UAE aircraft lessor DAE sees rise in loss provisions as customer revenues impacted

Deferral relief packages topped $180mln last year

  
Dubai aerospace. Image courtesy Dubai Media Office Twitter handle.

Dubai aerospace. Image courtesy Dubai Media Office Twitter handle.

Loss provisions for financial assets is expected to increase further this year if the coronavirus pandemic lasts longer, major aircraft lessor Dubai Aerospace Enterprise (DAE) said.

The company reported lower lease revenue for last year as the outbreak took a toll on the commercial air travel industry.

It posted a profit of $228 million in 2020 compared to $377.5 million in 2019, and has so far supported more than 30 carriers impacted by the outbreak, with deferral relief packages hitting $180 million as of December 31, 2020.

“Revenues for our customers have been disrupted in significant, unprecedented and unforeseen ways as governmental authorities around the world put in place necessary isolation measures to contain the spread of COVID-19,” DAE said in a statement to Nasdaq.

Headquartered in Dubai, DAE is one of the world’s biggest aircraft lessors, serving aviation companies in more than 60 countries. It acquires and leases commercial aircraft to airlines, as well as trades and manages aircraft on lease for third-party investors.

Outlook

Commercial air travel has been heavily disrupted by the coronavirus pandemic, with passenger traffic in the world’s busiest airport, Dubai International (DXB), alone falling by 70 percent in 2020. While the industry’s discourse is now centred on recovery as COVID-19 vaccinations ramp up worldwide, DAE is wary about the outlook.

Last year, DAE said it executed relief packages with 33 of its airline customers. Relief has mainly been provided in the form of rent deferrals or other lease amendments. During the year, DAE said its loss allowance had nearly quadrupled to $57.7 million compared to $14.5 million in 2019.

“In addition, as a result of deferrals granted, we have recognised accrued revenue $107.2 million, within other assets, and a corresponding loss allowance of $10.7 million.

“If the impact of COVID-19 is prolonged, it is likely the amounts due and associated loss allowance will increase in future periods,” the company added.

The International Air Transport Association (IATA) had said that airlines around the world may have lost billions of dollars in revenues last year due to the pandemic.

Positive outlook

Analysts, however, are expecting the industry to recover as COVID-19 restrictions eased in many countries worldwide.

The outlook for the aircraft leasing sector is also positive, according to KPMG.

“We have seen airlines suffer huge financial losses as a result of not operating for several months and this impact has been felt in turn by lessors, as airlines seek deferrals and restructuring of their rental commitments,” said Joe O’Mara, head of aviation finance at KPMG.

“What has been a positive for aircraft lessors is that they came into this crisis in a very strong liquidity position which has allowed the sector some breathing space. We have also seen over $120 billion of government support provided to airlines so far and this has been effective in reducing the number of airline failures,” O’Mara said in November.

Buffer

DAE assured that it continues to have access to $2.7 billion of available liquidity to support the ongoing operation of the company, as needed.

It also holds security of approximately $600 million in the form of cash or letters of credit, while maintenance reserves are valued at more than $1 billion

(Reporting by Cleofe Maceda; editing by Seban Scaria)

Cleofe.maceda@refinitiv.com

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