Air Lease (AL) - 2023 Q1 - Quarterly Report

Note About Forward-Looking Statements This section cautions investors that the report contains forward-looking statements regarding the airline industry, capital market access, geopolitical impacts, aircraft delivery delays, inflation, and interest rates, which are not guarantees of future performance and involve risks and uncertainties - The report contains forward-looking statements concerning various business and economic factors, including the state of the airline industry, access to capital, the impact of the Russia-Ukraine conflict, aircraft delivery delays, inflation, and rising interest rates[8] - Key risk factors that could cause actual results to differ materially include the inability to obtain capital, increases in borrowing costs, manufacturer delivery failures, inability to recover losses on aircraft in Russia, changes in aircraft value and lease rates, and lessee financial condition[9] PART I—FINANCIAL INFORMATION This part presents the unaudited consolidated financial statements, management's discussion and analysis of financial condition and results of operations, market risk disclosures, and information on controls and procedures for the quarterly period ended March 31, 2023 Consolidated Balance Sheet Highlights (unaudited) | Account | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total Assets | $29,363,141 | $28,396,705 | | Flight equipment subject to operating leases, net | $25,749,518 | $24,538,385 | | Total Liabilities | $22,618,555 | $21,750,342 | | Debt financing, net | $19,447,601 | $18,641,063 | | Total Shareholders' Equity | $6,744,586 | $6,646,363 | Consolidated Statement of Operations Highlights (unaudited) | Account | Three Months Ended Mar 31, 2023 (in thousands) | Three Months Ended Mar 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total Revenues | $636,142 | $596,661 | | Write-off of Russian fleet | $0 | $802,352 | | Net Income/(Loss) | $128,720 | $(468,993) | | Net Income/(Loss) attributable to common stockholders | $118,295 | $(479,418) | | Diluted Earnings/(Loss) per share | $1.06 | $(4.21) | Consolidated Statement of Cash Flows Highlights (unaudited) | Cash Flow Activity | Three Months Ended Mar 31, 2023 (in thousands) | Three Months Ended Mar 31, 2022 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $348,490 | $254,694 | | Net cash used in investing activities | $(1,273,376) | $(620,569) | | Net cash provided by financing activities | $846,406 | $769,639 | Financial Statements This section presents the unaudited Consolidated Balance Sheets, Statements of Operations, Stockholders' Equity, and Cash Flows for the periods ended March 31, 2023, along with detailed notes on company background, accounting policies, debt, fleet assets, and commitments Company Background and Overview Air Lease Corporation is a leading aircraft leasing company focused on purchasing modern, fuel-efficient commercial jet aircraft from manufacturers like Boeing and Airbus and leasing them to airlines globally, also selling aircraft and providing fleet management services - As of March 31, 2023, the company's portfolio consisted of 437 owned aircraft, 86 managed aircraft, and 376 aircraft on order from manufacturers[19] Debt Financing The company's total debt financing increased to $19.6 billion as of March 31, 2023, from $18.8 billion at year-end 2022, with the majority being unsecured, and Q1 2023 saw new Medium-Term Notes and Sukuk financing, alongside an increased Revolving Credit Facility capacity Debt Financing Summary (in thousands) | Debt Type | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total unsecured debt | $19,521,871 | $18,698,066 | | Total secured debt | $120,416 | $125,363 | | Total debt financing | $19,642,287 | $18,823,429 | - In Q1 2023, the company issued $700.0 million of 5.30% Medium-Term Notes due 2028 and $600.0 million of 5.85% trust certificates in a Sukuk financing[26][27] - In April 2023, the company amended and extended its Revolving Credit Facility, increasing total commitments to approximately $7.2 billion and extending the final maturity to May 2027[30] Flight Equipment Subject to Operating Lease The net book value of the company's flight equipment grew to $25.7 billion as of March 31, 2023, as it continues to pursue uncertain insurance claims for aircraft detained in Russia, for which a significant write-off was recognized in 2022 - The net book value of flight equipment increased from $24.5 billion at year-end 2022 to $25.7 billion as of March 31, 2023, primarily due to the purchase of new aircraft[35] - The company is vigorously pursuing insurance claims for losses related to aircraft detained in Russia by filing a lawsuit against its insurers in December 2022; as of May 1, 2023, 20 owned aircraft remain detained in Russia[37][38] Commitments and Contingencies As of March 31, 2023, the company had commitments to purchase 376 new aircraft from Boeing and Airbus through 2029, with an estimated aggregate commitment of $24.2 billion, noting that these delivery schedules are subject to significant manufacturer delays Aircraft Purchase Commitments (as of March 31, 2023) | Period | Estimated Commitment (in thousands) | | :--- | :--- | | 2023 | $4,889,889 | | 2024 | $5,357,669 | | 2025 | $5,081,295 | | 2026 | $3,869,866 | | 2027 | $2,478,928 | | Thereafter | $2,563,357 | | Total | $24,241,004 | - The company has 376 aircraft on order, including 172 Airbus A320/321neo family and 89 Boeing 737 MAX family aircraft; deliveries are expected to be delayed by manufacturers[40][41][42] Subsequent Events On April 28, 2023, the company's board of directors approved quarterly cash dividends for its Class A common stock and its Series A, B, and C Preferred Stock - A quarterly cash dividend of $0.20 per share was declared for Class A common stock, payable on July 7, 2023[73] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's Q1 2023 performance, highlighting a 6.6% revenue increase and a return to profitability, covering fleet growth, order book, industry trends, liquidity, capital resources, and detailed operating results First Quarter Overview In Q1 2023, the company's fleet net book value grew to $25.7 billion, with 22 new aircraft purchased, resulting in 437 owned aircraft, a 6.6% year-over-year revenue increase to $636.1 million, and a significant turnaround to $118.3 million net income attributable to common stockholders from a prior-year loss driven by the Russian fleet write-off - Total revenues for Q1 2023 increased by 6.6% to $636.1 million compared to Q1 2022, driven by fleet growth[79] - Reported net income of $118.3 million, or $1.06 per diluted share, compared to a net loss of $479.4 million, or $4.21 per diluted share, in Q1 2022; the prior year's loss was primarily due to the $802.4 million write-off of the Russian fleet[80][144] - The company ended Q1 2023 with 437 owned aircraft, a globally diversified customer base of 118 airlines in 63 countries, and a lease utilization rate of 99.9%[76] - As of March 31, 2023, the company had an order book of 376 aircraft and total committed minimum future rental payments of $30.5 billion[77] Our Fleet As of March 31, 2023, the company's owned fleet had a net book value of $25.7 billion, with a weighted-average age of 4.5 years and a remaining lease term of 7.1 years, geographically diversified with Europe and Asia (excluding China) as largest regions, and an order book of 376 aircraft, though continued delivery delays from manufacturers are anticipated Fleet Metrics | Metric | March 31, 2023 (in billions) | December 31, 2022 (in billions) | | :--- | :--- | :--- | | Net book value | $25.7 | $24.5 | | Weighted-average fleet age | 4.5 years | 4.5 years | | Weighted-average remaining lease term | 7.1 years | 7.1 years | | Owned fleet (count) | 437 | 417 | | Aircraft on order (count) | 376 | 398 | Geographic Diversification by Net Book Value (Mar 31, 2023) | Region | % of Total Net Book Value | | :--- | :--- | | Europe | 33.0% | | Asia (excluding China) | 29.4% | | China | 10.8% | | The Middle East and Africa | 8.6% | | Central & South America, Mexico | 8.3% | | U.S. and Canada | 6.5% | | Pacific, Australia, and New Zealand | 3.4% | - The company expects delivery delays for a majority of the 376 aircraft in its orderbook and notes that at current production rates, these delays could extend through 2028[90][96] Aircraft Industry and Sources of Revenues The commercial airline industry is experiencing a strong recovery, with IATA reporting a 56% increase in passenger traffic in February 2023 year-over-year, which, coupled with manufacturer delivery delays, is increasing demand for ALC's aircraft and driving lease rates higher, despite airlines facing higher operating costs, with the industry expected to return to profitability in 2023 - Global air travel continues to recover, with IATA reporting total passenger traffic up 56% in February 2023 vs. the prior year; IATA expects global passenger departures to return to 2019 levels by 2024[99] - Increased demand for aircraft, rising interest rates, and inflation are contributing to higher lease rates; the company expects this trend to continue[100] - Airline customers are facing higher operating costs from fuel, interest rates, inflation, and labor shortages, but strong demand is providing a counterbalance[101] Liquidity and Capital Resources The company ended Q1 2023 with $6.5 billion in available liquidity, prioritizing unsecured, fixed-rate debt, with total debt at $19.6 billion (88.0% fixed-rate, 99.4% unsecured) and a composite cost of funds of 3.42%, with material cash requirements primarily for aircraft purchases and debt service over the next five years - Ended Q1 2023 with $6.5 billion in available liquidity, comprising $0.7 billion in unrestricted cash and $5.8 billion available under its unsecured revolving credit facility[104] Debt Profile as of March 31, 2023 | Metric | Value | | :--- | :--- | | Total Debt Outstanding | $19.6 billion | | Percentage Unsecured | 99.4% | | Percentage Fixed-Rate | 88.0% | | Composite Cost of Funds | 3.42% | - The company expects to make between $4.0 billion and $5.0 billion in aircraft investments in 2023[115] Results of Operations This section provides a detailed comparison of the company's operating results for the three months ended March 31, 2023, versus the same period in 2022, highlighting increased rental revenue from fleet growth, higher interest expense due to rising rates and debt balances, and the significant impact of the 2022 Russian fleet write-off on the year-over-year comparison, with adjusted net income before income taxes decreasing due to lower end-of-lease revenue and higher expenses Reconciliation to Adjusted Net Income Before Income Taxes (in thousands) | Line Item | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net income/(loss) attributable to common stockholders | $118,295 | $(479,418) | | Amortization of debt discounts and issuance costs | $13,073 | $13,198 | | Write-off of Russian fleet | $0 | $802,352 | | Stock-based compensation expense | $5,896 | $(2,523) | | Income tax expense/(benefit) | $29,546 | $(132,720) | | Adjusted net income before income taxes | $166,810 | $200,889 | - Rental revenue increased to $617.8 million in Q1 2023 from $566.6 million in Q1 2022, driven by fleet growth, but was partially offset by a decrease in end-of-lease revenue compared to the prior year, which included revenue from Russian lease terminations[140] - Interest expense rose to $164.7 million from $130.5 million in the prior-year period, due to a higher average debt balance and an increased composite cost of funds[142] - Selling, general and administrative (SG&A) expenses increased to $47.6 million from $32.8 million, primarily due to higher insurance premiums and aircraft transition costs[146] Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to interest rate risk from its floating-rate debt, partially mitigated by lease adjusters, while foreign exchange risk is minimal due to U.S. dollar denominated transactions - The company is exposed to interest rate risk on its $2.4 billion of floating-rate debt as of March 31, 2023; a hypothetical 1.0% increase in the composite interest rate would increase annual interest expense by approximately $23.5 million[155] - Foreign exchange risk is limited as most transactions are in U.S. dollars; exposure on C$400.0 million of notes is effectively hedged with a cross-currency swap[157][158] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2023, with no material changes in internal control over financial reporting during the quarter - Based on an evaluation as of March 31, 2023, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[160] - No changes occurred during the quarter ended March 31, 2023, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[161] PART II—OTHER INFORMATION This part provides information on legal proceedings, risk factors, unregistered sales of equity securities, defaults upon senior securities, and a list of exhibits Legal Proceedings The company is involved in a significant legal proceeding against its insurers, having filed a lawsuit in December 2022 to recover losses related to its aircraft detained in Russia, for which it had previously recorded a write-off of approximately $771.5 million - In December 2022, the company filed a lawsuit against its insurers in California, seeking recovery for losses on aircraft detained in Russia; the suit alleges breach of contract and breach of the covenant of good faith and fair dealing[163] Risk Factors This section states that there have been no material changes to the company's risk factors from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022 - There have been no material changes in risk factors from those discussed in the Annual Report on Form 10-K for the year ended December 31, 2022[165] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None[166] Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents, credit agreements, employment agreements, and certifications required by the Sarbanes-Oxley Act - The report includes various exhibits, such as amendments to credit agreements, executive employment agreements, and CEO/CFO certifications[171][172]