Air Lease Corporation

If you ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. We kindly ask that you limit your questions to one and one follow up. I will now turn the call over to Mr. Jason Arnold, head of investor relations. Mr. Arnold, you may begin the conference.

Thank you, Regina. Good afternoon, everyone, and welcome to Airlace Corporation's second quarter 2025 earnings call. This is Jason Arnold. I'm joined today by John Pugger, our chief executive officer and president. and Greg Willis, our Executive Vice President and Chief Financial Officer. Earlier today, we published our second quarter 2025 results. A copy of our earnings release is available on the Investors section of our website at www.airleasecorp.com. This conference call is being webcast and recorded today, Monday, August 4th, 2025, 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 the state of the airline industry, the impact of aircraft and engine delivery delays, 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-Q that we issued today. This release can be found in both the investors and press section of our website at airleasecorp.com. Similar to prior quarters, 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 Pfluger. John?

Thanks, Jason. Good afternoon, everyone, and thank you for joining us today. In the second quarter, Airlease generated revenues of $732 million and $3.33 in diluted earnings per share. Results benefited from our new aircraft deliveries, healthy gain on sales, increasing portfolio yield, end of lease revenue, and another quarter of significant Russia fleet insurance proceeds. Fleet net book value and book value per common share reached all-time record levels in our company's history as of the end of the quarter. Expanding on our Russia insurance recoveries, we recognized a net benefit from insurance settlements of $344 million during the second quarter, and expect to recognize an additional 60 million net benefit in the third quarter. To date, I'm very pleased to say that we recovered or have signed agreements to recover 104% of our initial Russia fleet write-off. We purchased 12 new aircraft from our order book during the second quarter, adding approximately $890 million in flight equipment to our balance sheet. and sold four aircraft for $126 million in sales proceeds. The weighted average of our fleet rose slightly quarter over quarter to 4.8 years, while weighted average lease term remained unchanged at 7.2 years. Fleet utilization remains 100%. As of mid-year, we've delivered about $1.7 billion of aircraft out of our expected outlook for full-year order book deliveries of roughly $3 to $3.5 billion. At this point in time, we believe we're likely to hit the upper end of our full year expected range. We're anticipating around $600 million in deliveries for the third quarter, and we'll provide a fourth quarter 25 delivery outlook update for you on our next earnings call. Moving on to aircraft sales, our intent is to continue the pace of aircraft sales to maximize available capital. To that end, our sales pipeline is sizable at $1.4 billion, up relative to last quarter, and all at an attractive gain on sale margins. We continue to expect around $1.5 billion of aircraft sales for 2025 in total, and are projecting $300 million of sales for the third quarter, with a balance to close in the fourth quarter of 2025. This quarter's particular sales volume came in below our expectations due to the timing of anticipated closings falling outside the quarter. Our gain on sale margin for the quarter was high at approximately 16%, reflecting continued strong aircraft demand in the secondary market. Commercial aircraft demand remains robust, and our order book placement activity reflects this strength. Lease rates in turn remain strong as well. Aircraft supply constraints continue to persist, perpetuating the strength in lease rates and aircraft values, and are expected to remain this way for several years into the future, as we've highlighted many times in the past. Our order book is 100% placed through 2026, with only a modest number of placements remaining for 2027. Lease extension activity also remains high. with nearly all customers choosing to extend rather than let aircraft go to competitors or other airlines. And the lease rates we are garnering on these extensions are strong, higher than a year or even eight months ago, including recent wide-body extensions of A330 and Boeing 777 aircraft in various regions. Looking at our order book, we did cancel our order for seven A350 freighter aircraft. We think the A350 freighter is a terrific freighter, But since we made that order in December of 2021, we simply decided to stick with new passenger airliners versus venturing into new freighters. Contractually, the majority of our A350 freighter aircraft were more than a year late. This cancellation frees up more than $1 billion in forward CapEx commitments, making that capital available for other alternatives. On that note, regarding capital deployment, let me just say that we are very disciplined buyers of aircraft. And as we have shared in prior quarters, we still do not view pricing of new aircraft orders to be attractive. We are entirely focused on doing what's best for our shareholders, which includes both commitment to our long-term stock performance and maintaining a strong balance sheet. We're pleased with our Russia insurance recoveries and liquidity position, including just now getting back to our leveraged targets. With our enhanced financial flexibility, we are carefully considering opportunities to return capital to shareholders. It's important to note that despite tariffs, geopolitical, and macroeconomic uncertainties, conversations with our customers remain positive with some continued note of caution towards geopolitical uncertainty. On a positive note for the backdrop of airline operations, Further declines in fuel prices have been very supportive of airline profitability as a whole, and U.S. dollar weakness has been supportive of the profitability of international airline carriers in particular. On Friday, the Lufthansa Group reported a 27% rise in second quarter adjusted operating profits due to low oil prices, strong U.S. demand, and robust performance of its cargo and MRO units. Similarly, last week, Air France KLM Our largest European customer group reported an operating profit up 44% year-on-year due to strong yields and gains on its premium offering. Globally, passenger traffic continues to expand at a good pace overall of around 5% year-to-date, according to the latest IOTA data. Recent commentary from several US carriers reflect optimism that demand trends are reversing course to the positive in the second half of the year. As most of you know, about 90% of our airline customers are outside of North America. We were very pleased to see zero for zero tariffs on commercial aircraft and parts in the US-EU tariff agreement announced last week. The impact of a major or protracted US-EU tariff battle on the overall aerospace industry and supply chain could have had significant impact on manufacturers, airlines, and the broader macroeconomic environment as well. and would be particularly tough on a sector that has already dealt with plenty of disruptions over the past four or five years. So very good news that a negative outcome has been successfully averted, particularly given the scale of the aerospace industry within these two markets. We believe a clear precedent has now been set globally for exemption of commercial aircraft from high magnitude tariffs. I will also remind you that as part of our lease agreements, tariffs are the responsibility of our customers, and that our purchase agreements with the OEMs limit their ability to increase prices by escalation caps. In conclusion, we continue to see bright skies ahead for our business. Portfolio yields on our fleet are set to trend higher, primarily as a product of strong lease rates on new deliveries, strong extension rates, and COVID restructuring maturities. We've received significant insurance proceeds, as I've highlighted, and fixed rate market financing rates have continued trending lower as the yield curve continues to slowly normalize. These tailwinds are all poised to propel us forward for years to come. I'll now turn the call over to our CFO, Greg Willist, to offer more detail and color on our financial results.