Q4 2019 Earnings Call

Okay, well controlled the Aircastle corridor for 2019 earnings call. Today's conference is being recorded and at this time I would like to turn the conference over to your front considerable. Please go ahead.

Thank you Savannah, good morning, everyone and welcome to Aircastle Limited's fourth quarter and full year 2019 earnings call.

With me today are making lace Chief Executive Officer out earned Alky, Chief Financial Officer, and Doug Winter Chief Commercial officer.

Well begin the presentation shortly but I'd like to remind everyone is this call is being recorded in a replay will be available through our website at www dot.

I Fear Council Dot com, along with the earnings press release in our Powerpoint presentation.

I would like to point out such statements today, what you're not historical facts may be deemed forward looking statements.

Actual results may differ materially from the estimates or expectations expressed in those statements in certain factors that could cause actual results to differ materially from Aircastle limited's expectations are detailed in our SBC filings, which can also be found on our website.

I'll direct you to Aircastle Limited's earnings release for the full forward looking statement legend, and we'll now turn the call over to Mike.

Thanks, Brian.

Good morning, everyone. Today I'll provide a brief update on our pending transaction followed by a quick recap of aren't results for 2019, then we'll open it up for questions.

Our pending acquisition by matter Banyan Mizuho is progressing as expected shareholder vote is scheduled for March six in parallel we are working through the regulatory approval process and have obtained the majority of the required approvals to date.

Well, we can't predict exact timing really confident that the transaction will close in the first half of this year.

Aircastles Conservative balance street strong liquidity and strategic partnerships enhance our ability to act opportunistically when market conditions offer good investment value.

We expect the Halo effect, some Albanian mizuho spending ownership will strengthen our credit quality and augmenting our ability to broaden and deepen your cat has access to cost efficient funding globally.

With respect to results 2019 was another strong year for Aircastle, culminating with the November sale announcement.

Following the acquisition announcement Fitch ratings place your cash position were ratings on watch positive and affirmed our current credit rating said triple B minus stable.

2019 was a strong year from an operational perspective for the full year. We acquired 49 aircraft for 1.3 billion, we extended leases on 23 aircraft in the fleet and transition 29, others are strong asset management and professional placement capability, but once again validated in 2019.

During the year, we sold 20 aircraft for net proceeds of 362 million into gain on sale of 46 million. The average age of the 20 aircraft sold during the year was just under 15 years. The demanded remaining average weighted lease term of two and a half years.

During the fourth quarter alone, we acquired 16 narrow body aircraft for 284 million sold eight other older aircraft for 133 million of net proceeds our fourth quarter gain on sale, it's not just about $20 million.

We have a talented team of professionals, who are experts that aircraft investing in trading since our formation in 2004 of the acquired a total of 519 aircraft for 17.3 billion and sold 241 aircraft for 5.8 billion generating total games of nearly $379.

During the year, we earned 157 million or $2.06 per diluted share an adjusted net income of $197 million are $2.59 per share returned over $109 million to our shareholders in the form of dividends and share repurchases and our cash are already for the year was 11.1%.

Our all fleet of aircraft reached 278 at the end of year, 75% about us being narrowbodies by netbook value versus 45% narrow body at the end of 2015.

Today, our placements passed for 2020 is very modest representing a small percentage of our net book value. Our fleet utilization was 99, 42% for the quarter versus 97% and then last year's fourth quarter.

With respect to our into order last November we announced placement of 11 anyone 95 meters with KLM City Hopper, having delivery date between 2021 and 2024, we have a strong relationship with the Kayla group than these technologically advanced environmentally friendly Jets are good addition to our portfolio placement.

The milestone in our agent program efforts and we now have a total 14 aircraft placed against our total commitment of 25, and we expect to have additional positive developments to report over the coming months.

In general aircraft values and prices a bed supported by healthy traffic growth abundant liquidity at low interest rates, we expect that the current fed policy in the U.S. wants to stay the course continued to support favorable liquidity conditions across the market and benefit the overall industry.

Well I add is projecting healthy RPK growth of 4.1% and solid world economic growth, 2.7% for Chinese wanting the overhang associated with the possible Corona bias pandemic will put some stress on those growth projections, particularly in China and Asia.

With limited clarity at this point difficult to predict how the virus will affect airlines or the macro environment.

We continue to closely monitored.

Indicators and the potential impact the virus and its effect on airline profitability.

Previous experience with Sars Mers and the having on flu suggest that the impact on air travel is likely to be short lived and we're cautiously optimistic that this will also be the case with Corona buyers as a reminder, our exposure to airlines in China consists of four in demand narrow bye.

Looking ahead, our partnership with Meropenem Mizuho as patient long term investors will allow us to continue to be selective with new investments. Thank long term and grow the business in a disciplined profitable manner.

Well, we're not planning on any significant shift in strategy as a result of the pending acquisition our investment focus will adjust as market conditions evolve and we'll always to continue to look for situations that play to our competitive strength.

To summarize Aercaps and will remain a disciplined investors seeking accretive opportunities throughout the cycle. Our team has talented deepen experience than we had a conservative capital structure with investment grade ratings and the potential for an upgrade over time.

We added flexibility to react quickly the market conditions and evolve our strategy in approach to the market as conditions you Paul I'd leverage is conservative because they're not tied down by large investment commitments and we continue to have patients long term approach towards building value and we're excited to begin the new chapter in our company's evolution, we expect the.

Positive impact from Arab anyone mizuho, its ownership will strengthen our credit quality and augment our ability to broaden and deepen our access to cost efficient funding globally.

In closing Aircastle had a very successful profitable and transformational 2019.

As an investment grade is here with strong private ownership conservative leverage significant liquidity at an experienced team. We believe we continue to track and source attractive opportunities that will continue to grow the business in a disciplined fashion and with that operator, we're happy to open up the call for questions.

And if you'd like to ask a question. Please go by pressing star wind on your telephone keypad. If you are using his speakerphone. Please make sure that your mute function is turned off failure signal to reach our equipment.

Again that is star one to ask a question and we will take our first question from Catherine O'brien with Goldman Sachs. Please go ahead.

Good morning, everyone. Thanks for the time.

So we did take from one of your Hey, guys.

I just heard from one of your competitors. This morning that demand from maybe you can older aircraft remains robust I guess, how do you think about balancing both sales and acquisitions in this part of the market.

And do things that will change at all of the post acquisition question. Thanks.

No it's not a new phenomenon in the marketplace in terms of being an acquirer in a seller at the same time, we continue to look for opportunities to expand our customer set to expand our geographic reach.

We used sales as a way too.

Recycle capital in the context of perhaps lowering customer exposure changing geographic diversity or dealing with what we see perhaps or changes in residual value from what we were originally assuming when we did our investments so fundamentally it's not going to change for us with the change in ownership.

From publicly listed two privately owned and we expect to be able to continue to do what we're good at and the significant player in the secondary market in the aviation space.

Okay that makes life saving.

Second question, you know how the various airline defaults over the last year created opportunities for capital to quite aircraft.

The closing from that or do you have committed in 2020, and then just follow up Black Hills, given some color on the mix.

Got you have coming this year and maybe that's looking forward, what what looks like the most attractive part of the market pretty bad quite aircraft like for it takes some time.

So look last year I wouldn't say bankruptcies per se created any opportunities in terms of investing for us.

But I would say you might we look at the mix of sourcing acquisitions, either through sale lease backs or through purchases from other less or as last year's percentage from other less orders, which probably about two to one compared to what we sourced in the sale leaseback market, but we continue to look at opportunities in both.

Simple division of those two factors between sale leaseback opportunities for both new and mid age aircraft as well as looking at other lessors, who are looking to recycle their capital a particularly the ones who have large order books and selling into the secondary market. During that first leases is fundamentally part of their business model.

Okay got it so I guess looking forward probably is going to stay opportunistic, but maybe sourcing from our last towards still looks like from more attractive router, Florida.

Hi, It's time will tell is real answer we will continue to look in both places that we continue to find opportunities in both places.

Thank you so much from the time.

Thank you.

And as a reminder, if he would like to ask a question. Please say go by pressing star one I may all text take our next question from Helane Becker with pellet.

Please go ahead.

Hey, guys, it's actually I kinda criterion for one just on maybe a follow up to.

Andy's question just.

It seems like the 165 that you have committed is pretty pretty light relative to last couple years. I know you did a lot in the fourth quarter, but.

And it's like is it I.

I mean is it or we my reading too much into it that the markets actually a little tight on aircraft right now or maybe you could just give us some comments around on the on unlock on where you're out right now in the 165 and it seemed like where you think you could be towards the end of 2020. Thanks.

So I would look I wouldn't read too much into how much I have committed today versus any particular point in time last year or the year before it really depends upon how how the second half of the year sort of develops in any year and what that implies for no committing and closing deals.

Early in the in the following year.

The market is certainly.

Robust, there's plenty of capital looking to invest in the space as anyone who is in Dublin, a few weeks ago Little test.

But we don't we don't particularly read anything into that and we're not worried about finding investments and we don't have a particular growth need if you will that I have to deploy some amount of capital no matter, what I see out there we're going to continue to be disciplined we'll find our places in our opportunities to invest capital as we see.

It.

And to the extent, we don't see what we like we'll invest less money than perhaps we did on average over the last five years.

And then and then and then in terms of just what's coming off lease. This year and next can can you just give us not that update on where you are there on whats your expectations for extension or sale or kind of how you're thinking about right now.

Yes, we don't have a handful of aircraft left to place in 2020, and we have a pretty modest roll off in 2021.

And what's left in 2020 is a handful of narrow bodies in one one wide body in next year, it's mostly narrow body aircraft. So.

The placement task if you will as we look for the balance of 2020 and into 2021.

Certainly manageable in the context of our team and the number of units and the type of aircraft that we've been placing recently.

Okay, and then just maybe want to I'm on the closing time I appreciate the detail there.

You mentioned that you're on track and from seemed a lot of the majority of the approvals, but can you just give a little bit more detail a lot, which regulatory bodies that you actually need to get approval from from here I'm outside of the the shareholders of course, thank you again.

Oh, Yes look and we'll file our 10-K later today and basically we have three jurisdictions that we're waiting on antitrust clearance from.

Chile, Mexico in Morocco, and as I said I can't predict the exact timing on any of those jurisdictions, but where we're very confident that will still be able to close this deal in the first half of this year.

Great appreciate it.

Thank you.

And with no further questions I'd like to turn the call back to your Frank considerable for any additional or closing remarks.

Thank you very much for your time today feel free to call me if you have additional questions.

And have a great day. Thank you thanks, everyone.

And this concludes today's call. Thank you for your participation and you may now disconnect.

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