The Covid-crisis has forced Kuwaiti lessor ALAFCO to enter rent deferral agreements with eight of its 23 customer airlines, it says in its recently published report on FY21. Lease revenues were down by thirteen percent to KD 15.5 million and pushed losses up to KD 23.8 million, up from KD -9.8 million in the previous year. Deferred payments push ALAFCO losses up.
“Increase in losses is mainly due to a decline in lease revenue as a result of the restructuring of leases with some of our airline clients and loss of rental income from aircraft which were on lease in 2020 but were off lease during the current year”, ALAFCO said in its result presentation of December 15. Receivables plummeted 73 percent to KD 15.3 million and the lessor took a credit loss on receivables of KD 12.9 million. It also took a KD 17.3 million impairment on aircraft, engines, and spares. The lessor’s Adjusted profit margin was -24 percent, net profit margin +6 percent.
The lessor didn’t identify the eight airlines that have asked for lease payment deferrals, but it is likely they are amongst its customers in Asia that take up 43 percent of its lease portfolio. ALAFCO has placed aircraft in this region with Malaysia Airlines, Garuda Indonesia, Lion Air, Pakistan International Airlines, Biman Bangladesh, Air India, Vistara, Junyao Airlines, Joy Air, Nok Air, Hong Kong Airlines, Capital Airlines, and Vistara. Nok Air filed for bankruptcy in July 2020, while MAS, Garuda, Air India, and PIA are known to be in financial difficulties and in the process of restructuring.
ALAFCO’s other customers seem in better shape. In Europe, SAS and Aegean take up 21 percent of its portfolio, in North and South America Sky, Volaris, and Allegiant seventeen percent, while the remaining fifteen percent of its customers are in the Middle East with Kuwait Airlines, Jazeera Airways, and Salam Air.
Collection rates up to 101.5 percent in September
Lease collection rates were at their lowest in March at 81.6 percent but steadily went up until June to 94.6 percent before coming down to 85.5 percent. In September, the final month of its financial year, ALAFCO’s collection rate was at 101.5 percent. While the lessor has long-term liabilities of KD 1.048 billion for its growing fleet, the Kuwaiti lessor is confident it has sufficient liquidity to meet its obligations. It has KD 42 million in cash and cash equivalents, has liquidity from loan deferrals, and expects to generate proceeds by selling aircraft.
In FY21, it sold six Boeing 737-800s to Ethiopian and two Airbus A320neo to Volaris, all with lease attached. Another A320ceo was sold post-lease to Saudia Airlines. The lessor intends to sell or lease more aircraft in the next two years.
ALAFCO has 68 aircraft on order. They include 38 A32neo’s, ten A321neo’s, and twenty Boeing MAX 8s. The majority of deliveries are scheduled from 2024. The current fleet consists of 79 aircraft, including A320neo-family (39 percent), Airbus A350-900s (twenty percent), Boeing 777-300ERs, and Airbus A320ceo’s (each sixteen percent), and Boeing 737NGs (nine percent). The average age is 4.4 years.
Despite the deferred payments and other pressures on lessors, ALAFCO still sees a favorable environment for lessor financing and asset-backed securities and is actively tapping into the ABS market for new financing opportunities.