Executive Summary / Key Takeaways

• Air Lease Corporation is strategically positioned with a young, in-demand fleet and a substantial forward order book to capitalize on persistent global aircraft shortages driven by OEM production constraints.
• Recent financial results for Q1 2025 show significant net income growth, primarily boosted by substantial insurance settlements related to the Russian fleet write-off, alongside solid revenue growth from fleet expansion and aircraft sales.
• The company anticipates a steady upward trajectory in portfolio lease yields over the next three to four years, driven by higher rates on new placements, lease extensions, and the roll-off of lower-yielding COVID-era leases.
• Achieving its target debt-to-equity ratio of 2.5:1 by the end of 2025 is a key priority, enhancing financial flexibility for potential future capital allocation, including incremental growth or shareholder returns.
• While facing risks from ongoing OEM delivery delays and potential tariff impacts, AL's focus on modern, fuel-efficient aircraft and its strong market position are expected to support long-term performance.

The Engine of Growth: Leveraging a Modern Fleet in a Supply-Constrained World

Air Lease Corporation, founded in 2010 by industry veteran Steven F. Udvar-Házy, established its core strategy around acquiring the most modern, fuel-efficient commercial jet aircraft directly from leading manufacturers, Airbus and Boeing (BA). This foundational approach of building a young, technologically advanced fleet and leasing it globally remains central to the company's business model, which also includes strategic aircraft sales and fleet management services. This strategy has positioned AL to navigate and capitalize on the current dynamics of the global aviation market.

The industry landscape is presently defined by robust passenger traffic growth, particularly outside North America, coupled with significant constraints on the supply of new aircraft. OEM production rates are hampered by persistent supply chain issues, manufacturing flaws, and regulatory oversight, leading to delivery delays expected to extend for at least the next three to four years. This imbalance between high demand and limited supply creates a favorable environment for lessors like AL, driving increased demand for both new and existing aircraft and supporting higher lease rates.

AL's fleet, comprising 487 owned aircraft with a weighted average age of just 4.7 years as of March 31, 2025, is among the youngest in the industry. This focus on modern aircraft provides tangible benefits, including approximately 20% to 25% lower fuel burn compared to prior generations, which is increasingly critical for airlines facing elevated operating costs and environmental pressures. The company's forward order book of 260 aircraft for delivery through 2031, valued at an estimated $16.6 billion, represents a strategic advantage, offering delivery slots well ahead of those available directly from manufacturers for new buyers. This order book is substantially placed, with 100% of expected deliveries through 2026 and 89% through 2027 already committed to long-term leases.

Beyond the core fleet, AL also manages 57 aircraft and holds net investments in sales-type leases totaling $471.6 million for 16 aircraft and one engine as of March 31, 2025. The company's globally diversified customer base spans 112 airlines in 57 countries, with over 94% of revenues derived from outside the U.S., mitigating concentration risk.

In the competitive landscape, AL operates alongside major global lessors like AerCap (AER), BOC Aviation, and SMBC Aviation Capital. While AerCap holds a larger market share and potentially benefits from greater scale efficiencies, AL differentiates itself through its focus on acquiring new technology aircraft directly from OEMs at favorable terms secured through large, early orders. AL's agility in capital allocation and its strong relationships with manufacturers and airlines allow it to effectively compete, particularly in placing its forward order book and executing strategic aircraft sales. Although precise, directly comparable market share figures for all niche competitors are not publicly detailed, AL's consistent fleet growth and strong placement rates underscore its competitive effectiveness.

Performance Reflecting Strategy and Recoveries

Air Lease Corporation's financial performance in the first quarter of 2025 demonstrated the impact of its growth strategy and the significant benefit from resolving a major past headwind. Total revenues increased by 11.3% year-over-year to $738.3 million, primarily driven by the expansion of the owned fleet and a substantial increase in aircraft sales activity. Rental revenue specifically grew by 5.0% to $645.4 million, reflecting the larger fleet size. Aircraft sales, trading and other revenue surged to $92.9 million, up from $49.0 million in the prior year period, fueled by higher gains from aircraft sales ($60.9 million on 16 aircraft sold in Q1 2025 compared to $23.4 million on 5 aircraft in Q1 2024). The gain on sale margin in Q1 2025 was approximately 13%, aligning with the upper end of the company's historical 8-10% range and highlighting the embedded value in its fleet.

Net income attributable to common stockholders saw a dramatic increase, reaching $364.8 million, or $3.26 per diluted share, compared to $97.4 million, or $0.87 per diluted share, in Q1 2024. This significant jump was largely attributable to a net benefit of $331.9 million recognized from the settlement of insurance claims related to aircraft detained in Russia. This recovery comprised $328.5 million in cash insurance settlement proceeds and a $3.4 million benefit from the equity interest in the managed fleet. Subsequent to quarter-end, the company received an additional $226.7 million in cash settlements, expected to result in a net benefit of $228.9 million in the second quarter of 2025, bringing total recoveries against the initial write-off to $658.9 million by May 5, 2025.

Operating expenses were significantly impacted by this recovery, resulting in a net expense figure of $266.6 million in Q1 2025 compared to $528.0 million in Q1 2024. However, excluding the recovery, core expenses increased. Interest expense rose to $222.6 million from $194.7 million, reflecting an increase in the composite cost of funds to 4.26% at March 31, 2025, from 4.03% a year prior, as well as a slightly higher debt balance. Depreciation expense also increased to $299.0 million, tracking the growth of the fleet. Selling, general and administrative expenses and stock-based compensation expense saw a combined increase of $17.1 million, partly due to costs associated with the Executive Chairman's retirement.

Adjusted net income before income taxes, a non-GAAP measure providing insight into ongoing operations, increased to $169.5 million ($1.51 per adjusted diluted share) in Q1 2025 from $146.3 million ($1.31 per adjusted diluted share) in Q1 2024. This growth was primarily driven by the increase in total revenues, partially offset by higher interest expense.

The company maintains a strong liquidity position, with $7.4 billion available as of March 31, 2025, including $456.6 million in unrestricted cash and $6.9 billion under its revolving credit facility. Total debt stood at $20.1 billion, with a significant portion (77.6%) at fixed rates. The recent amendment and extension of the revolving credit facility, increasing commitments to $8.2 billion and extending maturity for a large portion to 2029, further bolsters financial flexibility. The establishment of a $2.0 billion commercial paper program also diversifies funding sources. Management believes its liquidity and expected operating cash flows and aircraft sales are sufficient to largely self-fund its order book and meet obligations for at least the next 12 months.

Outlook and Strategic Priorities

Looking ahead, Air Lease Corporation's outlook is shaped by its strategic positioning to benefit from the persistent aircraft supply/demand imbalance and the resolution of past challenges. The company expects to receive between $3.0 billion and $3.5 billion of new aircraft deliveries from its order book in 2025, with approximately $800 million anticipated in the second quarter. Aircraft sales are projected to remain robust, with an expectation of around $1.5 billion in total sales for 2025, including approximately $300 million in the second quarter. The sales pipeline remains solid at $740.9 million, indicating continued strong demand for its aircraft in the secondary market.

Management anticipates a steady upward trajectory in portfolio lease yields over the course of 2025 and for the next three to four years. This expected improvement is driven by several factors: the placement of new aircraft deliveries at higher lease rates compared to prior periods, the realization of attractive lease rates on extensions of existing leases, and the progressive roll-off of lower-yielding leases that were signed or restructured during the COVID-19 pandemic. Approximately $5 billion net book value of these COVID-era leases are scheduled to mature by the end of 2026, presenting opportunities to re-lease or extend at significantly higher market rates.

As these headwinds resolve and lease yields improve, the company expects profit margins and return on equity (ROE) to expand in the years ahead. A key strategic priority for 2025 is to achieve its target debt-to-equity ratio of 2.5 to 1. The significant insurance recoveries received, combined with expected operating cash flows and aircraft sales, are anticipated to help reach this target by year-end or potentially sooner, enhancing financial flexibility.

Once the target leverage is achieved, the company's capital allocation strategy will consider a wider range of opportunities, including incremental aircraft acquisitions (organic or inorganic growth) and returning capital to shareholders through dividends or share repurchases. The recent increase in the quarterly cash dividend signals this potential for enhanced shareholder returns.

Despite the positive outlook, several risks warrant attention. Ongoing delivery delays from Airbus and Boeing due to supply chain issues and manufacturing challenges remain a significant factor impacting the timing of aircraft investments and potentially leading to lease or purchase order cancellations. While AL's leases are primarily triple net, making lessees responsible for tariffs, the potential for new tariffs or trade restrictions could negatively impact demand or result in cancellations if lessees are unwilling or unable to bear these costs. Furthermore, while substantial recoveries have been made, the collection, timing, and amounts of any additional insurance proceeds related to the Russian fleet remain uncertain.

Conclusion

Air Lease Corporation is navigating a dynamic market characterized by strong demand and constrained supply, a scenario that favors its core business model. By focusing on acquiring and leasing modern, fuel-efficient aircraft, AL is strategically positioned to benefit from rising lease rates and robust aircraft values. The significant insurance settlements related to the Russian fleet have provided a substantial boost to financial results and are expected to enhance capital flexibility, accelerating the path towards the target leverage ratio.

While challenges persist, particularly with OEM delivery delays and the need to cycle through lower-yielding legacy leases, the company's substantial order book, high placement rates, and strong sales program provide a clear path for future growth and margin expansion. The expected upward trend in lease yields, coupled with a potential normalization of the interest rate environment, supports a positive outlook for profitability and ROE in the coming years. For investors, AL represents an opportunity to invest in a well-managed lessor poised to capitalize on favorable industry fundamentals, leveraging its strategic fleet, financial discipline, and increasing flexibility to drive long-term value.