SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
__________________________
FORM
8-K
__________________________
CURRENT
REPORT
PURSUANT TO
SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
Date
of Report (Date of earliest event reported): May 14,
2020
AEROCENTURY
CORP.
(Exact name of
Registrant as specified in its charter)
|
Delaware
|
94-3263974
|
|
(State of
Incorporation)
|
(I.R.S.
Employer Identification No.)
|
000-1036848
(Commission
File Number)
1440 Chapin
Avenue, Suite 310
Burlingame, CA
94010
(Address of
principal executive offices including Zip Code)
650-340-1888
(Registrant's
telephone number, including area code)
Not
applicable
(Former name
and former address, if changed since last
report)
Check the appropriate box below if
the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following
provisions (see General Instruction A.2.
below):
☐ Written communications
pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
☐ Soliciting material
pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
☐ Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b))
☐ Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e-4(c)
Securities registered pursuant to
Section 12(b) of the Act:
|
Title of each
class
|
Name of each exchange on which
registered
|
|
Common Stock, par value $0.001 per
share
|
NYSE American
Exchange
|
Indicate by check mark whether the registrant is
an emerging growth company as defined in Rule 405 of the Securities
Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the
Securities Exchange Act of 1934 (§240.12b-2 of this
chapter). Emerging growth company ☐
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ☐
●
Inability for work
groups to interact efficiently and in close proximity due to
shelter-in-home rules imposed by government
authorities;
●
Inability to use of
technology systems and office administrative systems efficiently
and consistently due to the lack of presence of support staff in
the Company's offices;
●
Delayed
correspondence and lengthened expected response times between the
Company and its professional advisors;
●
Difficulty in
timely gaining access to accounting records (e.g., for preparation and review of
records needed to close books for the period);
●
The need to perform
additional analyses and procedures regarding cash flow as a result
of COVID-19's effect on our lessees;
●
Uncertainty
regarding the amendment of the Company's credit facility debt,
which was delayed as a result of COVID-19; and
●
Inability to timely
obtain accurate updated aircraft appraisals necessary to measure
potential asset impairments due to the rapidly changing market for
aircraft assets and delayed response times from industry appraisers
affected by shelter-in-place restrictions.
●
In Item 2.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations --Outlook:
COVID-19
Pandemic. As discussed below, in Factors that May Affect Future Results and
Liquidity -- Impact of COVID-19 Pandemic, the COVID-19
pandemic has had and will continue to have a significant impact on
the Company’s financial circumstances mainly due to the
impact on the Company’s primary customers, regional airlines.
The COVID-19 pandemic has resulted in a loss of revenue for such
customers. This in turn has caused lessees to make requests for
lease payment concessions and/or deferrals from the Company. The
Company has so far been able to reach accommodations with its
lenders to allow the Company with certain of its lessees to keep
its leases with such lessees intact while giving such lessees
short-term deferrals on lease obligations. If the financial fallout
from the COVID-19 pandemic continues, and the Company receives
additional requests from lessees for further concessions, then the
Company may not be able to gain the agreement of its lenders for
further corresponding concessions under its debt financings. If
that occurs, then the Company may be required to terminate such
leases and attempt to resell or re-lease such assets, or the
lenders themselves may foreclose upon such assets, and take
possession of the assets as a remedy for default under the
Company’s debt agreements. Beyond this short-term effect of
the COVID-19 pandemic, there will be a medium-term effect on the
Company through the lowered demand for aircraft capacity due to
governmental health and safety protocols, shelter-in-place
restrictions, passenger appetite for travel and discretionary
spending. The onset of the COVID-19 pandemic reduced passenger air
travel to a small fraction of what it was in prior years. This in
turn has reduced the airlines’ need for aircraft capacity,
resulting in a current excess supply of aircraft relative to demand
for leased aircraft such as those owned by the Company. Some
airlines may be forced to cease operations, which will further
exacerbate the oversupply of aircraft for lease or sale. Even if
the global economy quickly rebounds to pre-COVID-19 levels, the
Company anticipates that it may take much longer for passenger air
travel and demand for aircraft capacity to return to such levels
and then grow beyond such levels that additional aircraft capacity
is required, and uncertainties in our industry may prevent the
Company from accessing the equity or
debt capital markets on attractive terms or at all for a period of
time, which could have an adverse effect on the Company's liquidity
position. To the extent that the Company is able to retain
its aircraft on lease with lessees during this recovery period,
this oversupply in the medium-term may not have a significant
impact on the Company’s financial circumstances, other than a
potential reduction in appraised values of the Company’s
portfolio when it receives its periodic appraisals. If, however, at
the time that the Company is required to repossess an aircraft upon
termination or expiration of its lease, demand for aircraft for
lease or purchase is still depressed, then the Company may
experience substantial difficulty in locating a new lessee or
purchaser for such aircraft. On the other hand, the depressed
valuations for aircraft could result in substantial opportunities
to acquire assets at discounted prices. Thus, if the Company is
able to successfully weather the impact of the pandemic and
refinance its current MUFG Loan indebtedness and then obtain new
sources of capital for acquisition funding, the post-COVID-19
recovery may present the Company with numerous asset acquisition
opportunities at attractive prices.
●
In Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations -- Factors that May Affect Future Results and
Liquidity:
Impact of COVID-19
Pandemic. The ongoing COVID-19 pandemic has had an
overwhelming adverse effect on the Company during the first quarter
of 2020, as it has had on all forms of transportation globally, but
most acutely for the airline industry. The combined effect of fear
of infection during air travel, quarantines, and international and
domestic travel restrictions has caused a dramatic decrease in
passenger loads in all areas of the world, not just in those
countries with active clusters of COVID-19, as well as in airline
ticket net bookings (i.e., bookings made less bookings canceled) of
flights. This has led to significant cash flow issues for airlines,
including some of the Company’s customers, and some airlines
may be unable to timely meet their obligations under their lease
obligations with the Company. For example, the Company has
permitted one customer, which leases two regional jet
aircraft, to defer payment of March 2020 quarterly rent to June
2020, and the Company has permitted another customer to reduce the
amounts due in April, May and June 2020. In addition, the Company
and two other customers, each of which leases an aircraft subject
to a sales-type lease, are discussing remedies regarding
non-payment of a portion of the rent due during the first quarter
of 2020. Since the Company’s aircraft are financed with debt,
rent payments fund the Company’s repayment of debt
obligations, and any default under the leases by lessees will
generally lead to a default by the Company under its loan
obligations, and require the lender and the Company to agree to a
financial workout with respect to such debt obligations. The
Company has thus far been able to achieve such accommodations from
its lenders with respect to lessees that have been unable to remain
current in their obligations, but there is no assurance that if
such lessees do not return to compliance in the near term, or other
lessees who are now current in their obligations fall out of
compliance, that the Company will be able to obtain concessions or
a workout from its lenders with respect to the Company’s
obligations under its debt agreements. Any significant nonpayment
or late payment of lease payments by a significant lessee or
combination of lessees could in turn impose limits on the
Company’s ability to fund its ongoing operations as well as
cause new defaults under the Company’s debt obligations,
which in turn could lead to an immediate acceleration of debt and
foreclosure upon the Company's assets. If this were to occur, the
Company may be prevented from accessing the equity or debt capital
markets on attractive terms or at all for a period of time, given
the volatility in securities and financial markets caused by the
COVID-19 pandemic. Furthermore,
for the duration of the pandemic and a period of financial recovery
thereafter, sale transactions are likely to be curtailed entirely
or delayed while the industry returns to financial stability, which
could impact the Company’s ability to implement any aspects
of its Recapitalization Plan that require disposition of its
assets.
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereto
duly authorized.
Date: May 14,
2020
AEROCENTURY
CORP.
By: /s/ Harold M.
Lyons
Harold M. Lyons, SVP
Finance