Q1 2020 Earnings Call
Good day, and welcome to Aercap Holdings, and <unk> first quarter Twentytwenty financial results Conference call.
At this time, all participants are and I'll listen only mode.
After speaker presentations, there will be a question answer session.
This call is being recorded and the transcript will be available following the call on the company's website.
I would now like to hand, the call over to address it Mckinley head of Investor Relations. Please go ahead Sir.
Thank you operator, Hello, everyone welcome to our first quarter 2020 conference call with me today is our Chief Executive Officer, Angus Kelly, Our Chief Financial Officer, Pete you.
Before we begin todays call I would like to remind you that some statements made during this conference call, which are not historical facts, maybe forward looking statement.
Forward looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements.
A couple undertakes no obligation, although not imposed by law to publicly update or revise any forward looking statements to reflect future events information or circumstances that arise after this call.
Further information concerning issues that could materially affect performance can be found in aercaps earnings release dated may fit twentytwenty.
Copy of the earnings release and conference call presentation are available on our website at <unk> Dot com.
This call is open to the public and is being webcast simultaneously it aircraft dot com and will be archived for replay.
We will shortly be run through our earnings presentation I'm on a lot of time at the end for Q in a as a reminder, I would ask that I'm not limit themselves to one question and one follow up.
I'll turn the call overt Angus Kelly.
Thank you Joe.
Good morning, everyone and thank you for joining us for our first quarter Twentytwenty earnings call in what is clearly a remarkable time.
Our thoughts go out to those of you were being directly impacted by this fires.
Sure stuff suppliers and customers.
Oh working tirelessly in such trying circumstances.
Despite the impact to the growing the virus in the first quarter aircraft produced a strong quarter with net income of $277 million.
Earnings per share of two daughters, and 14 cents.
Now.
How any company emerges from a crisis.
Pens first being what condition. It was in winning entergy, both from a financial and operational perspective.
And then critically what the company does during this period.
Aercap has been through several crises before I've had some march stronger from each one.
The key in our experience is top of strong independent liquidity position going in.
Air cap How's that with 8.2 billion of liquidity on hand.
$28 billion upon encumbered out.
A seven year low debt equity ratio 2.5 times, I'm, very manageable capex, particularly relative to our side.
Our expected Capex for the rest of Twentytwenty is 2.7% our total assets.
It is vital in times of stress that one is a platform that can handle multiple challenges.
Aercaps platform is unrivaled in this regard to remind you Aercap has bought sold at least over 2000 aircraft in the last five years alone, including over 500 White body transaction.
These numbers and the associated infants infrastructure, our unmatched in the industry.
Turning to airline credits it is very important to look at the credit quality aercaps customer base, when assessing our financial strength.
Approximately 70% of our fleet is the flag carriers for Chinese and U.S. major.
Relatively speaking just gives air cap a stronger base my credit profile perspective.
And given our scale and capabilities, we will generally have a more influential position with an airline that although less stores when deferrals or similar agreements are being negotiated.
As you will be aware aviation has been deemed to be part of the critical infrastructure of the global economy.
This is evidenced by the massive state support airlines are receiving.
I believe there will be over $200 billion of state support for airlines globally.
Well over 100 billion, that's already been announced and all received.
Crucially most of Aercaps revenue comes from carriers that are important enough to receive state support.
No I want to explain how and why we help our customers.
Many of our airlines have been long term customer that Erica and will be for many years to come because of this we are providing them with assistance and its unprecedented time in a former grant deferrals.
You can see from the slide in our presentation that we've entered into approximately 300 million a rental deferrals.
And expect to enter into another approximately 300 million up deferrals.
The amount of deferred is generally equivalent to two three months of rent and repayment generally begins four to six month after.
It is important that these numbers are seen in context.
Against this 600 million up deferrals, we have 1.1 billion of security deposits and Weve, a further 1.6 billion of maintenance reserves.
Given the aforementioned credit quality of our customer base, we expect a very high level a cover ability of these amounts.
When discussing a tougher with a customer and deciding to sizing duration of the deferral, we take the following into accounts.
What is the collateral package we have.
What level of shareholder support has been received at what is the potential for state support.
Of course, Erica continues to receive cash every single day.
Since the first of April Air Coppice already collected over $200 million in cash from our customers and over $100 million in cash from aircraft sales.
So even when there was a deferral it is generally for part of the rent.
The timing of the deferral agreement staggered between different regions of the world.
There was no doubt that some airlines will fail because of this crisis.
Today in our portfolio, we've seen Virgin Australia, and their malicious enter administration.
Which is a similar process to chapter 11.
When an airline interest chapters chapter 11 or administration. They will normally have between 30, and 60 days or protection from the creditors.
After that the either pay for the lease return the aircraft.
If we believe the right thing to do is removed. The aircraft then we won't hesitate to do so.
In a number of cases, the airline kinda emerge from chapter 11 and in these situations. They generally maintained the majority of their fleets.
I think this is a likely outcome in the case of Virgin Australia.
As I mentioned aviation is viewed globally as critical infrastructure, therefore, one way or another five to bulk of the world Airlines and aircraft will be an operation. After this crisis and you're already seeing this in China.
On the liquidity, we have and continue to take auctions to further improve our position.
As I mentioned, we have $8.2 billion up liquidity on hand at 28 billion about encumbered awesome.
We continue to source financing from our globally diverse lending base.
And we have $1 billion, a funding initiatives that have either closed already.
In the last few weeks, our will close in the near term.
The terms of these financings are relatively comparable to the terms we achieved with these lenders in prior transactions.
These actions demonstrate the benefits, having a globally diversified funding structure with longstanding relationships and not being solely reliant on one source of funds.
Further, helping our liquidity, we have deferred over 60 aircraft deliveries.
As a result of these actions we expect capex for the rest of Twentytwenty to be 1.3 billion, which is 2.7% of our total assets as of March 31.
And this is fully financed.
In March we took the decision to draw down or or CF revolving credit facility.
I would have an abundance of caution due to the volatility if the capital markets at that time.
Given the actions at the fed since then and further stability in the broader funding markets, we have repaid $3 billion office or CF.
Turning to the turning to the Oems as mentioned above since our last earnings call. We've agreed to defer the delivery of over 60 Max aircraft by several years on terms that we believe our attractive for Eric.
We do believe that assuming a successfully re entry of the mine.
This aircraft will be in demand in future years.
And we wanted to ensure that Aircat has access to this aircraft Uncompetitive chart.
Part of this agreements, we retained our contractual rights and remedies.
However, I do think it's likely that there will be additional delivery delays due to the challenge is that the Oems will have in their supply chain at the restart production.
These potential delays not factored into the numbers I just mentioned.
Separately.
In light at the recently announced OEM production cuts, we expect to see further reductions in our capex and deliveries and 2021 and beyond.
Looking forward. It is very important to remember that aviation is by far the safest form of transport in the world.
A fundamental part of the safety has always been the air quality onboard and aircraft.
The air in an aircraft is cleaner than any office or train station a bus station.
This is due to the regular recycling up the air in the cabin every few minutes and the use of Hep a filters, which are on a par with those used in hospitals to purify there.
As people return to work they will and are using public transport.
Hundreds of millions of people use public transport everyday.
Such I'm extremely confident people will say to themselves I am honored train a trial or bus every day. So why don't I get on an airplane you got in Seoul, New York, London, Beijing is done ball et cetera.
On the portfolio side.
I believe that any crisis accelerates trends that were already evident they don't create new ones.
As we did a lot as we highlighted in prior calls.
We were seeing a trend into certain variance of new technology aircraft.
Slowly out of current technology aircraft.
Critically we saw this trend out of current at older technology aircraft and we acted on us by selling over 600 aircraft in the last six years.
Hence our bar about approach to minimize our exposure to current technology equipment.
For example, we only have 12% of our portfolio by value in current technology wide body and many of them around long term lease to flag carriers.
59% of Aercaps portfolio is a new technology aircraft.
To put this in context and as you can see from the two tables included in our presentation.
There are approximately 20989 large passenger jet aircraft in service.
Only 12% them or new technology.
Aercaps lease has more new technology aircraft than any airline or less or in the world.
Turning to demand for aircraft there was no doubt that this is being impacted but coming into this crisis aircraft did not have a single new aircrafts lot of beta but until twentytwenty too.
Furthermore, the 55 used aircraft that at least is scheduled to expire this year, we only had six left to place.
Manageable task for a company used to pacing up to 200 aircraft a year.
This is one of the key benefits of having longer than average lease terms I fewer expirees each year, our average lease doesnt expire until 2027.
Of course, some of these lessees will default.
But aercaps platform will find alternative homes for these aircraft.
What might be good for creditors of airlines such as aircraft that source may not be as advantageous for equity investors.
That being said there will be fewer aircraft operations and 2021 than expected.
This will come from aircraft retirements by the airlines and a reduction in supply from the <unk>.
Today's airlines have announced their retirement are possible intend to retire proximity 700 aircraft.
Importantly, 240 of these aircraft are very large aircraft such as <unk> 747767, and eight three forties.
Large aircraft will take a disproportionate amount of S.N. or debatable seat miles out of the system.
On the <unk> as I've said in the past a great advantage of this industry is that you actually on the supply side.
What we are seeing from Boeing and Airbus now is the same type of behavior that'd be have seen impasse crises, where they ultimately do much supply to demand.
The combination of the already announced or we m. production costs, Oh between 33% and 50% depending on the aircraft type as well as the accelerates retirement of old technology aircraft by the Airlines will result in supply and demand ultimately coming into balance.
No to what we're seeing in the market.
There are three major markets in the World, China, Europe, and the United States.
Going to focus on China first because there was where the first it was the first major market to deal with the Corona virus.
I'm the first to read commensurate travel.
[noise] for your benefit in the supplemental information to this presentation. We have included photographs.
That are there if that aercaps staffing China have taken from airports around China on May the first so that you can get some sense of what is happening right now in active airports.
At the start of the year total flights in China, which to hire 15885 flights on January 23rd as we approach Chinese new year.
Then the concerns of the Corona virus to cold and the number of flights began to decrease and Troughed on February 24 at 4062 so.
Certainly a very significant decline.
Over the course of the last two months, we have d. seen a steady increase in fleiss activity and load factors in China, where they are now running approximately half of the flights they were operating in 2019.
They hope to get to approximately 65% during the summer.
There was some very positive news from China last week, when it was announced at the <unk> of the 13th National People's Congress would be held in Beijing on may 22nd.
Huge have been postpone from March many representatives from the leadership of the Communist Party will go to Beijing from all over the country at that time.
Also last week to quarantine rules in Beijing, relaxed, which led to a surgeon bookings on the online travel website.
This demonstrates confidence in the safety of air travel and the desire of people to travel once authorities say they can.
We're also seeing the first agreements on cross border travel with the <unk> with the protocols being discussed between China, and South Korea and other countries in Southeast Asia.
In our discussions with European airline C.E.O.s, we are hearing the same things we heard from China, two months ago, which is that they they expect to see flux activity to resume on a limited base.
At some point in May.
Right now they're at the same stage that China was asked in late February.
The discussions I have had with European Airlines indicate a summer schedule for July and August equivalent to somewhere around 50% of their 2019 levels moving to approximately 60% to 65% during the fourth quarter.
<unk> K.L.M. has publicly said, 70% by year end.
Bear in mind that Europe is two to three months behind China.
What is occurring in China today, He's wanting European Airlines expect to see in two to three month time.
In Europe Euro control the entity that manages European airspace yesterday observe that close.
Since mid April Twentytwenty exchange of trend must be noted with a slice increase of average traffic in absolute terms compared to 2019 and close.
Said the increases are slice and are coming off a low base in mid April.
I expect that we will see similar developments in the U.S. domestic Marcus.
Another indicator, we look at his hotel occupancy.
We are seeing this mirror air travel.
Hotel occupancy is almost doubled from its February trough.
This again shows that the consumer will get back on airplanes and will travel.
It will take time to recover it to the 2019 levels of traffic, but the crucial point to take away. If that's a consumer will travel and governments will support airlines.
Also air kept close the sailor 15 aircraft in March and April Indeed, the value of aircraft sales executed in April alone was $150 million.
In March and April we also signed leases and lease extensions for another 15 aircraft. We continue to compete for or if peace for future placements from 2022 onwards, and our scaling reached does give us a competitive advantage in these processes.
The execution of this number of transactions in this environment again demonstrates the unrivalled capabilities of Aercaps platform, both the asset and funding side of the business.
Looking forward, we provide a consistent stable returns over 15 years and whilst this crisis surf me presents challenges. We continue to look forward, we will incur costs along the way not all of our customers will make us, but air travel will recover and people want to travel.
As I said, we are observing this in China already.
No doubt your Reno President of time, which you can see from the actions aircraft was taken today than we are well positioned to weather the storm with that I will have to call over to peace.
Thanks, <unk> good morning, everyone I'll start on slide seven.
Air kind of produced a strong financial performance in the first quarter with net income of $277 million and increase of 18% over the first quarter of 2019.
Diluted earnings per share with $2.14, an increase of 27% from 2019.
Or books, all you per share increased 14% over the past year.
Please standby.
Please continue to standby.
I mean.
You have been reconnected.
Okay. Thank you operator, and apologies for the for the technical confusion there.
I'll start again on slide eight revenues and other income on slide eight our total revenues for the first quarter were $1.238 billion, an increase from $1.205 billion last year.
Our basic lease rents were lower primarily due to downtime on re leasing activity and the write off in $16 million at least receivables in the first quarter.
Our maintenance rents were $134 million in the quarter and were higher mainly due to lease terminations as well as higher end of lease compensation that we received during the quarter.
Our net gain on sales for the quarter is $58 million, an increase over last year and our other income was lower because we had higher interest income and some insurance proceeds that came through in the first quarter of 2019.
On slide nine our net interest margin for the first quarter was around $725 million. Our average cost of debt was 4.1% for the first quarter a slight decrease from 2019.
Our net spread was 7.7% for the first quarter and our net spread less depreciation was 3.1%.
The average age of our fleet remain just over six years, the average age of our Newtek aircraft, which represent 59% of our fleet today is two and a half years, while the average age of our current Tech fleet is 11, an AFE years.
Our average remaining lease term continue to be seven and a half years, which is one of the longest in the industry.
Turning to slide 10, we sold 12 aircraft in the first quarter for a total of $265 million. Our net gain on sales was $58 million, which was an increase from 2019.
During the first quarter, we sold 11 narrow bodies and one wide body with average age of 14 years, our gain on sales margin in the first quarter was 28%, which was due primarily to the sale of some older aircraft at a significant gain.
On the purchasing side in the first quarter, we bought seven new aircraft for total capex at $427 million.
Slide 11, our SGN a expenses continue to decline and were about $65 million for the first quarter.
Our maintenance rights expense was $16 million for the quarter down from 21 million in the first quarter 2019. This was due to lower maintenance activity and the continued decline of the maintenance rights asset balance as that asset continues to roll off.
Our other leasing expenses were $87 million for the quarter and increased from 70 million in 2019.
This was primarily due to higher expenses related to lesser contributions and lease incentives during the quarter.
Asset impairments in the first quarter.
Please standby.
Please standby.
So you've continued to standby.
Please continue to stand by the Congress will resume momentarily.
Please continues to standby.
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And.
You have been rejoin to the conference or.
Okay. Thank you operator, we apologize for the operating doesn't hold either some problem at the conference call. So I'll turn back to slide 12.
Our liquidity position, we continue to maintain a very strong liquidity position. We're currently at the highest level of liquidity coverage, we've ever had a two times sources juices coverage in excess cash coverage at five and a half billion dollars over the next 12 months. Our total liquidity is just under $11 billion and you can see the components of that.
Slide.
Against that him out over the next 12 months, we have $3.8 billion the debt maturing and expected Capex of 1.7 billion dollar as Gus mentioned, our capex requirements for 2020 have come down significantly by around $2.3 billion, and we expect our 2021 capex to come down substantially as well.
In the future as we continue to have discussions with the OEM and of our customers.
Since the onset of cold the 19, our ratings have been affirmed by all three rating agencies, but they placed us on negative outlook along with the overall sector.
However, all of the rating agencies have commented favorably on our liquidity and have also made the distinction between leading us or such as aircat versus smaller players with less experienced and capability that they expect to struggle in the current environment.
As we've said before we're committed to maintaining our investment grade ratings and we'll continue to nines. This business in a way that supports the ratings.
That means putting our balance sheet first and continuing to strengthen our liquidity, we suspended our share repurchase program and have not used any of the most recent authorization from our board.
Since March 31, we've made significant progress in over 1 billion dollars' worth of new funding initiatives earlier. This week, we close to $425 million secured bank loan and we have a number of other facilities that we expect to put in place over the next few months and of course, we have over $28 billion of unencumbered aircraft assets behind.
So now we've ever had that can be used for additional financing.
So in summary, our first quarter results were strong with solid earnings cash flow.
This is of course, a very challenging home aviation industry, our balance sheet and our business are well positioned and prepared to weather the storm.
In a very strong level of liquidity $11 billion in total which is twice our cash needs over the next year that five and a half billion dollars of excess cash coverage. We came into this year, but the strongest balance sheet, we've ever had our debt to equity ratio of two and half to one is the lowest level than in 2014.
Our secured to total assets ratio of 19.6% is an all time record low.
We've got over $28 billion of unencumbered assets.
70% of our customers are flag carriers us in Chinese majors and other investment grade Airlines.
Our order book is 100% place through the end of 20.1, and we have an attractive lead with 59% new technology aircraft for higher percentage of any major of us or and finally, we have an unmatched operating platform.
For 2000 transactions over the last five years.
With that will turn will hurt you in Asia.
Thanks.
And we'll be conducting a question and answer session.
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One moment, please while we pull for questions.
Our first question today is from Helen Bucker of Cowen. Please proceed with your question.
Thanks, very much operator, hi, everybody and thank you for the time and just.
Two questions.
Yeah.
When you do deferrals, how do we reflect that on the income statement.
So maybe that's for Pete.
Sure. Thanks Helane.
So when we when we have a deferral yes.
We continue to reflect that as revenue as long as we believe that that the amount is that lease rent is probable of collection.
And as just mentioned.
The deferrals that we've got our security deposits and other security well exceed those what we've done.
Okay and then my other question is I know you don't comment on specific clients and Thats fine that there've been some discussion that no. One of your biggest clients has asked for.
Yes for equity swaps and things like that and I, just kind of wonder how you think about that conceptually I mean, I know you're in a leasing business not the airline business, but maybe you could just talk about your view on that and how we should think about that big picture.
It's extraordinarily rare.
We're off to convert.
Equity.
It'll only be done in very unusual circumstances, we've done a with Norwegian airline.
As part of the restructuring about airline as its fifth line changed and the government of Norway invested in the airlines.
But generally we won't do that.
And for air cap to be common equity investor in an airline.
What's happened is our supplier equity.
Hello, everything effectively.
At the very expensive, we go down and it certainly not the norm.
Okay. That's very helpful. Thank you.
The next question is from crucial Patel of Deutsche Bank. Please proceed with your question.
Hey, good morning, guys.
Aside from rental tools I understand that there can be in multiple there can be most go other avenues for only for your customers could you talk just about what some of those might entail.
For instance, we've heard that some customers are recapturing a portion of their security deposit to maintenance revenues.
Maintenance reserves that is that accurate.
Well I can't speak to whether leasing companies and I can we speak to ourselves.
I would say.
The vast vast vast majority of things we do around rent borrow.
When it comes true.
George you deposits or maintenance reserves, you generally will only give those back if you will see letters of credit in return so often times that doesn't really help an airline because they've got a letter of credit.
They may need.
Cash collateral up.
So we will be able to Japan.
But as Pete said, when we look at aircraft apparel position.
We are have entered into at March 31, approximately 300 million.
We have another 300 billion give or take that we expect to put in place, but again SaaS, there's 1.1 billion of security deposits and multiple again of maintenance reserves.
Thanks, and when considering the 60 aircraft deliveries are different from this year is there any cost you for this or is that mostly a function of OEM production reduction.
Hey.
So maybe we can really comment on what the manufacturers.
Suffice to say vast those airplanes that we defer to you would not have to further.
Yes, the deferral was on competitive terms, because we had actually placed over half our Max aircraft already I don't believe any other leasing company had managed to do that.
And I should just go back just talk on the deferrals just to be very clear as I said my prepared comments, we get paid every single day by our customers.
Just even in the second quarter in the month of April we received over $200 million in cash from our customers.
Great. Thanks, guys.
The next question is from Jamie Baker of Jpmorgan. Please proceed with your question.
Hey.
Good afternoon, gentlemen, thanks, we're very proud presentation I think many of us on.
All the working from home.
Actual air travel.
A question on the deferral members grew gaps or Peter when we receive quote unquote in progress.
Presumably represent.
The.
The reality is an assumption underlying and we have already when their hand and also on the percentage of recapture that you're assuming in 2020.
Also in order to the leases over to be granted orphan offering were Samson Gore in progress discussions. Thanks.
Hello.
I think it was Jamie little bit a corporate here Youve I think you're asking are we at the deferral at the moment.
And I would say that we certainly feel that mid April.
While the low point, Eric profit globally that loan yield based on what was the third.
Euro control and as I mentioned in my prepared comments and what we're observing in China, there certainly on the road back.
I can tell you that in the Chinese market, we are getting paid now again the regular ray rental.
You know could we see airlines out for another few weeks amount the deferral in certain cases sure record, but from what we've seen at the moment those grabbed the deferral too in fabry market, primarily in China. They are back on track at the moment.
Okay. That's helpful Mark.
Yes, I just wanted to jump in peak question for you in the fourth quarter presentation for they use it for the sources and uses walk there was mention of 3.1 billion forecast of 3.1 billion of operating cash flow for the next 12 months in this quarter deck, It's 2.7 billion.
It's gone down by 400 million is that just a function of lower capex or is there a rent deferral number as part of that 400 million reduction.
Yes, thanks, Mark so that reflects a few things partially reflects lower capex.
It also reflects all the deferral that we've done what we do.
And it also.
Okay and reflect.
Around maintenance revenue like that but those are the three that.
Sorry.
Okay, Great and then just one last one for me it will turn it over you know I think there's a lot of confusion about your relationships with Boeing and Airbus from the perspective, Bob If you have aircraft that are being built RV cleaner in that order book and I realize everything is placed right now, but what happens if the airline.
And just as we're not taking delivery and I realize that.
In this environment. This is a concern investors have show I mean, well aircat take delivery of aircraft that simply go directly into storage or is that just not part of the business model. If you will will you work with the OEM in a situation like that to defer that delivery. Thank you.
Mark you will normally work with the OEM and the airlines to further delevering. The only exception would be where the airline is in bankruptcy.
And then different of course, but that's very rare and of the airlines that are in bankruptcy. We don't have any airline scary airplane scheduled to deliver to them, but you know at this point if there's an airplane upwards I remember you will generally work with a mark Mark your and as you can see Mark we have already.
More than 60 airplanes in the near term and as I mentioned in my prepared comments.
I expect that 21 to 20.2, you'll see significant amounts move out. So that's always happening is that three parties concerned are trying to work together to avoid those types of situations I'm not saying they kind of fabric there, but what you'll see is that the three parties are working together to prevent those situations from happening.
[music].
Great. Thanks for the time.
Measure.
The next question isn't Moshe Orenbuch of Credit Suisse. Please proceed with your question.
Great. Thanks, I wanted to kind of return to the question about the estimated operating cash flow. So it's a 2.7 billion that you have on this chart includes deferrals that you've done the deferrals that you expected and could you talk about what it assumes towards it should the so those airlines who receive deferrals to start.
Repaying.
The their regular rents and.
And just back ranch and you know any kind of thoughts there. Thank you.
Sure Moshe so the as Chris mentioned, the deferral tend to be two to three months in duration.
In the airline start repaying those afterward over a period of time basically for the remainder during the remainder of the year and so that's what that's what that reflects and as I said, it's not just the deferrals that we've executed to date, but also the ones that are where we've had discussions with the airlines on them.
So that 2.7 billion number reflects those it reflects as I mentioned before you know the changes in Capex that we're expecting during the year ethics.
It reflects the leasing expenses that will have.
Maintenance revenues that type of thing so basically reflects everything that weve that we can see to date as we look forward over the next 12 months.
And I guess, just a follow up on that Pete the.
Like how will we be able to Connor.
Observe how that's tracking like are we are you going to tell us what your receivables are at the end of next quarter. Okay. And then I guess how are we going to know that that's you know that that forecast either you know as we get into the second quarters, either better or worse than that.
Yeah, I mean, it's a 12 month forecast Moshe you can see our operating cash flow night and the first quarter operating cash flow was 628 million. So you'll see that on the cash flow statement.
You know as Scott mentioned I think the second quarter should be the nadir or this is given what's happening with the industry. So we should see gradual recovery you know in subsequent quarters, but even this quarter and we're going to have several hundred million enough that an operating cash flow.
Okay. Thanks very much.
Sure.
Okay.
The next question is from Catherine O'brien of Goldman Sachs. Please proceed with your question.
Hi, good afternoon, everyone. Thanks for the time.
Well just a couple of questions on your airline customer portfolio are there any airline you would categorize it through the were either in terms of demand sounds like maybe from geography in Asia, and you're already seeing that or just in terms of liquidity concerns being behind that.
You know if so what percentage approximately your customary are we talking you would you say this category and I guess really what I'm trying to get it is are there. Some of your customers that have come back cannot in confirmed that they are really confident in early clinton into a deal. Thanks.
Sorry broad question, Kathryn I guess as I said okay.
If we look at started over in China, where southeast Asia fairness corporate that Theres, some public about down there.
But they seem to be coming out this site slowly.
On.
Your level of activity is approximately half of what they were doing last year in China, if not more.
And so most of our exposure to China, where airlines that have significant stay ownership in them as well now receive significant state support.
So we're not seeing any more requests from that part of the world.
In Europe than we are seeing vast amounts of state support also come in on a par with what's been announced in the you. After the U.S. majors are seeing that with clarity to air France, KLM announcement, what we're likely to see out of Germany, as well and what we've seen some smaller carriers are works motor carriers around your clear when do you asked me tell very large amounts.
What can we look at what the overall point I would say is that of course, some guys aren't going to make it here it and we'll have to see how to run through the year.
But the vast majority of our operator go to make it through another line our airplanes at the end, but no doubt there will be there will be a bunch of default, it's very hard to say at this stage and what they will be but you have to look at what you're talking to here.
Air cap.
We've moved 2000 airplanes in the last five years, if we get an airplane back we'll find a home.
And also the security position, we have as well.
Thank you.
I appreciate that thank for entertaining I'm pretty broad question there.
So maybe just just.
Follow up to that until there is some confusion out there as to what actions you can take a color as a lucky and also on payment can you just walk us through like asking you would take it.
If you were thinking about.
He knows action at a different pace than you would normally today, given maybe there's a little bit less demand.
For those aircraft coming out of me possession, and maybe correct me if I'm wrong is there going to an aircraft going out any production. Thank you.
Well, let me start.
Air cap repossessions airframe very quickly I mean, sorry, if you can see permitting color for the last 15 year.
We are generally I can't remember situation, where another last almost faster then asked to pull airplanes out.
So where are we tell where some of stopped paying we would have more security likely Macy's assets of the airline and different jurisdictions, where they put leaned on their cash flows. So many things we will do.
But generally if you want to get the airplane black you'll get a box it's never been a jurisdiction in the world ever that we could not take an airplane out.
Generally what you will do.
As you will move extremely quickly because your concern is that when the airline stop paying their body aircraft. They will continue to fly and burn green time off the airplane.
For the second reason you want to move very quickly within Europe, you're in a hostile jurisdiction you want to get it out before Lincoln attached to your airplanes, which is never happen till our in any material level. So in this instance, where there are airplanes. The quarter. We're taking back are that we want to I should say, putting our control units in publicly some airplanes that are under our control from intercom and there.
Our other airlines well, we've taken airplane to put them on their Arkansas, even in this environment.
However, the instance of where an airline is going to use the airplanes and burn green time off the engines that clearly isn't the risk at this point of time. So if you have a consensual agreement with the airline.
You have all your record you may as well leave the airplane there rather go to the out but any sense of moving it in this environment, but no illusions look if we don't believe in the airline or were not that's all we're in a hostile jurisdiction will take care bye now.
Okay, Great. That's very clear I appreciate that any if I can just sneak one quick follow up in telling to Helanes question earlier on Norwegian you know you noted this very unusual you know I don't think in my time, covering the safety and something like that definitely seemed unusual to me.
One of the circumstances that led to this if you can have you can say something about the jurisdiction is that something tied to co. Then I imagine you're not you're not envisioning. Many more of these types of deals happening over the next couple of here. Thanks, That's it for me appreciate it.
No we won't see.
Many of those type of structure is happening.
Indicates of Norwegian what we had with an airline that it entered into a huge growth say, yeah that was stopped obviously over the course velocity amongst completely honest senior trading.
We have a new.
New management team in place in the airline also.
And we also have the conditions under which are the Norwegian governments, what's going into the airlines for the combination of those factors what the reason and obviously the environment, where it was accomplished the reason why often other lessors proceeded with its always in a range of which is highly unusual and I can think of one like that and never before.
Thanks very much.
The next question is from Ross Harvey of Davy. Please proceed with your question.
Hi, good afternoon, thanks for taking the time.
Three questions from me. The first is the likes of Easyjet is that it will take in about half a billion from sale leaseback and in the post covert environment I Wonder how are you looking at any such transactions I'm on do you see any of the access cost cash coverage being deployed in such away.
Secondly highlighted in the M.D. back that there were 63 used aircraft require requiring patent on 2021 I'm wondering is running update on on that particular figure.
And finally more of a long term question, but there has been speculation about the pace of recovery in air traffic over the coming years.
I'm wondering do you believe it or well be structural frac post covert bottom beyond the more cyclical and on time limited health related impacts.
Does it go to your question Bear Ross.
Yeah, Yeah, let me deal with easy one year 2021 faced with other capital markets Day last November and many of those and aircraft are already placed.
Vast majority will be placed already.
Turning to sale leaseback snuck, our focus at the moment it just making sure that we understand completely the extent of the quite likely will have on air cap, making sure that be maximize our liquidity as Pete mentioned and I said in my prepared comments, we were able to put in place to seven year debt facility with a group of our long standing.
The partners and back close actually last week and lets not if I could go to finally signed yesterday. The credit Committee approvals were taken I mean, the depth of this article on the virus in early April.
Demonstrate Sam the extent that are we have access to access the capital, but at the moment when it comes a sale leaseback transactions I believe there'll be plenty of those there the reality on the far outside of this to talk about the industry.
Is that airlines will need less or as a lot more than they did over the last few years and I do believe there will be fewer last or.
In this environment.
Not having a global platform is a massive disadvantage.
And those who banter to say.
On the base of trying to pick up yield over the last few years I suspect that they will accrete from the space over the coming here and they have been reluctant to reinvest.
So I think on the farm side. It is opportunity will not be the issue and there's no need to rush into it there'll be plenty there.
And because airlines will be focused on retiring debt.
Or government A.M., you've seen clear evidence of this behavior from the financial crime.
The banks with the significant government data the priority was to retire that government or possible because it typically impaired I'm constantly impaired the ability of management to run the business and I do believe we'll see the same behavior here.
And so there'll be a greater focus on using operating less stores when we get a far side of this event spending billions of dollars at their own money buying airplanes and Boeing and Airbus.
That's very helpful. Thank you got.
Okay.
The next question comes from Vincent Qinetiq of Stephens. Please proceed with your question.
Hey, Thanks, Thanks for taking my question just a few a quick ones.
On the Capex the remaining 1.2 billion Capex for this year just wondering.
That is confirmed or if there's a chance that might get pushed back and then Howard discount.
That you're having with airlines on confirming 2021 orders.
And I look I think it's likely that bought back capex will occur core they restart production because some of that slide to the right. Yeah. I think that's obviously a real possibility out there.
The 2021 deliveries again of course as I mentioned earlier in the call the idea.
Mark with amount of factor on the airline, let's see what can be taken and whatnot, but taking a but as I said I would envisage I'm sorry.
At the most of our thoughts will be taken by the airline.
At this point, but no doubt we are discussion.
A significant portion go we'll get pushed out to the right for 2021 2022, that's just a factor given the number three gave you are before the cost that were announced by Boeing and Airbus last week on the three Twentyneo. The 77 to 787 line no and no doubt about our Capex a good chunk of our Capex of 2021 2022 was going to move out.
Right.
Okay very helpful.
Next on the aircraft shale margin so they're very very strong this quarter and I'm interested you had Tom April sales of 150 million. If you could maybe share what's sort of margins that you're seeing today on on sales and how much demand is there and.
Kind of generally who's buying in this environment.
Yes. The April sales would have been the margins would be consistent with the March sales look I mean in today's world you have to have an infrastructure and knowledge and experience to execute sales.
I'm sure many less automotive executed 150 million to sales in the last three months, let alone in April and that just as a differentiation in the capability of this platform versus others.
Okay very helpful and last one from me just an update on your funding initiatives. So.
I am encouraged you returned 3 billion of the facility.
What sort of fiery is oh, you're thinking in terms of financing are you looking more in the unencumbered aircraft portfolio or are you able to do.
Still unsecured debt and sort of what's sort of jet.
Cost for the various sources just wondering you have thank you.
Yeah. Thanks, Vincent it's easier so on the funding side. Our plan is to continue to fund the business in the way that we had before which is primarily on the unsecured side, although as we talked about many times, we have a number of funding alternatives that we use we do it in a number of different markets.
That's one of the benefits of having the 120 bank relationships that we have and so when we look at that are secured funding that we just talked about that was done with the number of European banks and it was done at levels that were consistent with the what's where are we would have been pretty girls that right. So very little disruption in that market. So that's something that we'll continue to do.
But fundamentally as I mentioned, we're committed to running this business as an investment grade company and that means we're going to do a lot of unsecured funding. We will be you know will be we'll be doing not and looking at other alternatives to so I don't see any real change in a in ARPU.
Ending profile going forward, obviously, you know as we look at it now spreads are wider in the unsecured bond market and we think that unwanted we'd hope to see those come in but we're going to maintain strong liquidity for this business.
Okay, great. Thanks, very much guys. Okay. Thank you.
Sure.
Okay.
The next question is from Ron Epstein of Bank of America. Please proceed with your question.
Hey, good morning, good afternoon.
Just a couple follow on questions.
What do you look at the production rate decisions at the Oems one of the things seem to jump out in the strike me was the 77.
Getting back up to 10 per month in the current environment seems aggressive I don't know I mean are you seeing that kinda demand for that airplane.
Well the 10, they're talking about is one that they have already had on order.
Thank you saw United confirmation that we're going to take seven Iseventy saw American confirmation that we're going to take seven eight that as well I don't think about selling new airplanes. In this market is airplanes that are fail.
Into production system that are going to de lever.
And I think what they take the rate reduction began to seven is more reflective of where they think demand is good luck. There starting today is what they think demand will be in two years.
Gotcha Gotcha, and then moving out of the 73 seven program.
They completed 50 more airplanes in the quarter. So they now have about 415 inventory and on top of the others. What the 400 approximately that have been granted by the airlines so you've got to.
Actively 857 through Sevens I have to enter into service in are either through delivery at Boeing are back to airlines.
Do you think about that as a headwind when you think about demand for the seven through seven.
Wow.
I think timing.
They are the key there Ron.
First of all when will they be certified.
On a global basis.
You know one certification for a global product.
There's not enough.
Yeah, Hi certification.
That's the first thing about our global certification.
I see will not occur.
Thereafter.
I expect that the delivery profile will be very low balling have indicated themselves.
So I think you'll see a slow reintroduction of those airplanes I think Boeing has made that clear.
Both from.
The historically, you already discovered or or or from that's in the falling to yield at the moment.
But I do think should be fair to them access.
Yes in a couple of years time.
With that airplane, we'll be seeing as a very desirable aircraft, so it'd be hard by airlines.
I don't think assuming that that is premised on a successful reentry and global certification of the airplane.
Yeah that makes sense.
And maybe just another quick one for me.
Do you think about the future the two program now that.
It appears Embraer Boeing are gonna go on their separate ways.
[noise] D to put the two with the old Lady luck. It is the only alternative in the world the regional jet business now apart from Airbus and Boeing and what Embraer and if you look out is over the next three or four year, because Airbus will make changes to the two point to make.
Sure that it is combined with our aren't that a pilot flying a threeq right you can fly or too crazy and that there will be commonality in the concept, that's where Airbus a little crime and so embraer should have a decent sized market. There is that they can sell into over the medium to long term you too.
The fact that the Airbus product will be very standardized with frequency.
And.
That will take time, but it'll take time over the next three to five year, what there that there is a market there for the Embraer product no doubt about it.
Yeah, and then and then maybe just one last one when you look at.
These disruptions create opportunities right.
When you look at what's out there now are there some interesting opportunities for you guys to pick up some assets it.
What's called the fire sale prices.
No.
Look as I said on that Ron what you need to do now it's just make sure you take stock all the impact of this crisis.
What impact it will need well what do you talked about have on air cap, what we need to do.
Clearly, we have a huge amount of liquidity and we significantly reduced any outgoing.
And the platform that we have I do believe though.
Got on the far far today.
It is likely.
That does they glass doors will be far more in demand when they were over the last three or four years I think it's likely that we return.
Situation that we thought the most of the lot 30 years.
And that airline certainly coming out of this will be extremely helpful.
Repaying, yeah, particularly with government day back would be the number one focus of management team and as I said the evidence about what occurred after the financial crisis with financial institutions around the world and I saw that werent in dealing with AIG on the saying a violent say well I think we'll see a repeat there we kill me.
That there'll be less motivation for airline to the ordering airplane. So the two OEM as far more motivation to lose use the leasing products that doesn't chew up money that they can use to repay government that I get to pull back at their airlines.
Thank you very much.
Very welcome.
There are no additional questions at this time I'd like to turn the call back to Angus Kelly for closing remarks.
Thank you all very much for joining us on the call and we look forward to talking to you again, it's pretty much done okay.
This concludes todays conference you may disconnect your lines at this time. Thank you for your participation.
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