Q1 2022 Air Lease Corp Earnings Call
Yeah.
Okay.
Ladies and gentlemen, welcome to the Air lease first quarter 2022 earnings 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 am I should require assistance during the conference. Please press star zero on your Touchtone telephone.
A minder this conference call is being recorded.
I would now like to turn the conference over to your host Mr. Jason Arnold head of Investor Relations. Sir. Please go ahead.
Good afternoon, everyone and welcome to Air lease Corporation's first quarter 2022 earnings call. 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.
First quarter 2022 results 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 may five 2022, 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 the state of the airline industry, including the impact of sanctions imposed on Russia, 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 company.
These future performance represent management's estimates for future results and speak only as of today may five 2022. 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 risk factors.
That may affect our results.
Air Lease Corporation assumes no obligation to update any forward looking statements or information in light of new information or future events. In addition, certain financial measures we may be using during the call such as adjusted net income before taxes adjusted diluted earnings per share before income taxes, and adjusted pre tax return on <unk>.
Our non-GAAP measures a description of our reasons for utilizing these non-GAAP measures as well as our definitions of them and the reconciliation to corresponding GAAP measures can be found in the earnings release and the 10-Q, we issued today.
The release can be found in both the investors and the press section of our website at Air lease Corp. Dot Com as a reminder, unauthorized recording of this conference is not permitted I would like to turn the call now to our Chief Executive Officer, and President John <unk>, John Thanks, Jason Good afternoon, everyone and thank you for joining us today.
<unk>.
I'd like to begin by expressing our sorrow on the war in Ukraine.
The devastation and loss of life is a humanitarian disaster of horrific proportions in our thoughts and prayers are with all of those affected.
To this end just as we did with Covid relief for India Air Lease Corporation, working and partnering with ice that provided the leading $100000 donation for the Ukraine relief fund, which supports air link and other nongovernmental organizations, who provide humanitarian aid to the country.
We hope that helps.
Moving onto our first quarter financial results ALC generated $597 million in total revenue during the quarter up 26% relative to the first quarter of last year and achieved record quarterly rental revenue of $567 million.
Our adjusted diluted EPS for the first quarter of $1 76 per share rose, 71% year over year.
First quarter performance on an adjusted basis benefited from the growth of our fleet.
A significant reduction in cash accounting and lease restructurings as well as end of lease revenue from the termination of our leasing activity in Russia.
We purchased eight new aircraft and one used aircraft in the secondary market during the first quarter of 'twenty two for a total of nine aircraft, adding approximately $490 million of flight equipment during the quarter.
Our operating cash flow was up roughly 9% relative to the first quarter of last year and I'm very happy to say that the impact of cash accounting and customer accommodations was minimal this quarter as compared to prior periods.
We ended the first quarter with the lease utilization rate of 99, 5%.
So in summary, excluding the Russell write off our key operating metrics continue to trend favorably.
We have no aircraft sales in the quarter and as we commented to you last quarter. Our aircraft sales program still remains targeted to the second half of 2022, given OEM delivery delays and more on the Oems in a moment.
Of course, as we disclosed in an 8-K filing on April 20, <unk> for Q1, we wrote off our Russia fleet and equity interest, which resulted in a recording of a charge of $802 million.
And drove us into a loss position for the quarter.
While we were initially successful in retrieving so several of our aircraft it became increasingly clear that those remaining in Russia, we're not going to be returned.
As such we concluded that a write off of these assets was the appropriate course of action.
Nevertheless, and importantly, I want to underscore the fact that we are vigorously pursuing what we believe are strong and valid insurance claim.
I know many of you have questions about the mechanics of the insurance process, but we hope you. Appreciate this is a complex matter and theres not a lot more we can comment on detail at this point in time.
Moving beyond Russia, and Ukraine, we continue to see an acceleration of air traffic volumes globally as the pandemic subsides in most regions.
<unk> for new aircraft, particularly on the single aisle end of the equation has been picking up pace significantly and only continues to strengthen as airlines look for near term lift as traffic demand picks up.
Widebody demand also continues to improve benefiting from continued relaxation of travel restrictions internationally and from the cargo market.
Over the last few months international traffic volumes have improved dramatically, including Asia, which had been the slowest geographic region in terms of recovery.
In fact, according to IATA data just released it.
International traffic is up well above 200% year over year in many regions. For example, Europe is up a staggering 425% the middle East 246%.
Latin America, 240%.
North America, 228%.
And up 197% and Asia Pacific.
We've said in the past with international traffic is the next market segment to take off as the world continues to recover from the pandemic.
Accordingly, our order book placement activity directly reflects growing demand with 97% of our 2020, our deliveries through 2023 now placed and soon we expect to be fully placed for 2023 and 24 as those agreements are finalized with new customers.
We've recently announced several larger scale, new lease placements, which Steve will further comment on.
The pace of these larger scale placements continues.
On the OEM side, both Airbus and Boeing are experiencing rising challenges in delivering aircraft on time, primarily due to supply chain and labor issues.
We continue to experience delays on our Airbus narrow body deliveries.
In addition to the supply chain and labor challenges I, just mentioned 737, Max is continuing to be delayed as Boeing still contends with clearing its remaining inventory while simultaneously producing new aircraft.
On the wide body side, the biggest challenge clearly remains with Boeing on the 787.
<unk> recently submitted certification plan to the FAA for the 787, which now is currently under review.
Approval for resumption of customer deliveries will occur only under the phase one timeline in terms and therefore, we're not expecting deliver resumption in the near term.
Alc's own outlook for 787 deliveries this year remains unchanged relative to last quarter with only one of our contractual 2022 deliveries expected to occur. This year again. These are our estimates.
Boeing clearly has its hands full at present with also significantly delayed certification and entry into service of the Triple seven ex the delayed certification of the 737, 7% and 10 variance in our sizable backlog of previously produced 730 sevens in inventory, which while sold are yet to be delivered.
Any one of these challenges alone would prove burdensome, but to have all at once is clearly taxing for the organization.
One comment I'll add on the Triple seven X delay.
We do believe that that delay AD support for existing triple seven aircraft in their lease rates and values on top of the demand for airfreight.
So OEM delays are overall strengthening demand for used aircraft and we are seeing increased request for lease extensions across the board for both single and twin aisle aircrafts.
Despite.
<unk> current and forecast future delays the last time, we spoke in February we discussed our Airbus order the largest in Alc's history, along with the new orders and conversions for 50, Boeing 737, 800 Imax's. We remain very excited about these orders as we feel the timing was right and we are seeing this decision bear fruit.
As the inbound interest for these aircrafts has been strong.
With Airbus effectively sold out on <unk> hundred 20, and 21, Neil narrow bodies through the end of 2006, and Boeing quickly heading that way as well on the Max we see these positions is likely to only increase in value to us over time.
When combining rising demand with production delays the route to a potential shortage of commercial aircraft is clearly laid out in our mines and we believe this is a likely outcome that will manifest in 2023 and beyond.
Taking into account OEM delays, we continue to expect three five to $4 $5 billion of deliveries over the course of 2022.
We expect $1 2 billion of aircraft deliveries and investments in the second quarter also of course subject to delays.
We will continue to look for opportunistic sale leaseback transactions in combination with our management platforms, where we can combine sale leasebacks with simultaneous future placement from our own order book aircraft and as well pursuing one off aircraft acquisition opportunities in the secondary market as illustrated with the used 737 800, we purchase.
And this first quarter.
While the sale leaseback market has become overheated and return opportunities unattractive over the past year, we believe that the rise in interest rates May result in the excess capital dedicated to this segment cooling off giving increased cost of funding and reduced access capital for some of the smaller new entrants.
In this space in particular.
Given continued strong financing needs for the airline industry and appeal for leasing this could yield an uptick in incremental investment opportunities for us.
Whether the OEM surprises by getting back on track with deliveries for opportunistic investments arise, we remain well positioned for either outcome.
We're also well positioned on our funding with a strong liquidity position of $8 3 billion.
And significant ongoing access to the investment grade capital markets.
During the first quarter, we issued $1 5 billion of notes in January at a blended rate of approximately two 5%.
Prior to broader market interest rates spiking higher or.
Our composite cost of funds at the end of the first quarter of 2002 was 277% the lowest in our company's history, and we remain well positioned for further increases.
And interest rates as 95% of our funding is fixed rate and we expect that our strong balance sheet and credit metrics will allow us to continue funding ourselves at competitive rates as compared to our customer base, which should further support demand for leasing versus other forms of financing.
The interest rate escalators built into the majority of our leases, which provide for a onetime upward lease with great adjustment at the time of delivery of the aircraft.
Upside to lease rates as benchmark interest rates rise and we are already beginning to see these benefit us as new aircraft are delivered.
So we feel very good about our liquidity and funding access as well as our positioning for a rising interest rate environment.
In summary, we're excited to continue to see traffic improving globally, and especially to see international traffic finally, showing more meaningful signs of recovery.
We have the largest combined order book of Airbus and Boeing aircraft in the industry and demand remains robust for both new aircraft as well as lease financing, which along with our strong balance sheet and unmatched customer relationships positions us well for continued success for this foreseeable future.
I'll now turn the call over to Steve Harvey for additional commentary and to update you on our stock repurchase program Steve.
John Thank you very much.
Hard to say that this month, we celebrate alc's <unk> anniversary, having purchased our first new jet aircrafts on may 19th 2010.
Let me begin by just adding to John's opening comments on Russia and Ukraine.
That while a tragedy for all humanity.
These events are particularly painful for me and my family to watch an individual's family was forced to fleet from our home country of Hungary back.
Back in the late 19 fifties.
They're very similar circumstances.
We send our prayers to all those people affected by this tragedy.
I do want to additionally, expand upon a relatively modest impact of Russia shutting itself off for most of the world.
Based on IATA estimates in recent months, Russia domestic and international traffic combined represent just a few percent of total global traffic.
That percentage of global traffic will continue to fall.
Seized aircrafts become non air worthy due to unavailable liddy of parts and heavy maintenance capabilities, both within and outside of Russia.
The broader European traffic recovery. Meanwhile, has continued on large sheets.
Indeed, largely unfazed by the ongoing war in March and April again were the best performing markets in Europe , among all the international traffic areas compared to the prior year.
Looking at more recent indicators versus.
In Europe volume, increasing nicely, even closure of the Russian aerospace to most of the airlines around the globe has not been terribly Bourbon.
Certain leg from northern Europe to northeastern Asia countries.
Or in some cases more significantly extended.
Routes between southern Asia to Europe , while longer than before Barnard and dramatically impacted.
In either case. This is nothing out of the ordinary for airlines to circumnavigate and aerospace closure, whether it's due to volcanic activity seasonal weather patterns.
And we can't forget that avoiding question Aerospace was a standard course of business for airlines prior to the fall of the iron curtain.
At the end of the 1980.
As an example.
Just resurrected a fuller route.
Lastly, during the early 1990 to connect Helsinki, Finland directly to Tokyo.
Where there's a demand for air travel between city pairs Airlines will find a way.
I would also note that these longer routes bode favorably for demand for new and highly efficient wide body aircraft in our fleet.
Such as the Boeing 787, the <unk> hundred 30 deal and the <unk> hundred 50, as well as our youngest 777 300 yards.
Looking at traffic on a more global basis, we are very encouraged to see volumes continue to move beyond the pandemic.
<unk> March traffic numbers show strong improvement with total traffic up 76% year over year.
Looking at the detail.
The international side.
Now seeing the largest percentage growth at 285% year over year improvement.
Domestic traffic continues to improve even after the surge at the end of 2021.
While still coming off relatively low levels.
Percentage increases are clearly dramatic and these are very encouraging signs that the recovery in this segment is finally picking up.
<unk>.
Domestic traffic continues to gain significant ground in most markets as well only excluding China.
Which has recently been impacted by travel restrictions and Lockdowns.
Forward bookings for most of our airline customers continue to build momentum and strength.
We cited a trend of consumers trading the consumption of goods increasingly for services and experiences.
And in recent months U S. Economic data is clearly demonstrating an acceleration of this trend.
As interest rates and hard asset prices continue to rise with inflation.
Extrapolated on a broader scale globally. This is also very supportive to the outlook for air travel demand on a global scale.
We clearly.
See some countries and regions remain constrained by minor outbreaks and.
Overall, Covid cases are down significantly worldwide from peak levels in 2021.
More importantly, government and other regulatory bodies are continuing to relax travel restrictions many of which have dramatically impacted if not almost completely halted air travel to and from their respective countries.
In recent months, we've seen Australia, New Zealand, Israel, Morocco, and many others reopening borders to the foreign travelers most.
Most countries in southeast Asia, which prior to the pandemic was the fastest growing airlines market in the world have also reopened recently and or have near term plans to reopen very quickly. These countries have come a long way since the struggling.
Elevated COVID-19 cases, and significant restrictions in the past year.
A number of European countries have in recent days and weeks further reduced remaining restrictions such as required proof of vaccination negative COVID-19 testing for inbound passengers offering increased eastwood travelers looking to lock in summer season travel plans.
As the primary negative standout air travel remains highly restricted in China. Following its local COVID-19 outbreaks and the country is zero Covid policy.
Hong Kong, the only exception, having recently relaxed very strict COVID-19 restrictions.
With some further relaxation just announced this week.
Interestingly some suggest that this easing in Hong Kong, maybe a test case for China to Alaska approach as its case loads drop in time.
We strongly believe that lives lost ounces of past are increasingly unlikely given the high level of vaccinations and other forms of Covid medical treatments.
Alc's focus on new technology, aircrafts and replacement of old inefficient aircrafts.
<unk> has provided us the benefits throughout the pandemic I'm not being overly reliant upon the recovery in traffic.
Our fleet planning discussions with both existing and new airline customers continue in earnest and robustly at air lease recently, we finalized the lease of $25 737, Max aircraft to Malaysia.
In February we placed nine Boeing 737 dash eight dash nine aircrafts.
With the court in airline group in Turkey, Malta and Netherlands.
With deliveries in 2022 and 2023.
And similarly in March we announced the placement of nine new Boeing 737 Dash eight and dash nine Max aircrafts with a long term client aeromexico and these aircrafts will deliveries between July of this year in the summer of 2023.
In March we announced a very significant transaction involving the placement of 15 brand new Airbus <unk> hundred 21, XLR with Air Canada.
These aircraft will deliver in 2024 and 2025.
The <unk> hundred 21, XLR is really set to be a game changer for air Canada as well as for many other airlines in the industry and should open up some very exciting new city pair opportunities for example between North America and Europe as.
As well as between North and South America.
The expansion of interest in the <unk> hundred 21, XLR continues to accelerate on a global scale.
Just two days ago, you saw a large scale order from Qantas, Australia <unk>.
<unk> for the first time, the <unk> hundred 21, XLR for both domestic and international routes as well as the 8% to 20.
And the long range variant of the <unk> hundred $51000.
Interestingly. These are all aircraft that are in the ALC portfolio.
I would just like to remind all of you that ALC was the launch customer for the <unk> hundred 21, XLR version of the <unk> hundred 21.
As we saw early on its significant potential and the same goes for the <unk> hundred 51000 as well.
In the coming months, you will see many significant lease placement announcements.
As we capitalize on the strategic strength of the marketplace, which is also being positively influenced by rising interest rates and inflation, which has historically favored leasing.
Rising fuel costs and interest rates, both will have impact on airline operations.
But so far the impact is manageable.
On the fuel side of the equation. It is important to note that while many costs that while it is more costly.
Current years Airlines have operated profitably for extended periods of time with oil at approximately $100 a barrel.
That said new aircraft from our fleet that are anywhere from 20% to 30% more fuel efficient and predecessor aircrafts make a real difference to airlines bottomline.
In addition lease financing appeal is also on the rise as airline credit costs rise more quickly than those of ALC, considering our investment grade ratings and significant access to the capital markets.
Our deliveries were a bit lighter than expected this quarter given the continues OEM.
OEM delays, but we still delivered nine aircrafts total to customers during the first quarter.
We delivered two Boeing 737 dash eight and one used $700 seven to 800 to FLIR in Norway. The <unk>.
<unk> hundred $37 eight to Cayman Airways.
737 Dash nine to Alaska Airlines, we also delivered an Airbus <unk> hundred 21, Neil China Airlines.
Taiwan, and an <unk> hundred 21, LR, the Scandinavian airlines system and stockholders as.
As well as an <unk> hundred 2200 meals to the star in India and Airlines owned by Singapore Airlines and the Tata Group.
On the wide body side, we delivered on the Airbus <unk> hundred 3900 deals to start ups. All of these aircraft were eagerly weighted by these airline customers offering significant fuel and economic efficiency savings maintenance holidays and in some cases advanced ranged and increased capability.
<unk> and payloads on their route networks as.
As compared to aircrafts previously operated.
I'm also very pleased to announce that in the last few weeks, we fully completed our.
$150 million common.
Common stock repurchase authorization.
Having bought back approximately three 4 million shares of Air lease Corporation.
So roughly 3% of our common shares outstanding.
As we shared with you last quarter.
We remain highly focused on investing in brand new aircraft on long term leases as a driving force of our business.
Although we fully recognize the value of repurchasing stock as an attractive component of capital allocation when market conditions are appropriate.
In addition to paying our quarterly dividend, we're very pleased to have executed our repurchase authorization in full at a share price below book value.
<unk> offering both book value accretion along with EPS accretion over time.
Wrapping up my comments as clearly illustrated by global traffic figures and the trends in our operations Air travel demand is highly durable.
But it's also irreplaceable.
During the pandemic, many suggested that 2026 or 2025 or even later.
The soonest that air travel approaches 2019 levels, but they have been proven wrong.
Many domestic markets have come very close to exceeding 2019 levels.
Business travel Meanwhile, was set to be partially debt for the foreseeable future, but in many markets is already pre pandemic levels.
There is no substitute for visiting a customer a.
A family member or friend.
And you can't experience the city the country side, the beach via webcast or computer screen.
It is this fundamental needs to connect in person in the real world that drives our industry and we continue to believe that further meaningful airline industry improvement is.
It's clearly visible ahead of us.
And with that we'll turn the call over to our CFO , Greg Willis to provide more detail and color on our financial results for the first quarter in 2022.
Thank you, Steve and good afternoon, everyone in the first quarter of 2020 to ALC generated revenues of $597 million.
Up 26% as compared to the first quarter of 2021. This was comprised of $567 million of rental revenues and $30 million of other activities.
Approximately $60 million of revenue this quarter was a product of end of lease revenue and forfeiture of security deposit income, resulting from the termination of our leasing activities in Russia.
Which approximately covers the lease rentals that would've been due from our Russian fleet for the remainder of the year.
The increase in our revenues was primarily driven by the growth of our fleet.
Impact from Covid and the end of lease revenue Digest discussed broadly speaking, we continue to witness a firming operating environment for our lessees COVID-19 related factors, such as cash accounting lease restructuring and deferrals are now minimal as compared to last year.
Our outstanding balance outstanding deferred balance continues to be repaid as expected.
Now on to expenses.
I want to add some additional detail on the rest of the fleet right off as John mentioned, we wrote off $802 million in connection with our owned and managed fleets in Russia. This is comprised of $791 million related to our own fleet located in Russia, and $11 million related to our interest in our managed vehicles with Russian exposure.
As it became clear that the Russian government was not going to permit the return of these aircraft in accordance with our lease agreements, we were forced down and accounting path that led to the write off that we previously announced and based upon these facts, we feel strongly about the ability of our of our insurance claims and we will pursue them vigorously.
Accordingly, I do want to point out that any cash recoveries, we do receive on the Russian fleet will go directly to the bottom line as the accounting rules are very clear and do not permit us to write the assets back up.
Moving on to operating expenses interest expense was relatively flat year over year, driven by the growth of our fleet largely offset by a decline in our composite cost of funds, our composite rate decreased 2% to 77% as of quarter end from three 2% in the prior year I think that it is important to highlight that despite.
The increase in our debt balance by $1 7 billion. Our interest expense remained flat. This is a testament to the low cost funding, we were able to achieve in the capital markets over the past year.
Depreciation continues to track the size of our fleet, while SG&A rose over the course of 2021 as we returned to a more normalized level of operating expenses as compared to prior years.
SG&A was somewhat elevated during the first quarter given expenses related to aircraft transitions.
John covered our first quarter capital market issuances by do want to add a few brief comments here, we remain firmly dedicated to maintaining our investment grade balance sheet utilizing unsecured debt as our primary form of financing maintaining a target mix of fixed rate financing at 80% and having a target debt to equity ratio of two five times.
As of the end of the quarter, our unsecured funding represented 99% of our total debt financing.
And we continue to maintain over $25 billion of unencumbered assets on our balance sheet.
The interest rates on our debt are currently 95% fix positioning us very well for a rising rate environment. We ended the period with a debt to equity ratio of two eight on a GAAP basis, which net of cash on the balance sheet is approximately two six times, while leverage is now somewhat above our target due to the Russia fleet write off we expect this.
To trend back towards our target as we grow our business and resume our aircraft sales activities.
We have recently increased the capacity of our revolving credit facility from 7 billion to $6 8 billion and extended the final maturity by one year to 2026, which further supports our liquidity position as well as supporting our future fleet expansion.
We continue to expect to maintain elevated levels of liquidity until the broader aviation market regains.
Other ground and overall we remain.
Very well positioned from a balance sheet perspective.
Lastly, I'd like to highlight the size and scale of our forward order book relative to our existing fleet a topic that I think has been somewhat overshadowed over the last several years due to the Max strategies, Covid 787 program delays and the crisis in Russia, and Ukraine at the end of the first quarter, our flight equipment balance net of depreciation totaled.
$22 3 billion, while our forward order book purchase commitments totaled approximately $28 8 billion net of depreciation and sales activity. This roughly represents a doubling over fleet from just our order book deliveries alone over the next five years or six years. There are very few businesses that can telegraph this magnitude of growth over a largely defined.
Horizon, our business model is built around leasing out brand new aircraft on long term lease agreement generating attractive and consistent returns, while utilizing modest financial leverage further.
Furthermore, our interest rate risk management approach puts us on solid footing for our existing fleet as market interest rates continue to rise in the current rate environment.
While our future deliveries should also continue to benefit benefit from a rise in interest rates as well as Jon and Steve mentioned previously.
It is great to see the recovery of the global Air travel industry continue to take hold following the pandemic and similarly, our outlook for ALC for the year ahead and beyond remains bright and with that I'll turn the call back over to Jason for the question and answer section of the call. Thank you. Greg. This concludes management's commentary remarks for the question and answers.
Session, we ask each participant to limit their time 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 the Q&A session Looney.
Alright, Thank you and ladies and gentlemen, if you have a question at this time. So please press the Star then the number one key on your Touchtone telephone.
Jen has been answered or you wish to remove yourself from the queue. Please press the pound one moment. Please for first question.
And your first question comes from the line of Catherine O'brien from Goldman Sachs. Your line is open.
Hey, good afternoon, everyone and thanks for the time.
John I think you mentioned in your prepared remarks that higher interest rates may lead to the exit of some of that excess capital currently transacting. The sell leaseback market is that something you've already started to see signs of or is that just based on the cost of capital for some of the non <unk> players in that market.
Well I think I think it is our expectation I can't say, yet that we actually see this in the sale leaseback market again, our primary business is not sale leasebacks. So it's not as if we're out there pursuing a lot. However reality is reality and rates are rising.
And so I would just say that's largely our expectation.
I would be surprised if that expectation was not seen in the next three to four to five months.
That's really interesting maybe maybe just like a related one on guidance.
Net of cost of capital between.
Totally understand silly thats, a very small part of the business, but so just maybe an incremental opportunity going for potentially if we do still have excess capital come out given the given.
Given the delivery delays with the Oems.
Back at the conference we hosted here Goldman in December I had a reading EMC panel and they basically spent an hour talking about how.
Covid was a great stress test and the industry overall, particularly someone like yourself, probably deserve a ratings upgrade or are those conversations that youre having now.
Yes.
We continue to have conversations with the rating agencies and.
I appreciate the trend line that we're on.
And with the robust growth in our revenues the firming up of lease rate the global demand for the type of aircraft that we have.
Those conversations will intensify in the coming quarters.
Got it if I can sneak one quick modeling one for Greg I just wanted to confirm.
<unk>.
Prepared remarks, Greg I think you said was the $60 million or so of end of lease revenue associated with Russia offset loss rental revenue for the year. So just wanted to confirm that we should be thinking about.
That lost Russia revenue being about 60 million per annum is that right.
I would say in the Q, we actually have more detail I think we say that its about $18 million a quarter.
Great I'll take a look thank you no.
No problem.
Keep in mind that we had some of those aircraft due to return at the end of their leases in the next 24 months.
Yes.
Okay. Thank you and the next question comes from the line of Jamie Baker from Jpmorgan. Your line is open.
Hey, good afternoon gentlemen.
Thanks, Jamie and Mark will take my follow up if that's okay. Steve look forward to seeing you tomorrow.
Question for John .
One byproduct of Covid.
Significantly heightened awareness amongst investors.
About deferrals.
And Unfortunately, one question that we're getting is whether air lease is.
Poised to receive.
Myriad deferral requests in light of what's happening with jet kerosene prices.
Notwithstanding my own views on this topic could you just comment pre COVID-19 what was your experience with.
Different requests.
Over the course of your career.
Not just limited to air lease.
What sort of economic conditions did they typically occurred just a little color on that too it's wage.
Some of the questions that we're taking on the topic.
Sure well the short answer Jason is no we've not received.
Any recent deferral requests due to higher costs associated with fuel and I would also add.
Since you focus pre Covid and I will also add our prior 30 plus years and our former company.
Keep in mind that we have always been leasing the most fuel efficient aircraft that are out there and the youngest so the truth is is that.
I can recall little to no.
Referral requests that I can attribute primarily because airlines were paying higher fuel rates.
Our fuel costs.
Again, the more common outgrowth is instead, a request of an accelerated replacement of their older fleet with aircrafts that we may have on order or in our fleet and frankly, it was more common for us to.
Either be frustrated we didn't have or they were asking too late or we didn't have the aircraft to provide so.
While there may be an isolate exception I am hard pressed to think about it from my memory.
We've not seen any evidence of that today generally speaking of course of airlines become under come under a lot of financial duress generally due to fuel prices or other aspects, it's not beyond the expectation that they come back to lessors and ask for help but I can tell you that given what we've gone through through Covid.
And all of the restructurings that have been done I would venture I can tell you that from air Lease's corporate perspective, and I would venture to guests for many others as well.
We've already kind of gave at the office I mean, we have done a lot for our customers.
And I don't believe we're going to be overly anxious.
To cooperate with such things Airlines are sophisticated organizations. They have a good forward view and our best thinking. They can do is offer is the most efficient aircraft that we offer.
Thanks for that John .
I expected, but.
Obviously, it's more coming from you.
And for my follow up for Mark.
John and Steve We spent a lot of time at our conference discussing with you.
Come Normalised again so.
I think it's just too early as we sit here in may of 2022.
To make predictions.
But I can tell you that our relations with these airlines were very cooperative.
And these airlines, we're all looking forward to additional.
Business with us in the future.
I would also add mark that I still submit.
That there will that there is a difference between privately owned versus get stayed on carriers and Russia I can only tell you that he said those carriers are so anxious to be able to get behind this and to move forward as quickly as possible.
I'm not 100% certain that it would be as quick.
With Russian state owned Airlines I'm speculating.
But I'm not 100% convinced that it's going to be as quick.
And Mark on that same topic. The one thing that we didn't really get into very much in our formal presentation.
The aircraft.
We are destined to go to Russia in the future.
And we had a number of new aircraft.
Particularly <unk> hundred 21 Nios there was scheduled to go to the Russian Airlines on contracts that were signed back in 2020.
Poor delivery. This year next year, we have now placed all Ah repeat placed all of those aircraft.
With airlines in the Americas and Europe .
So all of the aircraft that were destined for Russian customers have now been placed on longterm leases.
And stayed with the same or higher lease rates.
Pretty much equivalent lease rates, some a little higher yet.
I can think of to Hai twenty-one nios, where the lease rates were about.
14% higher than what they would have been had they gone to the original let's see in Russia.
We also place for 800 twenties.
That we're going to go.
To a Russian airline this year to a major plague carrier in Europe .
We place.
Several of 821 deals.
For delivery to a carrier in the Americas. So I think that demonstrates what John was talking about earlier about the resilience and strength of the single market.
We had a number of different airlines lined up competing for these assets.
Great. That's very helpful. Thanks very much.
And the next question comes from the lineup Mushy Orange.
Your line is open.
Great. Thanks.
John I think you alluded to the idea of perhaps.
Greater propensity towards lease extensions for your existing aircraft could you just kind of talk that out a little bit more than what.
How how how much of that you are likely to do it how you think about that career lease. Thanks.
Well I think it's actually pretty simple.
We are seeing requests for lease extensions earlier.
Then in the past when I say earlier normally you talk about least extensions.
The least during the year.
During the eight months to one year.
R.
Before the lease expiry now airlines are coming to us one to one and a half in some cases two years ahead of time expressing an interest in extending leases.
An aircraft that for example, a year ago. Some widebody aircraft that I thought would certainly be returned based on our thoughts at the time. We are now in the process of extending one of them with a large carrier in North America.
Is this is another example, so I would say.
That the cargo markets have learnt particular strength two extensions of widebody aircraft.
Because of the higher cargo and freight rates those able those aircraft have largely been able to earn their own keep just by the freight revenue and excluding most of the passenger revenue.
Right. So we see this trend continuing.
And I expect it will continue for the next 15 to 18 months and we recently got.
<unk> for example from.
Again in a major carrier in North America.
That due to the on their own aircraft deliveries from OEM delays. They were looking for bridging aircraft. Both of them are single oil and the twin outside for different periods of time so.
All of the things I tried to capture in my opening remarks are happening.
And these are just several small examples and circumstances that we're seeing and we expect to continue to see.
Got it thanks.
Thanks, and maybe this is a little bit theoretical at this point, but.
You said that that a cashier at 2.6 times leverage so you're not very far above you or target and so.
As you receive any proceeds and whether it's.
A week from now six months from now or two years.
Any thoughts about how you will be deploying that capital likely to come in it's obviously not all at once but it could be lumpy in terms of that.
Thoughts there.
This is Greg I think I think we will wait and see I think we have to look at the current environment, how things are going with Boeing and Airbus and their delivery streams, how the sales programs going but clearly if you receive a substantial amount of cash that goes straight to equity through the bottom line.
We need to think about cap allocation.
Yes, we do have some opportunities I think coming up in the next 12 months, a number of airlines and leasing companies.
Canceled.
Brand New Boeing aircraft.
That the Boeing company could not deliver within 12 months of the contracted delivery date, and Thats, a normal contractual provision with Airbus and Embraer and bowing.
Can't deliver the airplane after one year the customer can walk away get their money back and get all their deposits and so on so we.
We have a situation now where there are quite a number of aircraft that had been cancelled.
That had been built.
And.
In many cases, they are not ready for delivery, David built, but they're not fully completed a certified.
So we could have situations in the next 12 to 18 months worthy Oems will come to us and say look we have this airplane already bills for airline X can.
Can we interest you in acquiring that aircraft at some kind of a discount.
Just to be able to get the cash.
Into the Oems, which is obviously right now a precious commodity.
There could be pop up opportunities for brand new aircraft with airlines that we already have a good relationship with.
Thanks.
Alright, and your next question comes from the lineup here Henry.
Okay.
Hi, Thanks for taking my question, so why don't feel comfortable doing that.
Yeah.
Uhm.
Premium will following the Samsung.
Opinion.
Coming up with a high on that.
Mhm.
Mkay, so I just wanted to see it.
That's what you're seeing in the insurance market as well.
Yeah, just your thoughts on what you're saying.
It's double <unk>.
Global phone number for a handout.
I'd like you to continue to ensure that the same alone.
You know.
Just your thoughts on that.
Hillary This is Greg I think it's too soon to say, what's going to happen with market and I think a lot of people are in a market right. Now so maybe we can revisit. This later in the year to figure out how this whole industry is going to take out because they have never seen this type of an event before so I mean, clearly we've seen confiscations.
Insured losses for individual aircraft that have gone down, but nothing to this magnitude us I think we'll have to wait and see how this story plays out before we for the comment.
Okay. Thank you and then just to follow up on.
Talk about.
The impact of Q.
Hi, <unk>.
And.
Interested in buying all I was wondering if it also.
Your thoughts.
So some of them might be able to control.
Just your thoughts.
I just wanted to make sure.
Given that you are a customer.
Yeah.
Typically when expenses go for the airlines attempted biased towards trying to lease aircraft because there is a lower cash affair.
Effective.
Leasing aircraft versus going out there and buying and financing and so typically it's stronger U S dollars pushes airlines towards towards leasing aircraft.
Okay alright. Thanks.
Okay. Good I appreciate it thank you so much.
Okay.
Thank you and our final question comes from the lineup having backwards I'm, calling your line is open.
Hi, Thanks, so much temperature hold on for her lane.
I'm just curious if.
Since the war in Ukraine.
You guys have reevaluated, how you assess country risk and and just how you're thinking about that it seems like.
Maybe he'd be globalization describe a word but there's some type of plans more details that I had been there.
Five years ago.
Create your thoughts.
Well our outlook in our risk assessments really haven't.
Change materially.
I think it was it would have been anyone.
As evidenced by many many hundreds of corporations large and small doing business in Russia.
It's hard to envision this.
This this activity how.
However, I would comment for example.
That we have pursuant to not this specific Russia, Ukraine action.
Again as part of our normal customer concentration risk reviews.
About four or five years ago, our business in China representative about I'm guessing I think it was around 22 or so percent right Greg of our overall business and now we're down to about 13 12, 13%.
Because we are mindful and had been watching again since before the Russia.
Ukraine invasion.
We've been watching the political tensions increase.
Along those regards so we.
We think it's going to be remain okay, but my point is through our normal.
Of course of action we've done this already.
<unk> and I offered an example of China just know that every.
We continuously evaluate this risk on a regular and systematic basis.
And as a result of that for example, we did as I mentioned reduce have been reducing our China exposure and will likely continue.
Rejection of that proposed exposure for awhile.
And just to add to John comment.
We deliberately had a policy of not leasing any aircraft to airlines in Russia that we are government owned.
Secondly, we only have two aircraft in Ukraine.
One Boeing 737 801 Airbus.
Aircraft and all of those aircraft for Houston International operations, and we've recovered those aircraft from Ukraine.
At the very beginning of the invasion at the end of February so.
We are extremely focused on the geopolitical risk elements.
And.
Unfortunately, none of us.
Even in the intelligence community could predict the massive impact of this invasion.
Got it thanks, so much for the call.
Okay. Thank you.
Like any session.
France.
Thank you everyone for your time participating in our first quarter call. Today, we look forward to speaking with you again, when we report second quarter results operator, Thank you and please disconnect the line.
Thank you ladies and gentlemen.
Thank you for participating.
Mmm.
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