Air Lease Corporation (ALC) Executive Chairman Steven Udvar-Hazy is hoping that his company one day will be able to restore the good relationship it has had with private Russian airlines. Following the war in Ukraine and sanctions on Russia, ALC has terminated all lease contracts with airline customers like S7, Nordwind, iFly Airlines, and Ural Airlines, but no one liked to take this step. ALC hopes to restore relationships with Russian customers - one day. Udvar-Hazy said during the Q1 results earnings call that it is too early to speculate on a recovery of the Russian market. ALC took an $802.4 million impairment on 21 owned aircraft in Russia that are unlikely to be returned as a government resolution is blocking this. On his customers, he said: “Bear in mind that we have had long-term relationships with many of these customers, some standing more than twenty years. So as circumstances may change in Russia, there could be avenues where some leased aircraft could be reinstated subject to sanctions and other government regulations and become normalized again. It is just too early as we sit here in May 2022 to make predictions, but I can tell you that our relations with those airlines were very cooperative. These airlines were all looking forward to doing business with us in the future.” CEO John Plueger added that he thinks there is a difference in doing business with state-owned and non-state-owned airlines, especially when it comes to repossessing aircraft or credit letters. “Those (non-state airlines) are so anxious to get behind this and to move forward as quickly as possible. But I wouldn’t be 100 percent certain that this would be as quick with state-owned airlines. I am speculating, but I am not convinced.” If ALC’s hopes for a recovery of relations are realistic is in the future. Other lessors, notably Avolon CEO Domhnal Slattery, have been questioning if his company will return to Russia if the situation will change. He thinks there are serious doubts about doing business with this country. A321neo's meant for Russia all placed in Europe and the Americas ALC had a number of Airbus A321neo’s coming up for Russian customers. Udvar-Hazy said in March that he was in talks with potential customers about taking up these planes. He confirmed yesterday that this is now settled: “These aircraft were scheduled to go to Russian airlines on contracts signed in 2020 for delivery this year and next year. We have now placed all of those aircraft with airlines in the Americas and Europe on long-term leases." The $802.4 million write-offs on 21 aircraft in Russia pushed ALC into a $479.4 million net loss for Q1. Revenues increased to $596.7 million, up from $474.8 million. The lessor is “vigorously pursuing insurance claims” to recover the losses in Russia and thinks it has a very solid case. Plueger said this is a very complex matter on which he couldn’t expand further. ALC's order backlog and delivery plan as of May 5, but this is subject to airframer delays. (ALC) Worries about a potential shortage of aircraft Air Lease took delivery of eight aircraft in Q1 but continues to suffer from delivery delays from Airbus and Boeing, primarily due to supply chain and labor challenges. ALC expects to get only one Boeing 787 this year as it has no visibility as to when the FAA will approve redeliveries. “Boeing clearly has its hands full at present, and also significantly delayed the certification and entry into service of the 777X, the delayed certification of the MAX 7 and -10, a sizable backlog of previously produced 737s in inventory which, while sold, are yet to be delivered,” Plueger said that delays of the 777X add support for existing 777 lease rates and values and strengthening demand for leased aircraft. “When combining rising demand with production delays, the potential of a shortage of aircraft is clearly laid out in our minds. We believe it is a likely outcome that will manifest in 2023 and beyond.” Whereas ALC never has been very active on sale and leasebacks, it is now looking at opportunities to add these to its business, especially if it combines SLB for aircraft from its own order book. Plueger said the rise in interest rates could result in an excess of capital that might find its way to the SLB market, which has experienced signs of overheating in the past couple of years. ALC will likely start selling off some of its aircraft once the situation with deliveries stabilizes, but could enter the selling market already in the second half of the year.
