AerCap Holdings (AER) announced on Wednesday that it has reached an agreement with Boeing Co. (BA) to cancel 15 of the planemaker’s grounded 737 MAX jets.
Following the cancellation, the aircraft leasing company is still left with 80 Boeing 737 MAX aircraft in its order books, it said. The 737 MAX aircraft was grounded by aviation authorities in March 2019 following two fatal crashes. Boeing temporarily suspended production of the 737 MAX in Jan. 2020, which led to ongoing delays in the delivery of the aircraft on order from the U.S. aerospace giant.
“It is uncertain when and under what conditions our Boeing 737 MAX aircraft will return to service and when Boeing will resume making deliveries of our Boeing 737 MAX aircraft on order,” AerCap said in a statement. “As a result, we expect to incur future delays on our scheduled Boeing 737 MAX deliveries, and any such future delays are likely to have an impact on our financial results.”
Separately, Boeing updated investors on Wednesday that it now expects to resume 737 MAX deliveries to customers more towards the end of the year in the US, a delay from an earlier estimate for the end of September. This could mean that the plane’s resumption to service could move to next year.
AerCap shares have plunged 55% so far this year, as the travel restrictions tied to the Covid-19 pandemic continue to accelerate the crisis in the global aviation industry and throttle demand from airline customers.
Merrill Lynch analyst Ronald Epstein last month downgraded AerCap to Hold from Buy and slashed the price target to $35 (25% upside potential) from $77, citing uncertainty with regard to the future of the air travel and the commercial transport industry post COVID-19 pandemic.
“We see heightened risk to fleet equipment residual values, particularly for mid-life aircraft,” Epstein wrote in a note to investors.
The analyst believes that the stock is likely to underperform its peers with younger fleets and lower debt, such as Air Lease (AL).
The rest of the Street is cautiously optimistic on the stock’s outlook. The Moderate Buy analyst consensus is based on 3 Buy ratings versus 2 Hold ratings. The $38.60 average price target indicates 38% upside potential in the shares over the coming year. (See AER stock analysis on TipRanks)
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