KBRA Affirms Ratings for Air Lease Corporation

KBRA affirms the issuer and senior unsecured debt ratings of A-, the preferred shares rating of BBB, and the short-term debt rating of K1 for Air Lease Corporation (NYSE: AL, “the company”), a global aircraft leasing company based in Los Angeles, California. KBRA also affirms the senior unsecured debt rating of A- for the Sukuk trust certificates issued by Air Lease Corporation Sukuk Limited. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

AL’s ratings are driven by the company’s strong franchise as a leading global aircraft lessor, experienced management team with deep industry relationships, strong historical asset quality, and strong financial fundamentals, as reflected in its stable profitability, liquidity, and cash-flow metrics, and its almost entirely unencumbered asset base. The ratings are also supported by AL’s young and in-demand fleet, diversified customer base and a significant orderbook providing visibility to future growth. AL maintains a strong liquidity profile with $8.1 billion of available liquidity at YE24 which adequately covers its near-term needs and has strong a strong funding profile, having demonstrated excellent access to unsecured capital markets at attractive rates in recent years even during challenging market environments. The company maintains an acceptable leverage strategy targeting approximately 2.5x Net Debt-to-Equity (2.6x as of December 31, 2024 (YE24)). KBRA’s calculated Adjusted Debt-to-Equity ratio which gives 75% equity credit for AL’s non-cumulative perpetual preferred stock, stood at 2.7x at YE24. KBRA expects AL’s leverage to return to its target in the near term with growth in retained earnings.

The ratings are balanced by the disciplined funding and placement planning required to manage the company’s significant orderbook commitments, the cyclical nature of the industry, potential credit issues of airline customers, and event risks related to air travel. KBRA also notes that there is an element of key person risk which is viewed as mitigated by an experience leadership team and good succession planning.

The alignment of the senior unsecured debt ratings with AL’s the issuer rating reflects the almost entirely unencumbered asset base providing strong coverage of unsecured debt of 1.5x at YE24.

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 debt 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 K1 short-term debt rating on AL’s Up to $2 billion Senior Unsecured Commercial Paper Notes Program (CP Notes) reflects AL’s A- long-term issuer rating as well as the company’s solid operating cash flow and strong liquidity/funding management, supported by significant undrawn borrowing capacity of $7.6 billion at YE24 which provides a strong liquidity backstop to the CP Notes, significant unencumbered assets and strong funding access demonstrated even during challenging market environments.

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. The Stable Outlook also considers the current favorable industry dynamics for aircraft lessors with robust aircraft demand and limited supply driving higher lease rates and aircraft values, which are expected to remain for several years.

Rating Sensitivities

A rating upgrade in the near future is not expected given the industry’s cyclical nature and exposure to event risk that could lead to credit issues with airline customers, as well as the company’s reliance on wholesale funding, despite AL’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 significant increase in the company’s asset encumbrance could also trigger a review for downgrade.

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