ALC rating 'reiterated' on lawsuit overhang and market risk

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Wells Fargo has reiterated its "market perform" rating on Air Lease Corporation [ALC] as the lessor's expansion plans "could be difficult" given macroeconomic risks and the "overhang of a potentially sizable litigation settlement" with International Lease Finance Corporation [ILFC].

"We believe this will be a protracted affair; ILFC stated in its recent 10-Q,'the litigation is in its incipient stages.' We believe the ultimate outcome could be a substantial settlement paid by AL [Air Lease] and/or its management," says Wells Fargo.

Wells Fargo also notes ALC's long-term asset returns' "could be lower than its peers'" given the lessor's substantial pre-delivery payment requirement, residual value risk associated with 51 737 Next Generation deliveries scheduled after 2014 and "direct OEM [original equipment manufacturer] purchases, "which typically do not involve better pricing than sale-leasebacks."