Air Lease Corporation (ALC) is, in many ways, an industry bellwether. Run by a team with significant industry influence, ALC acts not only as a leader but also as a mirror of the state of the industry.
ALC reported 4Q22 adjusted net income of $158.2 million, with revenues at $601.6 million, up 0.7%. Management reported their utilization rate is 99.6%, with firming lease rates on single-aisles. This reflects the supply squeeze at Airbus and Boeing. “High-quality commercial aircraft are increasingly in limited supply given strong airline need for capacity – exacerbated by ongoing delivery delays at both Boeing and Airbus, which we do not see abating. We expect to see continued growth and strength in global air traffic and airline yields in 2023, offering a counterbalance to global macroeconomic cross-currents,” said Steven F. Udvar-Házy, Executive Chairman of the Board.
The order backlog of ALC for the next five years includes 298 aircraft from Airbus and Boeing, including 72 A220s, 178 A320neo family aircraft, thirteen A330neo’s, seven A350-900/1000s, seven A350Fs, 102 MAX 7s, -8s, and -9s, and nineteen 787-9s and -10s. It expects 88 deliveries this year, aircraft that have all been placed with customers, while 80.6 percent of the 98 deliveries for 2024 have also been placed. Again, ALC expects delays for all these aircraft.
ALC did not address single-aisle aircraft upsizing in its results, and it is likely in this sub-segment that demand and leasing rates are the firmest. This item may be addressed in the call.
ALC sold five aircraft and recovered one MAX 8 from Russia during the quarter, resulting in an approximately $31 million “offset to the write-off line item in our income statement.” Cowen notes, “We continue to believe the leasing industry is well-positioned to keep taking share. Leasing is now almost 60% of deliveries, well above our pre-pandemic view for 50%. Stressed airline balance sheets are driving strong demand“. Cowen and Bank of America are both bullish on ALC.
ALC management noted, “…aircraft demand is bolstering lease rates, accelerating order book placements, and intensifying lease extension requests”. This mirrors what we see at Airbus and Boeing; getting deliveries is complicated by the tight supply chain. Lease extensions are an outcome of slower-than-expected deliveries, no doubt. Higher fuel prices keep demand for the newest models strong. The lessor reported a net loss in 2022 of $-138.7 million, largely to be attributed to the $771.5 million write-off on 21 aircraft that are still in Russia. ALC filed insurance claims for these aircraft with the Los Angeles County Superior Court in December as it is seeking to recover these damages.
