Air Lease Corporation

Good afternoon and welcome to the Air Lease Q2 2022 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Jason Arnold, Head of Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to Air Lease Corporation's second quarter 2022 earnings call. This is Jason Arnold, and I'm joined this afternoon by Steve Haase, our Executive Chairman, John Pluder, our Chief Executive Officer and President, and Greg Willis, our Executive Vice President and Chief Financial Officer. Earlier today, we published our second quarter 2022 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, Thursday, August 4th, 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 security litigation reform act. This includes, without limitation, statements regarding the state of the airline industry, including the impact of sanctions imposed on Russia and aircraft delivery delays, 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 our future performance represent management's estimates for future results and speak only as of today, August 4th, 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, we may discuss certain financial measures such as adjusted net income before taxes, adjusted diluted earnings per share before income taxes, and adjusted pre-tax return on equity, which are non-GAAP measures. A description of our reasons for utilizing these non-GAAP measures, as well as our definition of them and reconciliation to corresponding GAAP measures, can be found in the earnings release and 10Q 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 Chief Executive Officer and President, John Fluger.

Well, thanks, Jason. Good afternoon, everyone, and thank you for joining us today. I'm pleased to report that AOC generated $558 million in total revenue during the quarter. up 13% relative to the same period last year, while our diluted EPS of 95 cents per share rose 27% year over year. Second quarter performance benefited primarily from the growth of our fleet, recognition of CASBASIS revenue, and the reduced impact of restructuring stemming from the pandemic. We purchased 22 new aircraft, adding approximately $1.4 billion of flight equipment. Our operating cash flow is up roughly 18% relative to the second quarter of last year, benefiting from improved cash collections relative to the prior year. We ended the second quarter with a lease utilization rate of 99.6%. Commercial aircraft demand, meanwhile, continues to strengthen, and with the uptick in international traffic volume, we're seeing that extend into the wide-body demand, in addition to the narrow-body market, which has been strong for some time now. In fact, We are now more than 80% placed on our wide-body order book, which includes the A330neo, the A350 Passenger and Freighter, and the 787. Our overall order book placements reflect this strong demand environment, with lease placement of 99% of our deliveries through 2023, with 60% of our deliveries in 2024 placed, and and with 25% placements, 2025 placements, well ahead of our expectations. Some of our narrowbodies, such as the A321neo, including the LR and XLR versions, now have forward placements out five years through 2027, farther out than we had pre-COVID. As such, at the recent Farnborough Air Show, we placed a large order with Pratt & Whitney for additional engines to allocate to our A320 and 321neo order book. At Farnborough, we also announced an added lease placement with a new airline customer for six new A220s. We're also seeing a higher pace of lease extensions well in advance of lease expirations on both single and total aircraft, which is lending added support to used market lease rates and aircraft values. Reasons for this include a desire to secure current lift in the face of escalating new aircraft prices and higher interest rates, concerns over supply chain constraints leading to future delivery delays of aircraft on order, and as a hedge against aircraft shortages. We were pleased that our aircraft deliveries for this quarter exceeded our guidance. Our Boeing MAX deliveries this quarter happened to exceed our Airbus A320 and A321neo deliveries 11 to 7. Now by saying this, I'm not making a forward prediction on the ratio of max and yield deliveries for the future. Rather, just that the max is enjoying good recovery with escalating deliveries and lease placements. Having said that, as you're aware, Airbus and Boeing are experiencing continued supply chain and labor issues resulting in delivery delays. So despite our deliveries exceeding guidance this quarter, We continue to experience delays of several months on our Airbus narrow-body deliveries, and 737 MAXs also continue to be delayed as well. Supply chain challenges will likely extend for the next couple of years, which will likely further exacerbate what was already shaping up to be a shortage of commercial aircraft as post-pandemic demand continues to accelerate. On the wide-body side, the Boeing 787 has been the primary hang-up, but it is our understanding that the FAA has approved Boeing's delivery resumption plan. Now, much like the time it's taking for Boeing to clear a cumulative max inventory, it will take time to deliver the 787s, and therefore, we retain our estimate of taking delivery of only one 787 by the end of this year. We're very pleased that there seems to be finally an end in sight to the 787 delivery freeze, and our airline customers are very eager to add these 787 aircraft to their fleets, particularly given the acceleration in international traffic. Given all these factors, we continue to expect about $3.5 to $4.5 billion of deliveries in total for 2022, consistent with our prior guidance. We expect $1.2 billion of aircraft investments in the third quarter, subject, of course, to manufacturer delays. On the sales front, we are targeting up to $750 million of aircraft dispositions in the second half of this year, somewhat subject to any further significant delivery delays we might experience during the second half of this year as we consistently prioritize fleet growth and core lease earnings. Lastly, I do want to provide a brief update on our efforts on insurance claims from our Russian fleet. We submitted our claims to our insurers in June to recover losses on these aircraft and continue to vigorously pursue our claims. Similar to last quarter, I want to point out that this is a complicated matter, and we're not able to provide much additional color beyond that. But we will update you on meaningful progress here over time. To summarize the big picture, while there are many cross-currents in the global macro environment, Continued sizable traffic recovery tailwinds remain the source of strength offsetting these factors, with further recovery momentum building in Asia, as Steve will now share with you. So let me turn the call over now to Steve, who will provide his additional commentary.