Covid-19 is likely to force more airlines into bankruptcies this year, potentially hitting aircraft lessors including Irish-based Aercap and Fly Leasing, analysts say.
The Republic is a centre for aircraft leasing and finance, with most of the industry’s big players either headquartered here or with substantial businesses based in the State.
Helane Becker and Conor Cunningham, analysts with Cowen Equity Research in New York, predict in a note published this week that efforts to combat coronavirus will leave airlines with losses this year and result in an "uptick" in bankruptcies.
In the short term the pair expect the rates at which lessors lease craft to airlines to come under pressure as they come up for review, while sales of aircraft and margins will fall.
Their note assesses the position of US-listed Aercap and Fly Leasing, which have their headquarters in Dublin, and Air Lease Corporation, based in California but with an office in the Republic's capital.
Aircraft lessors typically buy craft using their own cash combined with money borrowed from banks or capital markets. They then lease these to airlines, earning revenue from the rents paid by the carriers. Lessors also sell part of their fleets every year.
Ms Becker and Mr Cunningham predict t that the number of airline bankruptcies this year is likely to exceed the 41 that went to the wall in 2019.
Their note points out that the International Air Transport Association predicts that worldwide demand for flights will fall 38 per cent this year.
They highlight that before Covid-19 struck Norwegian Air Shuttle in Europe, and Air Asia X and Lion Air in the Far East were already in troubled.
The crisis could also leave the market with too many aircraft. “With the spread of the coronavirus and the collapse in demand, the market went from being tight on aircraft to be oversupplied overnight,” the Cowen analysts say.
Key customers
Airlines want lessors to defer rents for a period to aid them through the crisis. Ms Becker and Mr Cunningham predict that these companies are likely to give relief to key customers but not to the extent that justifies recent falls in their share prices.
By the beginning of this week, Aercap shares had lost 59 per cent of their value to date this year. Air Lease stock was down 47 per cent, while Fly Leasing’s had fallen 58 per cent.
Aircraft sales are also set to slow. Ms Becker and Mr Cunningham predict that Aercap will earn margins of around 6 per cent from the 34 aircraft they believe the company will sell this year, against 10.6 per cent in 2019.
At the end of last year, Aercap, led by chief executive Aengus Kelly, had $8.2 billion (€7.5bn) in cash and credit available to it.
Fly Leasing, whose chief executive is former Aer Lingus chairman Colm Barrington, had $285.6 million in cash. The analysts state that Air Lease has $6 billion in liquidity.
