• by  • April 4, 2014 • Doric II

    DORIC NIMROD AIR TWO LIMITED Announcement of Asset Manager’s Report

    Doric Nimrod Air Two Limited (the “Company”), a Guernsey-domiciled company, is pleased to present the quarterly Fact Sheet in respect of the period from 1 January 2014 to 31 March 2014.

    Doric GmbH, the Company’s Asset Manager, has provided the Company with this commentary on the Company’s airplanes and a copy of their report is appended below for the benefit of shareholders.


    On the invitation of the directors of the Company, the following commentary has been provided by Doric GmbH as Asset Manager of the Company and is provided without any warranty as to its accuracy and without any liability incurred on the part of the Company, its directors and officers and service providers. The commentary is not intended to constitute, and should not be construed as, investment advice. Potential investors in the Company should seek their own independent financial advice and may not rely on this communication in evaluating the merits of an investment in the Company. The commentary is provided as a source of information for shareholders of the Company but is not attributable to the Company.



    LSE: DNA2

    CISE: DNA2

    The Company

    Doric Nimrod Air Two Limited (“the Company”) is a Guernsey domiciled company which listed on the Specialist Fund Market of the London Stock Exchange and the Channel Islands Stock Exchange on 14 July 2011 with the admission of 72.5 million Ordinary Shares at an issue price of 200p per share. On 27 March 2012, the Company issued 100,250,000 C Shares at 200p per share. With effect from 6 March 2013 C Shares were converted into Ordinary Shares. One Ordinary Share has been received for every one C Share, resulting in 172,750,000 Ordinary Shares in total. The market capitalisation of the Company was GBP 393.9 million as of 31 March 2014.

    The Company has four wholly-owned subsidiaries: MSN077 Limited, MSN090 Limited, MSN105 Limited and Doric Nimrod Air Finance Alpha Limited (“DNAFA”).

    The Company acquired a total of seven Airbus A380-861 aircraft between October 2011 and November 2012. Each aircraft is leased to Emirates Airlines (“Emirates”) – the national carrier owned by the Investment Corporation of Dubai, based in Dubai, United Arab Emirates – for an initial term of 12 years from the point of delivery, with fixed lease rentals for the duration.

    In order to complete the purchase of the first three aircraft, MSN077 Limited, MSN090 Limited and MSN105 Limited entered into three separate loans, each of which will be fully amortised with quarterly repayments in arrear over 12 years.

    The net proceeds from the C Share issue (“the Equity”) were used to partially fund the purchase of four of the seven Airbus A380s. In order to help fund the acquisition of these final four aircraft, DNAFA issued two tranches of enhanced equipment trust certificates (“the Certificates” or “EETC”) – a form of debt security – in June 2012 in the aggregate face amount of USD 587.5 million. DNAFA used the proceeds from both the Equity and the Certificates to finance the acquisition of four new Airbus A380 aircraft leased to Emirates.

    Investment Strategy

    The Company’s investment objective is to obtain income returns and a capital return for its shareholders by acquiring, leasing and then selling a portfolio of aircraft. The Company receives income from the lease and its directors are targeting a gross distribution to the shareholders of 4.5 pence per share per quarter (amounting to a yearly distribution of 9.0% based on the initial placing price of 200p per share). It is anticipated that income distributions will continue to be made quarterly.

    Company Facts (31 March 2014)


    Listing LSE and CISE
    Ticker DNA2
    Share Price 228.0p
    Market Capitalisation GBP 393.9 million
    Aircraft Registration Numbers A6-EDP, A6-EDT, A6-EDX, A6-EDY, A6-EDZ, A6-EEB, A6-EEC
    Current/Future Anticipated Dividend 4.5p per quarter (18p per annum)
    Dividend Payment Dates April, July, October, January
    Currency GBP
    Launch Date/Price 14 July 2011 / 200p
    C Share Issue Date/Price 27 March 2012 / 200p
    C Share Conversion Date/Ratio 6 March 2013 / 1:1
    Incorporation Guernsey
    Asset Manager Doric GmbH
    Corp & Shareholder Advisor Nimrod Capital LLP
    Administrator  JTC Fund Managers (Guernsey) Ltd
    Auditor  Deloitte LLP
    Market Makers Shore Capital Ltd/
    Winterflood Securities Ltd/
    Jefferies International Ltd/
    Numis Securities Ltd
    SEDOL, ISIN  B3Z6252, GG00B3Z62522
    Year End  31-Mar
    Stocks & Shares ISA  Eligible
    Website  www.dnairtwo.com

    Asset Manager’s Comment

    1. The Assets

    In November 2012, the Company had completed the purchase of all seven Airbus A380 aircraft, bearing manufacturer’s serial numbers (MSN) 077, 090, 105, 106, 107, 109 and 110. All seven aircraft are leased to Emirates for an initial term of 12 years from the point of delivery with fixed lease rentals for the duration.

    The seven A380s owned by the Company recently visited Auckland, Bangkok Brisbane, Los Angeles, Moscow, Munich, New York JFK, Paris, Rome, Seoul, Singapore, and Sydney.

    Aircraft utilization for the period from delivery of each Airbus A380 until the end of February 2014 was:


    MSN Delivery Date Flight Hours Flight Cycles Average Flight Duration
    77 14/10/2011 11,008 1,256 8 h 45 min
    90 02/12/2011 9,403 1,591 5 h 55 min
    105 01/10/2012 6,716 1,083 6 h 10 min
    106 01/10/2012 7,364 831 8 h 50 min
    107 12/10/2012 7,349 816 9 h 00 min
    109 09/11/2012 5,871 954 6 h 10 min
    110 30/11/2012 5,978 1,015 5 h 55 min

    Maintenance Status

    Emirates maintains its A380 aircraft fleet based on a maintenance programme according to which minor maintenance checks are performed every 1,500 flight hours, and more significant maintenance checks (C checks) at the earlier of 24 months or 12,000 flight hour intervals. Emirates bears all costs (including maintenance, repair and insurance) relating to the aircraft during the lifetimeof the lease.


    During the period under review, the asset manager Doric completed records audits for MSN 077 and MSN 090.

    Hairline Cracks

    In late 2011, hairline cracks were detected in a small number of L-shaped metal brackets (known as wing rib feet) within the wing structure of some A380s. The aircraft remain fully airworthy and the hairline cracks pose no risk to flight safety as affirmed by the European Aviation Safety Agency (EASA) and Airbus.

    As previously reported, EASA released its latest Airworthiness Directive in May 2013, outlining which modifications need to be made and the respective compliance terms. The wing rib feet modification programme for Emirates’ aircraft is essentially managed by Airbus. All modification activities will be covered by the applicable manufacturer’s warranties. Emirates decided to embody all modifications in one step. The downtime required to incorporate the permanent fix has in some cases been reduced from the originally planned eight weeks down to 51 days. The current schedule for the respective aircraft is as follows:


    MSN Timeline (preliminary)
    77 Completed
    90 Completed
    105 Spring 2014
    106 Summer 2014
    107 Summer 2014
    109 In progress
    110 Spring 2014

    The Company has been notified by Emirates that the implementation of the final fix for MSN 109 started on 15th February 2014 and is scheduled to be completed on 13th April 2014. The modification work is being conducted by ADAT (Abu Dhabi Aircraft Technologies). More than a third of the 35 A380s operated by Emirates, which require this modification, have until now undergone the complete modification.

    2. Market Overview

    During 2013, passenger demand, measured in revenue passenger kilometres (RPKs), expanded by 5.2% compared to the year before. This number represents exactly the average historical growth rate over the last 30 years. Market development during 2013 was mainly driven by a solid economic growth in the emerging regions. Less mature air travel markets continued to expand significantly faster than the more mature ones. The industry also experienced a strong start into the year 2014. RPKs during January were 8.0% above the same month the year before. In general, accelerating air travel markets during the last months are consistent with a pick-up in economic growth across the globe.

    Between January and December 2013 airlines increased their capacities, measured in available seat kilometres (ASKs), by 4.8%. With some exceptions, the operators remained careful in their capacity planning. Overall the growth rate of RPKs exceeded the ASK increase.

    The average passenger load factor during the year 2013 was 79.5%. This is an increase of 0.4%-points compared to the year before. From a historic perspective passenger load factors remain stable on a high level. In 2014 worldwide passenger load factors could exceed 81% for the first time in the industry’s history. According to the latest traffic forecast released by IATA in March 2014, RPKs are expected to grow by 5.8% in 2014 and 6.7% in 2015. Outlook for 2015 was slightly downgraded by 0.2%-points since the previous publication from December 2013.

    A regional breakdown reveals that the Middle East airlines were once more the best-performing in terms of RPK growth with a plus of 11.4% during 2013. The Asia/Pacific region grew by 7.1%. The most modest growth was again observed in North America with 2.3%. This growth pattern is continuing in the current year. During January 2014 traffic in the Middle East increased by 17.2% compared to the same period the year before. At the lower end North America has been replaced by Africa which showed only a modest growth of 2.1% in January.

    In 2013 air freight markets slowly recovered from their downsizing the year before. Flown freight-tonne-kilometres (FTKs) increased by 1.4%. Growth picked up mainly during the second half of the year. Eurozone’s emergence from recession and an accelerated growth in world trade supported this encouraging development. But load factors and hence utilization of the available freight capacities remain a challenge to the industry. The average load factor for 2013 was only 45.3%. Well performing markets for passenger traffic result in an increase of belly capacity. Hence available freight-tonne-kilometres (AFTKs) increased by 2.6% during the year. The Middle East and Latin America were the only regions where demand growth for air freight exceeded additional supply. Nevertheless, in January 2014 air freight volumes were the highest since mid-2010. It is expected that the slow recovery will continue in line with the growth of industrial production. Historical evidence that freight demand is increasing twice as fast as the industrial production is currently not observable. For 2014 IATA expects a worldwide FTK growth of 4.0%.

    IATA released its latest industry outlook in March 2014 according to which global industry profits are expected to reach USD 18.7 billion in 2014. This is slightly lower than IATA’s December 2013 estimate of USD 19.7 billion. The main driver of this downward revision is an adjusted projection for oil price development, which has been increased by USD 3.50 per barrel for geo-political reasons such as the latest developments in the Ukraine. But according to IATA’s General Director and CEO, Tony Tyler, the general outlook to the industry is positive. Expected GDP growth, which is closely linked to airlines profitability, is largely driven by developed economies after some key emerging economies like India and Brazil face economic challenges.

    During 2013 Airbus delivered more aircraft to its customers than ever before. At the same time the European aircraft manufacturer received new orders for 1,503 aircraft. At the year-end order backlog increased to 5,559 aircraft with a cumulated list price of more than USD 800 billion. This is a new record to the aviation industry.

    Source: Airbus, IATA

    3. Lessee – Emirates Key Financials and Outlook

    Emirates’ annual report for the financial year 2013/2014 is expected to be released in May 2014. In the first six months of the current financial year (ending on 30 September 2013) revenue reached a record high of USD 10.8 billion, up by 12% compared to the same period in the financial year before. According to His Highness Sheikh Ahmed bin Saeed Al Maktoum, Chairman and Chief Executive of Emirates, “the global business environment continues to be challenging”. Nevertheless the lessee increased its net profit by 2% to USD 475 million. However persistent high fuel prices and an unfavorable currency exchange environment burden the airline’s profits.

    As of 30 September 2013 the balance sheet total amounted to USD 25.1 billion, a decrease of 3% from the end of last financial year. Total equity increased by 7.9% to USD 6.8 billion with an equity ratio of 27%. The current ratio was 1.01; therefore the airline would be able to meet its current liabilities by liquidating all of its current assets. As of 30 September 2013 the carrier’s cash balance reached USD 4.3 billion, therefore liquidity decreased by USD 2.4 billion within six months. This was largely caused by bond repayments and injections back into the business to fund new aircraft, engines, spares and other projects.

    In the first half of the current financial year, Emirates continued to invest in and expand its employeebase, increasing its overall staff count by 12.4% to over 51,900 compared with 30 September 2012.

    In 2013 Emirates received 24 new aircraft including freighters. Nine new passenger routes have been launched; Warsaw, Algiers, Tokyo Haneda, Stockholm, Clark, Milan-New York, Conakry, Sialkot and Kabul. Hanoi, Chicago Kano in Nigeria and Quito in Ecuador have been launched as cargo only destinations. At the Dubai Air Show in November 2013 the lessee signed contracts with Airbus and Boeing in a combined value of USD 99 billion (list prices) consisting of 150 Boeing 777X and another 50 Airbus A380. According to the operator, the first 25 of the additional A380 will come into service before the first quarter of 2018. Deliveries for 777Xs are scheduled to start in 2020. Emirates is not only heavily investing in new aircraft, but it is also running the world’s largest paint hangar owned by an airline. Twice the size of a football field, the facility operates 24 hours a day, seven days a week. Between January and December 2013 Emirates completed 21 “make-overs” comprising paint stripping and repaint of complete aircraft. According to the airline, the first A380 which entered into service in August 2008 will be due for a repaint in 2015.

    As of February 2014 Emirates operates flights to 141 destinations in 80 countries on six continents. During the last calendar year the airline’s fleet travelled more than 751 million kilometres, circling the globe over 18,000 times and carrying over 43 million passengers. In the first six months of the current business year until September 2013 the lessee offered 16.9% more ASKs than a year ago. At the same time demand increased by 16.1%. Notwithstanding the tremendous growth Emirates is able to match supply and demand in order to keep the load factor at high levels. During the first half of the current financial year, passenger load factor averaged 79.2%.

    Source: Emirates

    4. Aircraft – A380

    As of February 2014 Emirates has a fleet of 45 A380s which currently serve from their Dubai’s hub 26 destinations worldwide: Amsterdam, Auckland, Bangkok, Barcelona, Beijing, Brisbane, Hong Kong, Jeddah, Kuala Lumpur, London Gatwick, London Heathrow, Los Angeles, Manchester, Mauritius, Melbourne, Moscow, Munich, New York JFK, Paris, Rome, Seoul, Shanghai, Singapore, Sydney, Toronto and Zurich. London Gatwick became an A380 destination only recently. But it was Emirates’ first destination when the airline commenced flights to the UK back in 1987.

    At the end of February 2014, the global A380 fleet consisted of 124 commercially used planes in service. The currently ten operators are Emirates (45 A380 aircraft), Singapore Airlines (19), Qantas (12), Deutsche Lufthansa (10), Air France (9), Korean Airways (8), China Southern Airlines (5), Malaysia Airlines (6), Thai Airways (6) and British Airways (4). According to manufacturer Airbus, a record number of new operators will receive their first aircraft in the current calendar year. Qatar Airways will join the club of A380 operators first, followed by South-Korean based Asiana Airlines and Skymark Airlines of Japan United Arab Emirates’ flag carrier Etihad Airways is expected to receive the first A380 by the close of this year.

    The order book for A380 aircraft has expanded considerably over the last two quarters. In November 2013 Emirates announced at the Dubai Air Show to buy another 50 A380s in addition to the 90 already ordered. In February 2014 widebody leasing company Amedeo firmed up an order of 20 A380s. No operator has so far been confirmed for these aircraft. This brings the number of unfilled orders at Airbus to 199 aircraft by the end of February 2014.

    In January 2014 the Indian Ministry of Civil Aviation lifted the ban for A380 operations at Indian airports. Four major international airports including New Delhi and Mumbai have already been equipped to handle the superjumbo. It is expected that major A380 operators like Emirates, Deutsche Lufthansa and Singapore Airlines will use their aircraft for flights to India in the future. Services will be subject to traffic entitlements within bilateral agreements.

    According to Airbus, the worldwide A380 fleet has accumulated around 1.2 million flight hours in close to 150,000 commercial flights. The number of passengers flying aboard an Airbus A380 to date is over 50 million. Currently the A380 operates between 35 airports and every five minutes an A380 takes off or lands at these destinations.

    Source: Airbus, Ascend, Bloomberg, Emirates