Air Lease Corporation

Ladies and gentlemen, thank you for standing by, and welcome to the AIRLEA's fourth quarter 2019 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference to your speaker today, Mary Liz DePalma, Head of Investor Relations. Please go ahead, ma'am.

Hello, everyone, and welcome to Air Lease Corporation's fourth quarter and year-end 2019 earnings call. This is Mary Liz DePalma, and I'm joined this afternoon by Steve Haase, our Executive Chairman, John Pugar, our Chief Executive Officer and President, and Greg Willis, Executive Vice President and Chief Financial Officer. Earlier today, we published our fourth quarter and year-end 2019 results. 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, Friday, February 14th, 2020, 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, February 14, 2020. 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 forward-looking statements or information in light of this new information or future events. In addition, certain financial measures will be used 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-GOT measures, as well as our definition of them and the reconciliation to course-signing GOT measures, can be found in the earnings release and 10-K we 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 Fluber.

Well, thanks, Mary Liz. Good afternoon, everyone, and thank you for joining us. I'd like to actually begin by wishing my wife, Celeste, a happy Valentine's Day. So I'm pleased to report that Air Lease enjoyed another successful quarter and year in 2019, recording diluted earnings per share for the fourth quarter of $1.42, up 14.5% year over year, and $5.09 for the full year, up 10.7% year over year, all through our continued organic growth. Our portfolio metrics remain strong and consistent, and our business achieved a pre-tax profit margin of 36.5% and a 14.2% pre-tax return on common equity. ALC's revenues surpassed $2 billion at year-end for the first time, up 20% over 2018, and our aircraft investments in 2019 were the largest in ALC's history, totaling almost $5 billion despite the max grounding and continued delivery delays. 825 million of these aircraft investments were made in the fourth quarter as we purchased 12 aircraft. Accordingly, at year end, our balance sheet grew to $21.7 billion, up 17% from 2018. Consistent with expectations, we sold a billion dollars of aircraft in 2019, with most of these sales achieved during the second half of the year as planned, given the delays on our new aircraft deliveries. In the fourth quarter, we generated sales proceeds of $585 million, selling 11 aircraft into the Thunderbolt 3 transaction and the remaining eight aircraft to other buyers. ALC now stands with 788 aircraft owned, managed, and on order. In December, we signed the final purchase agreements for the order we announced at the Paris Air Show for 102 aircraft, including A220s, for which Airbus has now purchased the remainder of Bombardier's interest, also launching the A321XLR and ordering incremental A321neos. We view all of these orders as important for our growth and for the overall contribution towards environmental sustainability of the airline industry. With these orders, we have 89% of our order book placed, including the max, on long-term leases two years forward and a significant amount of forward visibility with over $29 billion in total committed rentals. Finally, and importantly, in 2019, we continued to achieve success in the debt capital markets, raising over $4 billion in capital. This includes the issuance of over $3 billion in senior unsecured notes, including our first Canadian dollar bond deal and the expansion of our bank facilities. ALC ended 2019 with over $6 billion in liquidity. This month marks our 10th year in business. All I can say is that looking back, we have exceeded our initial expectations when we started Air Lease. I want to pause and take a heartfelt moment to especially thank our unparalleled and world-class ALC team and board of directors, our customers, investors, financiers, the airframe and engine manufacturers, our suppliers, and our management business partners for your unwavering support and belief in what we're doing. Looking back over the last 10 years, I will only say this. It was a very good beginning. Our engines are set at full thrust, and we look forward to an even more successful next decade. So let's look forward a bit by starting with a few topics that I know are on your mind. First, the coronavirus and its impact. Look, I won't mince words. Besides the obvious human impact, it has been extremely tough in particular for our China and Asia airline customers with flight cancellations and dramatic drop-offs in traffic. I won't quote facts and figures to you as there are ample sources for that information. Yes, we have received requests for assistance from some lessees. And, as always, we are working with our customers as needed. For example, we are making outright cash aircraft purchase offers as well as offering sale leaseback transactions, which will provide our customers cash and positively contribute to ALC's growth this year. Furthermore, the purchase of selected aircraft can also help our MAX customers who are struggling to find summer lift in the face of still uncertain MAX delivery timing. We will also be doing some temporary lease payment deferrals as happens in these types of situations. However, as we see things today, we do not foresee a significant overall impact from this on our financial performance in 2020 or beyond. We have a very strong and healthy balance sheet, and through that balance sheet, we can and will help our airline customers. We do expect that global passenger traffic growth numbers will be impacted for 2020, possibly even resulting in in flat to negative growth. Let's also remember that the traffic growth also continues to be negatively impacted by the Boeing MAX situation, which will have drawn out to at least a year or more of no deliveries into the global marketplace. The airline industry and its leasing partners, including our management team with decades of experience, have experienced shocks and pandemic episodes with varying degrees of severity before, with passenger traffic always strongly recovering over time and we believe this resilience will continue. This belief is strongly echoed in the hundreds of conversations we have had over the past month with our airline customers in Asia and globally. While the current coronavirus has had a huge and large immediate impact, the airline industry takes a sound, long-term view in their overall fleet growth plans. The max production cessation and Airbus production delays have resulted in a shortage of aircraft in the marketplace for the long-term view. Let me be clear that the vast majority of our MAX customers still need these aircraft greatly, and as Airbus themselves stated clearly in their recent earnings call, there is no capability to replace or backfill MAX capacity with Airbus single aisle over the next several years. Outside of the MAX, our new aircraft deliveries continue to date with our customers globally, including our customers in Asia. Yesterday, for example, we delivered at Boeing's facilities in Charleston, South Carolina, a new Boeing 787-10 to EVA Airways based in Taipei. And a few weeks before that, from Airbus, we delivered a new A321neo to Vietnam Airlines. As to MAX deliveries, we are confident in Boeing's and the FAA's leadership and we now see light at the end of the tunnel. Nevertheless, we still believe that it may take around two years for the more than 400 parked MAXs globally to ultimately return to service. Using our best estimates, we believe that we will be taking four new MAX aircraft deliveries in 2020. I hope this is overly conservative as we actually have 27 aircraft that have been built but undelivered to our customers in addition to the 15 MAX aircraft we deliver to our customers prior to the grounding of the MAX fleet. Please remember that there are many elements that need to come together for MAX deliveries to recommence over and above the green light given by the FAA. For example, the airline's own training schedule, technical issues including return to service from a preservation maintenance state, the uploading and testing of new software on each aircraft, Time-life commercial discussions as to calendar time or life-limited components on aircraft that have been parked for a long time. Airworthiness approval of foreign certification authorities. The cancellation of delegation of authority by the FAA to Boeing engineers for issuance of certificate of airworthiness, which will now be done by FAA inspectors as each aircraft delivers, and this may entail greater time, as we do not know the experience level of these inspectors. late compensation delivery discussions, seasonal lift demands that particularly impact smaller operators, particularly if they miss the upcoming summer season, and in the immediate near term, the coronavirus impact, which as a practical matter may impact some countries' abilities to obtain visas for travel to accept delivery. In total, ALC has placed more than half of our max order book aircraft with 20 airlines in 18 countries, and there remains a lot to be worked out for the delivery process. I would add that to date, none of our MAX placements have been to airlines in China. Despite all the challenges, we anticipate that 2020 will be another strong year for ALC. As you will see in our 10-K, we anticipate a total of 46 aircraft delivering from our order book in 2020, with only four MAX aircraft included in that amount. We hope we and Boeing can improve the number of MAXs that we take this year. Also, those 46 aircraft do not include any incremental aircraft purchases, such as the sale leasebacks we've been offering to help some of our China and Asian customers, or other opportunistic aircraft acquisitions. On the aircraft sales side, we are seeing strong demand from a diverse base of buyers for our aircraft. Given the strong demand market reception, to our T-Bolt III transaction in the fourth quarter of 2019, we will look to continue building upon this platform in 2020. Greg will comment further as to our forecast aircraft sales dollar volume and timing, plus aircraft delivery timing for the next quarter and 2020. Let me conclude by thanking all of you who are listening to this call for the thoughtful questions and comments you've raised in past earnings calls and which I anticipate today. Many of you have been following us since the inception of our company, and we do value your perspectives. With that, let me turn the call over to Steve Haase for further remarks. Steve?