ALC scales back sales as new deliveries arrive late

Lessor Air Lease Corporation (ALC) has significantly scaled back plans to sell any aircraft during the rest of the year and potentially into early 2022 as well. Delivery delays of new aircraft from Airbus and Boeing have caused ALC to review its policy, President and CEO John Plueger said on August 5 during the HY1 results webcast. ALC scales back sales as new deliveries arrive late. ALC’s fleet commitments for the second half of this year are for 52 aircraft, including 19 Airbus A320/A321neo’s, 1 A330-900, 3 A350s, 19 Boeing MAX, and 10 787s. But the lessor is unlikely to get these numbers this year. “There are significant delays on the A321neo, for which ALC is the largest lessor customer. Some aircraft are as much as a year late”, said Plueger. He said delays have been Covid and supply chain-related. ALC position with Boeing is exposed on the 787, of which deliveries are on hold until the airframer and the FAA have found a solution on how to fix an issue with the forward pressure bulkhead in the nose. “We should get ten 787s, but our best estimate is that we will get only three this year.” It hasn’t had any MAX so far this year, but as deliveries get on stream again, the 19 should be realistic. Delays would push more deliveries into 2022, when ALC has commitments for 65 aircraft, including 24 neo’s and 8 787s. Commitments go up as high as 78 in 2024 before coming down to 40 a year later, but these numbers are based on the current order portfolio for 338 aircraft until 2025 worth $27.1 billion. Of its 65 commitments for 2022, 93 percent have been placed on long-term leases with airlines and 80 percent of the 71 commitments for 2023. The first three A220 deliveries are scheduled for next year, growing to 15 in 2024. At last month’s MAKS2021 Moscow Airshow, ALC signed a leasing agreement with Azimuth Airlines for six A220-300s. Plueger has signaled a “robust interest” in the A220 as well as for the A321neo, while some customers reinstated MAX orders that were earlier canceled. Buying aircraft instead of selling is now the favorite option Because of the delivery delays, ALC is taking a careful approach to selling aircraft. “Given the delays, we will significantly scale back sales of our aircraft this year and possibly into early 2022. For our growth and to help fill the shortfall in aircraft investments, we see the current environment to favor buying attractive assets versus selling them. We need to grow our asset base. It is still a good time you buy aircraft and good deals to have. We could easily sell them if we wanted to but we are going to hold on as we need them for our growth”, Plueger said. “We are getting so many people who want to buy our young aircraft that are on long leases with good credits. We have a ton of people coming to do that. We have far more demand than we can handle.” ALC recently announced an agreement to lease on ten ex-Alaska Airlines/Virgin America A320ceo’s to US low-cost airline Allegiant Airlines for placement in 2022 and 2023. “You will see more announcements over the coming two quarters”, remarked Plueger. Looking at ALC’s fleet as of June 30 compared to December 31, the number of aircraft has actually increased from 332 to 354. The lessor added 3 A320neo’s, 7 A321neo’s, 1 A330-900, 6 MAX 8s, 1 MAX 9, and 3 787-9s. Not a single aircraft was sold. Steven Udvar-Hazy was happy to see that young aircraft perform well in the market, with lease rates going up again. “88 Percent of aircraft under five years is back in service, 78 percent of those between five and fifteen years, but only 63 of aircraft over fifteen years is back in service.” ALC’s average aircraft age is 4.3 years. ALC reported an adjusted net income before income taxes for Q2 of $125.9 million, down from $194.2 million. Revenues were down to $492.9 million from $521.3 million. In HY1, the net income was $243.1 million versus $377 million, with revenues down to $966.7 million from $1.032 billion. Vietnam Airlines' situation sits heavy on ALC During Q2, ALC was unable to recognize $41.6 million in lease revenues “because lease receivables exceeded the lease security package held and the collection was not reasonably assured for certain leases.” Of this, $27.9 million is related to Vietnam Airlines, where ALC has placed 12 A321neo’s and 4 787-10s. While the airline has made another payment in July, the lessor counts on reduced payments for the rest of the year. Like all Vietnamese airlines, Covid restrictions have made them stop flying in June. The government has made a $350 million equity investment in Vietnam Airlines, but Plueger said “I just don’t know what will happen. Will depend on when funding will come through.” ALC recognized $34 million in revenues from the sale of ex-Aeromexico aircraft to a third party. Since the start of the pandemic, Air Lease Corporation has agreed on $241.9 million in lease payments deferrals, of which $126.9 million has since then been repaid. It had agreed on accommodations with 63 percent of its customers. The lease collection rate was 87 percent for Q2 and 86 percent for HY1. So while many customers have called on ALC to help them get through the Covid-crisis, the lessor has seen deferral requests come down since the start of this year. Plueger said ALC is wary of restructuring contracts and offers reduced lease rates. “We are not so easy on a restructuring. Where we do, we get amend lease terms. We try to get overtime to equivalent economic recapture as the aircraft depreciates every year, so we try to get an equivalent result. The way we handle this is very much based on relationships and how we can enforce the financial liability of that airline, which will lead to incremental business for ALC.” In fact, some restructuring has resulted in customers ordering additional aircraft, Plueger added. The $45 million included with restructurings are only two percent of ALC’s annual revenues. Embraer's EVE is one of many eVTOL projects. John Plueger has lost count. (EVE) ALC not sure of eVTOL business case Air Lease is taking a watchful eye on the emergence of the many eVTOL programs and how they would fit into their portfolio. “These are interesting technologies to watch. There are many, many companies looking at this. Frankly, I have lost count”, said Plueger. “Having said that, we continue to look seriously at all these different things, but where we pause is that we just don’t see the business case yet. We don’t have enough information to really make a meaningful determination on what we could do on a business profile.” Steven Udvar-Hazy added: “Once we identify projects that make long-term business sense for us, obviously we will tend to participate. But at the moment, it is in a very early embryonic stage and only addresses very short-haul opportunities.”

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