Shares of Air Lease (NYSE:AL) fell 8.1% on Thursday on increasing evidence that the COVID-19 coronavirus outbreak will severely affect the airline industry. Air Lease is a major supplier of planes to airlines, and could take a hit if the industry cuts capacity.
Air Lease owns a portfolio of more than 290 planes, mostly Boeing and Airbus models, that it leases to 106 airlines in 59 counties. Airlines in recent years have started to lean heavily on leased aircraft instead of buying planes outright, in part because it gives the companies greater flexibility when times get difficult.
Times are suddenly getting difficult for airlines. The coronavirus has stunted travel demand, and airline stocks are plunging on fears that the carriers won't see robust ticket sales during peak travel times, including spring break, Easter, and summer vacation.
Some airlines are already cutting capacity, and aircraft, as a result. United Airlines Holdings is cutting international flights by 20% and domestic flights by 10%, and JetBlue Airways intends to cut capacity by about 5%. United also said it would ground some of its planes as it shrinks its schedule.
Air Lease has been expanding rapidly in anticipation of robust demand for new airplanes from a growing industry. The company's owned fleet grew 19.1% in 2019, to a net book value of $18.7 billion. It also has more than 400 planes on order.
It's too soon to say how severe the airline industry's contraction will be, or how long it will last. Air Lease is strong enough to weather a storm, and will likely have opportunities to place those planes on order in the coming years. But in a market plagued with uncertainty, it is understandable that investors on Thursday moved away from Air Lease and other companies exposed to the airline business.