Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of AerCap Holdings, N.V. (AerCap) and its rated subsidiaries at 'BBB-'.
The Rating Outlook has been revised to Positive from Stable.
Fitch has also assigned ratings of 'BBB-' to AerCap Ireland Capital Designated Activity Company (AerCap Ireland Capital DAC) and AerCap Global Aviation Trust's co-issuance of senior unsecured notes, 'BBB-' ratings assigned to a senior unsecured term loan issued by AerCap Ireland Capital DAC, and 'BBB' ratings assigned to the senior secured term loans issued by Salmon River Export LLC, StratocumulusFunding BV and NimbusFunding BV, which are wholly-owned subsidiaries of AerCap.
These rating actions are being taken in conjunction with a global aircraft leasing sector review conducted by Fitch, covering nine publicly rated firms (see Americas, Leasing section below).
The revised Outlook reflects Fitch's expectation for deleveraging to at least 2.7x, over the next 12-18 months driven by consistent operating cash flow generation and modest aircraft sales. Fitch believes execution/integration risk associated with the General Electric Aviation Services (GECAS) transaction has significantly abated as the company has effectively onboarded the GECAS fleet and completed the staff integration. Successful transition of AerCap's portfolio to its target of 75% new technology aircraft by 2024, could also support positive rating momentum for AerCap.
The ratings affirmation continues to reflect AerCap's scale and franchise strength as the world's largest aircraft lessor; access to multiple sources of capital; a predominately unsecured funding profile; relatively consistent operating cash flow generation; a proven track record of integrating large-scale acquisitions, and an experienced management team.
Rating constraints include funding and placement risks associated with the company's orderbook, and above-average exposure relative to peers of less liquid, current-technology widebody aircraft. Rating constraints applicable to the aircraft leasing industry more broadly include the monoline nature of the business; vulnerability to exogenous shocks; sensitivity to higher oil prices, inflation and unemployment, which negatively impact travel demand; potential exposure to residual value risk; and reliance on wholesale funding sources.
As of March 31, 2022, AerCap had an owned, managed, and committed portfolio of 3,615 aircraft, engines and helicopters, with a net book value (NBV) of $56.8 billion, making the company the largest global aircraft lessor. The company had good customer diversification, serving approximately 300 customers in 80 countries, with no single customer representing more than 6% of the portfolio by market value, as estimated by Fitch. As of the same date, the two largest geographic exposures were to China and the U.S. representing 16% and 15%, respectively, of the portfolio by market value, as estimated by Fitch, which is consistent with peers.
In 1Q22, AerCap recorded a $2.7 billion impairment charge (5% of NBV), which represented a full write-down of its portfolio that remained in Russia. Fitch views this as a one-time event, and does not anticipate any material impairments going forward. While Fitch considers AerCap's portfolio overall to be relatively liquid, its Tier 1 exposure (representing the most liquid aircraft types) is below the peer average of 81.4%. As of March 31, 2022, the portfolio was comprised of Tier 1 (74.4%) and Tier 2 (13.8%), with an average age of seven years.