Air Lease Corporation’s (ALC) net income slipped 25% in this year’s third quarter down to $91.6 million, when compared to the third quarter last year. Diluted earnings per share were down 25.5% to 82 cents.
“The decrease from the prior year period is primarily due to higher interest expense, driven by the increase in our composite cost of funds and overall outstanding debt balance, partially offset by an increase in our revenues,” the company read in its report.
The company's interest expense rose by $42 million to $217.5 million in the quarter. Composite cost of funds increased 54 basis points to 4.21% at the end of the quarter.
Revenues were up 4.7% in the quarter to $690.2 million. Operating expenses were up 13.3% to $559.9 million.
Rental revenues for the quarter were up 3.5% to $625 million. This was driven by its fleet growth, though partially offset by a decline in end of lease revenue due to fewer aircraft returns in the quarter. In addition, rental revenues were offset by a slight decline in its lease yields due to the sales of older aircraft with higher lease yields and the purchase of new aircraft with lower initial lease yields.
In a joint statement, Air Lease Corporation CEO John Plueger and executive chairman of the board Steven Udvar-Hazy said: “Demand for commercial aircraft remains high, and we are continuing to place aircraft at rising lease rates, while also harvesting solid gains on sales from our existing fleet.”
During the third quarter, the company took delivery of 20 aircraft from its orderbook, which represented approximately $1.9bn in aircraft investments. The company ended the period with 485 aircraft in its owned fleet and approximately $32bn in total assets. It sold nine aircraft in the period for approximately $340 million in sales proceeds. Total liabilities and shareholders’ equity, as of the quarter’s end, was $32.2bn.
The company had a managed fleet of 64 aircraft as of the end of the quarter and 287 aircraft on order.
Furthermore, ALC said it has around $1.5bn of aircraft in its sales pipeline, including $741 million in flight equipment held for sale as of September 30, 2024, and $745 million of aircraft subject to letters of intent.
As of the end of the quarter, it had $29.7bn in committed minimum future rental payments.
At the end of last year, Asia Pacific held the highest majority of its net book value at 39.8%. However, at the end of the third quarter this year, Europe surpassed Asia, holding the majority with 41% and Asia Pacific having 36.4%.
Hazy said in the call that customer demand for aircraft remains high “all the way out to 2029”. He added: “Our new aircraft are directly purchased from the OEMs at significant volume discounts, providing us meaningful embedded value in these assets and boosting our lease yields. Our orders were placed well prior to the run-up in aircraft demand, further bolstering values in the current market.”
Hazy said in the call that he believes both Airbus and Boeing are “now focussed on quality with lessors rather than quantity” following huge demand for aircraft airlines post-pandemic. “They’re meaningfully looking at the placement capability of the lessors to airlines and to broadening the market base for their products; not just a quantitative increase in selling to lessors.”
The company has placed 100% of its forward orderbook on long-term leases for aircraft delivering through end of 2025, as well as 95% of 2026. Around 63% has been placed for its entire orderbook delivering through 2029.
“Deliveries in 2025 will be at higher lease factors than received during 2025 as we move beyond the impact of placements made during the pandemic,” said Plueger in the earnings call. “We expect supply constraints to persist for at least the next three to four years and are remaining very tactical with our remaining placements in order to maximise lease rates and optimise customer mix.”
With recent merger & acquisition activity in the lessor realm, Hazy said that while it was “constantly selling packages of aircraft” that are “meaningful to smaller lessors and investors”, it was unlikely to follow suit.
Hazy said the company has looked at leasing company acquisition opportunities over the last 14 years, but it has “not found any thus far” that “would have been accretive to [Air Lease’s] financial position”. He said that with its already strong team, it did not need to acquire another company.
“None of the other lessors can replicate our order backlog, because we bought those aircraft in large volumes at very nicely discounted prices in 2020, '21, and '22,” added Hazy. “At a time when people were not buying airplanes, they were in stress, and that's when we placed the bulk of our backlog orders.”
Plueger said its lease maturities will be “noticeably higher” next year.” He continued: “We would not expect a dramatic rebound in end-of-lease revenue as most of these leases are expected to be extended with their current airline customers.”
The company estimates it will receive approximately $900 million of deliveries in the next quarter. In addition, it expects $4.6bn deliveries for fully year 2024. Air Lease will provide its 2025 guidance in its fourth quarter results in February next year.