Air Lease Corporation (ALC) experienced a quarter of “strong growth and meaningful aircraft sales”, which helped drive a $164 million net income. While the US lessor is confronted with continued delivery delays, the upside is strong demand for used aircraft from its portfolio. ALC expects to generate between $1.0 and $2.0 billion from aircraft sales this year, it said on Thursday. Delays spur sales of used aircraft for Air Lease Corporation.
ALC’s position reflects that of other lessors, with AerCap also reporting strong sales earlier this week and selling aircraft well above their book value. This reflects the current environment in the airline market, in which demand for travel continues to be strong and airlines are short of capacity.
“Despite recent comments from a few US low-cost carriers about potential domestic demand softening, overall strength in global air travel demand and traffic volumes, higher yields and load factors, concerns over future Boeing and Airbus delivery delays, and the focus on environmental sustainability are all driving airline demand for new aircraft,” CEO and President John Plueger said during the earnings call.
“As a result of these factors and higher interest rates, ALC sees continued strengthening of lease rates and lease extensions. We have been prudent and patient in our order book placements as lease rates continue their upward momentum.” Air Lease has placed 100 percent of its 2024 order book and 58 percent of its order book.
New aircraft deliveries higher than expected
Delivery delays have become a continuous story for all lessors. ALC is happy to have actually been able to place nineteen new aircraft in Q2 with airlines worth $1.5 billion, up from the $1.3 billion it previously guided. Deliveries included three Airbus A220-300s, two A320neos, seven A321neo/LRs, and two Boeing 737 MAX 9 narrowbodies. Widebody deliveries included two Airbus A330-900s, one A350-900, one A350-1000, and one Boeing 787-9.
“While we are pleased deliveries come through modestly higher for the second quarter, we remain conservative on deliveries for the full year to be in the $4.00 to $5.0 billion range. Last Friday, we received a further incremental delay from Boeing on our MAX deliveries,” said Plueger.
“We are also watching Airbus deliveries carefully in the face of RTX announcement last week on manufacturing defects on certain of its Geared Turbofan engines. Although both Airbus and Pratt & Whitney state that they do not expect this development to impact production this year, we remain watchful, given the strong pressure to support engine spare replacements in the field versus the production line at Airbus.”
The latest powder metal contamination issue seems to affect just eight GTF engines across four airline customers of ALC. Plueger stressed that this is an issue between the airline customer and P&W, with ALC not being financially impacted by this in any case.
“We have held a couple of meetings this week with Pratt & Whitney and RTX and are confident in their full commitment and dedication to supporting their global customers. But the issue has broader implications for the airline industry. We expected increased aircraft on-ground time as engines are inspected and expect MRO shops to be even more saturated than they already are in undertaking these inspections.”
Air Lease is not seeing an effect from the GTF issue on lease rates between the GTF and CFM LEAP-powered A320neo family aircraft, said Chairman Steven Udvar-Hazy: “We have done so many A320neo’s in the past few years. We are not seeing any lease rate differential of any magnitude between the LEAP-powered airplanes and GTF-powered airplanes. They are neck-to-neck in terms of lease rates.” Udvar-Hazy has been critical of new-technology engines before.
More sales ahead
In Q2, ALC sold eight aircraft for $600 million, resulting in a $45 million gain from sales. “As of August 3, 2023, we had aircraft with a carrying value of approximately $1.7 billion in our sales pipeline, which includes the nineteen aircraft with a carrying value of $900 million classified as flight equipment held for sale as of June 30, 2023 and 22 aircraft with a carrying value of $800 million subject to letters of intent,” ALC said in its earnings release.
Plueger added: “We see strong demand in the secondary market for our aircraft. We resumed our course of aircraft sales after minimizing sales due to manufacturer delays and pandemic recovery. In fact, in addition to aircraft sales in Q2, we have a robust $1.7 billion pipeline of aircraft sales yet to close. Not all might close by the end of the year, but the pace is good. We expect approximately $1.0 to $2.0 billion of aircraft sales for the full year 2023, although they will vary from quarter to quarter.”
He continued: “For ALC, we expect this to have further aircraft demand opportunities over the near and medium term. We are dedicated to helping our customers, providing as many additional aircraft and further lease extensions as we possibly manage.”
Portfolio and order book
On June 30, ALC had 448 aircraft in its portfolio versus 417 in December. It has 359 aircraft on order, of which 46 are supposed to be delivered this year and 81 in 2024 (see table). Plueger expects delays to continue for years, resulting in a spread out of Capex. ALC has $23 billion in aircraft in the forward order book and an existing fleet of almost $26 billion.
“We always said our forward order book is one of our valuable assets. I might go as far as saying that it is an invaluable asset in the current environment. Airlines have limited access to new technology and the lowest emissions aircraft over the next four to five years, other than from ourselves and a handful of lessors with forward order books.”
