Higher impairment charges, mainly for Airbus A340-600s, pushed ILFC into the red in the third quarter with a net loss of $682 million.
The lessor reported a $17.6 million profit in the year-earlier period.
ILFC absorbed a $1.1 billion aircraft impairment charge in the quarter relating to 36 aircraft, mainly Airbus A340-600s, compared with a $61.2 million write-down in the third quarter of 2012.
The lessor says it recorded provisions for losses totalling $93.9 million related to four asset value guarantees on Airbus A340-600 aircraft.
“The amounts recorded reflect the differences between the estimated fair market value of the aircraft at the purchase date and the guaranteed value of these aircraft, adjusted for contractual provisions that limit our expected losses,” says ILFC in a regulatory filing.
ILFC says the estimated fair market value at the purchase date “declined significantly as a result of shorter holding periods” compared with what ILFC had anticipated for the units.
The shorter holding periods have impacted the estimated future cash flows, and this has resulted in a “significant increase” in the expected losses on the four guarantees, says the lessor.
ILFC recorded provisions for losses on asset value guarantees of $31.3 million related to three guarantees during the three and nine months ended 30 September 2012.
Revenues from the rentals of flight equipment decreased 2.6% to $1.1 billion for the three months compared with the same period in 2012.
At quarter end, four customers operating nine aircraft were 60 days or more past due on lease payments aggregating $2.4 million, with $1.5 million relating to one customer. Of this amount, ILFC recognised $2.2 million in rental income.
In the year-earlier period, three customers operating nine aircraft were 60 days or more past due on lease payments aggregating $22.8 million. Kingfisher Airlines, which ceased operations in 2012, accounted for $22.2 million of this amount.
ILFC’s gain on aircraft sales increased to $17 million for the three months, compared with $10.5 million for the same period in 2012.
The lessor ended the quarter with commitments to purchase 338 new aircraft, two used units from third parties, and nine new spare engines scheduled for delivery through 2022. Remaining payments total $21.9 billion for the purchases.
In addition, AeroTurbine has agreed to purchase two used aircraft and three engines for an aggregate purchase commitment of $24.3 million.
ILFC had approximately $1.7 billion in cash and cash equivalents available for use at quarter end.