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  • Cowen tempers 2019 estimates for listed lessors

Cowen tempers 2019 estimates for listed lessors

Cowen is lowering its 2019 earnings projections for the public lessors due to the Boeing 737 Max grounding and the slowdown in emerging market economies.

Analysts at Cowen say in a first quarter preview that the primary reasons for their dampened view are the ramifications of the Max grounding, airline bankruptcies in emerging markets and the ability of lessors with large orderbooks to raise incremental capital to fund the purchases.

"In our view, the grounding of the Max aircraft will impact AerCap and Air Lease," they write, noting that the each have large orderbooks for the re-engined Boeing aircraft.

On 9 April, Air Lease disclosed that the company has experienced delays on about $400 million worth of deliveries during the first quarter, largely due to Airbus delivery delays but also the suspension of 737 Max handovers.

Air Lease has 15 of Max in storage with an additional 153 on order, Cirium's Fleets Analyzer shows. The data shows that the lessor was to take an additional 24 737 Max before the end of the year.

AerCap, on the other hand, has five Max in storage with 95 of the type on order with 10 due through end-2019, the database shows.

Aircastle has no exposure to the 737 Max, while FLY Leasing has minimal exposure with two of the type already on long-term leases.

"It is too soon to tell how long the Max grounding will continue, but we currently model in August for the next deliveries," writes Cowen. While there is no directive from Boeing about when the type may be reintroduced into service, both American Airlines and Southwest Airlines have removed it from their schedules through August.

The report further notes that large capital expenditures at Air Lease and AerCap, while not a current problem, could become burdensome if financial markets change.

"At the moment, there are no issues raising incremental capital, but if the economic outlook worsens, AerCap and Air Lease could have difficulty funding their OEM orderbooks," the report says.

AerCap, which has total orders for 342 aircraft, is scheduled to add 95 aircraft directly from OEMs in 2019, while Air Lease, which has total orders for almost 370 aircraft, is scheduled to take 75 by year-end, Fleets Analyzer data shows.

Finally, Cowen raises the alarm on financial difficulties at credits like Avianca Brazil, Jet Airways and Wow Air.

Aircastle is exposed to both Jet Airways and Avianca Brazil, though it announced the completion of the repossession of 10 Airbus A320s from the latter today.

Air Lease is the only listed lessor exposed to Wow Air with seven aircraft leased to the defunct Icelandic carrier, Fleets Analyzer data shows. "The aircraft are young A320/A321neos so management should not have issues finding new homes for the assets," writes Cowen.

Over the past few years, lessors have been able to place Next Generation narrowbody equipment with relative ease after airline bankruptcies.

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