KBRA Affirms Air Lease's A- Issuer, Senior Unsecured Debt Ratings and BBB Preferred Share Rating with Stable Outlook and Assigns A- Rating to Air Lease's Medium-Term Notes
KBRA affirms the A- issuer and senior unsecured debt ratings as well as the BBB rating for the preferred shares for Air Lease Corporation (NYSE:AL, "the Company"))), a global aircraft leasing company based in Los Angeles, California. KBRA also affirms the A- rating of the Sukuk trust certificates issued by Air Lease Corporation Sukuk Limited. In addition, KBRA assigns a senior unsecured rating of A- to €600.0 million 3.70% Medium-Term Notes, Series A, due April 15, 2030. The Outlook of the ratings is Stable.
Key Credit Considerations
The issuer and senior unsecured ratings of Air Lease are driven by the company's global franchise, leading market position and highly experienced management team with deep relationships with airlines and OEMs. Air Lease's credit profile is further supported by strong financial fundamentals, as reflected in its strong profitability, liquidity, and cash-flow metrics, and its almost entirely unencumbered asset base. The ratings also consider Air Lease's young and in-demand fleet, diverse customer base, solid orderbook providing visibility for future growth, and substantial forward lease placement of orders. AL has excellent access to the capital markets as demonstrated by their issuance activities in the past couple of years in a challenging market environment. The Company maintains a low leverage strategy targeting around 2.5x Debt-to-Equity, although leverage was slightly higher at 2.8x Debt-to-Equity as of December 31, 2023, due to the significant write-down of aircraft detained in Russia in 2022. The 2.8x Debt-to-Equity ratio takes into account 75% equity credit consideration by KBRA for the preferred shares. KBRA expects AL's leverage to return to historic norms in the near to medium term through retention of profits. The ratings are balanced by the disciplined funding and placement planning required to manage the significant orderbook, an element of key-man risk despite good succession planning, the cyclical nature of the industry, potential credit issues of its airline customers, and event risks related to air travel.
The A- rating of the Sukuk trust certificates is equalized with AL's senior unsecured debt rating based on AL's irrevocable obligations under its purchase undertaking to provide necessary funds to ensure payments of principal and periodic distribution amounts are met following the occurrence of a Dissolution Event (which does not include a Total Loss Dissolution Event) and AL's obligations under the purchase undertaking and servicing agency agreement ranking pari-passu with AL's other senior unsecured obligations. The BBB rating of the Preferred Shares is two notches lower than the senior unsecured rating reflecting the deeply subordinated features of the preferred shares indicated by their ranking in the capital structure, their discretionary and non-cumulative dividend feature, and their perpetual nature. The 75% equity credit indicates that the preferred securities are highly loss-absorbing given their structural features, which protect senior creditors against credit losses to some extent.
The Stable Outlook reflects AL's resilient performance through the pandemic-driven severe downturn and the aftermath from the Russian-Ukraine conflict. AL demonstrated robust access to capital markets at attractive rates, effective management of lessee deferrals and defaults, and successful aircraft remarketing efforts, while maintaining moderate leverage and adequate liquidity and profitability. Besides AL's reported loss in FY22 driven by the extraordinary write-off on aircraft in Russia, AL has been profitable and has had no aircraft impairment since inception. The Stable Outlook also takes into considerations the favorable near-term industry dynamics with strong aircraft demand as a result of strong passenger travel demand but limited aircraft supply.
Rating Sensitivities
A ratings upgrade in the near future is not expected given the industry's potential challenges, susceptibility to event risk in general and the company's reliance on wholesale funding, despite the Company's resilience demonstrated during the pandemic. The Stable Outlook could be revised to Negative or the ratings could be downgraded or reviewed for downgrade if air traffic declines and leads to increased delinquencies, defaults and/or impairments, or a decline in funding availability with significant negative impacts on profitability, capital and/or liquidity metrics. A notable increase in the company's asset encumbrance could also trigger a review.
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Related Publication
Methodologies
- Financial Institutions: Finance Company Global Rating Methodology
- Corporates & Financial Institutions: Corporate Instrument Notching Global Methodology
- ESG Global Rating Methodology
Disclosures
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
About KBRA
Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.
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