Air Lease Corporation

Ladies and gentlemen, thank you for standing by, and welcome to AIR Relief Q4 2020 Earnings Conference Call. At this time, our participant lines are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll 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 over to your speaker today, Mary Liz DePalma. Head of Investor Relations. Thank you. Please go ahead, Madam.

Thanks, Justin. Hello, everyone, and welcome to Air Lease Corporation's fourth quarter and year-end 2020 earnings call. This is Mary Liz DePalma, and I am joined this afternoon by Steve Haase, our Executive Chairman, John Kluge, our Chief Executive Officer and President, and Greg Willis, our Executive Vice President and Chief Financial Officer. Earlier today, we published our fourth quarter and year-end 2020 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, Monday, February 22, 2021, and the webcast will be available for replay on our website. At this time, all participants to this call are in listen-only mode. 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 estimates for future results and speak only as of today, February 22, 2021. 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 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-GAP measures. A description of our reasons for utilizing these non-GAP measures, as well as our definition of them and reconciliation to corresponding GAP 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 Chief Executive Officer and President, John Kluger.

Thanks, Mary Liz. Good afternoon, everyone, and thank you for joining us. 2020 was an amazingly difficult year for the world, the aviation industry, and for millions of people personally dealing with the impacts of the COVID-19 pandemic. The ALC team met the challenges of the past 12 months head on, working tirelessly to move our business forward. While no business in the commercial aviation space is immune to the stress the industry has endured, thanks to our team's ongoing efforts and our fundamental business model, the strength of our platform is more evident today than ever before. For the first time this year, we exceeded $25 billion in total assets, and for the full year 2020, our revenues once again surpassed $2 billion in line with the prior year. For the fourth quarter, our revenues of $489 million were down 10.9% year over year. Our diluted earnings per share of $4.39 for the full year and $0.94 for the fourth quarter are down 13.8% and 33.8% respectively. Despite approximately $2.4 billion of aircraft investments this year, which were well below our expectations at the beginning of 2020. Both revenues and earnings were impacted by a slowdown in the growth of our fleet and our planned major reduction in aircraft sales activity, in addition to rental revenue not recognized as we had certain lessees on cash basis recognition and impacts from lease restructurings. Our cash collections remained healthy at 88% in the fourth quarter, up from 86% in the third quarter, with an equally strong lease utilization rate of 99.8% in the fourth quarter, slightly higher than what we saw in Q3. To date, we have agreed to accommodations with approximately 61% of our lessees, with deferrals totaling $240 million. Importantly, however, our total deferrals net of those that have already been repaid stands at $144 million as of today. That is to say that 40% of all the deferrals we have granted to date, or $96 million, have already been repaid and the remaining net balance is $144 million, which represents less than 2% of our total available liquidity at the end of the fourth quarter. Now, I know many of you are interested to know what we expect going forward as it relates to incremental lease accommodations. We expect 2021 to remain a challenging year for the airline industry. How deferrals and other requests ultimately trend will be based on what the airlines endure from now to the start of the summer season and further what the summer season holds. While we are all encouraged by the vaccines, the bottom line is that virus resurgence this winter has curtailed even domestic travel and cross-border travel restrictions remain in place. For this reason, we have received and may see additional requests for not only deferrals but also lease restructurings, which began to have some impact this quarter and last quarter. The lease restructurings we have entered into include lease extensions as well. As we await and help our airline customers plan for the broader recovery of air travel, we are encouraged by the trends we are seeing throughout the industry that bode well for our fleet and order book, including, one, a focus on operating the youngest, most reliable and efficient aircraft. Two, a shift towards leasing versus buying, as many airlines have largely utilized all capital alternatives available to them. And three, an accelerated replacement cycle that will likely continue and potentially grow as the longevity of the pandemic continues. As I've been saying quarter after quarter, environmental sustainability initiatives are driving fleet decisions now more than ever. Driven by those needs and trends, our lease placements remain strong at 92% of our order book placed on long-term leases for aircraft delivering through 22 and 73% through 23. As it relates to lease terminations, out of our total fleet of 332 owned aircraft, we only have 21 leases expiring in 2021, and we expect most of those leases will be extended. In the fourth quarter, we delivered $1.1 billion of aircraft, including 10 aircraft from our order book and 14 aircraft acquired via sale-leaseback opportunities. I mentioned last quarter that we are beginning to see additional capital deployment opportunities with respect to sale-leaseback transactions and the purchase of young single L aircraft. Through these transactions, we not only put our capital to use buying young aircraft, but we also placed new aircraft from our order book at each airline. Sale-leaseback transactions of this nature are very beneficial to our business, and our disciplined approach up to this point allowed us to execute when the time was right. It's difficult to quantify today how many sale-leaseback transactions like this, or of a different form, may come to fruition for us in the near term. We keep our eye on and do our best to seek out opportunities that may be on the horizon with the goal of finding deals that are accretive to our returns and which lead to larger opportunities with an airline. As you will see in our commitment table in the 10-K, our purchase contracts indicate taking delivery of 72 aircraft this year, including 21 737 aircraft. In fact, just earlier this month, we took delivery of our first two new 737-8s since the grounding, delivering both aircraft to Sunwing Airlines in Canada. However, our deliveries are still limited by the slow reintroduction of the 737 by Boeing, tariffs on Boeing aircraft delivering into Europe, some remaining delays at Airbus on the A320 family, delivery delays or deferrals due to travel or other governmental restrictions, and more recent manufacturing issues which have caused delays on our 787 aircraft. For these reasons and other industry circumstances, as happened during 2020, We believe our actual delivery schedule will continue to experience material changes to the downside compared to what it's technically contracted. Of course, as we do every quarter in our filings and earnings call, we'll keep you updated on our current delivery expectations, and Greg will comment further on this in his remarks. In addition, especially with the change in presidential administration in the U.S., we are closely monitoring the trade environment. and how the US ongoing dialogue with Europe and China is evolving. Specifically, we are encouraged by high-level comments that would suggest the elimination or suspension of tariffs on the importation of aircraft in both Europe and the United States. As we enter 2021, we are seeing significantly increased interest from a variety of aircraft buyers, and we do anticipate a resumption of our aircraft sales program this year. which will be targeted more towards the second half of the year. Additionally, we plan on growing our aircraft management business further and are making good progress on that front. As we did in 2020, we continue to look for opportunities in the marketplace and will act upon them accordingly. We continue to have strong access to the investment grade capital markets. In 2020, we successfully issued $4.5 billion of senior unsecured notes at a weighted average cost of 2.9%, which is inside of our composite cost of funds. More than $3 billion of those notes were issued after the COVID pandemic began. In mid-January of this year, we again accessed the market, raising $750 million of three-year notes at a coupon of 0.7%. which represents ALC's lowest interest rate to date on any of its senior unsecured notes. While we remain opportunistic as it relates to future issuances, I am pleased to say our liquidity position of $7.7 billion as of the end of 2020 places us on solid footing as we proceed into the remainder of 2021. ALC is a long-term partner to the airline industry, and I believe that without us and the leasing community, the airline industry would be in far worse shape than it is today. We work with our customers every day to help them maneuver back to a place where they are once again able to transport the people of the world who want to see family and friends, attend business meetings, get away for the weekend, or explore a new place. You've all heard executives from the airline, hospitality, and financial service sectors speak of pent-up demand, the eagerness of people to once again get out and travel. To us, these fundamental drivers of air traffic remain and are what keep us focused and give us confidence in the long-term outlook for the airline industry. We are all working towards and looking forward to the recovery of an industry which has become so integral to the connectivity of movement of people and goods worldwide. And with that, let me turn the call over to Steve Haase for additional commentary. Steve?