The outlook is officially positive for Dublin-based FLY Leasing after financial experts Moody’s upgraded its rating for the lessor. The change came yesterday (June 22) after FLY announced that it was selling 33 of its older aircraft for $985m and had secured a 47 per cent reduction in its lease management fees.
The sale of one-quarter of its portfolio to an unnamed buyer will generate $425m in cash for FLY to invest in newer aircraft and was labelled a “milestone” in the lessor’s fleet renewal programme, by CEO Colm Barrington.
The divesture of the older aircraft has also enabled the lessor to slash its annual management fee to BBAM, FLY’s fleet manager and servicer, from $10.7m to $5.7m, providing a further financial boon to the company.
The Kroll Bond Rating Agency said that the lower fees demonstrated an “increased alignment” of BBAM’s interests with FLY and a “focus on increasing returns for FLY stakeholders” – unsurprising perhaps when you remember that BBAM owns more than eight per cent of FLY’s shares.
Meanwhile, the aircraft sale will, according to FLY, help to lessen its exposure to larger customers and “substantially” decrease its financial leverage, as well as provide funds for the $750m of aircraft acquisitions that the lessor plans to make this year.
“We believe these factors will help FLY increase return on equity,” said Barrington.
The move seems to have been well received, with FLY’s shareprice increasing 1.7 per cent following the news.
“The management fee reduction, improvements in FLY’s fleet composition and fleet growth strengthen the firm’s earnings outlook and should result in less earnings volatility over time,” concluded Moody’s as it upgraded FLY’s outlook from stable to positive.
“The company’s aircraft sales will reduce aircraft remarketing and residual risks and lead to more predictable profitability.”
Moody’s assessment will now doubt be music to Barrington’s ears.