AerCap Holdings N.V.

Stand by. We're about to begin. Good day, everyone, and welcome to the AirCap Holdings NV second quarter 2023 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 second quarter 2023 conference call. With me today is our Chief Executive Officer, Ingus Kelly, and our Chief Financial Officer, Pete Uhas. 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. AirCap 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 June 30, 2023. 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. 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. Thank you, Joe.

And thank you for joining us for our second quarter 2023 earnings call. I am pleased to report another quarter of strong earnings for AirCap. generating adjusted net income of $596 million and adjusted earnings per share of $2.56. This reflects widespread demand for our assets, strong cash collections, and our constant focus on execution. As a result, I am pleased to update our earnings guidance for the year to a new, higher range of $8.50 to $9.00. This includes gains on sale of approximately $1 in the first half of the year. Given the strength of the business and consistent cash generation, I am also pleased to announce another $500 million share repurchase program. This takes total authorizations so far this year to $1.5 billion, over 10% of our market cap at the beginning of the year. This commitment indicates our confidence in both the outlook for the business and the value we see in AirCap today. As I mentioned, demand for aviation assets continues to be robust, which is reflected in our significant levels of activity in Q2. Over the last three months, our platform executed 215 transactions across aircraft, engines, and helicopters. This comprised of 124 lease agreements, 32 purchases, and 59 sales. Of note in the period was the continued strong demand for current technology aircraft, where we found a large number of lease extensions, as airlines looked to keep whatever capacity they have in the air. Likewise, all the aircraft sold in the period were current technology units, with around 40% of these sales going to airlines. I believe the shortage of aircraft in the system has also helped airline profitability as it enforces capacity discipline across the sector, resulting in healthy yields. Our customers are, in general, in good health at the moment and optimistic about the future. On the engine side, demand for spare engine remains high in the face of higher aircraft utilization, new technology durability challenges, and parts supply constraints at the MROs. We are helping our customers through these challenges by providing financing and spare engine support through our air cap engines franchise business and SES, our joint venture with Safran. The engine team continues to invest in the most fuel efficient engines, as well as recycling older technology engines into the spare parts market, combined with a healthy level of sales activity. Switching to the industry overall, I think it will be helpful to elaborate on how strong the demand environment is in comparison to the supply available in the market today. For this, I believe it's useful to provide some historical context. So I'm going to refer back to 2018 when demand was fairly good in all regions of the world and the OEMs were delivering aircraft close to the scheduled delivery dates. Widespread disruption began in 2019 when supply was severely impacted by the grounding of the 737 MAX, even as flights grew by about 2%. The following year, both demand and supply fell sharply as COVID-19 spread around the world. Then we saw the consistent recovery in demand taking us to June 2023, where we recovered to approximately 90% of 2018's levels. OEM deliveries also recovered in this timeframe, but only to around 73% of 2018 levels. As you can see from the chart, they've continually lagged demand in the period, leading to today's widespread aircraft shortages. This is particularly important when we think about the persistence of the situation today and why we believe this supply-demand imbalance will last for several years into the future. The engine bottlenecks in the OEMs and MROs will not be resolved for a number of years, as fixes have yet to be agreed for the engine durability issues facing the newer technology narrowbodies. And even then, it will take several years to roll out any new fixes across the fleet. I also don't believe a scenario in which passenger yields soften due to a mild European or U.S. recession would derail this dynamic, as the positive momentum from Asia emerging out of COVID restrictions is getting underway. Remember that when airlines consider fleet planning, they do so in years and decades, not weeks and months. As such, short-term disruptions don't really impact demand. They too know that these supply issues are going to persist. They continue to look to secure aircraft to meet their growth plans. The chart on the right-hand side shows just how acute the change in supply has become with the normalization of storage rates of new technology aircraft. This occurred as a result of the global reactivation of aircraft. Storage rates today would be even lower if it wasn't for the reliability issues around the new engine technology. So taking that into account, we are close to zero today for what I would term discretionary storage. With this avenue closed and demand continuing apace, the leasing channel is the airline's best source of near-term lift. On the sales side, we continue to see strong and broad-based demand for our assets, closing $818 million of transactions in the quarter. This resulted in our highest-ever quarterly gain on sale of $166 million, which represented a 25% margin. Encouragingly, this was not confined to aircraft assets. We also saw strong gains on our engine and helicopter sales, with record volumes in each category. This further confirms the benefits of the asset diversification AirCap now enjoys. The operating performance of the core businesses allied to our aircraft trading activity generates significant amounts of capital, but this is only one half of the equation. The other half is that we must also allocate your capital effectively. In that vein, we have continued to take advantage of the dislocation between private market professional aircraft purchasers and the value implied in our fleet by the public equity market. The book equity from the assets we sold in 2Q was 176 million. We generated 166 million in gains on sale by selling the aircraft above book value. In addition, we generated a further 65 million in equity from repurchasing approximately 300 million of shares at an 18% discount to AirCap's book value. This meant we more than doubled our equity value by selling aircraft above book value and buying shares below book value, all the while improving the overall quality of our portfolio. So in summary, this was another great quarter for AirCap, with broad-based demand for our assets and focused execution generating strong earnings and cash flows throughout the business. We continue to complete numerous transactions every day as our customers position themselves for continued growth and demand. Our confidence in the future remains strong, and we look forward to demonstrating this to you in the quarters and years to come. With that, I will hand the call over to Pete for a detailed review of our financial performance and favorable outlook for 23.