AerCap Holdings N.V.

Ladies and gentlemen, please stand by. Good day and welcome to the AirCap Holdings NV Q1 2020 Financial Results Conference Call. Today's conference is being recorded and a transcript will be available following the call on the company's website. 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 first quarter 2021 conference call. With me today is our Chief Executive Officer, Angus Kelly, and our Chief Financial Officer, Pete Duhass. 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. ERCAP 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 ERCAP's earnings release dated April 28, 2021. A copy of our earnings release and conference call presentation are available on our website at ercap.com. This call is open to the public and is being webcast simultaneously at rcap.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 Ingus Kelly.

Good morning, everyone, and thank you for joining us for our first quarter earnings call.

I'm pleased to report a strong quarter of earnings with $228 million of net income or $1.76 per share. While there are still many challenges facing the aviation industry, we continue to see an improving environment with significant momentum in air traffic recovery in certain regions of the world and airlines looking to the future with increased confidence as evidenced by our strong leasing performance in the first quarter. It is a testament to the focus and commitment of the AirCap team that during the first quarter of this year, we were able to lease 60 aircraft, including 28 widebodies, a quarterly record for AirCap. This was accomplished despite the pandemic and the efforts required by our team to complete the GCAS due diligence, negotiate the GCAS transaction, and raise $28 billion of funding. So clearly the first quarter was an exceptional one for AirCap, As we announced the GCAS transaction, we believe that this is the right acquisition at the right time in the cycle to create value for all our shareholders. As we mentioned in our announcement, we expect the transaction to close in the fourth quarter of 2021. Until then, we will continue to work hard to make sure we are positioned to hit the ground running from the start. I am pleased to report that we recently closed $28 billion of funding commitments with our banking syndicate related to the transaction. consisting of a $19 billion bridge loan, a $5 billion term loan, and importantly, we have also secured an additional $4.3 billion revolving credit facility, which will further enhance the financial strength of the combined company. Now, as I mentioned above, we firmly believe consumer demand will return quickly once markets reopen. This is, of course, tied to the successful rollout of the various vaccination programs which unfortunately have not been smooth in some parts of the world. That said, we continue to see green shoots of recovery in a number of regions. The U.S. has seen demand for air travel gain significant momentum in recent weeks, translating into traffic of around 65% of pre-pandemic levels. This recovery is being led by the leisure sector, but with business and international travel to come, that should move higher over the course of the year as businesses reopen. Many of you will have heard the more positive commentary from the U.S. majors in the past couple of weeks, which echo what we're hearing in other regions too. We are seeing renewed strength in domestic travel in Asia, where the traffic levels in a number of countries have surpassed those of 2019, including China, where we're now at 96,000 weekly flights, or 116% of pre-pandemic levels. Russia, comparatively, it's 11,300 flights, or 101%. Vietnam, 6,000 flights, 125%. South Korea, 3,700 flights, and 127%. Together, these countries account for 115,000 weekly flights. This is equivalent to the US market of 116,000 a week. In Europe, the environment remains relatively weak, as the slow start to the vaccine rollout, coupled with a fourth wave in certain countries, has led to further travel restrictions and related quarantines. Only Greece and Turkey continue to fly at levels in excess of 50% of 2019 levels. However, positive developments on vaccine availability in the coming weeks and the agreement of the European Union to put in place a green travel certificate in time for the summer will spur improvement in the European market. Switching back to air cap, we continue to see greater levels of demand and activity from our customers. As I mentioned, we signed 60 aircraft lease agreements in the quarter with airlines from 15 countries, the highest in 18 months, And this compares to 97 lease agreements for all of 2020. In fact, 28 of the 60 lease agreements in Q1 were for wide-body aircraft, a record number of quarterly wide-body leases. This level of activity reflects a clear pickup in demand and confidence. I believe there are two key themes emerging from our conversations with customers. The first is that their confidence in the return of travel demand is strong and growing, and most see it simply as a matter of timing. The second is that lessors will continue to be the partner of choice for aircraft financing. So on the first point, there is an abundance of evidence to show that once restrictions are eased, consumers react accordingly. The vaccine rollout is driving consumer confidence in the US, China, and the UK, where consumers are enjoying additional freedoms. This consumer confidence will inevitably spread to other regions, as further progress is made around the vaccine rollout, giving governments the ability to roll back on restrictions and airlines the confidence to add greater levels of capacity. Over 1 billion vaccine doses have already been administered, with the latest weekly figures running at over 100 million doses per week and rising. This will be equivalent to approximately 1 billion doses every seven to eight weeks. The acceleration of this rollout provides clear hope that an end will soon be in sight. The second thing we are seeing is how aircraft leasing is growing in market share, and we believe that aircraft leasing will continue to grow to over 50% of all aircraft financing. Airlines see the clear benefits of leasing, which frees up capital, allows a faster transition into new technology, and eliminates residual value risk. This demand for aircraft leasing will inevitably help with future aircraft placements, though we have no availability from our order book until 2023. So as we look forward, the vaccine rollout gathering pace, the health of our airline customers improving, and the demand for travel continuing to be strong, we have significant reason to be optimistic about the future. No doubt we are in unprecedented times, but as you can see from the actions AirCap has taken to date and the actions we will continue to take, that we are focused on delivering on behalf of our shareholders. With that, I will hand the call over to Pete for a detailed review of our financial performance.

Thanks, Gus. Good morning, everyone. Our total revenues for the first quarter were $1,095,000,000, compared to $1,238,000,000 for the first quarter of 2020. Basic lease rents were lower in the first quarter, primarily as a result of airline restructurings and aircraft transitions. This includes the impact of cash accounting, which was $100 million for the quarter. Our cash collection rate was around 80% for the first quarter, And our deferral balance modestly increased by 5% to $514 million as of March 31st. The first quarter tends to be seasonally slower for airlines because it's the winter season in the Northern Hemisphere. And of course, this year we've had the additional impact of ongoing COVID-related travel restrictions in many countries. We expect these metrics to improve over the course of the year as the vaccine rollout continues and as passenger traffic recovers. We're currently seeing progress on a number of major airline restructurings. As these restructurings are completed, we expect to see these airlines come off of cash accounting during the course of the year. LATAM is one of the airlines that's making progress on its restructuring and emergence from bankruptcy. We recently agreed to sell some of our unsecured claims in the LATAM bankruptcy, and the proceeds of that sale will ultimately be determined by the bankruptcy court in the LATAM case. Turning back to the P&L, our maintenance rents were $183 million in the first quarter which was an increase from $134 million in 2020. The increase was primarily due to higher maintenance revenue resulting from lease terminations. In terms of aircraft sales, during the first quarter, we sold nine of our owned aircraft for a total of $184 million. The average age of the aircraft we sold was 18 years old, and our net gain on sales for the quarter was $5 million, demonstrating our sound carrying values. Other income was $19 million for the first quarter, and the increase over the first quarter of last year was mainly due to higher interest income. Turning now to expenses, our total expenses were $827 million for the first quarter, a decrease from $916 million for the first quarter of 2020. Our depreciation and amortization expense was $397 million in the first quarter, a decrease from $416 million last year, primarily due to a decrease in average lease assets. Interest expense was $281 million in the quarter, down from $319 million last year. That was due to a lower average cost of debt and lower debt balance, as well as lower mark-to-market expenses this year. We had asset impairments of $16 million in the first quarter, which related to lease terminations and asset sales, and were fully offset by corresponding maintenance revenues. Other leasing costs were $40 million for the first quarter, a decrease from $87 million in 2020, and that was mainly due to lower or lesser contributions or top-up expenses during the quarter. Our SG&A expenses were $57 million for the quarter compared to $65 million for the first quarter of 2020, a decrease of about 11%. Putting all of that together, in the first quarter, AERCAP generated a net income of $228 million, or $1.76 per share. That includes costs related to the GCAS transaction of $25 million pre-tax or $22 million after-tax. Excluding those costs, net income for the first quarter was $250 million, or $1.93 per share. We continue to maintain a strong liquidity position. As of March 31st, our total sources of liquidity were $8.6 billion, resulting in the next 12 months sources to uses ratio of 1.7 times. That remains well above our current target of 1.5 times. Our excess cash coverage also remained high at $3.7 billion. We continue to maintain a very strong balance sheet. Our leverage ratio is currently 2.5 to 1, which is below our target ratio of 2.7 to 1, and below where we began 2020. Our secure debt percentage continues to remain low at 24% of total assets, We currently have around $26 billion worth of unencumbered assets. Our average cost of debt, excluding debt issuance, cost, fees, and other impacts, was 3.7% for the first quarter. In January, we raised $1 billion of five-year senior unsecured bonds with a coupon of 1.75%, the lowest coupon in the company's history. As Gus mentioned, we also completed the syndication process for the bridge financing for the GCAS transaction. The $19 billion bridge facility and the $5 billion term loan facility that were originally provided by Citibank and Goldman Sachs were syndicated to a total of 20 banks, and we saw extremely strong demand from banks to participate. At the same time, we also entered into a new four-year revolving credit facility for $4.35 billion, which will be available upon closing the GCAS transaction. We had very strong interest in that facility as well, with a total of 26 banks participating. And I'd like to thank our banking group for all of their strong support throughout this transaction. So overall, on the operating side, we had a positive quarter with net income of $250 million, excluding transaction expenses and EPS of $1.93. As the vaccine rollout progresses, we're seeing more airlines looking to the future and putting fleet plans in place for the recovery of air traffic. And you can see that reflected in the 60 leases we signed up this quarter. Of course, the biggest news of the quarter was the GCAS transaction, which we believe will be a significant positive for our shareholders. And with the syndication of the bridge financing and the submission of the first regulatory approvals, we're making progress towards the closing of that transaction. And with that, operator, you can open up the call for Q&A.

Ladies and gentlemen, if you would like to ask a question, you can signal by pressing star 1 on your telephone keypad. Just keep in mind if you are using your speaker phone, please make sure your mute function is released to allow your signal to reach our equipment. Once again, for questions today, star one. We will begin with Jamie Baker with JP Morgan.

Hey, good afternoon everybody. So a couple of questions from Mark and me. The final slide, operating cash flow estimate for the next 12 months, 2.4 billion. That's the same number that it was last quarter. So obviously a positive that you affirmed the guide, but some might push back on the fact that you didn't increase it with one more quarter rolling forward. So how does this guide tie into current collections and lease rate trends? What can we read from the 2.4?

Well, Jamie, we've really assumed a gradual recovery here in terms of air traffic. And so, you know, as we forecast operating cash flow for the future, we've assumed that, you know, our aircraft gradually increase their flying during the course of the next 12 months, but we haven't built in a rapid recovery there. So, look, I think it could be higher than that. It's, you know, maybe a conservative projection in that respect, but I think it's, you know, I think it's a reasonable one for us.

Okay. Second question, what sort of regulatory, I guess, goalposts or mile markers are you looking for? You know, whatever you need to be to be clear and comfortable issuing GCAS, you know, deal-related debt. And have you hedged any of the financing costs? You know, spreads have obviously rallied as of late. So just curious why you're not locking in the funding sooner rather than later.

Yes. So, Jamie, we've got a number of milestones there. We've got our AGM coming up. As you know, we're putting in our regulatory approvals. We should have about half of them submitted by the end of May. And so, you know, those are key things that we're progressing. And as part of those, you're in dialogue with some of those regulators before you submit them. So, you know, on the hedging side, we're monitoring the market, and we'll look to put things in place at the appropriate time.

Okay, thank you very much.

Sure.

We'll now move to a question from Ross Harvey with Davey. Go ahead, please.

Hi, afternoon, Gus and Pete. I'm just wondering, in advance of the GCAS deal completion, can you comment on your priorities for the air cap business itself, particularly in regards to leverage levels? Is the objective simply to reduce as much as possible and unseal leasebacks? I mean, are you looking to get meaningfully involved?

Well, Ross, I think first and foremost, the priority of the business on an operational from an operational standpoint hasn't changed for one minute over the course of the last six months. And the focus is on getting our airplanes leased and getting paid. And I think you saw clear evidence of that in the first quarter by the quantum of aircraft that we were able to sign leases for at 60 aircraft. So that will remain front and center. of the business every single day. And when we get to closing, of course, we are working closely with GE to be able to hit the ground running. In reference to sale leasebacks, I think that would be at the margin, Ross, to be quite honest.

Understood. Thanks, Gustav. Second one, as a follow-up, I'm just wondering, you highlighted 150 million of SG&A synergies in the recent 6K. I'm just wondering, can you talk us through that number and whether we should consider benefits and other cost lines?

Thanks. Well, Ross, you'll see other benefits in terms of depreciation and things like that coming through. I think you'll also see some interest benefits relative to where GCAS is today when we put the financing in place. So you will see it in other lines as well, and that's going to be, you know, on the depreciation side, we would expect that to be several hundred million dollars relative to where they are today.

Great. Thank you very much. Sure.

Now moving to our next question, and that will come from Jose Orenbuck with Credit Suisse.

Great. Thanks. You had mentioned that you're fully leased through 2022, but I guess is there some possibility that you'll have, once the deal closes, that there'll be kind of aircraft that are available because of the GE business that would allow you to create some transactions or activity?

Sure. I mean, when we say we're full at least, that's the air cap order book. We don't have anything available until 2023. The state where GCAS stands on its order book, that's managed separately within the parameters of the sale agreement, purchase agreement. And we'll see then, Moshe, when we get to the post-closing, how many airplanes they have left in what timeframe and how that positions them to take advantage of trends in the market.

Got it. Thank you. And you mentioned the LATAM bankruptcy situation. Pete, could you talk about how that's accounted for, where those assets are, how they're marked, and what that might mean when there's a resolution?

Well, we don't have anything on our balance sheet for that, Moshe, so we haven't accrued anything. Ultimately, I would expect that to come in as other income. Um, but, uh, but as I said, you know, ultimately it will, it will be decided by the bankruptcy court. You know, I think, uh, in terms of amount, it could be several hundred million dollars, but we'll really have to wait and see, um, how that all plays out.

You're saying it would be all revenue essentially. Yes.

But again, it's hard to predict the timing of that and the ultimate amount. I'm just giving you an idea of what it could be.

Right. But anything would be more than zero, right?

Yes, that's true. Very good. Thanks very much. Sure.

We'll now hear from Helene Becker with Cowen. Go ahead.

Thanks very much, Operator. Hi, everybody. Thanks for the time. Did you say how your deferral requests are trending? I think you talked about the cash collections being 80%, but have airlines now then stopped asking for further deferrals and are just paying you back?

It's a mix there, Helene. As we look around the world at the moment, as you heard the news from The US carriers during the week, things are going well there. China, things are going well in other parts. But you have to remember the first quarter, obviously, we had recent events in Brazil, and we had a slowdown in Europe post-Christmas in January, February, and a lot of European countries are still under lockdown. So in that environment, we had to give a little bit more ground to some of the carriers. But in return for that, then, we'll always try and keep these deals NPV neutral. So we may have got extensions to our leases as part of those discussions as well.

Okay. So then would that be included in the portion maybe of customers that you've restructured leases for? Like is there some percentage that you might have had to restructure leases at either lower rates or extensions? Or would you do extensions in that case? if you were restructuring it.

Of course you will. I mean, you're not talking about big numbers here. I mean, as we said, the total number of the increase in deferrals is $24 million. Elaine, it's not a big number, you know, in totality.

Right. Gotcha. Okay. All right. And then will you be filing documents publicly on the CCAS, the approvals that you're asking for, the regulatory forms? Will they be filed so we'll be able to you know, see what's happening there?

I think that depends on the jurisdiction, Helene. You know, there are about 20 approvals at the moment that we're expecting to file. So I think it depends on each individual jurisdiction, whether that's publicly available or not.

Okay.

And what language is filed into, Helene?

There won't be English. Yeah, I'll need to get Google Translator out. All right. Thank you. Have a nice afternoon.

Have a nice chance to brush up on your Kazakh.

True.

Thanks. Sure.

And now we'll take a question from Vincent Kaintick with Stevens.

Hey, thanks. And first question on the lease rates going forward. So it's nice to see that the net spread expanded 30 basis points quarter to quarter. I was curious with your strong the 60 orders you have or 60 placements you have, how are the lease rates looking on new deliveries? And then when I think about the rent deferrals you have and the repayment of those deferrals, how does that affect your yield? Since I think we're in cash accounting here, does ASOS Airlines pay back their rent? Should we just expect the net spread to climb over the next coming quarters?

Thank you. Let me answer the first part about the lease rates. So, Vincent, look, as you noted, we moved at least 60 airplanes, a huge number given the pandemic and the background we are facing and the other demands on the organization. In terms of the lease rates, of course, look, it's evident that there is demand out there. When an airline takes an aircraft, no matter what they pay for it, there's still a lot of costs associated with it. They're committing to crew costs, labor costs, maintenance costs. All those costs are part of taking an airplane. So the fact that they're willing to take them means there is confidence out there in the future. Now, as part of that transaction, there is a variable element to most of these new leases at the beginning for the first 12 months or so, where the rental will move around based on utilization. And then following that period, it'll go into a fixed rate lease. And that varies from aircraft to aircraft. But it's over the first 12 months or so where there's variability on the lease rate to facilitate the airline's restarting traffic. Pete, you want to comment on the deferrals?

Yeah. So, Vincent, on the second one, so the repayment of the deferrals themselves won't affect the net spread because, you know, if you think about it, in the deferral cases, we have recognized we're accruing the revenue in those cases and we're building up a deferral balance. So, obviously, as those deferrals get repaid, that's a positive for cash flow, but it doesn't have an impact on revenue and, therefore, on net spread. What will have an impact on revenue and on net spread is when you have airlines coming off of cash accounting and actually flying these, you know, flying these planes because, you know, that's obviously impacting revenue today. I mentioned it's about $100 million. So that's going to be the biggest driver, the return of flight for most of those, because obviously those have mostly been airlines that are in bankruptcy or other restructuring. And so as they emerge from those, you'll start to see those revenues come in, because they've basically been almost no revenues now.

Okay, that's very helpful. Yeah, I was mixing up the deferrals and the cash accounting, so I appreciate that, and it looks good for net spreads. So, second question. So, I had a chance to go through your shareholder circular, and I appreciate all the detail there. I just wanted to talk about any incremental thoughts, and particularly one of the frequent investor questions I get is on the prior revenue guide of at least $7 billion, because it seems like if we add ARCAP and GCAS together, that revenue should be at least $8 billion, and given it seems like net spreads are doing better. I just wanted to get your thoughts on whether one plus one equals two on the combined revenue side, if there's something else we need to consider. Thank you.

Yeah, I mean, it's not as simple as that, unfortunately, because you have a number of purchase accounting impacts that you're going to have. And also, the accounting is just different the way that GCAS and AirCup do it, right? It's not apples to apples and everything. And so, I think that's really why we got into what we did, you know, in thinking about it. So you can't just sum up the two and say, okay, that's what it's going to be.

Okay, gotcha. I'll follow up offline.

But thanks very much. Sure. Okay, no problem.

Next question will come from Pooch Patel with Deutsche Bank.

Hey, good morning, guys. When we think about the cash accounting balance, What is the view internally on this? Do you guys think that the 100 million is representative of a peak number here? And just following on to that, how do we think about reintegrating this figure into the revenues? What do we think is the possible upside here? Do you think maybe over time we get maybe 60 to 60 million of that back? And if you could provide any time horizon that you guys kind of have in mind, that would be great too.

Sure. So I think that... The cash, we will continue to see impact of cash accounting, I would say, throughout this year. But we're going to, you know, it's going to abate over time, basically. So I think that $100 million is a reasonable guide, you know, if we're thinking about it over the next couple of quarters. But, you know, as I said, as the airlines come out and as those bankruptcies or restructurings are completed, you know, then we're going to see those come back. So it's going to happen over time. But, you know, in terms of how much of that recovers, yeah, look, I think that you could see, you know, 60 on that 100, you probably see like 60 million recover. As I said, it's not going to be an all at once thing, but it's going to come back 60 to 70 million, something like that, I would guess.

Okay, okay, great. And then the second question I had, oh, sorry, we still got time. The second question I had was recently we saw Aeromexico announced that they've struck some agreements to restructure some of the 787 leases they have. And just wanted to see if you could update us as to whether any of the aircraft that AirCap owns and has on lease to Aeromexico are included in this or just in general status update on the aircraft you guys have in place with Aeromexico and do you intend for them to stay with Aeromexico long-term or are you in the process of remarketing these?

We expect the Aeromexico aircraft to stay there, and the Aeromexico procedures now are in front of the court for approval and assumption of the revised transaction.

Okay. Thanks a lot, guys. I appreciate the time.

And as a reminder to everyone, it is star one to ask a question. We'll move to a question from Catherine O'Brien with Goldman Sachs.

Good morning, everyone. Thanks for the time. I actually have one more on cash accounting. You know, this is the first time we'd actually seen that cash accounting impact decline since the start of the pandemic, at least, you know, versus what I've tracked. And that's despite the H&A bankruptcy earlier this year. So I was just wondering, what's driving that? Are some of the aircraft back on new contracts? Or is any of that driven by aircraft on the ground but no longer officially under lease. I was just wondering what was driving the sequential decline. Thanks.

Sure, Katie. So, well, H&A, actually, we had put them on cash accounting in the fourth quarter, so they were already on it. But we've had a couple of airlines come off it. I mean, part of the impact that you saw in some of the quarters last year was due to Norwegian, for example, and we've placed all of our Norwegian planes now. with other carriers. So, you know, you are seeing what we've been doing. Obviously, in many of these cases, the majority of the planes will stay with those carriers, as Gus mentioned, with Aeromexico, for example. But in other ones, you know, we have moved those planes elsewhere. And so you're going to see less of an impact, right, because they're just, you're moving the planes out of where they were. So I think that's the main driver, because, you know, if I look at Last, I think, fourth quarter we said it was $117 million. So, yes, it's down somewhat this quarter. It's hard to know exactly, as I was saying in the previous answer, you know, exactly how that's going to play out over the next few quarters. But I do expect that to come down, you know, over the course of the year.

Maybe one quick follow-up to that, Pete. So should we – Would a good exercise for us to be to just track the progress of these bankruptcy proceedings, and that will give us probably a good sense of when we should expect to see the remainder of that $100 million come down if you're expecting the majority of those aircraft to just stay with their current lessees? Is that the right way to think about it?

Well, I think certainly for the major ones, I mean, some of these are not bankruptcies. They're just where we have assessed the airline as not probable of collection. And so some of those are quite small. And frankly, I don't think it would be worth following those situations. But for the major ones, yes, I mean, it will be once the restructuring is agreed and you have an agreed leases on those planes, you know, and that bankruptcy court or, you know, equivalent in some countries has certified that, yes, then you should see them coming back, right? So that's, you know, that will be the trigger in most of those cases.

I think, Katie, it's fair to say that underpinning that and the exit from bankruptcy will be driven by the vaccination profile. you know, that airlines will exit from those structures when they're confident that the vaccine is moving along well in all of those countries.

That totally makes sense. And then just for my second question, you know, just on this higher level of placement activities on the quarter, can you just give us a sense of how far out those placements are delivering? And then a little bit of a follow-up to an earlier question, but How should we think about, you know, lease rate factors on, you know, deliveries that you are contracting, you know, a couple years out in the future versus perhaps lease rate factors of what you're seeing now in terms of used aircraft that you're putting onto a second lease and just how those compare versus pre-COVID? I realize that was a little bit of a multi-part one, but thanks for the call.

Sure. Well, You know, if I start with airplanes that have come back to us over the course of the last 12 months, they just have to be moved now. And all those airplanes, about half of the 60 were airplanes that have either come back or are coming back in the very near future. And those aircraft are being placed in this environment. And in that example, as I said there, it's positive that the airlines want to see, want to take additional metal, which is great. But by the same token, given the pandemic is still with us and the vaccine rollout is still progressing, there's a variable element to the lease rental, which we based on utilization for the first 12 months. And then after that, it will flip into a fixed rate rental, which will be down a bit from where it was pre-pandemic, that's obvious. As to the airplanes that are coming off our order book in a couple of years time, that's a totally different market. That's one where, you know, You don't have to do any business, and you'll wait, and you'll see how it goes.

You're good. Thanks so much for the time.

Sure. And now we will hear from Andrew Lobenberg with HSBC.

Oh, hi there. I'm just quite curious to build on the previous question, because Gus, you were speaking about the – aircraft that are being placed in the current market that are on power by the hour and then are going onto a fixed rate but at a discount. I don't know what you can say, but, I mean, the aircraft that are transitioning from Norwegian to North, I mean, North Atlantic are going around telling everyone they're paying precisely half what Norwegian are paying. I don't know what commentary you can offer to it, but I'd be interested to see what you can say around that. And then just the other bunch of aircraft that I'm curious about is the 350s. I think you had LATAM, which, you know, they look to be keeping, but now they're not. I'm a bit surprised given what lovely shiny planes they are that they don't want them. But how's that impacting your economics or, you know, why have they held on to them and then returning them? And how easy will it be to remarket?

Sure. Yeah, look, on... On the North Atlantic rates, I can't comment on what North Atlantic is saying about their perception of what Norwegian used to pay. I just don't know. But again, on that rental, it will step up over time and then it'll be a reasonable deal for us. But very importantly from our standpoint, a very attractive deal. aspect of the north transaction was one they're getting a lot of cash and that cash has come in and two we don't have transition costs associated with reconfiguring a wide body airplane for a new customer um in relation to the a350s yes you're correct and latam are handing them back and yes they'll be leased at a lower rate um in today's market but they will get leased these are attractive airplanes and we have quite a number of discussions on going around them um but um Of course, as you heard earlier from Pete, our claim against the LATAM estate will be based on any loss that we suffer from the reduced rentals that LATAM would have paid us versus what we will get in the market for those aircraft. So that should, the idea of that is to offset the losses we would incur.

Lovely, thanks. But is it fair to say that the 350s will be easier to remarket than the 7-8s? Is it tied to market, or is that naive?

No, I wouldn't say that. I think the 787 is an aircraft that has – it's a smaller airplane, and so it has a very large user base, and it's been an excellent aircraft into service. But the A350 is a slightly larger airplane, but we'll deal with it.

Okay, fair enough.

Thank you. And ladies and gentlemen, this will conclude your question and answer session. I will turn the call back over to Angus Kelly for any additional or closing remarks.

Well, thank you all very much for joining us on this call. We look forward to seeing many of you, well, I suppose, virtually by proxy at our AGM. That's coming up shortly. But I would like to hand you back to Joe. As you may have seen on Monday, we published our annual report on environmental, social and governance aspects, our ESG report. Joe, do you want to say a few words?

Sure. Thanks, Gus. So just for those of you who are newer to the RCAP story, ESG is something that our board and senior management have been hugely involved in for a long period of time. And whilst it's always formed a part of the strategy of the company, we've made concerted efforts in recent years to increase our transparency in reporting in the area. So with that in mind, we published our comprehensive 2021 ESG report earlier in the week. I'd like to just highlight a couple of key initiatives from that report. The first is that we doubled the level of carbon offsetting of our own operations and business travel to 40% in 2020, and we aim to take that higher in the coming years. And to do this, we partnered with First Climate to invest in solar cell modules that provide clean electricity in China, as well as a biodiversity project in Brazil, which helps prevent deforestation, as well as providing sustainable income for local families. And the second is that we increased our target for the most fuel-efficient new technology aircraft in our fleet to 75% by the end of 2024. And that includes the impact of the GCAS transaction. And we see that as the best way for us to make an impact on the industry. So you'll find more of that report on our website and feel free to reach out to me directly after the call if you have any further follow-ups. So with that operator, you can now close the call.

Thank you, ladies and gentlemen. This will conclude your conference for today. Thank you for your participation and you may now disconnect.