Q3 2021 Air Lease Corp Earnings Call
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Good day, and thank you for standing by and welcome to the Air lease Q3, 2021 earnings conference call.
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After the speaker's presentation, there will be a question and answer session.
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I would now like to hand, the conference over Dear Speaker today, Jason Arnold AVP Finance. Please go ahead.
Thank you operator, and good afternoon, everyone and welcome to Air lease Corporation's earnings call for the third quarter of 2021. This is Jason Arnold and I'm joined this afternoon by Steve <unk>, 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 results for the third quarter of 2021, 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 November four 2021, and the webcast will be available for replay on our website.
At this time all participants on 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.
This includes without limitation statements regarding our future operations and performance revenues operating expenses stock based compensation expense and other income and expense items.
These statements and any projections as to the Companys future performance represent management's estimates for future results and speak only as of today November four 2021.
These estimates involve risks and uncertainties that could cause actual results to differ materially from these expectations.
Please refer to our filings with the Securities and Exchange Commission for a more detailed description of risk factors that may affect our results are.
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 pre tax return on equity.
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 in the earnings release and 10-Q, we issued today.
This release can be found in both the investors and press section of our website at Www Dot Air lease Corp Dot com.
<unk> recording of this conference call is not permitted I would now like to turn the call over to our Chief Executive Officer, and President John <unk>.
Thanks, Jason.
Good afternoon, everyone and thank you for joining us.
We're going to slightly alter our format today, because Steve has been negotiating too many deals and has lost most of his voice. So he is doing great and us on our call with us today, but I'm going to combine our sections of prepared remarks into one section. So that he can save his voice for the Q&A.
We're happy to report that during the third quarter of 2021, ALC generated $525 million in total revenue up 6% relative to the third quarter of last year.
Moreover, as a component of total revenue our third quarter rental revenue is a record high for US. We also recorded diluted EPS of <unk> 87, which is the highest level in 2021.
The industry is clearly improving and which we see in our results forward aircraft demand and lease rates.
During the quarter, we took delivery of approximately $800 million in new aircraft, which was $200 million less than we originally anticipated, but these aircraft did contribute favorably to our performance this quarter.
It is important to note that while fleet growth has been meaningfully constrained by OEM issues. It is still up 13% from this time last year.
Additionally, our blended average funding costs continue to decline and in fact, we are at an all time low helped by our favorable bond issuances. This year at the lowest rates we've ever achieved.
Greg will comment on that further in his remarks.
Despite the delta variant impacting trends somewhat we remain encouraged by traffic recovery in North and South America, Europe, Russia, and the Middle East. We're encouraged by the easing of many international travel restrictions such as by the USA for inbound traffic from Europe, Canada, and Mexico as well as similar.
Our actions and opening international travel in Australia, New Zealand, Singapore and India.
We believe more countries in Asia will soon start following these positive steps.
As a result, many of our airline customers are seeing improvement in operating performance as traffic volume strengthen while others are still facing continued pandemic challenges.
As we've indicated to you many times in the past the recovery is unlikely to be a straight line upward to pre pandemic levels, it's going to have some bumps along the way, but importantly, it is clearly continuing to head in a positive direction on a global basis.
Now this positive trend is further evidenced in our collection rate, which improved in the third quarter to 94% as compared to 87% in the second quarter and 84% in the first quarter.
Our lease utilization rate remains strong at 99, 7%.
Our net deferrals balanced edged up slightly during the past quarter to $118 million as of today from $115 million as of early August, but 54% of deferrals granted to date have been repaid and we anticipate that repayment percentage to continue to rise in the months ahead based on our repayment schedule was $70.
77% of those to be repaid through 2022.
Our operating cash flow. Meanwhile, remains very strong up 30% year to date through third quarter of 'twenty, one as compared to the same period of 2020 benefiting from fleet growth and rising cash collections.
On the revenue side for this quarter, the combined impact of cash basis revenue recognition and lease restructuring was meaningfully lower as compared to the last couple of quarters in fact cash basis, let's see let's see actually provided a positive contribution of $5 million in incremental revenue this quarter as compared to <unk>.
Drag of $42 million in the prior quarter.
Most of the improvement relative to the second quarter was driven by significant cash payments made to us by Vietnam Airlines, which as Youll recall in order of magnitude represented approximately two thirds of the total cash accounting impact in the prior quarter.
We have reached resolution with Vietnam, and we will be monitoring their performance carefully although it's too soon to say whether or not they will remain on a cash basis next quarter.
Restructuring impact was also lower this quarter, which Greg will comment on shortly.
While additional customer request for combination will depend on the ongoing impact of the pandemic on a region by region and airline by airline basis, we do want to note that similar to last quarter requests for assistance remained meaningfully below those witnessed earlier this year and in 2020.
Moving to aircraft sales activity as we've previously telegraphed, we scaled back sales for the remainder of this year largely because of delivery delays, resulting in lower aircraft investments than planned having.
Having said that we will likely have a few aircraft sales in Q4.
But as our deliveries become more consistent relative to contractual expectations, we look forward to ramping our sales activity back up.
We're encouraged by what we're seeing in the secondary market for aircraft in our fleet that would be candidates for sale.
So let's spend some time now talking about aircraft demand.
Today, and looking forward, we see narrow body demand at or above pre pandemic levels for many aircraft types with lease rates on the rise.
In fact during Q3, we executed a record quarterly high of 64 aircraft placements from our order book, including a 31 aircraft transaction announced with <unk> in Italy, which is the single largest single placement of by number of aircraft in our company's history.
We placed 15 <unk> hundred <unk> <unk> hundred 20, <unk> nine <unk> hundred 21, <unk> and five <unk> hundred 3900, nios on long term leases with Ta.
We're particularly proud that Steve helped orchestrate this meaningful step forward in the modernization of Italy State owned flag carrier and we have high expectations for our partnership.
We also announced the placement of 10, new Airbus <unk> hundred 21, Neo aircraft and five new <unk> hundred 2200, Neo aircraft with Spirit Airlines, where we placed the <unk> hundred 21 news from our order book and leveraged our capital partners and our managed business to provide funding for the remaining $5 <unk> hundred <unk> in a highly customized fleet planning solution.
For the airline.
In late July we placed 10 used <unk> hundred 22, hundreds with Allegiant Airlines as part of our transaction with Alaska Airlines and speaking of Alaska. We delivered the first of 13, New Boeing 737 Dash nine aircraft to the Airlines September a sizable placement designed to help the airline pivot to an all Boeing fleet.
We also delivered $1 <unk> hundred 21, Neo to Sky Airlines in Chile, the first of its type to be delivered to that country.
And we delivered the first new Boeing 737 dash nine and the country of Kazakhstan to Scott Airlines.
Our lease placements are clearly accelerating such that our available delivery positions in 2024 have reduced by about one third since our last earnings call and we are 96% placed through 2023.
As a whole our order book is now 67% placed with our current orders running through 2026.
Rising fuel prices are certainly playing into the demand equation as well as fuel efficiency increasingly makes new aircraft decisions, even more attractive to airlines with fuel efficiency improvements of 20% to 30% versus prior generations.
We'd like to point out that narrow body demand is strong across both Airbus and Boeing products, but particularly the Airbus <unk> hundred 2021, Neo family, including the LR <unk> XLR versions of the <unk> hundred 21 Neo.
Importantly, the Boeing 737, Max is also recovering well in the marketplace with lease rates climbing steadily from the lows of nine to 12 months ago and recent strong momentum on the dash nine Max.
And the <unk> hundred 20 has also accelerated gaining good placement momentum.
The bottom line is that these lease rates are rising on all of these new aircraft types.
Now that being said, we also are seeing an uptick in demand and lease rates on the new twin aisles for.
For example, the 31 aircraft transaction with <unk> included five new twin aisle <unk> hundred 30, <unk> and we have several yet unannounced placements for 780 Sevens and <unk> hundred <unk>.
Our main concern on the <unk> front is the ongoing Boeing 787 delivery freeze.
We told you last quarter that under our Boeing contracts, we were scheduled to receive 10, new 70 sevens by the end of the year.
At this juncture, we are uncertain, we will be able to receive any of our 780 sevens by the end of the year.
In some cases these aircrafts are or will be more than 12 months late and as such we have canceled three 780 sevens.
Further as we advised last quarter, we're seeing some minor delivery delays on a few Airbus single aisles, which they attribute to COVID-19 or supply chain constraints.
As such looking ahead to the fourth quarter, we have trimmed our expectations for deliveries.
Although we are contractually scheduled to take delivery of 25 aircrafts in the fourth quarter of this year, we only expect to take 15 aircraft, representing approximately $1 2 billion of aircraft investments.
Beyond that we are closely watching supply chain constraints, especially as the Oems ramp up production rates.
It is no coincidence that both Boeing and Airbus increased commentary on supply chain constraints in each of their third quarter earnings calls.
So now with the simplest and highest level, we're at a point where more than 60% of commercial aircraft deliveries by Airbus and Boeing combined this year are being taken by lessors are financed by a sale leaseback transaction with.
As compared to the 40% to 45% share of the industry of the recent past clearly demonstrates this shift to leasing for an airline industry that is still reeling from staggering financial losses and capital constraints.
We see this continuing for the next several years as Aaron as airlines look to recover their balance sheets, and lessors remain a bastion of capital and aircraft vital to the recovery and vital to the Oems.
Since the inception of ALC, we have focused our business on the most fuel efficient advanced technology and environmentally friendly and highest demand aircraft in the world.
That business model has served us well and positions us for even greater strength during this critical recovery phase.
In light of the overall, improving environment, including acceleration in demand and order book placements strengthening lease rates and the continued expansion of e-commerce, pushing freighter demand and rates to new levels. We are reviewing our capital allocation plans going forward.
We have always been disciplined and rigorous in this process to determine the best and highest return use of capital in our business here.
Historically this has met investment in new aircraft on long term leases and we do not believe that has changed despite.
Despite the pandemic impact ALC has enjoyed industry leading margins.
We also have previously announced our board's reauthorization of a modest stock buyback program.
We continue to intensively evaluate all capital allocation alternatives.
With our continued successful navigation through the pandemic storm and reflecting continued confidence in our outlook in our business. Our board of directors has declared a fourth quarter dividend of <unk> 18, and a half cent per share up approximately 16% from the prior period.
This dividend represents our 36th consecutive distribution since our first in February of 2013, and our ninth dividend increase over that time.
Wrapping up Steve in my comments, we want to reiterate a simple premise we've shared with you throughout the pandemic and that is air travel demand is highly durable.
The pandemic temporarily suppressed it and travel restrictions were constrained it but at the end of the day people want and need to take trips do business and connect with each other in person.
Whenever we see travel restrictions lifted globally. There is an immediate surge in passenger bookings.
While the pace of the recovery has had its ups and downs. We are confident in the long term direction remaining very positive and we are equally confident in our business model, which was purposely designed to be highly durable as well our focus on fleet replacement over growth focus on new technology Young aircraft fleet diversification.
And low financial leverage are key components that have helped us weather the downturn successfully and will serve us well in the future.
And with that I'll turn the call over to Greg to provide more detail on our financial results Greg.
Thanks, John and good afternoon, everyone.
To expand on the details underlying our financial results for the third quarter and I'd like to offer some additional color on our <unk>.
Recent financing activity.
As John mentioned earlier in his remarks, we had a very strong quarter driven by the continued growth of our fleet as well as an increase in our cash collections.
Improvements in our cash collections were observed across our fleet, but notably on our lessees on cash accounting and specifically Vietnam Airlines.
These payments allowed us to recognize an incremental $5 million in revenue this quarter above the regular rental schedule due from our cash basis lessees.
This quarter is a great example, with best in class relationships like the ones, we have in Vietnam combined with the strength of a large unencumbered balance sheet can bring I think it is important to underscore that the large cash payments. We received this quarter representing positive signs of the recovery of the industry.
I do want to make it clear that there is still more work to be done and until we are able to transition our remaining cash basis, lessees, which represent approximately 10% of our fleet back to accrual there will likely be a certain level of volatility in our earnings in the coming quarters.
Turning to let the turning to lease restructurings, we have continued to see improvements on this front and <unk> quest for a combinations have continued to decline.
Today, we have reached agreements with approximately 64% of our lessees to provide some form of accommodations.
During the third quarter lease restructurings reduced total revenues by approximately $27 million.
At this level, we are seeing this year.
I wanted to highlight that our appetite to grant additional combinations continues to diminish as the recovery are there it takes hold.
And it is already in that government should continue to support their airlines. During this very difficult time, because air travel is still very important to their local economies.
Lastly, as another sign of the recovery I do want to highlight that we saw a 30% increase year to date operating cash flow as compared to the prior year. This was directly impacted by improvements in our cash collection rate.
Turning to aircraft sales trading and other activity last quarter, we mentioned that we did not plan on selling any aircraft during the period.
Driven primarily by manufacturing related issues, resulting in aircraft production delays. This was not reflected in the state of the trade sale market for aircraft, which has remained strong for the last several months during the recovery, especially for the age profile and type of aircraft in our fleet.
When comparing to the prior year, it's important to note that we recognized $25 million in aircraft sales trading and other activities during the third quarter of last year.
Assuming aircraft deliveries continue to improve we would expect to resume selling aircraft penetrate that market in the fourth quarter.
Moving to expenses interest expense increased year over year, primarily due to the rise in our average debt balances driven by the growth of our fleet, partially offset by a decline in our composite cost of funds.
Our composite rate decreased to two 8% from three 1% in the third quarter of 2020 depreciation continues to grow.
To track the growth of our fleet, while SG&A rose as we returned to a more normalized level of operating expenses in contrast to the lower levels witnessed during the pandemic.
Our EPS of <unk> 87 was down year over year, but continue to grow throughout 2021, despite not selling any aircraft I also want to highlight that in spite of these challenges of the pandemic. We are still generating strong margins and returns on equity, which should improve as our customers come off cash basis as the world recovers further from the pandemic.
Finally, I want to touch on our financing activities, which continue to remain a strong point as compared to many of our peers. We remain firmly dedicated to maintaining an investment grade balance sheet utilizing unsecured debt as a primary form of financing and we have approximately 26 billion in unencumbered assets at quarter end. We ended the period with a debt to equity ratio of two seven times on it.
GAAP basis, which net of cash on the balance sheet as approximately two four times.
We raised $1 1 billion in debt capital during the third quarter comprised of $600 million in senior unsecured notes maturing in 2024 at <unk>, 8% and $500 million of senior unsecured notes maturing in 2028 at two 1%.
Issuances represent at or near low record funding rates for ALC.
Further improvement in our composite cost of funds.
In early October we tapped the preferred equity market. This time, raising $300 million of fixed rate perpetual preferred stock and 4% to 8% our third issuance in this space and at our lowest rate in our history preferred equity remains an attractive form of financing.
Lansing in our overall funding mix offering favorable rates for long term capital in support of our fleet growth funding diversification and favorable rating agency treatment. We also increased the capacity of our revolving credit facility by 50 million, increasing our total commitment to $6 5 billion.
We continue to expect to maintain elevated levels of.
Broader aviation market recovers.
As we look forward, we expect to benefit from the improving aircraft demand environment. The significant value we have embedded in our order book.
<unk> that we anticipate realizing for the resumption of our aircraft sales program as well as we foresee monetizing from the current interest rate environment as well.
As we refinance near term maturities with today's historic low financing rates all of these factors, we see serving as a meaningful tailwind to help expand margins and returns on equity and with that I'll turn the call back over to Jason for the question and answer session of the call.
Thank you Greg This concludes management's commentary remarks.
<unk> and answer session, we ask each participant to limit themselves to one question and one follow up now I'd like to hand, the call over to the operator to open up the line for Q&A Kathryn.
Thank you Sir as a reminder to ask a question you will need to press star one on your telephone keypad.
<unk> your question Okay.
Please standby, while we compile the Q&A roster.
And speakers we have our first question Catherine O'brien of Goldman Sachs. You May ask your question.
Hi, good afternoon, everyone. Thanks for the time.
So as we think about the impact of ongoing delays at both Boeing and Airbus should we assume you get caught up at some point whereby you could see maybe like 2022 or 2023, capex significantly higher than the plans laid out in our 2019 10-K for instance, or are you expecting.
The delivery catch up to be more gradual, but we just kind of see capex continue to get rolled forward, maybe with a less lumpy annual impact.
The Big question is the 787 situation.
This year, we took delivery of $2 787 dash nines.
In the second quarter.
Which we leased on long term contracts with China, Southern but since then we've not taken any 780 sevens now.
Because we don't want to it is that Boeing has been unable to deliver us to aircraft.
With certificates of air Worthiness so.
If there is a recovery in the 787 deliveries next year.
We could be looking at as many as 12% to 15 <unk>.
787 and 2022.
Which represents somewhere in the order of $2 billion of Capex. So there could be a catch up.
Probably I would guess in the second and third quarters of next year.
Robust, it's pretty much on schedule.
They recovered from their crisis situation in 2018 and 19.
And we're seeing the <unk> hundred 21 line now coming a little better.
We still have some small delays anywhere from four to seven weeks.
And on the wide body front.
On <unk> and <unk> hundred 30 meals.
We're very very close to being on schedule. So.
The Big question Mark is the 787.
Our Max deliveries are now running fairly smoothly.
And we anticipate that will continue into 2022 eight.
<unk> seven is where we see the lumps and the uncertainty.
Got it. Thanks, thanks, so much for all that detail.
You're very welcome.
I appreciate it Steve.
But I think right now we want to see.
Or expecting continued volatility until work a little further along in.
And the recovery.
Right, because there could be hiccups, along the way with different an individual airlines, which could push it back into the negative but overall I think you're seeing a very positive trend and the fact that we're recapturing our receivables and that way, it's actually contributing positively more than what it had been in the past.
To your question on restructurings, yes, it was lower this quarter as compared to the as compared to what it was last quarter and Q2.
You're seeing the effects of fewer restructuring is being put on.
That's another positive sign so.
If you would like additional clarity just let me know.
On that.
Thanks, so much for the time.
And speakers we have our next question from the Humane Becker.
Calling you May I ask you a question.
Thanks, very much operator, hi, everybody just two kinds here as as.
As we think about the delivery schedule for this corner is it yeah mid corner front loaded.
December how should we think about that.
Yeah, I think a lot of push towards the second half right now and hopefully we are able to take as much of it into the quarter as possible, so et cetera herself up really well for Q1.
Okay and then the other question I have probably for you Greg is.
Funding. So you guys. You mentioned went through the whole laundry list of funding that you've done and you've done a really great job you know raising capital.
So I issues and I can't believe I'm asking this question as you think about rising interest rates and borrowing at higher rates potentially going forward, whether you know even if it's above your record low rates how should we think about you know your your appetite for raising capital.
I Dunno 2023 lots of 2022 second half.
First of all I think it's important to note I think we benefit from a rising rate environment right, because I think given our investment great profile and the strength of our balance sheet I think we're going to be able to borrow significantly cheaper than what our airline customers borrow. It. So I think it's not terrible that rates are rising but for my feet clearly I'd like to see it low financing costs as possible I do think that we benefit from two.
You.
Two maturities coming to you in January and February of next year at seven.
$700 million at three and a half and then $600 million at three and three quarters or borrowing significantly inside of those level today.
I think we're going to remain in the opportunistic wondering what the record levels of liquidity. We have on the balance sheet allows us to time or issuance to be able to really.
Take advantage of those low funding windows when they present themselves. So I think that's good because as I also think that as we continue to recover I think we're going to continue it will probably take down the level of liquidity that we have on our balance sheet as well Halloween. It's also really important to understand that we have interest rate escalators and adjustors and.
Or at least within all of our four replacements and these are these are one way adjusters up so.
As interest rates do increase.
We have a mechanism right before delivery to adjust the final lease rate and or for deliveries and that's been a very that's something we've been doing but is particularly relevant given your question.
Yeah, that's a good point, because I think investors sometimes tend to forget that you that you do that.
And so I think that's very helpful. Okay, well. Thanks, thanks very much guys. Thanks. Thank you.
And speakers. Our next question from Genie beat maker of JP Morgan you May answer your question.
Good afternoon, gentlemen, so on this week's.
Da call the topic of order books came up and perhaps you saw a few weeks ago in Edinburgh.
Dano was talking about how are ya.
You would never ordered you would never make speculative wide body orders ever again, when we narrow body, so mark and I had been wondering over the past 18 months as you think about the competitive shifts that are taking place have you. We thought the order books strategy at all how far out you are willing to.
To commit the constitution of the book stuff like that I sort of thought that might've been the direction that John was heading in some of his prepared remarks.
Well we continually.
Fine tune our ratio of single island wide body orders I mean, that's that's an ongoing process.
Oh, and I think I think going forward will probably have somewhat higher ratio of seeing allows to wide bodies. We we still have a pretty good wide body backlog and 787.
AC thirties <unk> fifties now most of these have been placed.
We actually are very very few unplaced wide bodies that are in our backlog.
But I think I think we're going to put more emphasis going forward on the most popular and desirable single aircraft.
We're also seeing the strongest.
Improvements in lease rates Envy Street factors.
At least for the next two or three years mhm.
Well, that's actually thanks, Steve.
And that's actually a good segue into my second question, because given the trends that you identified given what we're seeing around the world.
The market's open up you're gonna see just exactly the the level of surge in demand that we're seeing today, you're seeing a U S airlines cancel flights all over the place because of this demand and not be prepared for it that demand has to be fooled by aircraft, including wide body aircraft.
Steven John Thank you very much for the color Mark and I look forward to seeing you soon take care of you, but let's see you guys.
And speakers.
You see.
You May ask your question.
Great. Thank you.
I was just hoping you could you could talk a little bit John about the.
The comments that you made about rethinking capital allocation and what sorts of things that could.
Could entail.
Sure.
As I said in my prepared remarks.
[noise] you know historically or at least corporation, there's always determined that the best use of our capital or shareholders capitalist to invest in new aircraft on longterm leases are the most modern technology and I also commented that we don't think that that's changed.
But this year are aboard also authorized idea they are modest share buyback authorization.
Yeah, and we look at that as well so broadly those two categories.
No more further aircraft investments combined with our potential stock buyback in our authorized stock buyback program as well as increasing the dividends. So those are the three broad categories that we we focus in on looking at capital allocation of having said that we continue to.
Watch the landscape very very very closely for any opportunistic capabilities to buy new aircraft.
Possibly even a merger here or there, although historically ALC has not found any compelling opportunities. There. So all avenues remain open.
And we continue to focus on those intensely so I would say, there's really nothing new in this regard than what we've already been doing.
Okay. Okay.
Maybe just to kind of follow up on that theme a little bit you did mention also that you would potentially be starting to sell aircraft in the fourth quarter.
Could you talk a little bit about how that.
What what you see as as as the effects there what types of claims are you selling.
Is that a way to kind of accelerate some of the restructuring postcode just talk talk to that a little bit. Thanks, Yeah, well certainly we have a young fleet, we're known as having a young fleet.
But as those aircraft age new aircraft come in and so are we typically look to sell aircraft that are sort of in the.
Sales platform, so nothing, particularly new I think it's just a resumption of the sales program on the philosophy that we've always had it's just that we've held off on purpose for now do with our lower Capex.
Okay, Thanks, very much and.
Adding to Jon's comments I want to emphasize that we've significantly expanded our management business.
Third parties.
Managing aircraft assets.
So income growth.
Growing forward Greg.
Yeah. So the the number includes about $5 million incremental above the regular schedule. So thats the recapture of prior receivables, which I think is a really positive thing and then looking forward as I mentioned earlier, it's a little tough to say as to how much of that incremental will be there next year or if it goes back the other way and a lot of it depends on how the recovery plays out.
So clearly as the recovery gets better we expect to see more and more positive recapture but.
We're going to have to sit here and wait because it's too soon to say, how it's going to shape out next quarter.
Okay very helpful. Thank you.
So second question.
Just kind of a broad question on the environment for aircraft demand and maybe.
Just trying to put it.
Kind of maybe compared to pre pandemic levels I know.
Maybe demand might be not as strong as pre pandemic levels, but given the level of it seems like there is.
Not enough supply in that you were getting more demand relative to the amount of supply you can provide for the next two years.
<unk>.
This.
The environment, maybe relatively stronger for leasing platforms, such as yourself, just kind of maybe trying to put a.
Frame of reference around it.
Well I think we tried to cover that.
<unk> mentioned in our remarks.
I think specifically what I said was that.
For narrow body aircraft, we are at or in some cases above pre pandemic level for some aircraft types.
I pointed out particular strength in the 320 21, neo but with that also recovery in the Max and the 820 so I.
I think the bottom line is yes, we are.
We have more demand sitting here today on a single on the narrow body side than we have supply.
And.
People because of that people are all airlines are looking to place further and further out.
<unk>.
I guess, the good thing and but not surprising.
<unk>.
The supply and demand rules kick in and that's one of the reasons why lease rates are going up.
So certainly.
Certainly over the next couple of years, where we're basically out.
In terms of the new aircraft side.
And if we can get some more here or there.
Fine.
But as far as the order book.
And the next 24 months.
We're placed were done.
And now we're just focusing on.
The out years, primarily.
'twenty three 'twenty four I'm, sorry, 'twenty four 'twenty five we're even having some discussions about 26.
So I think it shows you how far forward the airlines are looking.
So I think it shows you how far forward the airlines are looking.
To meet to meet what they fervently believe is going to be a very high demand period.
We'll have more information for you at our next call in February.
Okay. So still weak so I guess, it's reasonable to still assume that there'll be on cash basis accounting for the next you know it makes at least for the next quarter or two.
Yes.
That's maybe going a little too far.
I mean assumptions look we're watching it week to week.
And things can turn very rapidly in terms of.
Traffic recovery.
Which will then generate sufficient earnings for them.
They don't need government funding or government support from from Vietnam and that.
At that point, we ought to be on a much more.
Clear pathway going forward.
Okay.
I think two quarters might be a little bit too far out I think we should normalize.
And everything we see.
In the early months of 2022.
Got it got it thank you.
And then just as a follow up you did a sale leaseback transaction with spirit Airlines during the quarter I was just wondering why we haven't seen more U S. There'll be transactions, maybe you know, particularly maybe in Asia, where you know the airlines they can definitely benefit by getting some liquidity through you know esselte transaction. Just you know it is.
Is it just not a competitive market factual correction, we did not do a sale leaseback of our own aircraft with spirit. The transaction, we did with spirit and I was critically involved in putting that deal together is we leased 10 brand new <unk> hundred 21 meals from Alc's order book.
And we arranged one of our partners and our managed business I would like to acquire with their own funding.
Five <unk> hundred 20 deals.
Which I believe two are supposed to deliver between now and the end of the year and so we acted as a manager.
Facilitator of those five aircrafts, but we have no capital invested in those aircrafts.
We simply get fees for putting this transaction together.
And then fees on an ongoing basis, when the lease rentals, but the.
The aircraft that came from our order book, where I'll just direct long term leases from.
From our pipeline.
And as far as Asia goes to your question.
Look Asia remains the last broad geographic region to really meaningfully recover I cited reopening now in Singapore in India, and ER and Australasia down in Australia, and New Zealand, but we still have to have a reopening of orders in Korea, and Taiwan and Vietnam.
Can you just help frame how much more ESG is part of fleet planning conversation today versus two.
Three years ago. If it is in fact, the bigger piece. Thank you. So much yes, yes, the ESG situations, particularly in Europe, and North America, and the increase in oil prices and the rate of increase in jet fuel cost since the beginning of the year has really refocused a lot of airlines.
Accelerate their fleet planning process.
And two to take a much more proactive look at modernizing their fleets quicker.
Then they were planning to do vaccine in 2019, so all of that kind of comes together.
And what we've been saying in the last 45 minutes is that demand is now.
Up way up beyond their expectations.
And so therefore, the most desirable fuel efficient environmentally friendly friendly aircraft are.
The ones that are going to achieve the highest returns.
And air lease will be a beneficiary of that for many years to come.
Yeah.
Got it and so you see you are seeing airlines actively perhaps look to maybe.
Refresh fleets at a faster rate than they may have historically to meet.
The replacement cycle.
<unk> fecal has accelerated.
By the higher cost of fuel.
And also by the ESG issues.
For example in Europe, if you fly.
737, 800 into Heathrow, the landing fees and charges or X two five Max 737, there is significantly lower so.
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