By Doug Cameron
International Lease Finance Corp. said Friday it is still looking to find homes for aircraft repossessed this year from bankrupt airlines, while the number of carriers in arrears on rental payments doubled over the past year.
The world's second-largest aircraft leasing company by asset value after the Gecas unit of General Electric Co. (GE) also continued to take write-downs on the value of its fleet as parent American International Group Inc. (AIG) said market conditions weren't right to launch an initial public offering of its Los Angeles unit.
The repossessions and write-downs have been a drag on earnings at ILFC and come at a time when growth in the global airline industry has started to slow and dent earnings, despite the help provided to carriers by a slide in 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 and Hungary's Malev, both ILFC customers. This has forced leasing companies to recover planes and find new customers.
ILFC said in a regulatory filing it was still looking to find homes for three of the 45 planes recovered this year from bankrupt carriers. It sold one, scrapped 10 and found new customers for 31.
The company had a fleet of 933 planes as of June 30 and said it had the marketing skills to weather the industry's latest storm, but it also disclosed financial pressures appeared to be worsening for some customers.
ILFC said 24 clients operating 79 aircraft were past due on two or more lease payments--which are usually paid monthly--compared with 13 airlines this time last year.
While the company said the pressures didn't threaten its cash position, they will add to the list of concerns that have delayed an IPO first announced last September.
"We're continuing work to take ILFC public," said AIG Chief Executive Robert Benmosche on a post-earnings call Friday. "However, the markets have not been very receptive at this point in time."
ILFC has taken around $3 billion in write-downs over the past two years, rattling an industry that had prospered from the increasing 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 market-leading Gecas, didn't take parallel write-downs, and have said it is too soon to determine the impact of new planes that won't come into service until late 2015 at the earliest.
ILFC didn't write down the value of any aircraft remaining in its fleet during the second quarter, though it did take a charge for some targeted for disposal.
The reduced charges helped second-quarter profit rise to $223.1 million in the quarter from $73.8 million a year earlier, with revenue was flat at $1.13 billion.
The company also updated the bank-style stress tests introduced this year that detail how a potential downturn in its business could hit aircraft values. A 20% decline in aircraft cash flows from their estimated level would ensnare 68 more planes with potential charges against their book value of $1.9 billion. Much of this could translate into a charge as impaired planes are generally only worth the sale price of their engines and spare parts.
The aggregate book value of ILFC's fleet was $35.1 billion, down slightly from the $35.6 billion as of March 31.
Write to Doug Cameron at firstname.lastname@example.org
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