Impairment charge pushes AerCap into third quarter loss

AerCap has reported a net loss of $850 million for the third quarter of 2020 compared to a net income of $270 million for the prior-year period. The aircraft lessor was pushed into a loss for the quarter by a $972 million non-cash impairment charge following a review of its widebody fleet.

Aengus Kelly, Chief Executive Officer of AerCap, said: "We have reviewed each aircraft in our portfolio to ensure that our assumptions are reflective not only of conditions today, but, importantly, of those we believe are likely to prevail for the remaining useful life of each aircraft. After this comprehensive review of our entire fleet, in the third quarter we have taken a non-cash impairment charge that is focused primarily on current technology widebody aircraft."

The asset impairment charges of $973 million (which compare to $31 million for the same period in 2019) included $915 million of impairment of flight equipment, related primarily to current technology widebody aircraft, in particular A330 and 777 aircraft, as well as the write-off of $58 million of goodwill. Current technology widebody aircraft now represents less than 10% of the net book value of AerCap's fleet.

Excluding the impairment charge and other special items, AerCap’s net income was $158 million, or $1.24 per share.

AerCap maintains that it has a positive cash flow position from operating activities, which was $541 million in the third quarter, an increase of 76% from the second quarter of 2020.

AerCap reports that its new deferral requests during the reported period were lower than in the second quarter, with deferral notes receivable increasing by only $56 million during the third quarter.

The lessor also maintains a strong balance sheet, ending the third quarter with over $11 billion in total sources of liquidity.

"Throughout this pandemic, AerCap has taken numerous proactive steps to manage through this environment, including executing over $12 billion of liquidity initiatives, which resulted in the company ending the quarter with our strongest ever liquidity position,” said Kelly. “As we look forward, we are confident that there will be significant attractive opportunities for AerCap to deploy its capital as the recovery continues.”

AerCap’s adjusted debt/equity ratio of 2.67 to 1, below the company's target of 2.7x to 1., and has a secured debt-to-total assets ratio of 24%. The lessor has approximately $26 billion of unencumbered assets available.

AerCap's average current lease expires in 2028, and only 7% of the company's aircraft by book value are scheduled to come off lease through the end of 2022.

Basic lease rents were $897 million for the third quarter of 2020, compared with $1,067 million for the same period in 2019. The decrease was primarily due to lease restructurings, transitions and the impact of airline bankruptcies.

Maintenance rents and other receipts were $91 million for the third quarter of 2020, compared with $73 million for the same period in 2019. The increase was primarily due to higher maintenance revenue recognized as a result of lease terminations during the third quarter of 2020.

Net gain on sale of assets for the third quarter of 2020 was $7 million, relating to seven aircraft sold for $63 million, compared with $41 million for the same period in 2019, relating to 19 aircraft sold for $561 million. The decrease was primarily due to the lower volume and composition of asset sales.

As an update on the MAX situation, AerCap confirmed that it has five 737 MAX aircraft delivered and on lease, but had cancelled its orders for a further 24 737 MAX aircraft.

As of September 30, 2020, AerCap's portfolio consisted of 1,342 aircraft that were owned, on order or managed. The average age of the company's owned fleet was 6.3 years (2.9 years for new technology aircraft, 11.9 years for current technology aircraft) and the average remaining contracted lease term was 7.3 years.