Air Lease Corporation

Ladies and gentlemen, thank you for standing by, and welcome to the AIRLIS Q1 2021 Earnings Conference Call. At this time, all participants are in listening-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 keypad. Please be advised today's call is being recorded, and if you require any further assistance from an operator, please press star 0. I'd now like to hand the conference over to your speaker today, Mary Liz DePalma. Head of Investor Relations. Thank you. Please go ahead.

Hello, everyone, and welcome to Air Lease Corporation's earnings call for the first quarter of 2021. This is Mary Liz DePalma, and I am joined this afternoon by Steve Haase, our Executive Chairman, John Pfluger, our CEO and President, and Greg Willis, EVP and Chief Financial Officer. Earlier today, we published our results for the first quarter of 2021. A copy of our earnings release is available on the Investors section of our website at www.airleasecorp.com. This conference call is being webcast and recorded today, Thursday, May 6, 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's estimates for future results and speak only as of today, May 6, 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 may 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-GAAP measures. A description of our reasons for utilizing these non-GAAP measures, as well as our definition of them and the reconciliation to corresponding GAAP measures, can be found in the earnings release and 10-Q 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 Pflueger.

Thanks, Marylouise. Good afternoon, everyone, and thank you for joining us. More than a year has passed since the start of the COVID-19 pandemic, and we are beginning to see recovery in sight. We're optimistic that as vaccine rates rise, travel restrictions are eased, and as countries work independently and collectively to develop initiatives to enable free movement we will see a further resurgence of air travel. With that said, most of our airline customers are still grappling with the strain and limitations resulting from the ongoing pandemic. Today in our comments, I hope it'll be clear how we are growing and further differentiating our platform while also supporting our airlines and how we see that benefiting us as we move forward. For the first quarter of 2021, we are reporting $475 million in total revenues and diluted EPS of 70 cents a share, down 7% and 40%, respectively, compared to the prior year's pre-pandemic first quarter. Our results this quarter were impacted by approximately $86 million of rental revenues we did not recognize in the quarter, due to cash versus accrual basis revenue recognition and lease restructurings. Greg will walk you through more specifics in his remarks. We took delivery of approximately $600 million in new aircraft in the quarter, which is $200 million more than we originally anticipated. 87% of these deliveries by dollar value occurred in the last seven business days of March, providing minimal rental contribution for the quarter but providing long-term rental contribution thereafter. Our cash collections and lease utilization rate remained solid in the first quarter at 84% and 99.6% respectively, albeit both slightly lower than what we saw in Q4. To date, we have agreed to accommodations with approximately 63% of our lessees, with deferrals totaling approximately $243 million. Importantly, however, our total deferrals net of those that have already been repaid continues to improve. As of today, our net deferrals stand at $131 million as compared to $144 million as of our last call in February, and almost half of all the deferrals we have granted to date have been repaid. Our net deferrals represent less than 2% of our available liquidity at the end of the first quarter. Furthermore, our overall cash flow from operations actually increased slightly this quarter compared to last year's pre-pandemic first quarter. The pace of requests for rent deferrals and lease restructuring from our airline lessees has slowed meaningfully. We remain fully committed to helping our airline customers get through this pandemic, and our customer relationships are growing even stronger because of our help and commitment. So in spite of short-term headwinds impacting our first quarter results, we remain long-term partners to the airlines and our business is positioned to benefit. In many cases, airlines have differentiated ALC from peers by choosing to continue operating air-lease aircraft while at the same time rejecting leases of other lessors and returning their aircraft. Other airline customers have chosen to defer their own orders and instead opt to lease aircraft from ALC which will remain core to the airline's long-term fleet strategy for years to come. Accordingly, we see accelerated demand for the aircraft in our fleet and order book, as you've hopefully seen in our recent press releases, driven by airlines' focus to operate younger aircraft, a shift towards leasing, which now accounts for about half of the marketplace, and a focus on sustainability initiatives, which gears demand towards the new environmentally friendly aircraft contained in our order book. As such, our lease placements remain strong at 95% of our order book placed on long-term leases for aircraft delivering through 2022 and 80% through 2023. So looking ahead, we technically have OEM contracted commitments to take delivery of 64 aircraft in the remainder of 2021. But given continued OEM and pandemic delays, we currently expect to deliver approximately 44 aircraft, and that number could change. We expect a range of approximately $3 billion to $4.3 billion in aircraft investments for the full year 2021. As of today, we are anticipating approximately $1.2 billion of these deliveries to occur in the second quarter. We continue to evaluate supplemental aircraft investment opportunities outside of our order book that are profitable and make sense for ALC over the long term. We're pleased that 787 deliveries have resumed, and in the first quarter we delivered one 787 to AirPremier in South Korea, and more recently we delivered two 787s to China Southern in April. As you saw from our quarterly fact sheet release, we also delivered four 737-8 MAX aircraft this quarter. As it relates to the recent grounding notice issued regarding the electrical power system on the 737 MAX aircraft, we did have six aircraft delivered to our customers subject to this order. Boeing is working with the FAA to conclude the process required for operators to return the aircraft to service. The actual work involved to accomplish the mandated service bulletins is expected to take just a few days per aircraft. Until this process with the FAA is concluded, we may experience further delivery delays of the 787. Despite these recent developments, we do have several customers who have expressed a desire to reactivate taking delivery of several MAX aircraft that we previously canceled with Boeing pursuant to our cancellation rights. We're working with Boeing and those airline customers to reactivate those specific deliveries under favorable pricing and delivery terms. As to aircraft sales in our management business, we do anticipate a resumption of our aircraft sales program targeting the second half of the year. However, we anticipate our overall sales in 2021 will not reach pre-pandemic level. As always, we are taking a disciplined approach to sales, analyzing the aircraft portfolio sales environment and the contemplated gains on those sales as against keeping these good earning assets for a bit longer as they approach six to eight years of age. And as we advised last quarter, we are growing our aircraft management business nicely. In fact, in just a 100-day period, we sourced in the secondary market over $600 million of aircraft suited specifically for Blackbird Capital II, of which two delivered in the first quarter and the remaining aircraft will deliver over future quarters. Furthermore, we have entered into another management platform agreement with one of the previous investors in Thunderbolt to acquire aircraft and have sourced seven new aircraft for that investor through airline sale leaseback transactions for forward deliveries. This is an additional attractive and growing management platform that dovetails exactly what we told you last quarter in mirroring or coupling sale leaseback transactions with direct placements from ALC's order book. Most recent example of this was the placement of four new A320neos with Volaris in Mexico, two from ALC's order book and two from Sail Leasebacks, a transaction we announced on April 26th. And finally, as we look around the world, we are mindful of our social and environmental responsibilities, and we are taking active steps on these fronts. For example, while many countries and regions are still suffering from Who on this call has not felt heartbroken at the human suffering and death happening in India at this time due to the COVID-19 virus? The scope and magnitude simply defy description. As such, I am proud to announce that ALC is donating $100,000 to the relief efforts in India. We are expanding such initiatives. In fact, our ESG Committee has several projects and efforts under consideration that we believe will further aid our planet and the human condition. And with that, let me turn the call over to Steve for additional commentary. Steve?