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AL

AIR LEASE CORP (AL)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered 5.1% revenue growth to $725.4M and diluted EPS of $1.21, with pre-tax margin of 25.5% aided by a ~$60M insurance recovery tied to the former Russia fleet .
  • Versus S&P Global consensus, AL missed on Primary EPS (actual $0.998 vs. est. $1.089)* and missed revenue ($725.4M vs. est. $743.0M)* as lower sales/trading income and higher interest expense weighed; reported diluted EPS ($1.21) was higher due to non-recurring insurance benefits .
  • Management did not host a Q3 call and suspended guidance due to the pending acquisition by Sumisho Air Lease (Sumitomo/SMBC Aviation/Apollo/Brookfield) for $65.00 per share in cash; closing targeted in H1 2026, subject to approvals .
  • Operating momentum remained solid: rental revenue +9% YoY on fleet growth and higher portfolio lease yields; orderbook is 100% placed through 2026 and 96% through 2027; committed future rentals at $29.3B; quarterly dividend maintained at $0.22/share .
  • Near-term stock catalyst is the merger spread and regulatory/shareholder milestones; operationally, aircraft delivery cadence, yield trajectory, and interest cost normalization remain medium-term drivers .

What Went Well and What Went Wrong

What Went Well

  • Rental revenue rose ~9% YoY to $680.9M on fleet growth and higher portfolio lease yields; net income to common increased 47.8% YoY to $135.4M ($1.21 diluted EPS) on higher rental revenue and $60M net benefit from Russia insurance settlements .
  • Commercial traction and visibility: 100% of deliveries through 2026 and 96% through 2027 are placed; committed future rentals total $29.3B, underpinned by diversified global customer base (108 airlines, 55 countries) .
  • Capital return stability and fleet execution: Board approved a $0.22 dividend (payable Jan 8, 2026); 13 new aircraft delivered ($685M investment); five aircraft sold for $220M; owned fleet reached 503 aircraft (NBV $29.5B) .

Quotes (recent management context):

  • “Portfolio yields on our fleet are set to trend higher… strong lease rates on new deliveries [and] extensions… tailwinds… poised to propel us forward for years” (CEO, Q2) .
  • “We are very disciplined buyers… cancellation [of A350 freighters] frees up more than $1B in forward CapEx… focused on doing what’s best for our shareholders” (CEO, Q2) .
  • “Our leverage target has been 2.5x… there’s been no change to that target” (CFO, Q1/Q2) .

What Went Wrong

  • Missed S&P consensus on revenue and Primary EPS in Q3 as “gain on aircraft sales and trading and other income” fell 32% YoY to $44M on lower sales volume; merger-related SG&A (~$9M) and higher interest expense from a higher composite cost of funds (4.29%) also weighed .
  • Adjusted pre-tax margin dipped YoY (19.9% vs. 20.3%) despite rental revenue strength, reflecting lower sales/trading income and higher interest costs .
  • No earnings call or formal guidance during the quarter due to the pending acquisition, limiting near-term visibility into outlook nuances and Q&A color .

Financial Results

Quarterly Performance (Actuals)

MetricQ1 2025Q2 2025Q3 2025
Revenues ($M)$738.3 $731.7 $725.4
Net Income Attributable to Common ($M)$364.8 $374.1 $135.4
Diluted EPS (Reported)$3.26 $3.33 $1.21
Pre-tax Margin (%)63.9% 66.5% 25.5%
Adjusted Pre-tax Margin (%)23.0% 21.5% 19.9%
Russian Insurance Recoveries (benefit in expenses, $M)$(331.9) $(344.0) $(60.5)

Q3 YoY Revenue Mix

Revenue ComponentQ3 2024 ($M)Q3 2025 ($M)YoY Change
Total Rental of Flight Equipment$625.2 $680.9 +$55.7
Gain on Aircraft Sales, Trading & Other$65.0 $44.5 -$20.5

S&P Global Consensus vs. Actuals (EPS/Revenue)

MetricQ1 2025Q2 2025Q3 2025
Primary EPS Estimate*1.6621.9801.089
Primary EPS Actual*1.1851.0900.998
Revenue Estimate* ($M)708.0710.4743.0
Revenue Actual ($M)738.3 731.7 725.4

*Values retrieved from S&P Global.

Operating KPIs and Capital Structure

KPIQ1 2025Q2 2025Q3 2025
New Aircraft Deliveries (#)14 12 13
Aircraft Sold (#)16 4 5
Owned Fleet (units)487 495 503
Fleet NBV ($B)$28.6 $29.1 $29.5
Committed Future Rentals ($B)$29.2 $28.8 $29.3
Liquidity ($B)$7.4 $7.9 $7.4
Debt (net of issuance costs, $B)$19.9 $20.3 $20.2
Composite Cost of Funds (%)4.26% 4.28% 4.29%
% Fixed-Rate Debt77.6% 76.7% 75.7%

Guidance Changes

Metric/ItemPeriodPrevious Guidance/IndicationCurrent Update (Q3 2025)Change
Earnings Call / GuidanceQ3 2025Normal practice (Q1/Q2 held calls and gave qualitative outlook) No call; no guidance due to pending acquisition Suspended
Russia Insurance RecoveriesQ3 2025Expected ~$60M benefit in Q3 (as of Q2 release) Recognized ~$60M net benefit in Q3 Achieved
Aircraft Sales FY2025FY 2025~$1.5B sales expected (Q1/Q2) Q3 sold 5 aircraft ($220M); sales pipeline ~$1.6B Maintained run-rate
DividendQ3 2025$0.22/share declared in Q2 (paid Oct 8) $0.22/share declared Oct 31, payable Jan 8, 2026 Maintained
Orderbook PlacementsThrough 2026/2027100% (2026), 87% (2027) as of Q2 100% (2026), 96% (2027) as of Q3; ~64% through 2031 Raised 2027 coverage

Earnings Call Themes & Trends

Note: No Q3 call due to pending merger . Themes reflect Q1–Q2 commentary with Q3 operational updates.

TopicPrevious Mentions (Q1 2025 & Q2 2025)Current Period (Q3 2025)Trend
Portfolio yield trajectoryManagement expects yields to trend higher over 2025–2028 as COVID-era leases roll off; strong extension rates (some ~50% above prior COVID rates) Rental revenue +9% YoY; adjusted margins ~flat YoY; interest expense still elevated Positive yield trajectory; margin mixed on funding costs
Russia insurance recoveries$332M (Q1), $344M (Q2); expected $~60M in Q3 ~$60M net benefit recognized; 104% of 2022 write-off recovered as of Nov 3 Largely completed/derisked
Supply chain & OEM deliveriesAirbus delays to 2027-28; canceled A350F order freeing >$1B CapEx; supply shortfall persists 3–4 years 13 deliveries; 100%/96% placements through 2026/27 Tight supply supporting lease rates
Tariffs/macroTariff risk commentary; limited impact on passenger demand; zero-for-zero on US-EU aircraft welcomed No Q3 call color; operations steady; diversified exposure Neutral/contained
Capital allocation & leverageReached 2.5x target; evaluating buybacks/dividends/inorganic options; self-funding orderbook via ops and sales Dividend maintained; merger announced at $65/share Shift to M&A outcome

Management Commentary

  • Strategic focus (Q2 CEO): “Portfolio yields… trend higher… strong lease rates on new deliveries, strong extension rates… fixed rate market financing rates have continued trending lower… tailwinds… propel us forward for years” .
  • Capital discipline (Q2 CEO): “We are very disciplined buyers… cancellation [A350F] frees up more than $1B in forward CapEx… focused on doing what’s best for our shareholders” .
  • Balance sheet & liquidity (Q2 CFO): “Debt to equity… just below 2.5x target… strong liquidity of $7.9B… $31B unencumbered assets and $29B contracted rentals… key pillars” .
  • Q3 disclosure (press release): “As is customary during the pendency of an acquisition transaction, we will not be hosting a conference call or providing guidance… refer to our 10-Q for further detail” .
  • Transaction terms: $65 per share all-cash; expected close H1 2026 subject to shareholder and regulatory approvals .

Q&A Highlights (from Q1–Q2)

  • Yield uplift and extensions: Management reaffirmed 150–200 bps multi-year yield improvement with higher extension rates (standard 4–6 years; widebodies trending longer) .
  • Capital allocation priorities: With leverage at 2.5x, evaluating buybacks, dividends, and selective growth; aim for “meaningful” actions while preserving IG ratings .
  • Sale-leaseback economics: Still competitive; will pursue selectively; supply shortfall supports pricing; cancellations free CapEx for higher-return deployments .
  • OEM stability: Boeing meeting recent delivery outlooks with quality; Airbus no new slippage since early-year notifications; production ramp risks persist .
  • End-of-lease revenue: Expect lower end-of-lease income amid high extension rates; benefit captured via higher extension lease rates and eventual sale values .

Estimates Context

  • Q3 2025 vs S&P Global: Primary EPS actual $0.998 vs est. $1.089 (miss); revenue $725.4M vs est. $743.0M (miss)*. Lower aircraft sales/trading income and higher interest expense offset rental strength .
  • Q2 2025 vs S&P Global: Revenue beat ($731.7M vs $710.4M); Primary EPS miss ($1.090 vs $1.980) as S&P “Primary EPS” normalizes for non-recurring insurance benefits that boosted reported diluted EPS to $3.33 .
  • Q1 2025 vs S&P Global: Revenue beat ($738.3M vs $708.0M); Primary EPS miss ($1.185 vs $1.662) for same normalization reasons .

*Values retrieved from S&P Global.

Implications: Street models may trim near-term normalized EPS on lower sales/trading income and funding costs, while maintaining rental growth and yield uplift assumptions given tight supply/strong placement metrics .

Key Takeaways for Investors

  • Core leasing engine healthy: rental revenue +9% YoY, full placement through 2026 and near-full for 2027 supports forward visibility and yield uplift narrative .
  • Normalized earnings softer vs. consensus: lower sales/trading income and higher interest expense pressured S&P “Primary EPS”; reported EPS includes non-recurring insurance benefits .
  • Balance sheet/liquidity resilient: $7.4B liquidity, ~76% fixed-rate debt, composite cost of funds 4.29%; debt ~$20.2B net of issuance costs .
  • Russia claims largely resolved: ~$60M in Q3; 104% of 2022 write-off recovered as of Nov 3, removing a major overhang .
  • Corporate event dominates: $65/share all-cash takeout proposal (H1’26 close goal) is the primary near-term trading driver; watch shareholder and regulatory milestones and any change in deal terms .
  • Medium-term thesis (if standalone): Tight OEM supply, high extension rates, and disciplined capital deployment support yield and margin expansion; monitor funding costs trajectory and secondary market sales pace .
  • Dividend maintained: $0.22/share declared; supports carry into deal close timeline .