KBRA Assigns Short-Term Rating to Air Lease Corporation's Unsecured Commercial Paper Program
KBRA assigns a K1 short-term debt rating to the up to $2 billion Unsecured Commercial Paper Notes Program ("CP Notes") expected to be issued by Air Lease Corporation (NYSE:AL, "the company")), a leading global aircraft leasing company based in Los Angeles, California.
Key Credit Considerations
The K1 short-term debt rating on the CP Notes reflects AL's A- issuer rating and Stable Outlook as well as the company's strong liquidity and funding profiles, supported by solid ongoing operating cash flow, significant available undrawn liquidity, significant unencumbered assets and strong funding access including cost-effective access to capital markets even during challenging market environments. As of 3Q24, the company had $7.5 billion of available liquidity comprised of unrestricted cash of $461 million, unfunded commitments from a $500 million term loan, and undrawn balances under its unsecured revolving credit facility of $6.5 billion, which provides a strong liquidity backstop to the CP Notes. Available liquidity adequately covers near term debt obligations of $2.8 billion in 2025 and is further supplemented by strong operating cash flow ($1.7 billion for LTM 3Q24). In addition, the company had $28 billion of unencumbered aircraft assets as of 3Q24 which provides an additional significant source of potential liquidity.
AL's ratings are driven by the company's strong franchise as a leading global aircraft lessor, highly experienced management team with deep industry relationships and strong financial fundamentals as reflected in AL's strong profitability, capital and liquidity/funding profiles with an almost entirely unencumbered asset base. The ratings also consider AL's young and in-demand fleet, diverse customer base and a significant orderbook fully placed through 2026 providing visibility to future growth. The company maintains a low leverage strategy targeting approximately 2.5x Net Debt-to-Equity (2.6x at 3Q24). KBRA calculates an Adjusted Debt-to-Equity ratio giving 75% equity credit for AL's non-cumulative perpetual preferred stock, which stood at 2.7x at 3Q24. 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 that could lead to credit issues with airline customers, and event risks related to air travel.
The Stable Outlook reflects AL's resilient performance through recent market disruptions, ongoing strong access to funding at attractive rates, moderate leverage and a solid liquidity profile. Besides AL's reported loss in 2022 driven by the write-off on aircraft in Russia, AL has been profitable and has had no aircraft impairments since inception. The Stable Outlook also considers the favorable industry dynamics for the company with strong aircraft demand and limited supply, expected to remain for at least the near term.
Rating Sensitivities
A rating 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 recent market disruptions. The Stable Outlook could be revised to Negative or the ratings could be downgraded 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 for downgrade.
To access ratings and relevant documents, click here.
Methodologies
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), one of the major credit rating agencies (CRA), is a full-service CRA 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 (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan's Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.
Doc ID: 1007681
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Analytical Contacts
Michael Dodge, Senior Director (Lead Analyst)
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Leah Hallfors, Senior Director
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Joe Scott, Senior Managing Director (Rating Committee Chair)
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Business Development Contact
Arielle Smelkinson, Senior Director
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