Avolon has taken a $304 million impairment on aircraft leased to Russian customers that are now subject to international sanctions. The recognition reduces the carrying value of ten aircraft to zero, the lessor said on May 3 in its Q1 results update. Avolon: $304 million impairment on Russia.
Before the invasion of Russia in Ukraine on February 24, Avolon had fourteen aircraft placed with Russian customers. Just before sanctions were implemented, three were outside Russia for maintenance and one had been returned by the lessee. This left ten aircraft in Russia, which Avolon tried to repossess but to no avail. The Airbus A320neo of S7 Siberia Airlines was delivered to the airline in July 2021 and still operates under its original Bermuda registration, although the country has de-registered all aircraft used by Russian airlines.
It has now taken a $304 impairment that is partly offset by $43 million in other lease-associated balances, resulting in a net impact of $261 million. The impairment has pushed Avolon into a $182 million net loss for the first quarter.
“While we continue to make every effort to recover these assets and are pleased to have repossessed four aircraft, we are recognizing the full impairment this quarter, putting the financial impact of Russian sanctions firmly behind us”, CEO Domhnal Slattery says in a media statement.
Without the impairment, Avolon would have reported an even stronger Q1 result than it did, which produced the strongest underlying performance since the start of the pandemic. The adjusted net income was $80 million compared to $-83 million in Q1 last year, although this excludes the impact from Russia. Net revenues grew to $658 million from $470 million. Total liquidity stood at $5.4 billion at the end of March, down from $6.3 billion at the end of December.
Slattery says the result reflects the recovery of the market: “Our improved year-on-year performance was largely driven by the rapid reopening of borders in Asia and increased flying globally, which supported a further improvement in the financial health of our customers and resulted in increased cash collection rates. This performance re-affirms the inherent strengths of our business and the absolute resilience of the aircraft leasing model, providing us with confidence in the outlook for the remainder of the year.”
Avolon ended the first quarter with 592 owned aircraft and 240 on order. It executed commitments for the sale and leasebacks of sixteen aircraft. Three aircraft were sold, with Letters of Intent signed to sell another 35.
Earlier, Air Lease Corporation announced an $802 million impairment on its aircraft in Russia, followed by Aircastle with a $252 million write-off.
Active as a journalist since 1987, with a background in newspapers, magazines, and a regional news station, Richard has been covering commercial aviation on a freelance basis since late 2016.
In 2022, he has gone full-time freelance. Richard has been contributing to AirInsight since December 2018. He is also writing for Airliner World and Aviation News. From January 2023, he will add a part-time role with Dutch website and magazine Luchtvaartnieuws. Twitter: @rschuur_aero.