Air Lease at J.P. Morgan Conference: Navigating Market Strength

On Wednesday, 12 March 2025, Air Lease Corporation (NYSE: AL) presented at the J.P. Morgan Industrials Conference 2025. The company highlighted its robust position in the aircraft leasing market, showcasing strong financial performance and a strategic approach to capital allocation. While emphasizing the positive market trends, Air Lease also acknowledged challenges such as interest rate impacts and share performance concerns.

Key Takeaways

• Air Lease reported $1.7 billion in cash flow from operations last year, underscoring financial stability.
• The company has a $17 billion order book with deliveries extending to 2030 and 100% placement of passenger widebodies.
• Management anticipates a 150-200 basis point improvement in portfolio lease yield over the next four years.
• Air Lease is nearing its target debt-to-equity ratio of 2.5 to 1, expected to be achieved by year-end.
• The company is considering capital allocation strategies, including dividends and share buybacks, to enhance shareholder value.

Financial Results

• Asset Base: Approximately $32 billion.
• Aircraft on Order: $17 billion.
• Committed Lease Rentals: $30 billion, surpassing the $20 billion debt load.
• Liquidity: $8.1 billion.
• Unsecured Debt: 97% of debt is unsecured.
• Sales Margins: Historically between 8% to 10%, averaging 11% over the last 2.5-3 years, peaking at 14% in Q4 2024.
• COVID Era Leases Rolling Off: $5 billion of low-yielding aircraft to roll off, improving yields.

Operational Updates

• Fleet Utilization: Maintained at 100% year-to-date in 2024, expected to continue through 2026.
• Order Book Placement: Fully placed through 2026.
• Lease Extensions: 23 aircraft extensions in Q4 2024 achieved higher rates than initial terms.
• Next Generation Technology: 80% of the fleet consists of next-generation technology.
• Sales Program: $1.5 billion in sales targeted for 2025, with $1.1 billion already under contract.

Future Outlook

• Portfolio Yield Improvement: Anticipated 150-200 basis point increase in lease yield over the next four years.
• Capital Flexibility: 2025 expected to be a year of capital flexibility, with self-funded order book.
• Leverage Target: Aiming to reach a debt-to-equity ratio of 2.5 to 1 by year-end.
• Lease Market Strength: Continued strong demand expected, with multiple airlines competing for new aircraft positions.

Q&A Highlights

• Interest Rates: Lower rates are seen as beneficial, enhancing earnings visibility.
• Share Performance: Management attributes performance issues to a disconnect from airline equities and asset value misunderstandings.
• Sales Target: $1.5 billion sales target is part of a strategy to transition from current generation technology.

For more details, refer to the full transcript below.

Full transcript - J.P. Morgan Industrials Conference 2025:

Jamie, Moderator: Hi, good afternoon, everybody. I was thinking as I was as I came in, there are obviously a few empty seats in here, but it’s nice that the leasing component of our industrials conference now occupies the biggest room because that’s definitely been a shift in recent years. I’m delighted to have the team from Air Lease here. Obviously, Steve Hazy, who everybody knows to my left, John Pfluger, Greg Willis, you guys have been you gentlemen have been staples on this stage for many, many years. So thank you.

We hope to make good use of your time. As I look around the audience, obviously, I see a lot of faces that I know are pretty deep in the weeds on aircraft leasing. Several of your competitors have already spoken this morning. But I’d love to just get a quick snapshot of where you think we are in the current market in terms of fundamentals for air lease?

John Pfluger, Air Lease: Yes. Well, actually, I think our presentation kind of goes into that. Jim, if you’d like me to go on in. Sure. I think I think it should become the answer to your question should be self evident.

So thank you everybody for joining us. Our typical forward looking statements and just a quick snapshot on Air Lease from our founding in 2010 to going public on the New York Stock Exchange in 2011. We built a platform of about $50,000,000,000 now between our order book, our total assets and our cash flows. So in summary, we do have about a $32,000,000,000 asset base, $17,000,000,000 with another $17,000,000,000 of aircraft on order, giving us a fleet size of about eight eighteen aircraft owned, managed and on order. We’ve got 30,000,000,000 in committed lease rentals, which well exceeds our $20,000,000,000 debt load on our balance sheet, and we build up and enjoy an about $8,100,000,000 level of liquidity today.

As an investment grade company, you can see on the bottom there, we are BBB by S and P and Fitch and Kroll at A minus. But as an investment grade company, the vast majority, 97% of our debt is unsecured and $30,000,000,000 of our assets are all unsecured. And this past year, we enjoyed $1,700,000,000 in cash flow from operations. That cash flow is strengthening every year. Overall, we’ve got a young fleet.

As you probably know, we have an order book model, which means that from the very, very beginning, our businesses relied on ordering brand new aircraft for the manufacturers on long tail forward purchase agreements. We currently have deliveries all the way out through 02/1930 at this point in time. You’ve heard from previous presenters and I think you know from your own reading, the aircraft marketplace should not be stronger. First comment towards your comment, Jamie. No, we don’t see any peaks.

We don’t see anything coming down. If anything, we see a continued strength in the market more towards an up shaped plateau is the way I would summarize it. And so as a result, no surprise, we have 100% aircraft utilization rate year to date in 2024 and believe that will continue in ’twenty five and ’twenty six. Exceptionally strong lease placements, in fact, 100% of our order book deliveries are placed through the end of twenty twenty six. And I think of note, a couple of comments have been made earlier today in this conference still about widebodies, huge source of strength that we see now.

We are 100% placed on all of our passenger widebodies in our order book. The only thing we don’t have yet placed is the A350 freighter, which we have seven units. But passenger orders passenger aircraft seven eighty seven-ten, A330900neos, A350900 1,000 all fully placed from our order book. And along the lines of our debt structure, not only were 97% is unsecured, but just about 80% is fixed rate. So, what are our key themes for 2025?

We hallmarked those in our earnings call a couple of weeks ago. We do expect a very strong steady expansion of our portfolio yield. Greg will talk about that in a minute. We continue to enjoy very strong sales margin, reflecting the value of our fleet. We have a chart later in the deck.

But just to let you know that historically, our sales margins have been 8% to 10%. The last I’d say average over the last two point five, three years, it’s been a little over 11%. In fact, though, in the fourth quarter, we enjoyed a 14% margin on the gain of all of our aircraft sales, which points to the next comment that we know and believe that our fleet and order book really has very significant embedded value. We have a chart a little bit later. I’ll show you the construct of that order book where we enjoy volume discount large volume discounts and launch customer pricing and credits.

Launch customer means you’re first of type and for that, you get beneficial extra pricing concessions and credits and better delivery positions. Some talk has been had this morning about political climate, Russia, etcetera. And in 2022, after Russia invaded Ukraine as other lessors had to, we wrote off $8.00 $2,000,000 on our balance sheet, which was our Russia aircraft down to zero. And that puts a little bit behind the power curve for our target debt to equity level, which was 2.5 to one. As we said in our last earnings call, we are very close though to getting back to our target 2.5 to one debt equity level and certainly expect to be there before the end of the year, if not sooner.

And finally, last few weeks have been a volatile time and people are talking a lot about recession and etcetera, etcetera. We’re going to point out to you and Steve is going to wrap it up talking about overall historically looking back how air travel has remained resilient over time just in many different marketplaces. So, some really key themes that we thought we would offer more detail than we normally do in our last earnings call, all pointing towards again, Jamie, your comment, we’re still seeing an increasing yield in our marketplace on the aircraft and their extensions. Clearly, a strong a much stronger demand for aircraft than we have a supply for today. But just to illustrate these points, in twenty twenty four fourth quarter, all of our aircraft deliveries that we took represented the highest delivery yield in a quarter in over four years for our company.

We expect that portfolio yield actually to continue to benefit as we take delivery of our order book aircraft over the next several years. But as importantly, because how do you build yield? Well, it’s not only just the new deliveries that you take, but it’s how you extend leases. In the history of our business, a brand new aircraft when it goes on lease historically has had about a 75% renewal of that lease at the end of the lease term. I stopped figuring what the extension rates are because they’re almost 100% today and have been for quite some time.

But to that point, during the fourth quarter, we executed lease extensions on 23 aircraft, which had on average a higher lease rate compared to the initial lease term. I think most of you know when an aircraft goes on lease, the lease rates are fixed for that period of lease, let’s say twelve years, but at the same time the aircraft depreciates over time. It’s very rare, very rare in our forty years in business where you actually get an increase in lease rates compared to the initial placement period. We saw that for the first time in the fourth quarter of twenty twenty four. And particularly in the first quarter of twenty twenty five, we noted particular strength in the widebody marketplace.

We extended six Boeing 777s that were in line with the lease rates that were existing before the leases expired. So, not above, but even in line is a very, very strong statement of the marketplace. And so, carrying forward, we are in a period where part of the attribute in how we are improving our yield is by the maturation of the fleet. And as a matter of fact, over the next couple of years, we advised in our last call that we have about $5,000,000,000 of low yielding aircraft rolling off for seasoning over the next couple of years. So, you see a simple price breakdown of high, low and medium aspects of our fleet in terms of yield, where we ended ’twenty four and where we are looking for in 2020 by the end of twenty twenty six.

With that, I’ll hand it over to Greg.

Greg Willis, Air Lease: Thanks, John. On the next slide, we kind of pull it all together, right? If you look at the main drivers for that too far. There we go. One more time.

There we go. So if you look at the main drivers for that 150 to 200 basis point improvement in portfolio lease yield that we said would take place over the next four years, The main drivers, of course, are the increasing yields on delivery aircraft new from the OEMs, which we have $17,000,000,000 on order. So those leases are very valuable to us and we’d like to see them come into the book as quickly as possible. The extension market, the narrow bodies, the wide bodies are all going in the right direction for us. Plus the roll off of those COVID era leases, that was about $5,000,000,000 And dollars And on top of that, you have the natural seasoning of the existing fleet, right?

Because when you have brand new airplanes come in, they’re at their lowest yield point in their earning cycle. So as they mature, they pick up about 40 basis points in yield every single year as a function of writing fixed rate leases and having a steady depreciation rate of 3.4% a year on cost. So all that together paints a very positive future for us as we continue to move past COVID. Turning now away from the existing fleet and the benefits of yield, I think it’s important to point out the value of the existing fleet. And I think the best way to demonstrate the value of the existing fleet is to look at our sales program.

So over the last two years, we sold $1,500,000,000 in ’twenty $3,000,000,000 1 point 7 billion dollars in ’twenty $4,000,000,000 We have $1,500,000,000 target for this year for which $1,100,000,000 is already under contract between LOI and sales agreements. But all in all, as John mentioned, our historical average is 8% to 10%. The average last year was 11% with a 14% number coming through in Q4. And we said that in that pipeline, there’s a very, very strong embedded value. So I think all of that together, when you look at trying to value the existing fleet, I think you should look at where we’re exiting airplanes, taking into account the supply demand imbalance right now that we see persisting for the next three to four years, all help substantiate the substantial value that’s embedded in our existing fleet.

And I’ll let you do the math whether you use 5%, ten % or whatever percent premium that you’d like to use on an existing fleet to determine the value that Air Lease has on its balance sheet or I guess in our fleet that’s not reflected in our balance sheet. And to complete that story, the other piece of value that’s not included in Air Lease’s financial statements is the value that’s in the order book. And we thought it’d be helpful to spend some time to refresh everybody’s memory about how our $17,000,000,000 order book came together. And I think a lot of people forget that we’re I mean, we’re very disciplined when it comes to buying airplanes. So if you look at this pie chart, you can see $10,000,000,000 of aircraft that were purchased in the depths of COVID when many less orders were looking to cancel, defer or somehow get out of these orders.

We actually doubled down and ordered $10,000,000,000 of airplanes priced at levels that we couldn’t replicate in today’s market. The remaining of the orders largely represents the launch customer pricing or launching of new aircraft types that John mentioned before, where it’s widely accepted that that’s the best pricing available. And then to layer on, we also had some other volume orders for 787s and Maxes and alike, all of which in addition to the launch orders, there are also volume discounts associated with those two. So I think it’s pretty clear there’s an immense amount of value included in our order book that’s not reflected in our core financial statements. And with that, I think I’ll turn it over to Steve.

I’m going to do this one too. All right, excellent. We don’t talk yet. Yes, not yet. So the last part on the call, which I think I hope everybody took away is that in ’twenty five, we’re in a year of capital flexibility.

We think that we’re going to be at our leverage target, which is a very big step for us considering the pain that we took from the Russia write off back in ’twenty two. But beyond that, this is the first year where our order book is largely self funded by operating cash flow and aircraft sales. That’s a big step for us. And if you look forward to ’twenty six, also the CapEx numbers are also not expected to be elevated as well. So we have a pretty clear runway of I guess I should say, we’re pretty close to being in a position of substantial capital flexibility, which allows us all kinds of capital allocation options that we’ll evaluate once we get to that point in time.

But it’s not lost on us the value of the aircraft that we’re selling, the value that’s in our fleet and obviously the stock price. So with that, I’ll turn it back to Steve to cover the long term secular tailwinds in the industry more broadly.

Steve Hazy, Air Lease: Yes. Thank you very much, Greg and John. And thank you for attending the conference and gaining more knowledge of the trends in the aircraft leasing sector, which do not move parallel to the airline industry. In fact, Jamie and I were talking about this that sometimes the headlines about airlines tend to kind of create a blemish or cloud over the leasing industry. So as John indicated, we do long term contracts, twelve year, fourteen year, fifteen year contracts.

And so short term variations in airline traffic or load factors or geopolitical trends or oil prices have zero effect on the lease cash flow income that we enjoy over a long period of time. So we kind of ride out these bumps that the airlines go through with minimum impact on our revenue and cash flows. So just some highlights. There is a growing middle class throughout the world. I mean, I travel extensively.

I probably visit 40 or 50 countries a year. And I see this in Southeast Asia. I see this in Eastern Europe. I see this in the Gulf Region. I see it in Central Asia.

I see it in the former CIS countries where traffic demand is not just growing two times GDP, but four, five times GDP. And so we can’t just look at The U. S. In isolation. A lot of the population growth in these other developing countries involves millions of people moving from kind of the lower economic tier to the middle range, where for the first time they can afford to fly.

And I think India has proven that to be an interesting example where people migrate from trains to airplanes. We saw that in Mexico, where people were taking long haul buses from, say, Mexico City to Tijuana, which is like 1,400 miles. And then the low cost airlines changed that paradigm completely. And now it’s a two hour forty five minute flight on an A321neo or a seven thirty seven MAX. And this trend we’re seeing throughout the world, whether it’s Indonesia or some of the developing parts of Africa, Middle East and so on.

Airfare affordability, if you look at the long term charts over the last thirty or forty years on inflation in general, the price of a ticket to get into Disneyland versus airfares. It’s been one of the industries where the consumer has benefited. And that’s why this year, there’ll be almost 5,000,000,001 way passengers flying on airlines throughout the world. And that has been increasing at a rate where it doubles every fourteen years. And we don’t see that trend diminishing at all.

We also see with the younger population a greater impetus to spend their money on experiences. Let’s go down to Cancun for a three day weekend instead of buying a new color television or a new piece of furniture for the dining room. I think society today wants to enjoy their economic situation and spend money not just on things, but also on experiences, traveling, engaging with people in other parts of the world. So we see this as a very popular form of growth in airline traffic. And all of these things lead to the need for more aircraft.

I remember when the world’s global jet fleet was only 2,000 airplanes and the leasing community had less than 1%. I think there was about 18 aircraft leased out of 2,100. And now, we have 25,000, 20 six thousand Western built aircraft over 100 seats and more than half of those are leased. If I go back twenty five, thirty years ago, I could not have imagined that the leasing community has more than half of the global jet fleet. And that’s through the operating lease model and also through the sale leaseback model.

So leasing has become a real foundational form of the way airlines acquire new technology aircraft. Going back to this concept of these airline drama and airline crisis, how does it affect our industry? And what it shows here is if you go back more than thirty years to the Gulf crisis, the Asian crisis, nineeleven, SARS, the global financial crisis, which actually prompted us to start early in 2010, you see that there are bumps on the road. But if you look at that dotted line of 5% compounded compounded annual growth rate, which over ten years is not 50%, it’s more like 70% because it compounds every year. You see that air traffic growth, the orange line, has not only recovered from these bumps and setbacks, but has actually exceeded that rate of growth.

Now the biggest drop was obviously COVID, which is not something that we see frequently. I don’t know if it’s every one hundred year event or every fifty year event. Look at the drop, but already starting in ’twenty two, latter part into ’twenty three, we saw the recovery exceed and get back on track. So now we’re again north of that dotted line. That demonstrates the resilience and the importance of travel throughout the world and how we need to look beyond the short term turbulence and look at the demand curve, which will sustain, I believe, a better than 5% compound annual growth rate, which again translates to roughly 2x GDP growth.

Again, if we look at some of the crisis, even going back further, the Vietnam War, which had great not only international, but domestic political consequences. GDP growth was actually fairly strong in the 60s at 3.9% average, but airline traffic growth was double that. Then we had the oil crisis. I remember having to wait three hours at a gas station to get like three gallons. That was the allocation.

Jamie, Moderator: So it was an even day or not day? Remember that? It was tough.

Steve Hazy, Air Lease: And we all thought the world is coming to an end, oil prices. I remember when the airlines were paying like $0.7 0 point 8 0 dollars a gallon for jet fuel. And there was this huge bump in the cost of oil and gas and we thought the economy is going to be strangled. But look what happened. The passenger traffic growth recovered.

It grew to 5.7%. Then we had this massive inflation. I remember when we had at IFC, we had fixed rate leases, but we had floating rate bank debt. And there came a point where I think the prime rate was like 19% or even hit 20%. And for a few months, our interest expense on these bank loans was greater than the lease.

So my partners, Mr. Ganda and I had to financially loan money to the company every month to cover the difference, to cover our debt service. But then very quickly, things normalized and the industry recovered. But that was a close call during the Carter administration. Then you had the Gulf War, the banking crisis, a lot of banks folded.

Remember the savings industry, savings and loans went through a huge massive meltdown. And in spite of that, airline traffic grew 7.4. Then we had a banking crisis that began with the Asian crisis. A lot of financial institutions were consolidating. There was a lot of M and A activity.

There was a lot of strains on the economy. Again, traffic grew 4%. Then we had nineeleven terrorism, which is horrible. And as you recall, The U. S.

Airspace was shut down for a number of days. People were afraid to fly. And yes, we had a very small drop in traffic when you look at the magnitude and the global impact of this act of terrorism, particularly here in New York. Then we had another banking crisis and credit crisis with subprime mortgages. That’s when we had the meltdown of Bear Stearns and a lot of the Wall Street firms, AIG bailouts, government assistance to the auto industry.

And in spite of that, traffic grew at almost 3%. And then lastly, the pandemic, which is one where it was very difficult to plan ahead. We all thought at Air Lease that this would be a three to four month case of a strong global flu epidemic. We didn’t realize how quickly government shut down everything, schools, transportation, and it really hurt the airline industry deeper than anything we’ve ever seen. Now maybe some of that was an overreaction by the regulators and governments, but it had a huge impact on air travel.

Air travel and the cruise industry were heavily impacted. But the recovery, as you’ve seen, has been very strong. It took longer, but the recovery has been robust. And so we navigated that crisis. It was difficult, but many airlines came out fairly healthy and have been able to repair their balance sheets.

So key takeaways. We expect to see continued strength in the lease market. For every new plane we have, we have anywhere from four to six airlines that are clamoring to get those positions. The earliest positions we have now are in kind of the middle of twenty twenty seven, which is a lot better than Boeing and Airbus who have positions in 02/1931. So we have a four year advantage.

If we go to Boeing with $100,000,000 check as a down payment on planes yet to deliver Airbus, we’re going to be told, okay, you don’t have to go to the end of the line because you bought 3,000 new planes in your history, but you’re going to have to get in line and the first deliveries would be in 02/1931, ’2 thousand and ’30 ’2 and so forth. So it’s not easy for us to model what will lease rates be in 02/1931, ’2 thousand and ’30 ’2, what will interest rates be? What will be the geopolitical landscape? Who’s going to be in the White House? What’s going to happen to the China, U.

S. Trade sort of fencing that’s been going on and will continue? So it’s as you go out further and further in time, it’s more difficult to predict the correlation between the acquisition cost of an airplane, which includes all the inflation between now and then, even if we have caps on escalation and what is the economics we can derive on those deliveries. So we’re very happy with our current order book, which is basically now ’26, ’20 ’7 and ’28. We have a few positions that due to delays at Airbus and Boeing have slipped out into ’29 and there could be maybe a very small number, two or three airplanes that may go into 02/1930.

But on those, the escalation stops at the original contract delivery month. So if we have a delivery, say, in May of twenty twenty eight and the aircraft slips a year, we’re still getting the pricing that we would have gotten at the original contract month. Lease yield continues to improve on certain types of aircraft that are the most popular. And I would have to say probably the A321neo family right now enjoys the strongest yields on single aisle aircraft, we have seen a significant increase in what airlines are willing to pay, probably in the neighborhood of 20% versus where they were twelve to fifteen months ago. Interestingly, our A220s, we had a lot of skeptics on how the 02/20 market would turn out.

We’ve been able to land seven new customers for the A220 family that Airbus never sold A220s to. A lot of them are A319 operators or seven thirty seven-seven hundred operators or older A321ce operators. We’ve had tremendous successes in Italy, in Bulgaria, in Croatia, in that whole region, in Czech Republic with the 220s. And what we’re finding is the net lease rate factors are better than they are on the A320neo. I’m talking about A320neo now, not A321neo.

So we’ve been very happy with the two twenty program. Lease rates are excellent. I cannot think of a single A220 lease project where we don’t also collect overhaul reserves, maintenance reserves. So that boosts the cash flow yield on those aircraft. We expect to continue to benefit financially from the excellent pricing that we obtained that Greg referred to, aircraft that we ordered during the pandemic where we stuck our neck out and took some brave steps to order more than 100 new aircraft at attractive prices And of course, the sales gains that we’re seeing now, even on older planes and midlife planes, are exceptional, really all in double digit territory.

We even have selective transactions where the gain versus our book value is probably approaching 20% of our carrying cost. So this means that our CapEx, as Greg indicated, will be funded through internal funds and from the disposition of used aircraft. And importantly, to the shareholders, this is our message. As we approach and hopefully improve on our leverage targets, the Board of Directors is very focused on optimal capital allocation. We already pay a dividend.

We’ve raised our dividend every year since we started paying dividends. And we’re going to look at all the other alternatives to enhance shareholder value. That is becoming a big priority for us, particularly since this recovery from COVID has now matured and we’re seeing relative stability. So we will look at share buybacks, we will look at selective aircraft orders, M and A opportunities and other strategic initiatives that will improve the value of our stock. We continue to believe in the resiliency of air travel and the demand for aircraft and for our leased product, And we will continue to be at the forefront of being creative, innovative and continue to be one of the leaders in the industry to achieve the kind of results that we’ve worked very hard to achieve.

And now we’ll open up for Q and A. All right. Sounds good.

Jamie, Moderator: So Steve, let’s build on the interest rate observation you made. My family actually moved during the Carter administration. So I remember my folks having like a 21% mortgage at one point. On a floating rate. Yes, exactly.

But the commentary that you had on your recent earnings call was for flattish pretax margins in 2025. But rates have obviously come in off their peak. We’ll see what happens from here. But it seems like that refinancing potential is something more than just a rounding error in my earnings model for 2025. Thoughts on that?

Steve Hazy, Air Lease: Well, I’ll let Greg answer. We’re getting dissolved every day.

John Pfluger, Air Lease: Yes, I

Steve Hazy, Air Lease: mean When and how much should we assume, what maturity?

Greg Willis, Air Lease: I mean, at the earnings call, I mean, it was the market was viewing that maybe we were lucky if if we got one cut. Today is a different environment. So as rates come down, that helps. I mean, we have pretty clear visibility on what’s going to happen on the top line.

Jamie, Moderator: The one

Greg Willis, Air Lease: thing we don’t have visibility on interest costs. But as rates come down and be more accommodative, I think

Steve Hazy, Air Lease: that’s a positive.

Jamie, Moderator: Okay. And just and I was mentioning this to Tom Baker for I’ve never physically seen an aircraft lease. So pardon my ignorance here, but as you yes, it is like a phone book.

Steve Hazy, Air Lease: Used to be a napkin.

Jamie, Moderator: Well, so was Southwest business model. How did that work out? It’s getting better. So when you extend the and it worked out exceptionally well for four years, let’s be clear. When you extend the lease, because that’s definitely part of the narrative here today, not just with Air Lease, do you typically alter the end of lease revenue?

Or does that just contractually get pushed out? I’m just trying to think about how the earnings cadence looks from a lease extent.

John Pfluger, Air Lease: Yes, largely it’s pushed out.

Jamie, Moderator: It has. So we’re

John Pfluger, Air Lease: going to be receiving that still at the end of lease.

Jamie, Moderator: Right.

John Pfluger, Air Lease: Some way, I mean, if we have a long term extension, we’ll take a look at the overall return conditions. But on balance, on almost every one of those, it’s simply a deferral of leaseback.

Greg Willis, Air Lease: And you wind up capturing it in the sale of the airplane. Yes. If you think about it, right? Because you’re selling full life or something less than full life airplane with three to four years of cash flow attached. That because our stated hold is not beyond we typically target getting out by the first third of the useful life.

Jamie, Moderator: Okay.

Greg Willis, Air Lease: So as we sell those airplanes that have been extended with that EOL amount pushed out, that’s captured in the gain on sale. Okay.

John Pfluger, Air Lease: So, Jamie, if I could just add one important thing that I don’t think is talked about very much is, in this strong environment, not only do you have the advantage of having pricing power, but one of the key obviously, one of the key attributes of the aircraft value is when you get it back, return conditions. A lease extension or a new lease today, those return conditions are as much a discussion as lease rates. And so we want as strong a return condition as possible. And so I just want to point out that it’s not just the lease rates, but ultimately speaking to the value of our fleet, we’re able to drive stronger return conditions on lease extensions or anything else.

Jamie, Moderator: Maayan Kim Glazely made the point that nobody there’s been so much competition in the leasing space. Nobody makes as much money on a margin basis as they did fifteen years ago. I can’t ask you to reconcile that because the company is only fifteen years old. But I think the IPO was thirteen years ago, four Yes, April 2011. And forgive me, we were on that deal, I should remember, but $28

Mark: We

Jamie, Moderator: led that deal. $26.5 20 6 point 5 0 dollars Okay. So clearly, obvious shares have underperformed the broader market since then. You don’t need to remind me about Russia or about COVID obviously. But what do you think are the reasons for that?

And what is the equity market missing in this case? I know I have my views, but I

Steve Hazy, Air Lease: think there’s multiple reasons for it. One, disconnectivity to the airline industry. When airline equities get hit, we get hit, even though there’s been zero impact to our cash flow in the future. Secondly, I think that assets in our space are considered at risk, is a risk factor, either obsolescence or economic or technological. But we are not like the high-tech industry, we come out with a new Apple iPhone every nine months.

Tell me how long it will take to develop a new single aisle aircraft at Airbus or Boeing and get it certified and get it into high rate production. We’re probably looking at a twelve to fifteen year point where Airbus and Boeing could produce in high quantities a potential replacement aircraft. There’s no engine technology right now that would warrant building an airplane. So technological obsolescence is zero. Geopolitical, we’re not a real estate company that owns office buildings in Houston, New York, Chicago and LA.

We can move our assets overnight from Australia to India, from Japan to Canada, from The U. S. To Singapore. We deal in mobile assets and the demand for these assets is insatiable because there’s always new airlines starting up, there’s new waves of low cost carriers, there’s airlines that are being privatized from being government owned airlines to private airlines, they join an alliance, all of a sudden they need a bunch of airplanes. I think our industry is misunderstood.

How much have we lost as a leasing industry in the last thirty years? Even in COVID times, most of the top lessors were profitable.

Greg Willis, Air Lease: All good points. Just to add to that, I think the other thing that Street misses, and I think it is very clear is the value of the existing fleet and the value of the order book. I think over the last couple of years, I think the industry has been myopically focused on NIM. And I think as the interest rate environment changes, I’d like to believe that people start looking towards the value of the existing fleet because it’s not just us that’s selling these airplanes at substantial premiums. I think the appraisal communities come up, other peers are selling it at high values.

So to me, it’s very odd that people aren’t looking to the value of what we actually have

Mark: on our books. I want

Jamie, Moderator: to give everyone the opportunity to procure their mediocre box lunches, But I want to at least give Mark an option to take to the mic.

Mark: One last question. And Greg, you sort of led me to it in this discussion about Jamie about share performance and so forth. You’re ramping up sales $1,500,000,000 this year. I believe, I think the market believes you could sell a lot more than that, right? And you have this goal to get to your leverage target and then turn on the spigot in terms of buybacks and so forth.

Why is $1,500,000,000 the right number? Why not sell $5,000,000,000 of airplanes this year? And I know your rating is sacrosanct, but you could do that, right, and achieve these goals quicker. So have you thought about really ramping up the asset sales beyond what you’ve articulated so far?

Greg Willis, Air Lease: I think there’s two things. I think we’ve been really transitioning out of current generation technology aircraft. Right now, we’re about 80% next generation technology. So we’re typically selling airplanes in that eight to 10 slightly older aircraft. So I think those are the natural candidates.

I think when we get back to our leverage target, the question is very natural. Do we continue at an elevated sales program? Because right now, historically, we probably sell about $1,000,000,000 a year. We’re selling $1,500,000,000 now slightly more than that last year. But that’s a very natural question and I think that’s something our board thinks about very, very hardly.

Whether or not it goes to the $2,500,000,000 to $5,000,000,000 I mean, I think it goes down to selling the aircraft at the right time as opposed to fire selling aircraft to get down to your leverage target. I think we’re looking at the long term value of the business itself and not selling aircraft prematurely. So those are the things we’re balancing and that’s something the Board spends a lot of time

Mark: on. At this, I think we should get to that boxed lunch that Jamie promised. Thank you to

Jamie, Moderator: the Airlies team. Enjoy your lunches. Thank you. We’ll be back here shortly.

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