Air Lease expects aircraft shortfall to push up rental rates

By Allison Lampert

(Reuters) - Air Lease Corp's CEO said on Thursday he expected lease rates and aircraft valuations to rise on a shortfall of commercial planes, after the company reported lower quarterly revenue primarily due to a decline in end-of-lease revenue.

Aircraft lessors are benefiting from high rental revenue as airlines look for aircraft that are in short supply due to supply chain problems, along with lower production levels of Boeing's 737 MAX and engine snags.

But lessors and airlines are still wrestling with delivery delays from planemakers Boeing and Airbus. Air Lease expects to receive airplanes worth $3 billion to $3.5 billion in 2025, with 80% coming from Boeing.

Air Lease also expects to sign new leases at higher rates as lower-yielding leases agreed when the market was weak during the COVID-19 pandemic expire.

Air Lease CEO John Plueger said he expected $5 billion of leases from that period to roll off over the next two years.

Plueger also told analysts that demand for twin-aisle wide-body jets has surged faster than demand for single-aisle planes over the past six months, reversing a post-pandemic trend.

Air Lease Executive Chairman Steven Udvar-Hazy said demand for larger planes was underpinned by passenger demand for international travel, an aging fleet and shortfall in supply as Boeing and Airbus wrestle with production challenges on their 787 and A350 models.

It's "developing into what we expect to be a protracted shortfall of good, widebody aircraft over multiple years to come," Udvar-Hazy said.

Given sustained demand for large commercial jets, Udvar-Hazy said he saw room for a third player in the market now dominated by Boeing and Airbus, although any new aircraft would need engines that had significantly improved reliability.

"But I think that third party - and the one that's talked about most is (Brazil's) Embraer - would need a partner in that program that has financial deep pockets," he said.

In its financial report, Air Lease said its revenue in the fourth quarter fell 3.7% to $712.9 million and net income declined to $93 million from $211 million in the same period of 2023, as it also made higher interest payments on funds borrowed to finance aircraft purchases.

But for the full year, the California-based lessor generated record annual revenues, helped by the company's $5 billion in aircraft purchases from its orderbook, and $1.7 billion in aircraft sales, it said.

(Reporting By Allison Lampert in Montreal and Nathan Gomes in Bengaluru; Editing by Anil D'Silva and Jamie Freed)