Air Lease (AL) - 2023 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements, management's discussion, market risk disclosures, and controls and procedures for the period Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Air Lease Corporation as of September 30, 2023, including balance sheets, statements of operations, cash flows, and detailed notes Consolidated Balance Sheets Total assets increased to $29.7 billion as of September 30, 2023, driven by flight equipment growth, with total liabilities at $22.7 billion and shareholders' equity at $7.0 billion Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $29,672,225 | $28,396,705 | | Flight equipment, net | $25,595,314 | $24,538,385 | | Cash and cash equivalents | $512,084 | $766,418 | | Total Liabilities | $22,711,172 | $21,750,342 | | Debt financing, net | $18,645,843 | $18,641,063 | | Total Shareholders' Equity | $6,961,053 | $6,646,363 | Consolidated Statements of Operations Q3 2023 total revenues increased 17.5% year-over-year to $659.4 million, with net income rising to $132.5 million, and nine-month net income reaching $393.6 million, recovering from a prior-year loss Q3 2023 vs Q3 2022 Performance (in thousands, except per share) | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $659,364 | $561,334 | +17.5% | | Rental of flight equipment | $604,027 | $541,397 | +11.6% | | Interest Expense | $175,464 | $135,510 | +29.5% | | Net Income | $132,450 | $110,381 | +20.0% | | Diluted EPS | $1.10 | $0.90 | +22.2% | Nine Months Ended Sep 30 Performance (in thousands, except per share) | Metric | 9M 2023 | 9M 2022 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $1,968,409 | $1,715,692 | +14.7% | | Write-off of Russian fleet | $0 | $802,352 | N/A | | Net Income/(Loss) | $393,571 | $(242,334) | N/A | | Diluted EPS | $3.25 | $(2.45) | N/A | Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, operating cash flow increased to $1.28 billion, investing cash flow decreased to $1.67 billion, and financing cash flow significantly decreased to $122.1 million due to higher debt repayments Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,282,306 | $958,563 | | Net cash used in investing activities | $(1,668,686) | $(2,715,595) | | Net cash provided by financing activities | $122,097 | $1,765,708 | | Net (decrease)/increase in cash | $(264,283) | $8,676 | Notes to Consolidated Financial Statements These notes detail the company's business, debt, fleet, and commitments, including owning 448 aircraft, managing 79, and having 351 on order, with total debt at $18.8 billion - As of September 30, 2023, the company owned 448 aircraft, managed 79 aircraft, and had 351 new aircraft on order from Boeing and Airbus[23] Debt Financing Summary (in thousands) | Debt Type | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total unsecured debt | $18,520,966 | $18,698,066 | | Total secured debt | $312,326 | $125,363 | | Total debt financing | $18,833,292 | $18,823,429 | - The company has commitments to purchase 351 aircraft through 2028, with an estimated aggregate commitment of $22.6 billion. Deliveries may be delayed through 2029[50] - On November 3, 2023, the board of directors increased the quarterly cash dividend on Class A common stock by 5% to $0.21 per share[82] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 17.5% Q3 2023 revenue increase to $659.4 million, a $25.6 billion fleet net book value, $6.6 billion liquidity, and 100% orderbook placement through 2025, noting strong demand and manufacturing delays - Q3 2023 revenues increased 17.5% YoY to $659.4 million, driven by fleet growth and increased sales activity[88] - The company ended Q3 2023 with total liquidity of $6.6 billion and an aggregate borrowing capacity of $5.4 billion under its revolving credit facility[87] - As of September 30, 2023, 100% of the committed orderbook for aircraft delivering through the end of 2025 has been placed on long-term leases[86] Our Fleet As of September 30, 2023, the company owned 448 aircraft with a $25.6 billion net book value, a weighted-average age of 4.6 years, and a remaining lease term of 7.0 years, with Europe and Asia as key regions Fleet Metrics | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Net book value | $25.6 billion | $24.5 billion | | Owned fleet (count) | 448 | 417 | | Managed fleet (count) | 79 | 85 | | Aircraft on order | 351 | 398 | | Weighted-average fleet age | 4.6 years | 4.5 years | | Weighted-average remaining lease term | 7.0 years | 7.1 years | Geographic Diversification by Net Book Value | Region | % of Total (Sep 30, 2023) | | :--- | :--- | | Europe | 36.8% | | Asia (excluding China) | 30.0% | | Central/South America & Mexico | 8.5% | | The Middle East and Africa | 8.3% | | China | 7.3% | Aircraft Industry and Sources of Revenues Global air traffic recovery drives high aircraft demand and rising lease rates, though increases lag interest rate hikes, while manufacturing delays and engine flaws constrain supply, potentially benefiting lease rates and aircraft values - Global passenger traffic was up 28% in August 2023 compared to the prior year, driving increased demand for aircraft[112] - Lease rates have been increasing due to high demand, rising interest rates, and inflation, but continue to lag the pace of interest rate hikes[114] - Manufacturing flaws in Pratt & Whitney GTF engines are expected to increase the number of A320/A321neo aircraft on the ground through 2026, potentially leading to further delivery delays and benefiting lease rates for other narrowbody aircraft[118] Liquidity and Capital Resources The company ended Q3 2023 with $6.6 billion in liquidity, $18.8 billion in total debt (85.1% fixed-rate, 98.3% unsecured), and a composite cost of funds of 3.67%, with significant future commitments for aircraft purchases and debt obligations - Total available liquidity was $6.6 billion at the end of Q3 2023[120] Debt Profile | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Debt Outstanding | $18.8 billion | $18.8 billion | | % Fixed-rate | 85.1% | 91.3% | | % Unsecured | 98.3% | 99.3% | | Composite Interest Rate | 3.67% | 3.07% | - Capital allocation priorities are: 1) investing in modern aircraft, 2) maintaining an investment-grade balance sheet, and 3) returning cash to shareholders via dividends and share repurchases[122] Results of Operations Q3 2023 rental revenue grew to $604.0 million, aircraft sales revenue increased to $55.3 million, and interest expense rose to $175.5 million, leading to a nine-month net income of $362.3 million, a significant recovery from the prior year's loss - Q3 2023 rental revenue increased to $604.0 million, up from $541.4 million in Q3 2022, primarily due to fleet growth[158] - Q3 2023 interest expense increased to $175.5 million from $135.5 million in Q3 2022, driven by a higher composite cost of funds[160] - For the nine months ended Sep 30, 2023, net income was $362.3 million, compared to a net loss of $273.6 million for the same period in 2022. The 2022 period included an $802.4 million write-off related to aircraft detained in Russia[172][176] Reconciliation to Adjusted Net Income Before Income Taxes (in thousands) | | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 | | :--- | :--- | :--- | :--- | :--- | | Net income/(loss) attributable to common stockholders | $122,025 | $99,956 | $362,296 | $(273,609) | | Adjustments (Amortization, Stock Comp, Taxes, etc.) | $54,982 | $46,384 | $157,408 | $775,317 | | Adjusted net income before income taxes | $177,007 | $146,340 | $519,704 | $501,708 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk from $2.8 billion in floating-rate debt, where a 1.0% rate increase would add $28.1 million to annual interest expense, and minimal foreign exchange risk due to U.S. dollar-denominated contracts - A 1.0% increase in interest rates on the company's $2.8 billion of floating-rate debt would increase annual interest expense by approximately $28.1 million[182] - Foreign exchange risk is considered low as most contracts are denominated in U.S. dollars. However, a stronger U.S. dollar poses a risk to lessees who earn revenue in local currencies[184] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - The company's Certifying Officers concluded that disclosure controls and procedures were effective as of September 30, 2023[189] - No material changes were made to the company's internal control over financial reporting during the third quarter of 2023[190] PART II—OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, other disclosures, and a list of exhibits Item 1. Legal Proceedings The company is pursuing legal action against insurers to recover losses from aircraft detained in Russia, a matter not expected to materially adversely affect the company as assets were already written off - The company filed a lawsuit in December 2022 against its insurers to recover losses from aircraft detained in Russia, for which a net write-off of approximately $771.5 million was recorded in 2022[192] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022, have been reported - No material changes in risk factors were reported from those disclosed in the 2022 Form 10-K[194] Item 2. 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[195] Item 5. Other Information The company reported no information regarding Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements - None[200] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO, amendments to purchase agreements, and XBRL data files