Q3 2021 AerCap Holdings NV Earnings Call
Good day and welcome to the Aercap Holdings N V third quarter 2021 financial results. Today's conference is being recorded and a transcript will be available following the call on the Companys website at this time I'd like to turn the conference over to Joseph Mcginley.
Head of Investor Relations. Please go ahead Sir.
Thank you operator, and Hello, everyone welcome to our third quarter 2021 conference call.
With me today is our Chief Executive Officer, Angus, Kelly, and our Chief Financial Officer of Pizza U S.
Before we begin today's call I would like to remind you that some statements made during this conference call, which are not historical facts may be forward looking statements.
Forward looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements.
There are a couple of undertakes no obligation other than that imposed by law to publicly update or revise any forward looking statements to reflect future events information or circumstances that arise after this call.
Further information concerning issues that could materially affect performance can be found in aircrafts earnings release dated November 10 2021.
A copy of the earnings release and conference call presentation are available on our website at Aercap Dot Com. This call is open to the public on this webcast simultaneously at Aercap com and will be archived for replay.
We will shortly run through our earnings presentation I'm on a lot of time at the end for Q&A.
As a reminder, I would ask that analysts limit themselves to one question and one follow up.
I will now turn the call over to Angus Kelly.
Good morning, everyone and thank you for joining us for our third quarter 2021 earnings call.
I am pleased to report a strong quarter of earnings with $434 million of net income.
Or $3 in Turkey five of earnings per share.
Importantly, the positive trends, we observed for the last several quarters relating to operating cash flows deferral balances accounts receivable balances and improving demand for aircraft continued in the third quarter.
These positive trends are underpinned by the strong recovery in global Air travel.
More and more countries are opening their borders to international travel.
Driven by the huge success of the vaccination program and the subsequent easing of government restrictions.
As you will see from the slide.
The three key markets of the world.
Are the United States, Europe and China.
Which today contribute 50% more flights each day than the rest of the world combined.
Since the <unk> announcement in March.
<unk> has rebounded by 38% in these three markets.
And by 26% in the rest of the world.
This is well ahead of our expectations at the time.
And also shows the potential for further progress in 2022.
In the U S. We saw a strong rebound beginning in January.
And this continued through most of the summer with domestic leisure traffic close to 2019 levels.
Although there were some temporary softness in traffic in August and September as a result of the Delta bearings.
Most of the U S majors that have recently reported highlighted improving booking trends moving into the fourth quarter.
In addition, the reopening of the U S International market earlier this week should provide a significant boost to long haul travel demand.
It was encouraging to hear from the airlines that bookings surged in the days and weeks following the announcement.
A clear sign of the pent up demand that exists.
The Trans Atlantic market is the most important long haul market for both business and leisure providing healthy yields for airlines and strong demand for wide body aircraft.
The successful reopening of the North Atlantic market will give other airlines and airport operators around the world the confidence to follow.
While it's too early to say how quickly business demand will return. This is a critical first step.
In Europe, the strong recovery has been sustained by the success of the vaccine rollout and the digital Covid certificates, which has made international travel much easier for Airlines airport operators.
Robert.
China is the most important market in Asia, and it's also fared well with high levels of domestic demand.
Although there have been periods of turbulence due to regional outbreaks and increased travel restrictions.
These have been transient in nature and demand for air travel has bounced back each time.
Proving the resilience of the Chinese domestic market.
As a group. These three markets are back to 85% of total flights relative to 2019 levels.
In the rest of the World South America, and India have shown recent signs of improvement.
But the one region that has been harder hit is southeast Asia.
Even there, though we have seen countries like Thailand, and Malaysia pivot towards living with Covid approach.
Which coupled with the continued rollout of the vaccine should also spur recovery in this region.
Likewise, Australia, which has had one of the strictest quarantine requirements in place since the pandemic began have started to reopen to international travel.
Once the full reopening of Australia will take some time, we have already seen evidence of a number of carriers starting to rebuild their domestic networks and adviser greater inbound travel.
As an example, Qantas combined with Jetstar was operating one return flight per day between Sydney and Melbourne.
They moved to 18 return flights today after the state border opened.
And we expect to operate 37 by Christmas.
This is still well below the 58 per day that was seen pre pandemic, but a significant step forward Nonetheless.
Turning to <unk>, we were delighted to announce the closing of the transaction following an extremely successful bond offering and the receipt of all regulatory approvals.
And although we only closed the deal last week there.
There are a number of areas I would like to highlight that are pleasantly surprised me.
Aercap has always had a high degree of communication with its customers.
But the level of communication and the substance of this communication has intensified materially.
Aercap is the most important lessor in the world and simply reaches a much wider base of customers from legacy carriers Lcc's regional carriers.
Helicopter operators Frazier operators with lessors and engine leasing customers.
Engine leasing in particular provides a new lens into the markets.
This business runs a much shorter lead times than aircraft leasing.
As new business deals are done in weeks in advance rather than months and years in advance on the aircraft side.
This gives us an important window into the thought process of an airline and our confidence in a recovery. If we can see they are prepared to invest large amounts of capital and putting their engines through shop visits and leasing from us to cater for them.
The same is true of our interactions with the Oems as we are by far the largest owner of commercial aircraft in the world and they're our biggest customer.
I am pleased to see the level of cash we are collecting everyday from our customers too.
And whilst we are not out of the woods yet when it comes to Covid I do believe that with further progress on vaccinations, the new treatments announced last week, the trans Atlantic market reopening and possibly out of this in Asia.
But it's only a matter of time before the market fully recovers.
Now not only does this transaction provide us with an extremely attractive portfolio of customers.
Just as importantly, we also gain a group of highly talented colleagues across a variety of functions, who will challenge and enhance the aercap team to ensure we remain the industry leader.
It is clear from the level of lease placements aircraft sales and purchases of both companies.
The right people and the right products to position Aercap well for the future.
Having the right product available to your customers is crucial.
And this is why aircrafts fleet will be comprised of 75% new technology aircraft by 2024.
These new technology assets, such as the <unk> hundred 20, Neo and the 707 Max are the most in demand aircraft in the world.
Reducing airlines operating costs and carbon emissions.
And helping them to meet their sustainability commitments.
Having the most desirable portfolio of assets will ensure that aercap maintains its global customer footprint and franchise.
So in summary, this quarter was an important inflection point for the company.
As our strong results demonstrate aercap continues to recover from the effects of the COVID-19 pandemic.
The <unk> transaction as a portfolio of well priced assets and a deeply experienced team of people that will further enhance aercap is positioned as the lessor of choice for airlines around the world.
With that I will hand, the call over to Pete for a detailed review of our financial performance.
Thanks, Gus good morning, everyone. Our total revenues for the third quarter were $1 billion and $454 million in.
An increase of 42% from $1 $27 million for the third quarter of 2020.
Basic lease rents were lower in the third quarter, primarily due to lease restructurings aircraft transitions and the impact of airline bankruptcies. This includes the impact of cash accounting, which was $75 million for the quarter.
With the recovery in air travel progressing and after a stronger summer most airlines are in a significantly better financial position today and we could see this in our third quarter numbers, our cash collection rate was 99% for the third quarter, our deferral balance decreased by $36 million to 427.
And our trade receivables fell by almost half to $80 million as of September 30th.
So on a combined basis deferral balances and trade receivables fell by 17% in the third quarter, which leaves us in a good position as we approach the winter months.
Maintenance rents were $110 million in the third quarter, which was an increase from $91 million in 2020, primarily due to higher maintenance revenue recognized as a result of lease terminations.
In terms of aircraft sales during the third quarter, we sold 11 of our owned aircraft for a total of $101 million. The aircraft. We sold were an average of 20 years old and our net gain on sales for the quarter was $38 million.
Other income was $459 million for the third quarter. The vast majority of which was the sale of most of our remaining unsecured claims with Latam Airlines we.
We recognized $409 million of other income in the third quarter related to the Latam claim sale.
We received the cash proceeds in early October.
So those did not contribute to operating cash flow for the third quarter, but will instead come through in the fourth quarter.
Turning now to expenses, our total expenses were $955 million for the third quarter, a decrease from $1 billion $851 million for the third quarter of 2020. The main reason for the decrease was the lower level of impairments this year.
We recorded asset impairments of $49 million in the third quarter, which related to lease terminations and were largely offset by maintenance revenue.
Our depreciation and amortization expense was $393 million for the third quarter, a decrease from $416 million last year, primarily due to a lower lease assets balance.
Interest expense was $287 million for the quarter down from $307 million last year, mainly due to a lower debt balance.
Loss on debt extinguishment was $3 million in the third quarter compared to $43 million last year, when we completed a debt tender and prepayment of a large amount of bonds.
Other leasing expenses were $54 million for the third quarter, an increase from $40 million in 2020, and the increase was mainly due to higher default and restructuring related costs during the quarter.
Our SG&A expenses were $68 million for the quarter compared to $61 million for the third quarter of 2020, and finally in the third quarter, we recognized expenses of $101 million lasers as the <unk> transaction.
This primarily represents the cost of the bridge financing facility that we put in place back in March which was terminated when we close the transaction.
So overall in the third quarter Aercap generated net income of $434 million or $3 35, a share.
Excluding the costs related to the <unk> transaction of $101 million pretax or <unk> $88 million. After tax net income for the third quarter was $522 million or $4 <unk> per share.
Yeah.
We continue to maintain a strong liquidity position pro forma for the <unk> transaction. Our total sources of liquidity were earned $18 billion, which resulted in next 12 months sources to uses ratio of two one times, that's well above our current target of one and a half times.
Our excess cash coverage also remained high at around $9 billion.
As I mentioned earlier, our cash collections continued to be strong at around 99% and our operating cash flow was $788 million for the third quarter.
We continue to maintain a very strong balance sheet, our leverage ratio on a standalone basis at the end of the quarter was $2 three to one which means that pro forma for the <unk> transaction, our leverage ratio was two eight to one.
That puts us well on our way to get back down to our target ratio of two seven to one in 2022.
Our secured debt percentage decreased as a result of the recent financing we did which was predominantly unsecured so on a pro forma basis as of September 30th our secured debt was around 16% of our total assets.
So overall, we had a positive quarter with net income of $434 million and EPS of $3 35, we saw improvements in cash collections, leading to a significant reduction in our deferrals and trade receivables balances.
We had very strong demand for our recent financings and both are $21 billion unsecured bond offering and our $2 billion secured term loan were heavily oversubscribed, which demonstrates the market's confidence in aercap as well as the sector generally and of course, the interest cost of around two 6% for an average tenor of.
Just over seven years on those financings positions us well for the lower cost of debt going forward.
Now with the <unk> transaction closed we look forward to completing the integration of our two companies and continuing to deliver for our customers and our investors and with that operator, you can open up the call for Q&A.
Thank you operator, and Hello, everyone welcome to our third.
Ladies and gentlemen.
We will now go for questions.
If you'd like to ask a question you can do so by pressing star one on your telephone.
One if you'd like to ask a question.
We'll now take our first question.
From Andrew 11 bag.
Please go ahead.
Your line is open.
Lovely thank you.
Okay.
Can you talk a little bit about when when we might see lease rate.
Meg.
It looks to me that there was sort of flat.
Year on year, but.
We still got the transition going on but equally once the transition to go and I think it's winter weather can have quite a lot of power by the hour.
Yes.
And should we expect or how vigorously should we expect lease rates to climb.
Okay.
Let me start on that one piece.
Rent on the power by the hour arrangements during the winter I think it's fair to say that we are seeing upward movement in lease rates in certain aircraft types already.
The rate of recovery in lease rates has been led by the new technology narrow body assets on the <unk> hundred 21, Neo in particular would never really felt that much and were certainly seeing upward movement. There. We are seeing the Max eight we're seeing good movement on the Max eight actually is well, it's now trending near where an <unk> hundred 20, neo would trend as well for future placements.
So we're certainly seeing that and then.
Aircraft values were seeing the upward movement there in values of aircraft as evidenced by the sales that we've been executing you can see some of the gain on sale in this quarter's earnings Pete would you like to comment on that.
The near term impact of the power of the hour.
Sure so.
As we look at basic lease rents and lease yields.
Really the factor that has been affecting those has been.
Just the number of aircrafts that are in transition.
Or waiting to be delivered to new lessees right and so as they.
Really that's the biggest factor as those aircrafts get delivered then we will start to see them, earning revenue again.
And that's really something that's going to happen over the next couple of quarters, we will see the vast majority of those being delivered for example.
The <unk> hundred 50 is that we took out of the Tam and put into delta once those aircrafts deliver than the revenues start again. So that's the that's one of the biggest drivers that you'll see there.
You also see from the perspective of airlines coming off of cash accounting, So as airlines come off with cash accounting that will also impact that line because it will it will go into revenues as it relates to the PVH rents.
What we will see is over the next call it two quarters those pbms H rents.
You will see airlines coming off of those arrangements because really they were put on them at the start of the leases. So you have a PVH period, and then switching to normal normal monthly rentals fixed rentals.
So that's really going to happen kind of in early 2022, you'll be seeing that for the most part.
And I would say in general if you look at revenues generally I think this quarter is the low for us and we should see them picking up from here on out.
So hopefully that's clear thank you.
Sure. Thank you.
Thank you we will now take our next question.
From Mark Devries from Barclays. Please go ahead your line is open.
Yes. Thank you.
Appreciate theres, probably a lot of work still going on evaluating the planes you acquired but.
Any sense for when we will get some clarity on some of the pro forma accounting impacts the deal whether its a maintenance rights.
Asset or how much you collected from the cash lockbox.
Yeah.
Sure Mark So, yes, you're right I mean, it will be a big exercise to go through.
Go through the legacy G class fleet, we will do that on an asset by asset basis. So we'll look at every asset every liability on their balance sheet.
And assess what do we think is the future for that what lease rates that were going to get what maintenance revenues are we going at what expenses are we're going to have et cetera. So that is a big project that we're we've just undertaken.
And really once we have done that and also once now that we are able to operate the teams together and having the leasing executives meeting freely.
Third portfolio management people meeting.
Now, we can really take a view as to what we're trying to do strategically with all of these aircrafts and so all of that is going to inform the judgments that we make there.
And basically when we report fourth quarter results Youll see that so you will see that pro forma balance sheet in there you'll be able to see all of those assets laid out and at that point there'll just be much more information that we can give you on what the combined company will look like and what it will produce.
Okay. That's helpful. And then just one clarifying question for the pro forma equity.
In the press release is that for your stock price as of 930 and with the.
The debt to equity and the implied price.
Our book value per share b be higher.
I'm sorry, the equity would be higher if the market for where the stock was on the day of close.
So that was based on the stock price as of was the Friday before closing so on October 29th which was closed at $59 four on that date and so that's that's what you base. It on because when you account for it when you account for those shares you just multiply the number of shares 111 5 million.
Times 59 O four so that number won't change.
And really it's just driven by where the stock happens to be on that on that date.
Okay got it thank you.
Sure.
Thank you we will now take our next question from Jamie Baker from Jpmorgan. Please go ahead. Your line is open.
Hey, good afternoon everybody.
Follow up on the first question about aircraft values, so mark and I notice that the.
The weaker aircraft types III <unk> triple seven 300 yards.
The value subscribe to those types was lower than what we think some investors might have been expecting did you have any wiggle room to allocate G. Cas aircraft value in a way that would minimize the risk of downgrades could you just remind us of any rules around that.
Well, let me just start off with the strategy, though and first of all Mark.
The key thing about the portfolio, we bought with <unk>.
Yes.
And I say that so many times the age of the portfolio is not a metric of risk.
If you have young Triple Sevens young <unk> hundred <unk>, you have significant risk profiles <unk> and Aercap. The two biggest players in the markets two biggest buyers and sellers of airplane in the world had the same strategy do not buy any end of life <unk> Triple Sevens and so neither one of us.
Was involved and that growth at any price model that some of our competitors engaged in over the last seven or eight years, we havent order triple 7% or 330 cents.
Over 11 years ago, so the issue that you're referring to it's much more acute for those who have young assets in those asset classes.
Furthermore, the balance sheet of <unk> was not was not built by buying overpriced M&A transactions. So.
We're not allocating purchase price premiums in fact, even on closing even after one $5 billion run up from when we signed the transaction with <unk> in March to closing the discount is still three 5 billion that we're guessing off the GE cash balance sheet. That's after a one almost one $5 billion run up in the stock.
So to the extent.
First of all the most important thing was the strategy was rice and both companies.
<unk> about how we put the portfolio together secondly, the <unk> book wasn't built by paying over the odds for assets and then thirdly of course, we are getting a very significant discount here. So to the extent, we want to take something off those assets, we will reflect the true market value.
Thanks for that guys.
While I have you I mean, the asset sale market is very strong you know at the moment, we had one of your competitors Ceos tell us that he could sell anything that he wants right. Now just wondering if you agree with that assessment and how aggressive you might be in culling the pro forma portfolio going forward. Thanks.
I don't know who described your commentary but of course, you could sell anything for one dollar I suppose.
I'm not entirely sure.
Got it.
That's that's the case just yes, I mean look what I would say is this as in prior downturns, we're seeing the recovery led by the same assets. So without question <unk> hundred 20, Neo aircraft values when they never really got hit that hard to be to be fair in the lease rates have ticked up on those the Max eight is making a comeback that's important it's important for competition with Ara.
Bus to actually that.
That is not just an Airbus market. The Max eight is coming back Thats good news.
And then we certainly see us on 320 730 Sevens, we see it on 780 sevens at the moment as well so it's coming and I do think that we have seen a significant increase in asset values.
From the beginning of this year that is not in doubt and we see that in the sales prices that we're getting for our airplanes.
Yes, I mean, I would agree with the sentiment.
Do you ever one of my peers said to us.
It's slightly more nuanced.
Mark and I appreciate the color thanks, guys.
Thank you we will now take our next question from Catherine O'brien from Goldman Sachs. Please go ahead. Your line is open.
Hi, good morning, everyone. Thanks, so much for the time.
So I know the aercap.
Every book is sold out through 2022, I'm guessing Ges legacy order buckets, probably similarly positioned correct me if I'm wrong.
Can you just speak to how quickly you can start marketing both fleets jointly and then can you walk us through any pluses or minuses youre thinking through to marketing our larger combined order book. Thanks, So much.
Well first of all yes, the GTT castrated, similarly placed and the vast vast majority of the Delta to order books actually through the end of 'twenty three are placed.
And.
When it comes to where of course as of the day of closing.
In preparing for that and our confidence in the last six months to hit the ground running and a lot of work has gone into that of course, we were never able to up until the day of closing in any way shape or form coordinate any campaigns, but we've done this before and seven years ago and so so far.
We're albeit 10 days in the coordination has been very good on marketing the combined fleet.
Okay got it thank you very much.
And then maybe just one for Pete.
Not to be nitpicky in what was a strong quarter, but you know your cash accounting increased a little bit from last quarter, what drove that and then just any updates on when you think that aligns completely I know you were talking about.
Earlier that you expect <unk> to probably be the bottom.
Safe to assume that probably goes for cash accounting as well thanks.
Sure.
The second quarter number was $54 million for cash accounting and as I mentioned at the time on the on our last earnings call that was impacted by some onetime items, which made it kind of artificially low relative to to what we would've expected and so we went from a $100 million during the first.
Quarter to <unk> 54 to <unk> 75, and I think that number is going to come down from here on out so the trend absent that one time aspect of it the trend is going down I mean, one of the big items on that would've been the Tam right.
The Tam is back on accrual accounting now now that we've restructured the deals with the Tam and the aircraft that are in there and so that would be a big driver of bringing that down.
Great. Thanks, so much for the time.
Sure. Thanks.
Thank you we will now.
We'll take our next message from Hillary.
<unk> from Deutsche Bank. Please go ahead. Your line is open hi, Thanks for taking my question, so with the <unk> acquisition.
Acquisition now closed and I know you'll be focused on successfully integrating the new operations.
And you wanted to put format.
One to two seven times could.
Could you just provide a little more color on how that'll be done will you be selling assets raising equity capital and how you envision your longer term capital structure to look like.
Sure. Thanks, Hillary so the primary driver of it will just be our organic cash generation of equity generation.
That on its own would bring us down to that level and below that level and we were starting off at two eight to one.
So we're pretty close to it now that gives us a very good start towards that two seven target.
But that's the main driver and then beyond that asset sales also are also contribute the more assets that you saw you can bring that number down faster or buy more.
But no I mean, we're not planning to raise any equity.
Gotcha Thats helpful.
And then one of your competitors last week talked about production delays that Boeing and Airbus, having an impact on your delivery schedule are you.
Like the same type of issues with the Oems in terms of delivery.
So you can kind of talk about what you're seeing there.
Thank you.
Sure I mean Thats fair.
That's a global phenomenon at the moment and certainly the Boeing issues are well documented with the issues that are currently on the Max and the 787 line. However that being said I would expect Boeing to come through this.
I have a difficult time, but.
I believe those are those deliveries will ramp up again and as we get into next year. It will take a bit of time.
Mind, you as the largest owner of commercial airplanes in the world and someone who's a marginal supplier of capacity that's not entirely a negative thing for us anyway.
But needless to say, we're in discussion with the manufacturers and all of them everyday RSP are the biggest owner of buyer of commercial airplanes in the world.
Sure. Thanks for your time, thank you.
Youre welcome.
We will now take our next question from Helane Becker from Cowen. Please go ahead. Your line is open.
Thanks, very much operator, hi, everybody and thank you very much for the time today, just two questions Pete on the <unk> hundred.
And $1 million that you saw this 11 aircraft for in the $38 million net gain had those aircraft to be been previously written down.
Yeah, Helane most of those aircraft.
If I look across the the 11 aircraft.
They were an average age of about 20 years old and some of them were were obviously were older than that if thats. The average and so we they had been written down by a fair amount over time.
That was the old 760 Sevens for instance, and so there was very little value left associated with them and so we wrote them down.
We.
Normal depreciation.
Over the years.
Got you and then I think you have an order book of about 450 aircrafts now combined.
Did you say this and I just missed it and I apologize. If you did or are you going to look and talk to the Oems about potentially restructuring that order book are beyond 2024 since youre, mostly placed through year end 2023 or are you just going to go ahead and combine them and hope for the best so to speak.
Well just one order book now Helane in both companies who are very proficient in leasing the aircraft on the backlog and so the placement strategy that both companies had was very similar and as.
As I said before you know over the years <unk> has been a very experienced and disciplined buyer of assets.
And as.
As I mentioned as well the <unk> balance sheet wasn't built by overpaying for assets, either through M&A or or.
End of line assets. So we feel that the order book that <unk> is well priced.
Perfect. Thank you.
Okay.
Thank you we will.
Now take our next question.
From Moshe O'brien's from Credit Suisse. Please go ahead.
Yes.
Okay, great. Thanks.
I guess, you had mentioned that aercap.
Aircraft values have improved I'm just wondering if there is.
Could a finer point on the improvement that you've seen since negotiated the transaction in terms of values and maybe if you could also relate to that.
The level of interest costs based upon the fundings that you did compared to what you had assumed at the time.
The transaction.
Yeah.
Well I mean, it's very hard to put five points upon it but I would just say directionally as I said, we're certainly seeing led by new technology narrow bodies. They are up and we've seen a significant increase in the value of 730 Sevens. We had a package of 737 eight hundreds that were our 2013 build assets that we had contract we had signed a lease.
We intend to sell.
At the beginning of the pandemic in March of 2020.
The buyer of those assets pullback walked away we have since sold those assets and we sold those airplanes are contracted to sell them at a higher number than what was the case pre pandemic. That's after adjusting for the profitability, we made by holding the asset through that.
The earnings we made on the asset but.
Overall, a higher price.
So I would say that Thats. The case and then we see it coming back on the on the new technology wide bodies, as well and as I referenced earlier on the on.
On the Triple seven percents retired the real issues, where people have there will be those who will be young variance who've been buying airplanes over the last seven or eight years of that variant. We havent done that neither is G. Cas and indeed, one of the other attractive aspects of <unk> is <unk> is the leading Frazier business in the World Aercap is now the leading freight lessor in the world, we're not talking about doing things.
We are the leader we are the leader in the 737 800 freighter program. We are the leader on the Triple seven freighter program. In fact, we're in an industrial park and run it with III not just a customer of us and.
So that's how I see the market at the moment.
Great. Thanks, and just as a follow up I mean, maybe it should reverse an earlier question.
But clearly youre going to reach your.
Your desired capital level fairly soon.
It does seem likely that deliveries are going to be slower than whatever has been anticipated. So I guess.
And the sales market is likely to be potentially stronger side. So.
Could you talk a little bit about how you think about the deployment of your excess capital issue.
Are likely to generate over the coming couple of quarters.
Sure Moshe and I mean look I think if you look at our track record there.
We've been very disciplined stewards of capital and always put the excess capital to work in the best interest of the stakeholders the business and you can assume that we'll do the same again, but.
We started off as Pete said I'm in a good place and the debt equity ratio.
Great. Thanks very much.
Thank you.
Now take our next caller.
Ross Harvey from Davy. Please go ahead your line is open.
Hi, yes, thanks for the time.
So my question is just kind of revert back to the aircraft sales.
I'm just wondering from a modeling perspective.
Conditional upstate allow the analysis youre doing on the asset that enrollment, but what should we generally expect for the next couple of years. So I know, it's a placeholder. It was then.
$1 billion before chablis pro forma that starting about $2 billion.
You might comment if you can on the secondary market conditions and things like engines on helicopters and freighter aircraft.
Compare.
To the degree that you can.
How quick you can sell assets into those markets.
Thanks.
Okay.
Sure Ross so on the total sales volume I think that's a reasonable way to look at it I mean, if you look at what the company is we're doing.
On a combined basis before it was up to $45 million a year.
I wouldn't assume that we could get to that level next year.
And as you mentioned historically, we have kind of guided people to around $1 billion a year. So I think that's $2 billion seems like a reasonable number.
Obviously, that's going to depend on the market in terms of in terms of what we achieve in and and obviously also our review of the assets and decisions about which assets do we want to sell.
And maybe just to comment on some of those other types that you mentioned I mean, I would say as a general matter on the helicopter side I don't expect I mean look helicopters or about 5% of the total assets and so I wouldn't be expecting large numbers coming out of helicopters.
Just on the engine side and any comments you wanted to make there no I think similarly, the engine business. We said is less than 10% of the total assets also so.
It could be driven by the fixed wing side of the business.
The sales programs.
Okay. Thanks.
Just a follow up then in terms of the integration and I'm. Just wondering have you got a timeline in mind.
Consider the two business, especially integrated on one of the figures that you gave earlier. This year was 150 million of SG&A synergies I'm. Just wondering does that for me in the cast or do you stick with that number.
Sure. So look obviously, we're working hard to integrate the businesses. We're meeting every day getting the teams together and that's gone very well so far.
But it will be a process that takes that will take several quarters.
As I look out at that $150 million target I think that is still a good target.
And I would look towards the latter part of next year. So by the fourth quarter of next year, we would expect to have gotten all of the benefits through on it.
A run rate basis, so that you could say that's the that's kind of a run rate SG&A relative to that target.
Okay. Thanks for that.
Sure.
Thank you lease on.
Now take our next question from Ron.
Ron Epstein from Bank of America. Please go ahead.
Yeah, Good morning, guys.
Okay doing well.
A couple of quick questions for you.
I'm just wondering what are your thoughts on the <unk> hundred 20, it's my understanding that Airbus is pushing that hard.
Lindsay right now.
Just what thoughts do you have on that asset.
The $3 20 to 2820 airplanes.
Thanks <unk>.
You know look I mean, it's a good airplane I don't think the heart of the market as Steve is always going to be the bigger variant.
Which is the 160 to 200 220 seat market now that's where the heart of the narrow body is.
That will be.
Airplane to supplement the the.
The existing choices that airlines make but it will not be the driver of an airline's fleet decision. Unlike the neo or Max would be.
But certainly it seems to be gaining good traction at the moment, there's no doubt about that.
Got it got it got it.
And then.
Just a follow up.
Do you think Boeing needs to do a longer range aircraft, that's got the capacity.
The narrow body.
The bigger narrow body small wide body or something but something that could effectively compete.
And the market, where the 770, <unk> today, or maybe perhaps a little more capable than the supply, but not kind of ultra long haul.
To do an airplane there.
I suppose I would I would.
To answer that in two phases. The first thing is.
They have to start building what's in their backlog today, they have to start getting 737 and 787th at the door that is absolute priority.
That's the cash cow for any future.
Development of the business.
Do I think that they could do with something that could fly up a little bit longer.
Perhaps but I think it once again the heart of the Marcus is in.
That 160 to 220 seats short haul drives to global air traffic markets and short haul operations you were generally doing two and a half hours. So people should never get carried away by these marquee routes.
Flying from Eastern United States to Western Europe.
It's fine, but its niche in the global market. The market is not that's not the market for narrow bodies. The market for narrow bodies is still two and a half hour missions carrying as many people as you can as efficiently as you possibly can.
And that is the heart of the market that Ain't going to change now that's not to say that you may want some are paying to top and tail that we mentioned the 220 is a very good tail for that market. It's got very good acceptance, particularly with the Airbus Sam horsepower behind it now as opposed to Bombardier as horsepower.
And then on the bigger end of the market Yeah sure I mean, Airbus definitely have a slight advantage there.
With two Boeing wants to do something there they may but the heart of that market. All you have to do is look at public available information.
<unk> do Mato most airplanes fly and the vast majority of airplanes are flying two two and a half hour missions and thats the short haul market.
Yeah, Yeah, yeah yeah.
And then and then maybe just one last one.
What's the issue with getting maxed out the door.
I think we all understand them 707.
She is going on with the FAA, but.
This 73 back has just been trickling out and then I don't know if theyre sharing.
On that but what they've shared with the broader community, it's been pretty sparse to be honest.
Yeah, and I mean.
For as far as I'm concerned we're not building. These aircrafts Boeing are but they just need to start getting these airplanes out faster and whatever it takes us to cash flow of the business.
Got it alright, thank you.
Thank you.
We will now take our next question from Vincent can Tang from Stephens. Please go ahead.
Okay. Thank you. Thanks for taking my question. So first congratulations on the close of the acquisition.
And thank you so on the call you have given some details like the SG&A savings and also maybe what we should think.
<unk>.
Aircraft sales, but.
Maybe if there's any kind of broader guidance or help you could provide for us when we think about the combined GTS aercap entity safer 2020, when we think about ongoing EPS and book value. Thank you.
Yes, Vincent as I had mentioned before I really think that.
For US right now we're focused on as I said assessing the portfolio doing the whole purchase price allocation process that I mentioned and looking at what we're going to do for <unk>.
For each asset in that fleet.
And really once we have done all of that that's when we can provide more information to you. So I would expect that would be when we report fourth quarter results.
Okay understood. Thank you and then.
Second question. So it's a nice gain on sale this quarter and broadly I was wondering if you could talk about your ongoing strategy. When you think about aircraft sales.
What you sell.
And particularly with your combined entity.
You talked about the value of the <unk> portfolio under recovery of aircraft value. So when you think about the $34 $35 billion fair value of that acquisition.
Yet the strong gains youre getting just sort of wondering if you could talk about the overall strategy. When you think of sales. Thank you.
I mean, the strategy regarding asset sales won't change I mean, we were targeting.
Aircraft Das wire on the older and a mix of wide and narrow bodies.
And the objective of our portfolio management and our sales is to improve the residual value of the portfolio. There's no point me going out there selling a prized asset and booking a gain on sale for $10 million given away in essence $15 million of income with a good credit on a good airplane that's not the way to run these businesses and we haven't done that and so the strategy will be the <unk>.
Same as it has been in the past, which is when we do an asset sale of the residual portfolio should be relatively basher without those assets in it.
And then of course, we will drive and maximize price as much as we can.
Okay, Great I appreciate it thanks very much.
Yeah.
Thank you.
There are currently no more questions in the queue I will turn the call back to your host.
Thank you all very much for joining us for the call.
We look forward to talking to you in three months time, if not before.
Ladies and gentlemen that will conclude today's conference you may now all disconnect.
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