Investing.com -- Fitch Ratings has upgraded the Long-Term Issuer Default Rating (IDR) of AerCap Holdings N.V. and its rated subsidiaries to ’BBB+’ from ’BBB’ on Wednesday, March 5, 2025. The Rating Outlook remains stable.

The senior secured debt ratings of AerCap’s debt issuing entities have also been upgraded to ’A-’ from ’BBB+’, while the senior secured debt rating for Delos Aircraft Designated Activity Company and Setanta Aircraft Leasing Designated Activity Company have been upgraded to ’BBB+’ from ’BBB’. The senior unsecured debt ratings have been elevated to ’BBB+’ from ’BBB’, the junior subordinated rating to ’BBB-’ from ’BB+’, and the preferred ratings to ’BB+’ from ’BB’.

Fitch also assigned a ’BBB+’ rating to the senior unsecured debt of Terapon Funding Designated Activity Company and an ’A-’ rating to the senior secured debt of Cygnus Funding Limited.

The ratings upgrade reflects AerCap’s position as the world’s largest aircraft lessor, its business model resilience, sound net margin profitability, solid capital market access, and strong credit metrics. AerCap’s solid asset quality performance, transition to a 75% new technology aircraft target, access to multiple sources of capital, unsecured funding profile, consistent operating cash flow generation, and strong management team also contributed to the upgrade.

However, Fitch noted rating constraints due to the company’s "barbell" portfolio construction strategy, which includes funding and placement risks associated with the company’s orderbook and exposure to less liquid tier 2 and tier 3 aircraft. Other constraints include the monoline nature of the business, vulnerability to exogenous shocks, sensitivity to higher oil prices, inflation and unemployment, potential exposure to residual value risk and reliance on wholesale funding sources.

As of Dec. 31, 2024, AerCap was the largest aircraft lessor globally, with a portfolio of 3,525 aircraft, engines, and helicopters totaling $60.8 billion of average leased assets. The company’s scale provides strategic benefits such as enhanced purchasing power with manufacturers and airline customers, and more available channels to remarket aircraft when needed.

In 2024, AerCap recognized impairments of 0.1% of portfolio value related to lease terminations and sales transactions, which was consistent with historical periods. During the year, the company sold 136 assets for proceeds totaling $3.1 billion, or gains of 27%, underscoring the company’s conservative depreciation policy and approach to asset valuations.

Net spread was 7.2% in 2024, down from 7.7% in 2023, due to higher funding costs. Fitch expects AerCap’s net spread to remain within the ’bbb’ benchmark range of 5% to 15% over the Outlook horizon.

Fitch’s calculated leverage (gross debt to tangible equity) for AerCap was 2.4x as of Dec. 31, 2024. The company’s solid operating cash flows and strength of secondary market aircraft trading helped maintain leverage below management’s target of net debt to equity of 2.7x.

AerCap had $21 billion of liquidity as of Dec. 31, 2024, comprised of cash on hand, committed borrowing capacity, expected aircraft sales and operating cash flow over the next 12 months. These sources of liquidity covered the next 12 months of expected capex and debt maturities of $11 billion by 2.0x.

The Stable Outlook reflects Fitch’s belief that AerCap will maintain sufficient headroom relative to Fitch’s downgrade triggers for liquidity coverage and leverage over the Outlook horizon, despite expectations for increased macro challenges, including elevated market volatility, higher interest rates relative to recent years and growing inflation.

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