AerCap Holdings N.V.

Good day and welcome to AirCap's first quarter 2022 financial results. 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 2022 conference call. With me today is our Chief Executive Officer, Ingus Kelly. and our Chief Financial Officer, Pete Juhasz. 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. RCAP 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 AirCap's earnings release dated May 17, 2022. A copy of the earnings release and conference call presentation are available on our website at aircap.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. I will now turn the call over to Angus Kelly.

Good morning, everyone, and thank you for joining us for our first quarter 2022 earnings call. But for the impact of Russia, this was a strong underlying quarter for the company, and I am pleased to report $2.23 of adjusted earnings for the period. Across all our business lines, aircraft, engines, cargo, and helicopters. We are seeing improving demand, increased utilization of our assets, and the improving financial health of our customers. There has been a strong rebound in traffic on a global scale, as an ever-increasing number of countries removed the last of the COVID-related travel restrictions and welcomed foreign travelers once again. The favorable environment created by these various dynamics, coupled with the proven resilience of the aircraft business model, sets us up for a strong year ahead. There are a number of key points which I'd like to expand on today. The first is that it is clear that the reopening of air travel continues to gather momentum around the world and that the demand for aircraft is strong despite the uncertainty created by the war in the Ukraine and higher oil prices. Importantly, when I speak to airline CEOs, I hear a consistent message which is that demand is strong enough in the US and Europe to pass through higher input costs. In addition, we are seeing similar trends in Southeast Asia today to the ones we saw in the US and Europe as those markets recovered. These trends drive demand for leased aircraft as airlines look to capitalize on this passenger and yield growth. Second, we also see strengthening demand for aircraft sales, as the effects of COVID-19 begin to ease off in most parts of the world. Last week in Dublin, we had the annual Air Finance and Airline Economics conferences, which were extremely well attended and the mood was positive. The events of the last two years have once again demonstrated the resilience of the aviation industry and aircraft as an asset class. Investors are very interested in owning physical assets as a way to provide protection in a higher inflationary environment, supporting both aircraft and engine values. Thirdly, we want to provide more financial detail on the benefits of the GCAS transaction. Excluding the impact of the charge we have taken as a result of the war in the Ukraine for FY 2022, we expect to generate between $6.50 and $7 of adjusted EPS, as well as approximately $5 billion of operating cash flow. This is even after taking account of the $33 million of ongoing lost monthly revenue from our former Russian customers. Pete will provide more detail on this outlook later in the presentation. Without doubt, the GCAS acquisition has made AirCap a stronger, more diversified and profitable business, and earnings are significantly ahead of where we expected the AirCap business to be on a standalone basis. As you will see from the chart, the demand side of the industry continues to improve with global flight traffic back to 75% of 2019 levels as of May 22nd, with North America leading the charge at 24,000 daily flights. Europe also continues to improve heading into the summer with 20,000 daily flights. In both Europe and the US, nearly all COVID-related restrictions have been lifted, supporting frictionless travel and allowing people to connect again. As I said many times, Once people are allowed to travel, they will do so in large numbers. A very visible example of this is that Ryanair carried 1 million passengers in April 2021, but last month, April 2022, they carried 14.2 million passengers, a 14x increase. China is the only major market where significant restrictions remain, but as we have seen over the past two years, they tend to shut down and reopen very quickly. so we don't expect this latest setback to be long-lasting. More encouraging is that the rest of Asia continues to ease restrictions and reopen borders. All the key tourist markets in Southeast Asia as well as India and Australia are now open to international travel. This bodes well for wide-body demand as one of the key tourist markets for Southeast Asia is Western Europe. The impact of these announcements is immediate. In just one example, Changi Airport in Singapore saw traffic return to 40% of 2019 levels from just 15% in three months as a result of this easing, and we are seeing similar results elsewhere, with Asia Pacific ex-China traffic back to 70% of 2019 levels for 16,000 daily flights. The conversations I have with the CEOs of airlines in Southeast Asia have been far more upbeat since the 1st of April, as they are seeing bookings surge from where they were just a couple of months ago. One of the most common questions I am asked is how the European and American airlines manage to open up and increase capacity so quickly. Airline CEOs in Asia are most focused on the logistics of reopening, particularly how to reactivate their fleets. We can see clear evidence of this in the maintenance and overhaul facilities, where there is little to no capacity left for engine overhauls that are required to reactivate aircraft that have been stored for some time. This gives me confidence in the demand side for the years to come. So whilst there is still quite a way to run on a full recovery to 2019 levels, I strongly believe that the only impediment to getting there is government intervention. Once restrictions are scaled back, people return to the skies quickly and in large numbers. So while we have a positive demand environment, the supply side is just as important. The good news is that supply side dynamics are favorable for the leasing industry and air cap. Firstly, from slide five, you can see that the overall level of new aircraft supply remains well below the run rate of 2018, the year before the 737 MAX was grounded. In 2018, there were just over 1,600 new aircraft deliveries from Boeing and Airbus. And using that as a benchmark, 1,900 fewer aircraft have been delivered since then. For 2022, Airbus has set a target of 720 aircraft deliveries, and Boeing has set a target of 500, which is unlikely to be hit. But even if they do, that still amounts to 400 fewer aircraft per annum being delivered each year. Whilst it's at times frustrating to see the delays on the 737, 787, and A320neo family aircraft for a variety of issues, it does help with the demand for our other products. I know that Airbus recently announced plans to increase production rates on the narrow-body A320 family to 75 a month by 2025, compared to 50 a month at the moment. But much will depend on the global supply chain issues resolving themselves, as well as the willingness of the engine manufacturers to follow suit. Turning to wide-body supply, as you're aware, Boeing have not delivered any 787s for the last 15 months, and it will be a few months before they can recommence deliveries. It will also take years to unwind their stock of 787 inventory and get back to even very modest levels of production. As well as this, the 777X entry into service has been delayed until 2025. Similarly, Airbus are also supply constrained as A330 Nero production is unlikely to go above three a month for several years to come due to supplier constraints and a significant number of wide-body aircraft have been retired during the pandemic. So all this means that supply is limited on the wide-body side. In contrast, wide-body demand is starting to come back, led by the 787. Just two weeks ago, we had three airlines looking for three 787-8s. Importantly, because Asia has been closed to international travel for the last year, the European majors have put a lot of their wide-body fleet that normally flies to Asia on the North Atlantic. This will reverse later this year as Asia reopens and should provide a boost to wide-body traffic. Since the closing of the GCAS acquisition, we've been in negotiations with Boeing regarding a legacy GCAS order for up to 68 737 MAX aircraft, over which GCAS had a cancellation right that AirCap could exercise. In light of the favorable macro supply-demand dynamics that I just discussed, the recovery in demand that we see in particular for the 737 MAX family, and the attractive terms that we were able to agree with Boeing, I am pleased to report that we will not exercise our cancellation right, and we look forward to taking delivery of these aircraft in the years ahead. This is a clear indication of our confidence in the future, and gives us a leading position in new technology narrow-body aircraft. Turning back to AirCap, the business units are all performing well with a variety of catalysts across the group. On the engine side, our 100% owned engine leasing business is comprised of engines from all manufacturers with a concentration of General Electric and CFMI engines. These are the most liquid engine types that power the world's most popular and in-demand aircraft. The environment in this business is strong, with elevated narrowbody activity in particular, and the widebody engine market is also improving steadily. To put this in context, for the week ending Friday, May 13, the global GE and CFMI engine fleet was operating at 80% of 2019 levels, despite China being effectively grounded last week. This business provides both long-term and short-term engine leasing products. The long-term product provides permanent power to the airline and can be for terms of up to 12 years. similar to aircraft leases. Short-term leases are used to get airlines through shop visit peaks or acute events, which helps to keep the aircraft operating and generating revenue. With more aircraft coming out of storage, we expect to see an increase in shop visits in preparation for re-entry into service. AirCap Engines is well-placed to serve its customers. In cargo, the demand environment also remains strong as the boom in e-commerce continues to have a positive impact. Whilst this is helpful for overall demand, It has also helped to expand the types of customers that are willing to enter into longer-term lease agreements. For example, we are now seeing retail businesses such as Inditex, the owner of Zara, seeking their own cargo aircraft to vertically integrate their operations to reach the consumer directly. This has been a driver of demand for air-capped cargo, bringing both additional diversification and improving yields. The cargo business should also be helped by the elimination of freighter capacity from the market in Europe in July 2022. following similar moves from the US and China at the end of 2021. This is where passenger aircraft were given an exemption to fly exclusive freight operations in the passenger deck to mitigate the lack of belly capacity during COVID. This should give another shot in the arm to specialized freighter aircraft in Europe. Finally, placement of the 777-300 freighters and the 737 freighter programs remain ahead of schedule, and the team is now reviewing other opportunities to enhance the portfolio. Clear evidence of the demand for our cargo business is that we launched the 777 conversion program with 15 firm commitments and 15 options for a total of up to 30 777 freighters. We already have 16 777s under contract or LOI equating to $1.5 billion in rental commitments. And this is even before the first aircraft delivers from the conversion program. Then in our helicopter business, leasing activity remains elevated in a way that hasn't been seen for many years. To give an example, we leased six times more helicopters in the first four months of this year than we did in the same period last year. These terms are improving, with supply becoming more scarce, as the OEMs have effectively discontinued the production of large or heavy helicopters for civilian use. Given the increase in commodity prices, cash collections and utilizations also continue to improve. So to wrap up, I just want to emphasize that over the last two years, AirCap has had to deal with extraordinary events. It is a phenomenal achievement and a credit to the hard work of the AirCap team and the resilience of the AirCap business model and balance sheet that we have emerged in the position of strength that we find ourselves in today. The events in Russia, although undoubtedly a setback, are manageable as a result of the way we've consistently run our business, the strength of the recovery in the rest of the world, and the power of the combined company. We have always prided ourselves on being careful stewards of your capital. As the recovery progresses and our leverage continues to fall, we will once again be well positioned to return capital to shareholders. I'll now hand the call over to Pete for a review of the financials and our outlook for 2022.