Air Lease Corporation (ALC) has placed an order for fifty additional Boeing MAX 8 and 9 aircraft to secure delivery slots with the US airframer. As it did in November when it ordered more Airbus A321neo aircraft, ALC wants to make sure that it has the aircraft available before the MAX is expected to be sold out. Air Lease Corporation orders extra MAX to secure slots. ALC has placed an incremental order for 32 MAX, which is currently part of a Memorandum of Understanding. It converted firm orders for three 787s into eighteen MAX, it said on February 17 during its full-year 2021 results presentation. Deliveries are scheduled for 2024 to 2026, most of which have been already placed. ALC ordered 75 MAX at the 2018 Farnborough Airshow (main picture, with Steven Udvar-Hazy in the center and John Plueger on the right) but in August 2019 reduced this to sixty by converting MAX to 787s. It now has done the opposite. Talking to its customers, Air Lease sees that after two difficult years with Covid, the airline industry has reached an inflection point. Airlines are again looking to renew their fleet with more fuel-efficient aircraft with lower emissions. “We feel the same way, which is why we felt the recently announced orders with Airbus and Boeing were necessary and appropriate for the long-term success of our platform and corporate strategy”, said Executive Chairman Steven Udvar-Hazy. At the Dubai Airshow in November, the lessor placed its largest individual order with Airbus for 25 A220-300s, 59 A321neo’s, 20 A321XLRs, five A330-900s, and seven A350Fs. The order for fifty additional MAX further confirms this strategy. “Demand for aircraft in our order book is accelerating, with diminishing supply and availability from both Airbus and Boeing. Our order book is 99 percent placed through 2023”, said CEO John Plueger. “Reflecting this demand, you have seen our recent large-scale placements with ITA Airways in Italy, Spirit Airlines, Malaysia Airlines, and others, with more larger-scale placements soon to be announced.” ALC no stranger to delivery delays Plueger said that ALC is ‘no stranger to notifications of delivery delays from both Boeing and Airbus” and has warned of delays before. A321neo deliveries are behind schedule by several months and have been in the past years for various reasons. Boeing is behind on the MAX since the grounding of the type in 2019, although it is (re)delivering them at a steady pace now. Air Lease has taken delivery of only twenty of them instead of all sixty it had originally expected by now. Deliveries of the 787 have been paused following well-publicized manufacturing quality issues. ALC’s delivery schedule includes ten Dreamliners for this year, but Plueger said that his best estimate is he will get just one. This entirely depends on when the FAA approves deliveries. Earlier this week, the FAA notified Boeing that it will certify each aircraft itself instead of delegating this to Boeing, as has been the procedure. While the A320neo-family is sold out until 2027, Plueger said he expects to same to happen soon with the MAX. Boeing has been receiving a steady stream of new orders from airlines like Allegiant, Southwest, and other lessors while still working towards ramping up the production from the current 26 to 31 aircraft per month. Plueger diminished thoughts that ALC tries to push customers towards the MAX now that the A320neo-family is sold out for so long: “We have now positioned ourselves to have both the Boeing and Airbus products available in those few years’ time frame (2023-2028). We aren’t relying on the MAX to fill in what Airbus can’t provide. Airbus is sold out but I think we are quickly going to hear that Boeing is sold out as well. Our position is having a good order book of both types.” Graphic showing estimated deliveries of ALC's order backlog. (ALC) Full-confidence in the widebody market The new order for the MAX confirms the strategy that ALC wants to emphasize single-aisle orders. Udvar-Hazy doesn’t subscribe to the view that the widebody market is in great difficulty and that there is an imminent shortage of new widebodies: “Look at the number of A380s, 747s, MD-11s, A340s, and some of the oldest 777s and A330s: there is probably around 300 widebodies that sort of disappeared very quietly since 2019. If you add up the cumulative capacity of those aircraft, the total widebody market actually shrunk. To couple that with the fact that Boeing hasn’t delivered any 787s since last Spring, there is a momentum going forward towards equilibrium in the widebody space. But that is heavily dependent on at least a modest recovery of international travel and international business travel. We are beginning to see green shoots, particularly in Europe, the Middle East, Latin America, and Asia. It’s not going to be a speedy recovery as with the single-aisle aircraft but we are seeing a strong momentum to replace the oldest widebody aircraft that are reaching 20-25 years, either convert them to cargo or simply retire them.” John Plueger added: “Clearly, clearly, the world needs widebody aircraft. It is the way most international traffic over any reasonable distance is covered. So there is no way that widebodies are dead and not a good investment. It’s just a question of which widebodies you pick. So we never ever thought abandoning the widebody space.” ALC eyes order for small packager freighters Udvar-Hazy said that ALC is further looking at the freighter market with further orders for the Airbus A350F, for which it is the launch customer with an order for seven aircraft. He is seeing strong interest in freight carriers that are “extremely interested in the A350 Freighter.” The emergence of e-commerce “provides a stabilizing factor that was missing in the more volatile air freight marketplace in prior decades.” An incremental order could come by swapping A330neo’s for freighters, “either as full freighters or as small package freighters between 2023 and 2027.” This indicates ALC has knowledge of a new single-aisle freighter becoming available (there aren’t any out there now), or it will enter the converted freighter market. As for the A330-900s, it ordered five extra in Dubai that have already been placed (with Condor). ALC didn’t say if it is also interested in the Boeing 777-8F, which was launched in late January with an order for fifty from Qatar Airways. With more delivery delays expected, John Plueger says that it is unlikely that ALC will get the numbers it has provided here. (ALC) ALC has now commitments to purchase 431 aircraft from Airbus and Boeing until 2028 worth $27.7 billion. It took delivery of 53 in 2021 and is contractually committed to take delivery of 85 aircraft this year, but Plueger says this will likely be lower. This will decide how many more aircraft from its portfolio it plans to sell in the second half of the year, which should generate some $750 million in revenues. ALC will also be looking at attractive aircraft purchases and more sale and leasebacks of aircraft that come directly from the order book. Plueger said that when the inflation continues, ALC is positioned to offer lease rates on more attractive terms than what airlines can get on the market. ALC ended 2021 with a net income before taxes of $541 million compared to $646.7 million in 2020. Total revenues were $2.088 billion versus $2.015 billion, which is primarily driven by fleet growth and higher cash collections. Lease restructurings impacted the result by $132.5 million. It had $203.2 million in deferred rentals, primarily from Vietnam Airlines with which it agreed on restructuring in January. ALC expects that deferred rentals will be repaid in two years’ time. The lease collection rate for the year was 91.4 percent, with ALC’s lease utilization rate at 99.8 percent. On December 31, Air Lease had 382 owned and 92 managed aircraft with a net book value of $22.9 billion. Total debt stood at $17 billion. Air Lease Corporation will launch a $150 million share repurchase that expires on September 30.
