Air Lease Corporation

Ladies and gentlemen, thank you for standing by, and welcome to the Air Lease Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentations, 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. If you require any further assistance, please press star 0. It is now my pleasure to introduce Head of Investor Relations, Mary Liz DePalma.

Good afternoon, everyone, and welcome to Airlift Corporation's fourth quarter and year-end 2021 earnings call. This is Mary Liz DePalma, and I'm joined this afternoon by Steve Hasse, our Executive Chairman, John Pfluger, 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 2021 results. A copy of our earnings release is available on the Investors section of our website at at www.airleasecorp.com. This conference call is being webcast and recorded today, Thursday, February 17, 2022, 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, February 17, 2022. 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-GAP 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 10-K we issued today. This release can be found in both the Investors and Press section of our website at www.airleasecorp.com. As a reminder, unauthorized recording of this conference call is not permitted. I would now like to turn the call over to our CEO and President, John Pfluger.

Thanks, MaryLiz. Good afternoon, everyone, and thank you for joining us. I'm pleased to report a strong fourth quarter for Air Lease Corporation. Our EPS for the fourth quarter of $1.24 per share rose 32% year over year, and we generated $597 million in total revenue during the quarter, up 22% relative to the fourth quarter of last year, driving our total full-year revenues to approximately $2.1 billion. Both our fourth quarter and full-year revenues marked the highest in air lease history. Our revenues were driven by the growth of our fleet, as well as an increase in cash collections and renewed aircraft sales activity. We purchased 53 new aircraft in 2021, and aircraft investments totaled $3.6 billion, with $1.2 billion occurring in the fourth quarter. As a result of these deliveries, the net book value of our fleet increased grew 12.4% year over year, and our operating cash flow was up 26.3% for the full year 2021, benefiting from this fleet growth and rising cash collections, which improved in the fourth quarter to 99.3%, up from 94% in the third quarter. And as a testament to our young, modern, fuel-efficient fleet, We ended the fourth quarter with a lease utilization rate of 99.8%. As you see, we resumed our aircraft sales activity during the fourth quarter. Looking forward, as is normal during the course of our sales program, we're looking to execute further aircraft sales, primarily in the second half of 2022, targeting approximately $750 million in sales for the year. but dependent on our actual level of deliveries from Boeing and Airbus. More on that later. Based on these results and the results of our third quarter, we believe that the second half of 2021 marked the inflection point in pandemic recovery of the global airline industry. Demand for new single aisle aircraft from our order book is accelerating with diminishing supply and future availability from both Airbus and Boeing. Our order book is 99 percent placed through 2023. Reflecting this demand, you've seen our announced recent large-scale placements with ITA in Italy and with Malaysia Airlines and others, with more larger-scale placements soon to be announced. The strong freight and cargo markets are also lending support particularly to wide-body passenger aircraft, which are increasingly being used and relied upon for their freight carrying capability. Higher oil prices are causing a renewed focus on operating efficiency, replacement of older, less fuel-efficient aircraft, and meeting environmental sustainability goals. The overall increased demand, coupled with rising interest rates and inflation, are providing the catalyst for a rising lease rate environment, and we're seeing this in the marketplace. Airline balance sheets are still strained and in recovery mode, further driving lease demand. With all this in mind, as you saw late this fall, we finalized an order with Airbus to purchase 116 aircraft, including 25 A220s, 59 A321neos, 20 A321neo XLRs, five A330-900s, and for the first time, seven A350 freighters. I'm proud to say that this order marks the largest individual order for new aircraft in our company's history. And today, I'm happy to announce that we are adding 50 additional Boeing 737-8 and 9 aircraft to our order book for delivery in 2024 through 2026, of which many have already been placed. Now, these 50 aircraft consist of 32 additional MAX aircraft, plus the conversion of three 787 order positions into 1837 MAX positions. So in summary... we're adding 50 Boeing 737-89 aircraft to our order book and reducing our 787 orders by three units. By these order additions, we believe ALC now has the largest combined order book specifically with Boeing and Airbus of any lessor. ALC has no orders with other manufacturers. With our highly valuable order book, we're of course watchful of OEM supply chain stress and any other production constraints that may impact our forward deliveries over the next several years. We are no stranger to notifications of delivery delays from both Airbus and Boeing. We continue to experience several month delays from Airbus, most specifically on the A321neo. And from Boeing, there remains a high degree of uncertainty about resumption of 787 customer deliveries. So for example, although you'll see in the commitment section of our 10-K, that we have 10 Boeing 787 aircraft contracted for delivery in 2022. At this juncture, we forecast taking delivery of only one 787. Now, this could change and hopefully improve, but it's our best estimate today. As Boeing has reminded the world, the resumption of 787 customer deliveries is ultimately determined by the FAA, and no timeframe has been given for that. So looking forward to the remainder of 2022, Although we are contractually committed to take delivery of 85 aircraft, for the reasons I've just outlined, that number will likely be lower, such that we believe aircraft investments are more likely to range from approximately $3.5 to $4.5 billion in 2022. Now, in the first quarter, we expect about $650 million of aircraft investments. As we've done in prior years, we'll be looking for additional attractive aircraft investments in the secondary market or in through a strategic sale-leaseback transaction where we can simultaneously couple direct placement of our order book aircraft as you saw us do successfully in 2021. To take advantage of these opportunities, we continue to have a strong liquidity position of $7.9 billion and enjoy ongoing access to the investment-grade capital markets. In 2021 alone, we issued $3.7 billion of notes with a weighted average interest rate of 1.27%. Since the beginning of 2020, when the pandemic began, we've raised over $9 billion in the capital markets, and our composite cost of funds at the end of 2021 was 2.79%, which is the lowest in our company's history. As we enter a rising interest rate environment, we expect that our strong balance sheet and credit metrics will allow us to continue funding at competitive rates as compared to our customer base. We also continue to have interest rate escalators in our leases, which provide for adjustment at the time of delivery of the aircraft to reflect the interest rate environment we are in at the time. Although the airline industry is on the road to pandemic recovery, and by our actions you see our overwhelming confidence in the future, at the same time we are mindful that full recovery of the global airline industry will not happen until we see accelerated international travel recovery. In that context, and as we've said before, Asia lags in this regard. But we're starting to see the beginning of recovery in Asia. Recently, countries like Vietnam have resumed international destinations as well as relaxing COVID restrictions. India and Thailand are following suit. And Australia and New Zealand are also reducing restrictions. There has been little change in this regard, however, with respect to China. Overall, the airline industry is recovering but remains under pressure, and we continue to see certain airlines in distress condition where restructurings may still take place. I would remind everyone, however, that this is the nature of the airline industry with or without COVID-19. Our job is really no different, and that is to be disciplined and make the best credit decisions possible and place our bets with airlines we believe are in the best position looking forward. Further looking geographically, of course, political tensions between Russia and the Ukraine have been at the news forefront. We continue to monitor the situation, but ALC has only small exposure to both Ukraine and Russia, totaling under 5% of our fleet net book value as of the end of the year, and we enjoy good cooperation with our airline customers in those countries. In summary, Air Lease Corporation was started as a clean sheet of paper in 2010, and since day one, Our strategy has been placing new aircraft from our order book on long-term leases to a diversified group of airline customers around the world. This focus has been critical to the strength of our platform to date and has proven its worth through good times and, as we've experienced the COVID-19 pandemic, more difficult times as well. As our industry continues its path of recovery with an intense focus on sustainability, We're confident that the experience and global relationships of our team, coupled with our offering the most technologically advanced and environmentally friendly airliners obtainable, will continue to set us apart. Further highlighting the basis of our confidence, I'll now turn the call over to Steve Haase for additional commentary and announcement of the share repurchase program just authorized by our board. Steve? Thank you, John. Thank you, John.