ILFC Signals Aircraft Charges Under Stress Tests
March 08 2012 - 6:04PM
Dow Jones News
International Lease Finance Corp. said Thursday it could face
additional writedowns on its aircraft fleet after revealing the
results of stress tests on a portfolio that has already suffered
more than $3 billion in charges over the past two years.
Its the first time that ILFC has revealed the bank-style stress
tests of a potential downturn in its business, and comes ahead of a
planned initial public offering that parent American International
Group Inc. (AIG) has said could take place in the next few months,
having dropped plans to sell or all part of the world's
second-largest aircraft leasing company by fleet value.
ILFC took $1.6 billion in charges last year against 100 aircraft
from a fleet of almost 939 owned aircraft, and revealed the
potential for more in a regulatory filing. However, new methodology
employed since year-end would have reduced the number of planes
affected last year to 95.
The Los Angeles-based company said changing cash flow
assumptions used to calculate last year's charges could ensnare up
to 114 more planes with a net book value of $2.1 billion, assuming
cash flow estimates fall 20% short. Much of this could translate
into a charge as impaired planes are generally only worth the sale
price of their engines and spare parts.
However, ILFC said it can capture more value after last year's
acquisition of AeroTurbine, which specializes in dismantling old
planes and selling parts and scrap.
ILFC's writedowns over the past two years have rattled an
industry that had prospered from the growing popularity of airlines
renting rather than buying planes. The company attributed part of
the charges to the depressing impact on existing plane values from
new aircraft such as the Airbus A320neo and the 737 Max from Boeing
Co. (BA).
Most rivals, including the market-leading Gecas unit of General
Electric Co. (GE) did not take parallel writedowns, and have said
it's too soon to determine the impact of new planes that won't come
into service until late 2015 at the earliest.
ILFC's charges -- and the prospect of more -- come as the
leasing sector deals with the fallout from a spate of airline
collapses this year. The company said four customers had stopped
flying or filed for court protection in 2012, returning 42 planes
to ILFC's fleet of around 1,000 aircraft.
While more than half had been placed with other carriers, the
plight of airlines this year is worse than in 2011 when ILFC had
nine planes returned from seven distressed carriers. Last year's
returns led to a charge of $40 million.
High jet fuel prices, sluggish demand and over-ambitious
expansion strategies have taken their toll on the global airline
industry, with high-profile collapses including Spain's Spanair --
an ILFC customer -- and Malev, the Hungarian flag carrier.
The uncertain outlook has weighed on publicly-traded aircraft
lessors such as AerCap Holdings N.V. (AER), Fly Leasing Ltd. (FLY)
and Aircastle Ltd. (AYR), most of which are trading below book
value.
ILFC had a net book value of $7.5 billion as of Dec. 31, while
its aircraft fleet had a book value of $35.6 billion.
The aircraft charges left ILFC with a net loss of $723.9 million
last year, compared with $495.7 million a year earlier.
The planned offering of shares in a new company, ILFC Holdings
Inc., on the New York Stock Exchange is being managed by Citigroup
Inc. (C), J.P. Morgan Chase & Co. (JPM) and Morgan Stanley
(MS), according to a regulatory filing.
-By Doug Cameron, Dow Jones Newswires; 312-750-4135;
doug.cameron@dowjones.com
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