Air Lease Corporation

Good afternoon. My name is Krista and I will be your conference operator today. At this time, I would like to welcome everyone to the AIRLEASE fourth quarter 2024 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. And if you'd like to withdraw your question, press the star one again. I would now like to turn the call over to Mr. Jason Arnold, head of investor relations. Mr. Arnold, you may begin your conference.

Thanks, Krista, and good afternoon, everyone, and welcome to Airlace Corporation's fourth quarter and full year 2024 earnings call. This is Jason Arnold. I'm joined today by Steve Haase, our executive chairman, John Pluger, 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 full year 2024 results. A copy of our earnings release is available on the investor section of our website at airleascorp.com. This conference call is being webcast and recorded today, Thursday, February 13th, 2025, 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 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, 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 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 the earnings release in 10-K we issued today. This release can be found in both the investors and the press section of our website. Similar to last quarter, given ongoing litigation, we won't be able to take any questions about our Russia fleet insurance claims. Lastly, as a reminder, unauthorized recording of this conference call is not permitted. I'll now turn the call over to our Chief Executive Officer and President John Plueger. Well, thanks, Jason.

Hello and good afternoon, everyone. Thank you for joining our call today. During the fourth quarter, Air Lease generated revenues of $713 million and 83 cents in diluted earnings per share. Our results benefited from the continued expansion of our fleet, offset by lower end of lease revenue as compared to the prior year. I'm also happy to report that full year 2024 revenue and ending fleet net book value reached record levels in the history of our company. We purchased 18 new aircraft from our order book during the quarter, adding $1.3 billion in flight equipment to our balance sheet. and we sold 14 aircraft for approximately $540 million in sales proceeds. The weighted average age of our fleet was stable quarter over quarter at 4.6 years, while weighted average lease term remaining extended slightly to 7.2 years. Fleet utilization remains very robust at 100%. Our fourth quarter deliveries came in better than expected as the OEMs pushed to achieve their own delivery goals and objectives ahead of year end. On a full year basis, the $5 billion in deliveries we received hit the midpoint of the $4.5 to $5.5 billion range we outlined to you at the beginning of last year. For 2025, we expect to receive $3 to $3.5 billion of new aircraft delivered from our order book, with around 800 million anticipated to deliver in the first quarter of 25. I would also note that approximately 80% of our deliveries expected for 2025 are Boeing aircraft, so any additional challenges emerging in Boeing's production efforts could be impactful. With the lower forecast expenditures on new aircraft deliveries for 2025 compared to 2024, ALC will have the ability to largely self-fund those deliveries from operating cash flow plus aircraft sales. This means reduced funding needs from the debt capital markets. In effect, for 2025, we anticipate debt funding of approximately $2 billion, including refinancing of remaining 2025 debt maturities. So, we will have less overall financing in 2025, where it appears the financing rates will remain elevated. Greg will discuss this further. And we believe, by the way, that the same situation will exist for 2026. Expected deliveries from our forward order book are fully placed through 2026, and the team is working diligently to achieve the highest possible lease rates on our remaining deliveries in 2027 and beyond. Our young fleet and sizable new order book with delivery positions well inside of any available from the manufacturers continues to position us exceptionally well in the current commercial aircraft supply constrained environment. This strong environment is also continuing to drive up lease rates. So to that point, I'd like to share some specific information that I hope you find useful as we report here on our full year 2024. Now, I won't be updating these specific comments or examples every quarter, but simply wanted to give you a flavor of what we are seeing in the overall context. First, during Q4, ALC executed lease extensions covering 23 single-aisle aircraft, including Boeing 737-800, Boeing 737-8 MAX, A321 CEOs, and one E-190. In aggregate, that pool of aircraft extensions resulted in higher lease rates and lease rate factors than those just prior to extension. This is very significant in that lease rates normally are lower during a lease extension compared to when the aircraft delivered new. Second, year to date in 2025, ALC has agreed to lease extensions on six Boeing 777-300ER aircraft across two airlines. The aggregate total lease rates and lease rate factors were largely in line with what they were prior to the extension. And I would add also significantly higher than the lease rates indicated currently for those aircraft by well-known appraisal firms. This points to the growing strength of wide-body aircraft, which historically have always lagged narrow-body aircraft. In fact, we believe that wide-body demand has surged faster than narrow-body demand over the past six months. Steve will comment on this further in his remarks. Third, our Q4 new aircraft deliveries represented the highest delivery yield in a quarter in over four years. Fourth, as you recall during COVID, we had a number of leases that were restructured or signed at relatively low lease rate factors as a product of the challenges facing our customers at that point in time. Approximately $5 billion net book value of these lower yielding leases will mature by the end of 2026. As these leases mature and expire through 2026, we continue to be optimistic about lease rate extensions at significantly higher lease rates or releasing to the next lessee at significantly higher lease rates as we are seeing today. Now, at the same time, we must recognize we are in an environment where interest rates have not fallen as rapidly as most of us expected a year ago. In fact, Looking forward, it appears that interest rates will remain elevated for a longer period of time than we anticipated. Looking back over the past 24-plus months, it can still be said that overall, interest rates rose more than lease rates from the historic lows. Let me also remind you that we undertook a program several years ago to reduce our China content, and we have done so very effectively. That continued in 2024, wherein almost half of our aircraft sales were aircraft on lease to China. We made healthy gains on those sales. Yet I want to remind you that those China leases were very profitable. In fact, some of our highest yielding leases. So this also affects our margins looking forward. With these factors, it is taking and will take a bit longer for increased lease margins being seen in our financial results. Nevertheless, we expect to see a moderately sized steady upward trajectory in fleet lease yields each year for the next three to four years based on our views of the market and assumptions around our sales activity and interest rate environment over the same period. At the same time, we are reaping the benefits of higher aircraft values and our aircraft sales. Strong commercial aircraft demand continues to support our sales efforts and gain on sale margins. Our gain on sale margins for fourth quarter 24 and full year 24 were very robust, reflecting this environment. Our sales pipeline remains solid at $1.1 billion, a consistently healthy gain on sale margins. We envision an overall sales outlook of about $1.5 billion for 2025, around $400 million of which is expected to close in the first quarter. Given this overall backdrop, let me discuss capital allocation. For 2025, it's going to be quite simple. We've told you that, besides funding our order book, Our top priority is to get back to our target debt to equity ratio of 2.5 to 1. We expect to be there by the end of 2025, perhaps even earlier. So in 2025, we are focused first on debt reduction. Once we hit our target debt to equity level, we will, as always, consider all capital allocation avenues, including incremental aircraft or fleet purchases, capital return to shareholders, M&A possibilities, whichever we deem the best deployment of capital for our shareholders. Let me conclude a bit off topic, but importantly, to comment on the tragic fires that devastated Los Angeles, our hometown recently. You all read and saw firsthand the unprecedented devastation in our city. Despite a number of our employees being evacuated, I am incredibly thankful above all that none of our employees suffered the loss of their homes or any other tragedies. During this period of crisis, I am proud that the ALC team maintained normal business operation during this time without skipping a beat. At the same time, we are all profoundly saddened by the loss of life and property of others less fortunate. Many of our employees spent time helping others in need. And while we offered financial assistance to all employees for any fire-related housing or other costs, most declined. wishing instead that ALC make a meaningful contribution to those who saved our homes and our lives. As such, I'm pleased to advise that ALC is donating a half a million dollars to LA City and County Fire Departments with our profound gratitude and heartfelt thanks. So let me now turn the call over to Steve Haase to offer some additional commentary. Steve?