Lessor Aircastle has granted rental deferrals to 40 lessees, representing half of its customer base, as it warns the impact of the Covid-19 pandemic has been “severe” and the industry may take years to recover.
The amount deferred, as of 1 August, is approximately $99 million.
“In the current environment, many airlines have sought support from their lessor partners. These requests have generally come in the form of payment deferrals and lease restructurings. Through mid-July, twenty-five airlines have either entered bankruptcy proceedings or ceased operations. While we are confident that the major US and global carriers, as well as the largest low-cost carriers, have the means to survive the crisis, we anticipate that there will be further airline bankruptcies and liquidations in the coming quarters,” Aircastle said in a 3 August press release when announcing its second-quarter results.
“We have granted deferrals to help certain clients manage through the crisis. Before agreeing to deferrals, we evaluate the client with respect to their survivability during the crisis and develop an objective assessment of the airline’s sustainability and market position post-Covid.”
The lessor says these deferrals represent around 12% of its reported lease rental and direct financing and sales-type lease revenues for the trailing 12 months ended 30 June.
“While each deferral is unique, they typically average four months and are structured to be repaid by year-end or early in 2021 with interest,” it says.
Total revenues for the quarter were up 14.3% to $255.5 million, though total lease rental and direct financing and sales-type lease revenues were down 12% to $176.9 million.
Earnings before interest, tax, depreciation and amortisation (EBITDA) in 2019’s second quarter were nearly $2 billion, but that figure plummeted to a loss of almost $356 million in the second quarter this year.
Aircastle reported a net loss of over $1.9 billion in the quarter ended 30 June, compared with a profit of over $31 million in the same quarter in 2019.
The company says the loss in the most recent quarter was due to net non-cash aircraft impairment charges of $197.9 million on 16 aircraft, after partially offsetting maintenance and other revenue of $82.2 million.
“The transactional impairments were mostly driven by certain customers filing for protection status and bankruptcy,” it says.
Chief executive Mike Inglese says: “The current impact of the pandemic on the aviation sector has been severe and the industry may take several years to recover. Because Aircastle has operated with a strong liquidity position, minimal forward commitments and low balance sheet leverage, we are well situated to enhance our market position and strengthen our company when the aircraft leasing industry emerges from the Covid-19 crisis.”
As at 1 August, Aircastle has total liquidity of $1.5 billion, including unrestricted cash of $371 million, $600 million of undrawn credit facilities, $117 million of contracted asset sales and $419 million of projected operating cash flows through 1 August 2021.
It also has unencumbered flight equipment with a net book value of $5.7 billion, as well as $717 million of total adjusted contractual commitments through 1 August 2021, including $500 million of notes due in March 2021.
“With the strong strategic ownership of Marubeni Corporation and Mizuho Leasing and our healthy stand-alone credit profile, Aircastle’s investment grade credit rating was recently affirmed at BBB by Fitch Ratings, with a ‘Stable Outlook’,” Inglese adds.
“Of the ten aircraft lessors rated by Fitch, we were one of two having a ‘Stable Outlook’. Aircastle is dedicated and focused on maintaining a liquid balance sheet, and a conservative and balanced capital allocation strategy. We are optimistic about the long-term viability of global aviation, and our thoughts remain with all who have been impacted by the Covid-19 crisis.”