KBRA Affirms Ratings for Air Lease Corporation Following Announced Acquisition

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.

The rating affirmations follow the announcement today that Sumitomo Corporation (“SC”), SMBC Aviation Capital (“SMBC AC”), Apollo managed funds (“Apollo”) and Brookfield have reached a definitive agreement to acquire AL for $7.4 billion in cash through a newly established entity, Sumisho Air Lease Corporation (Ireland) DAC (“Sumisho Air Lease”). AL will become Sumisho Air Lease, and its orderbook is expected to transfer to SMBC AC as part of the transaction; SMBC AC will act as servicer for a substantial majority of the Sumisho Air Lease portfolio. KBRA views the acquisition as strategically important to SC and SMBC AC, adding scale by bringing AL (the third largest aircraft lessor) under ownership of SC, SMBC AC (the second largest aircraft lessor majority owned by Sumitomo Mitsui Banking Corporation), Apollo and Brookfield. The transaction is subject to AL shareholder approval, receipt of regulatory approvals, and customary closing conditions and is expected to close in the first half of 2026.

Key Credit Considerations

The rating affirmation reflects the company’s strong performance, in-demand fleet and strong financial profile supported, post-acquisition, by SC’s and SMBC AC’s strategic ownership and portfolio servicing by SMBC AC which has a strong franchise and highly-experienced management team, robust investment platform and strong track record. In KBRA’s view, the company will be strategically important to SMBC AC and SC which have strong credit profiles, deep aviation investment expertise and a demonstrated history of long-term commitment to the sector. KBRA’s assessment of strategic importance considers the acquisition’s scale benefits for SMBC AC with the addition of a high-quality fleet and customer base, substantial majority of portfolio servicing by SMBC AC, expected strong funding support for the company with both debt and equity capital from the ownership group, and shared branding with SC. KBRA believes that these factors increase both financial and reputational risk to SMBC and SC of an AL default and increases the likelihood of parental support in the future.

The ratings are also supported by the company’s strong standalone credit profile which is expected to maintain key strengths post-acquisition including a sizeable and quality fleet focused on new-technology aircraft, a diverse customer base, moderate leverage, strong available liquidity and a flexible funding profile focused on unsecured debt and a significant unencumbered asset base. In addition, the company is expected to benefit from access to a larger combined aviation platform under the new ownership group.

The ratings are balanced by the company’s uncertain long-term growth and fleet metrics without an orderbook (post-acquisition), potential transaction execution risks, exposure to residual value risks, the cyclical nature of the industry and event risks related to air travel.

The alignment of the senior unsecured debt ratings with AL’s issuer rating reflects the almost entirely unencumbered asset base providing strong coverage of unsecured debt (well over 1x coverage).

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 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 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 market disruptions, strong access to funding at attractive rates, moderate leverage and a solid liquidity profile. The Stable Outlook also considers the strategic and financial benefits of the transaction with SMBC AC and SC, as well as 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 resilience demonstrated during recent market disruptions.

The Stable Outlook could be revised to Negative or the ratings could be downgraded if the company experiences increased delinquencies, defaults and/or impairments, or a decline in funding availability with significant negative impacts on profitability, capital and/or liquidity metrics, or the likelihood of support from SC and SMBC AC declines, in KBRA’s view. A shift in funding strategy that leads to a significant increase in the company’s asset encumbrance could also trigger a review for a downgrade. If the company operates with sustained leverage at levels significantly above peers, materially greater than 3x Debt-to-Equity (with 50% equity credit given for preferred equity), the ratings could be reviewed for downgrade.

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