Doric Nimrod 2 Regulatory News (DNA2)

DORIC NIMROD AIR TWO LIMITED (the "Company") 

(Legal Entity Identifier: 213800ENH57LLS7MEM48)

HALF-YEARLY FINANCIAL REPORT

The Board of the Company is pleased to announce its results for the period from 1 April 2020 to 30 September 2020.

To view the Company's half-yearly financial report please follow the link below:

http://www.rns-pdf.londonstockexchange.com/rns/2933I_1-2020-12-10.pdf

In addition, to comply with DTR 6.3.5(1) please find below the full text of the half yearly financial report.

The half-yearly financial report will also shortly be available on the Company's website www.dnairtwo.com.

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

Half-Yearly Financial Report

For the period from 1 April 2020 to 30 September 2020

SUMMARY INFORMATION

Please note that the Group has determined that the operating leases on the Assets are for 12 years based on an initial term of 10 years followed by an exercised extension term of two years.

COMPANY OVERVIEW

Doric Nimrod Air Two Limited ("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 72,500,000 ordinary preference shares (the "Placing"). The nominal value of the issued shares was 200 pence per share. 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 at 200 pence per share 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 4 December 2020, 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 80.0 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, 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 10 years to October 2021, with an exercised extension period of 2 years ending 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 10 years to December 2021, with an exercised extension period of 2 years ending 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 10 years to October 2022, with an exercised extension period of 2 years ending October 2024, in which rental payments reduce.

The fourth Asset, MSN 106, was acquired by DNAFA on 1 October 2012 for a purchase price of $234 million and has been leased to Emirates for an initial term of 10 years ending October 2022, with an exercised extension period of 2 years ending October 2024, in which rental payments reduce.

The fifth Asset, MSN 107, was acquired by DNAFA on 12 October 2012 for a purchase price of $234 million and has been leased to Emirates for an initial term of 10 years ending October 2022, with an exercised extension period of 2 years ending October 2024, in which rental payments reduce.

The sixth Asset, MSN 109, was acquired by DNAFA on 9 November 2012 for a purchase price of $234 million and has been leased to Emirates for an initial term of 10 years ending November 2022, with an exercised extension period of 2 years ending November 2024, in which rental payments reduce.

The seventh Asset, MSN 110, was acquired by DNAFA on 30 November 2012 for a purchase price of $234 million and has been leased to Emirates for an initial term of 10 years ending November 2022, with an exercised extension period of 2 years ending November 2024, in which rental payments reduce.

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 EETCs. The EETCs, 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.

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 15), 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 per cent. of the loan in MSN090 Limited which has a related interest rate swap entered into to fix the interest rate. MSN077 Limited drew down $151,047,059 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.

Emirates bears all costs (including maintenance, repair, and insurance) relating to the Aircraft during the lifetime of the leases.

Further information about the construction of these leases is available in note 12 to the financial statements.

Distribution Policy

The Company currently targets a distribution of 4.5 pence per Share per quarter.

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 Board of Directors (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 period under review, and in accordance with the Distribution Policy, the Company declared two interim dividends of 4.5 pence per Share. One interim dividend of 4.5 pence per Share was declared after the reporting period. Further details of these dividend payments can be found on page 30.

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 (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.

CHAIR'S STATEMENT

During the period from 1 April 2020 until 30 September 2020 (the "Period") the Company has declared and paid two quarterly dividends of 4.5 pence per share each, a rate of dividend payment 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 Company has four wholly-owned subsidiaries: MSN077 Limited, MSN090 Limited, MSN105 Limited and DNAFA. The Group owns seven Assets, funded by two equity issues, bank debt and a note issue in 2011 and 2012. Upon the purchase of each aircraft (the "Aircraft"), the each subsidiary entered into a 10-year lease with Emirates, which in every case has been extended by the exercise of a two year extension option, with pre-determined lease rentals for the 12 year duration.

The debt portion of the funding is designed to be fully amortised over the term of the leases, which would 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 leases. At 4 December 2020, the latest practical date prior to this report, the Company had outstanding debt associated with the Aircraft totalling USD 211.7 million (24% of the initial balance) as well as unencumbered cash resources of GBP 30 million. At the time of writing the share price is 80.0 pence, representing a market capitalisation of GBP 138.2 million based on the 172,750,000 shares in issue. The Company's first lease expiry falls due in October 2023.

All payments by Emirates during the period and throughout the lease have been made in accordance with the respective terms of the leases.

Emirates, the sole lessee of the Company, has undertaken a number of measures since the onset of COVID-19 to support its business. These measures included the difficult decisions to cut jobs, reduce staff wages and offer voluntary unpaid leave in order to help reduce costs. The airline was also bolstered by its cargo operations in response to increased demand. Further, as a means to contain the outflow of cash, Emirates adopted the policy that no operation is allowed to go below the cash operating cost. Reassuringly, and according to Emirates's president Tim Clark, the Airbus A380 has proven economically viable in this regard, as solid load factors have led to profitable operations - although this is in the context of only 14 of Emirates's 115 A380s currently being in service at the time of writing. The Company's Aircraft are stored at Dubai World Central (DWC). Perhaps the key development during the period is that Emirates had received 7.3 billion dirhams (USD 2 billion) from the Government of Dubai. The government of Dubai sold USD 2 billion of dual tranche bonds in early September with the USD 1 billion 30-year conventional bond pricing at a yield of 4% according to Reuters. Emirates reinstated the full salaries of its employees from the beginning of October.

In its recent half-year results Emirates Airline reported that revenue fell by 75% resulting in a loss of USD 3.4 billion. Despite the significant drop in operations during the six months, Emirates' EBITDA was still positive at US 79 million with strong cargo business supporting revenue. Emirates reported a cash position of USD 4.25 billion as at 30 September 2020. His Highness Sheikh Ahmed bin Saeed Al Maktoum, Chairman and Chief Executive, Emirates noted "No one can predict the future, but we expect a steep recovery in travel demand once a COVID-19 vaccine is available, and we are readying ourselves to serve that rebound."

Whilst Emirates do not have a formal credit rating they have previously issued unsecured USD bonds with maturities in 2023, 2025 and 2028, At the time of writing these respective instruments are trading at approximately par (100 cents) respectively, equivalent to USD running yields in the range of roughly 3.9% to 4.5%. Further details on Emirates and the A380 can be found in the Asset Manager's report by Doric GmbH ("Doric").

Since my statement accompanying the Annual Report the International Air Transport Association ("IATA") has forecast an airline industry-wide net loss of USD 84.3 billion for this year. Revenue passenger kilometres contracted by 73 per cent in the year to September 2020.

The liquidity and creditworthiness of airlines, both large and small, continues to be in focus while a significant part of the global aircraft fleet remains grounded. IATA continues to see a recovery to 2019 levels of passenger traffic by 2024.

Doric continues to monitor the lease and is in frequent contact with the lessee and reports regularly to the Board. Nimrod Capital LLP ("Nimrod" or the "Corporate and Shareholder Adviser") continues to liaise with Shareholders on behalf of the Board and has provided valuable feedback on the views of Shareholders in the current climate.

Shareholders should note that while the underlying cash flows received during the Period have been as anticipated, 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").

For instance, the entirety of the rental income that is receivable under a 12 year lease is credited evenly over each of the 144 months of the lease. However rental income is not received in this uniform pattern, although it does closely match the similarly uneven pattern of debt servicing and other payments. The mismatch in timing between the receipt and recognition of rental income results in large deferred income or accrued income balances in the balance sheet.

Similarly, the relevant accounting standards require 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 (including also very significantly, the outstanding borrowings and the deferred income creditor) are translated at the rate prevailing on the reporting date. The result is that the figures sometimes show large mismatches which are reported as unrealised foreign exchange differences - although the distortive effect becomes less pronounced over time as debt is paid down and as a result of the impairment adjustment.

On an on-going basis and assuming the lease rental is received, and the loan 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 loan repayments due which are likewise denominated in US dollars. Furthermore, the US dollar lease rentals and loan repayments are fixed at the inception of the respective leases and are very similar in amount and timing.

The Board encourages Shareholders to read the Company's quarterly fact sheets which we believe provide a great deal of interesting information including a sensitivity analysis of the potential returns to Shareholders, after lease expiry, under different scenarios for A380 appraisal values. We hope these regular reports, in addition to the communication you receive from Nimrod, are useful and informative. The Directors welcome Shareholder engagement and feedback and encourage you to contact Nimrod to request a meeting or to relay any feedback.

Finally, on behalf of the Board, I would like to thank our service providers for all their help and, most importantly, all Shareholders for their continuing support of the Company during these difficult times. I look forward to keeping all Shareholders up to date with further progress.

Geoffrey Hall

Chair

10 December 2020

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.

COVID-19

The impact of the COVID-19 pandemic on the aviation sector has been significant with about a third of the global passenger aircraft fleet still grounded. This Asset Manager's Report is exclusively based on known facts at the time of writing and does not seek to draw on any speculation about any possible future, long-term impacts of the pandemic on the aviation sector or the Company specifically and should be read in such context. The Board notes the continuing market commentary regarding rental deferrals and confirms that it has received no formal request from Emirates to renegotiate their leases and that they are currently servicing them in line with their obligations. The Board is in close contact with the Asset Manager and its other advisors and will continue to keep shareholders updated via quarterly fact sheets and ad-hoc announcements as required.

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 a 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 arrears 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 (Class A & Class B) 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. The Certificates are admitted to the official list of the Euronext Dublin and to trading on the Main Securities market thereof. DNAFA used the proceeds from both the Equity and the Certificates to finance the acquisition of four new Airbus A380 aircraft which were then leased to Emirates.

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

Due to the effects of COVID-19, the Aircraft have been stored since March 2020 and are currently at Dubai World Central International Airport ("DWC").

Please note that the asset manager has not included the utilisation table included in previous financial statements as the aircraft were not in service during the period under review.

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.

Due to the continuing COVID-19 pandemic, Emirates has stored the aircraft owned by the Group in Dubai. The lessee has "a comprehensive aircraft parking and reactivation programme [in place], that strictly follows manufacturer's guidelines and maintenance manuals". In addition, Emirates has enhanced standards and protocols of their own, to protect and preserve the asset during the downtime. This includes the watertight sealing of all apertures and openings through which environmental factors - sand, water, birds, and insects - can find their way inside an aircraft. During parking, maintenance teams complete periodic checks at different intervals. Depending on the reactivation date of a specific aircraft, the lessee might defer due maintenance checks, which are calendar-based, until that time. This would allow the lessee to make use of the full maintenance interval once the operation of a specific aircraft resumes.

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

Inspections

Doric, the asset manager, conducted physical inspections of the aircraft with MSNs 077, 105, and 106, as well as records audits of the aircraft with MSNs 105 and 106 in August 2020. The condition of the aircraft and technical records where in compliance with the provisions of the respective lease agreements.

2. Market Overview

The impact of COVID-19 on the global economy has been severe and is expected to result in a 4.9% to 5.2% contraction in global GDP for 2020, according to the International Monetary Fund and the World Bank. In its latest economic impact analysis, the International Civil Aviation Organization (ICAO) estimated that the full year 2020 will see a reduction in seats offered by airlines of 48% to 51% compared with the previous baseline forecast for the year. Furthermore, ICAO anticipates this trend to continue into the first quarter of 2021 with airlines reducing seats offered by 23% to 43%. However, the actual impact of COVID-19 on the airline industry will depend on a number of factors, including the duration and magnitude of the outbreak and containment measures, the degree of consumer confidence in air travel as well as general economic conditions. The International Air Transport Association ("IATA") has forecast an airline industry-wide net loss of USD 84.3 billion for this year.

As of September 2020, air passenger demand has continued its gradual recovery from the low-point in April, with industry-wide revenue passenger kilometres ("RPKs") contracting by 73% year-on-year in September vs. an 75% fall in August. The load factor of 60.1% was the lowest in history for September. Modest demand improvements were primarily being driven by some domestic markets including Russia and China, while there was no clear recovery in international traffic in September. In the first nine months of 2020, RPKs were down 65% against the previous year. Similarly, industry-wide capacity, measured in available seat kilometres ("ASKs"), also decreased by 56% between January and September 2020 against the same period in 2019. This resulted in a 16.1 percentage point decrease in the worldwide passenger load factor ("PLF") to 66.7%.

In the first nine months of 2020, passenger traffic in the Middle East was down 69% against the previous year. Capacity also fell by 62%, resulting in a 13.7 percentage point decrease in PLF to 63.0%. Latest available data for September indicate an RPK contraction of 89% against the same month in the previous year, with ASKs 77% below its September 2019 levels. The PLF amounts to about 37%, a decline of 38.5 percentage points. IATA anticipates the losses of Middle Eastern airlines to rise to USD 4.8 billion in 2020 (from a loss of USD 1.5 billion in 2019).

Source: IATA, ICAO

© International Air Transport Association, 2020. Air Passenger Market Analysis September 2020. Economic Performance of the Airline Industry, Mid-Year Report June 2020. All Rights Reserved. Available on the IATA Economics page.

© International Civil Aviation Organization, Effects of Novel Coronavirus (COVID-19) on Civil Aviation: Economic Impact Analysis, 9 September 2020.

3. Lessee - Emirates

Network

As of mid-August, over 150 destinations in Emirates' global network remained subject to COVID-19-related travel restrictions. Daily flights were around 230 - approximately 40% of pre-pandemic levels, with half of the frequencies operating as cargo-only services. As a means to contain the outflow of cash, Emirates has adopted the policy that no operation is allowed to go below the cash operating costs. According to Emirates' president Tim Clark, the Airbus A380 has proven economically viable in this regard, as solid load factors have led to profitable operations. The airline resumed its A380 services on 15 July with flights to London Heathrow and Paris.

In order to rebuild confidence in air travel, Emirates became the first airline to offer free COVID-19 insurance for all passengers on its own flights and those of its codeshare partners. The programme covers medical expenses of up to EUR 150,000 and quarantine costs of EUR 100 per day for 14 days, should passengers be diagnosed with COVID-19 during their travel. The programme is set to end on 31 December.

At the beginning of September, Emirates and flydubai announced that they have renewed their partnership, allowing customers to travel on codeshare flights to over 30 destinations on flydubai and over 70 destinations on Emirates. Both airlines have implemented safety measures, including enhanced sanitation of all touchpoints and advanced High Efficiency Particulate Air ("HEPA") filters fitted in aircraft cabins. Passengers on Emirates flights are also provided with a complimentary hygiene kit containing masks, gloves, hand sanitiser and anti-bacterial wipes.

Up until the end of September, Emirates' A380 fleet has resumed flights to six destinations, including Cairo, Guangzhou, London Heathrow, Moscow, Paris, and Toronto.

At the end of September, Emirates was operating passenger and cargo flights to 104 cities.

Fleet

While Emirates' operations had remained mainly cargo-only services through mid-August, the carrier has since announced plans to gradually increase its passenger network and plans to service 99 destinations in November. Prior to this, the vast majority of Emirates' 141 passenger Boeing 777 aircraft had returned to service, but many had been operating cargo-only flights. In fact, Emirates performed a partial retrofit on 14 Boeing 777-300ER passenger aircraft to transport freight in the cabin. At the same time, 13 of Emirates' 115 Airbus A380 aircraft have been returned to service.

The table below details the passenger fleet activity as of 30 September 2020, reflecting Emirates' recently increased operations:

Source: Cirium as of 30 September 2020

In July, Boeing disclosed that the 777X programme was being delayed again, with deliveries now scheduled to begin in 2022. In response, Emirates, as the launch customer of the Boeing 777-9, is seeking additional clarity on the certification process as it negotiates a revised schedule for its Boeing 777-9 aircraft. However, Tim Clark noted that the delivery delay probably benefits Emirates in the short-term due to the ongoing global pandemic.

In November, Emirates announced that it had started to utilise the A380 on select cargo charter operations as a dedicated "Emirates A380 'mini-freighter'". As a first step it has optimised the cargo capacity "to safely transport around 50 tonnes of cargo per flight in the bellyhold of the aircraft". Emirates SkyCargo is working on further optimisations of the capacity through measures such as seat loading of cargo. Emirates SkyCargo has scheduled more dedicated A380 cargo flights for the month of November in response to the surge in demand for air cargo capacity, required for the urgent transportation of critical goods, including medical supplies for combatting COVID-19.

Key Financials

In the first half of the financial year ending 31 March 2021, Emirates recorded its first half-year loss in over 30 years. Revenues fell 75% to AED 13.7 billion (USD 3.7 billion) due to pandemic-related travel restrictions, including an eight-week suspension of scheduled passenger flights during April and May. These measures resulted in a net loss of AED 12.6 billion (USD 3.4 billion) compared to a profit of AED 863 million (USD 235 million) in the first half of the previous financial year.

Emirates reduced its ASKs by 91% in the first half of the 2020/21 financial year, while RPKS were down by 96%. During this period, Emirates' average PLF fell to 38.6%, compared to last year's pre-pandemic figure of 81.1%.

Emirates' operating costs decreased by 52%. Fuel, which had previously been the largest cost category for the airline, only accounted for 11% of total operating costs (compared to 32% in the first half of the previous financial year). Contributing factors were a 49% decrease in oil prices and a 76% lower fuel uplift from reduced flight operations. Despite this significant reduction in operations, Emirates' EBITDA remained positive at AED 290 million (USD 79 million).

While the number of passengers Emirates carried between 1 April and 30 September 2020 was down 95% to 1.5 million passengers compared to the same period last year, airfreight demand rose strongly. The volume of cargo uplifted decreased by 35% to 0.8 million tonnes during this period, but the yield more than doubled. This development reflects the extraordinary market situation during the global COVID-19 pandemic.

As a part of its cost-saving measures, Emirates Group reduced its combined employee base of Emirates Airline and air services provider Dnata by 24% during the first half of the current financial year.

As of 30 September, Emirates' total liabilities decreased by 8.3% to AED 136.1 billion (USD 37.1 billion USD) compared to the end of the previous financial year. Total equity decreased by 10.6% to AED 21.1 billion (USD 5.75 billion) with an equity ratio of 13.4%. Emirates' cash position amounted to AED 15.6 billion (USD 4.25 billion) at the end of the first half of the 2020/21 financial year. This compares to AED 20.2 billion (USD 5.5 billion) in cash assets as of 31 March 2020.

On the ongoing financial position of Emirates in light of the global COVID-19 pandemic, HH Sheikh Ahmed bin Saeed Al Maktoum, chairman and chief executive of Emirates Airline, stated: "We have been able to tap on our own strong cash reserves, and through our shareholder and the broader financial community, we continue to ensure we have access to sufficient funding to sustain the business and see us through this challenging period. In the first half of 2020-21, our shareholder injected USD 2 billion into Emirates by way of an equity investment and they will support us on our recovery path."

As at the end of September Emirates has outstanding US dollar debt issuances with maturities in 2023, 2025, and 2028. These respective bonds were trading at approximately par (100 cents) each and with running yields ranging from approximately 3.9% to 4.5% in US dollars there has also been no upward pressure on yields. This level of yields does not appear to indicate any significant financial stress to the issuer.

In August 2020 rating agency Moody's Investor Service (Moody's) downgraded its rating assigned to the Class A EETC issued by DNAFA from Ba1 to Ba3 with a negative outlook. Moody's stated that the rating action "reflect[s] the adverse impacts of the coronavirus on the demand for and secondary market values of the Airbus A380 aircraft and Emirates' financial performance. The negative outlook reflects the uncertainty of the coronavirus' lasting impact on global demand for air travel and Emirates Airline's operations and financial position." The press release stresses that "Moody's believes the A380 will remain relevant to Emirates' fleet strategy". Irrespective of the challenges the coronavirus means for the airline and the Company, the rating agency continues to expect timely payments of interest and scheduled principal on the Certificates. For its rating considerations Moody's assumed a part-out value for the A380 of about 50 million USD per aircraft. The rating action resolves the review for downgrade of the issuance initiated back in March.

Source: Cirium, Emirates

4. Aircraft - A380

As at the end of September 2020, the global A380 fleet consisted of 237 planes with 14 airline operators. Only 19 of these aircraft were in service, the remainder of the fleet is parked due to COVID-19. The fourteen operators are Emirates (115), Singapore Airlines (19), Deutsche Lufthansa (14), Qantas (12), British Airways (12), Korean Air Lines (10), Etihad Airways (10), Qatar Airways (10), Air France (9), Malaysia Airlines (6), Thai Airways (6), Asiana Airlines (6), China Southern Airlines (5), All Nippon Airways (2), and Hi Fly (1). Another three temporarily stored aircraft are lease returns.

Due to the COVID-19 pandemic, most A380 operators temporarily parked the aircraft type from March, with the number of parked A380s peaking at nearly the entire fleet. In fact, only China Southern and Hi Fly operated their A380s continuously. However, Emirates began to gradually restore A380 services in mid-July. In contrast, other A380 operators, such as Singapore Airlines, Qantas and Qatar Airways, are reviewing their fleets and have indicated that there will be no early return of A380 services. Air France does not plan a return to service for any of its remaining A380s.

Tim Clark expects the Airbus A380 to continue to play an important role once the travel demand begins recovering from the post-coronavirus crisis, provided a vaccine is available: "[It] would be folly to exclude large wide-bodied aircraft in the future. The A380 has proven to be a hugely successful aircraft and if fuel prices were forever to stay at today's levels, this aircraft is hugely potent." Clark also added that the first A380 aircraft equipped with Emirates' new premium-economy cabin has finished assembly in Toulouse, although he did not provide any further update as to the status of the airline's last eight A380s, which were scheduled to be delivered over the next year.

In spring 2020 Lufthansa disclosed that it intends to permanently decommission six A380s with immediate effect. They were originally earmarked to depart the fleet in 2022. In September the airline announced that the remaining eight aircraft, "which were previously intended for flight service, will be transferred to storage and removed from planning". "These aircraft will only be reactivated in the event of an unexpectedly rapid market recovery", according to a press release. Lufthansa no longer expects to achieve 50% of its pre-COVID-19 ASK levels by the end of 2021 and released a new estimate of 20-30%. The German airline group stated that the outlook for international air transport "has significantly worsened" in recent weeks.

Paul Griffiths, the chief executive of Dubai Airports, which owns and manages the operation and development of both Dubai's airports, has expressed confidence in the concept of international hubs in a post-COVID world, despite the trend towards more point-to-point traffic. With many countries facing an economic crisis Paul believes that "the efficiency of hubs and aggregation power of bringing together city pairs around the world, which will never likely have enough traffic to be justified to have a point-to-point service, will continue to be served and aggregated very efficiently through global hubs". Against this background he assumes that "777 and A380 are pretty well placed for several years to come as actually serving that role very well". Another COVID-related development could also help large airport hubs: He thinks that "it's going to be very difficult to persuade the environmental groups and general public actually to support airport expansions in the future". Due to COVID-19 lockdowns and the associated slowdown in industrial production, pollution was temporarily avoided in many regions around the world, resulting in clear skies.

Source: Cirium, Simple Flying

DIRECTORS

As at 30 September 2020 the Company had four directors all of whom were independent and non-executive.

Geoffrey Alan Hall - Chair of the Company and of the Nomination Committee

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 a director and Chair of the Audit Committee of Doric Nimrod Air One Limited and of Doric Nimrod Air Three Limited.

Geoffrey earned his master's degree in Geography at the University of London and is an associate of the CFA Society of the UK. He is resident in the United Kingdom.

Charles Edmund Wilkinson

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 Chair 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.

Suzanne Elaine Procter - Senior Independent Director ("SID")

Suzanne Procter brings over 38 years' experience in financial markets, with specific expertise in asset management. She was previously a non-executive director of TR Property Investment Trust plc, an investment company listed on the FTSE 250 index. Her executive roles included Partner and member of the Executive Management Committee at Cantillon Capital Management LLC, Managing Director of Lazard Asset Management, Head of Institutional Sales at INVESCO Asset Management, Director and Head of Fixed Income Business at Pictet International Management Ltd and Head of Fixed Income at Midland Montagu Asset Management.

Suzanne is also the SID of Doric Nimrod Air One Limited and Doric Nimrod Air Three Limited. She is resident in the United Kingdom.

Andreas Josef Tautscher - Chair of the Audit Committee

Andreas Tautscher brings over 31 years' financial services experience. He serves as a non-executive director and member of the Audit Committee of BH Global Limited, a Guernsey closed-ended investment company whose shares are traded on the Main Market of the London Stock Exchange, and as a non-executive director of MJ Hudson Group plc, a Jersey company whose shares are traded on the AIM Market of the London Stock Exchange.. He is also a director and CEO of Altair Group, a leading independent director services business in the Channel Islands. From 1994 to 2018 Andreas held various roles at Deutsche Bank and was most recently CEO of the Channel Islands and Head of Financial Intermediaries for EMEA. He was previously a non-executive director of the Virgin Group. Andreas qualified as a Chartered Accountant in 1994.

Andreas is also a director of Doric Nimrod Air One Limited and Doric Nimrod Air Three Limited. He is resident in Guernsey.

INTERIM MANAGEMENT REPORT

A description of important events which have occurred during the period from 1 April 2020 until 30 September 2020 (the "Period"), 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 is given in the Chair's Statement, Asset Manager's Report, and the Notes to the Consolidated Financial Statements contained on pages 20 to 45 and are incorporated here by reference.

There were no material related party transactions which took place in the Period, other than those disclosed at note 22 of the Notes to the Consolidated Financial Statements.

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company for the remaining six months of the financial year are unchanged from those disclosed in the Company's Annual Financial Report for the year ended 31 March 2020.

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 17. In addition, note 19 of the Notes 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 Directors in consultation with the Asset Manager are closely monitoring the effect of the COVID-19 pandemic generally on the aviation industry and specifically on the Group's aircraft values and the financial wellbeing of its lessee both now and in the future. The impact of the COVID-19 pandemic on the aviation sector has been significant with about a third of the global passenger aircraft fleet still grounded. The Group's future performance could potentially be impacted should this pandemic have a pervasive and prolonged impact on the economy. There have prevailed wide spread restrictions on the ability of people to travel which has had a material negative effect on the airline sector, and by extension the aircraft leasing sector. This may lead to the inability of airlines to pay rent as it falls due. These factors, together with wider economic uncertainty and disruption, are likely to have an adverse impact on the future value of the aircraft Assets owned by the Group, as well as on the sale, re-lease, refinancing or other disposition of the relevant aircraft.

The Directors consider that the going concern basis of accounting remains appropriate. Based on current information the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, although the risk to this is clearly higher.

The Board will continue to actively monitor the financial impact on the Group resultant from the evolving position with its aircraft lessee and lenders whilst bearing in mind its fiduciary obligations and the requirements of Guernsey law which determine the ability of the Group to make dividends and other distributions.

The Directors, with the support of its Asset Manager, believe that it is reasonable to assume as of date of approval of the half yearly financial statements that Emirates will continue with the contracted lease rental payments due to the following:

- Dubai's government has injected US$2 billion into Emirates so far since the COVID-19 pandemic brought global air travel to a near halt in March and is prepared to send more help to its flagship airline.

- Emirates' listed debt and Credit Default Swaps (CDS's) are trading at non-distressed levels.

- The airline resumed its A380 services on 15 July 2020 with flights to a limited number of destinations.

- As at 4 December 2020, the Asset Manager was not aware of a formal request addressed to the Group for a lease deferral or any other efforts that would result in the restructuring of the existing transactions and which could potentially have an impact on the committed future lease rental receipts.

- Emirates has paid all lease rentals in a timely manner.

Whilst there is some uncertainty as to the airline industry in general, and specifically Emirates' financial position and credit risk profile, on the basis that (i) Emirates has shown no intention of failing to meet its obligations to the Group (ii) Emirates is presumed to have the financial backing to continue paying these rentals, the Directors believe that it is appropriate to prepare these half yearly financial statements under the going concern basis of preparation.

. Responsibility Statement

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

a) the Consolidated Financial Statements, prepared in accordance with International Financial Reporting Standards ("IFRS") give a fair, balanced and understandable view of the assets, liabilities, financial position and profits of the Company and performance of the Company; and

b) this Interim Management Report includes or incorporates by reference:

i. an indication of important events that have occurred during the Period and their impact on the Consolidated Financial Statements;

ii. a description of the principal risks and uncertainties for the remaining six months of the financial year; and

iii. confirmation that there were no related party transactions in the Period that have materially affected the financial position or the performance of the Company during that Period.

Signed on behalf of the Board of Directors of the Company.

Geoffrey Hall Andreas Tautscher

Chair Director

10 December 2020

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period from 1 April 2020 to 30 September 2020

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

The notes on pages 20 to 45 form an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 September 2020

The consolidated financial statements were approved by the Board of Directors and authorised for issue on 10 December 2020 and are signed on its behalf by:

Geoffrey Hall Andreas Tautscher

Chair Director

The notes on pages 20 to 45 form an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS

For the period from 1 April 2020 to 30 September 2020

The notes on pages 20 to 45 form an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the period from 1 April 2020 to 30 September 2020

The notes on pages 20 to 45 form an integral part of these Consolidated Financial Statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the period from 1 April 2020 to 30 September 2020

* Due to market conditions at renewal, the Directors' and officers' insurance premium was subject to a large increase.

7. UNREALISED FOREIGN EXCHANGE GAINS/(LOSSES)

The foreign exchange gain in the Period reflects the 4.0 per cent. movement in the Sterling/US dollar exchange rate from 1.242 as at 31 March 2020 to 1.292 as at 30 September 2020.

The above carrying value of receivables is equivalent to fair value.

The above carrying value of payables is equivalent to the fair value.

In accordance with IFRS 13, 'Fair value measurement' this standard requires the Group to price its financial assets and liabilities using the price in the bid-ask spread that is most representative of fair value for both financial assets and financial liabilities. An active market is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

The level of the Fair Value Hierarchy of an instrument is determined considering the inputs that are significant to the entire measurement of such instrument and the level of the fair value hierarchy within those inputs are categorised.

The hierarchy is broken down into three levels based on the observability of inputs as follows:

Level 1: Quoted price (unadjusted) in an active market for an identical instrument.

Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3: Valuation techniques using significant unobservable inputs.

The interest rate swap is the only financial instrument held at fair value through profit or loss and is considered to be level 2 in the Fair Value Hierarchy.

Derivative financial instruments

The following table shows the Group's derivative position:

The main risks arising from the Group's financial instruments are capital management risk, foreign currency risk, credit risk, liquidity risk and interest rate risk. The Board regularly reviews and agrees policies for managing each of these risks and these are summarised below:

(a) Capital Management

The Group manages its capital to ensure that the Group will be able to continue as a going concern while maximising the return to Shareholders through the optimisation of the debt and equity balance.

The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 15, cash and cash equivalents and equity attributable to equity holders, comprising issued capital and retained earnings.

The Group's Board of Directors reviews the capital structure on a bi-annual basis.

Equity includes all capital and reserves of the Group that are managed as capital.

No changes were made in the objectives, policies or processes for managing capital during the Period (None for the period from 1 April 2019 to 30 September 2019).

(b) Foreign Currency Risk

The Group's accounting policy under IFRS requires the use of a Sterling historic cost of the assets and the value of the US dollar debt as translated at the spot exchange rate on every Statement of Financial Position date. In addition US dollar operating lease receivables are not immediately recognised in the Consolidated Statement of Financial Position and are accrued over the period of the leases. The Directors consider that this introduces an artificial variance due to the movement over time of foreign exchange rates. In actuality, the US dollar operating leases should offset the US dollar payables on amortising loans. The foreign exchange exposure in relation to the loans is thus almost entirely hedged.

Lease rentals (as detailed in notes 4 and 12) are received in US dollar and Sterling. Those lease rentals received in US dollar are used to pay the debt repayments due, also in US dollar (as detailed in note 15). Both US dollar lease rentals and debt repayments are fixed and are for similar sums and similar timings. The matching of lease rentals to settle debt repayments therefore minimises risks caused by foreign exchange fluctuations.

The carrying amounts of the Group's foreign currency denominated monetary assets and liabilities at the reporting date are as follows: