Q1 2021 Air Lease Corp Earnings Call
Yeah.
Ladies and gentlemen, thank you for standing by and welcome to the Air lease Q1 2021 earnings Conference call. At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask the question. During the session you don't need the press star one on your telephone keypad.
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Now like to hand, the conference I would share speakers, Jay Mary Liz Depalma head of Investor Relations. Thank you. Please go ahead.
Hello, everyone and welcome to Air lease Corporation's earnings call for the first quarter of 2021. This is Mary Liz Depalma and I'm joined this afternoon by Steve Hardy, Our executive Chairman, John Sutor, our CEO, and President and Greg Willis EVP and Chief Financial Officer.
Earlier today, we published our results for the first quarter of 2021 copy of our earnings release is available on the investors section of our website at Www Dot Air lease Corp. Dot Com. This conference call is being webcast and recorded today Thursday may six 2021, and the webcast will be available for replay on our website at this time.
All participants to this call are in listen only mode. That's.
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 included without limitation statements regarding our future operations and performance revenues operating expenses stock based compensation expense and other.
The income and expense items these statements and any projections as of the Companys future performance represent management's estimates for future results and speak only as of today may six 2021. These estimates involve risks and uncertainties that could cause actual results to differ materially from expectations. Please refer to our filings with the six.
The reason 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, certain financial measures. We may be usually during the call such as adjusted net income before income taxes adjusted diluted earnings per share before income taxes and adjusted pre tax return on equity are non-GAAP measures of.
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-Q, we issued today. This release can be found in both the investors and cross section of our website at Www Dot Air lease Corp. Dotcom unauthorized recording of this conference call is not permitted.
I would now like to turn the call over to our CEO and President John <unk>.
Thanks, Mary Liz good.
Good afternoon, everyone and thank you for joining us.
More than a year has passed since the state start of the COVID-19 pandemic and we are beginning to see recovery of insight.
We're optimistic that of the vaccine rates rise travel restrictions are eased and as countries work independently and collectively to develop initiatives to enable free movement, we will see of further resurgence of air travel.
With that said most of our airline customers are still grappling with the strain of limitations, resulting from the ongoing pandemic.
Today in our comments I hope it'll be clear, how we are growing and further differentiating our platform. While also supporting our airlines and how we see that benefiting us as we move forward.
For the first quarter of 2021, we are reporting $475 million in total revenues and diluted EPS of <unk> 70 cents per share down, 7% and 40 per cent, respectively compared to the prior year's pre pandemic first quarter.
Our results this quarter were impacted by approximately $86 million of rental revenue as we did not recognize in the quarter due to cash versus accrual basis revenue recognition and lease restructurings.
Greg will walk you through more specifics in his remarks.
We took delivery of approximately $600 million of new aircrafts in the quarter, which is $200 million more than we originally anticipated.
87 per cent of these deliveries by dollar value of occurred in the last seven business days of March providing minimal rental contribution for the quarter, but providing long term rental contribution thereafter.
Our cash collections and lease utilization rate remains solid in the first quarter at 84% and 99.6% respectively, albeit both slightly lower than the what we saw in Q4.
To date, we've agreed the accommodations with approximately 63 per cent of our lessees with deferrals totaling approximately $243 million.
Importantly, however, our total deferrals net of those that have already been repaid continues to improve.
As of today, our net deferrals stand at 131 million as compared to 144 million as far of the last call in February and almost half of all of the deferrals that we've granted to date have been repaid.
Our net deferrals represent less than 2% of our available liquidity at the end of the first quarter.
Furthermore, our overall cash flow from operations actually increased slightly this quarter compared to last year's of pre pandemic first quarter.
The pace of requests for rent deferrals and lease restructuring from our airline lessees has slowed meaningfully.
We remain fully committed to helping our airline customers get through this pandemic and our customer relationships are growing even stronger because of our help and commitment.
So in spite of short term headwinds impacting our first quarter results. We remain long term partners to the airlines and our business is positioned to benefit.
In many cases airlines have differentiated ALC from peers by choosing to continue operating air lease aircraft, while at the same time rejecting leases of other lessors and returning the aircraft.
Other airline customers have chosen to defer their own orders and instead opt to lease aircraft from ALC, which remain will remain core to the airlines long term fleet strategy for years to come.
Accordingly, we see accelerated demand for the aircraft in our fleet and order book as you've hopefully seen in our recent press releases driven by airlines focus to operate younger aircraft of shift towards leasing, which now accounts for about half of the marketplace and the focus on sustainability initiatives, which gears demand towards.
The new environmentally friendly aircraft contained in our order book.
As such our lease placements remains strong at 95 per cent of our order book placed on long term leases for aircraft delivering through 2022, and 80% through 2000 of twenty-three.
Yeah.
So looking ahead, we technically have OEM contracted commitments to take delivery of 64 aircraft in the remainder of 2021.
But given continued OEM and pandemic delays, we currently expect to deliver approximately 44 aircraft and that number could change.
We expect a range of approximately 3 billion to $4 3 billion in aircraft investments for the full year of 2000 of 21.
As of today, we are anticipating approximately $1.2 billion of these deliveries to occur in the second quarter.
We continue to evaluate supplemental aircraft investment opportunities outside of our order book that are profitable and makes sense for ALC over the long term.
We're pleased that 787 deliveries have resumed in the first quarter. We delivered one 787 to air premiere in South Korea, and more recently, we delivered two 780 sevens to China Southern in April.
As you saw from our quarterly fact sheet release, we also delivered four 737 eight Max aircraft this quarter.
As it relates to the recent grounding notice issued regarding the electrical power system on the 737 Max aircraft. We did have six aircrafts delivered to our customers subject to this order.
Boeing is working with the FAA to conclude the process required for operators to return the aircraft the service.
The actual work involved to accomplish the mandate of service bulletins is expected to take just a few days per aircraft.
Until this process with the F. A is concluded we may experience further delivery delays of the 787.
Despite these recent developments, we do have several customers who have expressed a desire to reactivate taking delivery of several Max aircraft. The we previously canceled with Boeing pursuant to our cancellation rights, we're working with Boeing and those airline customers to reactivate those specific deliveries.
Under favorable pricing and delivery terms.
As the aircraft sales in our management business, we do anticipate a resumption of more aircraft sales program targeting the second half of the year. However, we anticipate our overall sales in 2000 of 'twenty, one will not reach pre pandemic level.
As always we are taking a disciplined approach to sales analyzing the aircraft portfolio of sales environment and the contemplated gains on those sales as against keeping these good earning assets for a bit longer as they approach six to eight years of age.
And as we advised last quarter, we are growing our aircraft management business nicely in fact in just a 100 day period, we sourced in the secondary market over $600 million of aircrafts suited specifically for Blackbird capital two of which two delivered in the first quarter and the remaining aircraft will deliver over future.
Quarters.
Furthermore, we have entered into a another management platform agreement with one of the previous investors and Thunderbolt to acquire aircraft and of sourced seven new aircraft for that investor through airline sale leaseback transactions for forward deliveries.
This is an additional attractive and growing management platform. The dovetails exactly what we told you last quarter and mirroring or of coupling sale leaseback transactions with direct placements from Alc's order book.
The recent example of this was the placement of four new way of 320 ninos with Polaris in Mexico, two from Alc's Order book and two from sale leasebacks the transaction, we announced on April 26th.
And finally, as we look around the world, we are mindful of our social and environmental responsibilities and we are taking active steps on these fronts for example.
Many countries and regions are still suffering who on this call has not felt heartbroken at the human suffering and death happening in India. At this time due to the COVID-19 virus.
The scope and magnitude simply the phy description.
As such I am proud to announce that ALC is donating $100000 to the relief efforts in India.
We are expanding such initiatives in fact, our ESG Committee has several projects and efforts under consideration that we believe will further aid our planet and the human condition.
And with that let me turn the call over to Steve for additional commentary Steve.
John Thank you very much.
Over the last decade.
Air lease has focused on growing our company organically.
So now we're $25 billion in assets.
Our fleet and order book are comprised of the aircraft we personally selected.
There's been a lot of attention in recent weeks the size and scale.
And the the place that with our ability to deal and negotiate with the manufacturers and airlines.
There is not one right answer for what is the right size when the aircraft lessor.
But what has been validated during the pandemic.
Is that ALC has the asset strategy.
That aligns to the industry needs and desires.
And net.
Our existing fleet size and order book.
Together with our deep knowledge of the assets and fleet planning expertise.
And the relationships that we built over multiple decades.
It makes us the valued partner to our customers and the Oems.
And this gives us tremendous confidence in our future.
Looking at the airline landscape.
As you can take away from the daily headlines of recent public reporting from us and many other companies.
The current operating environment is very dynamic.
While the deferrals and restructuring agreements are not ideal in any environment.
We are pleased to say that it is clear from our conversations that airlines when a key part of aircrafts.
As the backbone of their fleets and as such we are working together.
The company commercial arrangements on how to proceed.
Not every leasing company isn't the same advantageous position of the ALC in this regard.
And it is an important differentiator in this type of an environment.
We remain very focused in the coming months and years as the outlook for the return of air travel driving airline decisions today.
Even though many countries are still trying to gain control of the pandemic.
We are moving in the right direction in comparison to where we were a year ago.
For us here in North America, There's no better example than what we're seeing on the heels of increase vaccination rates.
In the United States last year at this time TSA was seeing below 200000 passengers a day.
And as of this last Sunday.
The TSA had over one 6 million passenger.
Cash through their security checkpoints.
And this is with very limited international business travel.
We believe that this will be further propel in vaccinated Americans can travel to the EU. This summer.
As was mentioned by the President of the European Commission, a few days ago.
Outside of this broader announcement.
While certain parts of Europe are still of the vast restrictions.
We are beginning to see individual countries changed course selectively and carefully.
And now the dates for reopening subject of negative test results prior to entry.
In some cases vaccination.
The other criteria.
For example, grief recently announced that it is reopening of stores the COVID-19 free tourists from more than 30 countries.
As they take the so called baby steps back to normalcy.
We recently heard from our friends at United Delta and American that they will be introducing flights to capture the pent up demand for travel to many of these destinations that are opening up.
We've seen similar announcements from countries like Iceland.
The line tourists from certain countries and.
Croatia, a line vaccinating travelers that are incoming.
Outside of the Europe placed.
Places like Israel.
<unk> selected countries in Asia have also announced that they will allow the limited groups to start arriving at the end of May and early June.
Subject to certain requirements.
Countries are also working bilaterally to find ways to allow the flow of air travel.
Part of the pandemic true.
Example, in mid April Australia, and New Zealand Oakland of quarantine pre travel corridor.
And you're hearing similar agreements being discussed by other countries.
For instance, the United Kingdom in Israel have mentioned the possible Green travel corridor.
While the similar talks are now in process between the U S and the United Kingdom.
In addition.
Countries are exploring ways to digitize and simplify.
Proof of COVID-19 vaccination.
Or negative test results or both.
Sometimes referred to as the vaccine passport.
This scheme with a lot of travelers to satisfy <unk> requirements more easily.
We believe that these initiatives and others will be vital to restoring intercontinental leisure travel.
And gradually business travel as the year progresses.
Importantly, as the world the Burgess from the pandemic.
And people can travel more freely.
Any millions will have the means to do so.
It was recently reported the consumers around the world have accumulated an extra five four trillion dollars of savings.
Since the pandemic has begun.
And we've heard executives across the pool of broad spectrum of the industry disgusting.
And the demand that they believe exists.
Since our last call alone we have delivered a number of aircraft the customers around the world who are.
Of our modernizing their fleets and rightsize the fleet composition.
In anticipation that air travel will recover over the coming several quarters.
For example, John mentioned, the $2 787 Dash nine aircrafts that we recently delivered the China Southern.
And air premiere in Korea took another 787 of that's not.
In addition, we delivered the first of what will be five new 737 aircraft.
<unk> the national carrier of Fellows.
These aircraft replaced the airlines aging Boeing 737 300.
737 500 aircraft.
We also delivered our third 737 vaccinate the Cayman Cayman Airways in the Caribbean the National flag carriers of the Cayman Islands, which is retiring at slide 787 300 aircraft.
And replacing it with our new 737 eight model.
And the.
First of which.
737, eight aircraft that we just delivered the blue air in Romania.
Blue Air is the U S D C carrier in Eastern Europe.
Which is also accelerating the retirement of the classic fleet.
Of 737 305 hundred.
In favor of more environmentally friendly and economic narrow body aircrafts.
On the Airbus side of the equation.
We delivered one new <unk> hundred 21, Neo LR aircraft the era of Astana the flu.
<unk> carrier of.
The Republic of Kazakhstan.
This is the airlines 10, new <unk> hundred 21, LR of belief on the ALC.
In addition, we delivered one new <unk> hundred 21, 200 deal LR also of the Air Arabia.
Which is now operating six.
<unk> hundred 21, 200, Neil L ours on lease from ALC.
The illustrative example to show a broad range of customers deliver.
Delivery of our aircraft.
And how the are utilizing these aircrafts.
The adjusted and modernize their fleets.
Looking forward, we're also starting to see an uptick of lease rentals uncertain desirable aircraft types.
Typically the <unk> hundred 21 neo of.
Which ALC has the largest order book of any aircraft lessor.
The <unk> hundred 21, neo and its longer range variant of the <unk> hundred 21 LR.
And soon in our served as the ex L. R.
Our taking place of smaller twin aisle aircraft on Trans Atlantic and Intercontinental medium haul routes. In addition to expand the basic route network networks.
Of many LCC and Ulc's the operators.
We have also play our first 15 Airbus eight to 'twenty 300, aircrafts from our 50 aircrafts firm order of desktop.
Our 8% to 20 deliveries will commence in the second quarter of 2022.
While wide body aircraft remains somewhat challenged let.
Let me emphasize what I said at the beginning of my remarks.
Specifically that our young fuel efficient aircraft.
Have a definitive advantage.
And then the number of airlines have kept our wide body aircraft is the backbone of the widebody fleet.
At the expense of other less source.
Recent examples.
Include Aeromexico, Malaysia Airlines and Virgin Atlantic.
Our forward placements and deliveries of wide bodies are proceeding on track with airlines, such as Delta and the number of international carriers.
In fact, ALC only has one of plate <unk> hundred 30, Neo from our order book.
And the very small number of 850 and 77.
Which are now.
In process for future placement.
On the used aircraft side, our young fleet of Triple seven 300 yards.
And <unk> hundred 30, 203 hundred remain well placed with our customers.
With only a modest number of lease expirations in the next 12 to 24 months of.
All of which are manageable.
We've also successfully extended the leases.
On a number of our Triple 700, 300 EUR of aircrafts in the last six months.
Finally, let me add one additional comment John.
On the 737 Max program.
The recertification of the Max by China and Russia.
It's still pending.
China in particular is the very large marketplace for the 787 family and the Max.
Russia is also an important customer in this regard.
Recovery of.
Of the Boeing 787 program will.
We will not be complete.
Until these countries certify and can obtain clearances to operate the 737 Max in their country and for overflights.
ALC has several of 780 sevens on future delivery.
Where are less the required Russian and Chinese certification.
<unk> remains fully committed to the 737 program, but.
But I do feel compelled to point out.
These remaining obstacles, including the very frustrating current ground the need to be overcome by Boeing with Ace.
The progress of USA and European Summer traffic growth will also play a role in the pace of new 737 of absorption by airlines for the remainder of 2021.
The USA looked well positions for domestic summer travel recovery.
While the extent of Europe, aircrafts and traffic recovery over the summer remains less certain.
But in the next coming weeks, we will have more visibility on that.
I know, it's been a long year and that the longevity of this pandemic has exceeded all expectations.
However, I'd like to point out that I firmly believe.
And like other downturns in our industry, which has been experienced recover.
The recovery will occur.
And in fact is occurring in phases by domestic and international travel.
By country and by region.
We at Air lease Corp.
Have not underestimated the impact of the pandemic.
And you are seeing that and how we are managing our business and dealing with our trusted the airline customers.
But at the same time, we're also not losing sight of what lies ahead and how we best position our business for the months and years to come.
And with that I will turn the call over to Greg Willis, Our Chief Financial Officer to provide you more detail on our financial results.
Thank you, Steve and good afternoon, everyone.
Let me expand a bit on the details underlying our financial results for the first quarter I would like to remind everyone that for comparison purposes. The first quarter of 2020 was relatively unaffected by the COVID-19 pandemic.
As you would expect the following COVID-19 related factors have continued to impact our performance in the first quarter of 2021.
As John mentioned revenues were impacted by $86 million and the lease restructuring agreements and cash basis of accounting of which 49 million came in the from less he's on the cash basis.
What are the lease receivables exceeded the lease security package and collection was not reasonably assured.
This compares to $25 million in the third quarter and $21 million in the fourth quarter of last year.
In total our cash basis, unless he has represented 15, 3% of our fleet by net book value as of March 31, as compared to seven 8% as of December 31.
The increase in rental revenue not recognized for the first quarter was primarily driven by a few customers.
We are working forward working towards reaching a resolution.
Although we will not be going into the details on the specific customers is important to note that one of our larger customers. In this group has committed that they will repay our receivable balance.
I wanted to reiterate the fact that we are receiving cash payments from all of our cash basis Lessees and then the majority of them are in some form of restructuring and have expressed the desire to keep our aircraft.
We remain hopeful that the remaining less haynesville emerge from their restructuring in the not too distant future and that we can return to recognizing revenue on an accrual basis.
It remains very difficult to predict the cash collections from these customers and notably the first quarter was more challenging than we expected. However, we continue to believe that this real kind of early recovery will be closely tied to improving passenger traffic and rising ticket sales.
The remaining $37 million is from lease restructuring agreement the majority of which went into effect in 2020, our lease restructurings of our focused on situations, where we believe the merits of the restructurings, including lease extensions and other considerations outweigh the associated adjustments being made.
Seven is the.
The primary driver here is the continue the low operating and transactional related expenses, which continue to remain calm.
[noise] constraints constrained in the current environment.
Well this quarters of the results continue to be impacted by the pandemic, we do see a lot of the of the tunnel. Despite the current stresses in the marketplace. We continue to generate part of the the margins and returns on equity, which would improve as our customers come off cash basis as the world continues to recover from the pandemic.
Turning the capital allocation, we have maintained our dividend policy and our board is extended our share of buyback authorization of $100 million through the end of December of 2021, although we have not repurchase any shares. The date, we continue to look at the best opportunity to generate longterm results for our shareholders by evaluating all of.
Capital deployment options.
Lastly, I want to touch on financing, which continues to provide us a significant edge over our competition. We are dedicated to maintaining an investment great balance sheet utilizing unsecured debt as our primary form of financing and have 23 7 billion you know in the cupboard of assets at quarter and.
We ended the year with of that to equity ratio of two of 0.5 times.
In addition to the senior unsecured note issuances, we completed in January at at a record low 0.7 per cent, we return to the preferred market in February for a second range in the space issuing $300 million of perpetual preferred stock at a rate of 4.65 per cent.
The preferred equity as attractive as of component of our overall funding mix offering favorable rates for long term capital in support of our fleet growth funding diversification and favorable rating agency treatment.
Finally, as just announced the last week, we extended the final maturity of our bank of of all sorts of 2025, an upside the facility by an additional 200 million, bringing our total revolving unsecure line of credit. The 6.4 billion. We continue to anticipate maintaining elevated levels of of liquidity until the broader aviation market recovers and we are.
Well positioned from an opportunistic.
Aircraft investments as opportunities arise.
As mentioned ALC continues to have a robust liquidity position was seven 5 billion of available liquidity at the end of the first quarter and continue to access the and continued access to the investment grade market.
As a way of always kind of of our investment Greg credit ratings are sacrosanct us and you have seen our commitment to the investment grade ratings via how conservatively, if we run our business with that in mind. We are pleased to report that.
In early April S&P reaffirmed our triple B ratings and changed our outlook the stable from negative.
As I shared in the past our balance sheet was originally the design of the sports $6 billion, an aircraft investments annually, and where and we and well above what we anticipate taking in 2021, leaving us plenty of dry powder to explore for the opportunities.
Before I conclude I would like to note that we expect to file a new shelf registration statement in the upcoming days to the new are expiring shelf to declare of this upcoming filing is being made to renew our existing shelf expires unrest you see the rules next week consistent with previous filings the new shuffle, primarily allow us to continue to make opportunistic fond of choices and with that I'll.
The turn the call back over to Mary lives with the question and answer session.
Thank you bring this concludes management's remarks to the question the answer session. We ask each participant to limit their time to one question and one follow up I'd like to now turn the call over to the operator to open up the lines of the Q&A.
And it's telling me of Sweden any questions you Crystal of one tree in question and it started one in our first question concern of.
<unk> Horn put some credit Suisse.
Great. Thank <unk>.
There's just hoping Greg that you could just talk a little bit about whether any of the of six you know of those changes from the the lease restructurings kind of carry into the future quarters. <unk> you mentioned the leases themselves were restructured and 2020 so.
So maybe just kind of give us a little more on the account and get rid of it works and what about the mean for second quarter in the future.
Yeah sure the.
Lease restructurings are basically lease extension of of.
A lower rate.
That shows up in our yield and I would expect that number to to continue on in the future. The cash basis, we anticipate trying to recover as much of that as possible and we don't see that continuing obviously, great number should get smaller as well as time goes by but we definitely intend on recovery.
As much of that cash basis number as possible.
Kind of changed we think about the you know.
The the progression in the second quarter U.
<unk> you know the those lease restructurings are likely to continue but not in the <unk> and then you would expect to have some degree perhaps itself forward Congress kind of eating into those deferred balances is that the you know just like the way to think about it.
I think that's fair.
Thanks, you, obviously, obviously anything can change, but that's that's how we're thinking about it today.
Thank you.
And our niche fishing concern of Kenton O'brien from home in time.
Can you can actually even one of the thanks, so much for the time.
So <unk>.
The questions just wanted to the incremental opportunities out there.
The last quarter of noted that the economics of that Kelly's back not the room preening put this corner can you make any incremental acquisition at least on the L balance sheet.
Or or in the secondary market more broadly is that a reflection of.
Is this sort of a bunch of of changing the market dynamics of any change in your view on the financial recovery of the global airline industry or or something off the play like no I wouldn't read too much as John of Thanksgiving I I wouldn't read too much into [laughter] I'm not the buying additional of a craft for one quarter.
But that's just far too narrow of of time focus we look at this broadly of year to year and every year, we bought the additional incremental aircraft and it's not been every single quarter. We've done. So so I wouldn't make too broad of assumptions about of change in the marketplace et cetera, where we're just very selective on what we buy and add to our balance sheet.
Gotcha tell me, where does the timing of timing of the acquisition and passed any of <unk>. Okay got it and then the interest down on your you know on the high number of aircraft that you have signed up to get delivered him out of your 2022 and 2023 order books could you give us the C O.
<unk> for like what the conversation with the airlines or like you know or.
The the vast majority of the the conversation, they're like beating down your door can't wait to take aircraft are there still any of that are a little bit nervous about taking we're kind of <unk> at at this point or just love some color on bloody totally of those packages are thanks, Yeah <unk> what day is.
The good question I would say that.
If you look at our lease placements of for the remainder of 21 22, two of the first half of 23.
Covers of very broad spectrum, it's almost like Kaleidoscope of airlines. It includes some global.
The network carriers, you know kind of middle care of yours that are among the top 10 airlines of the world.
Includes the smaller regional oriented the airlines that one singled out of their crap.
It includes the transatlantic carrier it includes the Pacific Asian care of Yours.
We have done the number of transactions recently Latin America.
We've done a number of deals and the U S.
So.
It it really covers the wide spectrum of airlines that are basically replacing.
Replacing aircraft the.
That they deem less economic or uneconomic as they look forward.
And I think the vast majority of these placements of.
Or actually upgrading the quality of the airlines suites.
Both of an operational the liability point of view environmental.
Suitable of the point of view and also a lower cost of operating these aircraft in terms of fuel burn and maintenance costs.
And customer appeal.
So.
The the widely diversified customer base that we have and and the fact that we are focused on the most desirable new aircraft.
Is given us this wide swath of of airline customers.
On a global scale, rather than sort of packing and focusing and the only one region of the world.
And this is really gonna carry us very nicely in the coming years, because it's gonna boost-start rental revenues.
Mostly with very stable the airlines.
That have shown a real strength and the recovery cycle out of this pandemic.
And you said like maybe the fourth one quick one in on the on the that's the follow up to most of the question the restructuring of.
<unk>.
The temporary you know based on maybe like some sort of town pile of power by the hour agreement for that all that that's kind of of gonna be stable over the lights of the nieces. Thanks, So much all the time.
We'll try to really of leaking you know of of restructurings take you know a lot of different forms you know we do have restructurings for example, with several carriers, let's say, okay for the remainder of 21.
You can offset your you can lower your lease payments you know X amount of dollars of X amount of per cent, but you extend the lease terms thereafter. So the restructurings were very individually driven they don't always necessarily go out for years and years I've just giving you. One example of of a couple of cases, where we said okay for the rest of this tough year you can.
The cut your payments to us, but we once we want it at the normal rates of the back end. So it's hard to characterize the generally speaking is Greg indicated when we restructure red it's usually because we're taking something less today to get something more tomorrow when the for the form of lease agreements, but I would pause by saying that first.
Ever all of them are you know lowered rents for the next you know.
Three four of 567 years, often times there was a limited period of time, which we're giving breathing room effectively tour line customers in the them. Those in some cases those are the root run the real rates snapback after a certain period of time.
And just to add the John comments, we've had several instances recently.
Where we made some small adjustments and lease rates for a temporary period to our airline customer.
But one of the conditions was the day would also take new incremental aircraft from us.
That will deliver in the future air.
And and so.
You know, we trade it off a little bit of yield on our current.
<unk> fully go with that in the line, but then augmented that with new aircraft.
An attractive yields that will be delivering the next 18 months so.
We we try to create an equilibrium where it's a win win situation for the airline and also.
Provide the elites with longterm cashflows, an additional incremental air correct.
Got it so a lot of interesting thing the ambulance or the fifth thanks, So much of all the time again thanks.
And this question comes from the change pay per from J P. Morgan.
Hey, good afternoon, everybody. So it looks like lease weighed factors for the sort of Commoditized say of leasebacks are already back down you know below the the 0.6 monthly lease rate level. So considering mess you know if there's this flood of capital of going after Sal leasebacks should we assume.
<unk> that you know for early set you know Alaska type transactions are mostly the thing of the past and the vast majority of of your business from here will simply be placing the order book.
Well the Alaska transaction was placing from of order book we.
We played 13, new 737 dash nine.
12 year leases with Alaska and as part of the deal we bought 10 800 twenties.
They inherited some of the Virgin America merger and released the back only on a short term lease only on a short <unk> until they get the leery of the new aircraft. So.
I would not classify that as of classic S. L. B good point yeah.
Oh, Wow I would also add that and the.
You know as we of as we look forward here I made a big point of my prepared remarks about our management business. There are investors out there that are willing to take lower or significantly lower returns. The we might be able to take but we actually harvest an advantage from that because we were able to get.
Management fees, good management fees for the period of that time.
That overall, you know enhance of provide a bit of of of gravy to our overall earnings and revenues and so that's one of the reasons why were coupling a lot of these.
Initiatives with with our management business because there are investors out there at the same time I would say I would stop short of saying it forever more ALC itself is out of the say at least back business. For example of Steve. Just gave you are the private question of an example of where we place additional air.
Aircraft as a result of Alicia restructuring well the same can be said as you see from whenever examples for say at least backs going forward. So.
Therein lies of blend in the art that you know our own order book is very very attractively priced and provides good economics, and maybe mood blend that with some forward least of transactions that although those leaseback transactions of themselves might.
It might be on the lower end as you're talking about the blender deal with our own lease placements is you know well above the line so.
I have a long way of saying that combined with our own business supplementing with the management business that we get fees on that sort of thing and there's a lot of investors that are happy to take the smaller returns we feel like we've maximized our position okay that answers very helpful. I. Appreciate it both of you in second and I'm going to embarrass myself here.
So you know part of my my tax ignorance, but have you seen anything.
In the language of the by didn't proposal that might have any impact on your lease you know I know the proposed changes to you know.
To follow up for you.
To [laughter] you know as we think about adjusted pretax margins.
When things when all of your customers are back in good standing so, let's say one year from now maybe.
Or one and a half years from now with pretax margins be at or above pre pandemic levels.
I think of a lot of that depends on the volumes of sales will be doing to the right. Because we look at the reason we like the margin pretax ROE is because I think it factors in all of the important components of the business the bar cell of the lease the management fees the SG&A lower.
Clearly, we were going to be pushing as hard as possible to get it back to where it was but a lot of it depends on where interest rates are our sales volumes and alike.
Short of giving you guidance as to where we're gonna be I can I'd, probably just leave it there.
Yeah. The one of the other probably not have Helane is that.
Most of the aircrafts that are delivering in the next 36 months that we already pre place.
We're negotiating the lease rates and the economics of those leases were negotiated prior to the pandemic.
Oh, no, it's probably important for wall Street to understand the.
These new deliveries that are taking place are not of distress levels. They were negotiated under fear arm's length.
The structures.
Prior to the pandemic.
A lot of more negotiated in 2018 in 2019, so once these aircraft deliver.
And they are non delivery is as John and Greg mentioned earlier, they will make very very positive contributions to our bottom line in our revenues.
Okay actually thanks, Steve that's actually very helpful.
Thanks, very much okay. Thanks, guys have anything thankfully.
And our next question comes the line of Ron Epstein from Bank of America.
Yeah, Good afternoon, guys Oh Ryan.
How should we think about the third of the customers that haven't even been agreed upon with an accommodation yet I mean.
Yeah, you know kind of where do we go to the two from here.
And kind of following up on Steve's answer the essentially you just gave.
No.
None of the leases that were agreed upon the pre pandemic hubs and revisited by any other customers.
So suddenly hit the first let me hit your first question first of all Brian.
And you made out of caught up and in my remarks, I said that the rate of deferrals and lease restructuring gross has reduced meaningfully.
And that has been the that isn't the case so.
In terms of where do we go from here I'll I can report is what I have reported and that the the pace is really of those requests has decreased I'm sure. We will have some more.
But clearly our you know we have moved into a totally different space than where we were you know six eight months ago nine months ago and of major way. So I just think suffice to say that those of dropped significantly and we're focusing as Greg mentioned now in all of them you know I'm getting a getting repaid.
You know and as it is to the to the forward.
The placement side, you know as Steve indicated, we really have had pretty good pretty but the good consistency and customers living up to their you know pre COVID-19 the lease rate agreements.
I I I am just per.
Policy of myeloma switching my own memory here and just thinking of as much as I can on the spot of.
About where we might have made an adjustment here or there.
And maybe there's there's one or two examples, but but I just can't think of them off the top of my head of.
So so largely I would say you know a stop short of saying every single case.
It gets pretty close to it you know those lease rates of it preserved.
Got it got it and then have you guys had the.
And any of the restructuring is there any of the the short term help you've offered customers how to do anything on that because of utilization basis.
Very limited, we we don't like power by the hour.
We're not a we're not an uber type of operator.
And generally where we've done a modest share you've spoken of PVH powered by the hour we.
We absolutely required a minimum level of utilization or of floor.
Where we're not going to expose ourselves to a pure.
The power by the hour type structure, where there's no guarantee of any fly so.
Even if the airline.
The last and the minimal number of hours required of the lease they have to pay that the number of hours that creates the minimum floor.
I mean, that's just the company Paul.
Got it got it got it that makes sense and then if I if I may just one final one.
You mentioned that you're seeing some lease lease rate strength on the 321 aircrafts I would assume that kind of flow through the ex all of ours to when they start getting delivered.
Do you think you have enough of those I mean, where are you going to need more of that airplane type or something that fits that sort of that segment of the market.
Well look we where are we were of launch customer on the 321 LR Neo we were the launch customer on the XLR Neo and so that you know are by our orders I think you can suffice to say that that's a really core part.
Of our of our order book and so as the industry continues to recover and as we look forward you know as Greg mentioned in his remarks.
It's part of our capital allocation decision and.
You know where.
We will continue the order order aircraft as facts and circumstances and time and capital allocation discipline of <expletive>.
Dave.
But certainly that type has proven to be of very very good aircraft investment for us and I think it's a you know it's it's you can just see it throughout the fleets of the world and the and the popularity of how the 321 Neil in particular has really risen over the last couple of years.
And even accelerating now with the L. R on the XLR.
Okay, great. Thank you.
Yeah.
Especially we have on the line comes from the line of Vincent.
Kent from Stephens.
Hey, Thanks. Good afternoon. Thanks for taking my question. So first question is the follow up on the the.
The restructuring discussion.
So when we think about the deferrals you have now and the the cash accounting.
I guess I'm wondering how to think about that in the terms of restructurings is that sort of like and Avenue, where we should be expecting.
Of the longer lease our.
Lease terms, but maybe a little bit of a discount on the lease rate as you work through the cash accounting and maybe some of the remaining AR deferrals or is there other.
Sort of maybe if you could a discussion of the deferrals and the cash accounting of reaching the resolution what sort of prep plans are.
Greg Yeah, I would expect that as you as time goes on and we'll collect more of that deferred balance right. As we had a great track record in doing so I would expect some of that cash accounting that I'm already getting moved into the deferral of bucket and we repaid over time and to your point with extended lease terms. So I think that's how I see.
We are working out and clearly I think we've made a lot of comments on the call about how we see things and breathing and the world of getting better so as as that happens I would expect that that to the to work itself out.
Okay, Great and then the follow up is on the so certainly a lot of activity and lease placements.
Going forward and it's encouraging to actually hear reactivating some of the some 37 place placements as well as you're having.
The discussions with the airlines and signings or the the lease rates and the lease the lease.
Structures terms, so forth a day coming back to pre pandemic levels of maybe any color you can give us on the things that you're signing going forward. Thank you Steve.
Yeah, I mean, that's a very broad question.
And let me let me put it this way of these would be the 737 situation.
Because of the delayed deliveries of the aircraft in some cases, one and a half years delay.
We have actively and proactively worked with Boeing.
To restructure the economics of our purchase agreements on the 737 so.
To the extent that there may have been some erosion in lease rates.
Oh unplaced a 730 sevens.
Because there hasn't been a reset in the market lease rates of 77 Max's.
We have adjusted our acquisition costs Accordingly.
So that combined with what Greg touched upon earlier is that our average cost of financing has dropped. The example from three 2% of 3% on a portfolio of basis.
Means we're paying less for the aircraft than we would've paid for pre pandemic.
And we're borrowing the debt capital to finance those aircrafts at a lower rate than pre pandemic. So.
Hopefully.
The two are astute management and experience, we can kind of neutralize the whenever you rogier we've had on lease rates.
With lowering the acquisition cost, which then reduces our depreciation expense for many many years to come.
Combined with the reduction in our debt expense. So that's.
That's been the goal of our marketing team.
To find solutions.
Where we can capitalize on the lower acquisition costs and still off of the airlines in the attractive lease proposition.
And let me just add don't forget about the growth of our management business. Those just give us the very nice fees are they're still not huge but these are really nice supplemental earnings of that if you will support. The addition, you know sort of the supports the margin build back and and you know the some of the compression we've had.
We've seen over the past year or so in this pandemic. So just the management business does nothing but add to that.
Great. Thank you and actually maybe a question of on the management business.
Can you talk about how the investor appetite has been maybe for new funds and so forth. It seems like you know interest.
Interest rates had been low for a while it seems like it might still be low for a while and our games.
Gains on sales of other different asset classes have been really strong.
So just kind of wondering how your discussions with your investors who might be interested in that what's sort of the you know what are they looking for the is there more investment opportunity for this management.
Look I think we've got a real I think we've.
Got a pretty a pretty good appetite from investors are as I indicated that we're kicking into gear, our sales platform and I am optimistic that you'll see in the second half of hopefully starting in the third quarter some evidence of that.
You know moving forward there are a lot of investors that want to you know of that want us to manage the and source of aircraft for them and we just you know we just announced it. We're just told you we just.
Added in the new platform. So I think the investors are there are they they continued to be I think bifurcated as to type a we saw the few that are you know looking at end of life aircraft that we don't really have any of that to discuss about our with we have the other.
Alright, which are you know they'll take they'll take a lower lease rates, but they want the better credits and we have the the intermediates, who say no well, we'll take a balanced will take some midlife aircraft lease there's good value. There as airlines are still looking for really a low price attractive of equipment to financially be able themselves out so I.
Say, we have of spectrum there.
But remains to be seen how the how the how the you know that field unfolds, but I feel pretty good overall, we can any of that landscape for the rest of the year.
Yeah, John just to add to that I think the the demand in that space is pretty high and that's being fueled by the the the return of the bank market the.
Seems like there's a lot of bank capital chasing a lot of these guys to provide fan and financings to to buy airplanes I think that market is wide open and.
I think of that works really well for us we're doing more managed vehicles and I think it works really well for us to sell aircraft here.
I think it's that the part very positive dynamic for us.
Great very helpful. Thanks, very much.
And our next question comes from the line of Ross Harvey from Davy.
I all thanks for taking my question in terms of the forward Order book can you comment specifically on the aircraft that you had already placed pre COVID-19.
I'm wondering have you renegotiated the rent on any of those are just to ensure the kind of smoothed. The library are where the airlines where maybe.
You moved the delivery to the right, but you know you might've startup of a positive effect on the lease rates of just keen to understand if there's been any changes on those.
We've had very little delays.
Instigated by the airlines on on the forward deliveries and as.
As I mentioned in my earlier response to another question.
We have we have absolutely limited.
The amount of changes to the speak COVID-19 contracts.
For future deliveries, so we have resisted.
That and we're working with our airline customers to make sure that.
These transactions stay solid and they are what they are.
Okay, great and maybe a more general one if I can so I mean, we obviously the century through the worst of the pandemic and overall you know you've clearly created fairly well through it learn for some of the difficult issue one of running our plant on transactions and sales and whatnot I'm just wondering how does it.
The strategize for the.
Post pandemic fans that are in the aspects of the business that you might look to of just in terms of maybe aircraft sourcing are you know the size of the management platforms or you know all of you obtain obtained some of the das or strike lease agreements just anything that has come up with something that you might look the change in the future of based on the experience of this and then well let me just jump in to answer the.
Net write off.
Look I.
The industry has been going through a virtue of all the time, but.
You know frankly, I mean, not the Pat ourselves on the back but it's been the very platform. The we've devised in developed since we started this company that has let us through this and if anything I.
I would say it underscores exactly that we've done much more right than we've done wrong and so we don't foresee any any major changes to our playbook us or.
How we finance ourselves, though we've just you know we just enjoyed some of the cheapest financing we've ever gotten as a company and had a negative outlook removed by S&P. So from the from the selection of the aircraft types that we have we want as we mentioned we're launch customers for the 321 of the Lauren ex all of our other aircraft types I mean, it's by this.
Every engineering that we think we bandwidth the weather pretty through so why change it.
I mean, I just wanted to echo of John It of the the.
Clear demonstration of our asset quality.
As compared to our peers is that we've had no impairments or write downs.
Of our aircraft.
The company started in 2010 11 years ago.
So you can compare that to our peers.
And you get a vastly different resolved so.
I think management has navigated through this crisis.
Because of the foundations for our successful late long before the pandemic started.
So relative to other lessors I think we've had to make fewer adjustments to our game plan.
Yeah.
Yeah.
I might.
Just wait till the third if I may because.
Because you mentioned the peers and I'm just wondering one of your peers mentioned that day, we're looking to guess, possibly 60 to 70 per cent of the.
Cash accounting effect reversed that they might recover that medium term I'm. Just wondering is that a good starting point when we think about you.
Or are you know given given what you've seen so far do you expect to reach you and maybe more than that.
I think of this time at this you know, we're just finishing the announcing our first quarter I think that's a bit premature I mean.
To give even a more optimistic number but but you know we're conservative by nature and I, just think we need to see that unfold.
Chris Thank.
Thank you.
And last question, we have in cash as customer line of Krish <unk>.
From Deutsche Bank.
Hey, Good afternoon, guys, you mentioned, you're beginning to see the lease rates rebounding from the Airbus age of 21, New York how did those.
Per the lakefront bought the demands of the of craft compare to what you were seeing pre pandemic and is there any read through to extrapolate the trend out of the aircraft types as well or something that's the eight to 'twenty one model.
Steve.
I think we just pointed to the H B 21, Neo as an example.
On the aircraft type and the gain popularity.
So two reasons one it was.
Its an airplane that fits into the airline demand.
Picture very well in terms of size performance the operating costs.
But we don't want to say that the 821 as.
At this level of everything else is at a different level I just I think we just use the 80 20 as an example.
Of how and the asset side has performed quite well to the some of the pandemic.
But we have other aircraft types.
You know atria fifties.
737, eight hundreds are 80 20 in April of 'twenty, one Ceos, which generally are younger than than many of the other lessors.
It actually performed very well and continue to perform very well.
So as I said, we just use the 80 to 121 neo is sort of a.
An example of an asset that has performed very well, but that's not to the meet the other assets that we have.
That of performed well.
You know our focus on the on the smaller and medium sized wide bodies.
<unk> has been a real positive.
You know we have a strong presence in the age of 50 market.
In the 787 Dash 977 Dash 10 marketplace.
We don't have any more 770 sevens on the water.
So I think even though of wide body fleet is very well positioned.
And and well placed with a diversified group of customers.
And as I said earlier, we're doing everything we can to preserve.
The commercial terms that we bargained for with our airline customers.
Yep Okay.
Makes sense and then I guess what are the factors that would lead you to go back to the Oems and add to the order book and I guess to add to that what is if you were to go to do that what's kind of the timing of delivery slots that might look most attractive to you right now.
Well I think we've said several times. This is a matter of capital allocation and that's something we look at every single quarter.
You know a quite of bit look at it. It's a balance between you know how much we've already got placed of order book were well over half of the order book has already placed how we see the recovery trends and there's still some uncertainty in that in that regard.
We're keeping an eye on certain customers that would be natural recipients of Ford order book to make sure. They get on okay. So it's a little premature to say you know we're gonna of body aircraft next quarter of the other in many ways. There's no difference pre pandemic, we buy aircraft at the time and the pricing and the place that we think is right.
And so you know.
It's also safe to say that these conversations are part of our normal monthly weekly dialogue with the manufacturers and all I can tell you is as we've always done when the time is right we.
We will do so but you know I think it's fair to say, we've also been a very conservative company.
And our ratings are reflect that so we will just be a probably a bit more cautious looking forward to make sure that the pandemic recovery is on the track that we think it is.
But we're not adverse to ordering aircraft at any particular time, if we think the pricing and the terms of it right.
Great. Thanks, a lot for the trend is.
And at this time there are no more questions in queue I'd like to turn it back over to Mary Liz Depalma.
Okay. Thank you everyone that concludes our call for today and we look forward to speaking with you again after the conclusion of the second quarter operator. Thank you. So much of it you can now disconnect the line.
This does conclude today's conference call you may now disconnect.