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Aercap Holdings (AER)
NYSE:AER
Risk Overview Q4, 2024
Risk Distribution
26% Legal & Regulatory
21% Finance & Corporate
21% Production
19% Macro & Political
9% Ability to Sell
5% Tech & Innovation
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.
Risk Change Over Time
S&P500 Average
Sector Average
Risks removed
Risks added
Risks changed
Aercap Holdings Risk Factors
New Risk (0)
Risk Changed (0)
Risk Removed (0)
No changes from previous report
The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
Risk Highlights Q4, 2024
Main Risk Category
Legal & Regulatory
With 11 Risks
Legal & Regulatory
With 11 Risks
Number of Disclosed Risks
43
+1
From last reportS&P 500 Average: 31
43
+1
From last reportS&P 500 Average: 31
Recent Changes
1Risks added
0Risks removed
4Risks changed
Since Dec 2024
1Risks added
0Risks removed
4Risks changed
Since Dec 2024
Number of Risk Changed
4
-4
From last reportS&P 500 Average: 3
4
-4
From last reportS&P 500 Average: 3
See the risk highlights of Aercap Holdings in the last period.
Risk Word Cloud
The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.
Risk Factors Full Breakdown - Total Risks 43
Legal & Regulatory
Total Risks: 11/43 (26%)Above Sector Average
Regulation2 | 4.7%
Regulation - Risk 1
We are subject to regulatory and compliance risks and requirements associated with transacting business in many countries.Regulation - Risk 2
In certain countries, an engine affixed to an aircraft may become an accession to the aircraft and we may not be able to exercise our ownership rights over the engine.Under some legal principles, an engine affixed to an aircraft may become an accession to the aircraft, whereby the ownership rights of the owner of the airframe supersede those of the owner of the engine. In such cases, where an aircraft is security for the owner's obligations to a third-party, the security interest in the aircraft may supersede our rights as owner of the engine. As a substantial part of the value of an aircraft derives from its engines, we would suffer a substantial loss if our ability to repossess a leased engine were limited in the event of a lease default, which could materially and adversely affect our financial results.
Litigation & Legal Liabilities1 | 2.3%
Litigation & Legal Liabilities - Risk 1
Existing and future litigation could materially and adversely affect our business, financial position, liquidity or results of operations.Taxation & Government Incentives6 | 14.0%
Taxation & Government Incentives - Risk 1
We may become a passive foreign investment company ("PFIC") for U.S. federal income tax purposes.Taxation & Government Incentives - Risk 2
We may become subject to income or other taxes in jurisdictions which would adversely affect our financial results.We and our subsidiaries are subject to the income tax laws of Ireland, the United States and other jurisdictions in which our subsidiaries are incorporated or based. Our effective tax rate in any period is impacted by the source and the amount of earnings among our different tax jurisdictions. Our ability to defer the payment of some level of income taxes to future periods is dependent upon the continued benefit of accelerated tax depreciation on our flight equipment in some jurisdictions, the continued deductibility of external and intercompany financing arrangements and the application of tax losses prior to their expiration in certain tax jurisdictions, among other factors. A change in the division of our earnings among our tax jurisdictions could have a material impact on our effective tax rate and our financial results. In addition, we or our subsidiaries may be subject to additional income or other taxes in these and other jurisdictions by reason of the management and control of our subsidiaries, our activities and operations, where our aircraft operate, where the lessees of our aircraft (or others in possession of our aircraft) are located or changes in tax laws or practices, regulations or accounting principles. We rely on certain double tax treaties to mitigate withholding tax and/or income tax on our lease rental income. Following various international tax changes (such as the OECD's Multilateral Instrument project), tax authorities are more focused on entitlement to benefits of a tax treaty. Although we have adopted guidelines and operating procedures to ensure our subsidiaries are appropriately managed and controlled, we may be subject to such taxes in the future and such taxes may be substantial. The imposition of such taxes could have a material adverse effect on our financial results.
Taxation & Government Incentives - Risk 3
We may become subject to additional taxes in Ireland based on the extent of our operations carried on in Ireland.Our Irish tax resident group companies are currently subject to Irish corporate income tax on trading income at a rate of 12.5%, on capital gains at 33% and on other income at 25%. Where the 12.5% rate applies to our income, we incur additional top-up tax charges as a result of the Pillar Two minimum tax rate rules that Ireland has enacted, which seek to ensure that companies are taxed at a minimum effective tax rate of 15% on their Pillar Two adjusted income. As of December 31, 2024, we had significant Irish tax losses available to carry forward against our trading income. The ability to carry forward Irish tax losses to offset future taxable trading income and to avail of the 12.5% rate depends in part on the extent and nature of activities carried on in Ireland, both in the past and in the future. Certain aspects of the Irish leasing regime have been codified into law in Finance Act (No.#2) 2023, with effect from January 1, 2024, and new guidance was released in 2024 regarding the tax treatment of leasing companies. Going forward, the combination of the revised law and final guidance imposes a higher threshold on the Irish lessors and financing companies within our group to demonstrate that they have sufficient activity to avail of the 12.5% rate on their leasing and financing activity.
Taxation & Government Incentives - Risk 4
The EU Anti-tax Avoidance proposals may impact our effective rate of tax in future periods.Irish tax law will be subject to changes as a result of the implementation of the EU Anti-Tax Avoidance Directive ("EU ATAD") and the amending Directive ("EU ATAD 2").
In 2021, the European Commission issued a proposal for a council directive to establish rules to prevent the misuse of shell entities for tax purposes within the EU ("EU ATAD 3") and has since issued a number of draft amendments to this directive. While EU ATAD 3 was initially expected to be adopted and published into EU member states' national laws by June 30, 2023, and become effective as of January 1, 2024, it has not yet become effective and there is considerable uncertainty surrounding the development of the proposal and its implementation. Discussions on this proposal remain ongoing at the EU Council level and it is unclear if it will be possible to reach agreement on the proposal. If not approved, it is possible that the EU Commission could develop an alternative proposal that could impact our business. EU ATAD 3 could result in additional reporting and disclosure obligations.
Taxation & Government Incentives - Risk 5
The U.S. Corporate Alternative Minimum Tax ("CAMT") may impact our effective tax rate in future periods.In 2022, the United States enacted the Inflation Reduction Act, which includes a 15% corporate alternative minimum tax on adjusted financial statement income ("AFSI"). For a U.S. corporation that is a member of a foreign-parented multi-national group ("FPMG"), the CAMT applies where (i) the three-year average annual AFSI from all members of the foreign-parented multi-national group exceeds $1 billion, and (ii) the three-year average annual AFSI from the group's U.S. corporation(s) is $100 million or more. Initial guidance included a safe harbor rule applicable to the first tax year beginning after 2022, lowering the thresholds for global three-year average AFSI to $500 million and U.S. AFSI to $50 million (the "Simplified Method"), eliminating the reporting obligation in 2023. We used the Simplified Method for the 2023 tax year. The Internal Revenue Service ("IRS") has issued recent guidance on the application and calculation of the CAMT in proposed regulations, but significant additional guidance is required to reasonably comply with the rules. We expect that final regulations will be promulgated in 2025 by the U.S. Treasury. As such, the CAMT's impact on our effective tax rate for 2024 and future years remains uncertain.
Taxation & Government Incentives - Risk 6
We may fail to qualify for benefits under one or more tax treaties.We do not expect that our subsidiaries located outside of the United States will have any material U.S. federal income tax liability by reason of activities we carry out in the United States and the leasing of assets to lessees that operate in the United States. This conclusion will depend, in part, on continued qualification for the benefits of income tax treaties between the United States and other countries in which we are subject to tax (particularly Ireland), and further that our Irish subsidiaries take steps to ensure they do not have a permanent establishment in the United States. That qualification may depend on, among other factors, the nature and level of activities carried on by us and our subsidiaries in each jurisdiction, the identity of the owners of equity interests in subsidiaries that are not wholly owned and the identities of the direct and indirect owners of our indebtedness.
The nature of our activities may be such that our subsidiaries may not continue to qualify for the benefits under income tax treaties with the United States and may not otherwise qualify for treaty benefits. Failure to so qualify could result in the imposition of U.S. federal and state taxes, which could have a material adverse effect on our financial results.
Environmental / Social2 | 4.7%
Environmental / Social - Risk 1
Our assets are subject to various environmental regulations and concerns, including those relating to climate change.Environmental / Social - Risk 2
Corporate responsibility, specifically related to environmental, social and governance ("ESG") matters, may impose additional costs and expose us to new risks.Public ESG and sustainability reporting is becoming more broadly expected by lenders, investors, shareholders and other third parties. Additionally, certain jurisdictions have proposed or enacted ESG-specific reporting requirements, such as the EU Corporate Sustainability Reporting Directive. Certain organizations that provide corporate governance and other corporate risk information to investors and shareholders have developed, and others may in the future develop, scores and ratings to evaluate companies and investment funds based upon ESG or "sustainability" metrics. The level of a company's greenhouse gas emissions is one such metric that is receiving heightened attention by lenders, investors, shareholders and lawmakers. Many investment funds focus on positive ESG business practices and sustainability scores when making investments and may consider a company's ESG or sustainability scores as a reputational or other factor in making an investment decision. Moreover, investors, particularly institutional investors, use these scores to benchmark companies against their peers, and if a company is, or is perceived as, lagging, these investors may engage with the company to improve ESG disclosure or performance and may also make voting decisions, or take other actions, to attempt to hold these companies and their boards of directors accountable for such scores. In addition, current EU regulations require financial firms to disclose how sustainability risks are incorporated into their lending decisions, and further regulations in the EU, and similar regulations in the United States and other jurisdictions, may come into force in the future. Such regulations may encourage or require lenders to consider the sustainability impact of their loans, and if we, or the aviation sector generally, become disfavored, the availability or terms of financing and our cost of funds could be materially and adversely impacted. We may also face reputational damage in the event our corporate responsibility initiatives or objectives (including with respect to greenhouse gas emissions) do not meet (or are perceived not to meet) the standards set by our lenders, investors, shareholders, lawmakers or other constituencies, or if we are unable to achieve an acceptable ESG or sustainability rating from third-party rating services. A low ESG or sustainability rating or score by a third-party rating service could also result in the exclusion of our common stock or debt from consideration by certain investors who may elect to invest with our competition instead. Ongoing focus on ESG-related corporate responsibility matters by lenders, investors, lawmakers and other parties as described above may impose additional costs or expose us to new risks.
Finance & Corporate
Total Risks: 9/43 (21%)Below Sector Average
Share Price & Shareholder Rights1 | 2.3%
Share Price & Shareholder Rights - Risk 1
We are a public limited liability company incorporated in the Netherlands ("naamloze vennootschap" or "N.V.") and it may be difficult to obtain or enforce judgments against us or our executive officers, some of our directors and some of our named experts in the United States.Accounting & Financial Operations1 | 2.3%
Accounting & Financial Operations - Risk 1
We may not be able to continue, or may elect to discontinue, paying dividends, which may adversely affect our share price.Added
Debt & Financing7 | 16.3%
Debt & Financing - Risk 1
We require significant capital to fund our business.Debt & Financing - Risk 2
To service our debt and meet our other cash needs, we will require a significant amount of cash, which may not be available.Our ability to make payments on, and to repay or refinance, our debt depends largely upon our operating performance, which is in part subject to factors beyond our control. In addition, our ability to borrow funds to make payments on our debt depends on our maintaining specified financial ratios and satisfying financial condition tests and other covenants in certain of the agreements governing our debt. Our business may not generate sufficient cash flow from operations and future borrowings may not be available in amounts sufficient to pay our debt and to satisfy our other liquidity needs.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to seek alternatives, such as to reduce or delay investments and flight equipment purchases, sell assets, restructure or refinance our indebtedness, or seek additional capital, including through new types of debt, equity or hybrid securities. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates, which would increase our debt service requirements accordingly. Moreover, any such refinancing might require us to comply with more onerous covenants, which could further restrict our business operations. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations or to meet our flight equipment purchase commitments as they come due. Failure to make payments on our debt would result in a default under those agreements and could result in a default under other agreements containing cross default provisions. Moreover, the issuance of additional equity may be dilutive to existing shareholders or otherwise may be on terms not favorable to us or existing shareholders. Under these circumstances, we may have insufficient funds or other resources to satisfy all our obligations.
Debt & Financing - Risk 3
Despite our substantial indebtedness, we might incur significantly more debt.Despite our current indebtedness levels, we may increase our levels of debt in the future to finance our operations, including to purchase aircraft, engines or helicopters or to meet our contractual obligations, or for any other purpose. The agreements relating to our debt, including our indentures, term loan facilities, Export Credit Agency ("ECA")-guaranteed financings, revolving credit facilities, securitizations, other commercial bank financings, and other financings do not prohibit us from incurring additional debt. As of December 31, 2024, we had $11.3 billion of undrawn lines of credit available under our revolving credit and term loan facilities, subject to certain conditions, including compliance with certain financial covenants. If we increase our total indebtedness, our debt service obligations will increase, and we will become more exposed to the risks arising from our substantial level of indebtedness.
Debt & Financing - Risk 4
Our level of indebtedness, which requires significant debt service payments, could adversely impact our operating flexibility and financial results.The principal amount of our outstanding indebtedness, which excludes debt issuance costs, debt discounts and debt premium of $243 million, was $45.5 billion as of December 31, 2024 (64% of our total assets as of December 31, 2024), and our interest payments, net of amounts capitalized, were $1.8 billion for the year ended December 31, 2024. Due to the capital-intensive nature of our business, we expect that we will incur additional indebtedness in the future and continue to maintain significant levels of indebtedness.
Our level of indebtedness:
- requires a substantial portion of our cash flows from operations to be dedicated to interest and principal payments and therefore not available to fund our operations, working capital, capital expenditures, expansion, acquisitions or general corporate or other purposes;- may impair our ability to obtain additional financing on favorable terms or at all in the future;- may limit our flexibility in planning for, or reacting to, changes in our business and industry; and - may make us more vulnerable to downturns in our business, our industry or the economy in general.
Debt & Financing - Risk 5
The agreements governing our debt contain various covenants that impose restrictions on us that may affect our ability to operate our business.Certain of our indentures, term loan facilities, ECA-guaranteed financings, revolving credit facilities, securitizations, other commercial bank financings, and other agreements governing our debt impose operating and financial restrictions on our activities that limit our operational flexibility. Among other negative covenants customary for such financings, certain of these restrictions limit our ability to incur additional indebtedness, create liens on, sell or access certain assets, declare or pay certain dividends and distributions or enter into certain transactions, investments, acquisitions, loans, guarantees or advances. Additionally, a substantial portion of our owned aircraft are held through Special Purpose Entities ("SPEs") or finance structures that finance or refinance the aircraft through funding agreements that place restrictions on distributions of funds to us.
Agreements governing certain of our indebtedness also contain financial covenants, including requirements that we comply with certain loan-to-value, interest coverage and leverage ratios. These restrictions could impede our ability to operate our business by, among other things, limiting our ability to take advantage of financing, merger and acquisition and other corporate opportunities. Our ability to comply with these covenants may be affected by events beyond our control including war or other hostilities or the imposition of sanctions. Please refer to the discussion in "Item 3. Key Information-Risk Factors-Risks related to the geopolitical, regulatory, corporate responsibility and legal exposure of our business-The international operations of our business and those of our lessees expose us to geopolitical risks that may have a negative impact on our and our lessees' businesses, including the risk of legal and regulatory responses." Failure to comply with any of the covenants in our financing agreements would result in a default under those agreements and could result in a default under other agreements containing cross-default provisions. Under these circumstances, we may have insufficient funds or other resources to satisfy all our obligations.
Debt & Financing - Risk 6
Changes in interest rates may adversely affect our net income, particularly by increasing our cost of borrowing.Like many leasing companies, we are subject to interest rate risk. We use a mix of fixed rate and floating rate debt to finance our business. The principal amount of our outstanding floating rate debt was $11.0 billion, or 24% of the total principal amount of our outstanding indebtedness, as of December 31, 2024. Our cost of borrowing is affected by the interest rates that we obtain on our debt financings, which can fluctuate based on, among other things, general market conditions, the market's assessment of our credit risk, prevailing interest rates in the market, fluctuations in U.S. Treasury rates and other benchmark rates, changes in credit spreads or swap spreads, and the duration of the debt we issue. While we routinely enter into hedging transactions to mitigate this risk, those hedging transactions may not sufficiently insulate us from the impact of changes in interest rates and may cause us to forgo any benefit that might result from favorable fluctuations in such rates. In addition, we are exposed to the credit risk that the counterparties to our derivative contracts will default on their obligations. Please refer to "Item 11. Quantitative and Qualitative Disclosures About Market Risk-Interest rate risk" for further details on our interest rate risk. One of our primary sources of income is leases with multi-year fixed rates. A mismatch in the rates that we are obligated to pay to finance our business and the rents that accrue to us under leases of our flight equipment can negatively impact our net income.
Despite rate decreases during the year ended December 31, 2024, interest rates remain at high levels in the United States, the European Union and other countries, and may remain high during 2025. In a high interest rate environment, we are obligated to make higher interest payments to the lenders of our floating rate debt, which negatively impacts our net income to the extent that those payments are not hedged. Higher rates are also likely to increase the cost of any new financing we may raise during this period, which could, if not hedged, impact our net income. Typically, we are not able to immediately offset this negative impact by increasing the rates on our leases. During the year ended December 31, 2024, 99% of our basic lease rents from flight equipment under operating leases was attributable to leases with fixed lease rates or power-by-the-hour ("PBH") agreements and 1% was derived from leases with lease rates tied to floating interest rates. As our leases are primarily for multiple years with fixed lease rates for the duration of the lease, we generally cannot increase the lease rates with respect to a particular aircraft until the expiration of the lease, even if the market is able to bear the increased lease rates. As a result, there will be a lag in our ability to adjust and pass on the costs of increasing interest rates. Rising interest rates may also have a negative impact on the financial condition of our lessees, who may find it more difficult to service their debt and obtain new financing on favorable terms. While most of our leases have fixed lease rates, some lessees do have floating rate leases, and rising interest rates may increase the risk of a lessee with floating rate lease rates defaulting as payments due to us increase.
We are also exposed to certain risks from interest rate decreases. Decreases in interest rates may adversely affect our interest revenue on cash deposits and our lease revenue, in part because a decrease in interest rates would cause a decrease in our lease revenue from leases with lease rates tied to floating interest rates. We could also experience reduced lease revenue from our fixed rate leases if interest rates decrease because these are based, in part, on prevailing interest rates at the time we enter into the lease. As a result, new fixed rate leases we enter into at a time of lower interest rates may be at lower lease rates than had no such interest rate decrease occurred, adversely affecting our lease revenue. This may be particularly harmful to our business if we incur debt at higher interest rates and enter into leases at a time of lower interest rates.
Debt & Financing - Risk 7
Negative changes in our credit ratings may limit our ability to obtain financing or increase our borrowing costs.Our cost of borrowing and access to the capital markets are affected by our credit ratings.
We are currently subject to periodic review by independent credit rating agencies S&P, Moody's and Fitch, each of which currently maintains an investment grade rating with respect to us.
We cannot assure you that these credit ratings will remain in effect for any given period of time or that a rating will not be lowered, suspended or withdrawn. Any actual or anticipated changes in our credit ratings could negatively impact our ability to obtain secured or unsecured financing, increase our borrowing costs or limit our access to the capital markets, which could adversely impact our financial results.
Production
Total Risks: 9/43 (21%)Below Sector Average
Manufacturing1 | 2.3%
Manufacturing - Risk 1
We may be unable to generate sufficient returns on our flight equipment investments.Employment / Personnel1 | 2.3%
Employment / Personnel - Risk 1
If our lessees encounter financial difficulties and we restructure or terminate our leases, including as a result of customer reorganizations or bankruptcies, we are likely to obtain less favorable lease terms.Supply Chain2 | 4.7%
Supply Chain - Risk 1
Manufacturer behavior may adversely affect the lease rates and value of aircraft in our fleet or our results of operations more broadly.Supply Chain - Risk 2
The financial instability of, or manufacturing delays suffered by, an aircraft or engine manufacturer or other industry partner could impact delivery of our flight equipment on order and negatively affect our cash flow and results of operations.Changed
The supply of commercial aircraft is dominated by Airbus and Boeing and there are a limited number of engine manufacturers. There is a risk that disruptions, including supply chain issues, labor stoppages, manufacturing and quality control issues, and any financial instability, at any of these manufacturers could harm our business, as our ability to deliver new aircraft and engines to our lessees depends on these manufacturers timely fulfilling their contractual delivery obligations to us. Further, we may experience additional delivery delays and associated costs if aircraft manufacturers continue to encounter quality issues that delay the manufacture of new aircraft or those aircraft fail to meet the contractual requirements or the requirements of air travel regulators. For example, the suspension of deliveries of the Boeing 787, production halts and enhanced inspection procedures required in advance of certification and clearance for delivery of Boeing aircraft have led to delays in the delivery of our aircraft on order from Boeing. A fuselage quality control issue identified on Boeing 737 MAX 9 aircraft in early 2024, and the resulting Federal Aviation Administration ("FAA") limits on expansion of 737 MAX production, have contributed to additional delays. The "Big Twin" freighter program between AerCap Cargo and Israel Aerospace Industries, which involves the conversion of Boeing 777-300ER aircraft into long-haul large-capacity freighters, has also encountered delivery delays, due to delays in achieving regulator certification. Delivery delays can materially affect our revenues, results of operations, net income and operating cash flows. For additional detail, please refer to "Item 3. Key Information-Risk Factors-Risks relating to market demand for, and lease rates and value of, flight equipment in our fleet-Manufacturer behavior may adversely affect the lease rates and value of aircraft in our fleet or our results of operations more broadly."
Our leases contain lessee cancellation clauses related to aircraft delivery delays, typically for new aircraft delivery delays greater than one year, and our purchase agreements contain similar provisions. If there are delivery delays for aircraft for which we have made future lease commitments, some or all of our affected lessees could elect to terminate their lease arrangements with respect to such delayed aircraft. Any such termination could negatively affect our cash flow and results of operations.
Costs5 | 11.6%
Costs - Risk 1
Our insurance policies, including our use of a captive insurance company, may not provide adequate protection against risks, events outside of our control may cause insurers to raise premiums and/or reduce or cancel available coverage, and we may not be able to recover losses under our policies.Costs - Risk 2
We suffered losses as a result of the Ukraine Conflict for which we have submitted insurance claims, and we may not be able to collect under all policies in a timely manner or at all.As a result of the Ukraine Conflict, in addition to reduced revenues and operating cash flows, we suffered losses with respect to our assets that have remained in Russia and Ukraine. We have submitted, and are pursuing, insurance claims in respect of these assets. Please refer to Note 25-Net (recoveries) charges related to Ukraine Conflict to our Consolidated Financial Statements included in this annual report for further details.
Costs - Risk 3
Increases in fuel prices and fuel price volatility could affect our lessees' ability to meet their lease payment obligations to us.The cost of fuel represents a major expense to airlines that is not within their control, and significant increases in fuel costs or hedges that inaccurately assess the direction of fuel costs can materially and adversely affect their operating results. Historically, fuel prices have fluctuated widely depending primarily on international market conditions, geopolitical and environmental events and currency exchange rates, including events, such as natural disasters and wars, that affect fuel supply. For example, predominantly as a result of the Ukraine Conflict and resulting sanctions imposed by various governments on Russia, in 2022 oil prices and jet fuel prices rose to their highest levels since 2008.
Due to the competitive nature of the aviation industry, operators may be unable to increase airfares in a manner that fully offsets increases in fuel costs. In addition, they may not be able to enter appropriate hedging positions to manage their exposure to fuel price fluctuations. Airlines that hedge their fuel costs may suffer adverse impacts to their profitability and liquidity from swift movements in fuel prices, if their hedge agreements require them to post cash collateral. Therefore, if for any reason fuel prices return to historically high levels or show significant volatility, our lessees are likely to incur higher costs or generate lower revenues, which may affect their ability to meet their obligations to us.
Costs - Risk 4
If our lessees fail to cooperate in returning our assets following lease terminations, we may encounter obstacles and are likely to incur significant costs and expenses conducting repossessions.Our legal rights and the relative difficulty of repossession vary significantly depending on the jurisdiction in which our flight equipment is located and the applicable law. We may need to obtain a court order or consents for deregistration or re-export, a process that can differ substantially in different countries. Where a lessee or other operator flies only domestic routes in the jurisdiction in which the asset is registered or in which the lessee operator is based, repossessing and exporting the asset may be challenging, especially if the jurisdiction permits the lessee or the other operator to resist deregistration or export of the asset. For example, due to the Ukraine Conflict and sanctions imposed against Russia, we sought to repossess all of our aircraft and engines from Russian airlines and remove them from Russia, but we were unable to repossess the vast majority of those assets. Please refer to Note 25-Net (recoveries) charges related to Ukraine Conflict to our Consolidated Financial Statements included in this annual report for further details.
When a defaulting lessee is in bankruptcy, protective administration, insolvency or similar proceedings, additional limitations may apply. For example, certain jurisdictions entitle the lessee or another third-party to retain possession of the flight equipment without paying lease rent or performing all or some of the obligations under the relevant lease. Certain of our lessees are partially or wholly owned by government-related entities, which can complicate our efforts to repossess our aircraft in that government's jurisdiction. If we encounter any of these difficulties, we may be delayed in, or prevented from, enforcing certain of our rights under a lease and in re-leasing the affected flight equipment.
When conducting a repossession, we are likely to incur significant costs and expenses that are unlikely to be recouped, including, for example, legal and regulatory expenses, taxes, lost revenue, maintenance and refurbishment and repair costs necessary to put the flight equipment in suitable condition for re-lease or sale. We may also make payments to discharge liens placed on our flight equipment by third parties and, until these liens are discharged, be restricted in our ability to repossess, release or sell our flight equipment. Although the financial obligations relating to these liens are the contractual responsibility of our lessees, if they fail to fulfill these obligations, such liens may ultimately become our responsibility and impose additional repossession costs on us. If we incur significant costs in repossessing our flight equipment, our financial results may be materially and adversely affected.
Costs - Risk 5
We have limited control over the operation of our flight equipment while it is under lease and depend on our lessees to properly maintain and insure our flight equipment.While our flight equipment is on lease, we do not directly control its operation. Under our leases, our lessees are primarily responsible for maintaining our assets, obtaining adequate levels of insurance and complying with all governmental requirements applicable to the lessee and the flight equipment, including operational, maintenance, government agency oversight, registration requirements and airworthiness directives. We also require many of our lessees to pay us supplemental maintenance rents. Nevertheless, because we still own and hold title to the flight equipment, we could be exposed to costs or losses resulting from a lessee's failure to properly maintain an asset under lease or be held liable for losses resulting from its operation while under lease. If a lessee fails to perform required maintenance on our asset during the term of the lease, the asset's market value may decline or we might be required to incur maintenance and modification costs, which would result in lower revenues from its subsequent lease or sale, or the asset might be grounded. Additionally, if our lessees are unable to procure, or fail to maintain, adequate insurance coverage, default in their indemnification or insurance obligations to us, or are exposed to losses for which they do not have coverage, our lessees' operations may be curtailed or halted, and we could face increased costs from pursuing corrective action or face reductions in, or the absence of, insurance proceeds that would otherwise be payable to us in the case of loss. If our lessees fail to meet their obligations to pay supplemental maintenance rents or end-of-lease ("EOL") compensation, fail to perform required scheduled maintenance, fail to obtain and maintain insurance coverage for losses to which they are exposed, or if we are required to incur unexpected costs associated with any of the above, our financial results may be materially and adversely affected.
Macro & Political
Total Risks: 8/43 (19%)Above Sector Average
Economy & Political Environment2 | 4.7%
Economy & Political Environment - Risk 1
Organisation for Economic Co-operation and Development's ("OECD") Base Erosion and Profit Shifting ("BEPS") initiative.Economy & Political Environment - Risk 2
Inflationary pressure may have a negative impact on our financial results, including by diminishing the value of our leases.After a sustained period of relatively low inflation rates, rates of inflation increased significantly during the years ended December 31, 2022 and 2023, reaching or exceeding recent historical highs in the United States, the European Union and other countries. Rates of inflation have decreased in a number of these countries during the year ended December 31, 2024. However, recent political developments, including the change in the U.S. presidential administration, could result in tariffs or other new policies which could be inflationary. High rates of inflation may have a number of adverse effects on our business. Inflation may increase the costs of goods, services and labor used in our operations, thereby increasing our expenses. To the extent that we derive our income from leases with fixed rates of payment, high rates of inflation will cause a greater decrease in the value of those payments than had the rates of inflation remained lower. Because our leases are generally for multi-year periods, there may be a lag in our ability to adjust the lease rates for a particular aircraft, engine or helicopter accordingly. High rates of inflation may also lead policymakers to attempt to decrease demand or to adopt higher interest rates to combat inflationary pressures, resulting in the risks detailed in "Item 3. Key Information-Risk Factors-Risks relating to our funding, liquidity and financial structure-Changes in interest rates may adversely affect our net income, particularly by increasing our cost of borrowing." Our suppliers and lessees may also be subject to material adverse effects as a result of high rates of inflation, including as a result of the impact on their financial condition, changes in demand patterns, price volatility, and supply chain disruption.
International Operations3 | 7.0%
International Operations - Risk 1
Where we have a concentration of lessees or assets in certain geographical regions, the geopolitical, political and economic risks associated with those regions, particularly China, can be exacerbated.Changed
International Operations - Risk 2
The international operations of our business and those of our lessees expose us to geopolitical risks that may have a negative impact on our and our lessees' businesses, including the risk of legal and regulatory responses.Our business, and the aviation industry generally, is subject to certain geopolitical risks. Geopolitical turmoil and uncertainty can have a significant disruptive effect on global markets, lead to regulatory and legal uncertainty and the imposition of requirements that may adversely affect our business, and impact trade markets, currency exchange rates, supply chains, and demand for and regulation concerning international and domestic travel, among other areas. This could have a negative impact on our ability to lease aircraft, engines and helicopters to, collect payments from, and support and recover aviation assets from customers in certain regions based on trade restrictions, embargoes, and export control laws, and could disrupt airline travel through, among other avenues, the closures of air space. Sanctions, including prohibitions regarding the supply of aircraft and aircraft components to specific persons, or for use in specific territories, may have a material adverse impact on our business, including reduced revenues and operating cash flows and the impairment or write-off of assets. For example, the Russian invasion of Ukraine and continued conflict in that area (the "Ukraine Conflict"), the resulting sanctions imposed against Russia and actions of our former Russian lessees and the Russian government had an adverse impact on our business and resulted in our loss of flight equipment, and associated revenue, in Russia.
Future geopolitical events and their associated responses, particularly in or between countries and regions where we have substantial exposure, could have similar or worse effects on our operations and financial results. For example, tensions and potential conflict between mainland China and Taiwan, tensions between China and the United States, territorial disputes between Japan and China or tensions in the South China Sea could lead to further instability in these regions and materially and adversely impact our lessees' businesses and our business and results of operations, including our ability to comply with financial covenants. Please refer to the discussion in "Item 3. Key Information-Risk Factors-Risks related to our funding, liquidity and financial structure-The agreements governing our debt contain various covenants that impose restrictions on us that may affect our ability to operate our business." Our business, and that of our lessees, may also be negatively impacted by escalation or the continuation of the Ukraine Conflict or other hostilities in that region or between Russia and the North Atlantic Treaty Organization, intensification or expansion of the conflicts involving Israel or other tensions or conflicts in the Middle East, the situation in Venezuela and Sudan, continued tension over the nuclear programs of North Korea and Iran, or political instability, hostilities or conflicts in other regions.
Additionally, the international distribution of our assets exposes us to risks associated with limitations on the repossession and repatriation of our assets or the expropriation of our assets, which could lead to impairments or other write-offs. For example, at the time of Russia's launch of the Ukraine Conflict, we had significant assets on lease to Russian airlines. While we sought to repossess the affected assets, we were only able to recover a small minority of the assets and in 2022 wrote-off the rest of our flight equipment which remained in Russia. Please refer to Note 25-Net (recoveries) charges related to Ukraine Conflict to our Consolidated Financial Statements included in this annual report for further details.
International Operations - Risk 3
We conduct substantial business in emerging markets, and are subject to the economic, legal and political risks associated with this strategy.We derive substantial lease revenue (49% in 2024, 53% in 2023 and 53% in 2022) from airlines in countries that are defined as emerging market countries based on the Human Development Index published by the United Nations Development Programme. Emerging market countries have less developed economies, are more vulnerable to economic and political problems and may experience significant fluctuations in gross domestic product, interest rates and currency exchange rates, as well as civil disturbances, government instability, nationalization and expropriation of private assets and the imposition of taxes or other charges by government authorities. The occurrence of any of these events could result in economic instability that adversely affects the value of our ownership interest in flight equipment subject to lease in such countries, or the ability of our lessees that serve such markets to meet their lease obligations. As a result, lessees that operate in emerging market countries may be more likely to default than lessees that operate in developed countries. In addition, legal systems in emerging market countries may be less developed, which could make it more difficult for us to enforce our legal rights in such countries. For these and other reasons, our financial results may be materially and adversely affected by economic and political developments in emerging market countries.
Natural and Human Disruptions2 | 4.7%
Natural and Human Disruptions - Risk 1
Global or regional public health developments, extreme weather or natural disasters or other force majeure events may adversely affect the demand for air travel, the financial condition of our lessees and the aviation industry more broadly, and ultimately our financial condition, results and cash flows.Natural and Human Disruptions - Risk 2
The effects of, or the threat of, terrorist attacks, war or armed hostilities may adversely affect the financial condition of the airline industry and our lessees' ability to meet their lease payment obligations to us.Changed
Terrorist attacks and the threat of terrorist attacks, war or armed hostilities, or the fear of such events, have historically had a negative impact on the aviation industry and could result in:
- higher costs to airlines due to the increased security measures;- decreased passenger and air cargo demand and revenue;- the imposition of "no-fly zone" or other restrictions on commercial airline traffic in certain regions;- uncertainty of the price and availability of jet fuel and the cost and practicability of obtaining fuel hedges;- higher financing costs and difficulty in raising the desired amount of proceeds on favorable terms, if at all;- significantly higher premiums or reduced coverage amounts for aviation insurance coverage for future claims caused by acts of war, terrorism, sabotage, hijacking and other similar perils, which may be insufficient to comply with the current requirements of aircraft lenders and lessors or applicable government regulations, or the unavailability or cancellation of certain types of insurance, as generally evidenced by the change in the war insurance market, and by the imposition by insurers of new geographical limits and restrictions on airlines' policies;- reliance by aircraft lenders or lessors on government programs for specified types of aviation insurance, which may not be available at the relevant time or under which governments may not pay in a timely fashion;- inability of airlines to reduce their operating costs and conserve financial resources, taking into account the increased costs incurred as a consequence of such events;- special charges recognized by some operators, such as those related to the impairment of aircraft and engines and other long-lived assets stemming from the grounding of aircraft as a result of terrorist attacks, economic conditions and airline reorganizations; and - an airline becoming insolvent and/or ceasing operations.
Such events are likely to cause our lessees to incur higher costs and to generate lower revenues, which could result in a material adverse effect on their financial condition and liquidity, including their ability to make rental and other lease payments to us or to obtain the types and amounts of insurance we require. Such events could also impact the operations of our lessees and could lead to aircraft or fleet groundings (for instance due to cancellation of war insurance cover) or additional lease restructurings and repossessions, increase our cost of re-leasing or selling flight equipment, impair our ability to re-lease or otherwise dispose of flight equipment on favorable terms or at all, or reduce the proceeds we receive for our flight equipment in a disposition.
Capital Markets1 | 2.3%
Capital Markets - Risk 1
Instability in the banking system or financial markets could impair our lessees' ability to finance their operations, which could affect their ability to comply with payment obligations to us.Ability to Sell
Total Risks: 4/43 (9%)Below Sector Average
Competition1 | 2.3%
Competition - Risk 1
Competition and changes in market participants, including lessors, manufacturers and aircraft lessees, may adversely affect our business operations.Demand2 | 4.7%
Demand - Risk 1
Our business depends heavily on the level of demand for flight equipment in our fleet, which may decline as a result of changes in market conditions and the overall health of air travel.Demand - Risk 2
If a decline in demand for certain assets causes a decline in their projected lease rates and residual values, or if we expect to dispose of an asset for a price that is less than its depreciated book value on our balance sheet, then we will recognize impairments or make fair value adjustments.Changed
We test long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. If the sum of the expected undiscounted future cash flows is less than the asset value (including the lease-related assets and liabilities of that asset, such as the maintenance rights assets, lease incentives, and maintenance liabilities), an impairment loss is recognized. The loss is measured as the excess of the carrying value of the asset over its estimated fair value. Factors that may contribute to impairment charges include, but are not limited to, unfavorable airline industry trends affecting the residual values of certain flight equipment types, high fuel prices and development of more fuel-efficient aircraft shortening the useful lives of certain aircraft, management's expectations that certain flight equipment is more likely than not to be parted-out or otherwise disposed of sooner than their expected life, and new technological developments. Cash flows supporting carrying values of older flight equipment are more dependent upon current lease contracts.
If economic conditions deteriorate, we may be required to recognize impairment losses. In that event, our estimates and assumptions regarding forecasted cash flows from our long-lived assets would need to be reassessed, including the duration of the economic downturn and the timing and strength of the pending recovery, both of which are important variables for purposes of our long-lived asset impairment tests. Any of our assumptions may prove to be inaccurate, which could adversely impact forecasted cash flows of certain long-lived assets, especially for older aircraft. If so, it is possible that there may be an event-driven impairment for other long-lived assets in the future and that any such impairment amounts may be material.
As of December 31, 2024, 401 of our owned passenger aircraft under operating leases were 15 years of age or older. These aircraft represented 9% of our total flight equipment and lease-related assets and liabilities as of December 31, 2024. Please refer to "Item 5. Operating and Financial Review and Prospects-Critical accounting estimates-Flight equipment held for operating leases, net" for a detailed description of our impairment policy.
Sales & Marketing1 | 2.3%
Sales & Marketing - Risk 1
Our financial condition is dependent, in part, on the financial strength of our lessees.Tech & Innovation
Total Risks: 2/43 (5%)Below Sector Average
Cyber Security1 | 2.3%
Cyber Security - Risk 1
A cybersecurity incident, including a ransomware attack, could lead to a material disruption of our information systems or the information systems of our third-party providers, the loss of business information or losses attributable to fraud, which may hinder our ability to conduct our business effectively or result in lost revenues or other costs.Technology1 | 2.3%
Technology - Risk 1
We could suffer material damage to, or interruptions in, our information systems or the information systems of our third-party providers as a result of external factors, staffing shortages or difficulties in updating our existing software or developing or implementing new software.See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.
FAQ
What are “Risk Factors”?
Risk factors are any situations or occurrences that could make investing in a company risky.
The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.
They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.
It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.
How do companies disclose their risk factors?
Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.
Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.
Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.
According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.
How can I use TipRanks risk factors in my stock research?
Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.
You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.
Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.
A simplified analysis of risk factors is unique to TipRanks.
What are all the risk factor categories?
TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.
1. Financial & Corporate
- Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
- Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
- Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
- Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.
2. Legal & Regulatory
- Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
- Regulation – risks related to compliance, GDPR, and new legislation.
- Environmental / Social – risks related to environmental regulation and to data privacy.
- Taxation & Government Incentives – risks related to taxation and changes in government incentives.
3. Production
- Costs – risks related to costs of production including commodity prices, future contracts, inventory.
- Supply Chain – risks related to the company’s suppliers.
- Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
- Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.
4. Technology & Innovation
- Innovation / R&D – risks related to innovation and new product development.
- Technology – risks related to the company’s reliance on technology.
- Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
- Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.
5. Ability to Sell
- Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
- Competition – risks related to the company’s competition including substitutes.
- Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
- Brand & Reputation – risks related to the company’s brand and reputation.
6. Macro & Political
- Economy & Political Environment – risks related to changes in economic and political conditions.
- Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
- International Operations – risks related to the global nature of the company.
- Capital Markets – risks related to exchange rates and trade, cryptocurrency.