The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of our condensed consolidated results of operations and financial condition. You should read the following management's discussion and analysis together with the financial statements and related notes including Part II, Item 7 of AerSale's Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Form 10-K"). This discussion contains forward-looking statements about AerSale's business, operations and industry that involve risks and uncertainties, such as statements regarding AerSale's plans, objectives, expectations and intentions. AerSale's future results and financial condition may differ materially from those currently anticipated because of the factors described in the section titled "Risk Factors" in the 2021 Form 10-K.
We operate as a platform for serving the commercial aviation aftermarket sector. Our top executives have on average over 30 years of experience in aircraft and engine ("Flight Equipment") management, sales and maintenance services, and are supported by an experienced management team. We have established a global purpose built and fully integrated aviation company focused on providing products and services that maximize the value of Flight Equipment in the middle to end of its operating life cycle.
We are a worldwide provider of aftermarket commercial aircraft, engines, and their parts to passenger and cargo airlines, leasing companies, original equipment manufacturers ("OEM"), government and defense contractors, and maintenance, repair and overhaul ("MRO") service providers. We report our activities in two business segments: Asset Management Solutions, comprised of activities that extract value from strategic asset acquisitions either as whole assets or by disassembling for used serviceable material ("USM"); and TechOps, comprised of MRO activities for aircraft and their components, sales of internally developed engineered solutions and other serviceable products.
We focus on mid-life Flight Equipment and monetize them through our Asset Management Solutions segment. Asset Management Solutions' activities include monetization of assets through the lease or sale of whole assets, or through disassembly activities in support of our USM-related activities. Our monetizing services have been developed to maximize returns on mid-life Flight Equipment throughout their operating life, in conjunction with realizing the highest residual value of Flight Equipment at its retirement. We accomplish this by utilizing deep market and technical knowledge related to the management of Flight Equipment sales, leasing and MRO services. To extract value from the remaining flight time on whole assets, we provide flexible short-term (generally less than five years) leasing solutions of Flight Equipment to passenger and cargo operators across the globe. Once the value from the Flight Equipment's flight time has been extracted, Flight Equipment is considered to be at or near the end of its useful life and is analyzed for return maximization as either whole asset sales or disassembled for sale as USM parts. Revenues from this segment are segregated between Aircraft and Engine depending on the asset type that generated the revenue. Lease revenues and the related depreciation from aircraft and engines installed on those aircrafts is recognized under the Aircraft category. Revenues from sales of whole aircraft and related cost of sales are allocated between the Aircraft and Engine categories based on the allocated cost basis of the asset sold.
Our TechOps segment provides internal and third-party aviation services, including internally developed engineered solutions, full heavy aircraft maintenance and modification, component MRO, as well as end-of-life disassembly services. Our MRO business also engages in longer-term projects such as aircraft modifications, cargo and tanker conversions of aircraft, and aircraft storage. The TechOps segment also includes MRO services for landing gear, thrust reversers, hydraulic systems, and other aircraft components.
We utilize these capabilities to support our customers' Flight Equipment, as well as to maintain and improve our owned Flight Equipment, which is subsequently sold or leased to our customers. These processes require a high degree of expertise on each individual aircraft or component that is being serviced. Our knowledge of these processes allows us to assist customers to comply with applicable regulatory and OEM requirements. A significant amount of skilled labor is required to support this process, which the Company has accumulated through its diversified offerings.
In addition to our aircraft and USM parts offerings, we develop Engineered Solutions consisting of Supplemental Type Certificates ("STCs") that can be installed on existing Flight Equipment to improve performance, comply with regulatory requirements, or improve safety. An example of these solutions is the AerSafe® product line, which we designed and obtained Federal Aviation Administration ("FAA") approval to sell as a solution for compliance with the FAA's fuel tank flammability regulations. These products are proprietary in nature and function as non-OEM solutions to regulatory requirements and other technical challenges, often at reduced delivery time and cost for operators. In order to develop these products, we engage in research and development activities that are expensed as incurred.
Impact of Ukraine Conflict and Russia Sanctions
In February of 2022, Russia invaded Ukraine and is still engaged in an active conflict against the country. As a result, governments in the European Union, the United States, the United Kingdom, Switzerland, and other countries have enacted sanctions against Russia and Russian interests. These sanctions include controls on the export and re-export of certain goods, supplies, and technologies, supply of aircraft and aircraft components to Russian persons or for use in Russia, subject to certain wind-down periods, and the imposition of restrictions on doing business with certain state-owned Russian customers and other investments and business activities in Russia. In order to comply with these sanctions, we ceased pursuing future business in Russia and terminated our three leases with operators doing business in Russia, successfully recovering two aircraft with one engine still unrecovered. Due to continued uncertainty in the ability to recover this engine from Russia or to collect insurance coverage we have fully impaired this asset. Although the current sanctions prohibit the continuation of certain business activities, the three leases referenced were contractually scheduled to expire in 2022 and therefore will have no material impact on our business or 2022 financial condition. While it is difficult to predict the short or long term implications of this conflict and sanctions on the global economy and the aviation industry, we intend to fully comply with all applicable sanctions and embargoes, and do not expect the current situation will have a material adverse effect on our results of operations.
The most recent adopted and to be adopted accounting pronouncements are described in Note A to our condensed consolidated financial statements as well as in Item 8, Note B of the 2021 Form 10-K.
Three months ended June 30, 2022 compared to the three months ended June 30, 2021
Sales and gross profit for AerSale's two business segments for the three months ended June 30, 2022 and 2021 were as follows:
Total revenues for the three months ended June 30, 2022 increased $47.7 million or 51.9% compared to 2021, driven by an increase of $54.2 million, or 90.0%, within Asset Management Solutions, and a decrease of $6.6 million, or 20.7%, within TechOps.
Sales in the Asset Management Solutions segment increased $54.2 million or 90.0%, to $114.5 million for the three months ended June 30, 2022, due to a $32.5 million, or 134.3%, increase in revenues from Aircraft; and a $21.7 million, or 60.1%, increase in revenues from Engines. The increase in Aircraft revenues is primarily attributable to increased activity in the B747 and B757 product line as a result of higher Flight Equipment sales in the amount of $30.5 million, and higher USM part sales in the A320 and B747 product lines totaling $1.7 million. The increase in Engines revenue is primarily attributable to increased activity in the CF6-80 product line due to higher Flight Equipment sales in the amount of $22.3 million, offset by lower PW-4000 USM sales of in the amount of $1.4 million.
Cost of sales in Asset Management Solutions increased $23.2 million or 56.3%, to $64.4 million for the three months ended June 30, 2022, compared to the prior year period. The increase in cost of sales was primarily driven by the sales increase discussed above and the impairment of Flight Equipment in Russia of $0.9 million, offset by lower inventory obsolescence reserves of $3.0 million. Gross profit in the Asset Management Solutions segment increased $31.1 million to $50.2 million, or 162.6%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021. The gross profit increase is mainly attributable to higher revenues generated for the three months ended June 30, 2022, as noted above.
Aircraft gross profit margins increased to 38.6% for the three months ended June 30, 2022, from 21.3% for the three months ended June 30, 2021 due to higher margin on Flight Equipment sales, and lower inventory obsolescence reserve of $3.8 million. Engine gross profit margin was 48.9% for the three months ended June 30, 2022, an increase from 38.6% for the three months ended June 30, 2021, which was primarily the result of higher margin on Flight Equipment sales, partly offset by higher inventory obsolescence reserve of $0.8 million and impairment of Flight Equipment of $0.9 million.
Our revenue from TechOps decreased by $6.6 million or 20.7%, to $25.1 million for the three months ended June 30, 2022, compared to the prior year period. The decrease was primarily driven by lower revenues from services as a result of a shift in resources to support internal efforts on our cargo conversion projects on the B757 product line and AerAware test aircraft, as well as lower storage and related maintenance activities in our Roswell facility as operators continue to return aircraft into active status.
Cost of sales in TechOps increased $0.3 million or 1.3%, to $20.2 million for the three months ended June 30, 2022 compared to the prior year period, driven by higher cost of sales from our component repair facilities due to additional volume. Gross profit in TechOps decreased $6.8 million, or 58.5% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, driven by lower gross profit of $6.5 million on MRO Services. Gross profit margin decreased to 19.3% for the three months ended June 30, 2022 compared to 36.8% for the three months ended June 30, 2021, and was largely attributable to lower margin on MRO Services of 19.3% for the three months ended June 30, 2022 compared to 37.6% during the three month ended June 30, 2021, driven by lower margin maintenance work at our Roswell facility.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $6.5 million, or 38.5% to $23.5 million for the three months ended June 30, 2022, compared to the prior year period. The increase was mostly related to share-based compensation expense of $3.5 million for performance restricted stock units not deemed probable of achieving performance targets as of the second quarter of 2021. The remaining increase relates to higher payroll expenses associated with market adjustments and additional headcount, as well as higher cost incurred on information technology and cybersecurity.
We recognized CARES Act proceeds of $8.4 million during the three months ended June 30, 2021. No such proceeds have been received or recognized during the three months ended June 30, 2022.
As of June 30, 2022, we are in compliance with the applicable provisions of the CARES Act, Payroll Support Extension Law, and American Rescue Plan Act of 2021.
Change in Fair Value of Warrant Liability
We account for our private warrants as a liability at their fair value, with changes in fair value recognized in our results from operations for the period. The fair value of our private warrants is determined using a Black Scholes option pricing model. For the three months ended June 30, 2022, we recorded a $1.4 million benefit in fair value of warrant liability income, compared to a $0.4 million expense in the prior year period.
Interest expense decreased to $0.2 million for the three months ended June 30, 2022, compared to $0.3 million for the three months ended June 30, 2021 and was primarily related to unused balance fees on our amended and restated revolving credit agreement (the "Revolving Credit Agreement") offset by higher interest income.
The effective tax rate for the three months ended June 30, 2022 was 19.3% compared to 23.7% for the three months ended June 30, 2021. The difference between the effective tax rate and the statutory tax rate of 21% for the three months ended June 30, 2022 is primarily due to the impact of state income taxes and non-deductible executive compensation, offset by the foreign derived intangible income deduction. The difference between the effective tax rate and the statutory tax rate of 21% for the three months ended June 30, 2021 is primarily due to the impact of state income taxes, offset by the foreign derived intangible income deduction.
Six months ended June 30, 2022 compared to the six months ended June 30, 2021
Sales and gross profit for AerSale's two business segments for the six months ended June 30, 2022 and 2021 were as follows:
Total revenues for the six-months ended June 30, 2022 increased $112.1 million or 74.5% compared to 2021, driven by an increase of $99.5 million, or 111.1%, within Asset Management Solutions, and an increase of $12.5 million, or 20.6%, within TechOps.
Sales in the Asset Management Solutions segment increased $99.5 million or 111.1%, to $189.1 million for the six months ended June 30, 2022, due to a $62.4 million, or 113.8%, increase in revenues from Engines; and a $37.1 million, or 106.9%, increase in revenues from Aircraft. The increase in Engines revenues is primarily attributable to increased activity in the RB211 and CF6-80 product line as a result of higher Flight Equipment sales in the amount of $55.0 million, and higher leasing revenue in the CF6-80 product line totaling $4.8 million. The increase in Aircraft revenue is primarily attributable to increased activity in the B747 and B757 product line due to higher Flight Equipment sales in the amount of $35.9 million, offset by lower B737 Flight Equipment sales in the amount of $3.9 million.
Cost of sales in Asset Management Solutions increased $50.7 million or 89.1%, to $107.5 million for the six months ended June 30, 2022, compared to the prior year period. The increase in cost of sales was primarily driven by the sales increase discussed above and the impairment of Flight Equipment in Russia of $0.9 million, offset by lower inventory
obsolescence reserves of $3.0 million. Gross profit in the Asset Management Solutions segment increased $48.8 million to $81.5 million, or 149.4%, for the six months ended June 30, 2022, compared to the six months ended June 30, 2021. The gross profit increase is mainly attributable to higher revenues generated for the six months ended June 30, 2022, as noted above.
Aircraft gross profit margins increased to 38.0% for the six months ended June 30, 2022, from 27.8% for the six months ended June 30, 2021 due to higher margin on Flight Equipment sales, and lower inventory obsolescence reserves of $3.8 million. Engine gross profit margin was 46.3% for the six months ended June 30, 2022, an increase from 42.0% for the six months ended June 30, 2021, which was primarily the result of higher margins on Flight Equipment sales and engine leasing activity, offset by higher inventory obsolescence reserves of $0.8 million and impairment of Flight Equipment of $0.9 million.
Our revenue from TechOps increased by $12.5 million or 20.6%, to $73.3 million for the six months ended June 30, 2022, compared to the prior year period. The increase was primarily driven by the sale of Flight Equipment, which was purchased and controlled by the TechOps segment prior to its ultimate sale; offset by lower revenues from services as a result of a shift in resources to support our cargo conversion projects on the B757 product line, as well as lower storage and related maintenance activities in our Roswell facility as operators continue to return aircraft into active status.
Cost of sales in TechOps increased $10.3 million or 23.9%, to $53.2 million for the six months ended June 30, 2022 compared to the prior year period, driven by costs generated from the sale of Flight Equipment of $16.1 million; offset by lower cost of sales on MRO Services due to lower revenues as noted above. Gross profit in TechOps increased $2.3 million, or 12.7% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, driven by the profit generated from the sale of Flight Equipment of $7.5 million, offset by lower gross profit of $5.3 million on MRO Services. Gross profit margin decreased to 27.5% for the six months ended June 30, 2022 compared to 29.4% for the six months ended June 30, 2021, and was largely attributable to lower margin generated on MRO Services of 23.6% for the six months ended June 30, 2022 compared to 28.5% during the six month ended June 30, 2021, driven by lower margin maintenance work at our Roswell facility.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $17.0 million, or 56.1% to $47.3 million for the six months ended June 30, 2022, compared to the prior year period. The increase was mostly related to share-based compensation expense of $7.0 million for performance restricted stock units not deemed probable of achieving performance targets as of the second quarter of 2021. The remaining increase relates to higher payroll expenses associated with market adjustments and additional headcount, as well as higher cost incurred on information technology and cybersecurity.
We recognized CARES Act proceeds of $14.8 million during the six months ended June 30, 2021. No such proceeds have been received or recognized during the six months ended June 30, 2022.
As of June 30, 2022, we were in compliance with the applicable provisions of the CARES Act, Payroll Support Extension Law, and American Rescue Plan Act of 2021.
Change in Fair Value of Warrant Liability
We account for our private warrants as a liability at their fair value, with changes in fair value recognized in our results from operations for the period. The fair value of our private warrants is determined using a Black Scholes option pricing model. For the six months ended June 30, 2022, we recorded a $0.1 million benefit in fair value of the warrant liability income, compared to a $0.6 million expense in the prior year period.
Interest expense decreased to $0.4 million for the six months ended June 30, 2022, compared to $0.5 million for the six months ended June 30, 2021 and was primarily related to unused balance fees on our amended and restated revolving credit agreement (the "Revolving Credit Agreement"), offset by higher interest income on available cash balances.
The effective tax rate for the six months ended June 30, 2022 was 20.1% compared to 22.3% for the six months ended June 30, 2021. The difference between the effective tax rate and the statutory tax rate of 21% for the six months ended June 30, 2022 is primarily due to the impact of state income taxes and non-deductible executive compensation, offset by the foreign derived intangible income deduction. The difference between the effective tax rate and the statutory tax rate of 21% for the six months ended June 30, 2021 is primarily due to the impact of state income taxes, offset by the foreign derived intangible income deduction.
Financial Position, Liquidity and Capital Resources
As of June 30, 2022, we had $197.2 million of cash and cash equivalents. We finance our growth through cash flows generated from operations and borrowings secured by our assets. There were no borrowings during the six months ended June 30, 2022. We had no outstanding balance on the Company's Revolving Credit Agreement as of June 30, 2022, and we had $107.7 million of availability thereunder. We generated cash flows from operations of $41.2 million for the six months ended June 30, 2022, and generated cash for investing activities of $25.5 million for the six months ended June 30, 2022.
We believe our equity base, internally generated funds, and existing availability under our debt facility are sufficient to maintain our level of operations through June 30, 2023. If an event occurs that would affect our ability to meet our capital requirements, our ability to continue to grow our asset base consistent with historical trends could be impaired and our future growth limited to that which can be funded from internally generated capital.
Cash Flows- Six months ended June 30, 2022 compared to six months ended June 30, 2021
Cash Flows from Operating Activities
Net cash provided by operating activities was $41.2 million for the six months ended June 30, 2022, compared to cash provided of $8.6 million for the same period in 2021. The increase of $32.6 million was primarily due to higher net income and sales of Flight Equipment, offset by the timing of collections and applications of lease and purchase deposits and accounts receivable.
Cash Flows from Investing Activities
Net cash provided by investing activities was $25.5 million for the six months ended June 30, 2022, compared to cash provided of $3.6 million in the same period for 2021. Cash provided by investing activities during the six months ended June 30, 2022 was driven by the sale of Flight Equipment. Cash provided by investing activities during the six months ended June 30, 2021 was also driven by the sale of Flight Equipment.
Cash Flows from Financing Activities
Net cash provided by financing activities was $0.3 million for the six months ended June 30, 2022, compared to cash provided of $0.3 million in the same period for 2021. Cash provided by financing activities during the six months ended June 30, 2022 is primarily related to the proceeds from the issuance and the sale of shares under the Employee Stock Purchase Plan ("ESPP"). Cash provided by financing activities during the six months ended June 30, 2021 is the result of proceeds from the exercise of public warrants.
Debt Obligations and Covenant Compliance
Our Revolving Credit Agreement provided commitments for a $110.0 million revolving credit facility and includes a $10.0 million sub facility for letters of credit and for borrowings on same-day notice referred to as "swingline loans." The maximum amount of such commitments available at any time for borrowings and letters of credit is determined according to a borrowing base calculation equal to the sum of eligible inventory and eligible accounts receivable reduced by the aggregate amount, if any, of trade payables of the loan parties, as defined in the Revolving Credit Agreement. Extensions of credit under the Revolving Credit Agreement are available for working capital and general corporate purposes.
Effective March 12, 2021, we amended our Revolving Credit Agreement to increase our commitments under the Revolving Credit Agreement to a $150.0 million aggregate amount, subject to borrowing base limitations, and to extend the maturity date to March 12, 2024, subject to certain conditions.
As of June 30, 2022, there was no outstanding balance under the Revolving Credit Agreement and we had $107.7 million of availability thereunder. We were in compliance with our debt covenants as of June 30, 2022.
Off-Balance Sheet Arrangements and Contractual Obligations
We did not have any off-balance sheet arrangements as of June 30, 2022. Refer to Note M - Commitments and Contingencies within our Condensed Consolidated Financial Statements for a listing of our non-cancelable contractual obligations under operating leases.
Subsequent to June 30, 2022, the Company entered into a purchase commitment with Universal Avionics, a subsidiary of Elbit Systems, valued at $33 million for the acquisition of technical equipment for manufacturing our AerAware product. The commitment is expected to be satisfied by the fourth quarter of 2023.
Critical Accounting Policies and Estimates
The preparation of the Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. A summary of our critical accounting estimates is included in Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the 2021 Annual Report. We continually review these estimates and their underlying assumptions to ensure they are appropriate for the circumstances. Changes in the estimates and assumptions we use could have a material impact on our financial results. During the three and six months ended June 30, 2022, there were no material changes in our estimates and critical accounting policies.
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