Doric Nimrod 2 Regulatory News (DNA2)

DORIC NIMROD AIR TWO LIMITED

ANNUAL FINANCIAL REPORT

The Board of the Company is pleased to announce its results for the year ended 31 March 2019.

To view the Company's Annual Financial Report please follow the link below:

http://www.rns-pdf.londonstockexchange.com/rns/6859E_1-2019-7-5.pdf

In addition, to comply with DGTR 4.1 please find below the full text of the annual financial report. The report will also shortly be available on the Company's website www.dnairtwo.com.

ANNUAL GENERAL MEETING

Notice of the annual general meeting of the shareholders of the Company will be published in due course.

For further information, please contact:

For administrative and Company information:

JTC Fund Solutions (Guernsey) Limited

+44 (0) 1481 702400

For shareholder information:

Nimrod Capital LLP 

+44 (0) 20 7382 4565

END OF ANNOUNCEMENT

E&OE - in transmission

Doric Nimrod Air Two Limited

Consolidated Annual Financial Report

From 1 April 2018 to

31 March 2019

SUMMARY INFORMATION

COMPANY OVERVIEW

Doric Nimrod Air Two Limited (LSE Ticker: DNA2) ("DNA2" or the "Company") is a Guernsey company incorporated on 31 January 2011.

Pursuant to the Company's prospectus dated 30 June 2011, the Company on 14 July 2011 raised approximately £136 million by the issue of ordinary preference shares at an issue price of £2 each (the "Placing"). The Company's ordinary preference shares were admitted to trading on the Specialist Fund Segment ("SFS") of the London Stock Exchange's Main Market on 14 July 2011.

The Company raised a further £188.5 million from a C share fundraising (the "C Shares"), which closed on 27 March 2012 with the admission of 100,250,000 convertible preference shares to trading on the SFS.

On 6 March 2013, the Company's C Shares converted into an additional 100,250,000 ordinary preference shares. These additional ordinary preference shares were admitted to trading on the SFS and rank pari passu with the ordinary preference shares already in issue.

As at 3 July 2019, the last practicable date prior to the publication of this report, the Company's total issued share capital consisted of 172,750,000 ordinary preference shares (the "Shares") and these Shares were trading at 185.00 pence per Share.

Investment Objectives and Policy

The Company's investment objective is to obtain income returns and a capital return for its shareholders (the "Shareholders") by acquiring, leasing and then selling aircraft (each an "Asset" or "Aircraft" and together the "Assets" or "Aircraft"). The Company receives income from the lease rentals paid to it by Emirates Airline ("Emirates"), the national carrier owned by the Investment Corporation of Dubai, based in Dubai, United Arab Emirates, pursuant to the leases.

Subsidiaries

The Company has four wholly-owned subsidiaries; MSN077 Limited, MSN090 Limited, MSN105 Limited and Doric Nimrod Air Finance Alpha Limited ("DNAFA") which collectively hold the Assets for the Company (together the Company and the subsidiaries are known as the "Group").

The first Asset was acquired by MSN077 Limited on 14 October 2011 for a purchase price of $234 million and has been leased to Emirates for an initial term of 12 years to October 2023, with fixed lease rentals for the duration. 

The second Asset was acquired by MSN090 Limited on 2 December 2011 for a purchase price of $234 million and has been leased to Emirates for an initial term of 12 years to December 2023, with fixed lease rentals for the duration. 

The third Asset was acquired by MSN105 Limited on 1 October 2012 for a purchase price of $234 million and has been leased to Emirates for an initial term of 12 years to October 2024.

The fourth Asset, MSN 106, was acquired by DNAFA on 1 October 2012 for a purchase price of $234 million.

The fifth Asset, MSN 107, was acquired by DNAFA on 12 October 2012 for a purchase price of $234 million.

The sixth Asset, MSN 109, was acquired by DNAFA on 9 November 2012 for a purchase price of $234 million.

The seventh Asset, MSN 110, was acquired by DNAFA on 30 November 2012 for a purchase price of $234 million.

The fourth, fifth, sixth and seventh Assets were acquired by DNAFA using the proceeds of the issue of the C Shares, together with the proceeds of Equipment Notes (the "Equipment Notes") issued by DNAFA. The Equipment Notes were acquired by two separate pass through trusts using the proceeds of their issue of enhanced equipment trust certificates (the "Certificates"). The Certificates, with an aggregate face amount of approximately $587.5 million were admitted to the Official List of the UK Listing Authority and to the London Stock Exchange on 12 July 2012. These four Assets were also leased to Emirates for an expected initial term of 12 years to the second half of 2024, with fixed lease rentals for the duration.

In order to complete the purchase of the related Assets, MSN077 Limited, MSN090 Limited and MSN105 Limited entered into separate loan agreements with a number of banks (see Note 14), each of which will be fully amortised with quarterly repayments in arrears over 12 years (each of them a "Loan", together the "Loans"). A fixed rate of interest applies to the Loans except for 50 percent of the loan in MSN090 Limited which has a related interest rate swap entered into to fix the interest rate. MSN077 Limited drew down $151,047,509 under the terms of the first loan agreement to complete the purchase of the first Asset; MSN090 Limited drew down $146,865,575 in accordance with the second loan agreement to finance the acquisition of the second Asset; and MSN105 Limited drew down $145,751,153 in accordance with the third loan agreement to finance the acquisition of the third Asset. The first loan agreement, the second loan agreement and the third loan agreement are on materially the same terms.

Further information about the construction of these leases is available in Note 11 to the financial statements.

Distribution Policy

The Company aims to provide its Shareholders with an attractive total return comprising income from distributions through the period of the Group's ownership of the Assets and capital upon the sale of the Assets.

The Group receives income from the lease rentals paid by Emirates pursuant to the relevant leases. It is anticipated that income distributions will be made quarterly, subject to compliance with applicable laws and regulations. The Company currently targets a distribution of 4.50 pence per Share per quarter. Emirates bears all costs (including maintenance, repair and insurance) relating to the Aircraft during the lifetime of the leases.

There can be no guarantee that dividends will be paid to Shareholders and, if dividends are paid, as to the timing and amount of any such dividend. There can also be no guarantee that the Company will, at all times, satisfy the solvency test required to be satisfied pursuant to section 304 of The Companies (Guernsey) Law, 2008, as amended (the "Law") enabling the Directors to effect the payment of dividends.

Performance Overview

All payments by Emirates have, to date, been made in accordance with the terms of the respective leases.

During the financial year under review, and in accordance with the Distribution Policy, the Company declared four interim dividends of 4.50 pence per Share. One interim dividend of 4.50 pence per Share was declared after the reporting period. Further details of dividend payments can be found on page 18.

Return of Capital

In respect of any Asset, following a sale of that Asset, the Directors may, either (i) return to Shareholders the net proceeds, or (ii) re-invest such proceeds in accordance with the Company's investment policy.

The Company intends to return to Shareholders net capital proceeds if and when the Company is wound-up (pursuant to a Shareholder resolution, including the Liquidation Resolution below), subject to compliance with the Company's Articles of Incorporation (the "Articles") and the applicable laws (including any applicable requirements of the solvency test contained therein).

Liquidation Resolution

Although the Company does not have a fixed life, the Articles require that the Directors convene a general meeting of the Company in June 2025 where an ordinary resolution will be proposed that the Company proceed to an orderly wind-up at the end of the term of the leases (the "Liquidation Resolution"). In the event that the Liquidation Resolution is not passed, the Directors will consider alternatives for the future of the Company, including re-leasing the Assets, or selling the Assets and reinvesting the capital received from the sale of the Assets in other aircraft.

CHAIRMAN'S STATEMENT

I am pleased to present Shareholders with the Company's annual financial report, covering the period from 1 April 2018 until 31 March 2019 (the "Period").

I am happy to report that during the Period the Company has performed as anticipated and has declared and paid four quarterly dividends of 4.50 pence per share, as expected, equivalent to 18 pence per share per annum.

The Company's investment objective is to obtain income returns and a capital return for its Shareholders by acquiring, leasing and then selling aircraft. The Group owns seven Assets, funded by two equity issues, a note issue and bank debt in 2011 and 2012. Upon the purchase of each Aircraft, the relevant subsidiary entered into a 12 year lease with Emirates Airline ("Emirates") with fixed lease rentals for the duration. The debt portion of the funding will be fully amortised over the term of the lease, which will leave the Aircraft unencumbered on the conclusion of the ultimate lease. Emirates bears all costs (including maintenance, repair and insurance) relating to the Aircraft during the lifetime of the lease and all payments thus far by Emirates have been made in accordance with the terms of the lease.

The key development during the Period was the announcement on 14 February 2019 that Airbus will close production of the A380 in 2021. This development means that the total production run for the aircraft will be around 250 units, almost half of which will be operated by Emirates. The A380 remains a unique double-decker aircraft in that it has the capability to carry over 500 passengers on two floors and this can help facilitate growth at slot-constrained airports around the world. It remains the case that a secondary market for the A380 has yet to develop and uncertainty over future residual values remain. . Notwithstanding this, at the time of the announcement by Airbus, His Highness Sheikh Ahmed bin Saeed Al Maktoum, Chairman and Chief Executive, Emirates Airline and Group stated, "For us, the A380 is a wonderful aircraft loved by our customers and our crew. It is a differentiator for Emirates. The A380 will remain a pillar of our fleet well into the 2030s." More recently, the Emirates Annual Financial Report highlighted: "We are strong believers in the A380 programme, despite Airbus' decision to stop production in 2021." The announcement by Airbus has no direct impact on the Group's leases nor its ability to pay targeted distributions. The Group's lease expiries do not begin to fall due until October 2023. Furthermore, the Group's debt structure is such that all debt liabilities will be fully paid off at the end of the ultimate lease (subject only to the continued solvency of Emirates) at which point the Aircraft will be unencumbered.

Nonetheless, the Directors note that following the 14 February 2019 announcement by Airbus regarding the cessation of the A380 programme in 2021, there has been a broadening of opinion between the Company's three independent appraisers with regard to the asset appraisal values as they each continue to assess the consequences, positive and negative, of the Airbus decision.

The Company's share price fell sharply on the day of the announcement, having demonstrated relatively little volatility since launch in 2011, and at the time of writing the share price has stabilised somewhat, at around 185 pence. Further details on the cessation of the A380 programme and Emirates can be found in the Asset Manager's report. The Company's Asset Manager, Doric GmbH ("Doric") has been and will continue to be in regular dialogue with Emirates, and the A380 remains intensely popular with passengers.

Doric continues to monitor the leases and to report regularly to the Board. Nimrod Capital LLP ("Nimrod"), the Company's Corporate and Shareholder Adviser, continues to liaise between the Board and Shareholders, and also communicates with Shareholders regularly regarding relevant news flow and the Company's financial statements and quarterly fact sheets.

In economic reality and in cash flow terms, the Company has performed well, and as expected.

However, the financial statements do not, in the Board's view, properly convey this economic reality due to the accounting treatments for foreign exchange, rental income and finance costs, as required by International Financial Reporting Standards ("IFRS").

IFRS, with which the Company is fully compliant, requires that transactions denominated in currencies other than the presentation currency (including, most importantly, the cost of the Aircraft) are translated into the presentation currency at the exchange rate ruling at the date of the transaction whilst monetary items (principally the outstanding borrowings) are translated at the rate prevailing on the reporting date. The result is that the figures sometimes show very large mismatches which are reported as unrealised foreign exchange differences. Shareholders will note in the Consolidated Statement of Cash Flows on page 41 the increase in the levels of cash held by the company.

On an on-going basis and assuming the lease and debt payments are made as anticipated, such exchange differences do not reflect the commercial substance of the situation in the sense that the key transactions denominated in US dollars are in fact closely matched. Rental income received in US dollars is used to make debt repayments due which are likewise denominated in US dollars. Furthermore, the US dollar lease rentals and debt repayments are fixed at the outset of the Company's life and are very similar in amount and timing.

In addition to this, lease rental income receivable is credited evenly to the Consolidated Statement of Comprehensive Income over the planned life of each lease. Conversely, the methodology for accounting for interest cost means that the proportion of the debt repayments which is treated as interest, and is debited to the Consolidated Statement of Comprehensive Income, varies over the course of each debt instrument with a higher proportion of interest expense recognised in earlier periods, so that the differential between rental income and interest cost (as reported in the Consolidated Statement of Comprehensive Income) reduces. In reality however, the amount of rental income is fixed so as to closely match the interest and principal components of each debt repayment instalment and allow for payments of operating costs and dividends.

The Board encourages Shareholders to read the Company's quarterly fact sheets which we believe provide a great deal of interesting information and we hope these regular reports, in addition to the communication you receive from Nimrod, are useful and informative. We welcome Shareholder engagement and feedback, including on the topic referenced above, and encourage you to contact Nimrod to request a meeting or relay your feedback.

On behalf of the Board, I would like to thank our service providers for all their help and Shareholders for their continuing support of the Company. I look forward to keeping all Shareholders up to date with further progress.

Geoffrey Hall

Chairman

4 July 2019

ASSET MANAGER'S REPORT

At the request of the Directors of the Company, this commentary has been provided by the Asset Manager of the Company.

1. The Assets

The Company acquired a total of seven Airbus A380-861 aircraft between October 2011 and November 2012. Each aircraft is leased to Emirates Airline ("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 value 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.

The seven Airbus A380 aircraft bear manufacturer's serial numbers (MSN) 077, 090, 105, 106, 107, 109 and 110.

The seven A380s owned by the Company recently visited Amsterdam, Barcelona, Brisbane, Frankfurt, Johannesburg, London Heathrow, Mauritius, Melbourne, New York, Nice, Osaka, Paris, Rome, Shanghai, Vienna, and Zurich.

Aircraft utilisation for the period from delivery of each Airbus A380 until the end of March 2019 was as follows:

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 36-month or 18,000-flight hour intervals, whichever occurs first.

Emirates bears all costs relating to the aircraft during the lifetime of the lease (including maintenance, repairs and insurance).

Inspections

Doric, the asset manager, conducted physical inspections of the aircraft with MSNs 077 and 106 in June 2018 and with MSN 109 in September 2018. Also in September 2018, Doric conducted records audits of the aircraft with MSNs 105, 106 and 107, followed by records audits for MSNs 109 and 110 in November 2018. The records and physical condition of the aircraft were in compliance with the provisions of the respective lease agreements.

Doric, conducted physical inspection of the aircraft with MSNs 090 and 107 in February 2019. The physical condition of the aircraft was in compliance with the provisions of the respective lease agreement.

Additionally, Doric conducted records audits of the aircraft with MSNs 077 and 090 in February 2019. The records of the aircraft were in compliance with the provisions of the respective lease agreements.

2. Market Overview

Following a moderation over the second half of 2018, industry-wide passenger traffic, measured in global revenue passenger kilometres (RPKs), ended the calendar year with an average growth rate of 6.6%. According to the International Air Transport Association (IATA), the slowdown in RPK growth corresponds to ongoing concerns about future global economic expansion. However, RPKs in January grew by the fastest pace since mid-2018 (6.5%). This result lies between the average RPK growth rate seen over the past decade (6.1%) and five-year historical average (7.1%). IATA states that recent developments remain consistent with its forecast passenger growth rate of 6.0% for 2019. Industry-wide capacity, measured in available seat kilometres (ASKs), increased by 6.1% in 2018. This resulted in a 0.3 percentage point increase in worldwide passenger load factors (PLFs) to 81.9%. With the PLF at 79.6% in January, the load factor was essentially unchanged from the same month the year before.

Passenger traffic in the Middle East grew by 4.0% in 2018. This was outpaced by a 4.9% increase in capacity, leading to a 0.6 percentage point decrease in PLF to 74.8%. However, following the adverse impact of a number of policy measures and geopolitical tensions in recent years, IATA notes that a healthy recovery in RPK growth commenced early in 2019 with passenger traffic up 1.5% in January compared to the same month in the year before, after flat growth was observed toward the end of 2018.

Asia/Pacific-based operators remained the top performers in overall market demand in 2018 as RPKs increased by 8.6% compared to the previous year. Europe ranked second with 6.7% followed by Latin America with 6.2%. North America saw an increase of 5.0% while Africa had the slowest growth rate at 2.3%.

© International Air Transport Association, 2019. Air Passenger Market Analysis December 2018. Air Passenger Market Analysis January 2019. All Rights Reserved. Available on the IATA Economics page.

3. Lessee - Emirates Key Financials

The 2018/19 financial year, ending on 31 March 2019, marked the 31st consecutive year of profit for the airline. With a net profit of AED 871 million (USD 237 million), the bottom line was down by 69% compared to the previous financial year. This decline in net profit came despite an increase of 6% in revenue to AED 97.9 billion (USD 26.7 billion). Due to a combination of high fuel prices, intensified competition in the lessee's key markets, and an unfavourable currency impact, the airline saw its profit margin decrease to 0.9%, down from 3.0% in the previous year. The past financial year "has been tough, and our performance was not as strong as we would have liked", said His Highness Sheikh Ahmed bin Saeed Al Maktoum, Chairman and Chief Executive of Emirates Airline, commenting on the latest results. He further noted that Emirates' regional competitors "one-point business plan" was "to always undercut Emirates' fares at all costs". The lessee tried to avoid engaging in price wars and was focused "to improve yield, even if it meant conceding market share".

During the 2018/19 financial year, operating costs increased by 8% compared to the previous year. Fuel represented the largest of the airline's expenses, accounting for 32% of all operating costs. The average price of jet fuel increased 22% plus a 3% higher uplift in line with capacity increases, which resulted in the fuel bill increasing 25% compared to the 2017/18 period, to an amount of AED 30.8 billion (USD 8.4 billion). Additionally, the relative strengthening of the US dollar against currencies in many of the airline's key markets had an AED 572 million (USD 156 million) negative impact compared to the positive currency impact of AED 661 million (USD 180 million) the year before. The number of employees decreased by 3%, a continuation of the development already visible in the previous year. However, productivity measured in revenue per airline employee, increased by 11%.

As of 31 March 2019, Emirates' balance sheet totalled AED 127.4 billion (USD 34.7 billion), largely flat compared with the previous year. Total equity increased to AED 37.7 billion (USD 10.3 billion), resulting in an equity ratio of 29.6%. In the year before, the airline's equity ratio stood at 29.0%. The current ratio stood at 0.83, meaning the airline would be able to meet 83% of its current liabilities by liquidating all its current assets.

Emirates raised AED 14.2 billion (USD 3.9 billion) in the 2018/19 financial year in order to fund fleet replacement and growth, using a combination of term loans, finance and operating leases. This included a Japanese Operating Lease with a Call Option (JOLCO) raising funding of more than USD 1 billion for the financing of its final six Boeing 777-300ER aircraft. Emirates' cash balance amounted to AED 17.0 billion (USD 4.6 billion) at the end of the financial year, down 17% compared to the beginning of the financial year, primarily due to the reduction in profits, payment for the outright purchase of two A380s and the payment of last year's dividend (AED 1 billion or USD 272 million) to the owner of Emirates.

Emirates' overall passenger number remained flat during the 2018/19 financial year with the airline carrying 58.6 million passengers, with a share of 41% flying on an A380. Passenger traffic, measured in RPKs, increased by 2.7%, while capacity, measured in ASKs, grew by 3.6%. This resulted in a passenger load factor of 76.8% compared to last year's 77.5%. The high seat factor on the A380 fleet continues to demonstrate the customer preference for the A380, according to the annual report.

During the 2018/19 financial year, Emirates added 13 new aircraft to its fleet: seven Airbus A380s and six Boeing 777-300ERs, including its last of the 777-300ER type before the first Boeing 777X is scheduled to arrive in 2020. Only one of the aircraft, which joined the fleet, was on an operating lease. The carrier also withdrew 11 aircraft from its fleet, leaving the fleet count (including 12 freighters) at 270 as of 31 March 2019. This fleet roll-over resulted in an average fleet age of 6.1 years, an increase of five months compared to the end of the previous financial year.

Emirates launched three new passenger destinations during the year: London Stansted (UK), Santiago (Chile) and Edinburgh (Scotland, UK), and also reinstated services to Sabiha Gokcen (Turkey). The operator has a proven track record in introducing new routes with the Boeing 777-300ER, generating opportunities for A380 services once the demand has been increased. Furthermore, it added flight capacity to 14 existing destinations and upgraded capacity to six cities by offering a higher frequency with more onward connections. At the end of the 2018/19 financial year Emirates serviced 158 destinations, one more than 12 months before, in 85 countries.

Due to the closure of Dubai International's southern runway for refurbishment work between 16 April and 30 May 2019, Emirates has temporarily grounded 48 aircraft and cut its flight schedule by 25%. Some services have been cancelled, others re-timed or operated with different aircraft to reduce the impact on customers. However, a negative impact on the current year's financial results is expected. Emirates also intends to make other changes to its network later in the year, including deploying the Airbus A380 on services to Boston and Glasgow in the summer.

Emirates entered into a memorandum of understanding with China Southern Airlines (China Southern) to begin codesharing on 18 routes in China, the Middle East and Africa. Subject to government approval, Emirates will place its code on China Southern services to Fuzhou, Chongqing, Kunming, Qingdao, Xiamen, Chengdu, Nanjing and Xian. China Southern will place its code on Emirates' services to Cairo, Dammam, Lagos and Riyadh. The airlines have not yet disclosed a start date for the codesharing.

Emirates has also continued to develop its partnership with flydubai, optimising flight schedules and offering new city-pair connections through Dubai. The codeshare and network optimisation scheme is set to cover 240 destinations by 2022, of which 67 were already available as of 31 March. The two airlines have also combined their loyalty programmes under Emirates Skywards.

In February 2019, Emirates provided an update on its fleet planning: Months of discussions with Airbus and engine manufacturer Rolls-Royce resulted in an agreement to reduce the number of unfilled A380 orders from 53 to 14. The remaining deliveries shall take place by 2021. In parallel the lessee signed a heads of agreement to order 40 Airbus A330-900 and 30 A350-900 with deliveries starting from 2021 and 2024 respectively. Notwithstanding the new order, His Highness Sheikh Ahmed bin Saeed Al Maktoum emphasized that "the A380 will remain a pillar of our fleet well into the 2030s" and that the operator continues to invest in this product.

Emirates Airline's decision to adjust the number of A380s still up for delivery should encourage the operator to keep already delivered A380 aircraft longer in its fleet. A number of aircraft from the original order was earmarked to replace aircraft leaving the fleet after 12 or more years in service. In order to keep its A380 capacity at least flat, Emirates might be inclined - from an operational as well as from an economic point of view - to extend otherwise expiring lease contracts.

Source: Cirium, Emirates

4. Aircraft - A380

As of mid-March 2019, Emirates operated a fleet of 109 A380s, which currently serve 50 destinations within its global network via its hub in Dubai. A380 destinations include: Amsterdam, Athens, Auckland, Bangkok, Barcelona, Beijing, Birmingham, Brisbane, Casablanca, Christchurch, Copenhagen, Dusseldorf, Frankfurt, Guangzhou, Hamburg, Hong Kong, Houston, Johannesburg, Kuala Lumpur, Kuwait, London Gatwick, London Heathrow, Los Angeles, Madrid, Manchester, Mauritius, Melbourne, Milan, Moscow, Mumbai, Munich, New York JFK, Nice, Osaka, Paris, Perth, Prague, Rome, San Francisco, Sao Paulo, Seoul, Shanghai, Singapore, Sydney, Taipei, Tokyo Narita, Toronto, Vienna, Washington, and Zurich.

As of mid-March 2019, the global A380 fleet consisted of 230 commercially operated planes in service. The fourteen operators are Emirates (109), Singapore Airlines (19), Deutsche Lufthansa (14), Qantas (12), British Airways (12), Korean Air Lines (10), Etihad Airways (10), Air France (10), Qatar Airways (10), Malaysia Airlines (6), Thai Airways (6), Asiana Airlines (6), China Southern Airlines (5) and Hi Fly (1). Another two are listed as in storage. In addition, two A380s are earmarked for part-out after the owners of the aircraft voted for such a solution.

In February 2019, Airbus announced that it will discontinue its A380 programme in 2021, following a revised agreement with Emirates under which the airline is cutting its A380 order total from 162 to 123 aircraft - leaving just 14 to be delivered to the airline. Another two aircraft will be delivered to All Nippon Airways (ANA) with the airline having taken delivery of its first A380 on 21 March. Therefore, a total of 251 A380s will now ever be manufactured. According to its departing CEO Tom Enders, Airbus no longer has a "substantial A380 backlog and hence no basis to sustain production". Enders added that - notwithstanding the upcoming production end - Airbus will "continue to fully support the A380 operators".

Qantas has stated that it remains committed to the 12 superjumbos already in its fleet over the long-term with cabin refurbishments scheduled to commence mid-year.

Air France intends to return three A380s upon expiry of their leases in 2020-2021 and is currently reviewing the status of another two leased A380s. The move comes as part of a fleet optimisation programme and will reduce the number of Airbus A380s from the 10 it currently operates. The remaining A380s will begin retrofitting from 2020 onwards.

Qatar Airways CEO Akbar al-Baker announced that the airline intends to phase out its A380 fleet from 2024. The start of the phase-out coincides with the 10-year anniversary of the A380 at Qatar Airways, which received its first superjumbo in 2014.

Lufthansa disclosed that it will sell six of its 14 A380 jets back to Airbus in 2022 and 2023. The buyback is reportedly part of an agreement between Airbus and Lufthansa Group to order another 20 Airbus A350-900s.

It remains undisputed that the Airbus A380 is a niche asset in a class of its own from its inception. Due to the young age of the fleet the secondary market is yet to develop with the first second-hand A380 making its way to a new operator only a year ago. At this early stage and with only one transaction fully completed, the secondary market is still in its infancy. Whether or not all of the announced A380 returns from Air France, Lufthansa and Qatar will materialize, remains to be seen. In the meantime, potential operators have the chance to test the A380 via a wet lease arrangement over a limited period of time and without making any long-term commitments. This opportunity allows airlines interested in the A380 to explore the full potential of the aircraft and can create additional demand for second hand equipment, once it becomes available

Hi Fly, a Portuguese wet lease operator, stated that its A380 continues to attract significant commercial interest and has a "busy season ahead" this summer. A decision on acquiring more planes will be taken after the completion of a full financial study, it said.

In February 2019, Malaysia Airlines launched a new brand called Amal that will run Malaysia A380 flights from South East Asia to Saudi Arabia for Islamic pilgrimage.

ANA received its first A380 and will deploy it thrice weekly on the Tokyo Narita-Honolulu route from May this year with 11 other services flown by Boeing 787-9s. From July, the second A380 will also join the route as A380 services increase to 10 per week with four 787-9s services. As of yet, ANA has not indicated whether its third A380, due in September, will be used on the Hawaiian route.

Source: Airbus, Cirium, Emirates, Reuters

DIRECTORS

Geoffrey Alan Hall - Chairman (Age 70) (Independent non-executive director)

Geoffrey Hall has extensive experience in asset management, having previously been Chief Investment Officer of Allianz Insurance plc, a major UK general insurance company and an investment manager at HSBC Asset Management, County Investment Management, and British Railways Pension Funds. Geoffrey is also currently a director of Doric Nimrod Air One Limited and Doric Nimrod Air Three Limited.

Geoffrey earned his masters degree in Geography at the University of London. He is an associate of the CFA Society of the UK.

Charles Edmund Wilkinson (Age 76) (Independent non-executive director)

Charles Wilkinson is a solicitor who retired from Lawrence Graham LLP in March 2005. While at Lawrence Graham he specialised in corporate finance and commercial law, latterly concentrating on investment trust and fund work.

Charles is currently Chairman of Doric Nimrod Air One Limited and of Doric Nimrod Air Three Limited and is a director of Landore Resources Ltd, a Guernsey based mining exploration company. He is resident in Guernsey.

John Le Prevost (Age 67) (Independent non-executive director)

John Le Prevost is the Chief Executive Officer of Anson Group Limited and Chairman of Anson Registrars Limited (the Company's Registrar). He has spent 30 years working in offshore trusts and investment business during which time he was Managing Director of County NatWest Investment Management (Channel Islands) Limited, Royal Bank of Canada's mutual fund company in Guernsey and Republic National Bank of New York's international trust company. He is a director of a number of other companies associated with Anson Group's business as well as being a trustee of the Guernsey Sailing Trust.

John is also currently a director of Doric Nimrod Air One Limited, Doric Nimrod Air Three Limited and Amedeo Air Four Plus Limited. He is resident in Guernsey.

SERVICE PROVIDERS

Management and the Delegation of Functions

The Directors, whose details are set out on page 12 are responsible for reviewing the business affairs of the Group in accordance with the Articles and have overall responsibility for the Group's activities including all business decisions, review of performance and authorisation of distributions. All of the Directors are independent and non-executive. The Company has delegated management of the Group's Aircraft to Doric, which is a company incorporated in Germany. Further details are outlined below under the heading Asset Manager. The Directors delegate secretarial and administrative functions to JTC Fund Solutions (Guernsey) Limited ("JTC" or the "Secretary" or the "Administrator") which is a company incorporated in Guernsey and licensed by the Guernsey Financial Services Commission (the "GFSC") for the provision of administration services. The registrar function is delegated to Anson Registrars Limited ("Anson") which is licensed and regulated by the GFSC.

Asset Manager

Doric has been appointed by the Company to provide asset management services to the Group. Pursuant to the Asset Management Agreement, Doric will: (i) monitor Emirates' and any subsequent lessees' performance of its obligations under the leases and any subsequent leases respectively (which shall include the obligations relating to the maintenance of insurance cover); (ii) provide the Group with information regarding alternatives with respect to any potential sale or re-lease of the Assets; (iii) carry out mid-lease inspections of the Assets; (iv) provide the Group with asset monitoring reports describing the state and any material changes to the state of the Assets; and (v) liaise, as and when necessary, with lenders, on all matters relating to the loans and EETCs, as required.

Doric has further undertaken that it will dedicate sufficient time and resources as it reasonably believes is required from time to time to fulfil any contractual arrangements it enters into with the Company.

Doric Partners LLP ("Doric LLP"), a limited liability partnership incorporated in England and Wales and Amedeo Services (UK) Limited ("Amedeo") have been appointed by the Company, pursuant to the Amended Liaison Services Agreement to act as Liaison agents. Doric LLP has been appointed to (i) coordinate the provision of services by Doric to the Group under the Asset Management Agreement; and (ii) facilitate communication between the Group and Doric.

The Doric Group is also a member of ISTAT, the International Society of Transport Aircraft Trading.

The Doric Group is a leading provider of products and services for investors in the fields of aviation, shipping, renewable energy and real estate. The Doric Group has an international presence, with offices in Germany, Hong Kong, the United Kingdom, and the United States, and a multinational team which offers access to extensive relationship networks and expert asset knowledge maintaining regulated financial institutions in the United States and Europe. One of the firm's core competencies is its asset management expertise, which is an integrated part of all Doric transactions and a cornerstone of the business. For further information about the Doric Group, please visit www.doric.com.

The aircraft portfolio currently managed by the Doric Group is valued at $7 billion and consists of forty four aircraft under management. These aircraft include commercial airliners ranging from ATR 72-500s and the Airbus A320 family, through the Boeing 737, 777, 787 and Airbus A330/A340 family, up to the Boeing 747-8F and Airbus A380.

The Doric Group has twenty two Airbus A380 aircraft currently under management and is therefore considered well positioned to perform the technical asset management of this aircraft type.

Liaison Agent

Amedeo has been appointed by the Company, pursuant to the Liaison Services Agreement, to, when requested by the Board, participate in Board meetings, assist in the review of all asset management matters and provide advice in all asset management related matters. Amedeo is authorised by the Financial Conduct Authority and is part of the Amedeo group of companies.

The Amedeo group is primarily involved in the operating lease and management of widebody aircraft. The aircraft portfolio currently managed by the Amedeo group is valued at over $8billion and consists of fifty aircraft under management. These aircraft include commercial airliners including A380, A350, A330, A321 and Boeing 777, 787 and 747-F. Amedeo is a member of the International Society of Transport Aircraft Trading ("ISTAT") and is a Strategic Partner of IATA, the International Air Transport Association.

Corporate and Shareholder Adviser

Nimrod, which is authorised by the Financial Conduct Authority, has been appointed as the Corporate and Shareholder Adviser by the Company.

Nimrod was founded in 2008 as an entirely independent organisation which specialises in generating and sourcing interesting investment funds, themes and solutions managed by experts in their fields for the professional investor marketplace. It has launched nine listed investment companies since its formation and it also provides investment, marketing, distribution and advisory services to investment companies and their board and managers.

Nimrod, together with Doric and Emirates, was awarded the "Innovative Deal of the Year 2010" by the international aviation magazine Airfinance Journal in recognition of the innovative financing of an Airbus A380 leased to Emirates by the first stock market listed aircraft investment vehicle, Doric Nimrod Air One Limited.

Secretary & Administrator

JTC is an independent provider of institutional and private client services to clients in numerous jurisdictions and is a member of the JTC Group. For further information about the JTC Group, please visit www.jtcgroup.com.

JTC is a Guernsey incorporated company and provides administration and secretarial services to the Group pursuant to an Administration and Secretarial Agreement. In such capacity, JTC is responsible for the general secretarial functions required by the Law and assists the Group in its compliance with its continuing legal and regulatory obligations, as well as providing advice on good corporate governance and best practice for a publicly traded company.

JTC is also responsible for the Group's general administrative functions and for the preparation of unaudited half-yearly and audited annual financial reports, subject to the direction and oversight of the Company's Board of directors.

Registrar

Anson is the Company's CREST compliant registrar. The Company's registrar is responsible for the maintenance of the Company's share register and for the processing of dividend payments and stock transfers. Anson is licensed and regulated by the GFSC and further information about Anson may be obtained from their website at www.anson-group.com.

Review

The Board keeps under review the performance of the Asset Manager, Liaison Agent, Corporate and Shareholder Adviser, the Secretary, Administrator and the Registrar and the powers delegated to each service provider. In the opinion of the Board, the continuing appointments of the service providers on the terms agreed is in the best interest of the Company's shareholders as a whole.

A full list of the Company's service providers is set out on page 71.

MANAGEMENT REPORT

A description of important events which have occurred during the financial year under review, their impact on the performance of the Group as shown in the consolidated financial statements and a description of the principal risks and uncertainties facing the Group are given in the Chairman's Statement, Asset Manager's Report, Statement of Principal Risks and the notes to the consolidated financial statements contained on pages 43 to 70 and are incorporated here by reference.

Principal Risks and Uncertainties

The Board has undertaken a robust assessment of the principal risks facing the Group and has undertaken a detailed review of the effectiveness of its risk management and internal control systems. The Board is comfortable that the risks are being appropriately monitored on a regular basis.

The risks set out below are those which are considered to be the material risks relating to an investment in the Shares but are not the only risks relating to the Shares or the Group. Additional risks and uncertainties of which the Group is presently unaware or that the Group currently believes are immaterial may also adversely affect its business, financial condition, results of operations or the value of the Shares.

The principal risks associated with the Group are:

• Operational risk: the Board is ultimately responsible for all operational facets of performance including cash management, asset management, regulatory and listing obligations. The Group has no employees and so enters into a series of contracts/legal agreements with a series of service providers to ensure both operational performance and the regulatory obligations are met. This risk has been mitigated by the Group using well established, reputable and experienced service providers and assessing service providers' continued appointment on at least an annual basis.

• Investment risk: there are a number of risks associated with the Group's Assets in relation to the occurrence of technical faults with the Assets or actions by third parties causing both damage to the Assets and also damaging the demand for global air travel. This risk has been mitigated by the lessee's contractual responsibility to insure, repair and maintain the Aircraft for the duration of the leases between the Group and Emirates (the "Leases").

• Borrowings and financing risk: there is a risk that the Group is exposed to fluctuations in market interest rates and foreign exchange rates. This risk has been mitigated by ensuring that debt repayments are made from lease rental revenues received in the matching currency and by fixing the interest rates on debt and lease rentals.

Emirates is the sole lessee of the Assets and is headquartered in the Middle East. Should Emirates default on the rental payments due to domestic events, events in the wider airline industry or other reasons it is unlikely the Company will be able to meet its targeted dividends or, in the case of ongoing default, continue as a going concern. The risk of default is mitigated by the ability of the Company to sell or re-lease the Asset in the event of a single default.

• Secondary market risk: there is a risk that the Group would not be able to achieve the projected resale value of the Assets due to changes in demand for second hand aircraft of the type owned by the Group. The Board monitors, and revises the residual value of the Aircraft on an annual basis.

• Regulatory risk: the Group is required to comply with the disclosure guidance and transparency rules of the Financial Conduct Authority and the requirements imposed by the Law and the GFSC. Any failure to comply could lead to criminal or civil proceedings. Although responsibility ultimately lies with the Board, the Secretary also monitors compliance with regulatory requirements.

Data Protection

The Company has implemented measures designed to ensure its compliance with the EU General Data Protection Regulation (EU) 2016/679 and associated legislation in Guernsey. The Company has also issued a privacy notice explaining the data it holds, how the data is processed and its procedures for processing this data. This notice is available for review and download at the Company's website.

Going Concern

The Group's principal activities are set out within the Company Overview on pages 2 to 4. The financial position of the Group is set out on page 40. In addition, note 9 to the consolidated financial statements includes the Group's objectives, policies and processes for managing its capital, its financial risk management objectives and its exposures to credit risk and liquidity risk.

The interest rate under each Loan or Equipment Note issue has been fixed and the fixed rental income under the relevant lease has been coordinated with the debt repayments therefore the rent income should be sufficient to repay the Loans and Equipment Notes and provide surplus income to pay for the Group's expenses and permit payment of dividends.

After making reasonable enquiries, and taking into account the cash flow characteristics as described above, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis of accounting in preparing the annual consolidated financial statements.

Viability Statement

In accordance with provision C.2.2 of The UK Corporate Governance Code, the Directors of the Company have considered the prospects of the Group over a period of five years from present until the liquidation resolution is put to Shareholders six months before the last lease is due to terminate in 2024. In choosing the period of viability for the Group the Board has considered the prospect of Emirates performing their obligations to the end of their leases.

The Board, in assessing the viability of the Group, has paid particular attention to the principal risks faced by the Group as disclosed in the Asset Manager's Report and the notes to the consolidated financial statements, reviewing on an annual basis the risks faced and ensuring that any mitigation measures in place are functioning correctly.

In addition, the Board has considered a detailed cashflow projection for the running costs of the Group and has assumed that Emirates is a going concern. The Group retains sufficient cash to cover the forecast operating costs of the Group until the termination date of the Leases in 2024, assuming receipt of planned rental income.

The Directors believe that their assessment of the viability of the Group over the period chosen was sufficiently robust and encompassed the risks which would threaten the business model, future performance, solvency or liquidity of the Group.

As a result of their review, the Directors of the Company have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due until the last lease is due to terminate in 2024.

Responsibility Statement

The Directors jointly and severally confirm that to the best of their knowledge:

(a) the financial statements, prepared in accordance with IFRS give a true and fair view of the assets, liabilities, financial position and profits of the Group and performance of the Group;

(b) this Management Report includes or incorporates by reference a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces;

(c) the annual report taken as a whole is fair, balanced and understandable and provides the information necessary for the Company's shareholders to assess the Company and the Group's position, performance, business model and strategy; and

(d) the annual report and financial statements include information required by the London Stock Exchange and for ensuring the Company complies with the relevant provisions of the Disclosure Guidance and Transparency Rules (the "DGTRs") of the UK's Financial Conduct Authority.

Geoffrey Hall Charles Wilkinson

Chairman Director

4 July 2019

DIRECTOR'S REPORT

The Directors present their report and financial statements of the Group for the financial year ended 31 March 2019.

Principal Activities and Business Review

The principal activity of the Group is to acquire, lease and then sell aircraft. The Directors do not envisage any change in these activities for the foreseeable future. A description of the activities of the Group in the year under review is given in the Chairman's Statement and the Asset Manager's Report respectively on pages 5 to 6 and 7 to 11.

Status

The Company is a Guernsey domiciled company the Shares of which are admitted to trading on the SFS of the London Stock Exchange's Main Market. Its registered number is 52985. The Company operates in accordance with the Law.

Results and Dividends

The results of the Group for the financial year are set out on page 39.

The Company declared dividends during the financial year under review as follows:

The Company aims to continue to pay quarterly dividends of 4.50 pence per Share, in line with the Distribution Policy. There is no guarantee that any future dividends will be paid.

Directors

The Directors in office are shown on page 12 and all Directors remain in office as at the date of signing of these financial statements. Further details of the Directors' responsibilities are given on page 23.

Anson is the Company's Registrar, Transfer Agent and Paying Agent. John Le Prevost is a director and controlling shareholder of Anson Group Limited, the holding company of Anson.

Other than the above no Director has a contract of service with the Group, nor are any such contracts proposed.

The following interests in Shares of the Company are held by persons discharging managerial responsibility and their persons closely associated:

Other than the above shareholdings and Mr Le Prevost's interest in Anson, none of the Directors nor any persons connected with them had a material interest in any of the Group's transactions, arrangements or agreements during the year and none of the Directors has or has had any interest in any transaction which is or was unusual in its nature or conditions or significant to the business of the Group, and which was effected by the Group during the reporting year.

At the financial year end and as at the date of this report, there are no outstanding loans or guarantees between the Group and any Director.

There were no material related party transactions which took place in the financial year under review, other than those disclosed in the Directors' Report and at note 22 to the financial statements.

Substantial Controllers of Voting Rights

The Company has identified the following substantial controlling interests in voting rights attached to the Company's issued share capital in accordance with Chapter 5 of the DGTRs. These are based on notifications made to the Company since inception and may differ substantially from positions recorded on the Company's Share register.

There have been no material changes in the below list of substantial controlling interests between the end of the year under review and 4 July 2019, being the latest practicable date prior to the date of approval of this report.

Corporate Governance

Statement of Compliance with The UK Corporate Governance Code April 2016, as published in June 2016 (the "Code")

As a Guernsey incorporated company and under the DGTRs, the Company was not, for the year under review, required to comply with the Code. The Company has, however, voluntarily committed to comply with the Code or explain any departure. A copy of the Code is available for download from the UK Financial Reporting Council's website (www.frc.org.uk).

Having reviewed the Code, the Board considers that it has maintained procedures during the year to ensure that it has complied with the Code, other than the following exceptions:

(i) there is no chief executive (since the Company does not have any executive directors);

(ii) there is no senior independent director (since the Company considers that each Director who is not Chairman can effectively fulfil this function);

(iii) there is no remuneration committee (given the small size of the exclusively non-executive and independent Board);

(iv) there is no nomination committee (given the small size of the exclusively non-executive and independent Board);

(v) the Directors have not been appointed for a fixed term given the terms of the Leases between the Group and Emirates are each twelve years, the Board considers that the defined life of the Company means that the Directors should be appointed to serve until the leases end and the Company is liquidated, subject to the Company's Articles which provide that directors are subject to re-election three yearly save that once a director has held office for nine years they will be eligible for re-election each year); and

(vi) there is no internal audit function (as the Company has no executives or employees of its own).

Board Evaluation

The Board has conducted a performance evaluation of itself, its committees and each of the Directors, as required by provision B.6.1 of the Code. This process was led by an external facilitator, Platinum Compliance Guernsey Limited ("Platinum"), which has no other connection with the Group. As part of this process Platinum requested each Director to complete a questionnaire, interviewed each Director and the Administrator separately, performed a review of the papers provided to the Directors and attended a meeting with the Board. At the conclusion of its evaluation, Platinum provided the Directors with a report on Board effectiveness and made minor suggestions for improvements thereon, which are being considered by the Directors.

Board Responsibilities

The Board comprised three Directors and their biographies appear on page 12 demonstrating the wide range of skills and experience they each bring to the Board. All the Directors are non-executive and independent, with Geoffrey Hall acting as Chairman.

The Board regularly reviews the balance, knowledge and effectiveness of the Board, to identify if any additional experience or skills are needed and to ensure that the current Directors have sufficient available time to undertake the tasks required and remain independent. The Directors are able and encouraged to provide statements to the Board of their concerns and ensure that any items of concern are recorded in the Board minutes. When undertaking a search for a new director the Board would be mindful of diversity and meritocracy.

The other significant commitments of the current Chairman are detailed in his biography on page 12. The Board was satisfied during the year and remains satisfied that the Chairman's other commitments do not interfere with his day-to-day performance of his duties to the Company and that he has the commitment and time to make himself available at short notice should the need arise.

In accordance with the Company's Articles the Directors shall determine the Directors fees payable provided that the aggregate amount of such fees paid in respect of services rendered to the Company shall not exceed £250,000 per annum. All Directors receive an annual fee and there are no share options or other performance related benefits available to them. All Directors are paid a fee of £23,000 per annum and the Chairman is paid an additional fee of £6,000 per annum. The chairman of the Audit Committee is paid an additional £4,000 per annum. The terms and conditions of appointment of non-executive directors are available for inspection at the Company's registered office by prior arrangement with the Secretary.

In respect of their capacity as directors of Doric Nimrod Air Finance Alpha Limited, each director receives a fee of £25,000 per annum (£30,000 for the Chairman and Audit Committee chairman of the Company, where appointed) payable by or on behalf of DNAFA. There is no limitation in the articles of incorporation of DNAFA in respect of total directors' fees payable.

The Board meets in Guernsey at least twice per year to consider the business and affairs of the Group, at which meetings the Directors review the Group's assets and all other important issues to ensure control is maintained. The Directors hold either a Board meeting or Dividend Committee meeting in Guernsey each quarter to consider and if thought suitable, approve the payment of a dividend in accordance with the Company's Distribution Policy.

Between these regular meetings the Board keeps in contact by email and telephone as well as meeting to consider specific matters of a transactional nature. Additionally the Directors may hold strategy meetings with its relevant advisors as appropriate.

The Directors are kept fully informed by the Asset Manager and Secretary of all matters that are relevant to the business of the Group and should be brought to the attention of the Directors and/or the Shareholders. All Directors have direct access to the Secretary who is responsible for ensuring that Board procedures are followed and that there are effective information flows both within the Board and between the Committees and the Board.

The Directors also have access to the advice and services of the Asset Manager and Corporate and Shareholder Adviser and may also, in the furtherance of their duties, take independent professional advice at the Company's expense.

In addition to the scheduled meetings held to consider the declaration of dividends, during the year under review the number of Board meetings attended by the Directors was as follows:

Audit Committee

The Directors are all members of the Audit Committee. The Audit Committee has regard to the Guidance on Audit Committees published by the Financial Reporting Council in September 2012 and most recently updated in April 2016. The Audit Committee examines the effectiveness of the Group's and its service providers' internal control systems as appropriate, the annual and half-yearly reports and financial statements, the auditor's remuneration and engagement, as well as the auditor's independence and any non-audit services provided by them.

The Audit Committee considers the nature, scope and results of the auditor's work and reviews it annually prior to providing a recommendation to the Board on the re-appointment or removal of the auditor. When evaluating the external auditor the Audit Committee has regard to a variety of criteria including industry experience, independence, reasonableness of audit plan, ability to deliver constructive criticism, effectiveness of communication with Board and the Group's service providers, quality control procedures, effectiveness of audit process and added value beyond assurance in audit opinion.

Auditor independence is maintained through limiting non-audit services to specific audit-related work that falls within defined categories; for example certain agreed upon procedures performed in respect of the Company's C share conversion, the provision of advice on the application of IFRS or formal reports for any stock exchange purposes. All engagements with the auditor are subject to pre-approval from the Audit Committee and fully disclosed within the annual financial report for the relevant period. A new lead audit partner is appointed every five years and the Audit Committee ensures the auditor has appropriate internal mechanisms in place to ensure its independence.

The Audit Committee has recommended to the Board that the re-appointment of Deloitte LLP as the Group's external auditor be proposed to Shareholders at the 2019 annual general meeting. The Audit Committee will consider arranging for the external audit contract to be tendered in 2021 (being ten years from the initial appointment) with the aim of ensuring a high quality and effectiveaudit.

The Audit Committee meets in Guernsey at least twice per year, shortly before the Board meets to consider the Group's half-yearly and annual financial reports, and reports to the Board with its deliberations and recommendations and also has an annual planning meeting with the auditor. The Audit Committee operates within clearly defined terms of reference based on the Institute of Chartered Secretaries and Administrators recommended terms and provides a forum through which the Group's external auditor reports to the Board. The Audit Committee can request information from the Group's service providers with the majority of information being directly sourced from the Asset Manager, the Secretary and Administrator and the external auditor. The terms of reference of the Audit Committee are available on the Company's website and on request from the Secretary.

Each year the Board examines the Audit Committee's performance and effectiveness, and ensures that its tasks and processes remain appropriate. Key areas covered included the clarity of the Audit Committee's role and responsibilities, the balance of skills among its members and the effectiveness of reporting its work to the Board. The Board is satisfied that all members of the Audit Committee have relevant financial experience and knowledge and ensure that such knowledge remains up to date. Overall the Board considers that the Audit Committee has the right composition in terms of expertise and has effectively undertaken its activities and reported them to the Board during the year under review.

During the financial year the Audit Committee met to consider the annual financial report for the year ended 31 March 2018 and the half-yearly financial report for the period ended 30 September 2018. The Audit Committee also met in January 2019, with the auditor in attendance, to approve the 2019 audit plan.

Dividend Committee

The Dividend Committee consists of any one Director, who has been given full power and authority to consider and, if thought suitable, declare and approve the payment of a dividend in accordance with the Company's Distribution Policy, provided that all Directors had been provided with prior notice of the proposal to declare each dividend and no Director had raised any objection to the declaration of each dividend.

Internal Control and Financial Reporting

The Board is responsible for the Group's system of internal control and for reviewing its effectiveness. The Board confirms that there is an on-going process for identifying, evaluating and monitoring the significant risks faced by the Group.

The internal control systems are designed to meet the Group'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 Board on an annual basis conducts a full review of the Group's risk management systems including consideration of a risk matrix which covers various areas of risk including corporate strategy, accuracy of published information, compliance with laws and regulations, relationships with service providers and business activities.

Asset Management services are provided to the Company by Doric. Corporate and shareholder advisory services are provided to the Company by Nimrod. Administration and secretarial duties for the Group are performed by JTC.

The Directors of the Group 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 on-going performance and contractual arrangements. The Board also specifies which matters are reserved for a decision by the Board and which matters may be delegated to its agents and advisers.

Anti Bribery Policy

The Directors have undertaken to operate the business in an honest and ethical manner and accordingly take a zero-tolerance approach to bribery and corruption. The key components of this approach are implemented as follows:

· The Board is committed to acting professionally, fairly and with integrity in all its business dealings and relationships.

· The Group will implement and enforce effective procedures to counter bribery.

· The Group requires all its service providers and advisors to adopt equivalent or similar principles.

Dialogue with Shareholders

All holders of Shares in the Company have the right to receive notice of, and attend, the general meetings of the Company, during which members of the Board will be available to discuss issues affecting the Group.

The primary responsibility for Shareholder relations lies with the Company's Corporate and Shareholder Adviser. In addition the Directors are always available to enter into dialogue with Shareholders and the Chairman is always willing to meet Shareholders as the Company believes such communication to be important. The Company's Directors can be contacted at the Company's registered office or via the Secretary.

Climate change

Whilst the Group has a limited carbon footprint in respect of its day to day activities, the Group leases its aircraft to Emirates and notes the actions by Emirates in relation to climate change via publications issued by Emirates. The Board notes that Emirates Group recognises that environmental responsibility is core to their long-term business success. The Emirates environmental policy is available on their website.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable Guernsey law and regulations.

Under the Law the Directors are required to prepare financial statements for each financial year. The Directors have chosen to prepare the Group's financial statements in accordance with IFRS.

Under the Law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period.

In preparing these financial statements, International Accounting Standard 1 requires that Directors:

· properly select and apply accounting policies;

· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

· provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and

· make an assessment of the Group's ability to continue as a going concern.

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements comply with the Law. They are also responsible for safeguarding the assets of the Group and 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 corporate and 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.

Disclosure of Information to the Auditor

The Directors who held office at the date of approval of this Directors' Report confirm in accordance with the provisions of Section 249 of the Law that, so far as they are each aware, there is no relevant audit information of which the Group's auditor is unaware; and each Director has taken all the steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Group's auditor is aware of that information.

Auditor

Deloitte LLP have expressed their willingness to continue in office as auditor and the Audit Committee has recommended their reappointment. A resolution proposing their reappointment will be submitted at the forthcoming annual general meeting to be held pursuant to section 199 of the Law.

Geoffrey Hall Charles Wilkinson

Chairman of the Board Director

Signed on behalf of the Board on 4 July 2019

AUDIT COMMITTEE REPORT

Membership

Charles Wilkinson - Chairman of the Audit Committee

Geoffrey Hall - Chairman of the Board

John Le Prevost - Non-executive Director

Key Objective

The provision of effective governance over (i) the appropriateness of the Group's financial reporting including the adequacy of related disclosures, (ii) the performance of the Group's external auditor, (iii) monitoring of the systems of internal controls operated by the Company and (iv) the Group's principal service providers and the management of the Company's regulatory compliance activities.

Responsibilities

The key duties of the Audit committee (the "Committee") are as follows:

• reviewing the Group's financial results announcements and financial statements and monitoring compliance with relevant statutory and listing requirements;

• reporting to the Board on the appropriateness of the Group's accounting policies and practices including critical accounting policies and practices;

• advising the Board on whether the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position, performance, business model and strategy;

• overseeing the relationship with the external auditor and reviewing the effectiveness of the external audit process; and

• monitoring the systems of internal controls operated by the Group and by the Group's principal service providers.

Committee Meetings

The Committee meet in Guernsey at least twice a year. The Committee reports to the Board as part of a separate agenda item, on its activities and on matters of particular relevance to the Board in the conduct of its work. During the financial year under review the Committee formally reported to the Board on two occasions.

Main Activities of the Committee during the financial year

The Committee assisted the Board in carrying out its responsibilities in relation to financial reporting requirements, compliance and the assessment of internal controls. The Committee also managed the Group's relationship with the external auditor.

Fair, Balanced and Understandable

In order to comply with The UK Corporate Governance Code, the Board requested that the Committee advises them on whether it believes the annual financial report, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Group's performance, business model and strategy.

The Committee engaged with the Group's auditor and the Group's administrator in order to ensure that the financial statements were fair, balanced and understandable.

Financial Reporting and Significant Issues

The Committee's primary role in relation to financial reporting is to review, with its service providers and the external auditor, the appropriateness of the half-year and annual financial statements, the significant financial reporting issues and accounting policies and disclosures in the financial statements. The Committee has considered the key risks identified as being significant to these accounts and the most appropriate treatment and disclosure of any new significant issues identified during the audit and half-year reviews as well as any recommendations or observations made by the external auditor, Deloitte LLP ("Deloitte"). To aid its review the Committee considered reports prepared by external service providers, including Doric and Nimrod, and reports from Deloitte on the outcome of their annual audit. The significant issues considered by the Committee in relation to the 2019 accounts and how these were addressed are detailed below:

We note that the auditor also considers the recognition of rental income and the accounting for debt within their key audit matters. These items have been considered by the Committee in the current year, but, as there have been no changes in respect of these risks they have not been a primary area of focus of the Committee in the current year.

Going Concern

After making enquiries, the Committee has a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Committee believes the Group is well placed to manage its business risks successfully as the interest on the Group's Loans and Equipment Notes has been fixed and the fixed rental income under the operating lease means that the rentals should be sufficient to repay the Loans and Equipment Notes and provide surplus income to pay for the Group's expenses and permit payment of dividends. Accordingly, the Committee has adopted the going concern basis in preparing the financial information.

Internal Controls

The Committee has made due enquiry of the internal controls of the Administrator. The Committee is satisfied with the controls currently implemented by the Administrator. However it has requested that the Administrator keeps the Committee informed of any developments and improved internal control procedures.

The most recent report on the Internal control of JTC's administration services, prepared in accordance with the International Standard on Assurance Engagement 3402 ("ISAE 3402"), for the period from 1 February 2018 to 31 March 2019 supported by a bridging letter for the period from 1 April 2019 to 20 May 2019 has been provided to the Committee.

Internal Audit

The Group has no employees and operates no systems of its own, relying instead on the employees and systems of its external service providers. Following a recommendation from the Committee, the Board has therefore taken the decision that it would be of insufficient benefit for the Group to engage an internal auditor.

External Audit

The effectiveness of the external audit process is dependent on appropriate audit risk identification at the start of the audit cycle. The Committee received from the Deloitte a detailed audit plan identifying their assessment of the key risks. For the financial year under review, the primary risks identified were in respect of valuation and ownership of the Group's Assets, the recording of lease rental income and accounting for fixed rate debt using the effective interest rate method.

Using its collective skills, the Committee evaluates the effectiveness of the audit process in addressing the matters raised through the reporting it received from Deloitte at the conclusion of the audit. In particular the Committee formally appraise Deloitte against the following criteria:

· Independence

· Ethics and conflicts

· Knowledge and experience

· Challenge

· Promptness

· Cost

· Overall quality of service

In addition the Committee also seeks feedback from the Administrator on the effectiveness of the audit process.

For the financial year under review, the Committee was satisfied that there had been appropriate focus on the primary areas of audit risk and assessed the quality of the audit process to be good. The Committee discussed their findings with Deloitte and agreed how future external audits could be improved.

The Committee holds meetings with the external auditor to provide additional opportunity for open dialogue and feedback from the auditor. Should it be necessary, Committee members meet with the external auditor without the Administrator and Asset Manager being present. Matters typically discussed include the auditor's assessment of business risks and management activity thereon, the transparency and openness of interactions with the Administrator, confirmation that there has been no restriction in scope placed on them by the Administrator on the independence of their audit and how they have exercised professional scepticism.

Appointment and Independence

The Committee considers the reappointment of the external auditor, including the rotation of the audit partner, each year and also evaluates their independence on an on-going basis.

The external auditor is required to rotate the audit partner responsible for the audit every five years. The current lead audit partner has been in place since August 2016 with her first audit reporting period being the year to 31 March 2017. This is her third year of involvement.

Deloitte has been the Group's external auditor since October 2012. The Committee has provided the Board with its recommendation to the Company's Shareholders on the reappointment of Deloitte as external auditor for the year ending 31 March 2020. Accordingly a resolution proposing the reappointment of Deloitte as the Company's auditor will be put to the Company's Shareholders at the 2019 annual general meeting.

There are no contractual obligations restricting the Committee's choice of external auditor. The Committee continues to consider the audit tendering provisions outlined in the revised Code, of which it is very supportive. The Committee will consider arranging for the external audit contract to be tendered in 2021 (being ten years from the date of initial appointment of Deloitte) with the aim of ensuring a high quality and effective audit.

Non-Audit Services

To further safeguard the objectivity and independence of the external auditor from becoming compromised, the Committee has a formal policy governing the engagement of the external auditor to provide non-audit services. No changes have been made to this policy during the year. This policy specifies that Deloitte should only be engaged for non-audit services where there is considered to be a very low threat to auditor independence.

Deloitte is prohibited from providing any other services without the Committee's prior approval. In reaching such a determination the Committee will take into consideration whether it is in the best interests of the Group that such services should be supplied by the Group's external auditor (rather than another service provider) and, if so whether any safeguards regarding auditor objectivity and independence in the conduct of the audit should be put in place, whether these would be effective and how such safeguards should be disclosed.

Committee Evaluation

The Committee's activities formed part of the review of Board effectiveness performed in the year under review.

An internal evaluation of the Committee's effectiveness will be carried out in 2019.

Charles Wilkinson

Chairman of the Audit Committee

4 July 2019

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF DORIC NIMROD AIR TWO LIMITED

Report on the audit of the financial statements

Report on other legal and regulatory requirements

Nicola Sarah Paul

For and on behalf of Deloitte LLP

Recognised Auditor

St Peter Port, Guernsey

5 July 2019

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 March 2019

In arriving at the results for the financial year, all amounts above relate to continuing operations.

The notes on pages 43 to 70 form an integral part of these Consolidated Financial Statements.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 March 2019

The financial statements were approved by the Board of Directors and authorised for issue on July 2019 and are signed on its behalf by:

Geoff Hall Charles Wilkinson

Director Director

The notes on pages 43 to 70 form an integral part of these Consolidated Financial Statements.

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 March 2019

The notes on pages 43 to 70 form an integral part of these Consolidated Financial Statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 March 2019

The notes on pages 43 to 70 form an integral part of these Consolidated Financial Statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 March 2019

1 GENERAL INFORMATION

2 ACCOUNTING POLICIES

The significant accounting policies adopted by the Group are as follows:

(a) Basis of Preparation

The consolidated financial statements have been prepared in conformity with IFRS as adopted by the European Union, which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB") and International Financial Reporting Interpretations Committee ("IFRIC") and applicable Guernsey law. The financial statements have been prepared on a historical cost basis.

The accounting policies adopted are consistent with those of the previous financial year, except for the adoption of the new and amended standards set out below:

(b) Adoption of new and revised Standards

New and amended IFRS Standards that are effective for current year

The following Standards or Interpretations have been adopted in the current period. Their adoption has not had any impact on the amounts reported in these Consolidated Financial Statements and is not expected to have any impact on future financial periods, except where stated otherwise:

· IFRS 9, 'Financial Instruments - Classification and Measurement, Impairment of Financial Assets, Hedge Accounting'. Effective for accounting periods commencing on or after 1 January 2018 and is endorsed by the EU.

· IFRS 15 and amendments to IFRS 15 Revenue from contracts with customers - The standard and amendments are effective for annual periods beginning on or after 1 January 2018 and is endorsed by the EU. 

(i) Impact of initial application of IFRS 9 Financial Instruments

IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting.

The adoption of IFRS 9 'Financial Instruments' from 1 April 2018 did not result in any adjustments to the amounts recognised in the financial statements and accordingly there was no impact on the retained earnings as at 1 April 2018. The new accounting policies reflecting the new IFRS 9 terminology are set out in Note 2 (o) below.

Classification Financial Assets and of Financial Liabilities

IFRS 9 contains three principal classification categories for financial assets and liabilities: measured at amortised cost, fair value through other comprehensive income ("FVOCI") and fair value through profit or loss ("FVTPL"). IFRS 9 classification is generally based on the business model in which a financial asset is managed and its contractual cash flows.

Based on the Group's assessment, this standard does not have a material impact on the classification of financial assets and financial liabilities of the Group. This is because:

- the interest rate swap in MSN090 Limited is currently measured at FVTPL due to it being designated into this category as it is managed on a fair value basis in accordance with a documented investment strategy. The interest rate swap does not meet the SPPI criterion (solely payments of principal and interest) and accordingly it will be mandatorily measured at FVTPL under IFRS 9; and

- financial instruments currently measured at amortised cost are accrued income, short-term investments, cash and cash equivalents, receivables, borrowings, deferred income and payables. These instruments meet the solely principal and interest criterion and are held in a held-to-collect business model. Accordingly, they will continue to be measured at amortised cost under IFRS 9.

Impairment of Financial Assets

IFRS 9 replaces the "incurred loss' model in IAS 39 with an 'expected credit loss' model. The new impairment model also applies to certain loan commitments and financial guarantee contracts but not to equity investments. Under IFRS 9, credit losses are recognised earlier than under IAS 39.

The Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. The Group has chosen to apply the simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables.

Based on the Group's assessment, changes to the impairment model do not have a material impact on the financial assets of the Group. This is because:

- the interest rate swap is measured at FVTPL and the impairment requirements do not apply to such instruments;

Impairment of Financial Assets (continued)

- the accrued income and receivables at amortised cost are short-term (i. e. no longer than 12 months) and considered to be of high credit quality as the Group selected a lessee with a strong balance sheet and financial outlook which has no history of defaulting on any rental payments.

- while short-term investments and cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss is expected to be small as the instruments are held with regulated entities subject to prudential supervision, or with high credit ratings assigned by international credit rating agencies.

Hedge Accounting

The interest swap is currently measured at FVTPL due to the Company designating it as such. Accordingly, the IFRS 9 hedge accounting-related changes do not have an impact thereon and it will continue to be measured at FVTPL under IFRS 9.

(ii) Impact of application of IFRS 15 Revenue from Contracts with Customers

IFRS 15 deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 'Revenue' and IAS 11 'Construction contracts', related interpretations. The only contractual receipts which the Group currently has are rental income from Emirates leasing its Aircraft. Rental income is currently recognised in accordance with IAS 17 (which will be replaced by IFRS 16 which is specifically excluded from IFRS 15. The adoption of IFRS 15 'Revenue from Contracts with Customers' from 1 April 2018 does thus not materially impact the financial statements.

(iii) Impact of adoption of IFRIC 22: Foreign Currency transactions and advance

consideration

IFRIC 22 'Foreign currency transactions and advance consideration' - this IFRIC addresses foreign currency transactions or parts of transactions where there is consideration that is denominated or priced in a foreign currency. The interpretation provides guidance for when a single payment/receipt is made as well as for situations where multiple payments/receipts are made. The guidance aims to reduce diversity in practice, is effective for annual periods beginning on or after 1 January 2018 and is endorsed by the EU. The adoption of this standard did not have an impact as the Group did not participate in any foreign currency transactions involving an advance payment or receipt in current year.

New and Revised Standards in issue but not yet effective

The following Standards or Interpretations that are expected to affect the Group have been issued but not yet adopted by the Group. Other Standards or Interpretations issued by the IASB and IFRIC are not expected to affect the Group.

IFRS 16 Leases - specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees

to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16's approach to lessor accounting substantially unchanged from its predecessor, IAS 17. This standard is effective for annual periods beginning on or after 1 January 2019 and is endorsed by the EU.

The Directors have considered the above and are of the opinion that the above Standards and Interpretations are not expected to have an impact on the Group's financial statements except for the presentation of additional disclosures and changes to the presentation of components of the financial statements. These items will be applied in the first financial year for which they are required.

The impact of the adoption of the above standard is disclosed in Note 2(b).

Rental income is derived from the leasing of the Assets. Rent is split into A rent, which is received in US dollars ("$") and B rent, which is received in Sterling. Rental income received in US dollars is translated into the functional currency (Sterling) at the date of the transaction.

A and B rental income receivable will decrease / increase respectively, 10 years from the start of each lease. An adjustment has been made to spread the actual total income receivable over the term of the lease on an annual basis. In addition, advance rentals received have also been spread over the full term of the leases.

9 PROPERTY, PLANT AND EQUIPMENT - AIRCRAFT

ACCUMULATED DEPRECIATION

CARRYING AMOUNT