Air Lease Corporation

Good afternoon. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Air Lease Corporation first quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, ask Star 1 again. I will now turn the call over to Mr. Jason Arnold, Head of Investor Relations. Mr. Arnold, you may begin.

Thanks, Regina, and good afternoon, everyone. Welcome to Air Lease Corporation's first quarter 2023 earnings call. This is Jason Arnold. I'm joined this afternoon by Steve Haase, 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 first quarter 2023 results. A copy of our earnings release is available on the investor section of our website at www.airlacecorp.com. This conference call is being webcast and recorded today, Monday, May 1st, 2023, and the webcast will be available for replay on our website. At this time, all participants to the 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 meeting of the Private Securities Litigation Reform Act. This includes, without limitation, statements regarding the state of the airline industry, including the impact of rising interest rates and inflation, 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, May 1st, 2023. 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 income 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 the reconciliation to corresponding GAAP measures, can be found in earnings release in the 10Q we issued today. This release can be found in both the investors and the press section of our website at airleascorp.com. As a reminder, an authorized recording of this conference call is not permitted. I'd like to turn the call over to our Chief Executive Officer and President, John Pugar now. John?

Thank you, Jason. Good afternoon, and thank you all for joining us today. I'm pleased to report that we generated $636 million in total revenue during the first quarter. and diluted EPS of $1.06 per share. First quarter revenue was another record for ALC, primarily driven by the strong growth of our fleet this quarter. This increase was partially offset by elevated operating expenses, which Greg will cover in more detail in a moment. We purchased 22 new aircraft during the quarter, adding approximately $1.4 billion of flight equipment to our balance sheet, and sold two aircraft. Our utilization rate remains strong at 99.9%, reflecting the continued high demand for the new commercial aircraft in our fleet. As of today, 93% of our deliveries through 2024 are placed, and we've placed 57% of our total order book. As we've commented in recent quarters, airline customer demand is strong and seems only to continue to accelerate as traffic volumes rise. We have only a handful of deliveries scheduled for 2024 yet to place, and 2025 slots are also being snapped up at a rapid pace as well. Boeing and Airbus are largely sold out on narrow-body aircraft until 2028 and beyond, and widebodies are also increasingly in short supply, offering upward impetus to lease rates. Now, on the topic of lease rates, we continue to see strength in new placements, lease extensions, And placements of used aircraft reflecting the high demand and constrained supply environment that we're witnessing at present. For air lease, with our young fleet, we have only 20 lease maturities in 2023 relative to our fleet of 437 aircraft. So this is not something that will be meaningfully impactful to our financial statements this year. But we do think it is a noteworthy trend that illustrates market strength, and we're happy with extending leases at attractive rates. While new aircraft deliveries were somewhat higher than we guided for the first quarter, we remained cautious in our bigger-picture outlook on OEM delivery timelines. In recent weeks, we have received additional notices of delay from both Airbus and Boeing for 2023 and 2024 deliveries. We fully expect delays to persist for several years, as indeed one OEM has advised us to expect delays compared to originally contracted delivery dates through 2028, as our delivery schedules are being revised according to their actual ability to achieve production rate increases. As an A321XL or launch customer, for example, we're seeing the timeline for that program get pushed further out to the right by 14 to 16 months. While clearly frustrating for ourselves and our customers to have delayed deliveries, From a scarcity aspect, this does serve to benefit the value of our existing fleet and the deliveries we are receiving. Our delivery outlook for 2023, therefore, remains fluid as a product of these circumstances. So, in turn, we continue to expect a range of $4 to $5 billion of aircraft to be acquired this year. I would like to note, that at either end of the range, this still does offer us meaningful fleet growth on our existing fleet of $26 billion of commercial aircraft, just not at the contracted deliveries as scheduled or as we ordered. As it stands right now, we expect approximately $1.3 billion of aircraft deliveries for the second quarter of this year. We will update you further on our delivery outlook as the year progresses. Turning to aircraft sales, While we completed sales of only two aircraft this quarter, we expect to see the pace of aircraft sales increase throughout the remainder of the year, with the largest volumes during the second half of the year. Our pipeline for sales remains robust, and we continue to expect to sell between $1 to $2 billion of aircraft in the remainder of this year. We remain excited to return to more steady sales activity, given our sales program has been effectively on pause even prior to the pandemic as a product of the max rounding. As a reminder, we target ownership of our new commercial aircraft over the first third of their economic lives. So we would expect a certain component of our fleet to become candidates for sale in any given year. Lastly, I'd like to comment briefly on the bigger picture operating environment. The week before last, I completed a week-long trip in Europe, visiting a diverse group of airlines, including Virgin Atlantic, TUI UK, Lufthansa, Swiss, Portugal, and Norwegian, most of whom are current lessees of ours. Most of these airlines advise the same key themes that we largely see globally. First, passenger traffic remains strong and growing with a healthy yield environment despite inflationary pressures with no pullbacks yet in sight. Second, labor shortages, including pilots, aircraft availability, and infrastructure constraints continue to frustrate their efforts to grow and serve the passenger demand they see looming for the upcoming busy summer season. Third, that shorter on-wing engine life of most of the new technology engines continues to frustrate their aircraft operations and deployment, with record numbers of power plants requiring shop visits earlier than originally promised by the engine OEMs. This has led to a global shortage of spare engines, increasing lead times and repair times for engine shop visits, and rapid cost escalation for all engine overhauls and repairs. To address these problems, engine OEMs on single-aisle aircraft are diverting greater quantities of new production engines to support existing aircraft in the field. With production capabilities largely maxed out by the engine OEMs, this leads to fewer engines delivered to meet airframe OEM current and future production rate goals which may impact Airbus more as they maintain higher production rates than Boeing. With more engines in the shop and more aircraft grounded awaiting engine replacements, this further adds to the need at a number of airlines to have additional aircraft coverage in their fleets, illustrating yet another aspect underpinning the aircraft demand picture that bodes well for ALC. And the fourth and final point raised by many of the airlines is a continued focus on sustainability, operating the most fuel-efficient aircraft with a stepped-up focus on sustainable aviation fuel, SAF, as we now call it. In fact, just this past week in Europe, the European Commission welcomed a new political agreement reached called the Renew Fuel EU Aviation Proposal. The new rules are aimed to help decarbonize the aviation sector by requiring fuel suppliers to blend SAF with kerosene in increasing amounts from 2025. These factors are all very positive for us at Airlease, a key benefit of having our lesser industry-leading $24 billion order book of Boeing aircraft and Airbus aircraft, in that we have delivery slots that the airlines need to take advantage of for these broader industry trends, as well as having our youngest aircraft existing in our fleet with a weighted average of only 4.5 years. Airlines need these aircraft, and they can't get them anytime soon from the manufacturers. We are among a handful of lessors who have order books, and ours of the lessors is the largest focusing only on Boeing and Airbus commercial aircraft. This is a tremendous strategic advantage for ALC as we continue to place new aircraft in the current environment, and in many cases, we have multiple airline customers vying for the same delivery slot or the same used aircraft, which only further supports momentum for lease rates over time. I would remind you that it does take time for these impacts to be seen on our financial statements, with our current existing owned fleet of 437 aircraft, and the new aircraft deliveries we are taking in 2023 largely reflect the construct in 2021. So in the big picture, we remain confident and bullish on our future outlook. Now I'd like to turn the call over to Steve Haase, who will offer more commentary on the performance of the airline industry and success in our business. Steve?