Russia-Ukraine Conflict Helps Send AerCap to $2 Billion Loss in Q1

Largest aircraft leasing company forced to deal with dozens of lost aircraft due to government-imposed sanctions.

AerCap Holdings N.V. (NYSE: AER), the world’s largest aircraft leasing company, reported a $2 billion first-quarter net loss on Tuesday. 

The Dublin, Ireland-based company attributed much of that loss to the aircraft and equipment it lost as a result of the Russia-Ukraine conflict. In a statement, the company explained that approximately 5 percent of its fleet by book value—135 aircraft and 14 engines—were leased to Russian airlines when governments imposed sanctions on Russia

After the invasion, AerCap said it recovered only 22 aircraft and three engines. In all, those unrecoverable assets totaled $2.7 billion.

Aengus Kelly, chief executive officer of AerCap, said the company is doing what it can to recoup those losses. “We have filed insurance claims related to these assets and will vigorously pursue all available remedies to recover our losses,” he said in a statement Tuesday.

AerCap has said that those claims amounted to $3.5 billion, which would contribute to an unprecedented year for insurance companies whose policies included the effects of extreme events like the war in Ukraine. In the meantime, AerCap officials said, “the timing and amount of any recoveries under these policies are uncertain, and we have not recognized any claim receivables as of March 31, 2022.”

Increasing Travel Demand Helped

Aside from the disruption from the war, AerCap did well from the resurgence in global travel. The company executed 157 transactions in the first quarter of 2022, including 102 lease agreements, 25 purchases, and 30 sales. 

“But for the impact of Russia, this was a strong underlying quarter for the company.”

Aengus Kelly, CEO, AerCap

“But for the impact of Russia, this was a strong underlying quarter for the company,” Kelly said. “Across all our business lines, aircraft engines, cargo, and helicopters, we are seeing improving demand, increased utilization of our assets, and the improving financial health of our customers.”

AerCap’s net profit in the quarter was $540 million, which equates to earnings of $2.23 per share. Furthermore, the company said its $1.3 billion cash flow for the quarter was three times that of the same period in 2021.

“During the first quarter, we continued to see a broad-based recovery in travel worldwide as governments lifted travel restrictions and demand for travel continued to increase. We expect to see travel demand continue to grow as the recovery progresses,” Kelly said.

For the quarter, revenue was $1.8 billion, up from $1.01 billion in the same period in 2021. The company also benefited from the addition of GE’s  GECAS business that it added to its portfolio, in which “basic lease rents were $1,.6 million for the first quarter of 2022, compared with $889 million for the same period in 2021.”

Ending the quarter, AerCap’s portfolio consisted of 3,615 aircraft, engines, and helicopters owned, on order, or managed, with an average fleet age of 7 years (3.6 years for new technology aircraft, 12.9 years for current technology aircraft). Additionally, the average remaining contracted lease term was 7.3 years. 

Kelly said travelers’ willingness to spend has allowed airlines to raise prices, despite even higher fuel prices. This raises demand for the leased aircraft. For the full year, Kelly said the company expected to generate between $6.50 and $7 of expected earnings per share and approximately $5 billion of operating cash flow, even with the ongoing loss of $33 million monthly revenue from former Russian customers.

“The events in Russia, although undoubtedly a setback, are manageable due to the way we’ve consistently run our business, the strength of the recovery in the rest of the world, and the power of the combined company,” Kelly said.

Some expectations will be contingent on suppliers like Boeing and Airbus meeting their projections, which Kelly didn’t seem optimistic about. 

“For 2022, Airbus has set a target of 720 aircraft deliveries, and Boeing (NYSE: B.A.) has set a target of 500, which is unlikely to be hit,” he said. “Even if they do, that still amounts to 400 fewer aircraft per annum being delivered each year.” 

As for helicopters, while customers leased six times more helicopters in the quarter compared to the same period last year, Kelly pointed out that came amid a dwindling supply “as the OEMs have effectively discontinued the production of large or heavy helicopters for civilian use.”

Investors remain optimistic about the company. Following the call, AerCap’s share price was up nearly 7 percent at $48.24.

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