Babcock & Brown Air Chairman, Steve Ziss, stated that the lessor is now beginning to see some signs that the sector is in the “very early stages of a recovery”, as the company announced a minor reduction in profit in 3Q2009.
Babcock & Brown Air reported lease revenue fell 10.3% year-on-year to USD54.3 million, mostly associated with a USD4 million reduction in end of lease revenue. Overall revenue for the quarter was up marginally to USD67.8 million, due to a USD12.5 million gain on notes payable. Lease rates have stabilised after a weak 1H2009, and in some cases are beginning to increase. All but one of B&B Air’s aircraft were on lease throughout 3Q2009, and this aircraft is now leased and is scheduled to be delivered in Dec-2009.
Expenses for the quarter were up slightly (+4.7% year-on-year to USD50.2 million), mostly due to a USD3.4 million cost associated with a debt purchase amortisation option. Depreciation and interest expenses were broadly similar on a year-on-year comparison.
EBIT declined marginally, to USD17.6 million (-4.3% year-on-year), while net profit fell 9.9%, due to a higher tax charge in the period.
The outlook from B&B Air is becoming increasingly positive with customers starting to talk “less about fleet retirements and more about growing their capacity.” In the company’s prior experience, the first signs of the recovery have come in the form of requests for lease restructurings. It has also seen increased levels of interest from existing lessees in renewing their leases.
The current combination of inflation and a weak US dollar also have the “potential to create tail winds for owners of US dollar priced hard assets like aircraft”. The projected fleet growth from customers is also an encouraging point for B&B Air.
However, the outlook is not without its potential downsides. The company sees more financial distress in the sector over the coming winter months, as some of the more marginally capitalised airlines have been unable to build significant cash balances (a trend also seen by Boeing and Airbus).
The company also remains very concerned about the price of oil and the impact of high oil prices on airline profitability, and forecasts that the incremental financial squeeze imposed by oil prices above USD70-80 per barrel may cause airlines to rethink their fleet growth plans.
The overall state of the leasing market is also a worry, as B&B Air remains concerned that the financial weakness of many leasing companies could slow any significant increase in lease rates until these companies find new owners.
B&B Air traded up 7.3% on the better outlook. Other leasing companies also traded more strongly, with Aerocentury up 6.1%, Genesis Lease up 3.1% and Aercap gaining 1.8%.
Selected Aviation suppliers’ daily share price movements (% change): 04-Nov-09