Q2 2021 Air Lease Corp Earnings Call
[music].
Good day, ladies and gentlemen, and welcome to the Air lease Q2, 2021earnings conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
And 1 should require assistance during the conference. Please press Star then zero on your Touchtone telephone as a reminder of this conference call is being recorded.
I would now like to turn the conference are worthy of your host Ms. Mary Liz Depalma head of Investor Relations. Please go ahead Madam.
Hello, everyone and welcome to Air lease Corporation's earnings call for the second quarter of 2021. This is Mary Liz Depalma and I'm joined this afternoon by Steve Hazy, Our executive Chairman, John <unk>, Our Chief Executive Officer, and President and Greg Willis, Our executive Vice President and Chief Financial Officer earlier today, we published our reserve.
For the second quarter of 2000, and 'twenty, 1 and a 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 August 5th 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. Before we begin. Please note that certain statements in this conference call, including certain answers to your questions are forward looking statements within the meaning of the private Securities Litigation Reform Act. This includes without limitation statements regarding our future operations and performance revenues.
Operating expenses stock based compensation expense and other income and expense items B.
These statements and any projections as to the Companys future performance represent management's estimates for future results and speak only as of today August 5.2021. These estimates involve risks and uncertainties that could cause actual results to differ materially from expectations. Please refer to our filings with the securities and Exchange Commission for a more detailed description of <unk>.
Risk factors that may.
Affect our results air.
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 using during the call such as adjusted net income before income taxes adjusted diluted earnings per share before income taxes and adjusted pretax return on equity are non-GAAP measures.
A description of our reasons for utilizing these non-GAAP measures as well as our definition of them and the reconciliation to corresponding GAAP measures can be found on the earnings release and 10-Q, we issued today.
This release can be found and both the investors and press 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>.
Well, Thanks, Mary Liz and good afternoon, everyone and thank you for joining us.
Since our last call with you and the recovery of Air travel has varied significantly by geography based on the status of the pandemic and each location vaccine and availability and travel restrictions.
And many parts of the world like the U S China, Russia parts of Europe, and Mexico, We're pleased to see the travel by Air has been reinvigorated by passengers who are eager to fly thanks to the vaccine rollout removal of travel restrictions and the reopening of certain international borders and.
And other countries, including many in Asia, they remain headwinds to recovery with lower vaccination rates and more of aversion to opening borders.
Overall, given the Delta variant surge, we intend on for you to hear from US today as always our balance view on this and state of the industry.
Our optimism is rooted by the rebound and air travel, we've all seen and of conversations we have with our airline customers, where and who are adjusting to and planning for ongoing revival of passenger traffic.
At the same time, given COVID-19, complexities and uncertainties, which vary by country. We are realistic that we do have airline customers continuing to struggle with the most prolonged downturn and our industry's history and that has continued to impact our results.
For the second quarter of 2021, we're reporting $492 million and total revenues and diluted EPS of <unk> 75 cents, a share down, 6% and 41% respectively compared to the prior year's second quarter, which for the most part with a pre pandemic quarter.
Our results this quarter were primarily impacted by approximately $87 million of rental revenues, we did not recognize in the quarter due to cash versus accrual basis revenue recognition and lease restructurings.
I'll discuss this more on momentarily.
While we took delivery of about $1 billion and new aircraft and the second quarter.
<unk> was 200 millions of less than we originally anticipated and 50% of those deliveries took place in the month of June providing of minimal contribution to the full quarter, but providing long term rental contribution thereafter.
We're pleased that our collection rate improved and the second quarter to 87 per cent as compared to 84 per cent and the first quarter and our lease utilization rate was strong at 99.7 per cent.
And importantly, our net deferrals balance continues to decline to a $115 million today as of today from 131 million as of early May when we last spoke with now more than half of the deferrals granted to date, having been repaid.
The decline and our deferrals balance contributed to the increase and our operating cash flow, which is up nearly 30% for the first 6 months of 2021 versus 2020.
Now I'll kind of highlighted earlier revenues were impacted by $87 million from cash basis of accounting and lease restructuring of agreements.
And $42 million of this quarter came from less sees on a cash basis, where the lease receivables exceed the security package and collection was not reasonably assured it's.
It's important to note that approximately 2 thirds of the $42 million is attributable to 1 customer Vietnam Airlines, where we have 12 young <unk> hundred 21, Ninos and 477 turns on lease with 1 of those nios are being owned by 1 of our management vehicles.
Yeah.
While we did receive of subsequent payment from Vietnam and July we expect reduced level of rental payments to continue during 2021 as we work through these matters with the airline.
We believe the country of Vietnam, and the airline and have a bright future. Despite the significant impacts the pandemic has had on them to date and that isn't the best long term interest of ALC.
And for Us to continue working with the airline towards payment and resolution.
The remaining $45 million of the 87 million was related to lease restructurings and.
As I said and my initial comments the recovery and health of our airline customers vary significantly by country and region and as such we expect that we may need to continue working with our airline customers on accommodation requests including restructurings.
However, as I told you last quarter the frequency of these requests is declining meaningfully.
We're very pleased to report that on the second quarter, we successfully sold our unsecured claim and the aeromexico bankruptcy.
Now Greg will elaborate further on this in his remarks.
But consistent with the original expectations, we shared with you months ago are of 737, and 700 and Seven's remain at Aeromexico as these young aircraft combined the backbone of the airline fleet and in fact, we have 3 more 737 day Dash Nines, you have to go and future delivery to air Mexico.
As in this case with others and many and our customer profile our relationship with the airline and modern aircraft that they have on lease from ALC remains a key differentiator.
Our lease placements remained strong with 90% of 93 per cent excuse me of our order book placed on long term leases for aircraft delivering through 2022, and 80% through 2023, and our order positions continue to position us very well for the future.
I want to remind all of you that ALC has $27.1 billion and rate on commitments on our current fleet and forward order book placements.
We're having robust discussions with our airline customers on new aircraft placements, specifically, we've seen increased interest and our new single aisle aircraft, including day for 21, new and now placements of our 800 Twenty's.
In addition, we're seeing additional demand for the Max and in fact have re institute of previously canceled Max aircraft for a few of our customers.
And importantly lease rates for new single aisles are showing improvements many of you probably read and fact about the European Green deal Legislative package of known as quote fit for 55, and quote which aims to cut 2030 net greenhouse gas emissions by 55 per cent compared to 1990 led.
<unk>.
And important proposal within this package is the integration of advanced sustainable aviation fuels, which can reduce emissions by up to 80% as compared to a trajectory of traditional jet fuel.
Our young modern aircraft are equipped to handle sustainable aviation fuels and when combined with the benefits already achieved by operating new aircrafts, including lower maintenance costs, and lower fuel burn and lower Nox emissions smaller noise footprint. These elements only further aid and airlines business case to operate a young modern aircraft like those and.
Our fleet and order book.
Looking ahead, although we have OEM contractual commitments to take delivery of 52 aircraft and the second half of 2021, you're all aware of Boeing's delivery pause on the 787.
As the commitment table and our 10-Q shows we were scheduled to take delivery of 10 and 787 through the end of the year.
It is unclear at this juncture, how many 787 and we will take for the remainder of this year.
But our best estimate today is approximately 3 of these aircraft.
Furthermore, we have recently been notified by Airbus of some slippage and our <unk> hundred 21, neo deliveries attributable to COVID-19 or supply chain issues.
Given these OEM delays, we currently expect to take delivery of approximately 36 aircraft out of the 52 contracted aircraft Scream and.
And that translates to approximately $1 billion of deliveries to occur in the third quarter and $1.6 billion to occur in the fourth quarter of 2021.
Given these OEM delivery delays, we will significantly scaled back our aircraft sales of the remainder of this year and possibly into early 2022 and.
And for our growth and to help fill the shortfall and aircraft investments, we see the current environment continuing to favor buying attractive assets versus selling them.
I wanted to and my commitment of comments as I began by saying that we are encouraged by the resurgence and air travel occurring.
Throughout many parts of the World and believe the aviation industry is well set for ongoing recovery.
We will continue to work through any customer challenges, which are to be expected given that the delta variant and may temporarily dampened or prolonged recovery and many countries are still battling through this pandemic. However, we strongly and maintain our long term view that international air traffic will follow the lead we've seen from domestic travel recovery.
And that over time global Air travel will recover back to levels witnessed pre pandemic driven by the need and desire of people to travel around the world.
Reflecting this continued confidence of our board of directors of declared another dividend of <unk> 16 cents per share for the second quarter of 2021.
With that let me turn the call over to Steve Halsey for additional commentary Steve.
John Thank you very much.
We're all encouraged by what we've witnessed over the last several months.
Which indicate that the traveling public eager to get back in the air once they feel safe.
And they are allowed to do so with minimum limitations.
And we look around the world there seems to be very much of a 2 tier and recovery.
The first is in the developed versus emerging markets.
With countries and regions with the highest income getting vaccinated as of.
Much of 30 times faster and those with the low income brackets.
And the vaccination rates across the globe increase.
Steve we should see a steady reopening of air travel.
IATA has cited research and medical organizations around the world.
Which has shown that vaccinated travelers.
And as less risk and local populations.
And data shows that the flight testing.
And help reduce risks associated with on vaccinated travelers.
And of study also conducted by out of IATA.
85% of the respondents agreed and some regard that day.
Not travel if there's a chance of quarantine and their destination.
Yet at the same time, 86% said.
And we're willing to undergo COVID-19 test.
Part of the overall travel process.
So to the extent of government and Furthermore, has broad border closures and quarantine.
And allow vaccinated travelers or those with a negative cash.
This could significantly benefit of further rebound and air travel.
We are hopeful that increase vaccination rates and key markets will ultimately drive reopening and other locations.
Even if the vaccination rates in those areas of lower entered the most developed countries.
The second recovery tier is domestic versus international travel with.
And with domestic travel improving more quickly and.
And international travel growth is lagging.
Domestic travel and certainly been afforded the opportunity of late to capture demand net international travel is not as many travel restrictions remain in place.
And we have seen proof of that and the latest travel data for the last 2 or 3 months.
But I add of latest needs for June 2021 traffic industry wide domestic RP case were down only 22% as compared to June of 2019.
Whereas international they were down 81% versus June of 2019.
If we look at even more information from euro of control.
Same trend exists.
Example, and the United States 1 of the most recently reported weak U S. Domestic passenger airline departures were down only 18% as compared to 2019 levels.
International was down 37%.
Similarly, and China domestic traffic recorded an increase of 7% of.
Above January 2020 level.
International flights were suppressed.
At nearly 70% below January 2020 levels.
And Europe domestic demand and is driving share volumes within countries.
Including Spain, France, and several others.
Obviously, we're eager to see how the progress.
As of summer comes down and will develop and we would be naive to think that recovery will not continue to go on waves, depending on the evolution of Covid variance and.
And government policies impacting the openings and.
However, these data points and reinforce our views that there is significant pent up demand for air travel seen by of domestic travel recovery.
For the year 2019.
Global scheduled airline passengers with over 4 billion, 1 way trips and.
And I and a forecast that by the end of 'twenty, 3 we should be or could be at 105% of 2019 levels.
We believe that the rebound of passenger traffic.
And ultimately be driven by continued vaccine rollout and.
And the <unk>.
Continuous removal of travel barriers.
And that we could see this forecast and ultimately surpass and perhaps even more quickly.
Our airline customers are witnessing the same trends as we are and as a result, we are having productive discussions with them on new lease placements and our deliveries are ongoing and the second quarter, we delivered new single out of 737, and <unk> hundred 2021, Neo aircraft and Europe.
And Italy, and Latin America and.
And new wide body aircraft, and China, Europe, and the United States.
We also continue to place used aircraft for example from our press releases you saw the recent lease placement of 10 young <unk> hundred 20 aircraft with a Legion of Airlines 1 of the most successful UFC see carriers.
These of the aircraft, we agreed to purchase from Alaska Airlines.
And we placed a new Max aircraft contract with Alaska and.
And late 2020, we lease them back to Alaska, and these young 18 twenties will become a meaningful component of Allegiant sleep.
And 2022 and 2023.
Airlines are continuing to choose to operate younger aircraft.
Those and Alc's fleet.
And delivering from on order.
In fact as of the end of June industry information indicate.
88%.
And repeat 88% of the aircrafts under the age of 5 years, we're back in service and.
And 78% of aircraft and the age range of 5 to 15 years old where service.
The only 63 per cent of aircraft over the age of 15, we're back and service.
As John mentioned earlier with sustainability initiatives.
Front and center, we believe operations of modern fuel efficient aircraft and well continue to be the trend on a global scale.
You are seeing this with announcements from airlines throughout the world.
And of the Airlines recently placed an order of over 270, Boeing Max and the Airbus <unk> hundred 21, new aircraft, which will replace older aircraft and their fleet.
And lead to significant improvement and fuel efficiency.
Duction and carbon emissions as they strive to reduce greenhouse gas emissions, 100% by 2050.
You have also seen similar announcements on the tackling of sustainability initiatives.
By the utilization of purchase of new aircraft from airlines, including Korean Airlines, which committed to reducing greenhouse.
And of gas by introducing new generation of aircraft like the 787 bashed and.
Korean has a number of 77 to 10 aircraft delivering from ALC over the next several years.
Alaska Airlines also recently placed of direct order for a substantial number of new 787, aircrafts and achieve better fuel efficiency and the airlines all of the leasing 13, New 787 Dash 9 Max aircrafts from ALC with deliveries beginning of the fourth quarter of this year.
While it depends it may cause some degree temporarily overshadowed the industry's commitment to advancing sustainability initiatives.
And it's still very much and a forefront in the minds of our airline customers.
Making of our young fleet and order book of modern technology aircraft.
Even more critically needed than ever before.
I believe overtime of our industry will continue to evolve tackle the critical changes, we'll need in terms of fleet modernization and.
And for structure of investment et cetera.
Better our environmental footprint lower aircraft operating costs and increased overall operating efficiency.
And with that I will turn the call over to Greg Willis, our CFO to provide more detail on the financial results from the second quarter of 2021.
Thank you, Steve and good afternoon, everyone I want to expand on the details underlying our financial results from the second quarter and I would like to remind everyone that for comparative purposes and <unk>.
<unk> quarter of last year was not fully impacted by the pandemic.
Over the past year. Despite the pandemic, we have made over $3 billion of aircraft investment, which has benefited our revenue line.
However, as John mentioned revenues in the quarter were negatively impacted by $87 million from lease restructuring agreements and cash basis of accounting.
Of which 42 million came from lessees on and cash basis. This compares to $49 million and the first quarter and $21 million and fourth quarter of last year.
Hopefully, we will have a favorable resolution with Vietnam and other cash basis less of these by the end of the year, but until then we expect that our cash basis numbers will remain under pressure.
And so all of them are cash basis lots of these represented 10, 9%. The net book value of our fleet as of June 30, which compares to 15, 3% and the first quarter of 'twenty, 1 with improvement stemming from a resolution and we reached with aeromexico.
I think it's important to expand upon John's commentary on the sale of our aeromexico of bankruptcy client sales represent a full recovery of our past due receivables. So while our earnings were negatively impacted and prior period, we were able to recoup these losses through the sale is important to note that not all situations will end and as a result, but we were pleased with it.
Outcome.
Additionally, I want to highlight of our rationale behind keeping customers on cash accounting instead of rushing to enter into a restructuring agreement.
The earnings impact in a given quarter would be reduced it's simply.
If we simply accepted a lower restructured lease rate and returned to accrual accounting, but that would typically kind of on the cost of lower economic returns over the life of the new agreement, we prefer to negotiate rather than to settle which we believe gives us a better chance at a higher financial outcome and the restructuring process.
But this typically takes more time, so on cash accounting has been and meaningful drag and resolved we are and in fact, taking short term pain for long term gain and preserving economic returns and maximizing shareholder value.
Turning to restructurings as John mentioned kind of revenue negatively impacted by $45 million and second quarter much of which was attributable to restructuring that took place in prior quarters.
Finally as of today, our total deferral net of repayments, our $115 million, which is a <unk> 12 per cent decline from 131 million, we reported on our last call.
Prepayment activity has continued with the total repayments aggregating $127 million or 52 per cent of the gross deferrals granted.
These receipts of reflected in our operating cash flow, which has increased significantly and reflects the continued recovery of our airline customers.
Looking at aircraft sales trading and other activity, you'll recall that we were that we noted that we are not going to sell any aircraft and the second quarter. This compares to 18 and of half a million and gains recognized from the sale of 4 aircraft and repurchases of 185 million and short term debt maturities and below par and of second quarter of 2020.
Turning to expenses interest expense increased year over year, primarily due to the rise and our average debt balances driven primarily by the growth of our fleet, partially offset by the decline of composite cost of funds. Our composite rate decrease of 2.9% from 3.2 per cent and second quarter of 2020 depreciation continues to drive.
The growth of our fleet, while SG&A remained largely flat as compared to last year.
Overall, I think it's important to note that despite the continued challenges we are generating positive margins and returns on equity, which should in principle of our customers come off cash accounting as the world continues to recover from the pandemic.
And I want to touch on financing, which continues to provide us a significant competitive advantage over our peers. We are dedicated to maintaining investment grade balance sheet utilizing unsecured debt as a primary source of financing and have over 24 billion and unencumbered assets at quarter and we ended the period with a debt to equity ratio of 2 and a half.
And so on a GAAP basis.
We raised $1 billion and debt capital during the second quarter, beginning with a $1.2 billion senior unsecured issuance at 1.87, and 5%, which represents a record level for our company for a 5 year issuance. Additionally, we raised another 600 million of floating rate senior unsecured notes at LIBOR plus.
And 35 basis points, which represented another record low for ALC, we anticipate maintaining elevated levels of liquidity until the broader aviation market recovers and with that I'll turn the call back over and Mary Liz for the question and answer session of the call.
Thank you Greg. This concludes management's remarks for the question and answer session. We ask each participant to limit their time to 1 question and 1 follow up now I'd like to turn the call over to the operator to open the line for the Q&A session.
Thank you ladies and gentlemen, if you have a question at this time. Please press. The Star then the number 1 key on your Touchtone telephone is your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
Yeah.
Our first question, we have Catherine O'brien from Goldman Sachs. Your line is open.
Hey, good afternoon, everyone and thanks for the time I E.
So I don't want and Misquote, you, but John I think you said you think it's still a buyer's market out there as opposed to a seller's market for aircraft.
And what are you seeing and most attractive opportunities to acquire additional aircraft and I'm guessing with the OEM delays. They don't have any open positions, but correct me if I'm wrong, so would it be silly back or second day, Mark and it and if so you know.
And which market was better today, and and and how aggressive might you be just given you've rolled and delayed. Thank you yeah sure well, you've seen and so I think and many quarters in the past by incremental aircraft and were continued on the lookout to do that where have some good prospecting opportunities as we as we see it as we as we sit here today.
And I think you'll see more announcements from us from us on that and over the coming quarter to 2 quarters on the OEM side, Yes, we continue to work with both manufacturers I'm not a whole lot of product available or sitting on the shelf with Airbus on the single aisle.
No actually the same from a from the Boeing company they've managed to sell most of their 737 are available and Max inventory.
And that's been good but let me let me go back to a comment about it's a better time to buy and sell them.
We have so many people coming to us Katy that want to buy our young aircraft that are on long leases with good credits, we are of a ton of people coming to do that.
But that's also the core of our growth and our and our and our earnings in fact, you know we.
We have far more demand than.
And then we could even service if we wanted to.
But on the other hand, given these delivery delays and and and and therefore less aircraft investment. We really are making this conscious decision we'd rather keep these good assets and sell them at this time, we need to grow our asset base instead of reduce it.
And so you know we've made that decision I think it's the right decision for the company and it is still a good time to buy aircraft I think there's good deals still to be had.
But I want to be clear, we could sell aircraft quite easily if we wanted to but for the reasons I have just set forth, we're gonna hold on and they're great, earning assets and we we need that for our growth.
Okay, maybe on a mix of market conditions, and then also managing ongoing earnings versus you know sort of air and gain yep. Okay got it and then you know in terms of lease renegotiation and.
You know her and the comment that the request for those are slowing and frequency what inning would you say ever and a crusher flea and has the delta there and change your view on on what like what inning. We're in favor of a couple of months ago and terms of the time, Dave you and take that.
Yeah, I don't think we've received any specific lease restructurings of lease deferrals, because the delta or any other variant.
I think what we're seeing basic lease airlines are looking at their revenue flows.
As compared to what they were projecting a few months ago and and cases.
Where they feel the recovery is slower.
And there at least trying to just stay on operating expenses.
Since we have the youngest planes and their fleets and most of the time.
What kind of the last lessor that they approach.
Because obviously the goal of that can reduce the expenses on the aircraft that are less desirable and admire cost of operating and maintenance of fuel.
Landing fees over flight charges and so on so.
We're not really seeing deferral request as much as we did last year.
And that's been coming down papering since the.
The fourth quarter of last year.
And I think airlines have done a better job of adjusting to these new realities.
Laid off employees furloughed employees, they've got and government support they really just did their infrastructure. So.
Airlines and made a lot of progress and the last 18 months to kind of re adapt their business model.
And so consequently, because of the quality of our fleet the relationships that we have with the airline customers.
Greg was making.
With our customer requests is you know, we just don't I, a customer and it comes to US and said hey, when he'd Lord of lease rates and we don't just rollover tomorrow and say Okay. Here you go.
We know that our aircraft are flying 1 of the first things. We do is we look at our utilization of our our airplanes flying and if so how much and.
And that gives us a very good idea of how much and how dependent the airline is with our aircraft. So.
We try and approach of first from a deferral point of view and say, Hey look and we'll give you a little break will reduce your lease payments, so much or X per cent for a period of time, but you pay it back that's always our first stab we're not so easy on on the restructurings.
But having said that Ah and because it's usually easier to to keep the original lease and if you do deferral you still keep your original lease and preserve those economics and any of any of the greatest point was but.
Where do we do have to do restructurings, yes, we we do link and that the lease term and we try we don't always get but we try and get overtime.
Ah and equivalent economic.
[noise] recapture as the aircraft Depreciates every year every year and we try and get an equivalent result, but but as you can imagine with lower lease payments over a longer period of time of the present value of that is less so that's basically how we look at it.
Okay, that's cute.
Greg and made that comment and his and his remarks, so but generally speaking I think we it's you know airlines going into bankruptcy and restructuring is not new just of this pandemic. We've seen this over decades, and and our business and certainly the pandemic has accelerated it but I think we know how to manage.
This process and and in the case of Air Mexico, We were able to you know good of nice a nice payout from that claim but there's really nothing on the horizon that I can point to that just says well, we're gonna get X claims from X and a number of customers because most of them. You know really are the ones that of entered into bankruptcy or.
And bankruptcy, we have a few smaller ones very smaller ones like air Mauritius, they've been and bankruptcy for awhile, but there's really nothing imminent on the horizon that we're aware of of today and.
I think John and just to add a little bits of that the reason why we don't have that many bankruptcy claims that were working right and how is that we we didn't miss a majority of the world's bankruptcies. So a lot of the other major trouble of situations that other people are selling off because they had exposure. There. So I think we did pretty well from my credit and underwriting perspective missing a lot of those large ones I mean, we weren't perfect.
And and we were able to.
Monetize are are aeromexico claim but outside of selling bankruptcy of claims our team is working really hard on collecting on those cash basis numbers and over time, and hopefully we'll be able to recoup a good portion of that wrong able to say what percentage of the way going to be able to recoup but believe me that that's a very.
[noise], Hi focus point for our team in terms of.
Working with our customers and figuring out ways to collect them on those pasty balances.
Very helpful. Thanks, so much.
And next question is from Hillary Fernando from day Tibet Your line of Hilton.
Hillary came and on your leg is open ma'am.
Going back and neck.
Got him to your next question, we have most of our and Buck from kind of please your line is open.
Great. Thanks, maybe just to follow up on.
On the prior question.
Yeah, I think obviously 3 categories of where your income has been impacted and.
And income of or cash flow has it been impacted and some way of over the course of the pandemic and differ.
<unk> there it seems like that's.
Kind of May of coming back to you so it's becoming of cash flow positive.
And the cash basis Ooh.
Loans.
John and you had said that you did receive a partial payment from Vietnam. During July so a is it reasonable to think that that's going to.
B, a reduced to drag and the future or is there something that I'm missing there.
[noise] well look it's hard to predict where the outcome will be with Vietnam I. We thought it was important to point out we in fact did get a payment on July.
But you know this is an airline that's owned by the government and.
And at this point in time, if you just look at the flight statistics for Vietnam, all of the carriers and Vietnam from Vietnam Airlines, Viet yet bamboo and others basically stopped flying for the most part and June.
And so that cut off their their cash flow and so they you know the function of house and how we can work. This out with Vietnam is very much also tied to their governmental support.
And the the government has just announced of 350 million dollar intended equity injection into the airline and that has to go and service a lot of their deaths and that sort of thing so being 100 per cent of government owned really we are at a pace that really comes down to there.
Government funding and.
And that is still a bit of and unknown yet so it's.
It's just really hard and and I'm trying to evade of I. Just don't know most of I. Just don't know, we're having you know ongoing discussions but.
They need help from their government and we have been assured that the government is working hard with them.
To satisfy their obligations, but frankly, it will just come down to when and if that wasn't that funny comes through the timing of that funding and and how much and how much is allocated to the various different creditors. It's really hard sit here today and it predicted looking forward, but I do say this I look on airplanes of young they've.
Told us over and over that they very much need these aircraft and they view this shut down for Covid as a temporary phenomenon. Their government for example has issued a statistics.
Statistics statistics, saying that by the end of the year. They estimate almost 70 per cent of their population.
To be vaccinated, that's their governments estimate not ours. So we can't tell you to look at these things and monitor it. It's just really hard to give you a prediction.
Okay and and.
And then just to follow up on the restructurings cause I'm still a little bit and and clear on this so you had mentioned that there are fewer requests but the balance has increased so what is the process for that 45 million dollar.
Balance to actually turn around and it starts to decline.
And the fact that you know.
How should we actually be kind of think about that Greg.
Yeah I mean.
A lot of of it.
Working through things with the airlines are a lot of it and I I would point to Steven John comments about west slowing clearly with Vietnam on right, but Greg and you said the request slowed but there's that number is a bigger number and Q too and it wasn't coupons. So I guess, that's that's what I'm trying to understand it is it that they're they're a step up and to lease.
Says and the lease factors, what what what is the factor that causes that number and it turned around and and.
Organization of timing of Wendy's restructurings go into play some of them went into effect at the very end of the quarter and of like.
So most of the let me just jump in here and also add that on the restructuring sides and we also have to them and when we say we have less frequency. We do we have less airlines coming to us, but part of that restructuring them out is also depending on how many airplanes. We have 2 of restructure with that airline. So if the number of goes up usually of restructuring amounts of of large.
Or they have to do with larger sometimes of widebody aircraft and sometimes they're they're more Erica aircraft and we say with the rate of frequency is reducing we're talking about from are from individual customers. The actual number itself is much more dependent upon how many airplanes were restructuring of type how big they are how expensive they are and that sort of thing so I think that.
The best way to think of it we are experiencing that would've been and that would probably have been better and information to have that for us I think okay, well anyway. We've told you know and and that's really the best way to think of it. So in summary, we're having less requests from the airlines, but the number of could go up or down and went up a little bit just based upon.
Simply the amount of aircraft and we might be dealing with of restructure and the capital value of those aircraft.
Yeah, but keep in mind that day [noise] 45 million is 2 per cent of our annual revenues. So.
Let's keep that in perspective.
And our next question, we have and Kaney Baker from J P. Morgan Your line is open.
[noise] Hello Air at least came with Mark Street or actually with Jamie He's on the line internationally. So I just wanted to make sure. We got a question and then.
John and Steve Cutter, and now that they're grounding there a 350 fleet due to fuselage degradation degradation.
Degradation and can I say that correctly. So I'm just wondering what your view is on this breaking news in terms of of your relationship with them and I don't know if you have any of your 8.3 fifty's with them or just your thoughts on the a 350 and general is there something we should be concerned about.
And we don't know how do I and he said it wrong with them and.
And the headlines would be he's of laws renegotiation with air Bud.
So mark just from a technical perspective, if you read through the concern that they have expressed has to do with painting and the how that you know how the paint is I don't know, it's degrading I guess over time, which leads them to be concerned about some kind of structural elements.
And we have no way 3 fifty's on lease there [noise].
But you know this we have not seen this concern shared by any other air worthiness of 3 or a bunch of any other airline nor has airline nor has Airbus told us or that there's any.
Reason for concern there so they have their I'm not minimizing what they're saying I'm just saying we have not heard this from anybody else. We've not of her from Airbus. We've got hurt hurt it from any other aviation authorities and.
And I don't know the basis for it so I really can't comment further but this is of new development and we'll just have to see what other aviation authorities and 1 of these back air Bud says.
Okay, Great and then just a little bit more air lease specific here and I'm just wonder if we can take a step back and think about sort of lessons learned from the pandemic and how things of played out the last year and a half or so I mean, clearly you know Greg talked about this your balance sheet strategy gave you a competitive advantage.
Having a higher credit rating and unencumbered portfolio that was something that you know was clearly you know the market valued and and you valued I'm just sort of wondering about some of the single aisle versus twin aisle mix and I know that you're more exposed to 20 hours. Today. Then you wanted to be because of the production delays, but I'm really trying to take of this.
Be corrected as we go forward.
Because of the great majority of our foreign orders are single aisle, we have contractual ability to convert some wide body orders to single aisle and we will utilize those rights.
And going forward, obviously, we're going to make corrections in the and the ratio.
And our goal of long term is to be around 20% to 25%.
Wide body and the remainder of single aisle.
But remember that many of our best customers as I mentioned earlier lease both single aisle and wide body aircraft from us.
And our ability to to have loyalty from those customers and to penetrate markets.
It's very much dependent on our ability to offer a wide array of aircraft types.
Great. Thanks very much.
You're welcome.
Our next question is from Mark Devries from Barclays. Your line is open.
Yeah. Thanks, Yeah. It seems like this has been a particularly bad year for some of the more visible destructive impacts of global warming.
So my question is how are you thinking about that.
<unk> ability with some of these emissions reduction targets get pulled forward and normal replacement cycles or accelerated among your customers.
Well look I think that's I mean, that's a good question but.
Keep in mind airlines have to operate and.
Daily Weekly monthly and years ahead of time.
The the goals can be moved forward.
But if they can't be met what's the consequence.
So I think the industry overall, and particularly IATA has been very good about setting timetables that are achievable aggressive, but achievable and it can be done. It's 1 thing to say well, let's just advance. This goal I don't know what that might be any goal you want by 5 years for 3 years that's a.
Great and nice sounding thing to say it resonates politically people like to hear it all good.
But if the industry.
Cannot achieve it if the OEM manufacturers can't can't get there.
There's there's gonna be a result that that goal of gets moved back or it's not compliant.
I think the the aspirational goal setting is 1 thing, but actually achieving and meeting it is much more difficult and I think of that we are in an environment, where these goals is very popular to set these goals. It's very popular to have these programs and my popular I'm not trying to demean. It I'm, saying these are important R. R.
Planet is under a you know a huge environmental threat.
And your hey come on.
So can you give us some more color on what's going on with 787.
Sure well.
[noise] well look I think as you know there there was a finding of of notice of escapement and the 4 of pressure bulkheads segment of section and 41 of the 787.
That was found Ah out and it wasn't found by the F. A a it was found by a spirit of air of systems and the Boeing company.
And [noise] and so they so of all parties are working with the the vendor where that where that 4 of pressure bulkhead comes from.
And I believe that there are solutions that had been and and place to replace those forward pressure bulkheads and aircraft that are sitting there and parked and I believe Boeing and spirit of working very hard.
To make this happen I think it's important to note that it's my understanding of that [noise].
As long as that pressure bulkhead is delivered and confirmed but 8 of drawing and spec. There's no. Further you know work required and that's what I think the effort that's going on now is to make sure that those 4 of pressure bulkheads get replaced with units that meet the the meet their criteria and I would just simply add that on.
We're talking about here is a very very thin you know a little more than a human hair, a little less and a coat of paint spacing issue, where shims apparently we're not put in by this vendor from the very beginning and of the seventy-seven program.
That has an effect anything and the fleet and this is not of safety of flight issue. There of the fleet leader is over 12000 and cycles on the 787.
We're talking about a very very small GAAP huh, but the cure is just to restore production based upon putting in units and those pressure bulkheads, which meet the original design spec and have those ships and then.
Now is there gonna be and impact on your your installed fleet already like and they're gonna have to get fixed on some day checkers and it doesn't appear no and that does not appear so.
Okay. Okay, and then maybe just kind of following up on that previous question about the environmental stuff.
Do you guys of any thoughts on kind of Utah and and that whole thing I mean, some some of your pure companies have dabbled in it and I mean, what do you guys think about it look.
These are interesting technologies to watch as you know raw and there are many many companies now looking at this I I frankly, I lost we've lost count and.
And you said that we continue to look seriously we are evaluating we're looking at all of these different things.
But I think what we're we pause and hold short yeah. It is we just don't see the business case, yet we don't we don't have enough information to really make a a meaningful determination of whether or not ah.
Of what we could do on on a business profile here that needs some seasoning to come but we're certainly watching it.
And it kind of more wrong or more mobile mobility, and an urban environment of very sort of all operations.
So and.
And and the business segment that we serve.
Which is aircraft essentially north of of 100 and he they can go.
Between 2008 thousand miles.
We just don't see any current technology, they can address that so.
Yes, it's very interesting.
We don't know what the residual values of these products will be technology's going so quickly.
And even quicker than electric cars and trucks so that.
It's just hard to see what you're gonna be and 3 to 5 years.
And once you identify and.
Project that make.
Long term business sense for us all.
Obviously, I'm gonna be of party.
And we're going to attend the party, but at this moment.
It it's in a day early embryonic stages and only address is very short hall.
And opportunities from and operational point of view.
Got it got it alright cool thanks, guys, Thanks, Ryan well take care.
And our next question and from here and we get Amanda from day to day. Your line is now open.
Hi, [laughter], yeah, that'd be fine with on line.
And I think I'll cool you mentioned before that you like.
And then boy from now.
And have the inside of pizza.
Okay.
And I am wondering.
And you have previously we gotcha and your pet's name.
And what's going on this type of thing.
You know, there's no way to application Clarke and with the reactivation of <unk>. What day did you have to go back to Boeing and you know renegotiate the rates of spelling of <unk>.
And the C V.
Yep, we cancelled the aircraft of what is based on all of it.
No way of.
How about that 1 yeah.
Yeah, and you're gonna take care of crap that we the aircraft that we of reinstated.
Has 2 components 1 of the airlines themselves and.
And initiated the cancellation because bowling could not deliver the aircraft within 12 months.
And a change of heart and made a determination that they actually could use the airplane and.
And that point and went back to bowling and said look.
There is interest and that the reactivation.
But the pricing on those reactivated aircraft.
And I'd have to be either at or below the renegotiated prices, we have on other comparable 77 and so that.
Exactly I think what you were referring to.
Okay. That's on okay.
Does that help and yeah yeah.
Okay, and you know I've been having up for any pressing thing you know I know I don't they just take it on me and pending on it.
Of yet.
More of criminals titled and plenty of time, right and I was wondering what pieces of kind of the 9 day, you know what the process and you know about what kind of guidelines.
Yeah, you know whether or not and.
Yeah, sure, Greg and want to take that great great. That's a million of Craig's list, Yeah, that's fine and I got it yeah. The the impairment tests for a gap is and I'm just kind of cash flow of tests. So if you experience of change in your situation you're supposed to and then go and look at the Undiscounted casuals associated with that of aircraft and when the.
We have a fleet that's 3 to 4 years and and and age. We're we're allowed 22.23 years worth of cash flow to aggregate of plus of estimated of residual value.
And all up on and I'm, just kind of basis, and you compare that to your carrying value and and.
From that perspective, it's it's pretty difficult to get to a point in time and where do you have an impairment because at the end of the day, we buy on airplanes through both purchase contracts driving volume discounts over buying.
The very best you, possibly can and and giving us a and advantage of their on our our our entry point and then also you have longterm leases that are associated with these contracts that have a lot of value. So from that perspective, it's not.
Not overly surprising that we haven't had any issues with impairment.
[laughter] based on on this account it not not discounted etcetera.
Okay and and is that.
44 right.
Yes, it's I think now and.
And 40, I believe but yes, it's old fast and.
And Ah that appointment that day.
Great. Thank you. Thank you so much from thank you. Thanks.
[noise] and presenters do we have a follow up from Ron Epstein Bank of America. Your line is open.
Yeah every day.
And go ahead and.
Yeah just quickly.
And it was better back on so.
We could reinstate it and so I have to say I think we've got a great relationship with Boeing on this kind of thing they've been very accommodating very flexible.
Pretty pretty flexible and they Wanna get their airplanes delivered and we want to get the airplanes deliberate. So I think it's you know we work in our best interest and and and our customer Besner's with Boeing.
Ah collaboratively, but it's certainly possible. Some of these 12 months cancellation points can be triggered I have no idea of how many of the hundred plus airplanes and say it could be subject that we have a few that could be subject to that and and forward looking months, but.
It's just hard to say right now.
Okay, great. Thanks again.
Right.
There are no sort of their questions at this time break on Earth I would know lots of turn the conference back to make the palm on for clothes and remarks.
Okay. Thank you everyone for joining that conclude and their call for today and we'll look forward to speaking with you again and after the conclusion of out of the third quarter. Operator. Thank you you may now disconnect the line [noise].
Thank you for centers, ladies and gentlemen. This concludes today's kind of friends. Thank you for your participation and have a wonderful day. He may I'll disconnect.
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