TIDMDPA
RNS Number : 6116J
DP Aircraft I Limited
28 April 2022
28 April 2022
DP Aircraft I Limited (the "Company")
Annual Report and Accounts
Please see attached a copy of the Annual Report and Audited
Consolidated Financial Statements for the year ended 31 December
2021 (the "Annual Report"), which is available from the Company's
registered office.
A detailed analysis and commentary of the Company's results for
the year ended 31 December 2021 is presented in the Annual Report
published today, which 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 748863
Sarah Felmingham / Chris Copperwaite
DP AIRCRAFT I LIMITED
ANNUAL REPORT AND AUDITED CONSOLIDATED FINANCIAL STATEMENTS
YEARED 31 DECEMBER 2021
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$ 0.01 at 31 December 2021
Latest Share Price US$ 0.02 at 27 April 2022
Loss per Share US$ 0.10215 for the year ended 31
December 2021
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 LN-LNA (sold under receivership)
LN-LNB (sold under receivership)
HS-TQD
HS-TQC
Aircraft Serial Number 35304 (sold under receivership)
35305 (sold under receivership)
35320
36110
Aircraft Type and Model B787-8
Lessees Thai Airways International Public
Company Limited ('Thai
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 initially made its investment in aircraft
through four wholly owned subsidiary entities, DP Aircraft Guernsey
I Limited, DP Aircraft Guernsey II Limited, 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 two intermediate lessor companies, DP
Aircraft Ireland Limited and DP Aircraft UK Limited (the
'Lessors'), an Irish incorporated private limited company and a UK
incorporated private limited company respectively. Effective 26
February 2021, the aircraft and the related aircraft leasing
activities of DP Aircraft Guernsey I Limited and DP Aircraft
Guernsey II Limited are no longer controlled by the Company as a
result of receivership proceedings described on the next page under
Norddeutsche Landesbank Girozentrale and in note 3 therefore the
assets and liabilities of these two entities are no longer part of
the consolidated Group. Furthermore, DP Aircraft Ireland Limited is
no longer controlled by the Company effective 26 February 2021 as a
result of the same receivership proceedings and is no longer part
of the consolidated Group. The Company and its remaining
consolidated subsidiaries, DP Aircraft Guernsey III Limited, DP
Aircraft Guernsey IV Limited and DP Aircraft UK Limited comprise
the consolidated Group (the 'Group').
Pursuant to the Company's Prospectus dated 27 September 2013,
the Company offered 113,000,000 ordinary shares of no par value in
the capital of the Company at an issue price of US$ 1.00 per share
by means of a Placing. The Company's shares were admitted to
trading on the Specialist Fund Segment (previously the Specialist
Fund Market) of the London Stock Exchange on 4 October 2013 and the
Company was listed on the Channel Islands Securities Exchange until
27 May 2015.
On 5 June 2015, the Company offered 96,333,333 ordinary shares
(the 'New Shares') of no par value in the capital of the Company at
an issue price of US$ 1.0589 per share by means of a Placing. The
Company's New Shares were admitted to trading on the Specialist
Fund Segment of the London Stock Exchange on 12 June 2015.
In total there are 209,333,333 Ordinary Shares in issue with
voting rights.
In addition to the equity raised above, the Group also utilised
external debt to fund the initial acquisition of the aircraft.
Further details are given within this summary section.
INVESTMENT OBJECTIVE & POLICY
The Company and Group's investment objective is to obtain income
and capital returns for its Shareholders by acquiring, leasing and
then, when the Board considers it appropriate, selling aircraft
(the 'Asset' or 'Assets').
THE BOARD
The Board comprises independent non-executive Directors. The
Directors of the Board are responsible for managing the business
affairs of the Company and Group in accordance with the Articles of
Incorporation and have overall responsibility for the Company's and
Group's activities, including portfolio and risk management. The
asset management activities of the Group are provided by DS
Aviation GmbH & Co. KG (the 'Asset Manager').
THE ASSET MANAGER
The Asset Manager has undertaken to provide the asset management
advisory services to the Company and Group under the terms of an
asset management agreement but does not undertake any regulated
activities for the purpose of the UK Financial Services and Markets
Act 2000.
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-kilometer basis than similar
comparable current technology legacy aircraft. The Board has taken
steps to reduce its own travelling and maximises the use of virtual
meetings within the board and with all its key service providers.
Guernsey operations benefit from the majority of its electricity
consumption being sourced from verifiably renewable sources.
CORONAVIRUS ('COVID-19')
COVID-19 has had a significant impact on the airline sector, and
by extension the aircraft leasing sector. More information is
provided below and in the Asset Manager's Report.
NORWEGIAN AIR SHUTTLE ('NORWEGIAN' / 'NAS')
The lease agreements with NAS were, in the judgement of the
Directors de-facto terminated in December 2020. This is on the
basis that prior to 31 December 2020, NAS had suspended all lease
payments (since May 2020) on both aircraft, the lessee had filed
for Examinership in Ireland in November 2020 and had also not
fulfilled certain other obligations of the aircraft including safe
storage. The board considered that as at 31 December 2020, due to
the above, NAS were in full breach of the lease agreement and that
NAS had no intention to continue the leases. Whilst the leases were
not formally terminated, the board were in negotiations regarding
the lease terminations pre 31 December 2020 year end. As a result,
the board concluded that in substance a 'de-facto' lease
termination occurred in the year ended 31 December 2020. Therefore,
no rental income has been earned from NAS in the 2021 period.
The Group has submitted claims against NAS for losses suffered
but do not expect to receive any compensation due to the related
lending bank enforcing their security rights over the lease
contracts after declaring an Event of Default as detailed
below.
Whilst the Irish High Court approved the survival plan for NAS
and related companies on 22 April 2021, this had no impact on the
Group.
NORDDEUTSCHE LANDESBANK GIROZENTRALE AND THREE OTHER CONSORTIUM
MEMBERS ('NordLB')
On 24 February 2021, NordLB declared an Event of Default under
the relevant loan agreements with DP Aircraft Guernsey I Limited
and DP Aircraft Guernsey II Limited, which resulted in NordLB being
entitled to enforce rights under the relevant security documents.
On 26 February 2021, the Group received notices of security
enforcement and loan acceleration from NordLB, and accordingly,
receivers were appointed in relation to the assets and liabilities
of DP Aircraft Guernsey I Limited and DP Aircraft Guernsey II
Limited and the shares in the Irish special purpose vehicle, DP
Aircraft Ireland Limited which holds title to the NAS aircraft.
NordLB therefore took control of the process of disposing of the
two NAS aircraft, with the proceeds of sale (along with relevant
aircraft-specific cash balances, claims against Norwegian and
shares in Norwegian held as security) being applied in the first
instance to pay off any outstanding amounts owed to NordLB, and any
balance remaining thereafter being remitted to DP Aircraft Guernsey
I Limited and DP Aircraft Guernsey II Limited as is applicable.
Due to the receivership proceedings mentioned above, and as
detailed in note 3, the Directors concluded that effective 26
February 2021 the Company no longer controlled DP Aircraft Ireland
Limited and the assets and liabilities of DP Aircraft Guernsey I
Limited and DP Aircraft Guernsey II Limited. As a result, DP
Aircraft Ireland Limited, and the assets and liabilities DP
Aircraft Guernsey I Limited and DP Aircraft Guernsey II Limited are
no longer consolidated as part of the Group.
Consequently, the assets and liabilities of DP Aircraft Guernsey
I Limited and DP Aircraft Guernsey II Limited including the NAS
aircraft, related cash balances and NordLB loans no longer form
part of these consolidated accounts with effect from 26 February
2021. Similarly, only the income and expenses of these entities
relating to the period from beginning of the year to 26 February
2021 is reported in these consolidated financial statements. Please
refer to note 8 of the financial statements for details regarding
the financial impact of loss of control. It is the intention of the
Group to put all DP Aircraft Guernsey I Limited and DP Aircraft
Guernsey II Limited into voluntary liquidation along with and DP
Aircraft Ireland Limited if and when the Group retain control of
this subsidiary, once NordLB has finalised its enforcement
procedures.
Concurrently with the inception of the loan transaction DP
Aircraft Guernsey I Limited and DP Aircraft Guernsey II Limited had
entered into ISDA Swap Agreements with NordLB. Under the terms of
the swap DP Aircraft Guernsey I Limited and DP Aircraft Guernsey II
Limited were fixed interest rate payers and a floating interest
rate payee. The event of default detailed above also extends to the
ISDA Swap Agreements which were terminated in February 2021 and
balance due on the swaps became payable as part of the loan
balance.
The two aircraft were sold on 14 December 2021 and the proceeds
from sale were applied against the amounts outstanding under the
loan agreements between NordLB and DP Aircraft Guernsey I Limited
and DP Aircraft Guernsey II Limited respectively. The total
settled, including the amount payable under the swaps, by
application of the proceeds from sale was US$ 73,351,832. The
aircraft were sold into a weak market by the security trustee and
given they had not been operational for a considerable period of
time, had no lease attached and would likely require significant
reconfiguration costs if used by another airline the proceeds were
insufficient to cover the loans due. There were no excess proceeds
remaining post application of the sale proceeds therefore no
amounts were remitted to DP Aircraft Guernsey I Limited and DP
Aircraft Guernsey II Limited respectively by NordLB. DP Aircraft
Guernsey I Limited and DP Aircraft Guernsey II Limited are
therefore not able to repay loans advanced to them by the Group.
The total amount outstanding under the loan agreements with NordLB
immediately following the application of enforcement proceeds was
US$ 14,516,716 including the remaining principal amount
outstanding, breakage costs and swap unwinding cost.
Note, the developments mentioned above for the loans and related
swaps impact solely upon DP Aircraft Guernsey I Limited and DP
Aircraft Guernsey II Limited; they have no effect upon the Group's
arrangements in respect of the aircraft which it leases to Thai
Airways; and there is no recourse by NordLB to the Group
itself.
Note, per the deed of resignation and appointment dated 23
September 2021 NordLB was replaced as facility agent and security
trustee under the Loan Agreements by Global Loan Agency Services
Limited as new facility agent and GLAS Trust Corporation Limited as
new security trustee, and all rights, interests and powers of
NordLB under, amongst others, the loan agreements have been
transferred to Global Loan Agency Services Limited and GLAS Trust
Corporation Limited respectively.
THAI AIRWAYS INTERNATIONAL PCL ('THAI AIRWAYS' / 'THAI')
The suspension of travel due to COVID-19 caused significant
financial difficulties for Thai. Due to these financial
difficulties Thai Airways entered business rehabilitation under
Thailand's Central Bankruptcy Court on 27 May 2020, with a view to
a restructuring of the airline. The Central Bankruptcy Court
finally approved Thai's Business Rehabilitation plan on 15 June
2021.
The Group signed a Letter of Intent ('LOI') dated 1 March 2021
with Thai Airways under which the parties agreed to amend the
existing lease terms. The new terms provide for a power by the hour
('PBH') arrangement until December 2022 (i.e., rent will be payable
by reference to actual monthly utilisation of the Thai aircraft),
with scaled back monthly fixed lease payments thereafter until
2026, reflecting the reduced rates now seen in the market. The
lease term was
extended for a further 3 years to December 2029, with further
scaled back monthly lease payments starting from January 2027, the
extension is however subject to the Group retaining a right of
early termination in December 2026 after consulting the Lenders.
Given the uncertainty around the extension of the lease term, the
lease term is considered to be the period to December 2026.
Also, per the LOI it was agreed that Thai would not be required
to pay rent due under the old lease agreement accrued between 15
September 2020 and the amendment effective date. In accordance with
the LOI, the effective date for the lease modification is 15 June
2021, being the date at which the Thailand's Central Bankruptcy
Court approved the restructuring. Thai Airways also undertook to
ensure that the Thai aircraft were airworthy and in-flight ready
condition in all respects by 30 June 2021 and this was achieved.
The actual lease agreement reflecting the terms set out in the LOI
was signed on 1 April 2022.
A corresponding agreement was reached with the bank providing
finance for the aircraft leased to Thai Airways 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. Repayments of
principal are being deferred until after the end of the PBH
arrangement, 31 December 2022; and the Group and DekaBank will
enter into discussions towards the end of the PBH period to
determine how best to schedule interest payments, principal
repayments and a final balloon repayment, having regard for both
the income being received by the Group in respect of the Thai
aircraft, and the running costs of the Group and its subsidiaries.
From the effective date interest is charged on the deferred
principal at the percentage rate per annum equal to the sum of five
per cent. (5.0%) per annum (which, for the avoidance of doubt,
includes the Margin) plus LIBOR for the applicable period (such
rate to be determined by the Facility Agent). Prior to the end of
the PBH arrangement DekaBank and the Group will enter into
negotiations to fix the interest rate for the period post the PBH
Arrangement.
Prior to the loan amendment detailed above, the Group and
DekaBank had agreed that the Group would only be required to make
interest payments on its borrowings relating to the assets leased
to Thai, with no concomitant capital repayment obligation; and that
the Group would make no dividend payments while deferrals remained
outstanding under those borrowings.
IMPAIRMENT
In line with each reporting date, but more relevant in light of
the continuing impact of COVID-19 and market capitalisation of US$
2million at 31 December 2021, a detailed impairment assessment of
the aircraft and lease premiums have been undertaken. Following
this review an impairment of US$ nil (31 December 2020: US$
148,300,052) was booked against the aircraft and US$ nil (31
December 2020: US$ 22,017,459) against the lease premium. See note
3 for further details regarding the impairment and comments under
Highlights on page 9 where comment regarding the difference between
net asset value and market capitalisation.
DISTRIBUTION POLICY
Under normal circumstances, the Group aims to provide
shareholders with an attractive total return comprising income,
from distributions through the period of the Company's ownership of
the Assets, and capital, upon any sale of the Assets. The Company
targets a quarterly distribution in February, May, August and
November of each year. The target distribution is US$ 0.0225 per
share per quarter. The target dividends are targets only and should
not be treated as an assurance or guarantee of performance or a
profit forecast. Investors should not place any reliance on such
target dividends or assume that the Company will make any
distributions at all.
Due to the impact of COVID-19 on the aviation industry and
therefore our lessors, the Board suspended the payment of dividends
from 3 April 2020 until further notice. The suspension remains in
place to date. As mentioned before, during 2021 NordLB declared an
Event of Default, enforced its security rights in respect of the
NAS aircraft and, subsequently sold the aircraft with all proceeds
from sale being applied against the loan amounts outstanding. This
coupled with the fact that any lease rental payments received by
the Company in respect of the Thai aircraft are expected to be
applied exclusively towards the running costs of the Company and
its subsidiaries, and interest payments and principal repayments to
the Thai lenders (DekaBank), means that there is no realistic
prospect of the Company's shareholders receiving a dividend or
other distribution. The Board and its advisers will be consulting
with shareholders in the future with a view to determining the best
course of action to take for the future of the Company.
HIGHLIGHTS
RESULTS FOR THE YEAR
Results for the year ended 31 December 2021 is a loss after tax
of US$ 21,859,073 (loss per Share US$ 0.10442). For the year ended
31 December 2020 there was a loss after tax of US$ 155,127,051
(loss per Share US$ 0.74105).
The loss recognised in the year is mainly attributable to losses
suffered on write off of rentals receivable, loss of control and
movement in the fair value of investment in Norwegian. Refer to
page 40 for full details of results for the year.
Note, as a result of loss of control as detailed in note 3 of
the Notes to the annual financial statements, the results of DP
Aircraft Guernsey I Limited and DP Aircraft Guernsey II Limited
form part of the financial statements only up to 26 February
2021.
NET ASSET VALUE ('NAV')
The NAV was US$ 0.17366 per share at 31 December 2021 (2020: US$
0.27808). NAV per share has decreased due to the loss made during
the year (see above).
As at 31 December 2021 the price per share was US$ 0.01 which is
significantly lower than the NAV per share above. The reason for
the difference is due to the fact that the market price per share
reflects other factors such as market sentiment that cannot be
accounted for in a set of annual financial statements. The main
asset in the Group, the aircraft, has been assessed for impairment
(see note 3) and found not to be impaired. Other significant assets
comprise cash and receivables whose values are considered to be
reflective of fair value due to their short term nature. Therefore,
the low share price is not indicative of a need for further
impairment to the assets of the Group.
DIVIDS
As a result of the Coronavirus pandemic impact on global
aviation and especially its lessees, on 3 April 2020, the company
suspended dividends until further notice to help preserve
liquidity. Further details on the impact of the Covid-19 pandemic
can be found within the Summary, the Asset Manager's Report, and
the Directors' Report.
Furthermore, in accordance with the amended loan agreement with
DekaBank, the Group will make no dividend payments while loan
deferrals remained outstanding under the amended loan
agreement.
OFFICIAL LISTING
The Company's Shares were first admitted to trading on the
Specialist Fund Segment of the London Stock Exchange on 4 October
2013.
CHAIRMAN'S STATEMENT
I am pleased to present Shareholders with the Annual Report of
the Group for the year ended 31 December 2021.
The loss per share for the year was US$ 0.10442 compared to loss
per share of US$ 0.74105 last year. The net asset value per share
at the year end was US$ 0.17366 compared to US$ 0.27808 at 31
December 2020.
As investors will be aware the year presented further
significant challenges to the global aviation market as it has
endeavoured to deal with the effects of the COVID-19 pandemic on
its operations.
As previously noted, the two Boeing 787-8 aircraft, LN-LNA and
LN-LNB (the 'Assets') previously leased to Torskefjorden Leasing
Limited, part of Norwegian, were placed into receivership along
with the related cash balances and proceeds from the sale of the
Norwegian shares. The NAS Lenders took control of the NAS Assets
and went on to sell the loans with the associated security assets
to a third party. The Assets have been subsequently sold and as
expected there was no balance remaining to be distributed to the
Group with the relevant intergroup loans fully provided for as at
31 December 2021.
We are pleased to advise both Thai aircraft are operational and
all engine issues have been resolved. Following agreements with
Thai and Rolls Royce - an equivalent replacement engine was
installed on TQC in March 2022. With both aircraft now in full
return to service condition, we expect both Thai aircraft to be
utilised on a regular basis during 2022. All final documentation
has been concluded in relation to the revised lease documentation
reflecting the LOI signed in March 2021. Income has been received
under the new Power by the Hour (PBH) arrangement which is in place
until the end of 2022 with scaled back monthly lease payments
thereafter until 2026, reflecting the reduced rates now seen in the
market. The lease term was extended by a further 3 years to
December 2029, with further scaled back monthly lease payments
starting from January 2027, and the Group retaining a right of
early termination in December 2026 after consultation with the
Lenders.
Repayments of principal will be deferred until after the end of
the PBH arrangement and the Group and the Thai Lenders will enter
into discussions at that time to determine how best to structure
debt service and to measure the final balloon repayment, having
regard for both the income being received by the Group under the
PBH arrangement in respect of the Thai Assets, the running costs of
the Company and its subsidiaries and the interest rates prevailing
at that time.
As previously noted, there is no realistic prospect of the
Company's shareholders receiving a dividend or other distribution.
During the second half of 2021, a number of uncertainties were
resolved. The key uncertainty remaining is the outlook for the
airline industry and its impact upon Thai and its financial
position but also upon aircraft values in general and the Boeing
787-8 in particular.
The Company will be shortly looking to raise further equity
under a tap issue and taking the opportunity to repay some amounts
due to certain service providers and the directors by way of equity
in lieu of cash payments. The focus of the Company remains the
preservation of the Group's long-term financial stability and
assets, although the challenges facing the Group given the current
state of the airline industry, combined with high fuel prices and
the Ukraine conflict remain significant.
I would like to thank the Board for their continued significant
support over the year with many management meetings taking place.
Thanks also go to the team at the Asset Manager and Administrator
for their considerable support and assistance
I would like to thank our Investors for their continued support
in the Company and its subsidiaries. The Board and its advisers
will continue consulting with Shareholders.
Jonathan Bridel
Chairman
ASSET MANAGER REPORT
THE AIRLINE MARKET
Covid-19 Pandemic in brief
The Covid-19 pandemic still impacts everyday life and
travelling, both domestic and international, around the globe. That
has a significant impact on the airline industry, including airline
restructurings and bankruptcies. The number of stored widebody
aircraft worldwide remains high. Although vaccination coverage is
increasing, different virus variants leading to increased infection
rates and have added to travel restrictions imposed by various
governments. It is impossible to determine the total impact on the
airline and aviation industry or when all Covid-19 restrictions
might be globally lifted.
Global
-- Current Situation
o Largest decline in demand since World War 2
o Drop of 49% in air passenger numbers in 2021 compared to 2019
pre-Covid levels
o Decrease in international tourist receipts of USD 1.3
trillion
o A significant gap exists between airlines' announced capacity
and actual capacity
o Asia/Pacific has experienced 20-25% less decline in domestic
passenger travel than international
o Cargo demand was back to 2019-levels in January 2021
-- Outlook
o Passenger numbers in 2022 expected to be 29-34% below
2019-levels
o Estimated seat capacity for 2022 expected to be 23-26% below
2019-levels
o Anticipated return to 2019-level not expected before 2024
o In the short term, travellers prefer domestic and short- to
medium-haul destinations, e.g., German tourists spent more at
European destinations in May 2021 than before the Pandemic
o Airlines optimistic about passenger recovery and Cargo growth
expected to ease from record-high but to remain strong
2019 (actuals) 2020 (actuals) 2021 (estimated 2022 (forecast)
as of 10/2021
Revenues [billion USD] 838 373 472 658
--------------- --------------- ---------------- ----------------
Capacity (ASK) [% change
vs. 2019] -56.7 -50.4 -33.1
--------------- --------------- ---------------- ----------------
Demand (RPK) [% change
vs. 2019] -65.9 -59.7 -39.2
--------------- --------------- ---------------- ----------------
Passenger Load Factor
[ASK %] 82.6 65.1 67.1 75.1
--------------- --------------- ---------------- ----------------
Passenger Yield [% change
vs. 2019] -8.8 2.0 10.0
--------------- --------------- ---------------- ----------------
Net Results [billion
USD] 26.4 -137.7 -51.8 -11.6
--------------- --------------- ---------------- ----------------
CO2 [million tonnes] 905 495 547 671
--------------- --------------- ---------------- ----------------
Source: IATA October 2021
Europe
Impact of Covid-19
-- Over half of the world's international traffic in 2021 is accounted to Europe
-- 18% decline in international passenger traffic compared to 2019
-- 83% Intra-Region passengers in 2021
-- Passenger revenue for 2022 estimated to increase by 85-105% compared to 2021-levels
-- Passenger numbers in 2022 expected to be below 2019-levels
Asia
Impact of Covid-19
-- 55% decline in overall demand (RPK) in 2021 compared to 2019
-- Seat capacity 2022 estimated to increase by 9-16% compared to 2021-levels
-- Passenger revenue 2022 estimated to increase by 15-33% compared to 2021-levels
-- Passenger numbers in 2022 expected to be 50-44% below 2019-levels
Outlook & Conclusion
The Covid-19 pandemic continues to put significant burden on
airlines. Even if the level of coronavirus cases flattens and
travel bans are gradually lifted resulting from a worldwide mass
vaccination, it will take years until capacity and numbers of
passenger will return to pre-Covid-19 levels. The longer the
pandemic continues, the more the industry will rely on governmental
and creditor support. As most of the governmental support - if any
- are in form of credits, airlines` financial results will be
negatively impacted for future years, even if passenger travel
might already have returned to pre-COVID-19 levels. Some
governments only granted their support subject to the power of
co-decision making which impacts the airline's flexibility and
results in conflicts of interest in regard to future strategic
measurements.
All outlooks shared in this report are based on historic data
and assumptions made by industry experts. It should be considered
as a potential guideline only. From a historical point of view, the
airline industry has proven to be resilient and has recovered from
all previous crises and up to date 2022 shows a slight recovery
compared to the previous year. However, recovery will take
significantly longer as the decline in passenger traffic is not
only driven by an economic downturn but a global continuing
pandemic. According to McKinsey, these aspects will lead to the
necessity of adapting to long-term changes. For example, business
travel has been partially substituted by video conferences and
might never recover to pre-Covid levels, as many companies
significantly progressed in digitalisation and take advantage of
travel cost reductions.
Clearly, this time the recovery period will take significantly
longer than average to return to pre-Covid-19 levels and as long as
the pandemic lasts and most of the travel restrictions remain in
place, the number of airlines filing for bankruptcy and
restructuring will continue to increase. As the pandemic is
continuing, it is impossible to assess the total impact of the
Covid-19 pandemic at the current stage.
THE LESSEE
Thai Airways International Public Company Limited
Impact from Covid-19 pandemic
-- 32 aircraft in operation and 63 aircraft in storage
-- Thailand has resumed TEST & GO scheme from 1 February 2022
-- Annual results of 2020 stated a net loss of THB 141 billion
(appr. USD 4.7 billion) compared to a net loss of THB 12 billion
the previous year; passenger numbers dropped by 76%
-- Thai Airways has put up for sale a total of 10 land parcels
and office buildings across Thailand as it seeks at least THB 50
billion in new credit and loans to repay debts
Impact of the Ukraine-Russia-Conflict
-- thousands of Russian tourists are stuck in Thailand due to
cancelled flights and the ban of Russian financial transactions in
Thailand
-- since the reopening of Thailand for international tourists,
Russian citizens have been the biggest group. In January 2022, 20%
of all tourists were from Russia. As of March 2022, only a fraction
of that is arriving in Thailand.
-- Thai Airways flight routes to Europe are not affected by the
closure of the Ukrainian airspace.
Restructuring and Rehabilitation Process since 18th August
2021
-- 17th August 2021: Thai Airways writes off unissued and unsold
share capital, reducing registered capital by about 19%
-- 21st September 2021: Highlight of Thai Airways obligation to
seek regulatory permission before transferring or selling an
aircraft in accordance with whether the transfer of aircrafts is
consistent with the proposed business plan
-- 30th September 2021: Thai Airways has repaid US$ 37 million
to creditors since the implementation of its restructuring plan in
June. The company called it "a great indication of its ability to
repay debt as determined in the plan". Thai Airways has also
received full payment for the sale of non-core assets.
-- 2nd November 2021: Plan to halve its fleet and completely
phase out several aircraft types from its fleet. Thai Airways plans
to reduce its employees by nearly a thousand by December 2022.
-- 15th November 2021: Pre-tax loss of US$ 1.57 billion for the
nine-month period ended 30 September 2021
-- 30th December 2021: Thai Airways has continued to repay all
its creditors. As of 15 November, the repayment stood at nearly THB
130 billion (US$ 3.87 billion) and no default of any clauses under
its rehabilitation plan has occurred.
Outlook & Opportunities post-Covid-19 pandemic - The "New
Thai Airways"
-- Measures to be taken
o Reduction of fleet and aircraft types to minimise maintenance
costs and increase crew efficiency; different aircraft types put up
for sale, including A300s, A330s and A340s
o Amendment of aircraft leases with more favourable terms and
lease rates, e.g., power-by-the hour contracts
o Adjustment of flight routes and cancellation of low return
flights
o Downsizing the workforce and flattening the hierarchy
-- Capital raise of about USD 1.5 billion necessary to repay the debt
-- Fleet of 86 aircraft and five different aircraft types in 2025; phasing-out Boeing 747s
-- Thai expects to return to profits in 2023 and to state shareholder equity above zero in 2030
-- Thailand's economy is dependent on tourism and Thai Airways
benefits from measures initiated by the Government to stimulate
tourism arrivals (objective to return to pre-Covid levels before
2025), such as the "sandbox model":
o Opening of specific regions to foreign fully-vaccinated
tourists from countries considered as "low-risk" without any
mandatory quarantine requirements
o 1st July 2021: Province of Phuket re-opened
-- Arrival of nearly 2,000 tourists within the first five days
-- Thai operates flights from London, Frankfurt, Paris, and Zurich to Phuket
-- 426 inbound flights expected during July
-- 100,000 tourist arrivals targeted for the third quarter 2021
o 15th July 2021: Islands Koh Samui, Koh Phangan and Koh Tao
re-opened
Comments & conclusions
Thai Airways is dependent on the tourism sector, particularly on
in-bound tourism which has been severely impacted by the Covid-19
pandemic. The carrier remains contingent on any decision made by
the Government to elevate or soften travel restrictions. The Thai
Government's establishment of the sandbox model is a first move to
support tourism, although strict requirements need to be met. And
it is important for Thai that this model proves to be successful
and sustainable to support the step-by-step re-opening of the
country. Unfortunately, the increasing number of cases in Thailand
might not be supportive.
The process of business rehabilitation made a significant step
forward with the approval of the Business Rehabilitation Plan by
the creditors and the Central Court of Bankruptcy. Negotiated and
signed agreements with several lessors for a PBH-period facilitate
the carrier the smooth increase of international operations without
the back-breaking burden of fixed monthly lease rentals. From the
stakeholders` perspective, including creditors and lessors, the
final impact of the Business Rehabilitation Process continues to
remain unknown for the time being and undoubtedly, most
stakeholders and presumably all operating lessors will suffer
significant losses.
Thai's recent decision to keep the B787 in their future fleet is
backed by the fact that both DP Aircraft owned B787s are back into
commercial service. Having a fleet of modern aircraft, including
B787s and A350s, supports Thai to compete with other carriers and
base operations on a competitive cost level, particularly if jet
fuel prices increase over time.
Nevertheless, there is no guarantee for the airline's survival.
However, it might be considered that the carrier's long-term
existence is in the country's interest as tourism counted for
one-fifth of the country's national income (pre-Covid). A
successful proof of the "sandbox model" could be a first step on
the long road of recovery of Thai Airways.
THE ASSETS
Update B787
-- Monthly production rate reduced to two aircraft
-- Discovery of issues during production require re-work even on already delivered aircraft
-- Deliveries of new aircraft stopped, and Boeing is working
together with the FAA to analyse and rectify systematic problems
during production. Once deliveries resume, FAA will be deeply
involved in the certification of each aircraft
-- 110 B787s currently produced and not delivered
-- According to Cirium Fleet Analysis, most of the in-service
world fleet is already back in operation after covid related
storage periods
Assets & Operations
Overview
Both aircraft TQC and TQD are kept in a technical condition that
allows them to be used in commercial operations. They both have a
valid Certificate of Airworthiness and are based at Bangkok
Airport. Depending on the current passenger demand, from time to
time, one of the aircraft is kept in short-term storage if the
capacity is not needed. During this storage, the aircraft are
preserved in accordance with the manufacturer's procedures. As of
now (April 12, 2022) TQC and TQD are both used for daily flight
operation on international routes.
AIRCRAFT OPERATIONS Thai Airways
HS-TQC HS-TQD
------------- ------------
Cabin Layout 24 Business Class Seats
240 Economy Class Seats
---------------------------
LAST PHYSICAL INSPECTION
---------------------------
Date 23.06.2021 02.02.2022
------------- ------------
Place Bangkok Airport (BKK)
---------------------------
AIRFRAME STATUS
(31(st) March 2022)
------------- ------------
Total Flight Hours 17,660 16,218
------------- ------------
Total Flight Cycles 3,957 3,697
------------- ------------
Hours/cycles ratio since delivery 4.46 4.39
------------- ------------
Titled Engines Report
As of 1(st) HS-TQC HS-TQD
February
2022
ESN 10239 ESN 10243 ESN 10244 ESN 10248
---------- ---------- ---------- ----------
Total Time
[Flight Hours] 16,277 15,140 11,408 17,131
---------- ---------- ---------- ----------
Total Flight
Cycles 3,577 3,080 2,729 3,738
---------- ---------- ---------- ----------
Location On-wing On- wing On-wing On-wing
---------- ---------- ---------- ----------
As the titled engine 10240 was declared a total loss (Beyond
Economic Repair), the asset manager worked with Thai Airways to
appropriately replace that engine. A replacement engine had been
suggested and the process of reviewing the respective records and
physical condition had been completed. The discussion about the
commercial aspects with Rolls Royce and Thai Airways took much
longer than expected due to the rehabilitation process.
Nevertheless, the title change was successfully completed on 1
April 2022 and the new title engine is already installed on the
aircraft. The complete technical process of the engine replacement,
including testing, was supported, and monitored closely by the
asset manager's on-site team.
Asset Manager's actions ensured asset value
Keeping the assets under management in the best possible
condition and in accordance with the manufacturer's requirement is
the top priority for DS Aviation as DP Aircraft's Asset Manager.
Given the unfortunate combination of the two circumstances of Trent
1000 issues and the Covid-19 pandemic, TQC and TQD had been stored
in the past and are still facing some operational interruptions due
to travel restrictions staying longer in place than expected.
Additionally, the restructuring process is still ongoing. These
facts, accompanied by the experiences from working with Thai
Airways in the past months, still make intensive monitoring
necessary, including the support by an on-site technical team.
Whenever not in operation, the aircraft are periodically inspected
to check the technical condition during maintenance events or
short-term storage periods. Furthermore, through the on-site team,
it is possible to get an overall view of the current situation at
Thai Airways, which is very helpful.
Comments and Conclusions
As per the analysis above, the effects of the Covid-19 Pandemic
are still present in the entire aviation industry and will also
impact the market for future years. As of February 2022, still
approximately 20% of the global widebody fleet is stored, primarily
affecting the largest widebodies like the A380 or ageing aircraft
like the A340 and A330. On the other hand, the latest generation
widebodies A350 and Boeing 787 have recovered much better and show
storage rates of 10% or less.
Besides the Covid related issues, there are some issues
affecting the manufacturer side, especially the widebody market.
Airbus is facing problems with the surface coating of its A350
models, and Boeing has discovered several production problems with
the B787. Also, the 777X, as the subsequent widebody development,
is facing issues that will delay the first deliveries at least
until late 2023, which is still subject to Certification by the FAA
and other local authorities. Additionally, the global shortage of
electronic components, the increased cost of sourcing raw materials
for the production lines, and international political disputes and
skills shortages hurt the aircraft and engine manufacturers,
suppliers, and the MRO industry. These problems with the delivery
of new aircraft and the respective uncertainties focus on the
existing aircraft. Airlines need to postpone the decommissioning of
older airframes and might need to extend their usage to bridge the
time until newly produced jets are ready to enter service. In some
cases, this will not be possible, and even if so, the later fleet
renewal will lead to increased operating costs (fuel burn,
maintenance, etc.) and could be an additional burden for some
airlines.
All the above-mentioned factors will, especially in the future,
require close monitoring of the assets' condition and the need to
put all efforts to keep the value of the aircraft. Nevertheless,
the Boeing 787 is well-positioned for the near and mid-term future
in the passenger market. The aircraft benefits from its latest
generation technology and has a strong position in the market, with
more than 1000 units delivered to date.
DIRECTORS
Jonathan (Jon) Bridel, Non-Executive Chairman (57)
Jon is a Guernsey resident and is currently a non-executive
director of The Renewables Infrastructure Group Limited (FTSE 250)
until 27 May 2022, Sequoia Economic Infrastructure Income Fund
Limited (FTSE 250) and SME Credit Realisation Fund Limited (in wind
down) which are listed on the Main Market of the London Stock
Exchange. Other companies include Fair Oaks Income Fund Limited.
Jon was previously Managing Director of Royal Bank of Canada's
investment businesses in the Channel Islands and served as a
director on other RBC companies including RBC Regent Fund Managers
Limited. Prior to joining RBC, Jon served in a number of senior
management positions in banking, specialising in credit and
corporate finance and private businesses as Chief Financial Officer
in London, Australia and Guernsey having previously worked at Price
Waterhouse Corporate Finance in London.
Jon graduated from the University of Durham with a degree of
Master of Business Administration, holds qualifications from the
Institute of Chartered Accountants in England and Wales (1987)
where he is a Fellow, the Chartered Institute of Marketing and the
Australian Institute of Company Directors. Jon is a Chartered
Marketer and a Member of the Chartered Institute of Marketing, a
Chartered Director and Fellow of the Institute of Directors and a
Chartered Fellow of the Chartered Institute for Securities and
Investment.
Jeremy Thompson, Non-Executive Director (66)
Jeremy Thompson is a Guernsey resident with sector experience in
Finance, Telecoms, Aerospace and Oil & Gas. He acts as a
non-executive director to a number of businesses which include
three private equity funds and to an Investment Manager serving the
listed NextEnergy Solar Fund Limited. In addition, Jeremy is also a
non-executive director of London listed Riverstone Energy Limited.
Between 2005 and 2009 he was a director of multiple businesses
within a London based private equity group. This entailed board
positions on both private, listed and SPV companies and highly
successful exits. Prior to that he was CEO of four autonomous
global businesses within Cable & Wireless PLC and earlier held
CEO roles within the Dowty Group. Jeremy has studied and worked in
the UK, USA and Germany.
Jeremy currently serves as chairman of the States of Guernsey
Renewable Energy Team and is a commissioner of the Alderney
Gambling Control Commission. He is also an independent member of
the Guernsey Tax Tribunal panel. Jeremy is an engineering graduate
of Brunel (B.Sc) and Cranfield (MBA) Universities and attended the
UK's senior defence course (Royal College of Defence Studies). He
holds the Institute of Directors (IoD) Certificate and Diploma in
Company Direction and is an associate of the Chartered Institute of
Arbitration. He completed an M.Sc in Corporate Governance in 2016
and qualified as a Chartered Company Secretary in 2017.
Harald Brauns, Non-Executive Director (67)
Harald is a German banker with extensive experience in the
specialised lending sector. He joined NORD/LB Hannover, Germany in
1977 with a first engagement in the shipping segment. In 1985 he
started the aircraft finance activities for the bank from scratch.
As the Global Head of Aircraft Finance, he built successively a
team of more than 40 dedicated aviation experts located in
Hannover, New York and Singapore. Focused on an asset-based
business model with sophisticated solutions for selected clients he
and his team advanced to global leaders in commercial aircraft
finance with an exposure of well above US$ 10 billion split over a
portfolio of 650 aircraft assets. After more than 35 years in the
aviation industry Harald retired in October 2019. He is a resident
in Germany and was appointed as a non-executive director of the
Company with effect from 1 November 2019.
DIRECTORS' REPORT
The Directors present their Annual Report and Audited
Consolidated Financial Statements for DP Aircraft I Limited for the
year ended 31 December 2021.
Principal Activity and Review of the Business
The Company's principal activity is to purchase, lease and then
sell Boeing 787-8 Aircraft (the 'Assets'). The Company wholly owned
six subsidiaries, DP Aircraft Guernsey I Limited, DP Aircraft
Guernsey II Limited, DP Aircraft Guernsey III Limited, DP Aircraft
Guernsey IV Limited, DP Aircraft Ireland Limited and DP Aircraft UK
Limited (together the 'Group'). As stated in the Summary on page 4
the assets and liabilities of DP Aircraft Guernsey I Limited and DP
Aircraft Guernsey II Limited, and DP Aircraft Ireland Limited are
no longer consolidated as part of the Group with effect from 26
February 2021 following loss of control.
The investment objective of the Group is to obtain income and
capital returns for the Company's shareholders by acquiring,
leasing and then, when the Board considers it appropriate, selling
the Assets. The Company has made its investments in the Assets
through its subsidiaries. The Ordinary Shares of the Company are
currently trading on the Specialist Fund Segment of the London
Stock Exchange.
Due to the impact of Covid-19 on the airline industry, lease
agreements with Norwegian were de-facto terminated in the prior
year and Thai went into business rehabilitation which resulted in a
restructuring of the lease agreements (further details in the
Summary report on pages 5 and 6). The Norwegian leases termination
and the Thai leases restructure have adversely affected current
year results. For the year ended 31 December 2021 no rental income
has been earned from Norwegian and less rental income has been
earned from Thai under the updated lease terms. Furthermore, the
Thai leases restructure resulted in rentals due for the period
January 2021 to May/June 2021 being provided for by way of an
impairment charge and then written off in the current year. All of
this has contributed to the loss recognised in the current year,
see page 40 for full results for the year.
Notwithstanding the requirement for the aircraft to be parked in
the past due to Trent 1000 issues there are no incidents to bring
to the attention of Shareholders concerning the operation of the
Thai aircraft. Inspections have revealed no matters of concern. The
engine that was damaged beyond repair was replaced. The aircraft
have been operational for most of the second half of the 2021 year
and are currently airworthy. Rolls Royce are continuing to address
the Trent 1000 engine warranty related issues which have not
impacted on the Company's revenues. A more detailed review of the
business and prospects is contained in detail in the Asset
Manager's Report on pages 12 to 18.
Results and Dividends
The loss for the year ended 31 December 2021 was US$ 21,859,073
(31 December 2020: US$ 155,127,051).
Under normal circumstances, the Company aims to provide
Shareholders with an attractive total return comprising income,
from distributions through the period of the Company's ownership of
the Assets, and capital, upon any sale of the Assets. The Company
targets a quarterly distribution in February, May, August and
November of each year. The target distribution is US$ 0.0225 per
Share per quarter.
On 3 April 2020, the Company announced a suspension of dividends
until further notice due to Covid-19 impact. The suspension is
continuing and due to recent developments as noted in Summary
report on pages 7 and 8, there is no realistic prospect of the
Company's shareholders receiving a dividend or other
distribution.
Subsequent Events
Refer to note 29 for further details regarding Subsequent
Events.
Directors
The Directors of the Company, who served during the year and to
date, are as shown below:
-- Jonathan Bridel;
-- Jeremy Thompson; and
-- Harald Brauns.
Directors' Interests
The Directors interests in the shares of the Company as at 31
December 2021 are set out below and there have been no changes in
such interests up to the current date:
Number of Number of
ordinary shares ordinary shares
31 December 2021 31 December 2020
Connected parties of Jon Bridel 90,000 90,000
Jeremy Thompson 15,000 15,000
Harald Brauns - -
Principal Risks and Uncertainties
The Statement of Principal Risks and Uncertainties are as
described on pages 31 to 33.
Substantial Shareholdings
The Directors note the following substantial interests in the
Company's share capital as at 31 December 2021 (10% and more
shareholding):
o Prudential Client HSBC GIS Nominee (UK) Limited 44,058,026
shares - 21.05%
o Nortrust Nominees Limited 26,813,026 shares - 12.81%
As at the date of this report there have been no significant
changes in the above list of substantial shareholdings.
The Board
The Board comprises three non-executive Directors each of whom
are independent.
Jeremy Thompson was appointed as Senior Independent Director
(the 'SID') on 1 April 2016.
During the year ended 31 December 2021 the Board had a breadth
of experience relevant to the Company and a balance of skills
experience and age.
The Board recognises the importance of diversity and will
evaluate applicants to fill vacant positions regardless of gender
and without prejudice. Applicants will be assessed on their broad
range of skills, expertise and industry knowledge, and business and
other expertise. In view of the long-term nature of the Company's
investments, the Board believes that a stable board composition is
fundamental to run the Company properly. The Board has not
stipulated a maximum term of any directorship.
Directors
As the Company is not a FTSE 350 company, Directors were not
subject to annual election by the shareholders nor for the
requirement for the external audit contract to be put out to tender
every 10 years. Historically, the Directors had offered themselves
by rotation for re-election at each annual general meeting ('AGM').
Harald Brauns was re-elected at the AGM on 10 July 2020 and Jeremy
Thompson was re-elected at the AGM on 1 July 2021. Jon Bridel is
offering himself for re-election at the forthcoming AGM.
The Directors are on a termination notice of three months.
Directors' Duties and Responsibilities
The Board of Directors has overall responsibility for the
Company's affairs and is responsible for the determination of the
investment policy of the Company, resolving conflicts and for
monitoring the overall portfolio of investments of the Company. To
assist the Board in the day-to-day operations of the Company,
arrangements have been put in place for the performance of certain
of the day-to-day operations of the Company to third-party service
providers, such as the Asset Manager, Administrator and Company
Secretary, under the supervision of the Board. The Board receives
full details of the Company's assets, liabilities and other
relevant information in advance of Board meetings.
The Board undertakes an annual evaluation of its own performance
and the performance of its audit committee and individual
Directors, to ensure that they continue to act effectively and
efficiently and to fulfil their respective duties, and to identify
any training requirements. The results of the most recent
evaluation have been reviewed by the Chairman and his fellow
directors. No significant corporate governance issues arose from
this review.
The Board also undertakes an annual review of the effectiveness
of the Company's system of internal controls and the safeguarding
of shareholders' investments and the Company's assets. At each
quarterly meeting the Board will table and review a risk matrix.
There is nothing to highlight from the reviews of these reports as
at the date of this report.
Board Meetings
The Board meets at least four times a year to consider the
business and affairs of the Company for the previous quarter.
Between these quarterly meetings the Board keeps in contact by
email and telephone as well as meeting to consider specific matters
of a transactional nature. There is regular contact with the
Secretary.
The Directors are kept fully informed of investment and
financial controls and other matters that are relevant to the
business of the Company. The Directors also have access, where
necessary in the furtherance of their duties, to professional
advice at the expense of the Company.
The Board considers agenda items laid out in the Notice and
Agenda which are formally circulated to the Board in advance of any
meeting as part of the board papers. Such items include but are not
limited to; investment performance, share price performance, review
of marketing and shareholder communication. The Directors may
request any agenda items to be added that they consider appropriate
for Board discussion. In addition, each Director is required to
inform the Board of any potential or actual conflict of interest
prior to Board discussion.
Board meetings are attended by representatives of the Asset
Manager. The Company's corporate brokers also attend to assist the
Directors in understanding the views of major shareholders about
the Company.
Board Meeting attendance
The table below shows the attendance at Board meetings and Audit
Committee meetings during the year.
Director No of board meetings No of audit committee
attended meetings attended
Jonathan Bridel 4 4
Jeremy Thompson 4 4
Harald Brauns 4 4
--------------------- ----------------------
No. of meetings during the
year 4 4
--------------------- ----------------------
The Directors also attended over 60 ad-hoc Board, Management and
Committee meetings in addition to the regular quarterly meetings as
shown in the above table and the Chairman attended further meetings
with various stakeholders and on management related matters. The
board also attended committee meetings for the Management
Engagement Committee and the Nominations Committee. The significant
number of meetings reflects the additional time the Directors spent
due to the significant industry developments and the resultant time
spent with advisors.
Directors' Remuneration
The remuneration of the non-executive Directors is reviewed on
an annual basis and compared with the level of remuneration for
directorships of funds with similar responsibilities and
commitments.
Base annual fees are as follows:
Annual Fee 2021 2020
Jonathan Bridel GBP66,000 GBP66,000
Jeremy Thompson GBP53,700 GBP53,700
Harald Brauns GBP55,050 GBP58,800
In recognition of the extra services performed by the Directors
and the significant increase of committed time during 2021 due to
the Group's circumstances, the board have earned extra fees of
GBP65,000 (2020: 81,100) split as follows:-
Additional Fee 2021 2020
Jonathan Bridel GBP25,000 GBP30,000
Jeremy Thompson GBP20,000 GBP24,400
Harald Brauns GBP20,000 GBP26,700
During the current and prior year each Director received the
following remuneration in the form of Directors' fees from Group
companies:
Year ended Year ended
31 December 2021 31 December 2020
GBP US$ equivalent GBP US$ equivalent
Jonathan Bridel (Chairman) 91,000 121,613 96,000 124,994
Jeremy Thompson (Audit
Committee Chairman) 73,700 98,493 78,100 101,665
Harald Brauns (Management
Engagement Committee Chairman) 75,050 100,298 85,500 111,346
--------------------------------- -------- --------------- -------- ---------------
239,750 320,404 259,600 338,005
--------------------------------- -------- --------------- -------- ---------------
10% of base fees and all extra fees are not currently being paid
by way of cash payments but are being deferred or being paid by way
of equity. There has been no settlement of director remuneration
via the issue of equity in the current year (2020: nil). Refer to
note 26 and 27 for further details.
There are no executive director service contracts in issue.
Remuneration Policy
All directors of the Company are non-executive and therefore
there are no incentive or performance schemes. Each director's
appointment is subject to an appointment letter and article 24 of
the Company's articles of association. Base remuneration is paid
monthly in arrears and reflects the experience, responsibility,
time, commitment and position on the main board as well as
responsibility for sitting on subsidiary boards when required. The
Chairman, Audit Chairman (SID) and other committee Chairman may
receive additional remuneration to reflect the increased level of
responsibility and accountability. The maximum amount of directors'
fees payable by the Company in any one year is currently set at
GBP200,000 in accordance with article 24. Remuneration may if
deemed appropriate also be payable for special or extra services if
required in accordance with article 24. This is defined as work
undertaken in connection with a corporate transaction including a
new prospectus to acquire, finance and lease an aircraft and/or
engines, managing a default, refinancing, sale or re-lease of
aircraft and for defending a takeover bid. This may include
reasonable travel time if applicable. The board may appoint an
independent consultant to review fees if it is considered an above
inflation rise may be appropriate.
Internal Controls and Risk Management Review
The Board is responsible for the Company's system of internal
control and for reviewing its effectiveness. The Board confirms
that there is an ongoing process for identifying, evaluating and
monitoring the significant risks faced by the Company.
The Board carries out an annual review of internal controls
including those of the administrator. The internal control systems
are designed to meet the Company's particular needs and the risks
to which it is exposed. Accordingly, the internal control systems
are designed to manage rather than eliminate the risk of failure to
achieve business objectives and by their nature can only provide
reasonable and not absolute assurance against misstatement and
loss.
The Directors of the Company clearly define the duties and
responsibilities of their agents and advisors. The appointment of
agents and advisers is conducted by the Board after consideration
of the quality of the parties involved and the Board monitors their
ongoing performance and contractual arrangements. Each service
provider is reviewed annually, and key risks and operating matters
are addressed as part of that review.
Dialogue with Shareholders
All holders of shares in the Company have the right to receive
notice of, and attend, all general meetings of the Company, during
which the Directors are available to discuss issues affecting the
Company. The Directors are available to enter into dialogue with
shareholders and make themselves available for such purpose when
reasonably required. The Company believes such communications to be
important. Reports are provided to the Board of Directors on
shareholders' views about the Company and any issues or concerns
they might have.
Board Policy on Tenure and Independence
The Board has not yet formed a policy on tenure. However, it
does consider the independence of each director on an annual basis
during the performance evaluation process. All directors are
considered independent.
Auditor
KPMG, Ireland, Chartered Accountants have indicated their
willingness to continue in office.
Going Concern
The Directors believe that it is appropriate to prepare these
financial statements on the going concern basis due to current cash
flow forecasts which comprise of PBH rentals until 2023, fixed
rentals thereafter which show that the Group has sufficient cash
and resources to cover operating costs for a period of at least 12
months from the signing of these financial statement.
In making this conclusion, the Directors have also taken into
account:-
-- the positive outlook for Thai Airways with the aircraft now
in a full return to service condition and the 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; and
-- the strong belief that Dekabank which made loans to the Group
(with certain loan concessions) will continue supporting the Group.
This is now considered likely given documentation for the revised
Thai lease agreements reflecting the terms that were agreed in the
LOI put in place last year were finalised and signed in April
2022.
The Directors are not aware of any material uncertainties that
may cast significant doubt upon the Group's ability to continue as
a going concern.
Viability Statement
As with previous reports the Directors regularly assess the
viability of the Group with respect to the impact of potential
risks the Group faces and the Group's current position.
The Group has been in extensive negotiations with both its
lenders and its lessees during the year and subsequent to the year
end.
Lease agreements with Norwegian were de-facto terminated in the
prior year, the NAS aircraft that were placed in receivership in
February 2021 and were sold by the receiver in December 2021. There
was no balance remaining post application of the sale proceeds
therefore no amounts were remitted to DP Aircraft Guernsey I
Limited and DP Aircraft Guernsey II Limited, these entities are
therefore not able to repay loans advanced to them by the
Group.
A LOI was signed with Thai Airways that amended the lease
agreements and at the same time an agreement was reached with
Dekabank to amend the loan terms to match the changes to the
related lease agreements with Thai. Final documentation in relation
to the revised Thai lease arrangements reflecting the terms agreed
in the LOI was completed and signed on 1 April 2022.
The Group has successfully addressed the major threats to
getting both of the remaining aircraft in a return to service
condition by concluding an Amended Lease Agreement and all matters
relating to the replacement of the damaged Trent engine which was
deemed beyond economic repair. This has involved contractual
agreements with the Lenders, Thai, Rolls Royce and the Group. Rolls
Royce have provided a replacement engine of equivalent condition
and hours to the one damaged. The viability and therefore
continuation of the Group looks positive save any major, likely
force majeure, scenarios.
Furthermore, now that both aircraft are in a return to service
condition, this not only means the aircraft are earning revenue but
it also means that, were Thai to default, the aircraft are in the
best possible condition for either a re-lease or a sale.
Mindful of the significant challenges which could still impact
the airline industry, Thai Airways in particular and the Company,
the Company has extended its viability period to two years assuming
a successful fund raise.. There is an expectation that an equity
fund raise to bolster cash resources will be successful based on
liaison with the corporate broker, a sufficient number of
shareholders and potential new investors.
Foremost amongst the near-term risks faced by the Group, is the
successful emergence from restructuring of Thai Airways and the
recovery from Covid related restrictions to Thai's tourist economy.
So far, the news from Thai Airways has been positive, the Thai
Administrator (Planner) responsible for the rehabilitation of Thai
has outlined
that he feels that the measures taken have materially addressed
major cost areas (fleet size reduction, staff cuts, pay cuts,
property rationalisation) and further that Thai have raised a
reasonably good amount of capital from asset sales. The Directors
note that whilst they believe that Thai Airways has a strong
possibility of successfully completing the rehabilitation, there is
no guarantee of this. The Directors continue to monitor the
developments of the rehabilitation process and the impact on the
Group.
The Directors regularly consider and assess the viability of the
Company and take into account the Company's current position and
the potential impact of the principal risks outlined below. Also,
the Directors have considered the impact of the Russian invasion of
Ukraine on the Group and concluded that to date there has been no
material impact on the operations of the Group or the operations of
Thai Airways. However, the full impact of the invasion is not yet
known and there is a risk that increases in price of fuel and other
such factors may negatively impact profitability of Thai Airways
and indirectly the Group.
The Directors continue to consider that an investment in the
Company should be regarded as long term in nature and is suitable
only for sophisticated investors, investment professionals, high
net worth bodies corporate, unincorporated associations and
partnerships and trustees of high value trusts and private clients
(all of whom will invest through brokers), in each case, who can
bear the economic risk of a substantial or entire loss of their
investment and who can accept that there may be limited liquidity
in the shares.
The Directors consider that the Notes to the Financial
Statements are integral to the support of the Viability
Statement.
Annual General Meeting
The AGM of the Company will be held in Guernsey on 29 July 2022
at East Wing, Trafalgar Court, Les Banques, St Peter Port,
Guernsey. The meeting will be held to, inter alia; receive the
Annual Report and Audited Consolidated Financial Statements; elect
and re-elect Directors; propose the reappointment of the auditor;
authorise the Directors to determine the auditor's remuneration;
approve the Directors' remuneration policy; authorise the Company
to issue and allot new shares and approve a partial disapplication
of the pre-emption rights to allow the Company to issue new shares
by way of tap issues. Given the ongoing challenges regarding
Covid-19, it is likely the AGM will be restricted to two
shareholders and shareholders are encouraged to vote in advance by
proxy. The formal notice of AGM will be issued to shareholders in
due course.
The Board continues to welcome engagement with its shareholders
and those who have questions relating directly to the business of
the AGM can forward their questions to the Company Secretary by
email to DPA@aztecgroup.co.uk by no later than one week before the
AGM, being 22 July 2022.
A Q&A reflecting the questions received and responses
provided will be made available on the Company's website at
www.dpaircraft.com as soon as practicable following the AGM.
Corporate Governance
The Company is not required to comply with any particular
corporate governance codes in the UK or Guernsey but the Directors
take corporate governance seriously and will have regard to
relevant corporate governance standards in determining the
Company's governance policies including without limitation in
relation to corporate reporting, risk management and internal
control procedures.
The Directors intend to comply, and ensure that the Company
complies, with any obligations under the Companies (Guernsey) Law,
2008 and the Articles to treat shareholders fairly as between
themselves.
Directors' Share Dealings
The Board has agreed to adopt and implement the Market Abuse
Regulation for Directors' dealings. The Board will be responsible
for taking all proper and reasonable steps to ensure compliance
with the Market Abuse Regulation .
Board Committees
The Board of Directors has established an audit committee, which
operates under detailed terms of reference, copies of which are
available on request from the Company Secretary. Details of the
Company Secretary are included within the Company information on
pages 82 and 83.
The Board have established a Management Engagement Committee
which reviewed the performance of the Asset Manager and the key
service providers at least annually and this review includes a
consideration of the service providers' internal controls, risk
management, operational management, information technology and
their effectiveness.
Alternative Investment Fund Managers Directive ('AIFMD')
In July 2013 the European Alternative Investment Fund Management
Directive ('AIFMD') came into effect with transitional provisions
until July 2014. The Company has been determined to be a
'self-managed' Guernsey Alternative Investment Fund ('AIF') and as
such will be treated as a non-EU AIFM for the purposes of the
Directive. The Company has registered with the Financial Conduct
Authority (and notified the Guernsey Financial Services Commission)
under the AIFMD (Marketing) Rules, 2013.
For a non-EU AIFM that has over EUR 100 million (equivalent to
US$ 114 million at 31 December 2021) of net assets under management
and also utilises leverage, certain Annual Investor Disclosures are
required.
Alternative Investment Fund Managers Directive ('AIFMD')
(continued)
For the purpose of AIFMD, the Company is a Self-Managed
Alternative Investment Fund Manager with assets above the EUR 100
million (equivalent to US$ 114 million at 31 December 2021), with
leverage, threshold.
AIFMD does not prescribe use of any one particular accounting
standard. However, the financial statements must be audited by an
auditor empowered by law to audit the accounts in accordance with
the EU Statutory Audit Directive.
The required disclosures for investors are contained within the
Financial Conduct Authority checklist and the Company's compliance
therewith can be found in Appendix 1 to these financial
statements.
Environmental, social and governance (ESG)
The Group recognises the Paris Agreement on climate change. The
Group operates NTA (New Technology Aircraft) - specifically Boeing
787-8's equipped with Rolls Royce Trent-1000 engines which are 20%
more fuel efficient on a revenue-per-kilometer basis than similar
comparable current technology legacy aircraft. The Board has taken
steps to reduce its own travelling and maximises the use of virtual
meetings within the board and with all its key service providers.
Guernsey operations benefit from the majority of its electricity
consumption being sourced from verifiably renewable sources.
Jonathan Bridel Jeremy Thompson
Director Director
REPORT OF THE AUDIT COMMITTEE
On the following pages, we present the Audit Committee (the
'Committee') Report for 2021, setting out the Committee's structure
and composition, principal duties and key activities during the
year. The Committee has reviewed the Company's financial reporting,
the independence and effectiveness of the independent auditor (the
'auditor') and the internal control and risk management systems of
service providers.
The Board is satisfied that for the period under review and
thereafter the Committee has recent and relevant commercial and
financial knowledge sufficient to satisfy the requirements of the
Committee's remit.
Structure and Composition
The Committee is chaired by Mr Thompson and its other members
are Mr Bridel and Mr Brauns.
The Committee conducts formal meetings not less than three times
a year. There were four meetings during the period under review and
multiple ad-hoc meetings. All Directors were present and forming
part of the quorum. The auditor is invited to attend those meetings
at which the annual and interim reports are considered.
Principal Duties
The role of the Committee includes:
-- Monitoring the integrity of the published financial statements of the Group;
-- Keeping under review the consistency and appropriateness of
accounting policies on a year to year basis;
-- Satisfying itself that the annual financial statements, the
interim statement of financial results and any other major
financial statements issued by the Group follow International
Financial Reporting Standards and give a true and fair view of the
Group and its subsidiaries' affairs; matters raised by the external
auditors about any aspect of the financial statements or of the
Group's internal control, are appropriately considered and, if
necessary, brought to the attention of the board, for
resolution;
-- Monitoring and reviewing the quality and effectiveness of the auditor and their independence;
-- Considering and making recommendations to the Board on the
appointment, reappointment, replacement and remuneration of the
Group's auditor;
-- Monitoring and reviewing the internal control and risk
management systems of the service providers; and
-- Considering at least once a year whether there is a need for an internal audit function.
The complete details of the Committee's formal duties and
responsibilities are set out in the Committee's terms of reference,
a copy of which can be obtained from the Secretary.
Independent Auditor
The Committee is also the forum through which the auditor
reports to the Board of Directors. The Committee reviews the scope
and results of the audit, its cost effectiveness and the
independence and objectivity of the auditor, with particular regard
to the terms under which it is appointed to perform non-audit
services including fees. The Committee has established pre-approval
policies and procedures for the engagement of KPMG, Ireland
('KPMG') to provide non-audit services. KPMG has been the
independent auditor from the date of the initial listing on the
Specialist Fund Segment of the London Stock Exchange.
The audit fees proposed by the auditor each year are reviewed by
the Committee taking into account the Group's structure, operations
and other requirements during the year and the Committee make
appropriate recommendations to the Board. The Committee considers
KPMG to be independent of the Company. The Committee also met with
the external auditors without the Asset Manager or Administrator
being present so as to provide a forum to raise any matters of
concern in confidence.
Evaluations or Assessments made during the year
The following sections discuss the assessments made by the
Committee during the year:
Significant Areas of Focus for the Financial Statements
The Committee's review of the interim and annual financial
statements focused on:
-- Valuation of the Company's Assets (more detail in relation to the approach is in note 3);
-- Lease and loan modifications;
-- Loss of control accounting implications;
-- The financial statements giving a true and fair view and
being prepared in accordance with International Financial Reporting
Standards and the Companies (Guernsey) Law, 2008; and
-- Going concern and the viability statement including the
creation of scenario planning and review.
Effectiveness of the Audit
The Committee had formal meetings with KPMG during the period
under review:
-- Before the start of the audit to discuss formal planning,
discuss any potential issues and agree the scope that will be
covered; and
-- After the audit work was concluded to discuss any significant
matters such as those stated above.
-- The Board considered the effectiveness and independence of
KPMG by using a number of measures, including but not limited
to:
-- The audit plan presented to them before the start of the audit;
-- The audit results report;
-- Changes to audit personnel;
-- The auditor's own internal procedures to identify threats to independence; and
-- Feedback from both the Asset Manager and Administrator.
Internal Audit
There is no internal audit function. As all of the Directors are
non-executive and all of the Company's administration functions
have been delegated to independent third parties, the Audit
Committee considers that there is no need for the Company to have
an internal audit function. However, this matter is reviewed
periodically.
Conclusion and Recommendation
After reviewing various reports such as the operation and risk
management framework and performance reports from the Directors and
the Asset Manager and assessing the significant areas of focus for
the financial statements listed on pages 40 to 43, the Committee is
satisfied that the financial statements appropriately address the
critical judgements and key estimates (both in respect to the
amounts reported and the disclosures).
The Committee is also satisfied that the significant assumptions
used for assessing going concern and, determining the value of
assets and liabilities have been appropriately scrutinised,
challenged and are sufficiently robust. The independent auditor
reported to the Committee that no material misstatements were found
in the course of its work. Furthermore, the Administrator confirmed
to the Committee that they were not aware of any material
misstatements including matters relating to presentation.
The Committee confirms that it is satisfied that the independent
auditor has fulfilled its responsibilities with diligence and
professional scepticism. Following the completion of the financial
statements review process on the effectiveness of the independent
audit and the review of audit services, the Committee will
recommend that KPMG be reappointed at the next Annual General
Meeting. #
For any questions on the activities of the Committee not
addressed in the foregoing, a member of the Committee will attend
each Annual General Meeting to respond to such questions.
By order of the Audit Committee
Jeremy Thompson
Audit Committee Chairman
STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES
Geopolitical and economic risks
The Company leases aircraft to a customer in Thailand exposing
it to (i) Thailand's varying economic, social, legal and
geopolitical risks, (ii) instability of Thailand markets and (iii)
the impact of global health pandemics and other global market
disruptions. The Directors continue to monitor the development of
Covid-19 and are continuing to assess the impact on the Company.
Exposure to Thailand's jurisdiction may adversely affect the
Company's future performance, position and growth potential. 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 recent Geopolitical risk surrounding the Russian invasion of
Ukraine have the potential to impact travel and/or travellers'
willingness to travel which in turn could impact the volume of
traffic to and from Thailand.
Exposure to the commercial airline industry
As a supplier to and partner of the airline industry, the Group
is exposed to the financial condition of the airline industry as it
leases its aircraft to commercial airline customers. The financial
condition of the airline industry is affected by, among other
things, geopolitical events, outbreaks of communicable pandemic
diseases and natural disasters, fuel costs and the demand for air
travel. To the extent that any of these factors adversely affect
the airline industry they may result in (i) downward pressure on
lease rates and aircraft values, (ii) higher incidences of lessee
defaults, restructuring, and repossessions and (iii) inability to
lease aircraft on commercially acceptable terms.
Thai Airways
Thai went into debt rehabilitation on 27 May 2020 and the
business rehabilitation plan was only approved on 15 June 2021 by
the Central Bankruptcy Court of Thailand. There is risk that the
business rehabilitation plan does not achieve the desired results,
and this would have an adverse impact on the entity's lease
arrangement with Thai Airways which is the only core source of
income for the Group.
The continuing impact of COVID-19 is likely to impact passenger
numbers for Thai given the reduced Chinese and regional demand.
This is particularly relevant for the Group given the aircraft
leased to Thai Airways is under a PBH arrangement up to 31 December
2022. There is no guarantee that the Group will continue to receive
any rental payments from Thai Airways during this period.
Covid-19 Impact
COVID-19 has spread across the globe, with major outbreaks
across China, the Middle East, Europe and America, resulting in
widespread restrictions on the ability of people to travel,
socialise and leave their homes. COVID-19 has had a significant
impact for the airline sector, and by extension the aircraft
leasing sector. Thai Airways entered into restructuring in 2020 and
is still in the early stages of implementing an approved
rehabilitation plan. Given the continuing evolution of the
significant impact of, and the uncertainties created by COVID-19,
this has meant that this risk has now become the most significant,
although there are early signs the worst may be over. Note, while
there are signs that the worst appears to be over, there is a
possibility of further strains cannot be ruled out.
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 this risk. Any lasting impact of the Covid-19
situation on both aircraft demand and lease rates are at present
unknown.
There is no guarantee that, upon expiry or cessation of the
leases, the Assets could be sold or re-leased for an amount that
would enable shareholders to realise a capital profit on their
investment or to avoid a loss. Costs regarding any future
re-leasing of the assets would depend upon various economic factors
and would be determinable only upon an individual re-leasing event.
Potential reconfiguration costs could in certain circumstances be
substantial.
Key personnel risk
The ability of the Company to achieve its investment objective
is significantly dependent upon the advice of certain key personnel
at DS Aviation GmbH & Co. KG; there is no guarantee that such
personnel will be available to provide services to the Company for
the scheduled term of the Leases or following the termination of
the Lease. However, Key Man clauses within the Asset Management
agreement do provide a base line level of protection against this
risk.
Credit risk & Counterparty risk
Credit risk is the risk that a significant counterparty will
default on its contractual obligations. The Group's most
significant counterparty is Thai Airways as lessee and provider of
income and DekaBank Deutsche Girozentrale ('DekaBank') as holder of
the Group's cash and restricted cash. The lessee does not maintain
a credit rating. Thai Airways is currently in the early stages of
implementing a rehabilitation plan. The credit rating of DekaBank
is Aa2 (2020: Aa2).
There is no guarantee that the business rehabilitation process
of Thai Airways will be successful even though developments to date
have been positive. Failure of any material part of the business
rehabilitation plan may have an adverse impact on its ability to
comply with its obligations under the LOI entered into during March
2021 and the subsequent amended lease agreement entered into in
2022.
Any failure by Thai Airways to pay any amounts when due could
have an adverse effect on the Group's ability to comply with its
obligations under the DekaBank loan agreements and could result in
the lenders enforcing their security and selling the relevant
Assets on the market potentially negatively impacting the returns
to investors. In mitigation, Thai Airways is an international
full-service carrier and is important to Thailand's economy and as
such it is unlikely that the Government will not provide it with
the necessary support to see it through its restructure. However,
there is no guarantee and hence a significant risk remains.
Liquidity risk
In order to finance the purchase of the Assets, the Group
entered into loan agreements. Pursuant to the loan agreements, the
lenders are given first ranking security over the Assets. Under the
provisions of each of the loan agreements, the Borrowers are
required to comply with loan covenants and undertakings. A failure
to comply with such covenants or undertakings may result in the
relevant lenders recalling the relevant loan, as has been the case
with NordLB. In such circumstances, the Group may be required to
remarket the relevant Asset (either sell or enter into a subsequent
lease) to repay the outstanding relevant loan and/or re-negotiate
the loan terms with the relevant lender.
As detailed in the Summary report on page 5, NordLB declared an
Event of Default in February 2021 and enforced its security over
certain of the Group assets. The NordLB debt default impacted
solely upon the two NAS aircraft and has no effect upon the
Company's arrangements in respect of the aircraft which it leases
to Thai Airways; and there is no recourse by NordLB to the Company
itself. Please refer to Summary report for further details.
Boeing
Company exposure to Boeing in terms of ongoing guarantees and
commitments could be negatively impacted with any ongoing 737-Max
or 787 production problems and the financial impact upon Boeing in
terms of financial
compensation and potential loss of orders is not known. However,
the 737-Max situation appears resolved with the resumption of
operations by multiple operators and with Boeing receiving new
orders for the aircraft type.
Rolls Royce
Company exposure to Rolls Royce in terms of ongoing guarantees
and commitments could be negatively impacted with the Trent 1000
engine issues and as yet the full financial impact upon Rolls Royce
in terms of financial compensation, loss of capacity and loss of
orders is not known. The Company believes that its engines could
actually benefit from the current maintenance and refurbishments
underway. Announcements by Rolls Royce have implied that the low
pressure turbine and other issues are now under control.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the financial
statements in accordance with the applicable financial reporting
framework. They have decided to prepare the financial statements in
accordance with International Financial Reporting Framework
('IFRS'). The financial statements are required by law to comply
with the Companies (Guernsey) Law, 2008.
The Directors are also responsible for ensuring its Annual
Report and Audited Consolidated Financial Statement meet the
requirements of the UK's FCA Disclosure and Transparency Rules.
In preparing these financial statements, the Directors have:
-- selected suitable accounting policies and applied them consistently;
-- made judgements and estimates that are reasonable and prudent;
-- stated whether they have been prepared in accordance with IFRS;
-- assessed the Company's ability to continue as a going
concern, disclosing, as applicable, matters related to going
concern; and
-- used the going concern basis of accounting unless they either
intend to liquidate the Company or cease operations or have no
realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting
records which disclose with reasonable accuracy at any time the
assets, liabilities, financial position and profit or loss of the
Company and which enable them to ensure that these financial
statements comply with IFRS and the Companies (Guernsey) Law, 2008.
They are also responsible for such internal controls as they
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error, and have a general responsible for safeguarding the
assets of the Company, and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the financial information included on the Company's website.
Legislation in Guernsey governing the preparation and dissemination
of financial statements may differ from legislation in other
jurisdictions.
Signed on behalf of the Board by
Jonathan Bridel Jeremy Thompson
Director Director
INDEPENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF DP AIRCRAFT I
LIMITED
1. Report on the Audit of the Financial Statements
Opinion
We have audited the consolidated financial statements of DP
Aircraft I Limited ("the Company") and its subsidiaries (together
and hereinafter the "Group"), which comprise the consolidated
statement of financial position as at 31 December 2021, the
consolidated statement of comprehensive income, consolidated
statement of changes in equity and consolidated statement of cash
flows for the year then ended, and notes, comprising significant
accounting policies and other explanatory information.
In our opinion, the accompanying financial statements:
-- give a true and fair view of the financial position of the
Group as at 31 December 2021, and of its financial performance and
its cash flows for the year then ended;
-- have been prepared in accordance with International Financial
Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB); and
-- have been properly prepared in accordance with the
requirements of the Companies (Guernsey) Law, 2008.
Basis for Opinion
We conducted our audit in accordance with International
Standards on Auditing (ISAs). Our responsibilities under those
standards are further described in the Auditors' Responsibilities
for the Audit of the Financial Statements section of our report. We
are independent of the Group in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in Guernsey together with the Financial Reporting
Council (FRC)'s Ethical Standard as applied to listed entities and
we have fulfilled our other ethical responsibilities in accordance
with these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Emphasis of matter - going concern
We draw attention to Note 2(a) of the consolidated financial
statements, which describe the matters considered by the Directors
in forming their view on the appropriateness of the going concern
basis of preparation. Our opinion is not modified in respect of
this matter
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
consolidated financial statements of the current period. These
matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these
matters.
Valuation of PPE - Aircraft & related components $126.4 million (2020: $126.6 million)
Refer to page 47 (accounting policy), page 54 and 55 (significant estimates) and page 62 (financial
disclosures)
----------------------------------------------------------------------------------------------------------------------
The key audit matter How the matter was addressed in our audit
At 31 December 2021, the carrying value of the Group's In relation to the audit of the impairment
aircraft portfolio, including related assessment of aircraft and related
components amounted to $126.4 million or 84% of total components,
assets. the procedures we undertook included,
The Group applies the requirements of IAS-36 Impairment amongst others:
of Assets ('IAS-36') in order to determine
whether it is necessary to recognise an impairment loss We obtained an understanding of and
on any aircraft and related assets. documented the key control around the
There is a significant risk relating to the valuation of impairment assessment
aircraft given the judgemental nature of aircraft and related components,
of the assumptions, and the inputs to the impairment testing the effectiveness of the design
model that require consideration by the and implementation
Board of Directors. of the control, including consideration of
approval by the Board of Directors.
We inquired of the Board of Directors
about plans for aircraft disposals or
other actions
that may negatively impact on aircraft
recoverable amounts.
We evaluated the (i) competence,
capabilities and objectivity of experts
employed by the Group
to provide aircraft current market values
and (ii) the appropriateness of their work
as audit
evidence. We obtained the current market
value reports from the independent valuers
to validate
the current market values to the
impairment model and compared to internal
data sources to
determine they were reasonable.
We evaluated the Board of Directors
identification of impairment indicators,
and assessed
the methodology adopted in its impairment
model with reference to our understanding
of the
Group's business and the requirements of
IAS-36. We assessed the calculations
underlying the
impairment model by checking that the data
and assumptions input (including current
market
value, lease rental streams, residual
values and discount rate) into the model
were in agreement
with those that we had evaluated.
We assessed the adequacy of the
disclosures made by the Group regarding
the impairment assessment
of aircraft and related components in the
financial statements for compliance with
the relevant
accounting standards.
As a result of the procedures performed,
we found that the Groups judgements around
current
market values, lease rental streams,
residual values and discount rate were
reasonable.
----------------------------------------------------------
We have nothing to report on other matters on which we are
required to report by exception
We have nothing to report in respect of the following matters
where the Companies (Guernsey) Law, 2008 requires us to report to
you if, in our opinion:
-- the Company has not kept proper accounting records; or
-- the financial statements are not in agreement with the accounting records; or
-- we have not received all the information and explanations,
which to the best of our knowledge and belief are necessary for the
purpose of our audit.
Other information
The Directors are responsible for the other information. The
other information comprises the information included in the
director's report, asset manager's report, chairman's statement,
highlights, summary, fact sheet, directors, report of the audit
committee, statement of principal risks and uncertainties, company
information and appendix 1 - Alternative Investment Fund Manager's
Directive.
Our opinion on the financial statements does not cover the other
information and we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If, based
on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact.
We have nothing to report in this regard.
2. Respective responsibilities and restrictions on use
Responsibilities of the Directors and Those Charged with
Governance for the Financial Statements
The Directors are responsible for the preparation and fair
presentation of the financial statements in accordance with IFRS,
and for such internal control as the Directors determine is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error,
assessing the Group's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the Directors
either intend to liquidate the Group or to cease operations, or has
no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the
Group's financial reporting process.
Auditors' Responsibilities for the Audit of the Financial
Statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditors' report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
Further details relating to our work as auditor is set out in
the Scope of Responsibilities Statement contained in the appendix
to this report, which is to be read as an integral part of our
report.
Our report is made solely to the Company's Shareholders, as a
body, in accordance with section 262 of the Companies (Guernsey)
Law, 2008. Our audit work has been undertaken so that we might
state to the Company's Shareholders those matters we are required
to state to them in an auditors' report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company's Shareholders as a
body, for our audit work, for this report, or for the opinions we
have formed.
Niall Naughton
for and on behalf of
KPMG
Chartered Accountants, Statutory Audit Firm
1 Harbourmaster Place
IFSC
Dublin 1
Appendix to the Independent Auditors' Report
Further information regarding the scope of our responsibilities
as auditor
As part of an audit in accordance with ISAs, we exercise
professional judgment and maintain professional scepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
-- Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Group's internal control.
-- Evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by the Directors.
-- Conclude on the appropriateness of the Directors' use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Group's
ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in
our auditors' report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained
up to the date of our auditors' report. However future events or
conditions may cause the Group's to cease to continue as a going
concern.
-- Evaluate the overall presentation, structure and content of
the financial statements, including the disclosures, and whether
the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
-- Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within
the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for
our audit opinion.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence,
and where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the (consolidated) financial
statements of the current period and are therefore the key audit
matters. We describe these matters in our auditors' report unless
law or regulation precludes public disclosure about the matter or
when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to outweigh
the public interest benefits of such communication.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2021
Year ended Year ended
31 December 31 December
2021 2020
Note US$ US$
Income
Lease rental income 4 18,391,211 47,285,233
Lease related income 5 - 41,334,854
----------------------------------------- ----- ------------- --------------
18,391,211 88,620,087
Expenses
Asset management fees 28 (757,254) (1,032,327)
Asset manager's disposal fee 28 - 2,479,634
General and administrative expenses 6 (2,640,895) (2,472,196)
Expected credit loss on receivables 15 (12,508,499) (11,416,244)
Depreciation and amortisation 11 (175,160) (21,714,435)
Impairment loss on aircraft and related
components 11 - (170,317,511)
(16,081,808) (204,473,079)
Operating profit/(loss) 2,309,403 (115,852,992)
Finance costs 7 (5,869,097) (14,481,281)
Net losses on financial assets at fair
value 13 (8,547,935) (24,859,692)
Loss on loss of control of assets,
liabilities and subsidiary undertaking 8 (9,874,940) -
Dividend income 57,902 -
Finance income 21,358 107,930
----------------------------------------- ----- ------------- --------------
Net finance costs (24,212,712) (39,233,043)
Loss before tax (21,903,309) (155,086,035)
Taxation 9 44,236 (41,016)
Loss for the year (21,859,073) (155,127,051)
----------------------------------------- ----- ------------- --------------
Other Comprehensive (Loss)/Income
Items that are or may be reclassified
to profit or loss
Cash flow hedges - changes in fair
value - (3,462,554)
Cash flow hedges - reclassified to
profit or loss - 5,811,395
----------------------------------------- ----- ------------- --------------
Cash flow hedge income 25 - 2,348,841
Total Other Comprehensive Income - 2,348,841
----------------------------------------- ----- ------------- --------------
Total Comprehensive Loss for the year (21,859,073) (152,778,210)
----------------------------------------- ----- ------------- --------------
Loss per Share for the year - basic
and diluted 10 (0.10442) (0.74105)
----------------------------------------- ----- ------------- --------------
All income is attributable to the Ordinary Shares of the
Company.
The notes on pages 44 to 81 form an integral part of these
financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2021
2021 2020
Note US$ US$
NON-CURRENT ASSETS
PPE - Aircraft & Related
Components 11 126,424,840 126,600,000
Total non-current assets 126,424,840 126,600,000
CURRENT ASSETS
Assets held for sale 12 - 82,000,000
Investment held at fair
value 13 - 15,630,526
Cash and cash equivalents 1,179,211 6,949,167
Restricted cash 14 17,253,846 27,438,332
Trade and other receivables 15 5,023,512 45,930
------------------------------------ ----- -------------- --------------
Total current assets 23,456,569 132,063,955
TOTAL ASSETS 149,881,409 258,663,955
------------------------------------ ----- -------------- --------------
EQUITY
Share Capital 20 210,556,652 210,556,652
Retained deficit 21 (174,204,530) (152,345,457)
------------------------------------ ----- -------------- --------------
TOTAL EQUITY 36,352,122 58,211,195
------------------------------------ ----- -------------- --------------
NON-CURRENT LIABILITIES
Bank borrowings 18 98,304,863 -
Maintenance reserves 16 14,460,682 14,460,682
Share-based payment liability 19 - 110,710
Total non-current liabilities 112,765,545 14,571,392
CURRENT LIABILITIES
Bank borrowings 18 136,010 180,915,582
Derivative instrument liabilities 25 - 4,183,715
Share-based payment liability 19 218,697 -
Trade and other payables 17 409,035 782,071
------------------------------------ ----- -------------- --------------
Total current liabilities 763,742 185,881,368
TOTAL LIABILITIES 113,529,287 200,452,760
------------------------------------ ----- -------------- --------------
TOTAL EQUITY AND LIABILITIES 149,881,409 258,663,955
------------------------------------ --------------------- --------------
The financial statements on pages 40 to 81 were approved by the
Board of Directors and were authorised for issue on 27 April 2022.
They were signed on its behalf by:
Jonathan Bridel Jeremy Thompson
Chairman Director
The notes on pages 44 to 81 form an integral part of these
financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2021
Year ended Year ended
Note 31 December 31 December
2021 2020
US$ US$
Loss for the year (21,859,073) (155,127,051)
Adjusted for:
Depreciation and amortisation 175,160 21,714,435
Finance costs 7 6,328,112 15,724,086
Gain on derivatives at fair value (459,015) (1,242,805)
Loss on financial assets at fair
value 13 8,547,935 24,859,692
Impairment loss on aircraft and related
components - 170,317,511
Taxation (44,236) 41,016
Loss on loss of control of assets,
liabilities and subsidiary undertaking 8 9,874,940 -
Expected credit loss on receivables 15 12,508,499 11,416,244
Changes in:
Decrease in security deposit - (13,264,420)
Decrease in maintenance provision - (5,746,940)
Decrease in deferred income - (42,771,405)
Decrease in Asset Manager's performance
fee provision - (2,479,634)
(Decrease)/Increase in accruals and
other payables (92,942) 374,821
Increase in receivables (17,486,081) (11,304,821)
Income taxes paid (54,388) (9,681)
-------------------------------------------- ----- ------------- --------------
NET CASH FLOW FROM OPERATING ACTIVITIES (2,561,089) 12,501,048
-------------------------------------------- ----- ------------- --------------
INVESTING ACTIVITIES
Loss of control of subsidiary undertakings 8 (5,456,182) -
Sales of investments in Norwegian 13 4,069,880 -
Restricted cash 3,348,896 7,125,339
-------------------------------------------- ----- ------------- --------------
NET CASH INFLOW FROMINVESTING ACTIVITIES 1,962,594 7,125,339
-------------------------------------------- ----- ------------- --------------
FINANCING ACTIVITIES
Dividends paid - (4,710,000)
Bank loan principal repaid 18 (274,173) (11,700,921)
Bank loan interest paid 18 (4,595,529) (6,981,540)
Swap interest paid 18 (301,759) (1,500,852)
NET CASH FLOW USED IN FINANCING ACTIVITIES (5,171,461) (24,893,313)
-------------------------------------------- ----- ------------- --------------
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 6,949,167 12,216,093
Decrease in cash and cash equivalents (5,769,956) (5,266,926)
-------------------------------------------- ----- ------------- --------------
CASH AND CASH EQUIVALENTS AT
OF YEAR 1,179,211 6,949,167
-------------------------------------------- ----- ------------- --------------
The notes on pages 44 to 81 form an integral part of these
financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2021
Retained Hedging Total
Share capital deficit Reserve Equity
Note US$ US$ US$ US$
As at 1 January 2021 210,556,652 (152,345,457) - 58,211,195
Total comprehensive income
for the year
Loss for the year - (21,859,073) - (21,859,073)
Other comprehensive income - - - -
----------------------------------- ----- -------------- -------------- --------------------- --------------
Total comprehensive loss - (21,859,073) - (21,859,073)
----------------------------------- ----- -------------- -------------- --------------------- --------------
As at 31 December 2021 210,556,652 (174,204,530) - 36,352,122
----------------------------------- ----- -------------- -------------- --------------------- --------------
As at 1 January 2020 210,556,652 7,491,594 (2,348,841) 215,699,405
Total comprehensive income
for the year
Loss for the year - (155,127,051) - (155,127,051)
Other comprehensive income - - 2,348,841 2,348,841
----------------------------------- ----- -------------- -------------- --------------------- --------------
Total comprehensive (loss)/income - (155,127,051) 2,348,841 (152,778,210)
----------------------------------- ----- -------------- -------------- --------------------- --------------
Transactions with owners of
the Company
Dividends 22 - (4,710,000) - (4,710,000)
As at 31 December 2020 210,556,652 (152,345,457) - 58,211,195
----------------------------------- ----- -------------- -------------- --------------------- --------------
The notes on pages 44 to 81 form an integral part of these
financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2021
1) GENERAL INFORMATION
The consolidated audited financial statements ('financial
statements') incorporate the results of the Company and that of
wholly owned subsidiary entities, DP Aircraft Guernsey I Limited
(consolidated up to 26 February 2021), DP Aircraft Guernsey II
Limited (consolidated up to 26 February 2021), 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 two intermediate lessor companies, DP
Aircraft Ireland Limited (consolidated up to 26 February 2021) and
DP Aircraft UK Limited (the 'Lessors'), an Irish incorporated
company limited by shares and a UK incorporated private limited
company respectively.
DP Aircraft I Limited (the 'Company') was incorporated on 5 July
2013 with registered number 56941. The Company is admitted to
trading on the Specialist Fund Segment of the London Stock
Exchange.
The Share Capital of the Company comprises 209,333,333 Ordinary
Shares (2020: 209,333,333) of no par value and one Subordinated
Administrative Share of no par value.
The Company's investment objective is to obtain income and
capital returns for its shareholders by acquiring, leasing and
then, when the Board considers it appropriate, selling
aircraft.
The financial statements were approved by the Board of Directors
and authorised for issue on 27 April 2022.
2) SIGNIFICANT ACCOUNTING POLICIES
a) Basis of preparation
These financial statements are prepared in accordance with
International Financial Reporting Standards, International
Accounting Standards and Interpretations ('IFRS') issued by the
International Accounting Standards Board ('IASB') and the
Disclosure and Transparency Rules (the 'DTRs') of the UK's
Financial Conduct Authority (the 'FCA').
The preparation of financial statements in accordance with IFRS
requires the use of certain critical accounting estimates. It also
requires the Directors to exercise judgement in applying the
Company's accounting policies. The areas where significant
judgements and estimates have been made in preparing the financial
statements and their effect are disclosed in note 3.
The financial statements are presented in United States Dollars
(US$) which is also the functional currency of the Company and its
subsidiaries.
Going Concern
The Directors believe that it is appropriate to prepare these
financial statements on the going concern basis due to current cash
flow forecasts which show that the Group has sufficient cash and
resources to cover operating costs for a period of at least 12
months from the signing of these financial statements.
In making this conclusion, the Directors have also taken into
account:-
-- the positive outlook for Thai Airways with the aircraft now
in a full return to service condition and the 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; and
-- the strong belief that DekaBank which made loans to the Group
(with certain loan concessions) will continue supporting the Group.
This is now considered likely given documentation for the revised
Thai lease agreements reflecting the terms that were agreed in the
LOI put in place last year were finalised and signed in April
2022.
The Directors are not aware of any material uncertainties that
may cast significant doubt upon the Group's ability to continue as
a going concern.
New standards, interpretations and amendments effective from 1
January 2021
The below new standards, amendments to standards and
interpretations are effective for annual periods beginning on 1
January 2021 and have no material impact on the financial
statements:
-- Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS
9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) effective 1 January 2021
-- Covid-19-Related Rent Concessions beyond 30 June 2021
(Amendment to IFRS 16) effective 1 April 2021
New standards, interpretations and amendments in issue but not
yet effective
There are no new standards, amendments to standards and
interpretations that are effective for annual periods beginning
after 1 January 2022 which are expected to have a material impact
on the financial statements in future reporting periods.
b) Basis of consolidation
The financial statements incorporate the financial statements of
the Company and the subsidiary undertakings controlled by the
Company made up to 31 December each year. Control is achieved where
the Company has power over the investee, exposure or rights to
variable returns from its involvement with the investee and the
ability to use its power to affect the amount of the investor's
returns.
When control of a subsidiary undertaking is lost, the assets and
liabilities of that subsidiary are deconsolidated at the date of
loss of control and a resulting loss or gain on loss of control is
reported in profit or loss.
The results of subsidiary undertakings acquired or disposed of
during the year are included in the consolidated statement of
comprehensive income from the effective date of acquisition or up
to the effective date of disposal as appropriate.
All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
c) Taxation
The Company and the Guernsey subsidiaries are exempt from
taxation in Guernsey and are charged an annual exemption fee of
GBP1,200 (2020: GBP1,200). This is treated as an operating
expense.
DP Aircraft Ireland Limited is subject to resident taxes in
Ireland. DP Aircraft UK Limited is subject to income tax in the
United Kingdom.
Taxable profit differs from net profit as reported in the
statement of comprehensive income because it excludes items of
income and expense that are taxable or deductible in other years
and it further excludes items that are never taxable or deductible.
The Group's liability for current tax is calculated using tax rates
that have been enacted or substantially enacted by the reporting
date in the relevant jurisdictions.
d) Property, Plant and Equipment - Aircraft and Related Components
Upon delivery, aircraft (the 'Assets') are initially recognised
at cost plus initial direct costs which may be capitalised under
IAS 16. In accounting for property, plant and equipment, the Group
makes estimates about the expected useful lives, the fair value of
attached leases and the estimated residual value of aircraft. In
estimating useful lives, fair value of leases and residual value of
aircraft, the Group relies upon actual industry experience,
supported by estimates received from independent appraisers.
Upon delivery, aircraft (the 'Assets') are initially recognised
at cost plus initial direct costs which may be capitalised under
IAS 16. In accounting for property, plant and equipment, the Group
makes estimates about the expected useful lives, the fair value of
attached leases and the estimated residual value of aircraft. In
estimating useful lives, fair value of leases and residual value of
aircraft, the Group relies upon actual industry experience,
supported by estimates received from independent appraisers.
When an aircraft is acquired with a lease attached, an
evaluation of whether the lease is at fair value is undertaken. A
lease premium is recognised when it is determined that the acquired
lease terms are above fair value. Lease premiums are recognised as
a component of aircraft and are amortised to profit or loss on a
straight-line basis over the term of the lease.
The two aircraft leased to Thai Airways International were
acquired in 2015 and had a useful economic lease life of 12 years
at acquisition. The useful economic lease life since acquisition of
12 year is unchanged as at year end despite the lease modification
mentioned in note 3 (see note 3).
The Group's policy is to depreciate the Assets over their
remaining lease life (given the intention to sell the Assets at the
end of each respective lease) to an appraised residual value at the
end of the lease. Residual values are reviewed annually at the
beginning of each year, and such estimates are supported by future
values determined by three external valuations and discounted by
the inflation rate incorporated into those valuations, see note 3
for further details.
In accordance with IAS 16 - Property, Plant and Equipment, the
Group's aircraft and related components that are to be held and
used are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of the aircraft may
not be recoverable. An impairment review involves consideration as
to whether the carrying value of an aircraft including related
assets is in excess of the higher of its value in use (discounted
cashflows) and its fair value less costs to sell. In such
circumstances a loss is recognised as a write down of the carrying
value of the aircraft to the higher of value in use and fair value
less cost to sell. The review for recoverability has a level of
subjectivity and requires the use of judgement in the assessment of
estimated future cash flows associated with the use of an item of
property, plant and equipment and its eventual disposition. See
note 3 for further details regarding impairment assessment.
e) Non-current assets held for sale
In line with IFRS 5 non-current assets are classified as held
for sale when:
-- They are available for immediate sale;
-- Management is committed to a plan to sell;
-- It is unlikely that significant changes to the plan will be
made or that the plan will be withdrawn;
-- An active programme to locate a buyer has been initiated;
-- The asset or disposal group is being marketed at a reasonable
price in relation to its fair value; and
-- A sale is expected to complete within 12 months from the date of classification.
Non-current assets classified as held for sale are measured at
the lower of:
-- Their carrying amount immediately prior to being classified
as held for sale in accordance with the group's accounting policy;
and
-- Fair value less costs of disposal.
Following their classification as held for sale, non-current
assets are not depreciated.
f) Financial Instruments
A financial instrument is recognised when the Group becomes a
party to the contractual provisions of the instrument. Regular way
purchases and sales of financial assets are accounted for at trade
date, i.e., the date that the Group commits itself to purchase or
sell the asset. Financial liabilities are derecognised if the
Group's obligations, specified in the contract, expire or are
discharged or cancelled. Financial assets are derecognised if the
Group's contractual rights to the cash flows from the financial
assets expire, are extinguished, or if the Group transfers the
financial assets to a third party and transfers all the risks and
rewards of ownership of the asset, or if the Group does not retain
control of the asset and transfers substantially all the risk and
rewards of ownership of the asset.
Under IFRS 9, on initial recognition, a financial asset is
classified as measured at:
-- Amortised cost;
-- Fair value through other comprehensive income ('FVOCI') - debt investment;
-- FVOCI - equity investment; or
-- Fair value through profit or loss ('FVTPL').
The classification of financial assets under IFRS 9 is generally
based on the business model in which a financial asset is managed
and its contractual cash flow characteristics. The Company only has
financial assets that are classified as amortised cost or
FVTPL.
Financial assets at amortised cost are initially measured fair
value plus transaction costs that are directly attributed to its
acquisition, unless it is a trade receivable without a significant
financing component which is initially measured at its transaction
price.
These assets are subsequently measured at amortised cost using
the effective interest method. The amortised cost is reduced by
impairment losses as detailed below.
Financial assets at amortised cost
A financial asset is measured at amortised cost if it meets both
of the following conditions and is not designated as at FVTPL:
-- It is held within a business model whose objective is to hold
assets to collect contractual cash flows; and
-- Its contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest on the
principal amount outstanding.
Trade and other receivables are classified as held at amortised
cost.
Fair values of financial assets at amortised cost, which are
determined for disclosure purposes, are calculated based on the
present value of future principal and interest cash flows,
discounted at the market rate of interest at the reporting
date.
Cash and cash equivalents comprise cash balances held for the
purpose of meeting short term cash commitments and investments
which are readily convertible to a known amount of cash and are
subject to an insignificant risk of changes in value.
Restricted cash comprises cash held by the Group, but which is
ring-fenced or used as security for specific financing
arrangements, and to which the Group does not have unfettered
access. Restricted cash includes monies received in relation to
maintenance provisions and security deposits.
Impairment of financial assets held at amortised cost
The Company has elected to apply the simplified model for trade
receivables, including lease receivables and maintenance reserve
receivables, as the trade receivables all have a maturity of less
than one year and do not contain a significant financing component.
Under the simplified approach the requirement is to always
recognise lifetime expected credit losses (ECL).
Financial assets at FVTPL
All financial assets not classified as measured at amortised
cost or FVOCI are measured at FVTPL which includes derivative
financial assets, investments held and loans receivable at fair
value.
Financial assets at FVTPL are initially and subsequently
measured at fair value. The Company had originally designated its
derivative financial instruments as hedging instruments as detailed
below.
Hedge accounting
Hedge accounting is applied to certain risks in financial assets
and financial liabilities only where all of the following criteria
are met:
-- At the inception of the hedge there is formal designation and
documentation of the hedging relationship and the Group's risk
management objective and strategy for undertaking the hedge;
and
-- The hedge relationship meets all of the hedge effectiveness
requirements including that an economic relationship exists between
the hedged item and the hedging instrument, the credit risk effect
does not dominate the value changes, and the hedge ratio is
designated based on actual quantities of the hedged item and
hedging instrument.
The Directors previously concluded, given that the critical
terms of the hedged item matched those of the hedging instrument in
terms of risk, timing and quantity, that the requirements of hedge
accounting were met for the Group's floating to fixed interest rate
swaps.
Cash flow hedges - interest rate swaps
The Company had two floating to fixed interest rate swaps in
order to provide for fixed rate interest to be payable in respect
of two of the bank loans. The effective portion of gains and losses
on the floating to fixed interest rate swaps were recognised in
other comprehensive income and accumulated in the cash flow hedge
reserve. The ineffective portion of gains and losses on the
floating to fixed interest rate swaps used to manage cash flow
interest rate risk were recognised in profit or loss within finance
expense or finance income.
However, the cumulative gains and losses recognised in other
comprehensive income were reclassified from the cash flow hedge
reserve to profit or loss using the effective interest method. From
date of discontinuation, movements in the fair value of the hedge
instrument were accounted for in profit or loss.
Hedge accounting is discontinued when:
-- The risk management objective of an entity for the hedging
relationship has changed - i.e., continuing to apply hedge
accounting would no longer reflect its risk management
objective;
-- The hedging instrument expires or is sold, terminated or
exercised; this excludes scenarios in which the expiry or
termination is a replacement or rollover of a hedging instrument
into another that is part of, and consistent with, the entity's
documented risk management objective - discontinuation would not be
required in these scenarios;
-- There is no longer an economic relationship between the
hedged item and hedging instrument; or
-- The effect of credit risk starts dominating the value changes
that result from the economic relationship.
If the hedge no longer meets the criteria for hedge accounting,
then the hedge accounting is discontinued prospectively. When hedge
accounting is discontinued, the amount that has been accumulated in
the hedging reserve remains in equity until it is reclassified to
profit or loss in the same period or periods as the hedged expected
future cash flows affect profit or loss. If the hedged future cash
flows are no longer expected to occur, then the amounts that have
been accumulated in the hedging reserve are immediately
reclassified to profit or loss. Note, hedge accounting was
discontinued in the prior year.
Financial liabilities at amortised cost
Bank borrowings are recognised initially at fair value, net of
transaction costs incurred. Bank borrowings are subsequently stated
at amortised cost; any difference between the proceeds (net of
transaction costs) and the redemption value is recognised through
profit or loss in the consolidated statement of comprehensive
income over the period of borrowing using the effective interest
rate method. Bank borrowings are classified as current liabilities
unless the Group has an unconditional right to defer settlement of
the liability for at least one year after the reporting date.
Initial direct costs related to bank borrowings are capitalised,
presented net against the bank borrowings in the statements of
financial position and amortised to the statement of comprehensive
income over the period of the related loan as part of the effective
interest rate.
Where loans are modified, the modification is assessed in line
with IFRS 9 to determine whether the modification is substantial.
Where the modification is substantial, the existing loan is
derecognised and the new loan is recognised at fair value. Where
the modification is not substantial, the existing loan is not
derecognised. Any difference arising on modification is recognised
as a gain or loss within the statement of comprehensive income
regardless of whether the modification is substantial or not.
M aintenance reserves are lessee contributions to a retention
account held by the lessor which are calculated by reference to the
budgeted cost of maintenance and overhaul events (the 'supplemental
rentals'). They are intended to ensure that at all times the lessor
holds sufficient funds to cover the proportionate cost of
maintenance and overhaul of the Asset relating to the life used on
the airframe, engines and parts since new or since the last
overhaul. During the term of the lease, all maintenance is required
to be carried out at the cost of the lessee, and maintenance
provisions are required to be released only upon receipt of
satisfactory evidence that the relevant qualifying maintenance or
overhaul has been completed.
Maintenance reserves are recorded in the consolidated statement
of financial position during the term of the lease as a liability.
Reimbursements will be charged against this liability as qualifying
maintenance work is performed. Maintenance reserves are restricted
and not distributable until, at the end of the lease, the Group is
released from the obligation to make any further reimbursements in
relation to the aircraft, and the remaining balance of maintenance
provisions, if any, is released through profit or loss as lease
related income. On termination of the lease maintenance reserves
balance is also released to profit or loss as lease related
income.
Trade and other payables are recognised initially at fair value
and subsequently measured at amortised cost using the effective
interest method.
Fair value measurement
The Group measures certain financial instruments such as
derivatives at fair value at the end of each reporting period using
recognised valuation techniques and following the principles of
IFRS 13.
The fair value measurement of the Group's financial assets and
liabilities utilises market observable inputs as far as possible.
Inputs used in determining fair value measurements are categorised
into different levels based on how observable the inputs used in
the valuation technique utilised are:
-- Level 1 - Quoted (unadjusted) market prices in active markets
for identical assets or liabilities;
-- Level 2 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is directly
or indirectly observable; and
-- Level 3 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable.
The classification of an item into the above levels is based on
the lowest level of the inputs used that has a significant effect
on the fair value measurement of the item.
g) Share capital
Shares are classified as equity. Incremental costs directly
attributable to the issue of shares are recognised as a deduction
from retained earnings.
h) Asset Manager's disposal fee provision
The disposal fee provision is measured at the present value of
the expenditure expected to be required to settle the obligation.
Changes in the estimated timing or amount of the expenditure or
discount rate are recognised in profit or loss in the statement of
comprehensive income when the changes arise.
i) Dividends
Dividends are recognised as a liability in the financial
statements in the period in which they become obligations of the
Company.
j) Lease rental income
Leases relating to the Aircraft are classified as operating
leases where the terms of the lease do not transfer substantially
all the risks and rewards of ownership to the lessee. Fixed rental
income from operating leases is recognised on a straight-line basis
over the term of the lease. Variable rental income is accounted for
on an accrual basis. Any modifications to operating leases are
accounted for as a new lease from the effective date of the
modification, considering any prepaid or accrued lease payments
relating to the original lease as part of the lease payments for
the new lease.
Initial direct costs incurred in setting up a lease are
capitalised to Property, Plant and Equipment and amortised over the
lease term.
Rentals received in advance are accounted for a deferred income
and are released to profit or loss on a straight-line basis. Where
the lease is terminated prior to the lease term, any remaining
deferred income is released to the Statement of Comprehensive
Income.
k) Expenses
Expenses are accounted for on an accrual basis.
l) Finance costs and finance income
Interest expense is calculated using the effective interest rate
method. The effective interest method is a method of calculating
the amortised cost of a financial asset or liability and of
allocating interest income and expense over the relevant
period.
l) Finance costs and finance income (continued)
The effective interest rate is the rate that exactly discounts
estimated future cash receipts or payments (including all fees or
amounts paid or received that form an integral part of the
effective interest rate, including transaction costs and other
premiums or discounts) through the expected life of the financial
asset or liability.
m) Foreign currency translation
Transactions denominated in foreign currencies are translated
into US$ at the rate of exchange ruling at the date of the
transaction.
Monetary assets and liabilities denominated in foreign
currencies at the reporting date are translated into US$ at the
rate of exchange ruling at the reporting date. Foreign exchange
gains or losses arising on translation are recognised through
profit or loss in the consolidated statement of comprehensive
income.
n) Segmental reporting
The Directors are of the opinion that the Group is engaged in a
single segment of business, being acquiring, leasing and subsequent
selling of aircraft. All significant operating decisions are based
upon analysis of the Group as one segment. The financial results
from this segment are equivalent to the financial statements of the
Group as a whole.
o) Share based payments
When the Group grants employees or directors the right to choose
whether a share-based payment transaction is settled in cash or by
issuing equity instruments, the Group treats this as having granted
a compound financial instrument, which includes a (liability) debt
component (i.e. the counterparty's right to demand payment in cash)
and an equity component (i.e. the counterparty's right to demand
settlement in equity instruments rather than in cash).
The Group measures the fair value of the compound financial
instrument at the measurement date, taking into account the terms
and conditions on which the rights to cash or equity instruments
were granted. Where the fair value of one settlement alternative is
the same as the other i.e. the fair value of settling by issuing
shares is the same as the fair value of paying cash then the fair
value of the equity component is zero, and hence the fair value of
the compound financial instrument is the same as the fair value of
the liability component.
The Group recognises the services received as an expense in the
Statement of Comprehensive Income, and a liability to pay for those
services, as the directors render service. The services acquired
and liability incurred are measured at the fair value of the
liability. Until the liability is settled, the Group remeasures the
fair value of the liability at the end of each reporting period and
at the date of settlement, with any changes in fair value
recognised in profit or loss for the period.
At the date of settlement, the Group remeasures the liability to
its fair value. If the entity issues equity instruments on
settlement rather than paying cash, the liability will be
transferred direct to equity, as the consideration for the equity
instruments issued.
If the entity pays in cash on settlement rather than issuing
equity instruments, that payment shall be applied to settle the
liability in full.
3) SIGNIFICANT JUDGEMENTS AND ESTIMATES
The preparation of financial statements in conformity with IFRS
requires that the Directors make estimates and assumptions that
affect the application of policies and reported amounts of assets
and liabilities, income and expenses. Such estimates and associated
assumptions are generally based on historical experience and
various other factors that are believed to be reasonable under the
circumstances and form the basis of making the judgements about
attributing values of assets and liabilities that are not readily
apparent from other sources.
Information about assumptions and estimation uncertainty at 31
December 2021 that have a significant risk of resulting in a
material adjustment to the carrying amounts of assets and
liabilities in the next financial year are:
a) Significant judgements
Loss of control of assets, liabilities and subsidiary
undertaking
The Directors have concluded that the Group has lost control of
DP Aircraft Ireland Limited and the assets and liabilities of DP
Aircraft Guernsey I Limited and DP Aircraft Guernsey II Limited as
a result of receivership proceedings instigated by NordLB following
an Event of Default on the NordLB loans and the enforcement of
security by NordLB over the two NAS aircraft, the related lease and
contract rights, related cash and the shares in the Irish special
purpose vehicle which holds title to the NAS aircraft.
The Directors considered the following factors that need to all
be present for control to exist in reaching their conclusion:
-- power over the investee;
-- exposure or rights to variable returns from its involvement with the investee; and
-- the ability to use its power to affect the amount of the investor's returns.
The Directors determined that effective from 26 February 2021,
when the NAS aircraft were placed in receivership, the Group lost
the power over the investees as the Group no longer had the right
to direct the relevant activities of the investees, for example how
the aircraft is utilised, disposed of or the value of any such
disposal. That power was now with the receiver following the
enforcement of NordLB security.
As a result of the loss of control, the Group deconsolidated the
assets and liabilities of DP Aircraft Guernsey I Limited and DP
Aircraft Guernsey II Limited as at 26 February 2021. A resulting
loss on loss of control has been recognised in profit or loss.
The fair value of loans advanced to DP Aircraft Guernsey I
Limited and DP Aircraft Guernsey II Limited as well as the fair
value of the shares held in the two entities is dependent on monies
that these entities expected to receive from NordLB. NordLB
appointed a receiver to dispose of the two NAS aircraft, with the
proceeds of sale (along with relevant aircraft specific cash
balances, claims against Norwegian and shares in Norwegian held as
security) being applied in the first instance to pay off any
outstanding amounts owed to the bank, and any balance remaining
thereafter being remitted to DP Aircraft Guernsey I Limited and DP
Aircraft Guernsey II Limited. After NordLB loans are paid off, no
surplus proceeds were expected to be received therefore the loans
and the shares held in DP Aircraft Guernsey I Limited and DP
Aircraft Guernsey II Limited had a nil fair value on loss of
control. Note, when the aircraft were eventually sold in December
2021, no surplus proceeds were received post sale of the aircraft
and application of the sale proceeds against the NordLB loans.
Note, the loans advanced to DP Aircraft Guernsey I Limited and
DP Aircraft Guernsey II Limited are limited recourse loans and on
initial recognition the Group has economic exposure to the
underlying aircraft value and cash flows instead of exposure to the
borrowers' overall credit risk and cash flows. Therefore, the loans
are classified as financial assets at fair value through profit or
loss in line with IFRS 9 Financial Instruments ('IFRS 9').
b) Significant estimates
Impairment of property, plant and equipment
As with each reporting date, but more relevant in light of the
continuing impact of COVID-19, a detailed impairment assessment of
the aircraft and lease premiums have been undertaken.
IAS 36 requires an assessment of the aircraft carrying value
against the recoverable amount (the higher of the value in use and
fair value less cost to sell). The lease encumbered value is the
value of the aircraft on lease, given a specified lease payment
stream (rents and terms), and estimated future base value adjusted
for return condition at lease termination, and an appropriate
discount rate i.e., value in use.
Thai Aircraft
In considering the impairment of the Thai aircraft the board
concluded value in use to be the recoverable amount given it is
higher than fair value less costs to sell. Both value in use and
fair value (current market value) were determined by two
independent appraisers. The board considered it appropriate not to
apply any discounts and adjustments for these aircraft given the
specific circumstances of these aircraft.
The lease encumbered value (value in use) supports the carrying
value of the aircraft as at year end and suggest there is no
impairment. The key estimates in calculating the lease encumbered
values used by the 2 independent appraisers were the aircraft
residual values at end of the respective leases, lease cash inflows
during the PBH period and the ability of Thai to pay future rental
income which is captured in the discount rate applied. A range
between 7.5-8.0% has been applied as the discount rate between the
two independent appraisers. This range is consistent with prior
year as well as the interim period and is considered reasonable
given no significant changes in Thai's position since then. The
board has settled on a discount rate of 8% for the impairment
assessment. See note 11 for sensitivity analysis on impact of
changes in discounts rate.
In conclusion, the board considered all possible valuation
ranges and concluded that the aircraft were not impaired further as
at 31 December 2021. Therefore, no impairment loss has been
recognised during the year ended 31 December 2021 (31 December
2020: US$ 170,317,511 - note this includes impairment on NAS
aircraft which was deconsolidated of on loss of control as detailed
in note 8).
The board also considered if there was an indication that the
prior year Thai aircraft impairment of US$ 58,839,697 had reversed
in full or partially during the year and concluded that based on
the possible ranges of the aircraft valuations, there was no
reversal during the year ended 31 December 2021.
Depreciation of aircraft
As described in note 2, the Group depreciates the Assets on a
straight-line basis over the remaining lease life and taking into
consideration the estimated residual value at the end of the lease
term. The Group engage independent expert valuers (appraisers) each
year to provide a valuation of the Assets and take into account the
average of the valuations provided.
Residual value estimates of the Aircraft were determined by the
full life inflated base values at the end of the leases from
external valuations and discounted by the inflation rate
incorporated into those valuations.
The full life inflated base value is the appraiser's opinion of
the underlying economic value of the aircraft in an open,
unrestricted, stable market environment with a reasonable balance
of supply and demand and assumes full consideration of its 'highest
and best use'. The full life inflated values used within the
financial statements match up the two lease termination dates and
have been discounted by the inflation rate incorporated into the
valuations. Note, as discussed below under the heading lease term,
the lease term has been determined to end in 2026 even though there
is an extension option, see below for further details regarding
lease term. The residual value of the aircraft does not represent
the current fair value of the aircraft.
The residual value estimates at the end of each year are used to
determine the aircraft depreciation of future periods. The residual
value estimates for aircraft as at 31 December 2021 was US$
121,750,421 (31 December 2020: US$ 125,572,493), carrying value as
at 31 December 2021 was US$ 126,424,840 (31 December 2020: US$
126,600,000). As a result, the year ending 31 December 2022 and
future aircraft depreciation charges for aircraft, with all other
inputs staying constant, will be US$ 956,542 (2021: US$ 175,160).
The actual aircraft depreciation charge for 2023 onwards will vary
based on the residual value estimates as at 31 December 2022.
Lease term
The Thai lease agreements were amended such that the lease term
may be extended by three years to December 2029 (the "Extension
Period") with further scaled back monthly lease payments starting
from January 2027, subject to the Group retaining a right of early
termination in December 2026 after consulting the Lenders. The
Directors have applied judgement to determine the lease term i.e.,
period to 2026 or period to 2029. At commencement of the amended
leases, there was no reasonable certainty that the lenders would
approve an extension of the lease given decision would depend on
facts and circumstances around the time of extension. Therefore,
the Directors concluded that the lease term was the period to 2026,
same period as before the lease modification.
4) LEASE RENTAL INCOME
Year ended Year ended
31 December 2021 31 December 2020
US$ US$
Variable rent (PBH rent) 1,110,416 -
Fixed (straight-lining) rental income 17,280,795 47,285,233
---------------------------------------- ----------- -----------------
Total lease rental income 18,391,211 47,285,233
---------------------------------------- ----------- -----------------
The lease agreements with Thai Airways were amended during the
period. In March 2021 the Group signed a Letter of Intent ('LOI')
with Thai Airways under which the parties agreed to amend the
existing lease terms. In accordance with the LOI, the effective
date for the lease modification was 15 June 2021, being the date on
which Thailand's Central Bankruptcy Court approved the Thai Airways
restructuring plan. The new terms provide for a power by the hour
('PBH') arrangement until December 2022 (i.e., rent will be payable
by reference to actual monthly utilisation of the Thai aircraft),
with monthly fixed lease payments of US$ 510,000 per month
thereafter until 2026. The monthly PBH rent amount is capped at US$
510,000.
The lease term was extended by three years to December 2029 (the
"Extension Period") with further scaled back monthly lease payments
starting from January 2027, the extension is however subject to the
Group retaining a right of early termination in December 2026 after
consulting the Lenders. As detailed in note 3, the lease term has
been determined to be the period to December 2026, see note 3 for
further details. Also, per the LOI it was agreed that Thai would
not be required to pay rent accrued under the old agreements
between 15 September 2020 and the amendment effective date, 15 June
2021 (see note 15).
The actual lease agreement reflecting the terms set out in the
LOI was signed on 1 April 2022.
In 2021 all lease rental income was derived from Thai Airways
and the related two Boeing 787-8 aircraft leased to them. The lease
agreements with NAS were de-facto terminated in December 2020,
therefore no rental income has been earned from NAS in the current
year. During the year ended 31 December 2020 the Group earned the
following amounts of rental income from these two customers:
Year ended Year ended
31 December 31 December 2020
2021
US$ US$
Norway - 19,790,602
Thailand 18,391,211 27,494,631
---------------------------- ---- -------------------- -----------------
Total lease rental income 18,391,211 47,285,233
---------------------------- ---- -------------------- -----------------
The contracted cash lease rental payments to be received under
non-cancellable operating leases at the reporting date excluding
receivables already recognised at year end are:
Boeing 787-8 Boeing 787-8 Boeing 787-8 Boeing 787-8
Serial No: Serial No: Serial No: Serial No:
35304 35305 35320 36110 Total
31 Dec 2021 US$ US$ US$ US$ US$
< 1 year - - - - -
1 to 2 years - - 6,120,000 6,120,000 12,240,000
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 5,758,065 5,095,846 10,853,911
>5 years - - -
-------------- -------------- -------------- ------------- ------------- ------------
- - 24,118,065 23,455,846 47,573,911
-------------- ----------------------------- ------------- ------------- ------------
Boeing 787-8 Boeing 787-8 Boeing 787-8 Boeing 787-8
Serial No: Serial No: Serial No: Serial No:
35304 35305 35320 36110 Total
31 Dec 2020 US$ US$ US$ US$ US$
<1 year - - 13,745,640 13,712,040 27,457,680
1 to 2 years - - 13,745,640 13,712,040 27,457,680
2 to 3 years - - 13,745,640 13,712,040 27,457,680
3 to 4 years - - 13,745,640 13,712,040 27,457,680
4 to 5 years - - 13,745,640 13,712,040 27,457,680
>5 years - - 12,600,170 10,284,030 22,884,200
-------------- -------------- -------------- ------------- ------------- ------------
- - 81,328,370 78,844,230 160,172,600
-------------- ----------------------------- ------------- ------------- ------------
5) LEASE RELATED INCOME
Lease related income is made up as follows:
Year ended Year ended
31 December 2021 31 December 2020
US$ US$
Maintenance reserves liability released
to Profit or Loss - 7,041,816
Deferred income released to Profit
or Loss - 34,293,038
----------------------------------------- ------------------ -----------------
- 41,334,854
------------------------------------------------------------ -----------------
The lease agreements with NAS were de-facto terminated in
December 2020 and as a result the deferred income in relation to
the NAS leases and the related maintenance reserve liability were
released in full to the profit or loss account as lease related
income in the prior year. No lease terminations arose in the
current year therefore no such income recognised.
6) GENERAL AND ADMINISTRATIVE EXPENSES
Year ended Year ended
31 December 31 December 2020
2021 US$
US$
Administration fees 438,198 401,553
Aircraft agency fees 12,000 12,018
Aircraft valuation fees 9,170 11,786
Audit fees 89,991 99,782
Company broker fees 167,902 168,626
Broker fees on sale of NAS shares 8,140 -
Directors' fees and expenses 326,650 344,827
Insurance costs, including directors'
insurance 71,318 55,947
Foreign exchange loss 21,736 21,299
IT and printing costs 6,376 5,453
Legal fees 3,326 7,585
Costs in relation to DPAG I & 19,488 -
II
Marketing fees 4,175 1,936
Miscellaneous costs 6,118 5,118
Registrar fees 21,454 18,875
Regulatory fees 23,098 23,508
Restructuring fees * 1,385,214 1,266,900
Aircraft security trustee fees 17,985 17,100
Tax advice fees 8,556 9,883
---------------------------------------- ------------ ------------------
Total general and administrative
expenses 2,640,895 2,472,196
---------------------------------------- ------------ ------------------
*The restructuring fees include professional fees in relation to
the renegotiation of the aircraft leases and associated bank loans.
The restructuring costs for the year ended 31 December 2021 can be
split US$ 1,094,936 and US$ 290,278 between Thai Airways and
Norwegian Air Shuttle respectively.
7) FINANCE COSTS
Year ended Year ended
31 December 31 December
2021 2020
US$ US$
Loan interest paid and
payable 4,727,053 6,903,447
Amortisation of deferred finance
costs - 1,847,855
Loan modification adjustment 432,976 -
--------------------------------------------------------- ------------ ------------
Total finance costs at effective
interest rate* 5,160,029 8,751,302
Cash flow hedges reclassified
from OCI while hedge accounting
was applied - 384,877
Swap interest paid 228,277 1,161,389
Swap breakage costs 939,806 -
---------------------------------------------------- --- ------------ ------------
6,328,112 10,297,568
Reserve reclassification on hedge discontinuation - 5,426,518
Gain on derivative at fair value (note
25) (459,015) (1,242,805)
---------------------------------------------------------- ------------ ------------
Total finance costs 5,869,097 14,481,281
---------------------------------------------------------- ------------ ------------
*On liabilities measured at amortised cost.
The Group defaulted on the loans to which the interest swaps
related to, see note 18 under NordLB for further details. As a
result of the default, the swaps were terminated in February 2021
and the balance due on the swaps became payable as part of the loan
balance.
Note, the Group previously applied hedge accounting however
after a change in terms of the hedged loan in the prior year, hedge
accounting was discontinued. The cumulative other comprehensive
income cash flow hedge reserve recognised up to the date hedge
accounting was discontinued of US$ 5,426,518 was reclassified in
full to the Consolidated Statement of Comprehensive Income as at 31
December 2020 .
8) LOSS OF CONTROL OF ASSETS, LIABILITIES AND SUBSIDIARY UNDERTAKINGS
As detailed in note 3, the Group lost control of DP Aircraft
Ireland Limited and the assets and liabilities DP Aircraft Guernsey
I Limited and DP Aircraft Guernsey II Limited as a result of
receivership proceedings instigated by NordLB following an Event of
Default on the NordLB loans and the enforcement of security by
NordLB over the two NAS aircraft, the related lease and contract
rights, related cash and the shares in the Irish special purpose
vehicle, DP Aircraft Ireland Limited which holds title to the NAS
aircraft. As a result of the loss of control, the Group has
deconsolidated DP Aircraft Ireland Limited and the assets and
liabilities of DP Aircraft Guernsey I Limited and DP Aircraft
Guernsey II Limited as at the date control was determined to be
lost, being 26 February 2021. A resulting loss on loss of control
of assets, liabilities and subsidiary undertaking have been
recognised in profit or loss.
Concurrently with the inception of the loan transaction DP
Aircraft Guernsey I Limited and DP Aircraft Guernsey II Limited had
entered into ISDA Swap Agreements with NordLB. Under the terms of
the swap DP Aircraft Guernsey I Limited and DP Aircraft Guernsey II
Limited were fixed interest rate payers and a floating interest
rate payee. The event of default detailed above also extends to the
ISDA Swap Agreements which were terminated in February 2021 and
balance due on the swaps became payable as part of the loan
balance.
The two aircraft were sold on 14 December 2021 and the proceeds
from sale were applied against the amounts outstanding under the
loan agreements between NordLB and DP Aircraft Guernsey I Limited
and DP Aircraft Guernsey II Limited respectively. The total
settled, including the amount payable under the swaps, by
application of the proceeds from sale was US$ 73,351,832. The
aircraft were sold into a weak market by the security trustee and
given they had not been operational for a considerable period of
time, had no lease attached and would likely require significant
reconfiguration costs if used by another airline the proceeds were
insufficient to cover the loans due. There were no excess proceeds
remaining post application of the sale proceeds therefore no
amounts were remitted to DP Aircraft Guernsey I Limited and DP
Aircraft Guernsey II Limited respectively by NordLB. DP Aircraft
Guernsey I Limited and DP Aircraft Guernsey II Limited are
therefore not able to repay loans advanced to them by the Group.
The total amount outstanding under the loan agreements with NordLB
immediately following the application of enforcement proceeds was
US$ 14,516,716 including the remaining principal amount
outstanding, breakage costs and swap unwinding cost.
Note, the developments mentioned above for the loans and related
swaps impact solely upon DP Aircraft Guernsey I Limited and DP
Aircraft Guernsey II Limited; they have no effect upon the Group's
arrangements in respect of the aircraft which it leases to Thai
Airways; and there is no recourse by NordLB to the Group
itself.
Effect of loss of control summarised:
26 February 2021
US$
Assets and liabilities derecognised
Assets held for sale 82,000,000
Investments held at fair value 3,012,711
Cash and cash equivalents 5,456,182
Restricted cash 6,835,590
Swap payables (4,664,507)
Bank loan and interest payable (82,765,036)
----------------------------------------------------- -----------------
Net assets 9,874,940
----------------------------------------------------- -----------------
Consideration:
Investment retained in former subsidiaries -
Loans advanced to former subsidiaries -
Cash consideration received -
----------------------------------------------------- -----------------
Total consideration -
----------------------------------------------------- -----------------
Loss on loss of control of assets, liabilities and
subsidiary undertaking (9,874,940)
----------------------------------------------------- -----------------
Cash flow on loss of control of assets, liabilities
and subsidiary undertaking:
Consideration received -
Cash and cash equivalents disposed of (5,456,182)
------------------------------------------------------ ------------
Net cash outflow (5,456,182)
------------------------------------------------------ ------------
9) TAXATION
With the exception of DP Aircraft Ireland Limited and 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 (2020: GBP1,200).
DP Aircraft Ireland Limited and DP Aircraft UK Limited are
subject to taxation at the applicable rate in Ireland and the
United Kingdom respectively. The amount of taxation during the year
ended 31 December 2021 was US$ 44,236 (2020: refund of US$ 41,016).
The Directors do not expect the taxation payable to be material to
the Group.
A taxation reconciliation has not been presented in these
financial statements as the tax expenses is not material. The
effective tax rate based on tax charge for the year is (0.0021%)
(2020: 0.027%).
10) LOSS PER SHARE
Year ended Year ended
31 December 2021 31 December 2020
US$ US$
Loss for the year (21,859,073) (155,127,051)
Weighted average number of
shares 209,333,333 209,333,333
----------------------------- ----------------- -----------------
Loss per Share (0.10442) (0.74105)
----------------------------- ----------------- -----------------
11) PROPERTY, PLANT & EQUIPMENT - AIRCRAFT & RELATED COMPONENTS
Aircraft Lease Premium Total
US$ US$ US$
COST
----------------------------------------- -------------- -------------- --------------
As at 1 January 2021 and 31 December
2021 238,731,161 17,398,493 256,129,654
----------------------------------------- -------------- -------------- --------------
ACCUMULATED DEPRECIATION / AMORTISATION
As at 1 January 2021 53,291,464 8,200,047 61,491,511
Charge for the year 175,160 - 175,160
Reclassified as held for sale - - -
----------------------------------------- -------------- -------------- --------------
As at 31 December 2021 53,466,624 8,200,047 61,666,671
----------------------------------------- -------------- -------------- --------------
IMPAIRMENT
As at 1 January 2021 58,839,697 9,198,446 68,038,143
Charge for the year - - -
As at 31 December 2021 58,839,697 9,198,446 68,038,143
----------------------------------------- -------------- -------------- --------------
CARRYING AMOUNT
----------------------------------------- -------------- -------------- --------------
As at 31 December 2021 126,424,840 - 126,424,840
----------------------------------------- -------------- -------------- --------------
COST
As at 1 January 2020 476,751,161 46,979,793 523,730,954
Reclassified as held for sale (238,020,000) (29,581,300) (267,601,300)
----------------------------------------- -------------- -------------- --------------
31 December 2020 238,731,161 17,398,493 256,129,654
----------------------------------------- -------------- -------------- --------------
ACCUMULATED DEPRECIATION / AMORTISATION
As at 1 January 2020 102,498,694 20,600,314 123,099,008
Charge for the year 17,352,415 4,362,020 21,714,435
Reclassified as held for sale (66,559,645) (16,762,287) (83,321,932)
----------------------------------------- -------------- -------------- --------------
As at 31 December 2020 53,291,464 8,200,047 61,491,511
----------------------------------------- -------------- -------------- --------------
IMPAIRMENT
As at 1 January 2020 - - -
Charge for the year 148,300,052 22,017,459 170,317,511
Reclassified as held for sale (89,460,355) (12,819,013) (102,279,368)
----------------------------------------- -------------- -------------- --------------
As at 31 December 2020 58,839,697 9,198,446 68,038,143
----------------------------------------- -------------- -------------- --------------
CARRYING AMOUNT
----------------------------------------- -------------- -------------- --------------
As at 31 December 2020 126,600,000 - 126,600,000
----------------------------------------- -------------- -------------- --------------
As at year end PPE is comprised of two aircraft leased to Thai
Airways. Under the terms of the leases that existed during the
year, the cost of repair and maintenance of the Assets is to be
borne by Thai Airways. However, upon expiry or termination of the
leases, the cost of repair and maintenance will fall upon the
Group. Therefore, upon expiry or termination of the leases, the
Group may bear higher costs and the terms of any subsequent leasing
arrangement (including terms for repair, maintenance and insurance
costs relative to those agreed under the leases) may be adversely
affected, which could reduce the overall distributions paid to the
shareholders.
The residual value estimates at the end of each year are used to
determine the aircraft depreciation of future periods. The residual
value estimates for aircraft as at 31 December 2021 was US$
121,750,421 (31 December 2020: US$ 125,572,493), carrying value as
at 31 December 2021 was US$ 126,424,840 (31 December 2020: US$
126,600,000). As a result, the year ending 31 December 2022 and
future aircraft depreciation charges for aircraft, with all other
inputs staying constant, will be US$ 956,542 (2021: US$ 175,160).
The actual aircraft depreciation charge for 2023 onwards will vary
based on the residual value estimates as at 31 December 2022.
The Group depreciates the aircraft on a straight-line basis over
the remaining lease life, as detailed in note 3 under the heading
lease term, the lease term has been determined to end in 2026.
As detailed in note 3, as at 31 December 2021 there are no
impairments to the aircraft in the current year. The board also
considered if there were indications that the prior year aircraft
impairment had reversed in full or partially during the year and
concluded that based on the possible ranges of the aircraft
valuations, there was no reversal during the year ended 31 December
2021.
The table below shows the impact of changes in discount rates on
the value in use all other factors held constant:
Original
discount
Valuation technique rate 2021 5% increase 5% decrease in
Description in discount discount rate
rate
Aircraft 1 Lease Encumbered 8.0% Value in use Value in use
/ Securitized decreases from increases from
value Basis (discounted US$ 64.9mil US$ 64.9mil to
cash flows) to US$ 63.9mil. US$ 66.9mil.
No resulting No resulting
impairment on impairment on
aircraft. aircraft.
------------------------- ----------- ----------------- -----------------
Aircraft 2 Lease Encumbered 8.0% Value in Use Value in use
/ Securitized decreases from increases from
value Basis (discounted US$ 63.9mil US$ 63.9mil to
cash flows) to US$ 62.9mil. US$ 64.8mil.
Aircraft would No resulting
be impaired impairment on
by US$ 0.29mil. aircraft
------------------------- ----------- ----------------- -----------------
The loans entered into by the Group to complete the purchase of
the two Thai aircraft are cross collateralised. Each of the loans
are secured by way of security taken over each of the two
aircraft.
12) ASSETS HELD FOR SALE
The following major asset class has been classified as held for
sale in the consolidated statement of financial position on 31
December:
2021 2020
US$ US$
Property, Plant and Equipment - Aircraft - 82,000,000
- 82,000,000
------------------------------------------------- -----------
During the period, the assets held for sale have been
deconsolidated as a result of loss of control as detailed in note 3
and 8.
13) INVESTMENT HELD AT FAIR VALUE
2021 2020
US$ US$
Opening investment held at fair value 15,630,526 -
Additions - 40,490,218
Disposal proceeds (4,069,880) -
Realised loss (1,252,152) -
Unrealised fair value loss (7,295,783) (24,859,692)
Loss of control of assets, liabilities and subsidiary
undertaking (see note 8) (3,012,711) -
------------------------------------------------------- ------------ -------------
Balance as at year end - 15,630,526
------------------------------------------------------- ------------ -------------
Fair value movement is made up as follows:
Realised loss (1,252,152) -
Unrealised loss (7,295,783) (24,859,692)
------------------ ------------ -------------
Closing balance (8,547,935) (24,859,692)
------------------ ------------ -------------
Included within investments was the investment in Norwegian that
was held through the DP Aircraft Guernsey I Limited and DP Aircraft
Guernsey II Limited. The investment in Norwegian has been
deconsolidated as a result of loss of control during the period as
detailed in note 3 and 8.
Also, from 26 February 2021, included in the investments held at
fair value through profit and loss are the shares retained in the
DP Aircraft Guernsey I Limited and DP Aircraft Guernsey II Limited,
see note 3 and 8 regarding loss of control. The fair value of the
investment is based on net proceeds expected to be received by DP
Aircraft Guernsey I Limited and DP Aircraft Guernsey II Limited
from NordLB post sale of the aircraft seized by NordLB. Based on
probability weighted outcomes, the directors considered it unlikely
that any excess proceeds will be received from NordLB and hence the
investment in the DP Aircraft Guernsey I Limited and DP Aircraft
Guernsey II Limited has been valued at US$ nil as at 31 December
2021.
14) RESTRICTED CASH
2021 2020
US$ US$
Security deposit account 90 5,054,768
Lease rental accounts 2,788,427 -
Maintenance reserves
account 14,465,329 22,383,564
---------------------------- ----------- -----------
Total restricted cash 17,253,846 27,438,332
---------------------------- ----------- -----------
The majority of security deposits have been transferred to lease
rental accounts during the period and are being used to service
loan payments due to DekaBank in accordance with the DekaBank
financing arrangements.
As part of the DekaBank loan agreement amendment (see note 18),
it was agreed that monies received into the Lease Rental Accounts
during the PBH and fixed rent period would be transferred into
Borrower Rental Accounts and applied in a specific manner as agreed
between the parties. Therefore, these monies have been classified
as restricted cash.
As a result of loss of control of DP Aircraft Guernsey I Limited
and DP Aircraft Guernsey II Limited as detailed in note 8, the
group derecognised maintenance reserves restricted cash of US$
6,835,590 from its accounts during the period. The remaining
maintenance reserves relate only to Thai Airways.
15) TRADE AND OTHER RECEIVABLES
2021 2020
US$ US$
Prepayments 110,996 45,930
Rent receivable 140,220 10,111,605
Straight-lining lease asset 4,772,296 -
Total trade and other receivables 5,023,512 10,157,535
------------------------------------------ ---------- -------------
Less: L ifetime Expected Credit
Loss provision
Rent receivable - (10,111,605)
------------------------------------ --- ---------- -------------
Total provision - (10,111,605)
------------------------------------------ ---------- -------------
Net trade and other receivables 5,023,512 45,930
------------------------------------------ ---------- -------------
The straight-lining lease asset represents the lease revenue
recognised but not yet received in cash. This arises as a result of
the requirements of IFRS 16 to recognise lease revenue on a
consistent basis through the term of the lease. As this amount does
not represent a cash receivable at year end the Directors note that
an adjusted Net Asset Value (NAV) excluding this straight-lining
lease asset would be $0.15086 per share (2020: $0.27808 per share),
which represents in their view a more relevant assessment of the
Group's net asset position.
In the prior year the receivable was in relation to outstanding
amounts due under the Thai leases and was fully provided for. The
prior year rent receivable of US$ 10,111,605 has been written off
in the current period as the balance will not be recovered
following an amendment to the lease agreement with Thai. As part of
the amendment, parties agreed that Thai would not pay rent due
under old leases for the period 15 September 2020 to 15 June 2021.
Also, per the amendment, rental due up to 14 September 2020 is to
be resolved as part of the Thai rehabilitation. There is no
expectation that this rental will be recovered given the continuing
impact of COVID-19 on the airline sector and as a result this has
also been fully written off. Also, as a result of the amendment,
rental due between 1 Jan 2021 and 14 June 2021 of US$ 12,508,499
has been provided for and fully written off during the year.
The Group applies the IFRS 9 simplified approach to measuring
ECL using a lifetime ECL provision for trade receivables. Note that
the majority of trade and other receivables as at year end is the
result of straight- lining of future fixed Thai lease payments over
the lease term thus no ECL as is purely an accounting adjustment
that will unwind itself over time. The remaining receivables are
immaterial and the directors have concluded that any resulting ECL
would also be immaterial therefore no ECL recognised on these.
Movements in the impairment allowance for trade receivables are
as follows:
2021 2020
US$ US$
Opening provision for ECL 10,111,605 -
Increase during the year 12,508,499 11,416,244
Lifetime ECL write off (22,620,104) (1,304,639)
---------------------------------- ------------- ------------
At 31 December - 10,111,605
---------------------------------- ------------- ------------
16) MAINTEANCE RESERVES LIABILITY
2021 2020
US$ US$
Maintenance reserves:
Refundable to Thai Airways 14,460,682 14,460,682
------------------------------ ----------- -----------
Total maintenance reserves 14,460,682 14,460,682
------------------------------ ----------- -----------
Maintenance reserves liability relates to funds received from
Thai Airways reserved for covering the cost of maintenance. Per the
updated lease terms as set out in the LOI and subsequent lease
agreements signed reflecting the terms of the LOI, Thai Airways no
longer has to make maintenance contributions to the Group. However,
Thai still remains responsible for costs of maintenance of the
aircraft. There has been no maintenance event during the year and
the expectation is that maintenance reserves will be used up as at
the end of the lease term.
17) TRADE AND OTHER PAYABLES
2021 2020
US$ US$
Swap interest payable - 73,483
Accruals and other payables 409,035 609,964
Taxation payable - 98,624
-------------------------------- -------- --------
Total trade and other payables 409,035 782,071
-------------------------------- -------- --------
18) BANK BORROWINGS
2021 2020
US$ US$
Current liabilities: bank interest payable
and bank borrowings 136,010 180,915,582
Non-current liabilities: bank borrowing 98,304,863 -
-------------------------------------------- ----------- ------------
Total liabilities 98,440,873 180,915,582
-------------------------------------------- ----------- ------------
The borrowings are repayable as follows:
Interest payable 136,010 238,969
Within one year - 180,676,613
In two to five years 98,304,863 -
After five years - -
-------------------------------------------- ----------- ------------
Total bank borrowings 98,440,873 180,915,582
-------------------------------------------- ----------- ------------
The table below analyses the movements in the Group's bank
borrowings:
2021 2020
US$ US$
Opening balance 180,676,613 190,529,679
Loan modification adjustment 432,976 -
Repayment of loan (274,173) (11,700,921)
Loss of control of subsidiary undertakings
(see note 8) (82,530,553) -
Amortisation of deferred finance costs - 1,847,855
-------------------------------------------- ------------- -------------
Principal bank borrowings 98,304,863 180,676,613
Interest payable 136,010 238,969
-------------------------------------------- ------------- -------------
Total bank borrowings 98,440,873 180,915,582
-------------------------------------------- ------------- -------------
The table below sets out an analysis of net debt and the
movements in net debt for the year ended 31 December 2021:
Cash and Derivative
cash equivalents Principal Interest Instrument* Net Debt
US$ US$ US$ US$ US$
At 1 January 2021 6,949,167 (180,676,613) (238,969) (4,257,198) (178,223,613)
Cash flows (5,769,956) 274,173 4,595,529 301,759 (598,495)
Non cash: -
Fair value movement - - - 459,015 459,015
Termination - - - 4,664,507 4,664,507
( 4,727,053
Interest charge - - ) (228,277) (4,955,330)
Penalty fees (939,806) (939,806)
Loan modification
adjustment - (432,976) - - (432,976)
Loss of control
of assets, liabilities
and subsidiary
undertaking - 82,530,553 234,483 - 82,765,036
------------------ -------------- ------------ ------------- --------------
At 31 December
2021 1,179,211 (98,304,863) (136,010) - (97,261,662)
------------------ -------------- ------------ ------------- --------------
*Including interest payable of US$ nil (2020: US$ 73,483)
Cash and Derivative
cash equivalents Principal Interest Instrument* Net Debt
US$ US$ US$ US$ US$
At 1 January 2020 12,216,093 (190,529,679) (317,062) (2,376,913) (181,007,561)
Cash flows (5,266,926) 11,700,921 6,981,540 1,500,852 14,916,387
Non cash: -
Fair value movement - - - (1,834,871) (1,834,871)
Amortisation of
deferred finance
costs - (1,847,855) - - (1,847,855)
Interest charge - - (6,903,447) (1,546,266) (8,449,713)
------------------ -------------- ------------ ------------- --------------
At 31 December
2020 6,949,167 (180,676,613) (238,969) (4,257,198) (178,223,613)
------------------ -------------- ------------ ------------- --------------
*Including interest payable of US$ 73,483 (2019: US$ 28,070)
Loans
The loans are split across two banks as follows:
2021 2020
US$ US$
DekaBank Deutsche Girozentrale 98,407,629 98,001,743
Norddeutsche Landesbank - 82,913,839
-------------------------------------- ----------- ------------
Total loans 98,407,629 180,915,582
--------------------------------- --- ----------- ------------
As a result of loss of control of DP Aircraft Guernsey I Limited
and DP Aircraft Guernsey II Limited as detailed in note 8, the
Group has deconsolidated the NordLB loan. Therefore, the remaining
balance of bank borrowings relates only to DekaBank.
a) Norddeutsche Landesbank Girozentrale
During the period ended 31 December 2014, the Company utilised
the proceeds from the initial public offering and the proceeds of
two separate loans from Norddeutsche Landesbank Girozentrale
('NordLB') of US$ 79,800,000 each to fund the purchase of two
Boeing 787-8 aircraft. The balance of both loans at 31 December
2021 was US$ nil (31 December 2020: US$ 82,913,839).
The committed term of each loan was from the drawdown date until
the date falling twelve years from the delivery date of the
relevant Asset. Interest on each NordLB loan was payable in arrears
on the last day of each interest period, which was one month long
(the 'Interest Period'). Interest on each loan accrued at a
floating rate of interest which was calculated using LIBOR for the
length of the Interest Period and a margin of 2.6 per cent per
annum (the 'loan Margin') ('Loan Floating Rate'). The Group had
entered into an ISDA-standard hedging arrangement with NordLB as
hedging provider in connection with the Loans, in order to provide
for a fixed interest rate of 5.06% and 5.08% to be payable in
respect of the loans throughout the whole term.
The NordLB loans entered into by the Group to complete the
purchase of the first two Assets were cross
collateralised. Each of the first and second loan was secured by
way of security taken over each of the two NAS aircraft (first and
second Assets) and enforce security over both Assets. This means
that a default on one loan places both of the NAS Assets at
risk.
Due to missed loan repayments, on 24 February 2021, NordLB
declared an Event of Default under the relevant loan agreements
with the Company's two borrower subsidiaries which meant that
NordLB was entitled to enforce rights under the relevant security
documents. On 26 February 2021, the Company received notices of
security enforcement and loan acceleration from NordLB, and
accordingly, receivers were appointed in relation to the two NAS
aircraft, the related lease and contract rights, the restricted
cash and the shares in the Irish special purpose vehicle which
holds title to the NAS aircraft. NordLB has therefore taken control
of the process of disposing of the two NAS aircraft, with the
proceeds of sale (along with relevant aircraft-specific cash
balances, claims against Norwegian and shares in Norwegian held as
security) being applied in the first instance to pay off any
outstanding amounts owed to the bank, and any balance remaining
thereafter being remitted to the relevant subsidiaries of the
Company. There were no excess proceeds remaining post application
of the sale proceeds therefore no amounts are to be remitted to the
relevant subsidiaries of the Company.
These developments impact solely upon the two NAS aircraft; they
have no effect upon the Company's arrangements in respect of the
aircraft which it leases to Thai Airways; and there is no recourse
by NordLB to the Company itself.
Note, per the deed of resignation and appointment dated 23
September 2021 NordLB was replaced as facility agent and security
trustee under the Loan Agreements by Global Loan Agency Services
Limited as new facility agent and GLAS Trust Corporation Limited as
new security trustee, and all rights, interests and powers of
NordLB under, amongst others, the Loan Agreements have been
transferred to Global Loan Agency Services Limited and GLAS Trust
Corporation Limited respectively.
The instigation of receivership proceedings as detailed above
led to a loss of control of the relevant subsidiaries, see note 8
for further details.
a) 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 31 December 2021 was US$ 98,407,629 (31 December
2020: US$ 98,001,743).
The committed term of each loan was from the drawdown date until
the date falling twelve years from the Delivery Date of the
relevant Asset. Each Loan was to be amortised with repayments every
month in arrears over the term in amounts as set out in a schedule
agreed by the Company and the Lenders. Amortisation will be on an
annuity-style (i.e. mortgage-style) basis.
Interest on each DekaBank loan is payable in arrears on the last
day of each interest period, which is one month long. Interest on
the loan accrues at a fixed rate of 4.10 per cent including a
margin of 1.95 per cent per annum. If any amount is not paid by the
Borrower when due under the loan agreements, interest will accrue
on such amount at the then current rate applicable to the loan plus
2.0 per cent per annum. No interest accrued on unpaid amounts
during the period as there was an agreement to defer principal
repayments as mentioned below.
The DekaBank loans entered into by the Group to complete the
purchase of 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.
On 6 May 2021, subsequent to the new lease arrangements entered
into by the Company and Thai as described in note 4, the Company
and DekaBank amended and restated the existing loan facility
agreements in respect of the Thai aircraft to accommodate the new
lease terms. Repayments of principal are being deferred until after
31 December 2022, which is after the end of the PBH arrangement;
and the Company and DekaBank will enter into discussions at that
time to determine how best to schedule interest payments, principal
repayments and a final balloon repayment, having regard for both
the income being received by the Company in respect of the Thai
aircraft, and the running
costs of the Company and its subsidiaries. From the effective
date interest is charged on the deferred principal at the
percentage rate per annum equal to the sum of five per cent. (5.0%)
per annum (which, for the avoidance of doubt, includes the Margin)
plus LIBOR for the applicable period (such rate to be determined by
the Facility Agent).
Prior to the loan amendment detailed above, the Company and
DekaBank had agreed that the Company would only be required to make
interest payments on its borrowings relating to the assets leased
to Thai, with no concomitant capital repayment obligation; and that
the Company would make no dividend payments while deferrals
remained outstanding under those borrowings.
The loan related to Aircraft 35320 has a final maturity date of
9 December 2026 and the loan related to Aircraft 36110 has final
maturity date of 29 October 2026 unless these dates are varied once
the deferral period has ended.
19) SHARE-BASED PAYMENT LIABILITY
2021 2020
US$ US$
Share-based payment- liability component
(note 26) 218,697 110,710
------------------------------------------ -------- --------
218,697 110,710
------------------------------------------ -------- --------
10% of director annual base fees and all additional director
fees above the base fee that are being deferred to be settled in
cash or by way of equity in the future at a share price to be
determined in the future. There has been no settlement of director
remuneration via the issue of equity in the current year (2020:
nil). The movement in the liability represents director fee
incurred and deferred in the current year of US$ 107,987 (2020: US$
110,710). Refer to note 26 and 27 for further details.
20) SHARE CAPITAL
Company's authorised share capital is unlimited.
Year ended 31 December 2021
Subordinated
Administrative Ordinary
Share Shares Total
Issued and fully paid (no par value Number Number Number
shares):
Shares as at 1 January 2021 and 31
December 2021 1 209,333,333 209,333,334
------------------------------------------- --------------- ------------ ------------
US$ US$ US$
Share capital as at 1 January 2021 and 31
December 2021 - 210,556,652 210,556,652
------------------------------------------- --------------- ------------ ------------
Year ended 31 December 2020
Subordinated
Administrative Ordinary
Share Shares Total
Issued and fully paid (no par value Number Number Number
shares):
Shares as at 1 January 2020 and 31
December 2020 1 209,333,333 209,333,334
------------------------------------------- --------------- ------------ ------------
US$ US$ US$
Share capital as at 1 January 2020 and 31
December 2020 - 210,556,652 210,556,652
------------------------------------------- --------------- ------------ ------------
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 DS Aviation
GmbH & Co. KG, (the Asset Manager).
Holders of Subordinated Administrative Shares are not entitled
to participate in any dividends and other distributions of the
Company. On a winding up of the Company the holders of the
Subordinated Administrative Shares are entitled to an amount out of
the surplus assets available for distribution equal to the amount
paid up, or credited as paid up, on such shares after payment of an
amount equal to the amount paid up, or credited as paid up, on the
Ordinary Shares to the Shareholders. Holders of Subordinated
Administrative Shares shall not have the right to receive notice of
and have no right to attend, speak and vote at general meetings of
the Company except if there are no Ordinary Shares in
existence.
Without prejudice to the provisions of the applicable company
law and without prejudice to any rights attached to any existing
shares or class of shares, or the provisions of the Articles of
Incorporation, any share may be issued with such preferred,
deferred or other rights or restrictions, as the Company may by
ordinary resolution, subject to or in default of any such
direction, as the Directors may determine.
The Directors are entitled to issue and allot C Shares. No C
Shares have been issued since the Company was incorporated.
21) RESERVES
The movements in the Group's reserves are shown on page 43.
Retained earnings comprises accumulated profits/losses over time
and is taken to this reserve which may be utilised for the payment
of dividends if overall in a profitable position.
22) DIVIDS
The dividends declared and paid during the year ended 31
December 2021 are US$ nil (31 December 2020: US$ 4,710,000).
23) INVESTMENT IN SUBSIDIARY UNDERTAKINGS
The Company's investments in subsidiaries, all of which have
been included in these consolidated financial statements, are as
follows:
Proportion of
Date of Country of ownership interest
Name Incorporation Incorporation at 31 December
2021
DP Aircraft Guernsey
I Limited 10 July 2013 Guernsey 100%
DP Aircraft Guernsey
II Limited 10 July 2013 Guernsey 100%
DP Aircraft Guernsey
III Limited 21 May 2015 Guernsey 100%
DP Aircraft Guernsey
IV Limited 21 May 2015 Guernsey 100%
Republic of
DP Aircraft Ireland Limited 27 June 2013 Ireland 100%
DP Aircraft UK Limited 14 April 2015 United Kingdom 100%
As detailed in note 3, effective 26 February 2021 the Group lost
control of DP Aircraft Ireland Limited and the ability to direct
the relevant activities of DP Aircraft Guernsey I Limited and DP
Aircraft Guernsey II Limited as a result of receivership
proceedings instigated by NordLB (see note 3 and 8). Therefore, the
assets and liabilities of DP Aircraft Guernsey I Limited and DP
Aircraft Guernsey II Limited are not consolidated in these
consolidated financial statements effective 26 February 2021.
24) FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The following table details the categories of financial
instruments held by the Group at the reporting date:
2021 2020
US$ US$
Financial assets
Investment held at fair value - 15,630,526
----------------------------------------------- ------------ ------------
Financial assets measured at fair value
through profit or loss - 15,630,526
----------------------------------------------- ------------ ------------
Cash and cash equivalents 1,179,211 6,949,167
Restricted cash 17,253,846 27,438,332
Trade and other receivables (excluding
prepayments and straight-lining lease asset) 140,220 -
----------------------------------------------- ------------ ------------
Financial assets measured at amortised
cost 18,573,277 34,387,499
----------------------------------------------- ------------ ------------
Financial liabilities
Bank borrowings 98,440,873 180,915,582
Maintenance reserves 14,460,682 14,460,682
Share based payment liability 218,697 110,710
Trade and other payables (excluding tax) 409,035 683,447
----------------------------------------------- ------------ ------------
Financial liabilities measured at amortised
cost 113,529,287 196,170,421
----------------------------------------------- ------------ ------------
Interest rate swaps - 4,183,715
----------------------------------------------- ------------ ------------
Financial liabilities designated as hedging
instruments - 4,183,715
----------------------------------------------- ------------ ------------
The primary risks arising from the Group's financial instruments
are capital management, credit risk, market risk and liquidity
risk. The principal nature of such risks is summarised below. The
Group's main financial instruments as at year end comprised of cash
and cash equivalents, restricted cash, maintenance reserves payable
and bank loans.
Capital Management
The capital managed by the Group comprises the ordinary shares
and the subordinated administrative shares. The Company is not
subject to externally imposed capital requirements.
Until Covid-19, the impact on the aircraft industry and the
lessees, income distributions were generally made quarterly,
subject to compliance with Applicable Law and regulations, in
February, May, August and November of each year. The Company aimed
to make a distribution to investors of US$ 0.0225 per share per
quarter.
As a result of the Covid-19 pandemic impact on global aviation
and especially its lessees, the Group has suspended dividends until
further notice to help preserve liquidity. Further details on the
impact of the Covid-19 pandemic can be found within the Directors'
Report.
Credit risk
Credit risk is the risk that a significant counterparty will
default on its contractual obligations. The Group's main
counterparty during the year was Thai Airways as lessee and
provider of income. There are gross lease rentals receivable from
Thai at 31 December 2021, US$ 140,220 (2020: US$ 10,111,605). A
full lifetime ECL was recognised for the lease rentals receivable
from Thai in the prior year however no ECL has been recognised for
the balance due as at year end (see note 15). Note, the amount due
as at year end from Thai is the result of straight-lining future
rentals expected thus ECL on these has been assessed with reference
to the value in use of the Thai aircraft.
Whilst the board expect that the approved Thai rehabilitation
plan will succeed, the final outcome of these proceedings is
unknown. Failure of any material part of the rehabilitation plan
may have an adverse impact on its ability to comply with its
obligations under the lease (see note 4 for details re obligations
of lessee).
Cash and restricted cash are all held at DekaBank. The credit
rating of DekaBank is Aa2 (2020: Aa2). The lessees do not maintain
a credit rating.
The carrying amount of financial assets measured at amortised
cost recorded in the financial statements represents the Group's
maximum exposure to credit risk. The Group holds no collateral as
security or any other credit enhancements.
Market risk - interest rate risk
Interest rate risk arises on the Group's various
interest-bearing assets and liabilities from changes in the general
economic conditions of the market from time to time.
The following table details the Group's exposure to interest
rate risk:
Non-interest
Fixed rate Variable rate bearing
31 December 2021 instruments instruments instruments Total
US$ US$ US$ US$
Restricted cash - 17,253,846 - 17,253,846
Trade and other receivables
(excluding prepayments
and straight-lining lease
asset) - - 140,220 140,220
Cash and cash equivalents - 1,179,211 - 1,179,211
Total financial assets - 18,433,057 140,220 18,573,277
--------------------------------- ------------- -------------- ------------- --------------
Trade and other payables - - (409,035) (409,035)
Maintenance reserves - - (14,460,682) (14,460,682)
Share based payment liability - - (218,697) (218,697)
DekaBank loans* (77,208,294) (21,096,569) (136,010) (98,440,873)
--------------------------------- ------------- -------------- ------------- --------------
Total financial liabilities (77,208,294) (21,069,569) (15,224,424) (113,529,287)
--------------------------------- ------------- -------------- ------------- --------------
Total interest rate sensitivity
gap (77,208,294) (2,663,512)
--------------------------------- ------------- --------------
*Interest is charged on the deferred portion of the loan based
on a variable rate and a fixed rate for the loan portion not
deferred.
Non-interest
Fixed rate Variable rate bearing
31 December 2020 instruments instruments instruments Total
US$ US$ US$ US$
Restricted cash - 27,438,332 - 27,438,332
Cash and cash equivalents - 6,949,167 - 6,949,167
Total financial assets - 34,387,499 - 34,387,499
--------------------------------- -------------- -------------- ------------- --------------
Trade and other payables - - (683,447) (683,447)
( 14,460,682 ( 14,460,682
Maintenance reserves - - ) )
Share based payment liability - - (110,710) (110,710)
Notional interest rate
swap (74,678,094) 74,678,094 - -
NordLB loans - (82,804,726) (109,113) (82,913,839)
DekaBank loans (97,871,887) - (129,856) (98,001,743)
--------------------------------- -------------- -------------- ------------- --------------
Total financial liabilities (172,549,981) (8,126,632) (15,493,808) (196,170,421)
--------------------------------- -------------- -------------- ------------- --------------
Total interest rate sensitivity
gap (172,549,981) 26,260,868
--------------------------------- -------------- --------------
Market risk - foreign currency risk
The Group's exposure to foreign currency risk is not significant
as its cash flows are predominantly in US$ which is the functional
currency of the company and subsidiaries, and presentation currency
of the Group.
Market risk - price risk
Price risk represents the potential loss the group may suffer
through holding investments in securities. As at year end the Group
holds shares in the former subsidiary undertakings DP Aircraft
Ireland Limited, DP Aircraft Guernsey I Limited and DP Aircraft
Guernsey II Limited.
As at 31 December 2021, the total exposure to market price risk
is US$ nil (2020: US$ 15,630,526) being 100% of the value of the
Group's equity financial assets measured at fair value through
profit or loss. As shares are valued at nil at year end no further
future losses are expected.
The effect of a 10% increase in the value of the investments
held at the reporting date would, all other variables held
constant, have resulted in an increase in profit and net assets of
US$ nil (2020: US$ 1,734,920 ). A 10% decrease in value would, on
the same basis, have decreased profit and net assets by the same
amount.
Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulty in meeting its obligations in respect of its financial
liabilities. The Group's main financial commitments are the loans
due to DekaBank as well as meeting its ongoing operating
expenses.
Liquidity risk management
In the event that the Leases are terminated as a result of a
default by Thai Airways, there is a risk that the Group will not be
able to remarket the Thai Assets successfully within the
remarketing period specified in the loan agreements and that the
Group will not have sufficient liquidity to comply with its
obligations under the Loan Agreements. This may lead to a
suspension in distributions paid on the shares and/or a reduction
in the value of the shares and have an adverse effect on the Group
and could ultimately result in the Dekabank enforcing their
security and selling the relevant Asset or Assets on the market.
There can be no guarantee that the Group will be able to re-lease
the Assets on terms equivalent to the existing leases, which may
have an adverse effect on the Group and its ability to meet its
investment objective and its dividend target. Accordingly, were any
or all of the Assets to be re-leased on less favourable terms, this
may have an adverse effect on the Group and its share price.
No right of redemption or repurchase
Shareholders have no right to have their shares redeemed or
repurchased by the Company at any time. Shareholders wishing to
realise their investment in the Company would be required to
dispose of their shares on the stock market. Accordingly, the
ability of shareholders to realise the Net Asset Value of, or any
value in respect of, their shares is mainly dependent on the
existence of a liquid market in the shares and the market price of
such shares.
Liquidity Proposal
Although the Company does not have a fixed life, the Articles
require that the Directors convene a Liquidity Proposal Meeting to
be held no later than 30 June 2026 at which a Liquidity Proposal in
the form of an ordinary resolution will be put forward proposing
that the Company should proceed to an orderly wind-up at the end of
the term of the leases. In the event the Liquidity Proposal is not
passed, the Directors will consider alternatives for the Company
and shall propose such alternatives at a general meeting of the
shareholders, including re-leasing the Assets, or selling the
Assets and reinvesting the capital received from the sale of the
Assets in other aircraft.
The following table details the contractual maturity analysis of
the Group's financial liabilities. The amounts are contractual
undiscounted cash flows and therefore will not agree directly to
the balances in the statement of financial position.
31 December 2021 Next 12 months 2-5 years After 5 years Total
US$ US$ US$ US$
Bank borrowings and
interest (4,302,804) (103,353,004) - (107,655,808)
Maintenance provision - (14,460,682) - (14,460,682)
Share based payment
liability (218,697) - - (218,697)
Trade and other payables (409,035) - - (409,035)
--------------------------- --------------- -------------- -------------- --------------
Total (4,930,536) (117,813,686) - (122,744,222)
--------------------------- --------------- -------------- -------------- --------------
31 December 2020 Next 12 months 2-5 years After 5 years Total
US$ US$ US$ US$
Bank borrowings and interest (180,915,582) - - (180,915,582)
Interest rate swaps (4,183,715) - - (4,183,715)
Maintenance provision - - (14,460,682) (14,460,682)
Share based payment liability - (110,710) - (110,710)
Trade and other payables (782,071) - - (782,071)
-------------------------------- --------------- ---------- ---------------- --------------
Total (185,881,368) (110,710) (14,460,682) (200,452,760)
-------------------------------- --------------- ---------- ---------------- --------------
In addition to the bank loans, the Group may from time to time
use borrowings. To this end the Group may arrange an overdraft
facility for efficient cash management. The Directors intend to
restrict borrowings other than the bank loans to an amount not
exceeding 15 percent of the net asset value of the Group at the
time of drawdown. Borrowing facilities will only be drawn down with
the approval of the Directors on a case by case basis. The
Directors may also draw down on an overdraft facility for
extraordinary expenses determined by them, on the advice of DS
Aviation, to be necessary to safeguard the overall investment
objective. With the exception of the loans, the Directors have no
intention, as at the date of this report, to use such borrowings or
overdraft facility for structural investment purposes.
25) FAIR VALUE MEASUREMENT
The accounting policies and basis of measurement in respect of
financial instruments are detailed in note 2.
Financial assets at fair value through profit or loss
As at year end the Group holds loans and unquoted investments in
the two former subsidiaries, DP Aircraft Guernsey I Limited and DP
Aircraft Guernsey II Limited. The loans and investments have a fair
value of US$ nil and have been valued based on the cash expected to
be received from the former subsidiaries. No cash is to be received
from the former subsidiaries. Therefore, the loans and investments
are categorised within level 3 of the IFRS 13 fair value
hierarchy.
Financial assets and financial liabilities at amortised cost
The fair value of cash and cash equivalents, trade and other
receivables, restricted cash and interest payable approximate their
carrying amounts due to the short-term maturities of these
instruments.
Financial liabilities designated as hedging instruments
The fair value of the Group's derivative interest rate swaps is
determined by reference to the mid-point on the yield curves
prevailing on the reporting date and represent the net present
value of the differences between the contracted and the valuation
rate when applied to the projected balances to the period from the
reporting date to the contracted expiry date.
The interest rate swaps are valued on a recurring basis and have
been categorised within level 2 of the fair value hierarchy
required by IFRS 13.
During the period, the derivative interest rate swaps have been
terminated with effect from 25 February 2021. See note 7 for
details re breakage costs charged on termination. Also note, hedge
accounting on the interest rate swaps was discontinued effective 13
May 2020.
As at 31 December 2021, the fair value of the interest rate
swaps was a liability US$ nil (31 December 2020: liability of US$
4,183,715). During the year ended 31 December 2021, a fair value
gain of US$ 459,015 (31 December 2020: US$ 1,242,805) was
recognised in profit or loss on the interest rate swaps.
The following table details the contractual undiscounted cash
flows of the interest rate swaps:
As at 31 December 2021 Next 12 months 2 to 5 years After 5 years Total
US$ US$ US$ US$
Floating rate receivable - - - -
Fixed rate payable - - - -
-------------------------- --------------- ------------- -------------- ------------
Interest rate swaps - - - -
-------------------------- --------------- ------------- -------------- ------------
As at 31 December 2020 Next 12 months 2 to 5 years After 5 years Total
US$ US$ US$ US$
Floating rate receivable 1,881,220 3,388,735 - 5,269,955
Fixed rate payable (3,499,198) (5,977,750) - (9,476,948)
-------------------------- --------------- ------------- -------------- ------------
Interest rate swaps (1,617,978) (2,589,015) - (4,206,993)
-------------------------- --------------- ------------- -------------- ------------
Transfers between levels
The Company determines whether transfers have occurred between
levels in the hierarchy by re-assessing categorisation based on the
lowest level input that is significant to the fair value
measurement as a whole at the end of each reporting period.
There were no transfers between level 1 and level 2 fair value
measurements and no transfers into or out of level 3 fair value
measurements during the year ended 31 December 2021 or in the year
ended 31 December 2020.
26) RELATED PARTY TRANSACTIONS
The Directors who served during the year received the following
remuneration:
Year ended Year ended
31 December 31 December
2021 2020
US$ US$
Jonathan Bridel (Chairman) 121,613 124,994
Jeremy Thompson (Chairman of the Audit Committee
and Senior Independent Director) 98,493 101,665
Harald Brauns (Chairman of the Management
Engagement Committee) 100,298 111,346
-------------------------------------------------- ------------- -------------
Total 320,404 338,005
-------------------------------------------------- ------------- -------------
Base annual fees 212,417 227,295
Share based payment expense (note 27) 107,987 110,710
Total 320,404 338,005
--------------------------------------- -------- --------
Du ring the year ended 31 December 2021, Directors' remuneration
totalled US$ 320,404 (31 December 2020: US$ 338,005) with US$
218,697 due at the year-end (2020: US$ 171,712). Directors'
expenses totalling US$ 63 were paid during the year ended 31
December 2021 (2020: US$ 1,018), with US$ nil due to be paid at the
year-end (2020: US$ nil).
Base annual fees are as follows:
Annual Fee 2021 2020
Jonathan Bridel GBP66,000 GBP66,000
Jeremy Thompson GBP53,700 GBP53,700
Harald Brauns GBP55,050 GBP58,800
*Note: Directors fees were agreed in GBP, the financial
statements are presented in USD
In recognition of the additional work performed in relation to
the group's circumstances, the board have earned extra fees of
GBP65,000 (2020: 81,100) split as follows:-
Additional Fee 2021 2020
Jonathan Bridel GBP25,000 GBP30,000
Jeremy Thompson GBP20,000 GBP24,400
Harald Brauns GBP20,000 GBP26,700
*Note: Directors fees were agreed in GBP, the financial
statements are presented in USD
10% of base fees and all extra fees are not currently being paid
by way of cash payments but are being deferred or being paid by way
of equity. There has been no settlement of director remuneration
via the issue of equity in the current year (2020: nil).
Director's shareholdings in the Company are detailed in the
Directors' Report and received dividends of US$ nil during the year
(2020: US$ 506).
Refer to note 13 for details regarding the investments in DP
Aircraft Guernsey I Limited and DP Aircraft Guernsey II
Limited.
27) SHARE BASED PAYMENT EXPENSE
Share based payment arrangement relates to 10% of annual
director base fees and all additional director fees that are
currently being deferred and are to be settled either by payment of
cash or issue of equity of the Company or both. The Directors have
the option to choose whether payment in the future is in cash or by
issuing of equity instruments at a price to be determined in the
future or both. The deferral for settlement in the future will
continue for as long as the deferred principal due to DekaBank
remains outstanding (see note 18).
The Group has granted a compound financial instrument to the
directors i.e. the share based payment includes a liability
component and an equity component. The fair value of the compound
financial instrument is determined as the value of the liability
component and the equity component.
The fair value of the liability component is based on cost of
the services provided as agreed with the directors. The equity
component has been deemed to have a nil value at the yearend. The
fair value of the liability and equity elements are unchanged as at
year end since initial recognition. Refer to note 19 for share
based payment liability details and note 26 for details regarding
the related expense recognised in the Statement of Comprehensive
Income.
28) MATERIAL CONTRACTS
Asset Management Agreement
The Asset Management Agreement dated 19 September 2013, between
the Group and DS Aviation was initially amended on 5 June 2015 to
reflect the acquisition of two new aircraft. A second amendment via
a side letter, effective 1 January 2021, was made to the Asset
Management Agreement on 7 May 2021.
Disposal fee
The initial amendment provides a calculation methodology for the
disposal fee which will only become payable when all four of the
Assets (first two currently under receivership and second two
currently held by the Group) have been sold after the expiry of the
second Thai Airways lease in December 2026. The fee will be
calculated as a percentage of the aggregate net sale proceeds of
the four assets, such percentage rate depending upon the Initial
Investor Total Asset Return per share being the total amount
distributed to an initial investor by way of dividend, capital
return or otherwise over the life of the Company. If each of the
Assets is sold subsequent to the expiry of their respective leases,
the percentage rate shall be:
-- Nil if the Initial Investor Total Asset Return per Share is less than 205%;
-- 1.5% if the Initial Total Asset Return per Share equals or
exceeds 205% but is less than 255%;
-- 2% if the Initial Total Asset Return per Share equals or
exceeds 255% but is less than 305%; or
-- 3% if the Initial Total Asset Return per Share equals or exceeds 305%.
In the event that any of the Assets are sold prior to the expiry
of its lease the percentage hurdles set out above will be adjusted
on the following basis:
-- An amount will be deducted in respect of each Asset sold
prior to the expiry of its lease, equal to the net present value of
the aggregate amount of dividends per Share that were targeted to
be paid but were not paid as a result of the early divestment of
the relevant Asset; and
-- A further amount will be deducted, in respect of each Asset
sold prior to the expiry of its lease, equal to the amount by which
the proportion of the non-dividend component of the relevant
percentage hurdle attributable to the relevant Asset would need to
be reduced in order to meet its net present value.
Per the second amendment, payment of any Disposal Fee per above
(if any) in connection with the sale of any of the Assets that were
under receivership is subordinated to the DekaBank loans and will
only become payable after the loans (including the deferred
element) have been repaid or prepaid in full.
The disposal fee is a cash-settled payment to the Asset Manager.
There is no disposal fee expected to be payable as at 31 December
2021 (31 December 2020: US$ nil).
Management fees
The provisions related to Asset Manager base fee have been
revised under the second amendment. Under the second amendment, the
Asset Manager is paid a monthly base fee of US$ 24,764 per asset in
respect of the first two Assets and US$ 15,085 per asset in respect
of the second two Assets increasing by 2.5 per cent per annum from
May 2021.
The monthly base fee in relation to the first two Assets as set
out above shall be payable up to (and including) the month of June
2021, and thereafter no such monthly base fee shall be payable. The
Asset Manager shall not be required to provide any services in
relation to the first two Assets from 1 July 2021 (inclusive).
Notwithstanding the aforementioned, if the Company and the Asset
Manager agree that further services will be provided with respect
to the first two Assets after June 2021, then the monthly base fee
shall recommence for each month that such services are
provided.
Prior to the second amendment, the Asset Manager was paid a base
fee of US$ 21,354 per month in respect of the first two Assets
increasing by 2.5% per annum and US$ 16,666 per month in respect of
the second two Assets increasing by 2.5% per annum from May
2016.
As consideration for the Asset Manager agreeing to a reduction
of the monthly base fee in respect of the second two Assets as set
out above, 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 second
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 year ended 31 December 2021 Asset Management fees
totalled US$ 757,254 (2020: US$ 1,032,327) of which US$ 122,941 was
due at 31 December 2021 (2020: US$ 87,240).
Administration Agreement
The Administrator of the Company is Aztec Financial Services
(Guernsey) Limited. Aztec Financial Services (Guernsey) Limited,
Aztec Financial Services (UK) Limited, Alter Domus Fund Services
(Ireland) Limited and A&L Goodbody LLP provide administration
services to the Company's underlying subsidiaries. These
administrator companies are collectively known as the
"Administrators". Total fees charged by the Administrators during
the period were US$ 438,198 (2020: US$ 401,553) of which US$ 46,876
remained payable at 31 December 2021 (2020: US$ 109,037).
The Administrators have the right to be reimbursed from the
Company for any reasonable out of pocket expenses incurred in
carrying out their responsibilities
Directors' fees
Details of the fees paid to the Directors are included in note
26.
29) SUBSEQUENT EVENTS
On 24 February 2022, Russia invaded Ukraine, resulting in
sanctions being imposed by the United States of America, the
European Union member countries, the United Kingdom, and other
countries to pressure Russia to cease its invasion of Ukraine. The
situation continues to evolve, and management has considered it to
be a post year end non-adjusting event. The Group continues to
monitor its activities and investors for any direct or indirect
affiliation to the designated persons in the ongoing sanctions. As
at the date of the signing the annual financial statements, the
invasion and subsequent sanctions do not have a material impact on
the Group and its activities.
On 1 April 2022, final documentation in relation to the revised
Thai lease arrangements was completed and signed. The terms of the
new arrangements reflect those set out in the Letter of Intent
signed between the Group and Thai Airways last year i.e.
- a Power by the Hour (PBH) arrangement which will remain in place until the end of 2022
- an extension of the lease term by 3 years to December 2029,
with the Company retaining a right of early termination in December
2026 after consulting with its lending banks (the "Thai
Lenders")
- scaled-back monthly lease payments from 2023 to 2026,
reflecting the reduced rates now seen in the market, with further
scale-back in the event that the lease continues beyond 2026
Also, on 1 April 2022, the Engine Exchange Agreement with Rolls
Royce for the replacement of the damaged Trent engine was
concluded.
Apart from the above, there are no other relevant subsequent
events to disclose in these annual financial statements.
COMPANY INFORMATION
Directors Jonathan Bridel
Jeremy Thompson
Harald Brauns
Registered Office East Wing
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3PP
Channel Islands
Asset Manager DS Aviation GmbH & Co. KG
Stockholmer Allee 53
44269
Dortmund
Germany
Solicitors to the Company Norton Rose Fulbright LLP
(as to English law) 3 More London Riverside
London
SE1 2AQ
United Kingdom
Advocates to the Company Mourant
(as to Guernsey law) Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey
GY1 1HP
Channel Islands
Auditor KPMG, Chartered Accountants
1 Harbourmaster Place
IFSC
Dublin 1
Ireland
Administrator and Company Aztec Financial Services (Guernsey)
Secretary Limited
East Wing
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3PP
Channel Islands
Corporate Broker Investec Bank plc
30 Gresham Street
London
EC2V 7QN
United Kingdom
THE FOLLOWING PAGES DO NOT FORM PART OF THE AUDITED FINANCIAL
STATEMENTS
APPIX 1 - ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE
(a) a description of the investment Prospectus, page 38, Information
strategy and objectives of the AIF; on the Company.
---------------------------------------------
if the AIF is a feeder AIF, information Not applicable.
on where the master AIF is established;
---------------------------------------------
if the AIF is a fund of funds, Not applicable.
information on where the underlying
funds are established;
---------------------------------------------
a description of the types of assets Prospectus, page 38, Information
in which the AIF may invest; on the Company.
---------------------------------------------
the investment techniques that Prospectus, page 38, Information
the AIF, or the AIFM on behalf of on the Company.
the AIF, may employ and all associated Prospectus, pages 18-31, disclosure
risks; of risk factors.
---------------------------------------------
any applicable investment restrictions; Prospectus, page 8.
---------------------------------------------
the circumstances in which the Prospectus, page 20, Risk of Debt
AIF may use leverage; Financing.
---------------------------------------------
the types and sources of leverage Prospectus, page 20, Risk of Debt
permitted and the associated risks; Financing.
---------------------------------------------
any restrictions on the use of Prospectus, page 20, Risk of Debt
leverage and any collateral and Financing.
asset reuse arrangements; and
---------------------------------------------
the maximum level of leverage which Prospectus, page 20, Risk of Debt
the AIFM is entitled to employ on Financing.
behalf of the AIF;
---------------------------------------------
(b) a description of the procedures Prospectus, page 38, Investment
by which the AIF may change its Policy.
investment strategy or investment
policy, or both;
---------------------------------------------
(c) a description of the main legal Prospectus, page 80, Part IX, Loans
implications of the contractual and Loan Agreements.
relationship entered into for the Prospectus, page 142, Part IV, Definitions.
purpose of investment, including
information on jurisdiction, the
applicable law and the existence
or absence of any legal instruments
providing for the recognition and
enforcement of judgments in the
territory where the AIF is established;
---------------------------------------------
(d) the identity of the AIFM, the Prospectus, page 36, Directors and
AIF's depositary, the auditor and Advisers.
any other service providers and Prospectus, page 152 (h).
a description of their duties and
the investors' rights;
---------------------------------------------
(e) a description of how the AIFM Prospectus, page 151 (g).
complies with the AIFMD's requirements
relating to professional liability
risk;
---------------------------------------------
(f) a description of:
---------------------------------------------
any AIFM management function delegated Not applicable.
by the AIFM;
---------------------------------------------
any safe-keeping function delegated Not applicable.
by the depositary;
---------------------------------------------
the identify of each delegate appointed; Not applicable.
and
---------------------------------------------
any conflicts of interest that Not applicable.
may arise from such delegations;
---------------------------------------------
(g) a description of the AIF's valuation Prospectus, page 152 (i).
procedure and of the pricing methodology
for valuing assets, including the
methods used in valuing any hard-to-value
assets;
---------------------------------------------
(h) a description of the AIF's liquidity Prospectus, page 152 (j).
risk management, including the redemption
rights of investors in normal and
exceptional circumstances, and the
existing redemption arrangements
with investors;
---------------------------------------------
(i) a description of all fees, charges Prospectus, pages 48-50, Fees and
and expenses, and the maximum amounts Expenses.
directly or indirectly borne by
investors;
---------------------------------------------
(j) a description of how the AIFM Prospectus, page 152 (l).
ensures a fair treatment of investors;
---------------------------------------------
whenever an investor obtains preferential
treatment or the right to obtain
preferential treatment, a description
of:
---------------------------------------------
that preferential treatment; Prospectus, page 152 (l).
---------------------------------------------
the type of investors who obtain Prospectus, page 152 (l).
such preferential treatment; and
---------------------------------------------
where relevant, their legal or Not applicable.
economic links with the AIF or AIFM;
---------------------------------------------
(k) the latest annual report Contained in this document.
---------------------------------------------
(l) the procedure and conditions Prospectus, page 44, Further Issue
for the issue and sale of units of Shares.
or shares;
---------------------------------------------
(m) the latest net asset value of The Company's shares are traded
the AIF or the latest market price on the London Stock Exchange so
of the unit or share of the AIF; the latest share price should be
available on www.londonstockexchange.com
.
---------------------------------------------
(n) where available, the historical Not applicable.
performance of the AIF;
---------------------------------------------
(o) the identity of any prime broker; Prospectus, page 152 (o).
---------------------------------------------
a description of any material arrangements Prospectus, page 152 (o).
of the AIF with its prime brokerage
firm and the way any conflicts of
interest are managed;
---------------------------------------------
the provision in the contract with Prospectus, page 151 (a).
the depositary on the possibility
of transfer and reuse of AIF assets;
and
---------------------------------------------
information about any transfer Prospectus, page 152 (o).
of liability to the prime brokerage
firm that may exist; and
---------------------------------------------
(p) a description of how and when Information may be disclosed in
the information required under Art. the Company's annual report or by
23(4) and Art. 23(5) of the AIFMD the Company publishing the relevant
will be disclosed. information on the Company's website
( http://www.dpaircraft.com ) or
by the Company issuing an announcement
via a Regulatory Information Service.
---------------------------------------------
(a) any changes to the maximum level Not applicable as no changes to
of leverage which the AIFM may employ the maximum level of leverage.
on behalf of the AIF as well as
any right of the reuse of collateral
or any guarantee granted under the
leveraging arrangement;
---------------------------------------------
(b) the total amount of leverage The total leverage employed at 31
employed by that AIF. December 2021 is US$ 98,545,953.
---------------------------------------------
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END
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April 28, 2022 02:01 ET (06:01 GMT)
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