AerCap Holdings N.V.

Good day and welcome to the Aircap Holdings NV second quarter 2020 financial results call. Today's conference is being recorded and will be available for replay on the company's website after the conference is finished. At this time, I would like to turn the conference over to Joseph McGinley, Head of Investor Relations. Please go ahead, sir.

Thank you, Operator, and hello, everyone. Welcome to our second quarter 2020 conference call. With me today is our Chief Executive Officer, Ingus Kelly, and our Chief Financial Officer, Pete Newhouse. Before we begin today's call, I would like to remind you that some statements made during this conference call, which are not historical facts, may be forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements. AERCAP undertakes no obligation other than that imposed by law to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after this call. Further information concerning issues that could materially affect performance can be found in AERCAP's earnings release dated July 29, 2020. A copy of the earnings release and conference call presentation are available on our website at aercap.com. This call is open to the public and is being webcast simultaneously at aircap.com and will be archived for replay. We will shortly run through our earnings presentation and will allow time at the end for Q&A. As a reminder, I would ask that analysts limit themselves to one question and one follow-up. I will now turn the call over to Angus Kelly.

Good morning, everyone, and thank you for joining us for our second quarter 2020 earnings call. Clearly, the environment remains very challenged. but I am pleased to report that the AirCap platform continues to perform well and reported net income of $246 million and earnings per share of $1.92 for the second quarter. Turning to the market and the global environment, we have just gone through what was the worst six months aviation has ever experienced and I hope ever will. The positive is that the industry is very much alive and is starting to recover in certain parts of the world. In other parts, this is not the case. So starting with where the virus was first detected in China, we see that the recovery is well underway. Last Friday, there were over 11,500 domestic flights, which is equivalent to 90% of the pre-COVID levels in January. This demonstrates that once customers believe it is safe to fly and they have clear procedures to follow, they will and want to travel. Next in the US, we saw the bottom on April 14. And we observed a steady improvement that began to accelerate into June. But since the beginning of July, the US recovery has run out of steam and retreated. It will take control of the virus to get the US recovery back on track. In contrast, in Europe, we are seeing the largest recovery. Europe bottomed on April 12 with 2,099 flights. However, last Friday, July 24, there were 16,300 flights in Europe. So the recovery in this critical market is well underway. No doubt there will be setbacks, but the willingness and desire of the consumer to travel is very clear. In terms of scale, the European market is leading to global recovery. In Latin America, we are still in the throes of the crisis. In Southeast Asia, some large tourist markets, such as Thailand and Vietnam, appear to have extremely low levels of infections. but they are effectively closed to air travel, which of course means we are not seeing any meaningful recovery in international travel in those markets. This information I just quoted is actual public data. Now, what we are seeing in our business is reflected in the numbers I just quoted. We have begun leasing airplanes again, but it's almost exclusively focused on the European market. In the last month, we have begun to sign leases and letters of intent. What was clear when we last spoke in early May was that whilst COVID-19 affected every region of the world, it didn't necessarily do so in the same way or at the same time. At that stage, it was really only in China where COVID cases were falling and where we could see the early stages of an air traffic recovery. Today, other parts of Asia and Europe are coming out the other side and are flying again. A key factor in the recovery is the level of government support that has reached over $130 billion so far across 74 different countries around the world. Again, it is clear that governments around the world recognize the critical importance of maintaining a functioning airline industry. This support has been achieved through a combination of loans, subsidies, and guarantees. This has allowed many airlines enough breathing room to get through the worst of the traffic declines and provides a stronger footing for their recovery. What we have also seen is a significant acceleration of retirements from airlines around the world, who are rightsizing their fleets for the future. Many airlines were reluctant to do this in prior years, as the opportunity cost of filling passengers was too high. But the crisis today affords them the opportunity to do so. We have seen 950 aircraft retirements announced so far this year, equivalent to 4.5% of the world's fleet, but over 5% of global seats, all of which go towards helping the supply-demand imbalance to reach equilibrium at a faster pace. Importantly, the vast majority of these retirements are focused on aircraft such as 767s, 747s, A340s, and 757s, which collectively represent less than 1% of the aircraft fleet. As mentioned previously, no other entity owns a greater percentage of new technology aircraft than Aircap. In addition to this, there will be a very significant reduction in the number of new aircraft entering the market as a result of the production cuts announced by the OEM. Today, Boeing and Airbus have announced production cuts of approximately 33%. We expect that they will announce further production cuts in the coming months. The combination of retirements and production cuts will contribute to the industry reaching equilibrium. Very importantly, though, for air cap, market equilibrium is not 2019 traffic when airlines were making record profits. For us, equilibrium is achieved when traffic can enable airlines to cover their cash operating costs. Of course, we want to see airlines return to 2019 profit levels, but for air cap, that will occur after they can cover cash operating expenses and pay their lease rents. Switching back to air caps specifically, what measures have we taken over the past number of months to offset the impact of the crisis? Well, our first priority in the midst of this crisis was to ensure that we maintained high levels of liquidity, as the likely magnitude and length of the impact was unknown at that point. In an environment like this, it is as important to manage spending as funding. So early on, we negotiated with our three OEM partners, Airbus, Boeing, and Embraer, for the rescheduling of aircraft purchases into timeframes more suitable for ourselves, our airline customers, and the OEM's new production framework. Working in concert with the OEMs and our airline customers, AirCap has rescheduled the delivery of over 100 aircraft that were originally expected to deliver in 2020, 2021, and 2022. The rescheduling of these deliveries has reduced our cash capex in 2020 and 2021 by a total of $5.3 billion. We also recently canceled orders for 15 Boeing 737 MAX aircraft, which had passed their contractual delivery dates. We have also been very busy supporting the business by managing the liability side of the balance sheet with additional sources of cash and liquidity. AirCap was the first aircraft less or to access the unsecured bond market since the crisis, when we raised $2.5 billion of unsecured funding in June. We attracted over $15 billion of orders across the two deals, and pricing has improved significantly since then, showing the confidence the market has in AirCap. This, along with our numerous other funding sources and initiatives, meant our average cost of debt issued since the beginning of April was only 4.2%. Lastly, the team have been working hard to ensure that we continue to collect cash every day from our customers. It is important to note that we continue to collect cash from the majority of our customers every day. At the end of June, our deferral balance was $430 million, which is equivalent to roughly 9% of our annual revenues. Against this amount, we have over $1 billion of security. The level of requests for deferrals has slowed down as traffic has begun to recover. Obviously, there are some customers who have filed for bankruptcy in the last number of months, which should be no surprise to anyone given the level of disruption in the industry. But that doesn't automatically mean we will have the aircraft returned. In many cases, we expect the aircraft to stay in place after the airlines emerge from bankruptcy. In other cases, we will take aircraft back, but I expect this to be manageable for a platform of air cap size. Against all this, given the very strong levels of liquidity we have, the record high sources to uses and low leverage levels, there will come a point where we will be able to take advantage of the opportunities available to us. We have not completed a competitive sale lease back since 2013, but it is clear that the terms of those transactions are improving and we remain open to doing business in that channel should the right opportunity present itself. AirCap has always found a way to add value in a crisis in various ways, like opportunistic M&A or large-scale failed leasebacks, but only when the timing is right. As we look at the opportunity set at the moment, we remain patient but ready. Looking forward, AirCap has been through numerous challenges before, and whilst this crisis is more global and uniform, our platform continues to perform well on cash collection and seeking out opportunity. I firmly believe we have the right mix of assets, people, and strategy to ensure that AirCap remains the market leader for years to come. With that, I will hand the call over to Pete for a detailed review of our financial performance.