Air Lease Corp (ALC) celebrated higher than expected new aircraft deliveries and higher gains from aircraft sales during the second quarter of 2023.
The US-based aircraft lessor reported a 21% rise in revenue to $672.9 million for the three months to end June 2023 compared to the year-ago quarter, driven by the continued growth of the fleet and an increase in sales activity. The increase in aircraft sales, trading and other revenue was primarily related to the sale of eight aircraft which generated approximately $45 million in gains.
ALC second quarter net income rose to $122 million compared to $105 million a year ago, or $1.10 per diluted share. On an adjusted basis, net income was $175.9 million or $1.58 per adjusted diluted share. Income was boosted by the size of the fleet and aircraft sales but this was partially offset by an increase in interest exposure due to an increase in ALC’s composite cost of funds (which has increased to 3.49%), higher transition costs and insurance expenses.
“Our second quarter results benefited from new aircraft deliveries exceeding our expectations, coupled with gains from higher volumes of aircraft sales. Lease rates continue to strengthen and demand for both aircraft leasing and sales remain robust, which we see continuing for the foreseeable future,” said John L. Plueger, Chief Executive Officer and President of ALC, and Steven F. Udvar-Házy, Executive Chairman of the Board.
At the end of the second quarter, ALC’s fleet net book value increased to $25.5bn, comprising 448 owned aircraft (332 narrowbody aircraft and 116 widebody aircraft), and 80 managed aircraft. The weighted average fleet age and weighted average remaining lease term was 4.5 years and 7.2 years, respectively. ALC’s fleet utilisation is 100% placed through to 2024 and the lessor has placed 58% of its total orderbook.
ALC ended the quarter with total debt financing, net of discounts and issuance costs, of $18.9 billion. As of June 30, 2023, 90.5% of ALC’s total debt financing was at a fixed rate and 98.9% was unsecured. The lessor’s total liquidity was $7.6 billion at the end of the reporting period.
On an earnings call, Plueger reiterated that airline demand was very strong and added that despite some commentary from US low-cost carriers that domestic demand was softening, “overall global strength in air travel and traffic volumes, high airline yields and load factors, concern over current and future Airbus and Boeing delivery delays, and focus on environmental sustainability are all driving airline demand for new aircraft”. Plueger also noted that because of these issues, lease rates were strengthening, adding that ALC was being “prudent and patient in our order book placements as lease rates continue their upward momentum”.
ALC has a “robust” pipeline of aircraft sales - reaching $1.7bn - due to strong demand in the secondary market. Plueger said that he expects to achieve “attractive gain on sale margins” throughout the remainder of the year.
Although ALC received more new aircraft deliveries than it had expected during the quarter - $1.5bn opposed to the $1.3bn expected - Plueger still expects variability in deliveries schedules. He disclosed news from Boeing last week of further delays to MAX deliveries, and said he was watching Airbus deliveries carefully following the news from RTX on GTF manufacturing defects. “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 spares and replacements in the field versus the production line at Airbus. In the larger picture, we continue to see multifaceted developments in supply chain health impacting the entire manufacturing process, which are likely to persist for several years ahead,” said Plueger.
Only eight engines out of ALC’s fleet are impacted by the GTF issue, but Plueger expects more aircraft on the ground for the industry that will lead to further aircraft demand opportunities over the near and medium term.