Air Lease (AL) - 2020 Q1 - Quarterly Report

Cover Page and Filing Information This section provides key filing details for Air Lease Corporation's Form 10-Q, including registrant information, filing type, and outstanding securities - Registrant: Air Lease Corporation (AL)[1] - Filing Type: Form 10-Q for the quarterly period ended March 31, 2020[1] - Filer Status: Large accelerated filer[2] Securities Registered | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | |---|---|---| | Class A Common Stock | AL | New York Stock Exchange | | 6.150% Fixed-to-Floating Rate NonCumulative Perpetual Preferred Stock, Series A | AL PRA | New York Stock Exchange | - Shares of Class A common stock outstanding at May 6, 2020: 113,643,462[2] Table of Contents This section outlines the structure and content of the Form 10-Q filing NOTE ABOUT FORWARD-LOOKING STATEMENTS This section cautions readers about forward-looking statements, highlighting inherent risks and uncertainties that could cause actual results to differ materially - Forward-looking statements involve estimates, known and unknown risks, assumptions, and uncertainties that could cause actual results to differ materially[4] - Key risk factors include the extent of the COVID-19 pandemic's impact, inability to obtain favorable financing, impaired financial condition of lessees, changes in demand for aircraft leasing, and delivery delays from manufacturers[4] - The extent to which the COVID-19 pandemic ultimately impacts the business, results of operations, and financial condition is highly uncertain and cannot be predicted[5] PART I—FINANCIAL INFORMATION This part presents the company's unaudited consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2020 ITEM 1. Financial Statements This section presents the unaudited consolidated financial statements of Air Lease Corporation and its subsidiaries for the quarter ended March 31, 2020, along with detailed notes explaining company background, accounting policies, debt financing, commitments, earnings per share, fair value measurements, shareholders' equity, stock-based compensation, aircraft under management, flight equipment held for sale, and subsequent events Consolidated Balance Sheets This statement provides a snapshot of the company's financial position, detailing assets, liabilities, and shareholders' equity as of March 31, 2020, and December 31, 2019 Consolidated Balance Sheets (In thousands) | Assets | March 31, 2020 (unaudited) | December 31, 2019 | |---|---|---| | Cash and cash equivalents | $732,719 | $317,488 | | Restricted cash | 20,662 | 20,573 | | Flight equipment subject to operating leases, net | 19,222,361 | 18,704,337 | | Deposits on flight equipment purchases | 1,576,508 | 1,564,188 | | Other assets | 1,130,095 | 1,102,569 | | Total assets | $22,682,345 | $21,709,155 | | Liabilities | | | | Accrued interest and other payables | $491,251 | $516,497 | | Debt financing, net | 14,414,621 | 13,578,866 | | Security deposits and maintenance reserves | 1,122,957 | 1,097,061 | | Rentals received in advance | 134,779 | 143,692 | | Deferred tax liability | 782,368 | 749,495 | | Total liabilities | $16,945,976 | $16,085,611 | | Shareholders' Equity | | | | Preferred Stock | 100 | 100 | | Class A common stock | 1,136 | 1,134 | | Paid-in capital | 2,775,640 | 2,777,601 | | Retained earnings | 2,962,368 | 2,846,106 | | Accumulated other comprehensive loss | (2,875) | (1,397) | | Total shareholders' equity | $5,736,369 | $5,623,544 | | Total liabilities and shareholders' equity | $22,682,345 | $21,709,155 | - Cash and cash equivalents increased significantly from $317.5 million at Dec 31, 2019, to $732.7 million at Mar 31, 2020[9] - Total assets grew by approximately $973 million, from $21.7 billion to $22.7 billion[9] - Debt financing, net, increased by approximately $835.7 million, from $13.6 billion to $14.4 billion[9] Consolidated Statements of Income and Comprehensive Income This statement details the company's revenues, expenses, and net income for the three months ended March 31, 2020, compared to the prior year Consolidated Statements of Income (In thousands, except per share amounts) | Metric | Three Months Ended March 31, 2020 (unaudited) | Three Months Ended March 31, 2019 (unaudited) | |---|---|---| | Revenues | | | | Rental of flight equipment | $496,687 | $455,739 | | Aircraft sales, trading and other | 14,700 | 10,312 | | Total revenues | $511,387 | $466,051 | | Expenses | | | | Interest expense | 118,069 | 97,760 | | Depreciation of flight equipment | 188,895 | 159,471 | | Selling, general and administrative | 28,322 | 29,702 | | Stock-based compensation | 4,429 | 4,174 | | Total expenses | $339,715 | $291,107 | | Income before taxes | 171,672 | 174,944 | | Income tax expense | (34,521) | (36,850) | | Net income | $137,151 | $138,094 | | Preferred stock dividends | (3,844) | — | | Net income available to common stockholders | $133,307 | $138,094 | | Earnings per share (Basic) | $1.17 | $1.24 | | Earnings per share (Diluted) | $1.17 | $1.23 | - Total revenues increased by 9.7% from $466.1 million in Q1 2019 to $511.4 million in Q1 2020[12] - Net income available to common stockholders decreased by 3.5% from $138.1 million in Q1 2019 to $133.3 million in Q1 2020, primarily due to preferred stock dividends[12] - Diluted EPS decreased from $1.23 in Q1 2019 to $1.17 in Q1 2020[13] Consolidated Statement of Shareholders' Equity This statement outlines changes in the company's shareholders' equity, including net income and dividends, for the three months ended March 31, 2020 - Total shareholders' equity increased from $5.62 billion at December 31, 2019, to $5.74 billion at March 31, 2020[15][16] - Net income contributed $137.2 million to retained earnings in Q1 2020[16] - Cash dividends declared on Class A common stock amounted to $17.0 million in Q1 2020[15] Consolidated Statements of Cash Flows This statement summarizes the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2020 Consolidated Statements of Cash Flows (In thousands) | Activity | Three Months Ended March 31, 2020 (unaudited) | Three Months Ended March 31, 2019 (unaudited) | |---|---|---| | Operating Activities | | | | Net cash provided by operating activities | $234,023 | $261,249 | | Investing Activities | | | | Net cash used in investing activities | $(672,327) | $(894,482) | | Financing Activities | | | | Net cash provided by financing activities | $853,624 | $608,477 | | Net increase/(decrease) in cash | $415,320 | $(24,756) | | Cash, cash equivalents and restricted cash at end of period | $753,381 | $298,242 | - Net cash provided by operating activities decreased by 10.4% ($27.2 million) in Q1 2020 compared to Q1 2019, primarily due to increased deferred lease payments[18][121] - Net cash used in investing activities decreased by 24.8% ($222.1 million) in Q1 2020, mainly due to lower acquisition of flight equipment[18] - Net cash provided by financing activities increased by 40.3% ($245.1 million) in Q1 2020, driven by issuance of unsecured notes and increased revolving facility usage[18][121] Notes to Consolidated Financial Statements This section provides detailed explanations and additional information supporting the consolidated financial statements, covering various accounting policies and financial disclosures Note 1. Company Background and Overview This note describes Air Lease Corporation's core business model, fleet size, and operational activities as a leading aircraft leasing company - Air Lease Corporation (ALC) is a leading aircraft leasing company, purchasing new commercial jets from manufacturers (Boeing, Airbus) and leasing them to airlines worldwide[20] - As of March 31, 2020, ALC owned a fleet of 300 aircraft, managed 82 aircraft, and had 399 aircraft on order[20] - The company also sells aircraft from its operating lease portfolio and provides fleet management services[20] Note 2. Basis of Preparation and Critical Accounting Policies This note outlines the accounting principles used in preparing the financial statements and highlights that interim results may not predict full-year performance - Consolidated financial statements are prepared in accordance with GAAP for interim information and include all material intercompany balances[21] - Results for the three months ended March 31, 2020, are not necessarily indicative of the full year's operating results[22] Note 3. Recently Issued Accounting Standards This note discusses new accounting guidance, specifically related to COVID-19 lease concessions, and the company's election regarding its application - FASB issued guidance on COVID-19 lease concessions, allowing entities to opt out of lease modification evaluation[23] - The Company elected to continue accounting for lease concessions under Topic 842's lease modification guidance[23] Note 4. Debt Financing This note details the company's debt structure, including unsecured and secured financings, recent issuances, and maturity schedules Consolidated Debt Financing (In thousands) | Category | March 31, 2020 | December 31, 2019 | |---|---|---| | Senior notes (unsecured) | $12,834,333 | $12,357,811 | | Term financings (unsecured) | 877,950 | 883,050 | | Revolving credit facility (unsecured) | 515,000 | 20,000 | | Total unsecured debt financing | 14,227,283 | 13,260,861 | | Term financings (secured) | 322,320 | 428,824 | | Export credit financing (secured) | 29,947 | 31,610 | | Total secured debt financing | 352,267 | 460,434 | | Total debt financing | 14,579,550 | 13,721,295 | | Less: Debt discounts and issuance costs | (164,929) | (142,429) | | Debt financing, net | $14,414,621 | $13,578,866 | - Total debt financing, net, increased by $835.7 million from $13.6 billion at Dec 31, 2019, to $14.4 billion at Mar 31, 2020[9][29] - Issued $1.4 billion in Medium-Term Notes during Q1 2020, with fixed rates of 2.30% (2025 maturity) and 3.00% (2030 maturity)[26] - Increased unsecured revolving credit facility capacity by $250 million to $6.1 billion; outstanding balance was $515 million at Mar 31, 2020[27] Debt Maturities as of March 31, 2020 (In thousands) | Years ending December 31 | Amount | |---|---| | 2020 | $319,372 | | 2021 | 2,049,294 | | 2022 | 2,751,269 | | 2023 | 2,988,154 | | 2024 | 1,534,552 | | Thereafter | 4,936,909 | | Total | $14,579,550 | Note 5. Commitments and Contingencies This note outlines the company's significant commitments to acquire new aircraft and potential impacts from delivery delays and the COVID-19 pandemic Aircraft Commitments by Type and Delivery Year (as of March 31, 2020) | Aircraft Type | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | |---|---|---|---|---|---|---|---| | Airbus A220-300 | — | — | 8 | 13 | 10 | 19 | 50 | | Airbus A320/321neo | 13 | 24 | 26 | 26 | 29 | 36 | 154 | | Airbus A330-900neo | — | 3 | 7 | 5 | — | — | 15 | | Airbus A350-900/1000 | 3 | 3 | 6 | 2 | 6 | — | 20 | | Boeing 737-7/8/9 MAX | 2 | 28 | 24 | 42 | 30 | — | 126 | | Boeing 787-9/10 | 8 | 6 | 8 | 10 | 2 | — | 34 | | Total | 26 | 64 | 79 | 98 | 77 | 55 | 399 | - Total commitments to acquire 399 new aircraft for delivery through 2026, with an estimated aggregate purchase price of approximately $26.8 billion[33][40] - Delivery dates are subject to significant delays due to the worldwide grounding of the Boeing 737 MAX and the ongoing COVID-19 pandemic, potentially leading to lease cancellations[35][36] Aircraft Purchase Commitments by Year (In thousands) | Years ending December 31 | Amount | |---|---| | 2020 | $2,206,538 | | 2021 | 4,900,832 | | 2022 | 6,519,111 | | 2023 | 6,171,228 | | 2024 | 4,456,237 | | Thereafter | 2,542,133 | | Total | $26,796,079 | Note 6. Rental Income This note presents the minimum future rental income expected from non-cancellable operating leases as of March 31, 2020 Minimum Future Rentals on Non-Cancellable Operating Leases (In thousands) | Years ending December 31 | Amount | |---|---| | 2020 (excluding Q1 2020) | $1,533,739 | | 2021 | 1,987,225 | | 2022 | 1,864,731 | | 2023 | 1,666,500 | | 2024 | 1,521,571 | | Thereafter | 5,656,114 | | Total | $14,229,880 | Note 7. Earnings Per Share This note provides a breakdown of basic and diluted earnings per share calculations for the three months ended March 31, 2020 and 2019 Basic and Diluted Net Earnings Per Share (In thousands, except per share amounts) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |---|---|---| | Net income available to common stockholders | $133,307 | $138,094 | | Weighted-average common shares outstanding (Basic) | 113,471,945 | 111,018,279 | | Basic earnings per share | $1.17 | $1.24 | | Weighted-average shares used in diluted computation | 113,785,028 | 112,380,856 | | Diluted earnings per share | $1.17 | $1.23 | - Basic and diluted EPS decreased from $1.24 and $1.23 in Q1 2019 to $1.17 in Q1 2020, mainly due to preferred stock dividends[44] Note 8. Fair Value Measurements This note discloses the estimated fair values of financial instruments, including debt financing and derivatives, categorized by valuation input levels - Estimated fair value of debt financing was approximately $13.1 billion at March 31, 2020, compared to a book value of $14.6 billion (Level 2 measurement)[46] - A cross-currency swap related to Canadian dollar notes had an estimated fair value liability of $19.9 million at March 31, 2020 (Level 2 measurement)[45] - Cash and cash equivalents and restricted cash approximate their carrying value and are categorized as Level 1[47] Note 9. Shareholders' Equity This note details the composition of shareholders' equity, including common and preferred stock, and related dividend information - As of March 31, 2020, 113,639,911 Class A common shares were issued and outstanding[48] - 10,000,000 shares of 6.150% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A, were outstanding with an aggregate liquidation preference of $250 million[49][50] - Dividends on Series A Preferred Stock accrue non-cumulatively at 6.150% for the first five years, then LIBOR plus 3.650% thereafter[50] Note 10. Stock-based Compensation This note describes the company's stock-based compensation plans, associated expenses, and activity related to unvested restricted stock units - Stock-based compensation expense was $4.4 million for the three months ended March 31, 2020, up from $4.2 million in Q1 2019[53] - Restricted Stock Units (RSUs) have vesting criteria based on book value goals, Total Shareholder Return (TSR) goals, or time-based vesting[52] - As of March 31, 2020, there was $41.7 million of unrecognized compensation cost related to unvested stock-based payments, to be recognized over a weighted-average remaining period of 2.14 years[58] Unvested Restricted Stock Units Activity (Three Months Ended March 31, 2020) | Metric | Number of Shares | Weighted-Average Grant-Date Fair Value | |---|---|---| | Unvested at December 31, 2019 | 1,254,904 | $43.62 | | Granted | 527,246 | $45.85 | | Vested | (379,778) | $47.54 | | Unvested at March 31, 2020 | 1,402,372 | $43.40 | Note 11. Aircraft Under Management This note provides an overview of aircraft managed by the company through various investment platforms and its non-controlling interests - As of March 31, 2020, ALC managed 82 aircraft: 52 via Thunderbolt platform, 26 via Blackbird investment funds, and 4 for a financial institution[59] - ALC holds 9.5% non-controlling interests in Blackbird funds (equity method) and 5.0% in two Thunderbolt entities (cost method)[60][61] - Blackbird II has remaining equity capital commitments of approximately $1.2 billion for aircraft assets, with ALC committed to fund up to $29.1 million[60] Note 12. Flight Equipment Held for Sale This note details aircraft classified as held for sale, including their carrying value and expected disposition plans - As of March 31, 2020, five aircraft with a carrying value of $175.1 million were held for sale, expected to be sold in 2020 via Thunderbolt platform[62] - This is a reduction from eight aircraft with a carrying value of $249.6 million held for sale at December 31, 2019[62] - Depreciation expense ceases once an aircraft is classified as held for sale[62] Note 13. Subsequent Events This note discloses significant events occurring after the balance sheet date, including dividend declarations and the evolving impact of the COVID-19 pandemic - Board approved a quarterly cash dividend of $0.15 per share on Class A common stock (paid July 9, 2020) and $0.384375 per share on Series A Preferred Stock (paid June 15, 2020)[63] - COVID-19 pandemic declared a Public Health Emergency (Jan 30, 2020) and pandemic (Mar 11, 2020), leading to travel bans, business shutdowns, and temporary closure of Boeing and Airbus facilities[64][65] - Company received requests for lease payment deferrals from most customers, with accommodations made for approximately 46% of lessees, generally partial deferrals for Q1/Q2 2020 with short-term repayment[67] - The Company cannot reasonably estimate the full impacts of COVID-19 on its business, results of operations, and financial condition for the foreseeable future[69] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition for the three months ended March 31, 2020, compared to the prior year. It discusses the significant impact of the COVID-19 pandemic on operations, fleet, liquidity, and future outlook, alongside detailed analysis of revenues, expenses, and key financial metrics Overview This overview describes Air Lease Corporation's core business model and the key factors influencing its operating performance - ALC's core business involves purchasing new commercial jet aircraft from manufacturers (Boeing, Airbus) and leasing them to airlines worldwide[72] - Operating performance is influenced by fleet growth, lease terms, debt interest rates, indebtedness, aircraft sales, and management fees[72] COVID-19 Pandemic Impact This section details the profound impact of the COVID-19 pandemic on global travel, airline operations, and the company's business, including lease deferrals and delivery delays - COVID-19 pandemic led to global travel bans, border closures, and business shutdowns, materially impacting airline traffic and operations[73] - Most lessees requested rental relief; accommodations made with approximately 46% of lessees, deferring approximately $124.6 million in lease payments (6% of FY2019 revenue)[75][183] - Collection rate was 90% in Q1 2020 and 86% in April 2020; lease utilization rate was 99.7% in Q1 2020 and 99.8% in April 2020[76][77] - The pandemic caused aircraft delivery delays from Boeing and Airbus, impacting future growth and potentially leading to lease cancellations[81] - Company believes the airline industry will eventually recover, and it is well-positioned to offer solutions for airlines seeking younger, fuel-efficient aircraft[82] First Quarter Overview This overview summarizes the company's key financial and operational highlights for the first quarter of 2020, including fleet activity, revenue, net income, and liquidity - Purchased 9 aircraft and sold 3 in Q1 2020, ending with 300 owned aircraft (net book value $19.2 billion) and 82 managed aircraft[86] - Weighted average lease term remaining was 7.2 years; weighted average fleet age was 3.7 years[86] - Total revenues increased by 9.7% to $511.4 million in Q1 2020 (vs. $466.1 million in Q1 2019)[89] - Net income available to common stockholders was $133.3 million ($1.17 diluted EPS) in Q1 2020, down from $138.1 million ($1.23 diluted EPS) in Q1 2019, primarily due to lower end-of-lease revenue and preferred stock dividends[89] - Issued $1.4 billion in Medium-Term Notes and increased unsecured revolving credit facility by $250 million to $6.1 billion, resulting in $6.3 billion total liquidity[88] Our Fleet This section provides a detailed overview of the company's aircraft fleet, including its size, age, lease terms, and geographical distribution of lessees Fleet Portfolio Metrics (as of March 31, 2020 vs. December 31, 2019) | Metric | March 31, 2020 | December 31, 2019 | |---|---|---| | Aggregate fleet net book value | $19.2 billion | $18.7 billion | | Weighted-average fleet age | 3.7 years | 3.5 years | | Weighted-average remaining lease term | 7.2 years | 7.2 years | | Owned fleet | 300 | 292 | | Managed fleet | 82 | 83 | | Aircraft on order | 399 | 413 | | Aircraft purchase options | 25 | 70 | | Total committed rentals | $28.8 billion | $29.1 billion | Flight Equipment Net Book Value by Region (as of March 31, 2020) | Region | Net Book Value | % of Total | |---|---|---| | Europe | $5,624,068 | 29.2% | | Asia (excluding China) | 5,316,199 | 27.7% | | China | 2,878,482 | 15.0% | | The Middle East and Africa | 2,326,758 | 12.1% | | Central America, South America and Mexico | 1,106,317 | 5.8% | | U.S. and Canada | 986,031 | 5.1% | | Pacific, Australia and New Zealand | 984,506 | 5.1% | | Total | $19,222,361 | 100.0% | - Globally diversified customer base of 108 airlines in 61 countries; over 95% of business revenues from non-U.S. airlines[103] Aircraft Delivery Delays This section addresses the significant delays in aircraft deliveries, particularly for the Boeing 737 MAX and certain Airbus models, and their potential impact on the company's operations and lease agreements - Boeing 737 MAX grounding (since March 10, 2019) and COVID-19 pandemic have caused significant delivery delays for 737 MAX and Airbus aircraft (A321neo, A330neo)[98][100] - Delays could result in lease cancellations; company is in discussions with lessees considering cancelling 737 MAX leases[101] - The company had 126 Boeing 737 MAX aircraft on order as of March 31, 2020[111] New Aircraft Scheduled for Delivery and % Leased (as of March 31, 2020) | Delivery Year | Number of Aircraft | % Leased | |---|---|---| | 2020 | 26 | 100.0% | | 2021 | 64 | 96.9% | | 2022 | 79 | 68.4% | | 2023 | 98 | 34.7% | | 2024 | 77 | 13.0% | | Thereafter | 55 | —% | | Total | 399 | | Aircraft Industry and Sources of Revenues This section analyzes the aircraft leasing industry, the company's revenue sources, and the anticipated challenges and opportunities arising from the COVID-19 pandemic and market dynamics - Revenues primarily from operating leases with 108 airlines in 61 countries; over 95% from non-U.S. customers[103] - IATA reported passenger traffic fell 22% year-over-year for Q1 2020 and 53% for March 2020 due to COVID-19, with a projected 48% fall for full year 2020[104] - Expect significant increase in financial difficulties for airline customers, including lease deferrals, early returns, or defaults[105] - Approximately 75% of fleet net book value is leased to flag carriers or government-owned airlines, mitigating customer risk[107] - Long-term optimism for industry recovery, with anticipated increased demand for newer, fuel-efficient leased aircraft as airlines retire older models[108] - U.S. tariffs on new aircraft imported from Europe (10% on Airbus) are being monitored for impact on future deliveries to U.S. customers[114][115] Liquidity and Capital Resources This section discusses the company's financial flexibility, including its cash position, debt structure, and access to capital, particularly in the context of the COVID-19 pandemic - Total liquidity as of March 31, 2020, was $6.3 billion, consisting of $732.7 million unrestricted cash and $5.6 billion available under the unsecured revolving credit facility[122] - Total debt outstanding, net of discounts, was $14.4 billion at March 31, 2020 (up from $13.6 billion at Dec 31, 2019)[120] - 86.4% of total debt was fixed-rate, and 97.6% was unsecured as of March 31, 2020[88][120] - Cash flows from operating activities decreased by 10.4% to $234.0 million in Q1 2020, primarily due to deferred lease payments from COVID-19[121] - A 1.0% increase in composite interest rate would incur an additional $19.8 million in annualized interest expense on existing indebtedness[140][170] - Credit ratings outlook changed from 'stable' to 'negative' by S&P, Fitch, and Kroll in March/April 2020 due to COVID-19, potentially increasing financing costs[142][187] Results of Operations This section provides a detailed analysis of the company's financial performance for the three months ended March 31, 2020, comparing revenues, expenses, and profitability metrics to the prior year Historical Operating Results (Three Months Ended March 31, In thousands, except per share amounts) | Metric | 2020 (unaudited) | 2019 (unaudited) | |---|---|---| | Total revenues | $511,387 | $466,051 | | Interest expense | 118,069 | 97,760 | | Depreciation of flight equipment | 188,895 | 159,471 | | Selling, general and administrative | 28,322 | 29,702 | | Net income available to common stockholders | $133,307 | $138,094 | | Basic EPS | $1.17 | $1.24 | | Diluted EPS | $1.17 | $1.23 | | Pre-tax profit margin | 33.6% | 37.5% | | Adjusted net income before income taxes | $182,785 | $187,658 | | Adjusted pre-tax profit margin | 35.7% | 40.3% | - Rental revenue increased to $496.7 million in Q1 2020 (from $455.7 million in Q1 2019), driven by fleet growth, but offset by lower end-of-lease revenue[154] - Aircraft sales, trading and other revenue increased to $14.7 million in Q1 2020 (from $10.3 million in Q1 2019), including $1.6 million gains from aircraft sales and $5.9 million from forfeiture of security deposits[155] - Interest expense increased to $118.1 million in Q1 2020 (from $97.8 million in Q1 2019) due to higher aggregate debt balance, partially offset by a decrease in composite interest rate[156] - Depreciation expense increased to $188.9 million in Q1 2020 (from $159.5 million in Q1 2019) due to the acquisition of additional aircraft[157][158] - Selling, general and administrative expenses decreased to $28.3 million in Q1 2020 (from $29.7 million in Q1 2019), and as a percentage of total revenue, decreased from 6.4% to 5.5%[158] Contractual Obligations This section details the company's future payment commitments, including long-term debt, interest payments, aircraft purchase commitments, and operating leases Contractual Obligations (as of March 31, 2020, In thousands) | Obligation Type | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | |---|---|---|---|---|---|---|---| | Long-term debt obligations | $319,372 | $2,049,294 | $2,751,269 | $2,988,154 | $1,534,552 | $4,936,909 | $14,579,550 | | Interest payments on debt | 327,433 | 433,416 | 373,547 | 290,823 | 210,269 | 446,761 | 2,082,249 | | Purchase commitments | 2,206,538 | 4,900,832 | 6,519,111 | 6,171,228 | 4,456,237 | 2,542,133 | 26,796,079 | | Operating leases | 5,188 | 7,059 | 6,506 | 6,387 | 4,545 | 33,045 | 62,730 | | Total | $2,858,531 | $7,390,601 | $9,650,433 | $9,456,592 | $6,205,603 | $7,958,848 | $43,520,608 | - Total contractual obligations amount to $43.5 billion, with aircraft purchase commitments ($26.8 billion) being the largest component[163] Off-Balance Sheet Arrangements This section clarifies the company's off-balance sheet activities, specifically regarding unconsolidated entities and investment interests - No unconsolidated entities are used for off-balance sheet arrangements[165] - Holds 9.5% non-controlling interests in two investment funds (equity method) and 5.0% non-controlling interests in two Thunderbolt platform entities (cost method)[166] Critical Accounting Policies This section confirms that there were no material changes to the company's critical accounting policies during the first quarter of 2020 - No material changes to critical accounting policies in Q1 2020; consistent with Annual Report on Form 10-K for FY2019[167] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, primarily interest rate risk and foreign exchange rate risk. It highlights the impact of changes in borrowing costs on net income and the mitigation strategies employed, such as fixed-rate debt and interest rate adjusters in lease contracts Interest Rate Risk This section analyzes the company's exposure to interest rate fluctuations, particularly concerning its debt portfolio, and the strategies used to mitigate this risk - Exposure to interest rate risk due to fixed lease rates and floating-rate debt; $2.0 billion in floating-rate debt outstanding as of March 31, 2020[169][170] - A 1.0% increase in composite interest rate would result in an additional $19.8 million in annualized interest expense[170] - Risk is partially mitigated by 86.4% fixed-rate debt and interest rate adjusters in forward lease contracts[170][171] Foreign Exchange Rate Risk This section describes the company's approach to managing foreign exchange rate risk, primarily by denominating most agreements in U.S. dollars and utilizing hedging instruments - Foreign exchange risk is minimized by denominating most aircraft purchase agreements, lease agreements, and debt agreements in U.S. dollars[172] - Approximately 1.0% of lease revenues were denominated in foreign currency as of March 31, 2020[172] - A cross-currency swap was used to hedge C$400.0 million notes, converting the borrowing rate to a fixed 2.535% U.S. dollar rate[173] ITEM 4. Controls and Procedures Management, including the Certifying Officers, evaluated the effectiveness of the company's disclosure controls and procedures as of March 31, 2020, and concluded they were effective. There were no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2020[175] - No material changes in internal control over financial reporting occurred during Q1 2020[176] PART II—OTHER INFORMATION This part contains additional information not included in the financial statements, such as legal proceedings, risk factors, and exhibits ITEM 1. Legal Proceedings The company is not currently a party to any material legal proceedings or enforcement actions related to regulatory compliance matters, though it may be involved in incidental litigation in the ordinary course of business - Company is not a party to any material legal proceedings or regulatory enforcement actions[178] - Maintains insurance policies believed to be adequate for business risks[178] ITEM 1A. Risk Factors This section updates the risk factors, emphasizing the severe and uncertain impact of the COVID-19 pandemic. Key risks include lease deferments/cancellations, remarketing difficulties, lessee defaults/bankruptcies, further aircraft delivery delays, increased borrowing costs due to potential credit rating downgrades, and reduced aircraft sales demand. The full long-term impact remains difficult to forecast - The COVID-19 pandemic is a significant new risk factor, disrupting operations and those of lessees, manufacturers, and suppliers[180][181] - Risks include lease deferments/abatements, aircraft return requests, impairment in remarketing, lessee defaults/bankruptcies, further delivery delays, and increased borrowing costs[181] - Credit ratings outlook changed to 'negative' by S&P, Fitch, and Kroll in March/April 2020, potentially leading to downgrades and higher financing costs[187] - Demand for used aircraft is expected to decline in the near-term, potentially leading to fewer sales and impairment charges[188] - The ultimate impact of the COVID-19 pandemic is highly uncertain and difficult to forecast, with expected negative impacts on financial results, liquidity, and cash flow[189][190] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds[195] ITEM 3. Defaults Upon Senior Securities No defaults upon senior securities to report for the period - No defaults upon senior securities[195] ITEM 4. Mine Safety Disclosures No mine safety disclosures to report for the period - No mine safety disclosures[195] ITEM 5. Other Information No other information to report for the period - No other information[195] ITEM 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, descriptions of capital stock, supplemental agreements to purchase agreements with Boeing and Airbus, indemnification agreements, and certifications (302 and 906) - Includes Restated Certificate of Incorporation, Bylaws, and Certificate of Designations for Preferred Stock[197] - Filed Supplemental Agreements with Boeing and Airbus, and a New Lender Supplement for the Revolving Credit Facility[197] - Contains certifications from CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[197][198][200] Signatures The report is duly signed on behalf of Air Lease Corporation by its Chief Executive Officer and President, John L. Plueger, and its Executive Vice President and Chief Financial Officer, Gregory B. Willis, on May 7, 2020 - Report signed by John L. Plueger (CEO and President) and Gregory B. Willis (EVP and CFO) on May 7, 2020[202]