Air Lease Corporation

Good day, ladies and gentlemen, and welcome to Air Lease's second quarter 2019 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will be given at that time. Should anyone require assistance during the conference, you may press star, then zero on your touchtone phone. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Mary Liz DePalma, Head of Investor Relations. Please begin.

Hello, everyone, and welcome to Air Lease Corporation's earnings call for the second quarter of 2019. This is Mary Alyssa Palma, and I'm joined this afternoon by Steve Haase, our Executive Chairman, John Kluger, our Chief Executive Officer and President, and Greg Willis, our Executive Vice President and Chief Financial Officer. Earlier today, we published our results for the second quarter of 2019. A copy of our earnings release is available on the investor section of our website at www.airleasecorp.com. This conference call is being webcast and recorded today, Thursday, August 8th, 2019, and the webcast will be available for replay on our website. At this time, all participants to this call are in listen-only mode. At the conclusion of today's conference call, instructions will be given for the question and answer session. Before we begin, please note that certain statements in this conference call, including certain answers to your questions, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. This includes, without limitation, statements regarding our future operations and performance, revenues, operating expenses, stock-based compensation expense, and other income and expense items. These statements and any projections as to the company's future performance represent management's estimates for future results and speak only as of today, August 8, 2019. These estimates involve risks and uncertainties that could cause actual results to differ materially from expectations. Please refer to our filings with the Securities and Exchange Commission for a more detailed description of risk factors that may affect our results. Air Lease Corporation assumes no obligation to update any form of statements or information in light of new information or future events. In addition, certain financial measures we will be using during the call, such as adjusted net income before income taxes, adjusted diluted earnings per share before income taxes, and adjusted pre-tax return on equity are non-GOT measures. A description of our reasons for utilizing these non-GATT measures, as well as our definition of them and the reconciliation to corresponding GATT measures, can be found in the earnings release in 10QE issued today. This release can be found in both the investors and press section of our website at www.airleasecorp.com. Unauthorized recording of this conference call is not permitted. I would now like to turn the call over to our CEO and President, John Ploever.

Thanks, Mary Liz. Well, good afternoon, everyone, and thank you for joining us. I'm happy to report the continued strength of our business with revenues up 18.5% for the quarter and up 20.3% for the first half of the year. Our EPS grew 5.8% to $1.10 for the quarter and 14.2% to $2.33 for the half year with strong pre-tax margins and return on equity. During the second quarter, we delivered 16 aircraft from our order book and acquired one aircraft from the secondary market, representing approximately $1.6 billion in aircraft investment, which, despite the max grounding and ongoing delivery delays with Airbus, is the highest level of aircraft investment in any quarter during our company's history. Last quarter, we advised that we were lowering our assumptions for aircraft investments for the full year 2019, from $6.5 billion to $5.8 billion. Now, due to ongoing grounding of the MAX and ongoing delivery delays by Airbus, we are lowering our assumptions for aircraft investments again for 2019 down to approximately $5.1 billion, which assumes that we will not be taking delivery of any MAX aircraft for the end of 2019. This assumption is our own, not Boeing's. And I would remind you that our MAX customers and forward place deliveries are outside of the United States and therefore are ultimately dependent on foreign regulators, not the FAA. Frankly, I hope our assumption is wrong, as we do look forward to delivery recommencement of the MAX as soon as possible. While the MAX grounding has been tough for our customers and the entire industry, the most important aspect is that the aircraft is safe when it returns to service. We know that Boeing, the FAA, and the world's aviation authorities are working hard to restore the MAX safely to the air, and we remain fully confident in that outcome, as do our airline customers. So, big picture for ALC. Let me just summarize by saying that our revised estimate of 5.1 billion in aircraft investments for 2019 is still 50, five zero percent higher than 2018. So we remain on track for our strongest growth year since inception of the company. As anticipated and as we previewed to you last quarter, we did not sell any aircraft in the second quarter as we focused on fleet growth. Our fleet remains young and full of highly in-demand aircraft, which are generating healthy returns for our shareholders. We see continued strong demand from aircraft buyers for the foreseeable future, which allows us to tailor our sales to be consistent with our growth objectives and maximize value of each and every aircraft to our shareholders. Consistent with our expectation, and as we shared with you last quarter, we do anticipate sales from our fleet occurring in the second half of the year, for which several have already closed in Q3. Greg will provide further quantification of this in his remarks. Looking at the macro picture, as you would expect, we are closely monitoring trade matters, global economic activity, environmental issues, currency, and interest rates. As we have expressed to you over the past year, based on our interactions with our customers to date, we have yet to see impact to overall demand for our aircraft. And as we have also shared with you previously, we are experiencing no issues on our aircraft deliveries into China or obtaining new deals with China as you saw from our June 16th press release for 10 new A321neo aircraft with Sichuan Airlines. Looking at today's overall demand picture, the shortage created by the max grounding and the Airbus delivery delays have, if anything, strengthened near-term single aisle demand, and we have seen an uptick in certain lease rates, particularly on the A321neo. It is premature to speculate on max lease rates going forward, as much of our new lease placement activity has been somewhat muted, pending return to service of the MAX. On the wide-body side, I would call your attention to the strong lease placements we have announced during the past 90 days, and particularly during the Paris Air Show, to show the continued good placement momentum we have been experiencing. Those placements include 10 Boeing 787-10s with Korean, one 787-10 with KLM, one 787-9 with LOT Polish Airlines, three A350-900s and an A350-1000 with Air Carrier and French B respectively, and six A330-900neos with Virgin Atlantic. In fact, as of today, we are 76% placed on our wide-body aircraft cumulatively, and importantly, these placements are at rates with which we are very happy. So at the Paris Air Show, we announced a significant deal with Airbus for 100 aircrafts, And as part of this agreement, we partnered with Airbus to launch the A321XLRneo with 27 firm orders, and we added 23 incremental A321neo firm orders and ordered 50 A220-300 aircraft. We also adjust our order book for the addition of five 787-9s with Boeing. Look, we believe strongly in all these aircraft. Just to provide some color on these orders, let me start with the A321XLRneo, In our view, this aircraft currently has no equal. It has the ability to fly 10 to 11-hour missions with a range of up to 4,700 nautical miles, and the XLR can carry well over 200 passengers. It's also 30% more fuel efficient than the 757. We are already seeing strong demand from our airline customers. Frankly, this aircraft was a no-brainer. As it relates to the A220, we believe that this aircraft, under Airbus ownership, is much more than a traditional regional jet. It has the ability to carry up to 160 passengers comfortably and is substantially more fuel efficient than an A319 or a 737-700. This aircraft is ideal for connecting secondary cities where we are seeing continued growth in passenger traffic, and the market is embracing this aircraft as near-term delivery positions are sold out. Steve will comment a little bit further on the A220-300 in his remarks. Finally, the 787-9 has been one of the strongest, if not the strongest, wide-body aircraft in our portfolio. We continue to get good, strong requests for the 787, and these five additional units reflecting ongoing lease placements are all covered. All these lease placements have not yet been announced. Looking ahead, we see demand for aircraft as being resilient in the face of global headlines. In addition to the need to replace aging aircraft, which has been ALC's focus since inception, the industry continues to have a multitude of other factors driving incremental demand for new jets. It's undeniable that air travel has become the world's form of mass transportation for anything over about 500 nautical miles as the total cost of travel becomes more and more affordable with increasing connectivity globally. This is being driven by the technological disruption throughout the travel agencies. For example, with hotels and rental cars, with businesses such as Airbnb and Uber, along with the advent of the LCCs and ULCCs in the airline industry, all of which helps to make travel more affordable than ever. ALC's daily conversations with our customers provides our team with the best real-time pulse on the marketplace. And it's clear to us that the dynamics I just discussed are driving passenger traffic and our airline's needs for new aircraft. As a result of this, we continue to place our order book to both long-time and new airline customers at a good pace and at rates with which we are happy. And with that, let me turn the call over now to our Executive Chairman, Steve Haase, to provide further color on our placements and additional commentary on what we were seeing in the marketplace. Steve? Thank you very much, John.