May 7, 2020 / 10:50 PM / a month ago

Air Lease cuts jet capex, offers relief to crisis-hit airlines

PARIS (Reuters) - Air Lease Corp (AL.N) said it would reduce capital expenditure on new jets in a move likely to restrict its near-term growth but support liquidity, as it faces demands from airlines for rental relief seen as crucial to their survival.

The California-based leasing company said it was working with both Airbus (AIR.PA) and Boeing (BA.N) to adjust delivery schedules in the wake of production slowdowns.

ALC has received requests for help from nearly all airline customers and has so far agreed with almost half of them to defer a total of some $125 million in rentals.

Chief Executive John Plueger told analysts he expected to see more airline insolvencies and further consolidation after the coronavirus pandemic halted most air travel, but that long-term fundamentals of air travel remained strong.

The industry has been hit hard by the crisis which aggravates disruption from the grounding of Boeing’s 737 MAX in March 2019. At the same time, manufacturers are struggling to build and deliver planes because of the impact on supply chains.

ALC, which had already cut 2020 capital spending plans from $6 billion to $4 billion as a result of the MAX grounding, said it had lowered them again to $2.5 billion for the rest of the year due to the epidemic and supply-chain problems.

It also plans to slow sales of previously leased-out jets.

“The reduction in capex is 98% because of delays” from the manufacturers, Executive Chairman Steven Udvar-Hazy said.

Airbus has delivery delays of between four months and more than 12 months of A321neos, while Boeing is likely to delay delivery of some 787s from late this year into 2021, Hazy said.

Deliveries are also delayed by problems in getting permission for airline inspection teams to visit factories.

Plueger said he would not be surprised to see further softening in planned single-aisle output rates, especially at Airbus which recently lowered its target to 40 a month from 60.

ALC is also talking to Boeing about deferring or cancelling some Boeing 737 MAX jets on a case-by-case basis now that several are over a year late, triggering get-out clauses.

Hazy said ALC continued to believe in the model, however.

Leasing companies including ALC are pinning their hopes on a rise in demand for leased aircraft from airlines whose balance sheets have become too frail to buy aircraft directly, while the number of leasing firms is expected to shrink due to the crisis.

A shake-out of the leasing sector is “inevitable”, Plueger said.

ALC earlier posted 4.9% lower first-quarter diluted earnings per share of $1.17 as revenues rose 9.7% to $511 million.

Reporting by Tim Hepher; editing by Grant McCool

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