Dubai Aerospace Enterprise (DAE), the Middle East’s biggest plane lessor, expects to see an increase in provisions related to the impact of Covid-19 on its airline customers in the second or third quarter after it posted a 22.5 per cent drop in first-quarter profit.
Net income for the three months ending March 31 decreased to $76.7 million (Dh282m), compared to $99m, in the same period last year, DAE said in a statement on Wednesday. First quarter revenue fell 4.4 per cent to $344.2m.
"Overall, Q1 2020 was characterised by stronger liquidity, unchanged capital adequacy and reduced profitability," Firoz Tarapore, chief executive of DAE, said. "Revenue and net income in Q1 2020 were lower, attributable primarily to approximately 20 fewer aircraft in the Owned Aircraft portfolio resulting from asset sales in 2019, and timing of gain[s] on sales of aircraft."
The aviation industry is grappling with its worst crisis as the Covid-19 pandemic obliterated air travel demand, grounding most passenger flights and financially straining airlines by starving them of cash.
"We have not yet seen a meaningful increase in provisions related to the impact on our customers from this pandemic; we expect this to change in Q2 and Q3 2020," Mr Tarapore said. "We have seen an increase in arrears as customers with liquidity constraints fall behind in meeting their obligations."
DAE granted 10 aircraft rent deferral requests by airline customers as of March 31 due to the pandemic, totalling aggregate rent of approximately two per cent of annual reported revenue, according to its financial statement.
"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.
DAE is currently evaluating rent deferral requests from 33 airline customers, totalling 10 per cent of annual reported revenue.
"As we provide additional assistance to our clients who find themselves in extraordinary times, we expect the deferral amounts as a percentage of annual reported revenue to increase," Mr Tarapore said.
Rent deferral agreements did not have a material impact on the group's financial results for the first quarter, DAE said.
"In the event that the group’s customer defaults under these deferral agreements or the Covid-19 pandemic is prolonged the group’s results could be negatively impacted," it said in the financial statement.
"Management are closely monitoring the impact of the outbreak on the activities of the group."
DAE has access to $2.8 billion of available liquidity to support its ongoing operations.
"We do not need to take any incremental liquidity actions to provide additional assistance to our clients, fund the growth of trade receivables and meet all of our other liquidity requirements," Mr Tarapore said.
DAE's liquidity sources and cash generated from operations will be sufficient to operate the business and repay debt maturities for at least the next 12 months, it said.
The lessor did not purchase any jets in the first quarter, compared to six plane purchases in the prior-year period. It sold nine aircraft in the first quarter, about half of those sold in the same quarter last year.
DAE's fleet stood at 356 jets as of March 31.
