Earnings call transcript: Air Lease Q4 2024 beats earnings expectations

Air Lease Corporation (AL) reported a strong performance in its Q4 2024 earnings, surpassing both earnings per share (EPS) and revenue forecasts. The company reported an EPS of $1.34 compared to the forecasted $0.78, and revenues reached $712.9 million, exceeding the expected $706.76 million. According to InvestingPro data, the company maintains impressive gross profit margins of 59% and has consistently raised its dividend for 12 consecutive years. Despite this positive earnings surprise, the company's stock experienced a slight decrease of 0.37% in aftermarket trading, closing at $46.18.

Key Takeaways

• Air Lease's Q4 2024 EPS of $1.34 significantly outperformed the forecast of $0.78.
• The company reported total revenues of $713 million, surpassing expectations.
• Stock price saw a marginal decline of 0.37% in aftermarket trading.
• Strong liquidity position with $8.1 billion and unencumbered asset base of $30 billion.
• Fleet utilization remained at 100% with a weighted average age of 4.6 years.

Company Performance

Air Lease Corporation demonstrated robust performance in Q4 2024, with revenues reaching $713 million, driven by rental revenue of $639 million and aircraft sales proceeds of $540 million. The company maintained a strong liquidity position with $8.1 billion available and an unencumbered asset base valued at $30 billion. While InvestingPro analysis indicates the company operates with a significant debt burden, with a debt-to-equity ratio of 2.63x, Air Lease continues to benefit from a 100% fleet utilization rate and a competitive advantage in its aircraft portfolio. InvestingPro subscribers can access 8 additional key insights about AL's financial health and growth prospects.

Financial Highlights

• Revenue: $713 million, exceeding expectations.
• Earnings per share: $1.34, surpassing the forecast of $0.78.
• Rental revenue: $639 million.
• Aircraft sales proceeds: $540 million.
• Debt-to-equity ratio: 2.68x (2.6x net of cash).
• Contracted rentals: $30 billion.

Earnings vs. Forecast

Air Lease's Q4 2024 earnings per share of $1.34 marked a significant beat over the anticipated $0.78, representing a surprise percentage of approximately 71.8%. The revenue also exceeded forecasts, with actual figures of $712.9 million against an expected $706.76 million. This performance highlights the company's ability to outperform market expectations and continue its growth trajectory.

Market Reaction

Despite the earnings beat, Air Lease's stock experienced a slight decline of 0.37% in aftermarket trading, closing at $46.18. This movement contrasts with the broader market trend, where the stock had previously seen a 1.42% increase earlier in the trading day. Based on InvestingPro Fair Value analysis, the stock appears slightly overvalued at current levels. With analyst price targets ranging from $47 to $65, and a beta of 1.6 indicating higher volatility than the market, investors might want to consider checking our Most Overvalued Stocks list for comparison.

Outlook & Guidance

Looking ahead, Air Lease projects moderate lease yield increases over the next 2-3 years and targets a mid-teen adjusted pre-tax return on equity. The company anticipates $1.5 billion in aircraft sales for 2025 and plans to achieve a debt-to-equity ratio of 2.5x by the end of the year. Additionally, a potential stock buyback is on the horizon once leverage targets are met.

Executive Commentary

CEO John Pfluger stated, "We see this as a multi-year over multi years, we don't see any change at all. We think aircraft are still going to be a short supply." Executive Chairman Steve Hazy added, "The numbers could be anywhere from 30% to 50% higher than the lease rates we currently enjoy," indicating optimism about future lease rate improvements.

Risks and Challenges

• Supply chain issues: Ongoing challenges could impact aircraft deliveries and operational efficiency.
• Market saturation: Increased competition in the aircraft leasing industry may pressure margins.
• Macroeconomic pressures: Economic downturns could affect airline demand and leasing rates.
• Tariff impacts: Potential tariffs on leasing could influence cost structures.
• Aircraft supply shortage: Continued shortages may limit growth opportunities despite strong demand.

Q&A

During the earnings call, analysts inquired about the potential impacts of tariffs on leasing operations and the ongoing aircraft supply shortage. Executives confirmed that the supply shortage is expected to persist, and lease rates on COVID-era leases could see improvements of 30-50%, reflecting strong market demand.

Full transcript - Air Lease Corp (NYSE:AL) Q4 2024:

Krista, Conference Operator: 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 Air Lease Fourth Quarter twenty twenty four Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

I would now like to turn the call over to Mr. Jason Arnold, Head of Investor Relations. Mr. Arnold, you may begin your conference.

Jason Arnold, Head of Investor Relations, Air Lease Corporation: Thanks, Christa, and good afternoon, everyone, and welcome to Air Lease Corporation's fourth quarter and full year twenty twenty four earnings call. This is Jason Arnold. I'm joined today by Steve Hazy, 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 fourth quarter and full year twenty twenty four results. A copy of our earnings release is available on the Investors section of our website at airleasecorp.com.

This conference call is being webcast and recorded today, Thursday, 02/13/2025, 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 pretax 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 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 Pfluger. Thanks, Jason.

John Pfluger, Chief Executive Officer and President, Air Lease Corporation: Hello and good afternoon, everyone. Thank you for joining our call today. During the fourth quarter, Air Lease generated revenues of $713,000,000 and $0.83 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 $1,300,000,000 in flight equipment to our balance sheet and we sold 14 aircraft for approximately $540,000,000 in sales proceeds. The weighted average age of our fleet was stable quarter over quarter at four point six years, while weighted average lease term remaining extended slightly to seven point two 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 $5,000,000,000 in deliveries we received hit the midpoint of the $4,500,000,000 to $5,500,000,000 range we outlined to you at the beginning of last year.

For 2025, we expect to receive $3,000,000,000 to $3,500,000,000 of new aircraft delivered from our order book with around $800,000,000 anticipated to deliver in the first quarter of twenty twenty five. I would also note that approximately 80% of our deliveries expected for 2025 are Boeing (NYSE:BA) 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 $2,000,000,000 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 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 seven thirty seven-eight hundred, Boeing seven 30 seven-eight MAX, A321 CEOs and one E190.

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 and 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 seven 70 seven-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 in 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 widebody demand has surged faster than narrowbody 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 $5,000,000,000 net book value of these lower yielding leases will mature by the end of twenty twenty six. As these leases mature and expire through 2026, we continue to be optimistic about lease rate extensions at significantly higher lease rates or re leasing 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 twenty four 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 twenty twenty four and full year 2024 were very robust reflecting this environment.

Our sales pipeline remains solid at $1,100,000,000 a consistently healthy gain on sale margins. We envision an overall sales outlook of about $1,500,000,000 for 2025 around $400,000,000 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 one.

We expect to be there by the end of twenty twenty five, 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 and 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

Speaker 3: lives.

John Pfluger, Chief Executive Officer and President, Air Lease Corporation: As such, I'm pleased to advise that ILC is donating a $500,000 to LA City and County Fire Departments with our profound gratitude and heartfelt thanks. So let me now turn the call over to Steve Hazy to offer some additional commentary. Steve?

Steve Hazy, Executive Chairman, Air Lease Corporation: Thank you, John. I'd just like to underscore John's comments and my thanks to our team for their dedication, to our company and our colleagues in the LA fires. I'm very proud of the way our team responded in offering help and assistance to each other as well as family, friends and neighbors in their communities. To overcome the tragic destruction witnessed in Los Angeles during January. We are very pleased to report record revenues and plate size during 2024 and view Air Lease as very well positioned for the current environment as we move forward in 2025 and beyond.

Demand for commercial jet aircraft is extremely high and our own fleet and large order book consists of some of the most attractive commercial aircraft types on the market. There's really an airline customer meeting that goes by way of not having asked to find more aircraft for them. And nearly all of our leases maturing are being extended at very strong profitable lease rates. The phenomenon of lease extension rates exceeding initial new aircraft lease rates is truly exceptional. Second, leases are typically signed with a step down in the lease rate given the depreciation of the aircraft over time.

So it's pretty remarkable environment where lease rates are actually stepping up on a second lease to such high levels. As John noted, I do also point out that the drag of the lower yields of the restructured leases that we did during the pandemic and early deliveries in the pandemic season should begin to weigh less heavily on our overall fleet yield as a lower lease rate terms end and they extended at market rates with the existing airline or with the new airline. Demand for our new commercial aircraft is being further supported by exceptionally strong passenger traffic volumes. According to recent data released by IATA, total passenger traffic volumes rose by more than 10% during 2024 versus 2023, reaching all time record levels. International volumes were the strongest segment on the market, rising an amazing 14% year over year.

And practically all markets growing at double digit or near very strong double digit rates. Asia Pacific remains the leading international market globally rising 25% during the year. While this dramatic pace of growth is likely to slow somewhat in the years ahead, as growth rates normalize, we continue to see this region as being a significant source of expansion worldwide. Latin America, Middle East, Africa and Europe were growth leaders in the international segment last year. Domestic volumes meanwhile delivered a solid 6% rate of growth in the last year, which is more or less in line with the longer term industry averages of approximately two times the pace of GP growth on a global level.

Passenger load factors also continue to rise reaching approximately an average of 84% for the full year of 2024. These are exceptionally robust levels breaking records in a number of regions and markets. Asia Pacific region load factors for example achieved their record all time high in 2024. '15 to '20 years ago, developing markets and international load factors were exciting if they moved into the high 70s range. While now some are approaching in some cases even exceeding 90% load factor levels.

High demand and low supply of commercial aircraft is certainly a component driving load factors to achieve these record levels. As a reminder, Air Leads clearly benefits from strong passenger traffic volume expansion, though we are not dependent on it as we focus on replacing aging airline fleets with new technology fuel efficient aircraft and economically profitable leases. Much of the market focus on recent years has been on narrow body supplydemand imbalances, but I want to expand on John's comments highlighting the wide body side as well. Wide body demand was more muted during the period during which the industry was recovering from the pandemic. But now things have changed.

We are seeing extremely strong international passenger traffic over the last year or two and in particular, the shortfall of wide body availability is becoming increasingly apparent. This combination of accelerating wide body demand, relatively modest production rates and continued aging of the in place operational wide body jets is developing into what we expect to be a protracted shortfall of good wide body aircraft over multiple years to come. John mentioned on the call, the extension of six of our seven seventy seven three hundred aircraft to date in 2025. We're also seeing the strengthening demand supporting similar dynamics to our other wide bodies including our AC30s coming up for lease exploration. This backdrop of strong demand and limited production is appearing to repeat the same path and characteristics as witnessed in the narrow body market already, which should definitely support strength in the value of our wide body fleet.

It's very difficult to foresee a significant ramping up of OEM production rates that could address this expected shortfall, especially with the ongoing delays in the 777X program. Wrapping up my comments, I'm very excited about Air Lease's prospects for 2025 and beyond. We look forward to enjoying the higher lease rates on our new aircraft from our very sizable order book along with robust lease rates on new extensions as further normalization of the yield curve over time, which combined should be highly beneficial to our operating performance ahead. I will also remind you of the deep underlying value of our own fleet, which is carried at historical depreciated cost as well as our order book positions, which are for slots well inside of any available aircraft from the OEMs and at prices that could not be duplicated at present. A significant part of the order book that we have today that is still yet to deliver were contracts that we negotiated in 2021.

Our order book has significant value and none of that is carried or reflected on our balance sheet at this time. I would like to now turn over the call to our CFO, Greg Willis for his comments on our financial situation.

Greg Willis, Executive Vice President and Chief Financial Officer, Air Lease Corporation: Thank you, Steve, and good afternoon, everyone. During the fourth quarter, Air Lease generated total revenues of $713,000,000 which was comprised of approximately $639,000,000 of rental revenue and $74,000,000 of aircraft sales trading and other activities. Rental revenue was in line with the fourth quarter of twenty twenty three and lease yields remained essentially flat. Rental revenues have benefited from the growth of our fleet offset by significantly lower end of lease revenue. As a reminder, we recognized $60,000,000 in end of lease revenue in the prior period, which as compared to the current period was $6,000,000 As we have messaged before, we continue to anticipate lower levels of end of lease revenue due to higher extension rates attributable to the supply shortage of commercial aircraft.

As John discussed earlier, this environment has led to higher lease rates on extensions and has served to increase the value of these aircraft in our fleet. Sales proceeds for the quarter approximated $540,000,000 from the sale of 14 aircraft. These sales generated $65,000,000 in gains representing roughly a 14% gain on sale margin. We continue to expect to see healthy margins towards the upper end of our historical range of 8% to 10% based on our current sales pipeline of $1,100,000,000 These gains continue to reflect the significant value embedded in our fleet which we carry on the balance sheet at depreciated cost. Moving on to expenses.

Interest expense rose by approximately $38,000,000 year over year, driven by a 37 basis point increase in our composite cost of funds to 4.14% at year end. Increased financing costs and higher debt balances were the primary contributors to the year over year increase in interest expense. However, as compared to the third quarter of twenty twenty four, our composite rate declined slightly as we benefited from the Fed rate cuts in 2024. At year end, roughly 79 of our borrowings were at fixed rate versus floating, just inside our 80% target. We continue to benefit from our largely fixed rate borrowings, which have meaningfully moderated the impact of the current interest rate environment.

Depreciation expense continues to track the growth of our fleet. SG and A expense declined relative to the prior year while also declining as a percentage of revenue relative to prior year's quarter. It's also worth noting that we did benefit from a $67,000,000 Russia insurance recovery in the fourth quarter of twenty twenty three. Moving on to our financing activities for the quarter. In mid October, we redeemed our outstanding $250,000,000 Series A preferred stock utilizing the proceeds from the lower cost $300,000,000 Series D preferred stock that we issued in the third quarter.

During the fourth quarter, we raised approximately 1,300,000,000 in debt financings. This was comprised primarily of a $1,000,000,000 3 year syndicated unsecured bank term loan priced at one month SOFR plus 1.125%. This capital was primarily sourced from the Asian from new Asian banks helping us to grow our bank group to a global base of 83 financial institutions. Additionally, I'd like to highlight that we have launched a $2,000,000,000 commercial paper program in late January of this year. We believe our commercial paper program should serve to reduce our borrowing costs as CP rates at present are approximately 80 basis points lower than the rate on our revolving credit facility.

The CP program also represents another funding channel to further diversify our access to capital. Our debt to equity ratio at the end of the fourth quarter was 2.68 times on a GAAP basis, which net of cash on the balance sheet is approximately 2.6 times, relatively flat quarter over quarter when adjusted for the impact of the timing difference of the preferred stock issuance and redemption last year. And with our lower CapEx outlook for the next few years, we anticipate reaching our leverage target by the end of the year, which should increase our financial flexibility. Our strong liquidity position of $8,100,000,000 as of quarter end, dollars 30,000,000,000 of unencumbered asset base and $30,000,000,000 of contracted rentals remain key pillars of the strength of our business. As John and Steve outlined, we expect our portfolio lease yields to steadily increase at a moderate pace over the next several years.

This is driven by an increase in yields on our attractively placed order book aircraft delivering over the next several years, higher than anticipated lease extension rates given the strong market dynamics that we see persisting through the next several years, the continued seizing of our existing fleet and the roll off of our COVID era leases. However, turning to margins, we still expect to experience some headwinds given the current elevated interest rate environment, which look to keep our adjusted margins in 2025 generally around the levels we recorded in 2024. With that, I'd like to turn the call back over to Jason for the question and answer session of the call.

Jason Arnold, Head of Investor Relations, Air Lease Corporation: Thanks very much, Greg. This concludes our prepared commentary and remarks. For the question and answer session, we ask each participant to limit their time to one question and one follow-up. Krista, please open the line for the Q and A session.

Krista, Conference Operator: Thank you. And your first question comes from the line of Catherine O'Brien with Goldman Sachs. Please go ahead.

Speaker 6: Hey, good afternoon, everyone. Thanks so much for the time. So I think your comments on some of the puts and takes around lease margins and ROE, China's a bit of a headwind this year, some of the lease renewals are going to be a tailwind over the coming years. Obviously, it's a bit of a slow moving ship as you churn through the portfolio. But can you just walk us through what do you think gets you back to mid teen adjusted pretax ROEs that you saw before the pandemic or do you think that's achievable and just any rough sense of the timeline would be great?

John Pfluger, Chief Executive Officer and President, Air Lease Corporation: Sure. Thanks Katie. I'll take that and then I'll ask Greg to comment. I think, yes, I do think we are going to be able to achieve that mid teens level that you spoke about. But it's going to take two to three more years.

We've outlined the factors on the positive side and any headwinds. But given all that in consideration, I do believe that that's a reasonable timeframe outlook in the two to three year timeframe.

Speaker 6: Yes.

Greg Willis, Executive Vice President and Chief Financial Officer, Air Lease Corporation: And I think obviously the big question is around the timing of interest rates and lease rates as well. I mean, but at the end of the day we obviously when it comes to capital allocation too those are other factors that we have. But I don't see any impediment of reaching our ROE targets over a longer period of time. It's just a question of how lease rates and interest rates evolve.

Speaker 6: Got it. Makes sense. And then I'm assuming your comment on reaching your leverage target is based on just core business trends, but correct me if I'm wrong. Based on what you see in the market right now between incremental aircraft M and A or the value of AL shares, if you were to get back to your target debt to equity faster than you currently expect, what will be the right choice for AL shareholders? Thanks.

John Pfluger, Chief Executive Officer and President, Air Lease Corporation: We'll make that determination at that time, Katie.

Steve Hazy, Executive Chairman, Air Lease Corporation: But they're all on top of our list. I view capital allocation is very important with a view toward maximizing the value to our shareholders. And once we get to the 2.5 area, which will hopefully happen sometime in the second half of this year, our Board will consider multiple scenarios including initiating a buyback program.

John Pfluger, Chief Executive Officer and President, Air Lease Corporation: And one other appendage to that Katie, I mean it should be obvious, but also when you're looking at capital return to shareholders, our current our stock price has a major bearing

Greg Willis, Executive Vice President and Chief Financial Officer, Air Lease Corporation: on that.

John Pfluger, Chief Executive Officer and President, Air Lease Corporation: And so we never predict where that will be, but obviously as you know that's a key consideration.

Speaker 7: Thanks for

Speaker 6: that additional color gentlemen.

Krista, Conference Operator: Your next question comes from the line of Terry Ma with Barclays (LON:BARC). Please go ahead.

Speaker 8: Hey, thank you. Good afternoon. So I appreciate the comments on the direction of the overall fleet lease yield over the next few years. But when you kind of factor in the forward curve and your planned funding needs, should we expect the net spread margin to go up by a similar amount or is that going to be kind of depressed by just overall funding or interest rates?

Greg Willis, Executive Vice President and Chief Financial Officer, Air Lease Corporation: Greg? Yes, I think for 2025 we thought that we'd be around the same levels as we did in 2024. A lot of that depends on what happens with interest rates. I mean it's nice to see a nice steady line up of the lease yields over time which I think has a it's a pretty powerful lever, but it does take time to make its way through the business.

Speaker 8: Got it. Okay. And then on the leases that you extended in the fourth quarter, like should we expect kind of the incremental pickup in yield rental revenue to kind of flow through in the first quarter? And then any more color on the cadence of the remaining renewals? Thank you.

Greg Willis, Executive Vice President and Chief Financial Officer, Air Lease Corporation: Yes, I think those that were signed in Q4 will roll through in 2025. And then as we work through the $5,000,000,000 of airplanes that are rolling off for the next two years, I think that will also provide an uplift to lease yield. So I think you should expect a steady grind higher on the top line. And then I guess finally you need to factor in, we don't see the market changing given the supply demand dynamics that are in play. So we still see airplane shortages for long extending three to four years based upon what's going on on the production side.

So I think that's going to create a shortage of airplanes that is going to contribute to both aircraft values and lease rates being strong for the next several years.

Speaker 8: Got it. Thank you.

Steve Hazy, Executive Chairman, Air Lease Corporation: Yes. And coupled Greg and John with the explorations of those leases that were renegotiated during COVID as those progressively liberate us and allow us to get back to market lease rates either by extension or repositioning those aircraft in U. S. Seas that will have a continual upward trend on the overall corporate lease yield.

Krista, Conference Operator: Your next question comes from the line of Jamie Baker with JPMorgan. Please go ahead.

Speaker 9: Hey, good afternoon, gentlemen. So an argument that well, a debate that Mark Streeter and I were having because we don't really argue. Have you thought about even greater aircraft sales into this strong market as a means of, I don't know, potentially proving the value proposition of the equity? Or is the preference just to maintain the current level of sales and then wait for that pick up in deliveries at some point down the road. Does that make sense?

Steve Hazy, Executive Chairman, Air Lease Corporation: Yes. Look, I think as I now let's go Yes. I think We are looking at that carefully.

John Pfluger, Chief Executive Officer and President, Air Lease Corporation: Sorry, let me just quickly start and then Steve will turn it over to you. As I said in my remarks, we're looking to be about $1,500,000,000 in sales in 2025. That's pretty close to the $1,700,000,000 we had in 2024. Sales programs are largely also opportunistic. In the prior quarter, I also talked about the fact that we're being approached from fairly significant buyers who want to do larger scale managed portfolios.

So with all these factors, we have to look at opportunities and what's in front of us. But generally speaking, I think we're biased towards keeping about the same level of sales proceeds. It seems to be a good balance every year. If there is a strongly compelling reason why we should sell X amount of more, we'll take a look at it. But I think currently our plans are remain about our current levels.

Speaker 8: Okay.

Speaker 9: Steve, anything to add to that or Yes.

Steve Hazy, Executive Chairman, Air Lease Corporation: Jim, was that go ahead. I think we're also very interested in developing structures where we still maintain the relationships with the airline customer and bring in a passive institutional investors into a managed structure vehicle where we have a small equity stake, but we have a large portion of the profitability and the end of lease disposition of those aircraft and a sizable management fee during the tenure of these arrangements. So that could be an avenue where we may add some additional assets to and transfer them to these new entities.

Speaker 9: Okay. That's helpful. All good points. Thanks guys. And then second, and I guess this gets back to the comment that Greg made in the prior question about the steady grind.

AerCap had this slide that showed the percentage of let's call it sort of cold, medium and hot leases as a percentage of total for each year, the cold leases being the least profitable and reflecting aircraft that were placed at the bottom of the market. And again, Steve, you commented on this just a moment ago. But if we were to focus just on those less profitable leases at Air Lease, would you have an estimate for 2024, '20 '20 '5 and 2026 as to what percentage of the book they represent? Just trying to put a visual behind the burning off of these leases as they are being overtaken by the stronger deals that you've been talking about ever since John's prepared remarks. Hope that's clear.

Thanks in advance.

John Pfluger, Chief Executive Officer and President, Air Lease Corporation: Greg, you want to talk about it?

Greg Willis, Executive Vice President and Chief Financial Officer, Air Lease Corporation: Yes. We don't have the page in front of us, but we're familiar with the numbers. And that's why we tried to give the color in the prepared remarks about a $5,000,000,000 worth of aircraft that were COVID era leases that are rolling off over the next two years. I think you can take that as a ratio of the overall fleet. That was our attempt to give some color about how quickly the lease yield can move forward.

Speaker 9: Okay, very helpful. Thanks everybody.

Steve Hazy, Executive Chairman, Air Lease Corporation: Thanks, Sandy.

Krista, Conference Operator: Your next question comes from the line of Mushi Orenbuch with TD Cowen. Please go ahead.

Speaker 3: Great, thanks. I apologize for some of the background noise here. But as you look, John, at these lease renewals that are going on, are those getting better in this environment? Like in other words, if you think about where they'll be in 'twenty five and 'six versus what you mentioned in terms of up slightly for narrow bodies and flat for wide bodies, is that improving in this environment or have they peaked?

John Pfluger, Chief Executive Officer and President, Air Lease Corporation: Yes. The answer is unequivocally yes. The examples I gave on the extensions we executed in the fourth quarter on the single aisles, where the lease rates were higher than the initial term and about flat on the wide bodies, both of those are against a backdrop of typically lease rates step down after the initial lease term on new aircraft. And so this is a very significant element that we see and we see it continuing to strengthen in 2025 as we look at our leases that are subject to extension and that we're discussing right now. So we look at it on a very robust level.

Speaker 3: Medical (TASE:PMCN), but if you were at your leverage target today and everything is as it was today, in other words, a lower level of deliveries into 2025,

Speaker 9: what would be at the top

Speaker 3: of your list for deploying capital? Would it be would you be looking at sale leaseback? Would you be looking at a stock buyback with where the stock is? Like could you maybe talk about that from a hypothetical standpoint?

John Pfluger, Chief Executive Officer and President, Air Lease Corporation: Well, from a hypothetical standpoint, I would just say based on where our stock is today, we look at that very, very strongly and it's a compelling value today. Having said that, as I said earlier, we'll make that determination at such time when we get to our debt equity ratio. But just know very certainly that this is a very strong possible avenue for the company. But again, we withhold our decisions on that until such time as where we want to be,

Greg Willis, Executive Vice President and Chief Financial Officer, Air Lease Corporation: especially when you're selling aircraft at a 14% premium to their carrying values and your stock is trading below book.

Steve Hazy, Executive Chairman, Air Lease Corporation: Right.

Jason Arnold, Head of Investor Relations, Air Lease Corporation0: Thanks.

Krista, Conference Operator: Your next question comes from the line of Hillary Cacanando with Deutsche Bank (ETR:DBKGn). Please go ahead.

Speaker 7: Hi. Thanks for taking my questions. So this question is more high level and not specific to your insurance situation. So I'm hoping you could answer it. But I was wondering if there's a ceasefire agreement between Russia and Ukraine, could there be any impact to the lessors?

I guess, more specifically, do you think there's any chance that Russia could try to return the aircraft to the lessors, which I don't think the lessors would want. I mean, I don't know if that's even a possibility, but I wanted to see if there's any like high level thoughts you could provide on a possible ceasefire.

John Pfluger, Chief Executive Officer and President, Air Lease Corporation: Kelly, we're just not going to comment on that. Sorry.

Speaker 7: Okay. Okay. I figured that's much. And then I guess when you talked about taking two to three years to get to the mid teen level returns, are you assuming that interest rates remain at the same at the current level? If there's an interest rate hike or if there's more cuts this year, will that two to three year assumption change?

Greg Willis, Executive Vice President and Chief Financial Officer, Air Lease Corporation: Greg? Yes, I think a lot of it depends on where interest rates are. I mean, I think the mid teen target is more of a longer term target because there's nothing fundamentally different in our business today. It's just going to take a little bit of time for that stuff to make its way through our $30,000,000,000 balance sheet. So if anything I would emphasize that it's going to take time to make it work its way through and some of it of course will depend on how quickly and in which direction interest rates move.

Speaker 7: Got it.

Steve Hazy, Executive Chairman, Air Lease Corporation: But also the cuts in interest rates only affect our incremental borrowings. All of our existing bonds that were issued two, three, four years ago and do not roll off during this period, the interest rate on those bonds is what it is. We can't change that. But if interest rates improve for us, it will affect all of our short term bank borrowings and any new bond offerings. But as Greg said, that number would have to be pretty substantial to have a major impact on the portfolio debt coming down proportionally.

Speaker 7: Got it. Okay. Great. Thank you very much.

Steve Hazy, Executive Chairman, Air Lease Corporation: Thank you.

Krista, Conference Operator: Your next question comes from the line of Stephen Trent (NSE:TREN) with Citi. Please go ahead.

Jason Arnold, Head of Investor Relations, Air Lease Corporation0: Yes. Good afternoon, gentlemen, and thanks for taking my question. A quick one here or two quick ones here. First, when do you think about what we know about tariffs today? And I know there's not a lot of information, but is it conceivable that leasing could actually gain a little favor over aircraft purchases in the case of Airbus or Embraer customers here, that the impact of a tariff could be rolled over the long life of a lease as opposed to a one time hit from purchasing on spot or and I know there's not a lot of information.

I'm just sort of high level trying to get my brain around it. Thank you.

Steve Hazy, Executive Chairman, Air Lease Corporation: Well, the first answer is that any tariffs or taxes on these type of transactions involving leasing or finance lease, operating lease, the airline, the lessee airline operator is responsible for any such tariffs or duties or taxes. The second point I want to make is that a very large percentage of Airbus aircraft are either manufactured in The U. S. Components, engines, avionics and same goes for Boeing. A lot of the components that go into Boeing aircraft are manufactured outside The United States.

So, it's going to be a pretty complex calculation to figure out what percentage of an Airbus AC21 is U. S. Made even if it's built in Europe versus being built here in Mobile, Alabama. And the same thing with Boeing. I mean, big components of the 787s and 737s are manufactured outside The U.

S.

Jason Arnold, Head of Investor Relations, Air Lease Corporation0: Very helpful. Definitely appreciate the color. And just one other highlight one for you here. I think on some of the previous calls, you guys have not expected aircraft supply to normalize for a couple of years. And what you're seeing in the tea leaves from your suppliers, have your views on that changed at all?

Do you still think we're a couple of years away from normalization of aircraft production? Thank you.

John Pfluger, Chief Executive Officer and President, Air Lease Corporation: No. Views have not changed whatsoever. We see this as a multi year over multi years, we don't see any change at all. We think aircraft are still going to be a short supply. The manufacturers are not going to achieve nearly the rate of production that they would want to achieve or that would need to make up for the last several years.

So we're quite convinced we're in this for a fairly long period of time.

Jason Arnold, Head of Investor Relations, Air Lease Corporation0: Okay. I appreciate the color. Thank you.

Krista, Conference Operator: Your next question comes from the line of Ron Epstein with Bank of America. Please go ahead.

Jason Arnold, Head of Investor Relations, Air Lease Corporation1: Hey, good evening guys.

Greg Willis, Executive Vice President and Chief Financial Officer, Air Lease Corporation: Hi Ron.

Jason Arnold, Head of Investor Relations, Air Lease Corporation1: So maybe just following up on Steve's last question. Do you have any sense when the industry will actually be back in equilibrium? I mean how long is it going to take the industry to dig itself out of the hole in terms of the shortage of supply?

Steve Hazy, Executive Chairman, Air Lease Corporation: If anything Ron, we have been stretching out that time frame not shortening it. I'll give you an example. The appetite of the airlines for spare engines to cover for engines that are in the shop for much longer periods and with longer lead times to overall facility to even just get in, creates a shortage of new engines. Because today a larger percentage of the production of CFM leak, GTS engines and even Rolls Royce (LON:RR) trans engines are being allocated to cover airline operations today, AOGs today. And so that is a constraining factor on both Boeing and Airbus, getting enough engines to be able to increase production rates.

So that's one factor. The second factor is that during the pandemic, a lot of the smaller subcontractors for both airframe and engines and avionics and DFE seats and galleys, reduced their staffing and cut back on their infrastructure. And now they're being asked again to ramp it up, which means they have to invest more in machinery and digital tools, get their hands on labor that's trained. And so those are all factors that are limiting the ability of the supply chain to get back to what you said was pre pandemic and it's not an overnight process as you can imagine. But I would say the engine situation is the most visible to us in all the discussions we have with airlines.

Jason Arnold, Head of Investor Relations, Air Lease Corporation1: And would you say the airlines are getting accustomed to flying older equipment, meaning that maybe your leases will just last longer for the foreseeable period of time?

Steve Hazy, Executive Chairman, Air Lease Corporation: Yes, we're seeing that particularly in North America where with the refurbished old Northwest Airlines A320TO that's more than 25, in some cases 30 years old with a refreshed interior, the customer who gets on a Jetway doesn't have any clue how old that aircraft is because most of them have been freshened up. So a lot of the seven sixty seven, earlier generation 737s, A220s, A321s are staying in service longer than what was originally anticipated. And this is to cover growth in traffic as well as the delays in the deliveries that they contracted for. All of that leads to us being asked to provide more aircraft than we have, where supply is limited and demand far outpaces our ability to get enough new airplanes.

Jason Arnold, Head of Investor Relations, Air Lease Corporation1: And then maybe just one last related question and again this would be constrained by the supply chain of course. But kind of all else being equal, do you think that the industry needs a third supplier now? Because it seems like two isn't enough.

Steve Hazy, Executive Chairman, Air Lease Corporation: Well, if you look at the size of the overall commercial jet population and the forecast that it's going to grow to about 40,000 airplanes in the next six or seven years. There's definitely room for a third party. But I think that third party and the ones that's talked about most of Embraer would need a partner in that program that has financial key pockets. But that is one possible alternative and I know the guys down in Brazil are working on that very hard. The big question in our mind, Ron, is what engines would go on that airplane?

Because if it's the same old catalog LEAP 1A or 1B or the current GTF, which hopefully will get upgraded in 2027. What engine would somebody put on that? Because that is a big factor. There needs to be a step change improvement in the propulsion system. Not so much on fuel burn, but more on reliability dependability and life on the wing.

Jason Arnold, Head of Investor Relations, Air Lease Corporation1: Yes, that makes sense.

Steve Hazy, Executive Chairman, Air Lease Corporation: Yes, cool. All

Jason Arnold, Head of Investor Relations, Air Lease Corporation1: right, thank you.

Speaker 8: Thanks, Ron.

Jason Arnold, Head of Investor Relations, Air Lease Corporation0: You're welcome.

Krista, Conference Operator: Your next question comes from the line of Catherine O'Brien with Goldman Sachs. Please go ahead.

Speaker 6: Thanks so much for the follow-up. I just wanted to come back to the $5,000,000,000 number you gave. It was really helpful just helping us think through like what percentage of book value is tied to these COVID ever leases over the next couple of years. Just in very rough numbers, understanding the backdrop might be different today. It doesn't sound like that's what you guys think.

It sounds like you think it might be better. But if you could snap your fingers and write those leases at today's lease rates, like what would the upside be on that pool of aircraft? Thanks so much for the extra time.

Steve Hazy, Executive Chairman, Air Lease Corporation: It's hard to say because it depends on the airline, the length of the lease extension or the economics of shifting the aircraft to another airline. But the numbers could be anywhere from 30% to 50% higher than the lease rates we currently enjoy. So as these leases come off that sort of charity period, I call it, to our customers to keep them alive and kicking, as those progressively come off between now and the fourth quarter of twenty twenty six, we are going to see marked improvement in the lease yields on those aircraft, especially since they're being depreciated. So the factor of the depreciated cost versus lease rate is going to be improving every quarter once the charity periods are over.

Speaker 6: Yes. So doubly beneficial to lease you.

Steve Hazy, Executive Chairman, Air Lease Corporation: But Greg can give you color. Greg can comment on how much of this comes off every quarter or every six months?

Greg Willis, Executive Vice President and Chief Financial Officer, Air Lease Corporation: Yes. I mean, we gave some color that we thought that would modestly increase over the next four years. I think what that means is somewhere between 150 basis points to 200 basis points in yield improvement over that period of time over the four year period.

Speaker 6: Per year, Greg or the total period? Sorry.

Greg Willis, Executive Vice President and Chief Financial Officer, Air Lease Corporation: No, the total.

Speaker 8: Keep in

John Pfluger, Chief Executive Officer and President, Air Lease Corporation: mind, Katy, we've got a basically just about a $30,000,000,000 net book of aircraft. And so these significant lease rate increases are very, very helpful, but it's trying to steer a pretty big aircraft carrier. So it just takes a little bit more time to push the carrier around versus a little speedboat.

Krista, Conference Operator: And that concludes our question and answer session. Mr. Arnold, I'll turn the call back over to you.

Jason Arnold, Head of Investor Relations, Air Lease Corporation: Thanks everyone for participating in our fourth quarter call. We look forward to speaking with you again next quarter. Christa, thanks for your assistance. Please disconnect the line.

Krista, Conference Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and you may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.