Executive Summary / Key Takeaways

• Robust Demand Amidst Supply Shortages: Air Lease Corporation (AL) is capitalizing on a persistent global shortage of modern, fuel-efficient aircraft, driven by strong passenger traffic growth and OEM production delays. This imbalance is fueling higher lease rates on new placements and extensions, positioning AL for sustained revenue and yield expansion.
• Strategic Capital Deployment and Financial Strength: The company has achieved its target debt-to-equity ratio of 2.5x, bolstered by significant recoveries from its Russian fleet write-off. This enhanced financial flexibility opens avenues for meaningful capital allocation, including potential share repurchases, while maintaining investment-grade credit ratings.
• Yield Expansion on the Horizon: AL anticipates a "modest moderately sized steady upward trajectory" in fleet lease yields through 2029, primarily from repricing approximately $5 billion in lower-yielding, COVID-era leases and strong market rates on new deliveries.
• Merger and Operational Focus: The proposed merger with Sumisho Air Lease Corporation, expected in H1 2026, marks a pivotal strategic shift. Concurrently, AL continues to focus on its core leasing business, evidenced by a 100% fleet utilization rate and strategic adjustments to its order book, such as the cancellation of A350F freighters to prioritize passenger aircraft.
• Technological Edge and Environmental Relevance: AL's fleet of new-technology aircraft offers a 20-25% lower fuel burn and reduced emissions, providing a tangible competitive advantage for airlines facing high operating costs and increasing environmental scrutiny.

The Enduring Strength of Modern Aviation Leasing

Air Lease Corporation, founded in 2010 by industry visionary Steven F. Udvar-Házy, has established itself as a premier global aircraft leasing company. Its core strategy centers on acquiring the most modern, fuel-efficient commercial jet aircraft directly from leading manufacturers like Boeing (BA) and Airbus (EADSY). These aircraft are then leased to a diverse global airline customer base, predominantly through triple net leases where lessees bear all operating costs, including importation tariffs. This model is designed to generate attractive returns on equity by leveraging a young, technologically advanced fleet.

The company's foundational strength lies in its strategic approach to aircraft acquisition. AL secures significant volume discounts and early delivery slots from OEMs, often acting as a launch customer for new aircraft types. This foresight, particularly evident in large order placements made during periods of market stress like 2020-2022, provides AL with an order backlog that is difficult for competitors to replicate at current market prices. These advantageous purchase prices translate into embedded value in its assets and contribute to superior lease yields over the long term.

A pivotal moment in AL's recent history was the substantial net write-off of approximately $760.10 million related to aircraft detained in Russia in 2022. However, through diligent pursuit of insurance claims, AL has demonstrated remarkable recovery, recognizing $727.60 million in cash insurance settlement proceeds during the nine months ended September 30, 2025. By November 3, 2025, total recoveries against the initial write-off had reached $823.20 million, exceeding 104% of the original amount. This successful recovery underscores the company's robust risk management and the inherent value of its assets.

Technological Edge: Fueling Efficiency and Competitive Advantage

Air Lease Corporation's fleet is a testament to its commitment to technological differentiation. The company exclusively invests in new-technology, fuel-efficient commercial jet aircraft. This core technological advantage translates into significant, quantifiable benefits for its airline customers and, by extension, for AL's competitive positioning and financial performance.

These modern aircraft offer a substantial 20% to 25% lower fuel burn compared to prior generations. This directly reduces airlines' largest operating expense, providing a critical economic advantage, especially in an environment of elevated fuel prices. Beyond cost savings, the newer fleet significantly reduces emissions, a crucial factor as airlines face increasing environmental scrutiny and evolving regulatory landscapes, including airport landing fees tied to aircraft emissions in some European hubs.

For investors, this technological edge forms a key part of AL's competitive moat. It ensures that AL's aircraft remain highly in-demand, command stronger lease rates, and retain higher residual values. While AL does not directly engage in aircraft R&D, its strategy is to provide airlines with the most economical and environmentally compliant aircraft available. The company actively advocates for industry-wide improvements in air traffic control (ATC) and flow optimization, recognizing that such operational efficiencies, which could reduce average departure delays of 18 minutes and arrival delays of 60 minutes in Europe, represent "low-hanging fruit" for immediate emissions reduction and cost savings for airlines. This focus on operational efficiency, both through its fleet and advocacy, enhances its value proposition to lessees.

Competitive Landscape and Strategic Positioning

Air Lease Corporation operates within a dynamic and competitive global aircraft leasing industry. Its primary direct competitors include larger players like AerCap Holdings N.V. (AER), as well as more diversified entities such as GATX Corporation (GATX), and specialized lessors like Willis Lease Finance Corporation (WLFC), which focuses on engines and parts.

AL's competitive advantages are multifaceted. Its global network of airline relationships fosters strong customer loyalty and enables efficient deal negotiations, often leading to recurring revenue from long-term leases. The company's cost leadership in aircraft acquisition, stemming from its large-volume, direct-from-OEM purchasing strategy, provides a significant embedded value in its fleet that competitors struggle to match. Furthermore, AL's expertise in fleet management services, including its Blackbird and Thunderbolt platforms, allows it to generate additional fee-based revenue and maintain influence over a broader pool of aircraft.

Compared to AerCap, AL may not match the sheer scale or market reach, but it differentiates itself through a focused approach on new, in-demand aircraft and deep customer relationships. This specialization allows AL to offer tailored solutions and potentially faster response times for fleet needs. While AerCap's larger fleet might offer greater operational efficiencies, AL's strategic order book, secured at discounted prices during opportune market conditions, provides a unique asset base. For instance, a significant portion of AL's undelivered order book was negotiated in 2021 at prices that cannot be replicated today.

Against diversified players like GATX, AL's exclusive focus on aviation provides deeper expertise and stronger airline relationships. While GATX's broader business segments offer diversification, AL's specialized model allows for greater innovation and execution within the aircraft leasing sector. When compared to niche players like WLFC, AL's comprehensive full-aircraft leasing model offers a more integrated solution for airlines, though WLFC may hold an edge in specialized technical services for components.

AL's competitive positioning is further strengthened by the current industry dynamics. OEM production rates, particularly for Boeing's 737 MAX and 777X programs, continue to face delays and quality control issues, creating a persistent supply shortfall for the next three to four years. This environment, where demand significantly outstrips supply, allows AL to command strong lease rates and maintain high fleet utilization. The company's decision to cancel seven A350F freighter aircraft orders in June 2025, freeing up over $1 billion in CapEx, reflects a disciplined capital allocation strategy focused on passenger airliners where demand and pricing remain most attractive.

Financial Performance and Outlook

Air Lease Corporation's financial performance in the nine months ended September 30, 2025, reflects the benefits of its strategic positioning and the robust market environment. Total revenues for the three months ended September 30, 2025, increased by 5.1% year-over-year to $725.4 million, driven by continued fleet growth and an increase in portfolio lease yield. For the nine months ended September 30, 2025, total revenues reached $2.20 billion, up from $2.02 billion in the prior year period.

Net income attributable to common stockholders saw a significant increase, reaching $135.4 million ($1.21 per diluted share) for Q3 2025, compared to $91.6 million ($0.82 per diluted share) in Q3 2024. For the nine months, net income attributable to common stockholders surged to $874.2 million ($7.79 per diluted share), a substantial rise from $279.5 million ($2.50 per diluted share) in the same period last year. This impressive growth was primarily fueled by higher rental revenues and the substantial $736.4 million net benefit from Russian fleet insurance settlements.

However, profitability was partially offset by increased expenses. Interest expense rose to $228.4 million in Q3 2025, up from $217.5 million in Q3 2024, due to a higher composite cost of funds (4.29% as of September 30, 2025, compared to 4.21% a year prior) and an increased outstanding debt balance. Selling, general, and administrative (SG&A) expenses also increased, partly due to $8.6 million in merger-related legal and professional fees in Q3 2025. Depreciation expense continues to track fleet growth, increasing to $311.1 million in Q3 2025.

The company's aircraft sales program remains a vital source of liquidity and profitability. While Q3 2025 saw a decrease in gain on aircraft sales and trading to $44.5 million (from $65.0 million in Q3 2024) due to lower sales volume (five aircraft sold), the nine-month period still recorded a healthy $190.4 million, benefiting from increased management fees and slightly higher sales gains. AL's sales pipeline remains robust at $1.6 billion as of September 30, 2025, with an expectation to sell approximately $1.5 billion in aircraft for the full year 2025, maintaining healthy gain-on-sale margins typically above the historical 8-10% range.

Liquidity remains strong, with $7.4 billion in available liquidity as of September 30, 2025, comprising $452.2 million in unrestricted cash and $6.9 billion in undrawn revolving credit facilities. Total debt stood at $20.3 billion, with 75.7% fixed-rate and 97.5% unsecured. The company's debt-to-equity ratio declined to just below its 2.5x target in Q2 2025, a significant milestone. Management's top priority for 2025 is further debt reduction to solidify this target, after which capital allocation will consider incremental aircraft purchases, M&A, and shareholder returns. The board's approval of a 5% increase in the quarterly cash dividend to $0.22 per share, payable in early January 2025, signals confidence in sustained cash flow generation.

Looking ahead, AL anticipates total aircraft investments of approximately $3.5 billion for the full year 2025, with expected deliveries from its order book ranging from $3 billion to $3.5 billion. The company projects a "modestly sized steady upward trajectory" in fleet lease yields through 2029, driven by strong lease rates on new deliveries and the repricing of approximately $5 billion in lower-yielding, COVID-era leases maturing by the end of 2026. This is expected to lead to mid-teen adjusted pretax return on equity within two to three years.

Risks and Challenges

Despite a favorable market backdrop, Air Lease Corporation faces several pertinent risks. The proposed merger with Sumisho Air Lease Corporation, while strategic, introduces uncertainties related to obtaining necessary approvals (stockholders, regulatory bodies) and potential disruptions to business operations and employee retention during the pendency of the agreement. Restrictions under the merger agreement also limit AL's ability to incur additional indebtedness or pursue certain business opportunities without parental consent until the merger closes.

Operational risks include persistent aircraft delivery delays from manufacturers like Boeing and Airbus, exacerbated by supply chain constraints and engine manufacturing issues. The FAA's cap on Boeing's 737 MAX production, though modestly increased, continues to impact delivery schedules. Such delays can affect AL's fleet growth and revenue recognition.

Geopolitical and macroeconomic uncertainties, including evolving tariff policies, pose potential headwinds. While AL's leases typically make lessees responsible for tariffs, a widespread imposition of tariffs could dampen demand for commercial aircraft or lead to lease cancellations. The company's significant exposure outside North America (87% of business) mitigates some U.S.-centric tariff risks, but global trade tensions could still impact airline profitability and, consequently, their ability to meet lease obligations.

Interest rate fluctuations also present a risk, particularly for AL's floating-rate debt. An increase in the composite interest rate on this debt could lead to higher annual interest expenses, putting downward pressure on operating margins. While AL maintains a largely fixed-rate debt structure (75.7% fixed), the lag between rising interest rates and corresponding increases in lease rates can impact profitability.

Conclusion

Air Lease Corporation stands at a compelling juncture, poised to leverage its strategic advantages in a fundamentally strong, yet supply-constrained, global aviation market. Its core investment thesis is firmly rooted in the persistent demand for modern, fuel-efficient aircraft, a demand that AL is uniquely positioned to meet through its robust order book and deep OEM relationships. The company's technological differentiation, offering significant fuel and emissions benefits, provides a powerful competitive edge, ensuring its fleet remains highly attractive to airlines worldwide.

The successful recovery of Russian fleet write-offs and the achievement of its target debt-to-equity ratio underscore AL's financial resilience and prudent management. This newfound capital flexibility, combined with an anticipated upward trajectory in lease yields driven by the repricing of COVID-era leases, sets the stage for expanding profit margins and a return to mid-teen adjusted pretax ROEs in the coming years. While the proposed merger introduces a new strategic dimension and operational risks persist from OEM delays and geopolitical factors, AL's disciplined capital allocation, strong liquidity, and proactive management of its competitive landscape position it for sustained long-term value creation. Investors should closely monitor the execution of its capital allocation strategy post-merger, the continued normalization of the yield curve, and the company's ability to capitalize on the enduring global demand for its technologically advanced fleet.