Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Air Lease Corp (AL, Financial) generated revenues of $667 million and $0.81 in diluted earnings per share for Q2 2024.
- The company purchased 13 new aircraft, adding $940 million in flight equipment to its balance sheet.
- The utilization rate on the fleet remains exceptionally strong at 100%.
- Air Lease Corp (AL) is 100% placed on its forward order book through 2025 and 96% placed through 2026.
- The company has a robust sales pipeline of $1.5 billion, including $600 million of flight equipment held for sale and $900 million of aircraft subject to letters of intent.
Negative Points
- Results were impacted by further OEM delivery delays and lower end-of-lease revenues compared to prior years.
- Deliveries came in $600 million below expectations, affecting revenue growth.
- Interest expense rose by roughly $18 million year-over-year, driven by a 50 basis point increase in the composite cost of funds.
- The company recognized only $2 million in end-of-lease revenue compared to $15 million in the prior period.
- Potential labor strike at Boeing could result in changes to third-quarter delivery expectations, adding uncertainty.
Q & A Highlights
Q: Gain on sale was 8% this quarter, which is at the lower end of your historical range. Can you explain why?
A: The timing of individual sales and packages varies. We use aircraft sales to moderate and look at our risk portfolio geographically, by customer, yield by aircraft type, and age. So, the gains can fluctuate based on the timing of closings.
Q: One of your competitors expects a high percentage of leases coming on their book to have been executed during 2023 and beyond. Can we think about it the same way for your revenue?
A: Typically, we sign our leases 18 to 24 months in advance of the actual delivery date. As we move further away from the COVID-era lows and the low-interest rate environment period, you should expect to see higher lease rates on our delivered aircraft continuing to help support our overall portfolio yields.
Q: Last quarter, you guided to a flattish profit margin for the rest of the year. Do you still feel good about that guide?
A: Yes, the guide still holds around these same levels. This quarter was a little lower due to lower end-of-lease revenue, but that was due to the timing of extensions. Looking forward to 2025, the rate environment and higher initial lease yields on some order book plans should help the business.
Q: Are you comfortable with rates and spreads today to maybe tap the unsecured market again?
A: We maintain a high level of liquidity and tend to be very opportunistic. Spreads have been very low and attractive. We will be selective about the market windows we tap into, and there is a benefit of terming out our unsecured revolver.
Q: How do you reconcile the global aircraft shortage with airlines citing overcapacity?
A: Despite some airlines citing overcapacity, there is still a great concern about getting aircraft for the future and their deliveries sliding out. Historically, as airlines start to experience financial squeeze, it has always favored leasing.
Q: Should we think about the strategy of spearheading order books as an avenue for Air Lease's incremental growth?
A: We already have a long relationship with Spirit Airlines and have several aircraft delivering to them. We felt that the overall package was more suited for AerCap than for Air Lease.
Q: Are there any other strategies you are considering in this current environment of low deliveries?
A: Yes, we are looking at competitive campaigns globally with both Airbus and Boeing to incrementally add aircraft. We also see potential in using our managed business platform to add additional aircraft.
Q: How confident are you in the level of deliveries for Q3?
A: There is a huge contingency, such as a potential Boeing strike. We had a $600 million shortfall in deliveries last quarter due to ongoing delays. We still expect about $5 billion for the whole year, but it depends on whether Boeing continues its deliveries and avoids a strike.
Q: What percentage of your book is in China these days?
A: Under 5%.
Q: Regarding Air Lease aircraft sales, what proportion of your equipment are you selling to airlines versus other aircraft lessors?
A: Most of our aircraft sales are to other aircraft lessors. Very few have been sold to airlines.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
