Air Lease forecasts strong demand for jets, warns on production risks

© Reuters. FILE PHOTO: Air Lease logo is seen displayed in this illustration taken, May 4, 2022. REUTERS/Dado Ruvic/Illustration

(Reuters) - Air Lease (NYSE:AL) Corp on Thursday reported a quarterly loss after the aircraft lessor recorded a previously announced $802.4 million charge on the value of jets stranded in sanctions-hit Russia.

Global aircraft leasing companies have been scrambling to repossess more than 400 jets worth almost $10 billion from Russian airlines, which have mostly been unresponsive to demands for surrendering the jets.

"While we wrote-off our Russia exposure, we are vigorously pursuing our insurance coverage and believe we have strong and valid claims," said Air Lease Chief Executive John Plueger.

Air Lease said last month it would write off the value of the 27 jets it has remaining in sanctions-hit Russia - 21 company-owned jets and six aircraft in Air Lease's managed fleet.

The aircraft stuck in Russia represent about 3.4% of the company's fleet by net book value, as of March 31.

Los Angeles-based Air Lease, the largest U.S. aircraft financier, said air travel demand was driving the need for both new and young used aircraft, supporting higher lease rates and boosting the value of jets in its fleet.

For Airlines, leasing aircraft reduces upfront capital costs, conserving cash while also offering fleet flexibility.

Air Lease said rising demand for medium-haul jets coupled with industrial and certification risks at top planemakers Boeing (NYSE:BA) and Airbus raise the potential for a shortage of jets in the short term.

"The route to a potential shortage of commercial aircraft is clearly laid out in our minds, and we believe this is a likely outcome that will manifest in 2023 and beyond," Plueger said after the company reported results.

Plueger noted several challenges, including frozen 787 deliveries due to production flaws and certification delays on Boeing's 777X mini-jumbo and 737 MAX 10. The entire industry is also facing shortages of parts, materials and labor and uncertainties exacerbated by the war in Ukraine.

"Any one of these challenges alone would prove burdensome, but to have all at once is clearly taxing for the organization,” Plueger said.

The company reported net loss of $479.4 million, or $4.21 per share, in the three months ended March 31, compared to a profit of $80.2 million, or 70 cents per share, a year earlier.

Revenue rose 25.7% to $596.7 million in the quarter.

Air Lease said it took delivery of eight new and one used aircraft in the quarter, representing roughly $490 million in aircraft investments.

It had 370 aircraft in its owned fleet, with a net book value of $22.3 billion, it said.