This has been a rough year for airlines, and for all the companies that rely on aviation for their revenue. Air Lease Corp. (NYSE:AL) shares fell 38.4% in the first half of 2020, according to data from S&P Global Market Intelligence, on fears the company could be dragged down by a long-term slump in the airline business.
The COVID-19 pandemic has changed the outlook for the airline industry. Carriers that came into 2020 in growth-mode are now forced to fight for their survival because of a fall in travel demand. That means grounding planes, and canceling plans to add new jets in the months to come.
That is bad news for Air Lease, which is in the business of buying planes and leasing them to airlines. As of year-end 2019, the company owned a portfolio of 292 aircraft leased out to more than 200 airlines spread across 70 countries.
During typical downturns, airline lessors try to protect themselves by diversifying geographically: If there is a recession in the U.S., airplanes can be farmed out to customers in Asia, for example. But the nature of COVID-19 and its global impact has left nowhere for lessors to hide, putting their shares under pressure.
Air Lease in March was forced to put out a statement highlighting its "strong balance sheet and robust liquidity," noting its $6 billion in non-utilized lines of credit and cash and $20 billion in unencumbered assets to borrow against if more cash is needed.
"We believe we are well positioned to manage the current market environment," CFO Gregory B. Willis said in the statement.
At best, Air Lease is going to have difficulty reaching its growth plans heading into 2020. The company entered the year with more than 400 jets on order, giving it the largest order book in the aircraft leasing business.
At worst, Air Lease and the other lessors could face years of depressed earnings and questions about their balance sheets as the airlines attempt to recover from the pandemic and slowly rebuild schedules. Air Lease in particular has some older planes in its fleet that might be harder to place with new airlines should they be rejected by their current carriers, and which will likely see their valuations fall the most if there is a glut of available aircraft.
The company raised $850 million in unsecured notes in June, adding to its liquidity cushion, and appears to not be in any danger of running short on cash. But until the pandemic is behind us and the airlines recover, there is little Air Lease can do other than ride out the down cycle.
Given the uncertainty surrounding COVID-19, and the likely length of the downturn, investors so far in 2020 haven't seen much reason to buy into Air Lease shares.