Lessor AerCap has taken a $2.4 billion net charge on aircraft that are still in Russia and Ukraine since February, it said on May 17. The charge is for 113 aircraft and eleven engines that are unlikely to be repossessed. AerCap takes $2.4 billion net charge on aircraft in Russia and Ukraine.
AerCap, the world’s biggest lessor, said in March that it would make an impairment in its first-quarter results on the 111 aircraft stranded in Russia and two in Ukraine. It has now specified a total write-off and impairments of aircraft equipment at $3.176 billion. After $237 million in derecognition of lease-related assets and liabilities and $210 million of receipts from letters of credit, leaves AerCap with a pre-tax charge of $2.729 billion. Including taxes, this becomes $2.388 billion. Some $50 million from letters of credit is not covered, while AerCap is also losing $33 million per month in lease rents from customers in Russia.
AerCap repeats that it has submitted insurance claims of $3.5 billion with respect to the aircraft and engines left in Russia and Ukraine, both with Western and Russian insurers. It intends “to pursue all of our claims under these policies with respect to our assets leased to Russian airlines as of February 24, 2022. However, the timing and amount of any recoveries under these policies are uncertain and we have not recognized any claim receivables as of March 31, 2022.” The lessor continues all efforts to repossess aircraft to mitigate its risks. A quarter of them is placed with state-owned airlines Aeroflot and Rossiya.
The charge pushed AerCap into a $2.0 billion net loss in Q1 compared to a $228 million profit in the same quarter of last year. Total revenues increased to $1.790 billion from $1.095 billion last year, of which $1.553 billion is from lease rents (2021: $889 million), which were mainly up because of the effect of the acquisition of GECAS. It secured $3.3 million from the sale of assets, including sales by GECAS that were pending when the acquisition closed last November.
Supply chain issues offer opportunities for leased aircraft
AerCap reported a further recovery in travel around the world as travel restrictions are lifted. It executed 157 transactions, including 102 lease agreements, 25 purchases, and thirty sales. The lessor expects persistent supply chain issues to slow down new aircraft deliveries. CEO Aengus Kelly questioned if the projected deliveries of 720 aircraft by Airbus and some 500 by Boeing for this year are realistic, “but even if they do, that accounts for 400 fewer aircraft delivered each year” on average since 2018. AerCap calculated that airframers already have delivered 1.900 fewer aircraft compared to 20187 levels, which were record-high. On the other side, delivery issues help demand for leased aircraft as it opens up opportunities to extend leases, notably on the widebody market.
Airframers have delivered 1.900 fewer aircraft in the past three years compared to the 2018-level as supply chain issues persist. (AerCap)
Kelly said that earnings are significantly ahead of what was expected immediately, demonstrating the benefits of the GECAS acquisition. The lessor has adjusted its full-year outlook and now expects revenues of $6.9 billion, up from the previously expected $6.5 billion, with a net income of $1.6 billion compared to $1.0 billion. It expects to return to its target of a 2.7x adjusted debt versus equity ratio by Q4 this year, deleveraging the balance sheet even more until Q4 2024 with a ratio of 2.3. Net liquidity stood at $17 billion, of which $9.0 billion is excess coverage.
On March 31, AerCap had 1.572 passenger aircraft, 62 freighters, 456 engines, and 336 helicopters in its fleet or 2.426 in total. It has commitments for 464 passenger aircraft, including 253 Airbus A320neo family aircraft, 131 Boeing MAX, 33 Embraer E1-E2-jets, 21 787s, twelve A330neo’s, and nine A220s.
AerCap has 464 new aircraft on order or on sale and leaseback in the coming years. (AerCap)
Kelly said that AerCap has been entitled to cancel an order for up to 68 MAX aircraft that it inherited from GECAS, but taking the recovery of demand for the MAX and the favorable terms mean that it will not exercise its cancelation rights. AerCap is also reviewing its freighter plans and considers enhancing its portfolio as placements of converted 777-300ERSF (with Israel Aerospace Industries) and 737-800BCF are ahead of schedule. Sixteen 777s are already under contract or under Letter of Intent out of fifteen on firm order plus fifteen options.
