for Asia-Pacific
carriers is underway as a sharp rise in both passenger volumes and
capacity is expected to be reflected in a sizeable improvement in
2023 financial results.
Global
-- Current Situation
o Fleet utilisation is back to pre-Covid level
o Passenger demand (measured in RPK) in June 2023 increased to
94% of pre-Covid levels
o In comparison to demand performance from the prior year, the
worldwide air freight market continues to drop, albeit more
slowly
o At the current stage, according to IATA, the Russia-Ukraine
conflict has no major impact on airlines' profitability
-- Outlook
o Air passenger demand in 2024 is expected to be stronger and
around 4% higher than 2019
o The cargo market is expected to decline in volume under
pre-pandemic level, but revenues remaining above
o Boeing predicts that over 42,000 new aircraft will be needed
over the next 20 years - an increase of 3.5% compared to Boeing's
last year outlook - with an approximate value of USD 8 trillion
2019 2020 2021 (actuals) 2022 (estimated) 2023 (forecasted)
(actuals) (actuals)
Revenues [billion
USD] 838 384 509 732 803
------------ ------------ --------------- ----------------- ------------------
Passenger Revenue
[billion USD] 607 189 239 430 546
------------ ------------ --------------- ----------------- ------------------
Net Result [billion
USD] 26.4 - 137.7 - 41.9 - 3.6 9.8
------------ ------------ --------------- ----------------- ------------------
Operating Profit
[billion USD] 43.2 - 110.8 - 45.1 10.1 22.4
------------ ------------ --------------- ----------------- ------------------
Capacity (ASK)
[% change vs.
previous year] --- - 57% + 19% + 40% + 25%
------------ ------------ --------------- ----------------- ------------------
Demand (RPK)
[% change vs.
previous year] --- - 66% + 22% + 64% + 28%
------------ ------------ --------------- ----------------- ------------------
Passenger Load
Factor 83% 65% 67% 79% 81%
------------ ------------ --------------- ----------------- ------------------
Source: IATA June 2023
Asia
-- Current Situation
o All economies in the region have lifted Covid travel
restrictions
o An increase of 363% rise on full year international 2022
traffic (measured in RPK) while capacity (measured in ASK) grew by
130% compared to 2021, maintaining the strongest year-over-year
rate among the regions
o In June 2023, demand on international routes continued to show
a positive development but is still 29% lower than pre-pandemic
levels (June 2019)
o A nearly threefold increase in demand for Asia-Pacific
airlines in May 2023 compared to the same month in the previous
year as China's reopening gained traction; nevertheless, Chinese
outbound- international travel (ASK) is still less than half
compared the pre-pandemic levels (June 2019 vs. June 2023)
-- Outlook
o Net loss for 2023 is expected to amount to USD 6.1 billion
compared to a net loss of USD 13.5 billion in 2022
o Growth both in demand and capacity in 2023 is anticipated to
be about 63% and 49% respectively, the strongest among the
regions
o Airlines expected to fully recover to pre-pandemic levels in
2024
Outlook & Conclusion
The aviation industry is undoubtedly recovering from the
COVID-19 pandemic faster than anticipated; the IATA upgraded their
outlook this June. Even with a minimal net profit margin, the
return to net profitability represents a significant accomplishment
despite the existing drawback factors such as high inflation,
weaker corporate earnings, and the impact of Russia's invasion of
Ukraine. Several favourable occurrences, such as China lifting
COVID-19 limitations earlier than anticipated and high but
moderated jet fuel prices, contribute to higher profitability.
Repairing damaged financial balance sheets and giving investors
sustainable returns on their capital will continue to be difficult
for many airlines, given that they only make approximately $2.25
per passenger on average. Most airlines have yet to pay back the
entire government assistance provided to airlines in the form of
credits for recovering from the COVID-19 outbreak. As a result, the
financial performance and ability to moderate strategic decisions
are still affected. Further supply chain shortages might also slow
the recovery as aircraft and engine deliveries or repairs and
overhaul activities might be delayed.
The aviation industry is recovering at a reasonable rate, even
if the recovery in the Asia-Pacific region is slower than average
due to a delayed lifting of travel restrictions. The recovery is
also reflected in the increase of placing orders for new aircraft;
for instance, Lufthansa ordered 22 A350s and Boeing 787s, IndiGo
ordered 500 A320-family aircraft, Emirates plans to order 150
aircraft, and Thai is looking for narrow- and widebody
aircraft.
From a historical perspective, the aviation industry has shown
itself to be resilient, having recovered from all past crises, and
the first quarter of 2023 indicates a quick rebound compared to the
prior year. However, the airline business remains frail to
temporary downturns. Even if at the current stage IATA does not see
any severe impact of the Ukraine war on airlines' profitability, it
remains a serious threat with the possibility of rising inflation
rates, the expansion to other regions or the extension of airspace
closures, etc.
IATA's General Director Willie Walsh put it in a nutshell:
"Airline financial performance in 2023 is beating expectations....
resilience is the story of the day, and there are many good reasons
for optimism".
THE LESSEE - THAI AIRWAYS INTERNATIONAL PUBLIC COMPANY
LIMITED
Overview
-- 34 international destinations during winter 2022/2023 (main
season in Thailand); popular routes are currently, amongst others,
to Japan and South Korea
-- 1(st) March 2023: Thai reopened flights to China, offering 14
weekly flights to five destinations
-- 51 aircraft in operation, 23 aircraft in storage and one
aircraft (B787-9) on order [including Thai Smile]
Source: Cirium: "Thai Airways International Fleet Summary";
1(st) July 2023; including operational, stored and ordered aircraft
and including Thai Smile
o Due to increasing demand, one B777-200ER was reintroduced into
service in the first quarter and two "new" A350-900s (stored at
Airbus since 2019) scheduled to be delivered during the second
quarter with the first one delivered mid-May
o Four A320ceos had been transferred in the second quarter 2023
from Thai Smile to Thai in line with the below mentioned merger
-- Top five international arrivals 2022 had been from Malaysia,
India, Singapore, the United States and South Korea resulting in
the fact that South-East Asian routes are the focus of Thai
Airways
-- The airline is recruiting cabin crews to meet increasing
demand of air travel in accordance with the guidelines of the
Company's plan
-- Chai Eamsiri had been promoted to the position as CEO
effective 1(st) February 2023; previously he acted as Thai Airways'
CFO
-- Thai returned to profitability in the mid of the second quarter 2022
-- Main threats identified by Thai are currently resulting from
high oil prices, the entrance of new market players and a high
level of inflation which might negatively impact consumers'
purchasing
Restructuring and Rehabilitation Process since 31(st) December
2022
-- 1(st) quarter 2023: Operations according to the Business Rehabilitation Plan
-- 1(st) January 2023: Lease rates of aircraft, at least in
regard to HS-TQC and HS-TQD, switched back from airlines'
favourable interim PBH (Power -by-the Hour) arrangements to monthly
fixed lease rates
-- 24(th) February 2023: The Plan Administrators announced the
approval of the Financial Statements 2022 and the suspension of
dividend payments
Restructuring and Rehabilitation Process since 31(st) December
2022
-- As of 30 April 2023: Thai Airways International repaid THB
3.20 billion (appr. USD 94 million) to creditors in line with its
Business Rehabilitation Plan
-- 17(th) May 2023: The merger of Thai Smile into Thai Airways
has been approved by the Creditor's Committee as part of the
rehabilitation process to strengthen operation and take advantage
of synergies; awaiting approval of the Civil Aviation Authority of
Thailand
-- Supporting the rehabilitation process, Thai has sold ten
B747-400s and nine A340s, is about to sign purchase and sale
contracts for six B777-300ER aircraft and offers another 12
aircraft for sale (B777-200s and A380s)
-- Thai Airways is around 70 per cent through its Business
Rehabilitation Plan and expects to formally exit the process in
2024; earlier than originally anticipated
Financial & operational performance in brief
[billion THB] 1Q2023 1Q2022 Change
Operating Revenues 41.51 11.18 + 271 %
------- ------- --------
- Passenger and excess baggage 34.98 4.48 + 682 %
------- ------- --------
- Freight and mail 4.36 5.22 - 16 %
------- ------- --------
- Other businesses 1.96 1.34 + 46%
------- ------- --------
- Other income 0.21 0.15 + 41%
------- ------- --------
Operating Expenses 28.47 14.13 + 98 %
------- ------- --------
- Fuel and oil 12.05 4.25 + 148 %
------- ------- --------
- Non-fuel operating costs 16.42 10.10 + 63 %
------- ------- --------
Operating Result excl. One-Time Items 9.49 - 5.36
------- ------- --------
Net Result 12.51 - 3.25
======================================= ======= ======= ========
Capacity - ASK (million) 13,298 6,007 + 121 %
------- ------- --------
Demand - RPK (million) 11,110 1,952 + 469 %
------- ------- --------
Load Factor 83.5 % 32.5 % + 51 pp
------- ------- --------
Passengers (million) 3.52 1.02 + 245 %
------- ------- --------
Passenger Yield [THB/RPK] 3.14 2.27 + 38 %
------- ------- --------
Aircraft Utilisation [block hours] 12.3 7.9 + 56 %
======================================= ======= ======= ========
Number of Aircraft 86 87 - 1 %
------- ------- --------
+ 1,576
Increase in Cash & Cash Equivalents 8.38 0.50 %
------- ------- --------
Current Ratio (consolidated)* 2.21 0.80
------- ------- --------
* Current Ratio = Current Assets/Current Liabilities
Outlook & Opportunities post-COVID-19 pandemic
-- As Thailand's economy is dependent on tourism, Thai Airways
benefit from measures initiated by the Government to stimulate
tourism arrivals
-- No travel restrictions concerning COVID-19; Thailand welcomed
6.5 million foreign tourists in the first quarter 2023; an increase
of over 1,000% compared to the same quarter in the previous
year
-- Thailand expects 25 million foreign visitors in 2023
representing 66 per cent of the pre-Covid level (2019)
-- Thai Airways plans to grow its fleet by 30 widebody jets as
tourists return to Thailand with expectations of receiving the
first aircraft by 2026; their request for proposal would be send
out to Boeing and Airbus with no decision made yet on numbers nor
preferred OEM
-- Thai and Turkish Airlines signed a memorandum of
understanding to improve connectivity between Asia and Europe via
Istanbul; Thai will start a daily connection between Bangkok and
Istanbul in December 2023
-- THAI targets to generate a small net profit in 2023 of about THB 10 million (USD 300,000)
-- Thai Airways anticipates shareholder equity to turn positive
in 2024 as otherwise the company might be delisted from the Stock
Exchange of Thailand if an extension of the deadline would not be
granted
Comments & conclusions
Thai Airways is dependent on the tourism sector, particularly on
in-bound tourism and contingent on any decision made by the
Government to elevate or soften travel restrictions. Consequently,
the implementation of the "fully-reopen-to-tourism" regulation by
the Tourism Authority of Thailand supports the airline's growth of
passengers, revenues and operational income. The number of foreign
visitors to Thailand is significantly increasing since 2022,
although it has not reached pre-pandemic levels yet. The financial
results of the first quarter 2023 look promising, however Thai
Airways will have to prove profitability on the longer term.
Thai's fleet expansion plans by A321neo's and new generation
wide-body aircraft will be essential to remain competitive on both
the cost and the comfort level in the long run. Though, deciding
for the B787 would be a positive sign that Thai plans to continue
with this aircraft type.
The effects of the Ukraine-Russian conflict in the medium and
long term are not yet fully quantifiable but at the current stage,
Thai Airways suffers from its burden. As the carrier currently does
not operate flights to Russia, it cannot benefit from the
increasing number of Russian tourists, although already ranking top
2 since the beginning of 2023 (as of 26th February 2023).
Furthermore, it might even concede with less favourable flight
routes from and to Europe or the Middle East, suffers from high oil
prices and might be impacted by high inflation rates decreasing
people's purchasing power.
Although creditors have suffered significant losses in the
course of Thai's Rehabilitation Plan (the Plan), it gives comfort
that Thai Airways is in line with the Plan and also on track with
repaying the creditors. Thai Airways expects to formally exit the
process of business rehabilitation early in 2024, which would
enable the carrier to be more flexible on decisions concerning
their operation, growth, and strategic decisions., Nevertheless, to
justify completely the survival of the Airline, its successful exit
from the business rehabilitation process, and its further strategic
direction, ability to quickly adapt to market changes will be
significant. However, it could be considered that the carrier's
long-term viability is in the country's interest as tourism counted
for one-fifth of the country's GDP (pre-COVID).
THE ASSETS
Update Boeing 787
-- As of 31(st) July 2023, 154 Boeing 787s were ordered during
the current year; including 12 of the B787-8 variant
-- As of 31(st) July 2023, 35 Boeing 787s were delivered during
the year, including seven aircraft of the B787-8s; the orderbook
showed a 684 backlog of the Dreamliner, including 31 of the B787-8
variant
-- As at 3(rd) July 2023, the B787 was part of the fleet of 69 airlines
-- Boeing has to delay again deliveries of B787 aircraft, this
time due to the occurrence of a nonconforming condition of the
horizontal stabilizer; there is no action at this time for the
B787s in service - Boeing's technical team is in the process of
performing inspections and analysis to identify the scope and
severity of the shims and gaps, to determine if any fleet action
will be required
-- As at 3(rd) July 2023, out of 1,042 Boeing 787 aircraft
(excluding aircraft on order and option), only 15 aircraft were
listed to be in storage
Source: Cirium: "Fleet Analyzer"; 3(rd) July 2023
Assets & Operations
Overview
Both Assets, HS-TQC and HS-TQD, are based at Bangkok
International Airport and operated by Thai Airways on their regular
flight operations. The Assets are deployed on international routes,
exclusively within the Asia-Pacific area, to destinations such as
Manila, Jakarta and Hyderabad.
The utilisation of TQC and TQD as well as their respective
titled engines is shown in the following tables:
AIRCRAFT OPERATIONS Thai Airways
HS-TQC HS-TQD
---------------- ---------------
Cabin Layout 24 Business Class Seats
240 Economy Class Seats
---------------------------------
LAST PHYSICAL INSPECTION
---------------------------------
Date 24(th) February 3(rd) February
2022 2023
---------------- ---------------
Place Bangkok Airport (BKK)
---------------------------------
AIRFRAME STATUS (31(st) July 2023)
---------------- ---------------
Total Flight Hours 22,411 20,545
---------------- ---------------
Average Monthly Utilisation Since Delivery
[FH] 213 198
---------------- ---------------
Total Flight Cycles 5,112 4,695
---------------- ---------------
Average Monthly Utilisation Since Delivery
[FC] 49 45
---------------- ---------------
Hours/Cycles Ratio Since Delivery 4.38 4.38
---------------- ---------------
TITLED ENGINES HS-TQC HS-TQD
(31(st) July 2023)
ESN 10239 ESN 10243 ESN 10244 ESN 10248
---------- ------------------------- ---------- --------------
Total Time [Flight Hours] 20,833 16,645 16,780 19,858
---------- ------------------------- ---------- --------------
Total Flight Cycles 4,732 3,482 3,968 4,197
---------- ------------------------- ---------- --------------
Location On-wing Sent to SAESL for repair HS-TQE Hold as spare
---------- ------------------------- ---------- --------------
The utilisation of ESN 10243 was common during the last few
months until mid-March 2023. On 24th March 2023, the engine ESN
10243 was removed due to IPC Stage 8 blade damage found. DS
Aviation closely followed up with Thai to figure out the next steps
for getting the engine back to service. The prior planned induction
of ESN 10243 at the Rolls-Royce facility in Singapore (SAESL),
planned for 11th July moved to 12th November 2023 as Rolls Royce
has, amongst others, supply chain issues which affect the shop
capacity. The engine completion date is currently scheduled for 8th
April 2024. Moreover, during replacing the ESN 10240 with ESN
10243, it was contractually agreed with Thai Airways that the AD
(Airworthiness Directives)-2019-0286 would be included in the work
scope of the next shop visit of ESN 10243.
On 13th December 2022, the title engine ESN 10248 was removed
due to HPT Blade damage found during a scheduled borescope
inspection. The asset manager arranged an immediate inspection with
the on-site inspection team and figured out that ESN 10248 has to
be inducted into a shop for repair. The engine was sent to SAESL
for a shop visit in mid-January 2023 and returned in May to Thai
Airways. The engine is currently held as a spare . These issues
have not impacted lease payments.
THE ASSETS
Asset Manager's actions ensure asset value
Regular monitoring is the top priority for DS Aviation as DP
Aircraft's Asset Manager to make sure that the aircraft are in
service, and that the Lessee is keeping the aircraft in the best
condition per the manufacturer's and Lessor's requirements.
Therefore, both aircraft are inspected regularly by DS Aviation
technical staff or on-site representatives in case the inspection
is urgent. Two aircraft inspections were carried out on HS-TQD in
December 2022 and February 2023 to ensure the aircraft gets back to
commercial service in the agreed condition and fully complies with
all lease and manufacturer manuals. DS Aviation's on-site
representative inspected the aircraft on 3rd February 2023 at
Bangkok International Airport. During the inspection, the aircraft
was parked on the apron in preparation for returning to commercial
operations. The aircraft returned after two test flights to service
on 5th February 2023. Aircraft HS-TQC was inspected on 24th
February 2022 at Bangkok International Airport by DS Aviation's
on-site representative. The aircraft had been entered into storage
on 13th February 2022 and parked on the apron. The aircraft
returned to service in April 2022, and the next inspection is
planned to be performed in the second half of 2023.
Considering the past, it is essential to monitor the Lessee's
activities including both aircraft as well as the overall
activities. Even after Thai Airways returned to paying fixed lease
rates beginning of 2023, it is important to ensure a prompt
exchange of updated information. Because of this, DS Aviation
continues to have an "on-demand" contract with the on-site service
provider. Their expertise and workforce are available whenever the
circumstance calls for it, ensuring prompt and efficient support on
the spot.
HS-TQC and HS-TQD both are currently in regular commercial
service.
Comments and Conclusions
The aviation sector is recovering from COVID-19, nevertheless
the post-pandemic effects will continue to have an impact on the
market in coming years. In the past months passenger numbers
increased resulting in a rising demand for wide-body capacity.
However, design issues (e.g., A350), non-conforming parts or
material (e.g. B787) as well as the first delivery of new aircraft
models (e.g. B777-9) resulted in decreased delivery rates or
groundings. After Airbus has changed the design of the A350 copper
foil layering between the carbon fuselage and exterior paint and an
attempt to match the growing demand, production rates of the
A330neo and A350 model will be increased in the coming year, at the
expense of narrowbody delivery rates. This might make sense as
according to Airbus, the supply chain for narrow-body aircraft is a
fragile bottle-neck. Additionally, the aircraft and engine
manufacturers, suppliers, and the MRO (Maintenance, Repair and
Overhaul) industry are negatively impacted by the global shortage
of electronic components, the higher cost of obtaining raw
materials for the production lines, international political
conflicts, and a lack of skilled workers.
Therefore, many airlines such as Lufthansa, Qatar Airways and
Thai Airways have reactivated or have decided to reactivate further
widebody aircraft, noticeably A380s, A340s and B777s, and delay
their decommissioning. This will result in an increasing average
fleet age and a shift of deliveries in later years. This in turn,
might result in higher operating costs, mainly regarding fuel
consumption and maintenance, being a hardship for some
airlines.
The recovery of new generation twin-aisle aircraft, such as
B787, A350, A330neo, with the number of aircraft at the end of the
first quarter 2023 being a quarter larger than pre-COVID-19 (end of
2019), had been significantly quicker than of older twin jets. The
latest generation of widebody aircraft, including B787s, are almost
out of storage as only 1.5% of the global B787 fleet is still in
storage which shows the significant demand of this type of aircraft
and its important role during the post pandemic recovery. The
aircraft benefits from its latest generation technology, its strong
position in the market with an active fleet of more than 1000 units
and new orders being placed. However, to keep the asset value,
still requires close monitoring of the market and the assets'
condition.
DIRECTORS' INFORMATION
Jonathan (Jon) Bridel, Chairman (58), appointed 10 July 2013
Jon is a Guernsey resident and is currently a non-executive
director of Fair Oaks Income Fund Limited. Jon was previously
managing director of Royal Bank of Canada's ('RBC') investment
businesses in the Channel Islands and served as a director on other
RBC companies including RBC Regent Fund Managers Limited. Prior to
joining RBC, Jon served in a number of senior management positions
in banking, specialising in credit and corporate finance and
private businesses as Chief Financial Officer in London, Australia
and Guernsey having previously worked at Price Waterhouse Corporate
Finance in London.
Jon graduated from the University of Durham with a degree of
Master of Business Administration, holds qualifications from the
Institute of Chartered Accountants in England and Wales (1987)
where he is a Fellow, the Chartered Institute of Marketing and the
Australian Institute of Company Directors. Jon is a Chartered
Marketer and a Member of the Chartered Institute of Marketing, a
Chartered Director and Fellow of the Institute of Directors and a
Chartered Fellow of the Chartered Institute for Securities and
Investment
Jeremy Thompson, Director (68) appointed 10 July 2013
Jeremy Thompson is a Guernsey resident. He acts as a
non-executive director to a number of businesses which include
three private equity funds, an investment manager serving the
listed NextEnergy Solar Fund Limited and London listed Riverstone
Energy Limited . Prior to that he was CEO of four autonomous global
businesses within Cable & Wireless PLC and earlier held CEO
roles within the Dowty Group.
Jeremy currently serves as chairman of the States of Guernsey
Renewable Energy Team and is a commissioner of the Alderney
Gambling Control Commission. He is also an independent member of
the Guernsey Tax Tribunal panel. Jeremy is an engineering graduate
of Brunel (B.Sc) and Cranfield (MBA) Universities and attended the
UK's senior defence course (Royal College of Defence Studies). He
holds the Institute of Directors (IoD) Certificate and Diploma in
Company Direction and is an associate of the Chartered Institute of
Arbitration. He completed an M.Sc in Corporate Governance in 2016
and qualified as a Chartered Company Secretary in 2017.
Harald Brauns, Director (69), appointed 1 November 2019
Harald is a German banker with extensive experience in the
specialised lending sector. He joined NORD/LB Hannover, Germany in
1977 with a first engagement in the shipping segment. In 1985 he
started the aircraft finance activities for the bank from scratch.
As the Global Head of Aircraft Finance, he built successively a
team of more than 40 dedicated aviation experts located in
Hannover, New York and Singapore. Focused on an asset-based
business model with sophisticated solutions for selected clients,
he and his team advanced to global leaders in commercial aircraft
finance with an exposure of well above US$ 10 billion split over a
portfolio of 650 aircraft assets. After more than 35 years in the
aviation industry Harald retired in October 2019. He is resident in
Germany and was appointed as a director of the Company with effect
from 1 November 2019.
STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES
These are the principal risks and uncertainties that the Group
is facing and expects to continue facing in the second half of
2023.
Geopolitical and economic risks
The Company leases aircraft to a customer in Thailand exposing
it to: (i) Thailand's varying economic, social, legal and
geopolitical risks, (ii) instability of Thailand markets and (iii)
the impact of global health pandemics and other global market
disruptions. The Directors continue to monitor the impact of
COVID-19 and to assess the impact on the Company. Exposure to
Thailand's jurisdiction may adversely affect the Company's future
performance, position and growth potential if Thailand's economy
does not perform well or if laws and regulations that have an
adverse impact on the aviation industry are passed. The adequacy
and timeliness of the Company's response to emerging risks in this
jurisdiction is of critical importance to the mitigation of their
potential impact on the Company.
The Geopolitical risk surrounding the Russian invasion of
Ukraine and the subsequent consequences have the potential to
impact travel and/or travellers' willingness to travel which in
turn could affect the volume of traffic to and from Thailand. The
new Thai government led by PM Thavisin and the return from exile of
former PM Thaksin provides an unknown backdrop in terms of
political stability. However, it is clear though that tourism is a
major part of the Thai economy.
Exposure to the commercial airline industry
As a supplier to and partner of the airline industry, the Group
is exposed to the financial condition of the airline industry as it
leases its aircraft to commercial airline customers. The financial
condition of the airline industry is affected by, among other
things, geopolitical events, outbreaks of communicable pandemic
diseases and natural disasters, fuel costs and the demand for air
travel. To the extent that any of these factors adversely affect
the airline industry they may result in (i) downward pressure on
lease rates and aircraft values, (ii) higher incidences of lessee
defaults, restructuring and repossessions and (iii) inability to
lease aircraft on commercially acceptable terms.
Thai Airways
Thai went into debt rehabilitation on 27 May 2020, and the
business rehabilitation plan was approved on 15 June 2021, by the
Central Bankruptcy Court of Thailand. There is risk that the
business rehabilitation plan does not achieve the desired results,
and this could have an adverse impact on the entity's lease
arrangements, with Thai Airways which is the core source of income
for the Group.
Thai is under the contractual obligation to return the aircraft
in full life condition. The additional requirement to cash
collateralize the obligation by payment of Maintenance Reserves was
waived in the novated lease agreement.
This leaves the company with the risk that in case of a Thai
default under the lease the aircraft may not be returned in a full
life status.
In addition, the continuing impact of COVID-19 and the conflict
between Russia and Ukraine has the potential to impact Thai's
business rehabilitation plan and adversely impact the Group. This
is particularly relevant for the Group given the aircraft leased to
Thai Airways are the sole source of income for the Group.
Asset risk
The Company's Assets as at year end comprise of two Boeing 787-8
aircraft. The Group bears the risk of selling or re-leasing the
aircraft in its fleet at the end of their lease terms or if the
lease is terminated. If demand for aircraft decreases, market lease
rates may fall and should such conditions continue for an extended
period, it could affect the market value of aircraft in the fleet
and may result in an impairment charge. The Directors have engaged
an asset manager with appropriate experience of the aviation
industry to manage the fleet and remarket or sell aircraft as
required to reduce and address this risk. Any lasting impact of the
COVID-19 pandemic on both aircraft demand and lease rates are at
present unknown.
There is no guarantee that, upon expiry or cessation of the
leases, the Assets could be sold or re-leased for an amount that
would enable shareholders to realise a capital profit on their
investment or to avoid a loss. Costs regarding any future
re-leasing of the assets would depend upon various economic factors
and would be determinable only upon an individual re-leasing event.
Potential reconfiguration costs could in certain circumstances be
substantial.
Key personnel risk
The ability of the Company to achieve its investment objective
is significantly dependent upon the advice of certain key personnel
at DS Aviation GmbH & Co. KG; there is no guarantee that such
personnel will be available to provide services to the Company for
the scheduled term of the Leases or following the termination of
the Lease. However, Key Man clauses within the Asset Management
agreement do provide a base line level of protection against this
risk.
Credit risk and counterparty risk
Credit risk is the risk that a significant counterparty will
default on its contractual obligations. The Group's most
significant counterparty is Thai Airways as lessee and provider of
income and DekaBank Deutsche Girozentrale ('DekaBank') as holder of
the Group's cash and restricted cash. The lessee does not maintain
a credit rating. Thai Airways is currently implementing a
rehabilitation plan and to date things are progressing well with
Thai having made significant improvements. The Moody's credit
rating of DekaBank is Aa2 (2022: Aa2).
There is no guarantee that the business rehabilitation process
of Thai Airways will continue to be successful even though
developments to date have been positive. Failure of any material
part of the business rehabilitation plan may have an adverse impact
on Thai's ability to comply with its obligations under the LOI
entered into during March 2021 and the subsequent amended lease
agreement entered into in 2022.
Any failure by Thai Airways to pay any amounts when due could
have an adverse effect on the Group's ability to comply with its
obligations under the DekaBank loan agreements and could result in
the lenders enforcing their security and selling the relevant
Assets on the market, potentially negatively impacting the returns
to investors. Thai Airways is however an international full-service
carrier and is important to Thailand's economy and as such it is
unlikely that the government will not provide it with the necessary
support to see it through its restructure. There is no guarantee
and hence a significant risk remains.
Refinancing risk
The Group is required to present a plan for refinancing or
similar to the lenders before the expiry of the current loan
facilities in the last quarter of 2026. There is a risk that the
Group will not be able to replace the DekaBank debt obligation with
new debt before the expiry of the current loan facilities. If not
able to refinance, the Group would have to dispose the Assets to
settle the loan and there is no guarantee that the Assets could be
sold for an amount that would enable shareholders to realise a
capital profit on their investment or to avoid a loss.
Liquidity risk
In order to finance the purchase of the Assets, the Group
entered into loan agreements. Pursuant to the loan agreements, the
lenders are given first ranking security over the Assets. Under the
provisions of each of the loan agreements, the Borrowers are
required to comply with loan covenants and undertakings. A failure
to comply with such covenants or undertakings may result in the
relevant lenders recalling the relevant loan. In such
circumstances, the Group may be required to remarket the relevant
Asset (either by selling or entering into a subsequent lease) to
repay the outstanding relevant loan and/or re-negotiate the loan
terms with the relevant lender.
Boeing
The Company is exposed to Boeing's ability able to resolve any
identified 787 related problems which the FAA or other regulatory
bodies designate as restricting commercial operations. At present
no such restrictions exist. The 787 is considered a latest
generation aircraft type which has pioneered areas including the
extensive use of carbon fibre in its fuselage and wing
construction.
Rolls Royce
The Company has exposure to Rolls Royce ("RR") as suppliers of
the Trent 1000 engines in terms of ongoing support. Announcements
by RR have implied that the low-pressure turbine (LPT) and other
known previous engine performance issues have been resolved. The
Trent 1000 is a highly fuel-efficient engine, representing the
latest engine technology. As such the Company is exposed to any
future unknown performance issues. This situation is partially
mitigated by Thai using RR Total Care and by the Asset Manager
having oversight of performance issues from both physical and
desktop checks.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules ('the DTR') of the UK's Financial Conduct
Authority ('the UK FCA').
In preparing the condensed set of consolidated financial
statements included within the half-yearly financial report, the
Directors are required to:
-- prepare and present the condensed set of consolidated
financial statements in accordance with IAS 34 Interim Financial
Reporting issued by the International Accounting Standards Board
('IASB') and the DTR of the UK FCA;
-- ensure the condensed set of consolidated financial statements has adequate disclosures;
-- select and apply appropriate accounting policies; and
-- make accounting estimates that are reasonable in the circumstances.
-- assess the Group's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the Directors
either intend to liquidate the Group or to cease operations, or
have no realistic alternative but to do so.
The Directors are responsible for designing, implementing and
maintaining such internal controls as they determine is necessary
to enable the preparation of the condensed set of consolidated
financial statements that is free from material misstatement
whether due to fraud or error.
We confirm that to the best of our knowledge:
(1) The condensed set of consolidated financial statements
included within the half-yearly financial report of DP Aircraft I
Limited for the six months ended 30 June 2023 (the 'Interim
Financial Information'), which comprises condensed consolidated
statement of comprehensive income, condensed consolidated statement
of financial position, condensed consolidated statement of cash
flows, condensed consolidated statement of changes in equity and
the related explanatory notes, have been presented and prepared in
accordance with IAS 34, Interim Financial Reporting, as issued by
the IASB and the DTR of the UK FCA .
(2) The Interim Financial Information presented, as required by
the DTR of the UK FCA, includes:
a. an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of Interim Financial Statements;
b. a description of the principal risks and uncertainties for
the remaining six months of the financial year;
c. related parties' transactions that have taken place in the
first six months of the current financial year and that have
materially affected the financial position or the performance of
the enterprise during that period; and
d. any changes in the related parties' transactions described in
the last annual report that could have a material effect on the
financial position or performance of the enterprise in the first
six months of the current financial year.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the Group's
website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions
On behalf of the Board
Jon Bridel Jeremy Thompson
Chairman Director
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
For the six-month period ended 30 June 2023
30 June 2023 30 June 2022
(unaudited) (unaudited)
Notes US$ US$
Income
Lease rental income 4 4,340,629 7,575,435
Expenses
Asset management fees 19 (239,709) (233,862)
General and administrative expenses 5 (609,451) (566,886)
Depreciation 9 (671,749) (478,271)
Expected credit loss movement on straight
lining lease asset 11 191,272 (1,106,575)
(1,329,637) (2,385,594)
Operating Profit 3,010,992 5,189,841
Other income 2,791 -
Finance costs 6 (7,495,940) (2,194,840)
Finance income 409,675 9,158
Net finance costs (7,083,474) (2,185,682)
(Loss)/Profit before tax (4,072,482) 3,004,159
Taxation 7 - (5,563)
(Loss)/Profit for the period (4,072,482) 2,998,596
----------------------------------------------------- ------ ------------ ------------------------------------
Total Comprehensive (Loss)/Income
for the period (4,072,482) 2,998,596
----------------------------------------------------- ------ ------------ ------------------------------------
US$ US$
(Loss)/Profit per Share for the period
- basic and diluted 8 (0.0170) 0.0143
----------------------------------------------------- ------ ------------ ------------------------------------
All income is attributable to the Ordinary Shares of the
Company.
The notes form an integral part of these Interim Financial
Statements.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
As at 30 June 2023
30 June 2023 31 December
2022
(unaudited) (audited)
Notes US$ US$
NON-CURRENT ASSETS
PPE - Aircraft & Related Components 9 124,794,331 125,466,080
Trade and other receivables 11 7,372,984 8,935,454
Restricted cash 10 15,328,535 14,979,197
Total non-current assets 147,495,850 149,380,731
CURRENT ASSETS
Cash and cash equivalents - available
for use 1,095,150 1,479,541
Restricted cash 10 1,059,961 4,175,280
Trade and other receivables 11 3,155,009 3,857,514
Total current assets 5,310,120 9,512,335
TOTAL ASSETS 152,805,970 158,893,066
---------------------------------------- ------ ------------------------ --------------
EQUITY
Share capital 15 211,279,828 211,279,828
Accumulated losses (170,616,189) (166,543,707)
TOTAL EQUITY 40,663,639 44,736,121
NON-CURRENT LIABILITIES
Bank borrowings 14 90,298,049 80,779,172
Maintenance provision 12 14,829,296 14,829,296
Trade and other payables 13 709,693 -
Total non-current liabilities 105,837,038 95,608,468
CURRENT LIABILITIES
Bank borrowings 14 6,078,377 17,707,184
Trade and other payables 13 226,916 841,293
---------------------------------------- ------ ------------------------ --------------
Total current liabilities 6,305,293 18,548,477
TOTAL LIABILITIES 112,142,331 114,156,945
---------------------------------------- ------ ------------------------ --------------
TOTAL EQUITY AND LIABILITIES 152,805,970 158,893,066
---------------------------------------- ------ ------------------------ --------------
The financial statements were approved by the Board of Directors
and were authorised for issue on 19 September 2023. They were
signed on its behalf by:
Jonathan Bridel Jeremy Thompson
Chairman Director
The notes form an integral part of these Interim Financial
Statements.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
For the six-month period ended 30 June 2023
30 June 2023 30 June
2022
(unaudited) (unaudited)
Notes US$ US$
Loss/Profit for the period (4,072,482) 2,998,596
Adjusted for:
Depreciation 9 671,749 478,271
Finance costs 6 7,495,940 2,194,840
Income tax expense/(recovery) - 5,563
Provision on straight lining lease asset
11 (191,272) 1,106,575
Straight-lining rental income 11 1,740,412 (4,340,631)
Changes in:
Increase in maintenance provision 12 - 368,614
(Decrease)/increase in trade and other
payables 13 95,316 53,703
Decrease /(increase) in trade and other
receivables 11 715,835 (1,051,224)
NET CASH FLOW FROM OPERATING ACTIVITIES 6,455,498 1,814,307
------------------------------------------------------------------------------------------------------- ------------ ------------
INVESTING ACTIVITIES
Restricted cash movement 10 2,765,981 108,984
NET CASH FLOW FROM INVESTING ACTIVITIES 2,765,981 108,984
------------------------------------------------------------------------------------------------------- ------------ ------------
FINANCING ACTIVITIES
Bank loan principal repaid 14 (6,689,862) -
Bank loan interest paid 14 (2,916,008) (2,189,122)
NET CASH FLOW USED IN FINANCING ACTIVITIES (9,605,870) (2,189,122)
------------------------------------------------------------------------------------------------------- ------------ ------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 1,479,541 1,179,211
Decrease in cash and cash equivalents (384,391) (265,831)
------------------------------------------------------------------------------------------------------- ------------ ------------
CASH AND CASH EQUIVALENTS AT OF
PERIOD 1,095,150 913,380
------------------------------------------------------------------------------------------------------- ------------ ------------
The notes form an integral part of these Interim Financial
Statements.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(UNAUDITED)
For the six-month period ended 30 June 2023
Share Accumulated Total
Capital Losses Equity
US$ US$ US$
As at 1 January 2022 210,556,652 (174,204,530) 36,352,122
Total comprehensive Income
for the period
Profit for the period - 2,998,596 2,998,596
--------------------------------- ------------- --------------- -----------
Total Comprehensive Income - 2,998,596 2,998,596
As at 30 June 2022 (unaudited) 210,556,652 (171,205,934) 39,350,718
--------------------------------- ------------ --------------- -------------
Share Accumulated Total
Capital Losses Equity
US$ US$ US$
As at 1 January 2023 211,279,828 (166,543,707) 44,736,121
Total comprehensive loss for
the period
Loss for the period - (4,072,482) (4,072,482)
-------------------------------- ------------ --------------- ------------
Total Comprehensive loss - (4,072,482) (4,072,482)
-------------------------------- ------------ --------------- ------------
As at 30 June 2023 (unaudited) 211,279,828 (170,616,189) 40,663,639
-------------------------------- ------------ --------------- ------------
The notes form an integral part of these Interim Financial
Statements.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
For the six-month period ended 30 June 2023
1) GENERAL INFORMATION
The unaudited condensed consolidated interim financial
statements (the 'Interim Financial Statements') incorporate the
results of the Company and that of wholly owned subsidiary entities
DP Aircraft Guernsey III Limited, DP Aircraft Guernsey IV Limited
(collectively and hereinafter, the 'Borrowers'), each being a
Guernsey incorporated company limited by shares and one
intermediate lessor company, DP Aircraft UK Limited (the 'Lessor'),
a UK incorporated private limited company respectively. The Company
and its subsidiaries (the Borrowers and the Lessor) comprise the
Group.
DP Aircraft I Limited (the 'Company') was incorporated on 5 July
2013, with registered number 56941. The Company is admitted to
trading on the Specialist Fund Segment of the London Stock
Exchange.
The Share Capital of the Company comprises 239,333,333 ordinary
shares of no-par value and one Subordinated Administrative Share of
no-par value.
The Company's investment objective is to obtain income and
capital returns for its shareholders by acquiring, leasing and
then, when the Board considers it appropriate, selling
aircraft.
2) SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
The Interim Financial Statements for the period 1 January 2023
to 30 June 2023 have been prepared in accordance with International
Accounting Standard ('IAS') 34 'Interim Financial Reporting' issued
by the International Accounting Standards Board ('IASB') and the
DTR of the UK FCA.
The Interim Financial Statements do not include all the
information and disclosures required in the annual financial
statements and should be read in conjunction with the Group's
annual report and consolidated financial statements for the year
ended 31 December 2022. The Group's annual financial statements for
the year ended 31 December 2022 have been prepared in accordance
with International Financial Reporting Standards ('IFRS') issued by
the IASB and are available on the Company's website or from the
Company Secretary.
The Interim Financial Statements have been prepared on the basis
of the accounting policies set out in the Group's annual
consolidated financial statements for the year ended 31 December
2022 but also taking into account any new policies that will be
applied in the Group's annual consolidated financial statements for
the year ended 31 December 2023.
The Directors have concluded that there are no new standards,
amendments to standards and interpretations that are effective for
annual periods beginning on 1 January 2023 which have a material
impact on the Interim Financial Statements.
These are unaudited non-statutory interim financial statements
and they have not been reviewed by the auditors. The last audited
statutory financial statements were issued on 27 April 2023 in
respect of the year ended 31 December 2022.
These unaudited condensed consolidated Interim Financial
Statements as at and for the six-month period ended 30 June 2023,
have not been reviewed or audited by the Group's auditor.
Going concern
The Directors believe that it is appropriate to prepare these
Interim Financial Statements on the going concern basis due to
current cash flow forecasts, which include fixed rentals and show
that the Group has sufficient cash and resources to cover operating
costs for a period of at least 12 months from the signing of these
Interim Financial Statements.
In making this conclusion, the Directors have also
considered:
-- the positive outlook for Thai Airways with both Thai aircraft
in a full return to service condition and now earning fixed
rentals. There is an expectation, based on commentary by the Thai
Administrator responsible for the rehabilitation of Thai Airways,
that Thai Airways will continue to be viable and will be able to
meet the terms of the revised lease agreements. This position
regarding Thai's viability is further enhanced by the announcement
on 9 August 2022, that Thai state-owned banks will provide new
loans and cash injections to Thai. Furthermore, the Thai Government
has stated that it plans to preserve its 40% holding in Thai
Airways which may grow further but will not exceed 50%; and
-- the expectation that DekaBank, which made loans to the Group
(with certain loan concessions), will continue supporting the
Group. The loan agreement with DekaBank was amended and restated in
February 2023. Per the amended terms, monthly payments of interest
and principal will be limited to net lease rental monies available
for application towards the loans of US$ 475,000 per loan, and the
final balloon repayments will be settled out of proceeds from sale
of the aircraft at the end of the loan term, if the loan is not
refinanced. The US$ 475,000 equates to a monthly lease rental of
US$ 510,000, less US$ 35,000 paid to the Company as a contribution
towards its costs.
-- The continued support of the Board and certain service
providers in continued deferral of some of their fees.
The Directors are not aware of any material uncertainties that
may cast significant doubt upon the Group's ability to continue as
a going concern.
3) SIGNIFICANT JUDGEMENTS AND ESTIMATES
The preparation of unaudited condensed consolidated Interim
Financial Statements in compliance with IAS 34 requires management
to make judgements, estimates and assumptions about the carrying
amount of assets and liabilities that are not readily apparent from
their sources.
Information about assumptions and estimation uncertainty at 30
June 2023, that have a significant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities in the
Interim Financial Statements for the period are:
Significant estimates
Impairment of property, plant and equipment
As with each reporting date but more relevant in light of the
developments of COVID-19, a detailed impairment assessment of the
aircraft has been undertaken.
IFRS requires an assessment of the aircraft carrying value
versus the recoverable amount i.e., the higher of the value in use
and fair value less cost to sell. In considering the impairment of
the Thai aircraft, the Board concluded that the fair value less
costs to sell was the recoverable amount. The fair value less costs
to sell used in the assessment is based on the full-life market
value of each aircraft as determined by two independent appraisers
given the aircraft have a lease with a contractual full-life return
condition attached to them. The Board considered it appropriate not
to apply any discounts and adjustments for these aircraft given the
specific circumstances of these aircraft.
The Board considered all possible valuation ranges and concluded
that the Thai aircraft were not impaired as at 30 June 2023, given
the fair value less costs to sell was greater than the book value
of the aircraft. Two independent appraisers determined that the
full life market value of the aircraft as at 30 June 2023 ranged
from US$ 59.1mil to US$ 75.9 mil. It should be noted that each
appraiser will have its own opinion of the market and how the
market may develop. On a specific aircraft type, one appraiser
might be more optimistic compared to another provider and vice
versa. In addition, appraisers obtain their market information from
various sources and use different calculation models. This may have
influence on future and current market values, hence the wide
range. Therefore, there is no absolute estimate of future and
current market values. In order to minimise variance in estimates
an average of the two appraisals is used in determining market
values for the aircraft. This approach is consistent with the
approach adopted by other market participants (lessors, lenders,
etc) and is consistent with prior periods. Given the nature and
life of the Company's aircraft this approach is considered to be
reasonable. The average market value, less selling costs for each
aircraft, is more than each aircraft's carrying value. Therefore,
no impairment loss has been recognised during the financial period
ended 30 June 2023 (31 December 2022: US$ nil).
The Board also considered if there was any indication that the
accumulated impairment recognised in previous years on the aircraft
of US$ 58,839,697 had reversed partially or in full. The Board has
concluded that based on the possible ranges of the aircraft
valuations, there was no reversal during the period ended 30 June
2023.
If the Group had used the half-life market value in assessing
impairment, the aircraft would be impaired by US$ 31,631,599 (31
December 2022: US$ 30,003,182) in total. It should be noted that
the aircraft will be returned in a full-life condition on
termination of the leases hence full-life market value was used in
the impairment assessment mentioned above.
Depreciation of aircraft
The Group depreciates the Assets on a straight-line basis over
the remaining lease life, taking into consideration the estimated
residual value at the end of the lease term. The Group engages
independent expert valuers (appraisers) each year to provide a
valuation of the Assets and take into account the average of the
valuations provided.
Residual value estimates of the Assets were determined by the
full life inflated base values at the end of the leases, from
external valuations and discounted by the inflation rate
incorporated into those valuations.
The full life inflated base value is the appraiser's opinion of
the underlying economic value of the aircraft in an open,
unrestricted, stable market environment with a reasonable balance
of supply and demand and assumes full consideration of its 'highest
and best use'. The full life inflated values used within the
financial statements match up the two lease termination dates
(October 2026 and December 2026) and have been discounted by the
inflation rate incorporated into the valuations. The residual value
of the aircraft does not represent the current fair value of the
aircraft.
The residual value estimates at the end of each year are used to
determine the aircraft depreciation of future periods. The residual
value estimates of the leases for the aircraft as at 31 December
2022 was US$ 120,247,838 (31 December 2021: US$ 121,750,421) and
carrying value as at 31 December 2022 was US$ 125,466,080 (31
December 2021: US$ 126,424,840). As a result, the year ending 31
December 2023 and future aircraft depreciation charges for
aircraft, with all other inputs staying constant, will be US$
1,343,497 (2022: US$ 958,760). The actual aircraft depreciation
charge for 2024 onwards will vary based on the residual value
estimates as at 31 December 2023.
4) LEASE RENTAL INCOME
30 June 2023 30 June 2022
(unaudited) (unaudited)
US$ US$
Variable rent (PBH rent) - 3,234,804
Straight lining rental income 4,340,629 4,340,631
Total lease rental
income 4,340,629 7,575,435
-------------------------------- ---------- -------------------- --------------------
All lease rental income was derived from Thai Airways and the
related two Boeing 787-8 aircraft leased to them.
Until 31 December 2022 the lease terms provided for a power by
the hour ('PBH') arrangement (i.e., rent was payable by reference
to actual monthly utilisation of the Thai aircraft). After 31
December 2022, lease payments are fixed at US$ 510,000 per month
until October and December 2026 respectively for each lease.
The lease term was extended by three years to October 2029 for
aircraft MSN 36110 and December 2029 for aircraft MSN 35320 (the
'Extension Period') with further scaled back monthly lease payments
starting from November 2026 and January 2027 respectively. The
Extension Period is however subject to an early termination option
in 2026 if the Group after consulting its lenders decides to do so.
The lease term has been determined to be the period to October 2026
and December 2026 which is the non-cancellable term of each
aircraft lease .
The contractual fixed future lease rentals to be received under
non-cancellable operating leases effective as at the reporting date
are:
Boeing 787-8 Boeing 787-8 Total
Serial No: Serial No:
35320 36110
30 June US$ US$ US$
2023
< 1 year 6,120,000 6,120,000 12,240,000
1 to 2 years 6,120,000 6,120,000 12,240,000
2 to 3 years 6,120,000 6,120,000 12,240,000
3 to 4 years 2,698,065 2,007,097 4,705,162
4 to 5 years - - -
>5 years - - -
21,058,065 20,367,097 41,425,162
-------------- ------------- ------------- -----------
Boeing 787-8 Boeing 787-8 Total
Serial No: Serial No:
35320 36110
30 June US$ US$ US$
2022
< 1 year 3,060,000 3,060,000 6,120,000
1 to 2 years 6,120,000 6,120,000 12,240,000
2 to 3 years 6,120,000 6,120,000 12,240,000
3 to 4 years 6,120,000 6,120,000 12,240,000
4 to 5 years 2,698,065 2,007,097 4,705,162
>5 years - - -
24,118,065 23,427,097 47,545,162
-------------- ------------- ------------- -----------
5) GENERAL AND ADMINISTRATIVE EXPENSES
30 June 30 June 2022
2023
(unaudited) (unaudited)
US$ US$
Administration fees 121,307 166,472
Aircraft agency fees 5,523 5,556
Aircraft security trustee
fees 7,047 5,934
Aircraft valuation fees 5,089 4,119
Audit fees 37,171 41,089
Company broker fees 83,951 83,951
Directors' fees and expenses 100,242 112,438
Foreign exchange losses 20,634 (6,292)
Insurance costs 46,174 54,355
IT and printing costs 10,664 16,970
Legal fees 5,194 3,157
Miscellaneous costs 11,511 4,157
Registrar fees 9,545 12,253
Regulatory fees 3,307 5,947
Restructuring fees in relation
to NAS - 20,175
Restructuring fees in relation to Thai
and loan agreement 142,092 34,502
Tax advice fees - 2,103
-------------------------------------------- --------------------- -------------
Total general and administrative expenses 609,451 566,886
-------------------------------------------- --------------------- -------------
6) FINANCE COSTS 30 June 2023 30 June 2022
(unaudited) (unaudited)
US$ US$
Loan interest 2,453,911 2,194,840
Modification adjustment 5,042,029 -
-------------------------- ------------ ------------
Total finance costs 7,495,940 2,194,840
-------------------------- ------------ ------------
During the period there was a restructure of the loans advanced
by DekaBank. Management, in line with IFRS 9, assessed whether the
modification was substantial or not. The assessment was done on a
quantitative basis and compared the net present value of the
modified cash flows per the amended loan terms including any fees
payable or receivable, discounted at the original effective
interest rate, against the carrying value of the loans prior to the
modification. A difference of 10% or more would have been
considered substantial as is advised in IFRS 9. Management
concluded that the modification was not substantial, and a
modification adjustment, being the difference between the net
present value of the cash flows under the revised terms discounted
at the original agreement's effective interest rate and the
carrying value of the loans immediately prior to the modification,
was made to the existing loan in line with IFRS 9. This totalled
US$ 5,042,029 and increased both finance costs and the loans
payable at the point of modification. This adjustment essentially
recognises a loss now due to the less favourable terms (primarily
interest rate increases) under the modified terms compared to the
original terms. As a result of this adjustment, interest will be
recognised at the lower original effective interest rate as opposed
to the higher modified interest rate going forward.
7) TAXATION
With the exception of DP Aircraft UK Limited, all companies
within the Group are exempt from taxation in Guernsey and are
charged an annual exemption fee of GBP1,200 each (2022:
GBP1,200).
DP Aircraft UK Limited is subject to taxation at the applicable
rate in the United Kingdom. The tax charge during the period ended
30 June 2023 was US$ nil (period 1 January 2022 to 30 June 2022:
tax credit of US$ 5,563). The Directors do not expect the taxation
payable or refundable to be material to the Group.
A tax reconciliation has not been presented in these Interim
Financial Statements as the effective tax rate of 0.00% (30 June
2022: (0.14%)) is not material and the reconciliation is not
relevant to the understanding of the Company's results for the
period end.
8) (LOSS)/PROFIT PER SHARE
30 June 2023 30 June 2022
(unaudited) (unaudited)
US$ US$
(Loss)/Profit for the period (4,072,482) 2,998,596
Weighted average number of
shares 239,333,333 209,333,333
(Loss)/Profit per share (0.0170) 0.0143
------------------------------- ------------- -------------
There are no instruments in issue that could potentially dilute
earnings per ordinary share in future periods.
9) PROPERTY, PLANT & EQUIPMENT - AIRCRAFT & RELATED COMPONENTS
Aircraft Lease Premium Total
30 June 2023 (unaudited) (unaudited) (unaudited)
US$ US$ US$
COST
As at 1 January 2023 and 30
June 2023 238,731,161 17,398,493 256,129,654
----------------------------- ------------ -------------- ------------
ACCUMULATED DEPRECIATION
As at 1 January 2023 54,425,384 8,200,047 62,625,431
Charge for the period 671,749 - 671,749
As at 30 June 2023 55,097,133 8,200,047 63,297,180
----------------------------- ------------ -------------- ------------
IMPAIRMENT
As at 1 January 2023 58,839,697 9,198,446 68,038,143
Charge for the period - - -
As at 30 June 2023 58,839,697 9,198,446 68,038,143
----------------------------- ------------ -------------- ------------
CARRYING AMOUNT
As at 30 June 2023 124,794,331 - 124,794,331
----------------------------- ------------ -------------- ------------
Aircraft Lease Premium Total
31 December 2022 (audited) (audited) (audited)
US$ US$ US$
COST
As at 1 January 2022 and 31
December 2022 238,731,161 17,398,493 256,129,654
-------------------------------------- ------------ -------------- ------------
ACCUMULATED DEPRECIATION/AMORISATION
As at 1 January 2022 53,466,624 8,200,047 61,666,671
Charge for the period 958,760 - 958,760
As at 31 December 2022 54,425,384 8,200,047 62,625,431
-------------------------------------- ------------ -------------- ------------
IMPAIRMENT
As at 1 January 2022 58,839,697 9,198,446 68,038,143
Charge for the period - - -
As at 31 December 2022 58,839,697 9,198,446 68,038,143
-------------------------------------- ------------ -------------- ------------
CARRYING AMOUNT
As at 31 December 2022 125,466,080 - 125,466,080
-------------------------------------- ------------ -------------- ------------
As at period end PPE is comprised of two aircraft leased to Thai
Airways. Under the terms of the leases that existed during the
period, the cost of repair and maintenance of the Assets is to be
borne by Thai Airways and Thai Airways has a contractual obligation
to return the Assets in a full life condition. However, after
expiry or termination of the leases with Thai, the cost of repair
and maintenance will fall upon the Group. Therefore, after expiry
or termination of the Thai leases, the Group may bear higher costs
and the terms of any subsequent leasing arrangements (including
terms for repair, maintenance and insurance costs relative to those
agreed under the leases) may be less favourable, which could reduce
the overall distributions paid to the shareholders.
Refer to note 3 for details regarding residual value estimates.
The Group depreciates the aircraft on a straight-line basis over
the remaining lease term. The lease term has been determined to end
in 2026.
As detailed in note 3, as at 30 June 2023, there is no
impairment to the aircraft and there are no indications of reversal
of prior year impairments either. Refer to note 3 for further
details.
The loans entered into by the Group to complete the purchase of
the two aircraft are cross collateralised. Each of the loans are
secured by way of security taken over each of the two aircraft.
10) RESTRICTED CASH
30 June 2023 31 December
2022
(unaudited) (audited)
US$ US$
Non-current assets
Maintenance reserves 15,328,535 14,979,197
------------------------ ------------- ------------
15,328,535 14,979,197
Current assets
Security deposit
accounts 93 91
Lease rental accounts 1,059,868 4,175,189
------------------------ ------------- ------------
1,059,961 4,175,280
Total restricted
cash 16,388,496 19,154,477
------------------------ ------------- ------------
Maintenance reserves held, are to be used solely to cover costs
related to the maintenance of the two aircraft. Effective 15 June
2021, the Group no longer receives maintenance reserves
contributions from the lessee in line with the updated lease
terms.
The majority of security deposits were transferred to Lease
Rental Accounts during the prior period and are being used to
service loan payments due to DekaBank in accordance with the
DekaBank financing arrangements. Monies received into the Lease
Rental Accounts during the fixed rent period are to be transferred
into Borrower Rental Accounts and applied in a specific manner as
agreed between DekaBank and the Group. Access to the Lease Rental
Accounts, Security deposit accounts and Maintenance reserves
accounts is physically restricted by DekaBank therefore these
monies are classified as restricted cash.
11) TRADE AND OTHER RECEIVABLES
30 June 2023 31 December
2022
(unaudited) (audited)
US$ US$
Prepayments 38,084 82,333
Rent receivable - 671,586
Straight-lining lease asset 11,785,090 13,525,502
Total trade and other
receivables 11,823,174 14,279,421
------------------------------------------ ------------- ------------
Less: Expected credit loss on straight
lining lease asset (1,295,181) (1,486,453)
------------------------------------------ ------------- ------------
Net trade and other receivables 10,527,993 12,792,968
------------------------------------------ ------------- ------------
Current and non-current split as at year end is as follows:
30 June 2023 31 December
2022
Current assets (unaudited) (audited)
US$ US$
Prepayments 38,084 82,333
Rent receivable - 671,586
Straight-lining lease asset 3,116,925 3,103,595
------------------------------- ------------- ------------
3,155,009 3,857,514
Non-current assets
Straight-lining lease asset 7,372,984 8,935,454
------------------------------- ------------- ------------
Trade and other receivables 10,527,993 12,792,968
------------------------------- ------------- ------------
The Group has assessed the straight-lining lease asset for
impairment. This balance represents the result of straight-lining
of future fixed lease payments over the lease term. The Group has
performed an assessment on the rent receivable and the
straight-lining lease asset taking into account current and future
information relating to the airline industry as well as the lessee
specifically and concluded that the impairment provision as at 30
June 2023 is US$ 1,295,181 (31 December 2022: US$ 1,486,453).
Movements in the impairment provision for trade receivables are
as follows:
30 June 2023 31 December
2022
(unaudited) (audited)
US$ US$
Opening provision 1,486,453 -
Expected credit loss on straight
lining lease asset (191,272) 1,486,453
Expected credit loss on lease
receivable - 105,063
Lease receivable written off - (105,063)
---------------------------------------- -------------- ------------
Closing provision 1,295,181 1,486,453
---------------------------------------- -------------- ------------
12) MAINTENANCE PROVISION
30 June 2023 31 December
2022
(unaudited) (audited)
US$ US$
Maintenance provision - Thai
Airways 14,829,296 14,829,296
------------------------------------ -------------- -------------
Total maintenance provision 14,829,296 14,829,296
------------------------------------ -------------- -------------
Maintenance provision relates to funds received from Thai
Airways reserved for covering the cost of
maintenance of the aircraft.
13) TRADE AND OTHER PAYABLES
30 June 2023 31 December
2022
(unaudited) (audited)
US$ US$
Current
Accruals and other
payables 140,688 221,749
Asset Manager fees
payable 64,979 218,033
Broker fees payable - 167,902
Director fees payable - 212,360
Taxation payable 21,249 21,249
---------------------------- ------------- ------------
226,916 841,293
--- ------------- ------------
Non - Current
Asset Manager fees 234,277 -
payable
Broker fees payable 251,853 -
Director fees payable 223,563 -
----------------------- --- ------------- ------------
709,693 -
----------------------- --- ------------- ------------
Total trade and other
payables 936,609 841,293
------------------------ ------------- ------------
14) BANK BORROWINGS
30 June 31 December
2023 2022
(unaudited) (audited)
US$ US$
Current liabilities: bank interest payable
and bank borrowings 6,078,377 17,707,184
Non-current liabilities: bank borrowings 90,298,049 80,779,172
------------
Total liabilities 96,376,426 98,486,356
--------------------------------------------- ---------------- ------------
The borrowings are repayable as follows:
30 June 2023 31 December
2022
(unaudited) (audited)
US$ US$
Interest payable 245,645 181,493
Within one year 5,832,732 17,525,691
In two to five years 90,298,049 80,779,172
After five years - -
Total bank borrowings 96,376,426 98,486,356
------------------------ ------------- ------------
The table below analyses the movements in the Group's bank
borrowings:
30 June 2023 31 December
2022
(unaudited) (audited)
US$ US$
Opening balance 98,304,863 98,304,863
Loan modification adjustment
(Note 6) 5,042,029 -
Repayment of loan (6,689,862) -
Amortisation adjustment (526,249) -
Principal bank borrowings 96,130,781 98,304,863
Interest payable 245,645 181,493
Total bank borrowings 96,376,426 98,486,356
-------------------------------- -------------- ------------
The tables below sets out an analysis of net debt and the
movements in net debt for the period ended 30 June 2023:
Cash and
cash equivalents Principal Interest Net Debt
US$ US$ US$ US$
At 1 January 2023 1,479,541 (98,304,863) (181,493) (97,006,815)
Cash flows (384,391) 6,689,862 2,916,009 9,221,480
Non cash:-
Modification adjustment - (5,042,029) - (5,042,029)
Amortisation adjustment - 526,249 (526,249) -
Interest charge - - (2,453,911) (2,453,911)
------------------------- ------------------ ------------- ------------ -------------
At 30 June 2023 1,095,150 (96,130,781) (245,644) (95,281,275)
------------------------- ------------------ ------------- ------------ -------------
The tables below sets out an analysis of net debt and the
movements in net debt for the year ended 31 December 2022:
Cash and
cash equivalents Principal Interest Net Debt
US$ US$ US$ US$
At 1 January
2022 1,179,211 (98,304,863) (136,010) (97,261,662)
Cash flows 300,330 - 4,814,822 5,115,152
Non cash: -
Interest charge - - (4,860,305) (4,860,305)
------------------ ------------------ ------------- ------------ -------------
At 31 December
2022 1,479,541 (98,304,863) (181,493) (97,006,815)
------------------ ------------------ ------------- ------------ -------------
DekaBank Deutsche Girozentrale
During the year ended 31 December 2015, the Company utilised the
proceeds from the placing and the proceeds of two separate loans
from DekaBank Deutsche Girozentrale ('DekaBank') of US$ 78,500,000
each to fund the purchase of two Boeing 787-8 aircraft. The balance
on the loans at 30 June 2023 was US$ 96,376,426 (31 December 2022:
US$ 98,486,356).
In accordance with the Amendment and Restatement to the Loan
Agreements dated 6 May 2021, repayments of any principal were to be
deferred until the end of the PBH arrangement i.e., 31 December
2022. Interest on the non-deferred principal of the loans was to
accrue at a fixed rate of 4.10 per cent and interest on the
deferred principal was to accrue at a rate per annum equal to the
sum 5.0% per annum plus Secured Overnight Financing Rate (SOFR) for
the applicable period (such rate to be determined by the Facility
Agent).
On 7 February 2023, the Group and DekaBank entered into a Second
Amendment and Restatement to the Loan Agreements. The new terms
agreed are as follows:
-- the total loan amount outstanding was split into two tranches:
o Facility A loan of US$ 61,144,842 made up of MSN 35320 loan of
US$ 31,099,453 and MSN 36110 loan of US$ 30,045,389. The Facility A
loan amortizes to a combined balloon of US$ 33,947,878 and
represents the scheduled debt.
o Facility B loan of US$ 35,504,024 (non-amortizing), made up of
MSN 35320 loan of US$ 17,366,650 and MSN 36110 loan of US$
18,137,374. The Facility B loan will be settled as a balloon
payment at the end of the loan term in 2026.
-- the MSN 35320 and MSN 36110 Facility A loans bear fixed
interest rates of 6.61% and 6.89% respectively.
-- the MSN 35320 and MSN 36110 Facility B loans bear fixed
interest rates of 5.26% and 5.42% respectively.
-- from the monthly fixed lease rental of US$ 510,000 per
aircraft (which denotes the maximum amount the Company can earn in
operations per month), US$ 475,000 is legally restricted so that
those funds are only payable to the lenders and US$ 35,000 per
aircraft can be retained by the company to contribute towards
ongoing fixed costs of the Company.
The MSN 35320 loan and the MSN 36110 loan have a final maturity
date of 9 December 2026 and 29 October 2026 respectively.
The two DekaBank loans (MSN 35320 loan and MSN 36110 loan
referred to as the third and fourth loan) entered into by the Group
to complete the purchase of the two aircraft (referred to as the
third and fourth Assets) are cross collateralised. Each of the
third and fourth loan is secured by way of security taken over the
third and fourth Assets and enforce security over both Assets. This
means that a default on one loan places both of the Assets at risk.
Following the enforcement of security and sale of the aircraft, the
remaining proceeds, if any, may be substantially lower than
investors' initial investment in the Company.
15) SHARE CAPITAL
Period ended 30 June 2023 (unaudited) Subordinated
Administrative Ordinary
Share Shares Total
Issued and fully paid (no par Number Number Number
value):
Shares as at 1 January 2023 and
30 June 2023 1 239,333,333 239,333,334
---------------------------------------- --------------- ------------ ------------
US$ US$ US$
Share capital as at 1 January
2023 and 30 June 2023 1 211,279,827 211,279,828
---------------------------------------- --------------- ------------ ------------
Period ended 30 June 2022 (unaudited) Subordinated
Administrative Ordinary
Share Shares Total
Issued and fully paid (no par Number Number Number
value):
Shares as at 1 January 2022 and
30 June 2022 1 209,333,333 209,333,334
---------------------------------------- --------------- ------------ ------------
US$ US$ US$
Share capital as at 1 January
2022 and 30 June 2022 1 210,556,651 210,556,652
---------------------------------------- --------------- ------------ ------------
Subject to the applicable company law and the Company's Articles
of Incorporation, the Company may issue an unlimited number of
shares of par value and/or no-par value or a combination of both.
The Subordinated Administrative Share is held by the Asset
Manager.
Holders of Subordinated Administrative Shares are not entitled
to participate in any dividends and other distributions of the
Company. On a winding up of the Company the holders of the
Subordinated Administrative Shares are entitled to an amount out of
the surplus assets available for distribution equal to the amount
paid up, or credited as paid up, on such shares after payment of an
amount equal to the amount paid up, or credited as paid up, on the
ordinary shares to the shareholders. Holders of Subordinated
Administrative Shares shall not have the right to receive notice of
and have no right to attend, speak and vote
at general meetings of the Company except if there are no
ordinary shares in existence.
The Directors are entitled to issue and allot C Shares. No C
Shares have been issued since the Company was incorporated.
16) DIVIDS
There were no dividends declared and paid during the period
ended 30 June 2023 and 30 June 2022.
17) FAIR VALUE MEASUREMENT
Financial assets and financial liabilities at amortised cost
The fair value of cash and cash equivalents, trade and other
receivables, restricted cash and trade and other payables
approximate their carrying amounts due to the short-term maturities
of these instruments.
18) RELATED PARTY TRANSACTIONS
The Directors of the Company received total fees from the Group
as follows:
Current 30 June 2023 30 June 2022
fee
(annual) (unaudited) (unaudited)
GBP US$ US$
Jon Bridel (Chairman) 61,750 38,481 42,412
Jeremy Thompson (Chairman of the
Audit and Risk Committee and Senior
Independent Director) 49,450 30,483 34,508
Harald Brauns (Chairman of the
Management Engagement Committee) 49,450 31,278 34,572
Total 160,650 100,242 111,492
-------------------------------------- ---------------------- ------------- -------------
*Note: Directors fees were agreed in GBP, the financial
statements are presented in US$
Up to 30 September 2022, 10% of base fees and all extra fees
were being deferred to be settled in the future via cash or by way
of issue of equity of the Company or both. There has been no
settlement of Director remuneration via the issue of equity in the
current period (30 June 2022: US$ nil) and the deferred fees remain
outstanding as at 30 June 2023 (see note 13).
Directors' expenses totalling US$ 1,213 were paid during the
year ended 30 June 2023 (30 June 2022: US$946), with US$ nil due to
be paid at the year-end (31 December 2022: US$ nil).
The Directors' interests in the shares of the Company are
detailed below:
30 June 2023 31 December 2022
Number of Number of
ordinary shares ordinary shares
Jon Bridel and connected persons 90,000 90,000
Jeremy Thompson 15,000 15,000
Harald Brauns - -
19) MATERIAL CONTRACTS
Asset Management Agreement
The Asset Management Agreement dated 19 September 2013, between
the Company and DS Aviation was initially amended on 5 June 2015 to
reflect the acquisition of two new aircraft. A second amendment via
a side letter, effective 1 January 2021, was made to the Asset
Management Agreement on 7 May 2021.
Disposal fee
The initial amendment provides a calculation methodology for the
disposal fee which will only become payable when all four of the
Assets (two sold under receivership in the prior period and second
two currently held by the Group) have been sold after the expiry of
the second Thai Airways lease on 9 December 2026. The fee will be
calculated as a percentage of the aggregate net sale proceeds of
the four Assets, such percentage rate depending upon the Initial
Investor Total Asset Return per share being the total amount
distributed to an initial investor by way of dividend, capital
return or otherwise over the life of the Company. If each of the
Assets is sold subsequent to the expiry of their respective leases,
the percentage rate shall be:
-- Nil, if the Initial Investor Total Asset Return per Share is less than 205%;
-- 1.5%, if the Initial Total Asset Return per Share equals or
exceeds 205% but is less than 255%;
-- 2%, if the Initial Total Asset Return per Share equals or
exceeds 255% but is less than 305%; or
-- 3%, if the Initial Total Asset Return per Share equals or exceeds 305%.
In the event that any of the Assets is sold prior to the expiry
of its lease the percentage hurdles set out above will be adjusted
on the following basis:
(i) an amount will be deducted in respect of each Asset sold
prior to the expiry of its lease, equal to the net present value of
the aggregate amount of dividends per share that were targeted to
be paid but were not paid as a result of the early divestment of
the relevant Asset; and
(ii) a further amount will be deducted, in respect of each Asset
sold prior to the expiry of its lease, equal to the amount by which
the proportion of the non-dividend component of the relevant
percentage hurdle attributable to the relevant Asset would need to
be reduced in order to meet its net present value.
Per the second amendment, payment of any Disposal Fee per above
(if any) in connection with the sale of any of the Assets is
subordinated to the DekaBank loans and will only become payable
after the loans (including the deferred element) have been repaid
or prepaid in full.
The disposal fee is a cash-settled payment to the Asset Manager.
There is no disposal fee expected to be payable and hence no
provision recognised within these Interim Financial Statements.
Management fees
The Asset Manager is paid a monthly base fee of US$ 15,085 (US$
16,666 up to 31 December 2020) per Asset in respect of the two
Assets that are currently held by the Group, increasing by 2.5 per
cent per annum from May 2021.
As consideration for the Asset Manager agreeing to a reduction
of the monthly base fee in respect of the two Assets that are
currently held by the Group, the Company agreed that, when
permissible as advised by the corporate broker, the Asset Manager
shall receive an allocation of shares in the Company determined to
be of a value equivalent to the reduction in the monthly base fee
with respect to the two Assets. The share allocation will be
carried out using a share price for the conversion which is fair
and reasonable as advised by corporate broker.
In the period to 30 June 2023 asset management fees totalled US$
239,709 (30 June 2022 US$ 233,862) and US$ 299,256 was due as at 30
June 2023 (31 December 2022: US$ 218,033).
20) SEGMENTAL INFORMATION
The Group is engaged in one operating segment, being acquiring,
leasing and subsequent selling of aircraft. The geographical
location of the Assets of the Group is Thailand, where the Assets
are registered. The income arising from the lease of the Assets
originates from a lessee based in Thailand.
21) SUBSEQUENT EVENTS
In order to align the Company's auditing arrangements with the
location of its business, the Board are proposing to change the
KPMG entity which undertakes the Company's audit. As a consequence,
KPMG Channel Islands Limited has indicated its willingness to
assume the role of independent auditor, subject to the satisfactory
completion of applicable client and engagement acceptance
procedures, upon which KPMG Ireland will tender its
resignation.
COMPANY INFORMATION
Directors Jonathan Bridel
Jeremy Thompson
Harald Brauns
Registered Office East Wing
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3PP
Channel Islands
Asset Manager DS Aviation GmbH & Co. KG
Stockholmer Allee 53
44269, Dortmund
Germany
Solicitors to the Company Norton Rose Fulbright LLP
(as to English law) 3 More London Riverside
London
SE1 2AQ
United Kingdom
Advocates to the Company Mourant
(as to Guernsey law) Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey
GY1 1HP
Channel Islands
Auditor KPMG, Chartered Accountants
1 Harbourmaster Place
IFSC
Dublin 1
Ireland
Administrator and Company Secretary Aztec Financial Services (Guernsey)
Limited
East Wing
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3PP
Channel Islands
Corporate Broker Investec Bank plc
30 Gresham Street
London
EC2V 7QN
United Kingdom
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END
IR SFIESUEDSEEU
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