Maintenance Reserves Fail to Shield AeroCentury

The risks of the aircraft leasing business were on display in AeroCentury’s third-quarter results, which were hit by the bankruptcy of former leasing customer Adria Airways.

Sometimes a lessor might hope to come out more or less unscathed from a bad credit after picking up the airline’s maintenance reserves, but although the AeroCentury booked $17 million of maintenance reserve revenue from the four aircraft it repossessed from Adria, this was not enough to stop it sliding to an $8 million loss for the quarter, from a roughly breakeven result in the prior-year period.

This was mainly due to a $22 million impairment charge on the four CRJ900s that the US lessor repossessed. It also suffered a $3.9 million bad debt allowance related to three of the company’s aircraft that are leased pursuant to finance leases.

Further fallout from the Slovenian carrier’s collapse included AeroCentury falling out of compliance with certain lending covenants, forcing it to engage an adviser to help it find ways to restructure its indebtedness and other contractual obligations.

AeroCentury’s portfolio currently consists of 20 aircraft. Of those 11 regional jets and two turboprops are held for lease.  Three additional regional jets and four turboprops are held under sales-type or direct finance leases.  The company also has four turboprop aircraft and two regional jet aircraft that are held for sale, two of which are being sold in parts.

As for Adria, it had been linked this year with a purchase of Sukhoi Superjets, only to pull out over concerns about aftermarket support.

Given Sukhoi’s numerous other problems at present, in hindsight its failure to win the Adria contract was probably a relief for the Russian manufacturer.