After nearly four years of navigating constant crises, Century City-based Air Lease Corp. finally appears able to return to focusing exclusively on its core activities of leasing aircraft to airlines and buying planes from aircraft manufacturers.
During the fourth quarter, Air Lease reported delivering 16 new aircraft to various customers and purchasing roughly $1 billion worth of new aircraft from the two global manufacturers: Leiden, Netherlands-based Airbus S.E. and Chicago-based Boeing Co.
That news in early January followed a December announcement that Air Lease issued $700 million worth of medium-term notes due in 2027, a move the company frequently makes to generate cash for aircraft purchases
Then, on Jan. 16, the company announced it had signed an agreement with Croatia Airlines to lease six Airbus A220 single-aisle aircraft, with delivery of those aircraft set to take place in 2024 and 2025.
“ALC looks forward to a successful long-term relationship with Croatia Airlines as the airline modernizes and expands its fleet with the newest and most fuel-efficient jets,” Steven Udvar-Házy, the billionaire founder and executive chairman of Air Lease, said in that announcement.
Taking these three announcements together, Helane Becker, analyst with New York-based Cowen, said they indicate a return to more normal times and also robust activity levels for Air Lease.
Years of turbulence
For Air Lease, this is a much-preferred environment than having to deal with the triple-whammy of crises that had struck the company over the past four years.
In March 2019, Air Lease was hit by the Federal Aviation Administration’s grounding of Boeing 737-Max aircraft after two of the planes crashed just a few months apart, killing all 346 people aboard both planes. The company had 154 of Boeing’s Max planes on order for its airline clients and 14 of the planes branded as part of its own fleet. The grounding forced airline customers to delay making lease payments to Air Lease.
Just as Air Lease was coming to grips with the Boeing Max grounding, the Covid pandemic swept across the globe. The resulting lockdowns and plunge in passenger air travel meant even more airlines had trouble making lease payments to Air Lease. The company had to renegotiate lease contracts with many of its airline customers that were only using a fraction of their fleets.
Then, just as passenger traffic was recovering from the pandemic, Russia invaded Ukraine last February. Thanks to a combination of American and other Western nation sanctions on Russia and actions by the regime of Russian President Vladimir Putin, 29 of Air Lease’s planes were stranded inside Russia. Air Lease managed to get a few of those aircraft out, but had to take an $802 million writedown on the remaining 21 planes.
In its year-end activity announcement, Air Lease said it had managed to get one more plane out of Russia, though it did not detail exactly how and when that was achieved.
That same announcement also summed up Air Lease’s fleet as of the end of last year: 417 company-owned aircraft and 85 managed aircraft, with 398 new aircraft on order from Boeing and Airbus set to deliver through 2028.
Strong environment
Company executives did not offer any commentary on the year-end activity wrap, choosing instead to wait until fourth quarter and full-year earnings are released in the middle of next month.
But in its third quarter earnings teleconference call with analysts, Air Lease’s executives said the demand for aircraft had weathered these repeated storms and was looking quite strong.
“The operating environment for ALC remains strong with commercial aircraft demand robust, benefiting from the continued momentum of air travel demand recovery, which has more than offset the impact of macroeconomic and geopolitical headwinds to date,” John Plueger, Air Lease’s chief executive, said in his prepared remarks for the conference call.
Surprise reclamation
Air Lease had one other piece of welcome news in its year-end wrap: the company had managed to recover one of its “detained” planes that had been stranded in Russia – a Boeing 737-8 aircraft.
Since Air Lease has already taken an $802 million writedown against its planes stranded in Russia, any returned aircraft represent a plus to the company’s bottom line.
Looking ahead to the first half of 2023, Becker said Air Lease faces significant challenges. Rising interest rates make Air Lease’s capital raises – such as December’s $700 million issuance of medium-term notes – more expensive.
Continued aircraft delivery delays at Boeing and Airbus translate into delays in receiving lease income from already-announced deals. And – if the delays are long enough – they increase the chances that the airlines will either back out or seek to alter their lease deals with Air Lease.
And of course, there’s always the prospect of yet another unforeseen event taking place, such as the triple whammy of unexpected events that have hit Air Lease over the past four years.
In the meantime, Plueger, Udvar-Hazy, and other company executives will once again give their take on the current operating market when the company releases fourth quarter and full-year 2022 earnings in two weeks.
