Air Lease Corporation

Good afternoon, my name is Audra and I will be your conference operator today. At this time, I would like to welcome everyone to the Air Lease Corporation second quarter 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 the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I will now turn the call over to Mr. Jason Arnold, Head of Investor Relations. Mr. Arnold, you may begin your conference.

Thanks, Audra, and good afternoon, everyone, and welcome to Air Lease Corporation's third quarter 2024 earnings call. This is Jason Arnold. I'm joined today by Steve Haase, our Executive Chairman, John Ploeger, our Chief Executive Officer and President, and Greg Willis, our Executive Vice President and Chief Financial Officer. Earlier today, we published our third quarter 2024 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, November 7th, 2024, 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 or forward-looking statements within the meaning of the Private Securities Litigation Reform Act. This includes without limitation statements regarding the state of the airline industry, the impact of aircraft and engine delivery delays and manufacturing flaws, including as a result of the Boeing labor strike, our aircraft sales pipeline, and our future operations and performance. These statements and any projections as to our future performance represent management's current estimates and speak only as of today's date. These estimates involve risks and uncertainties that could cause actual results to differ materially from expectations. Please refer to our filings with the SEC 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 the earnings release and 10Q we issued today. This release can be found both in the investors and press section of our website at www.airleasecorp.com. Additionally, given ongoing litigation, I'd like to ask everyone to not ask any questions about our Russia fleet insurance claims. As a reminder, unauthorized recording of this conference call is not permitted. I'd now like to turn the call over to our Chief Executive Officer and President, John Pflueger. John?

Thank you, Jason. Well, good afternoon, everyone, and thanks for joining our call today. During the third quarter, Airlease generated revenues of $690 million, and we generated 82 cents in diluted earnings per share. Our results benefited from the continued expansion of our fleet, partially offset by lower end of lease revenue as compared to the prior year. We purchased 20 new aircraft from our order book during the quarter, adding $1.9 billion in flight equipment to our balance sheet, and sold nine aircraft for approximately $340 million in sales proceeds. The weighted average age of our fleet declined slightly quarter over quarter to 4.6 years, while weighted average lease term remaining extended slightly to 7.1 years. Our fleet utilization rate remains exceptionally strong at 100%. Our $1.9 billion in order book deliveries came in very close to the $2 billion we tell you to expect for the third quarter, as our outlook reflected anticipated impact from OEM delays, including the Boeing strike. Despite the strike, this was a record quarter for ALC by CAPEX for new aircraft deliveries. We're pleased that the strike is now over and Boeing can move forward. I do want to just remind you that it will take some time for Boeing to restart the MAX production lines and return to prior build rates. Deliveries of 787s are ongoing, and in fact, we took delivery of four of them, 1-9 and 3-10s, during the quarter. We currently expect to receive approximately $900 million of deliveries in the fourth quarter of this year. Assuming so, it would mean approximately $4.6 billion deliveries for the full year 2024. So within the $4.5 to $5.5 billion range we guided you at the beginning of the year, and in fact, very sizable relative to the $26 billion fleet we had at the end of 2023. As for our outlook for 2025, We'll have more detail for you here when we report our fourth quarter results in February. With our expected deliveries, our forward order book is fully placed through 2026. Our young current fleet combined with our sizable order book of new aircraft delivery through 2029 remain a key source of strength for air release, given Boeing and Airbus are largely sold out through the rest of this decade and the challenges limiting new aircraft production. As a result, and a product of this environment, airline demand continues to meaningfully outpace supply. And as a result, we are continuing to place aircraft at strong lease rates compared to prior several years. As noted in the past, deliveries in 2025 will be at higher lease factors than those we received during 2024, as we move beyond the impact of placements made during the pandemic. We expect aircraft supply constraints to persist for at least the next three to four years and are remaining very tactical with our remaining placements in order to maximize lease rates and optimize customer mix. Robust commercial aircraft demand also continues to benefit our aircraft sales activity. Our sales pipeline remains very strong at 1.5 billion. We expect approximately $400 million of sales for the fourth quarter. which should result in about $1.5 billion of sales for the full year, again, within our guidance range we provided. It is important to reiterate the fact that sales timing can be difficult to predict, given the various moving parts. And gains percentages will vary by the timing of individual aircraft that close within sales packages. And in that regard, you can see the gain on sale margin this quarter was meaningfully higher relative to the prior quarter. As we noted earlier this year, lease extension activity remains very high and our 2024 lease maturities are a limited number. The result this year has been lower end of lease revenue as compared to the prior year, which while in the short term impacts revenues, the longer term benefits of reduced time off lease, no reconfiguration expenses, lower transition related costs, and strong current lease rates on extensions are highly positive contributors to the economic returns on these assets. The higher lease rates on lease extensions further bolsters the gains realized when we sell those aircraft, which is typically not significantly longer after the lease extension is signed, given our fleet focus of holding our aircraft for the first third of their economic lives. Even though our lease maturities will be noticeably higher in 2025, We would not expect a dramatic rebound in end of lease revenue, as most of these leases are expected to be extended with their current airline customers. One very brief comment I'd like to just add on our management business. We're pleased with our management business strategy, and we continue to look at opportunities to expand that business over time. Looking ahead to 2025 and beyond, we remain very optimistic about the performance of our business. Fed rate cuts continue, as you saw earlier today, which we expect to benefit financing costs as the yield curves continue to normalize. As we've told you in the past, despite the lag time to fully impact the overall lease margins, we remain enthused by the lease rates we are signing on new aircraft and on lease extensions, in addition to recognition of solid gains on sale, all benefiting meaningfully from the continued commercial aircraft supply demand imbalance, which we do not expect to resolve for multiple years into the future. We believe our young, existing $28 billion fleet, combined with our $18 billion order book of new technology and fuel-efficient aircraft positions, all acquired with significant volume and launch customer discounts, positions us well for the future. I'd like to turn the call now over to Steve Haase. Steve?