Aircraft lessor Avolon has disclosed that the vast majority of its customers are seeking rent deferrals or reductions amid “the most challenging period in the history of commercial aviation”.
In its first-quarter update, the lessor states that it “has received requests from more than 80% of its current owned and managed customer base for relief from payment obligations under their leases”, adding: “These lessees account for more than 90% of annualised contracted rental cashflow of the current owned and managed fleet.”
As of the end of March, Avolon had agreed “a number” of rent deferrals for an average of three months. “It is expected that some form of short-term rental deferral arrangement will be agreed with a majority of our customers,” says the Dublin-based lessor.
It foresees that further relief requests will be forthcoming and that several lessees will fall behind on their rent payments, weighing on its balance sheet. To bolster its cash reserves, it has drawn down a $3.2 billion unsecured credit facility, giving it access to over $5 billion of liquidity. It describes the move as a “prudent response to this sector dislocation”.
Avolon chief executive Domhnal Slattery states: “We are currently facing the most challenging period in the history of commercial aviation. As a leader in our industry, Avolon is working closely with our global customer base to support them during this period. While we have never seen a crisis of this nature, we remain confident that the industry will recover once the impact of Covid-19 recedes.”
Slattery argues that Avolon’s strong liquidity, low debt and diversified portfolio “mean we are well positioned to deal with the challenges presented by the current market environment”.
He adds: “Building on our strong capital base, we have acted swiftly and decisively to address the market outlook and have re-profiled elements of our orderbook to better align with market conditions.”
The lessor has cancelled orders for 75 Boeing 737 Max jets and four Airbus A330neos, as well as deferring delivery on 25 narrowbodies to 2024 and beyond. “The net impact of our actions in the first quarter is to reduce our aircraft commitments in the 2020 to 2023 timeframe from 284 aircraft, as at year end, to 165 aircraft today and thereby significantly reducing our near-term capital commitments,” states the lessor.
Slattery says Avolon remains committed to the 737 Max in the longer term.
The lessor ended the first quarter with an owned and managed fleet of 549 aircraft, and with total orders and commitments for 306 jets.