Q1 2022 AerCap Holdings NV Earnings Call
Good day and welcome to air caps for first quarter 2022 financial results. Today's conference is being recorded any transcript will be available following the call on the company's website at this time I would 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 first quarter 2022 conference call with me today is our Chief Executive Officer Angus Kelly.
<unk> Financial Officer, Pete You House.
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.
We're looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements.
Aercap 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 may 17th 2022.
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 and is being webcast simultaneously at Aercap com and will be archived for replay.
Will shortly run through our earnings presentation, and we'll allow time at the end for Q&A.
I will now turn the call over to Angus Kelly.
Good morning, everyone and thank you for joining us for our first quarter 2022 earnings call.
But for the impact of Russia. This was a strong underlying quarter for the company and I am pleased to report $2 and 23 of adjusted earnings for the period.
Across all our business lines aircraft engines cargo in helicopters.
We are seeing improving demand increase.
Increased utilization of our assets and the improving financial health of our customers.
It's always been a strong rebound in traffic on a global scale as an ever increasing number of countries remove the last of the COVID-19 related travel restrictions and welcome foreign shoppers once again, the favorable environment created by these various dynamics coupled with the proven resilience of the aircraft business model sets us up for a strong year ahead.
Ed.
There are a number of key points, which I'd like to expand on today.
The first is that it is clear that the reopening of air travel continues to gather momentum around the world.
And that the demand for aircraft is strong despite the uncertainty created by the war in the Ukraine and higher oil prices.
Importantly, when I speak to airline Ceos I hear a consistent message, which is that demand is strong enough in the U S and Europe to pass through higher input costs in.
In addition, we are seeing similar trends in southeast Asia today to the ones. We saw in the U S and Europe as those markets recover.
These trends drive demand for leased aircraft as airlines look to capitalize on this passenger and yield growth.
Second we also see strengthening demand for aircraft sales.
Effects of COVID-19 began to ease off in most parts of the World last week in Dublin, We had the annual air Finance and airline economics conferences, which were extremely well attended and the mood was positive.
The events of the last two years have once again demonstrated the resilience of the aviation industry and aircraft as an asset class.
Investors are very interested in owning physical assets as a way to provide protection in a higher inflationary environment supporting both aircraft and engine values.
Thirdly, we want to provide more financial detail on the benefits of the <unk> transaction.
Excluding the impact of the charge we've taken as a result of the war and the Ukraine for FY 2022, we expect to generate between $6 50, and $7 of adjusted EPS as well as approximately $5 billion of operating cash flow.
This is even after taking account of the $33 million of ongoing lost monthly revenue from our former Russian customers.
Pete will provide more detail on this outlook later in the presentation.
Without the <unk> acquisition has made aercap, a stronger more diversified and profitable business and earnings are significantly ahead of where we expected the aercap business to be on a standalone basis.
As you'll see from the chart the demand side of the industry continues to improve with global flight traffic back to 75% of 2019 levels as of May 20.
With North America, leading the charge of 24000 daily flights.
Europe also continues to improve heading into the summer with 20000 daily flights.
In both Europe, and the U S. Nearly all COVID-19 related restrictions have been lifted.
Supporting frictionless travel.
Allowing people to connect again.
As I've said many times once people are allowed to travel they will do so in large numbers.
A very visible example of this is that Ryanair carried 1 million passengers in April 2021, but last month April 2022, they carried $14 2 million passengers.
<unk> X increase.
China is the only major markets, where significant restrictions remain but as we've seen over the past two years, they tend to shutdown and reopened very quickly. So we don't expect this latest setback to be long lasting.
More encouraging is that the rest of Asia continues to ease restrictions and reopen borders all.
All the key tourist markets in southeast Asia, as well as India, and Australia are now open to international travel.
This bodes well for wide body demand as one of the key tourist markets for Southeast Asia is western Europe .
The impact of these announcements is immediate and just one example, Changi airport and Singapore saw traffic returned to 40% of 2019 levels from just 15% in three months as a result of this season and we are seeing similar results elsewhere with Asia Pacific ex China traffic back to 70.
Percent of 2019 levels are 16000 daily flights.
The conversations I have with the Ceos of airlines in Southeast Asia have been far more upbeat since the first of April so youre seeing bookings surge from where they were just a couple of months ago.
What are the most common questions I am asked is how the European and American Airlines managed to open up and increase capacity. So quickly airline Ceos in Asia are most focused on the logistics of reopening, particularly how to reactivate their fleets.
We can see clear evidence of this in the maintenance and overhaul facility's, whereas there was little to no capacity left for engine overhauls that are required to reactivate aircraft that have been stored for some time. This gives me confidence in the demand side for the years to come.
So whilst there were still quite a way to run on a full recovery in 2019 levels.
<unk> believes that the only impediment to getting there is government intervention once restrictions are scaled back people return to the skies quickly and in large numbers.
So while we have a positive demand environment. The supply side is just as important the good news is that supply side dynamics are favorable for the leasing industry and aercap.
Firstly from slide five you can see that the overall level of new aircraft supply remains well below the run rate of 2018.
The year before the 737 Max was grounded.
In 2018, there with just over 600, new aircraft deliveries from Boeing and Airbus.
And using that as a benchmark.
1900 fewer aircraft have been delivered since then.
For 2022, Airbus a set of targets of 720 aircraft deliveries and Boeing has set a target of 500, which is unlikely to be his but even if they do that's still amounts to 400 fewer aircraft per annum being delivered each year.
Whilst it is at times frustrating to see the delays on the 787 787, and <unk> hundred 20 Neo family aircraft for a variety of issues. It does help with the demand for our other products.
I know that Airbus recently announced plans to increase production rates on the narrow bodies <unk> hundred 20 family to <unk> 75, a month by 2025 compared to <unk> 50, a month at the moment, but much will depend on the global supply chain issues resolving themselves as well as the willingness of the engine manufacturers to follow suit.
Turning to wide body supply as Youre aware Boeing have not delivered any 780 sevens for the last 15 months and it will be a few months before they can recommence deliveries.
I'll also take years to unwind their stock of 787 inventory and get back to even very modest levels of production.
As well as this the triple seven X entry into service has been delayed until 2025.
Similarly, Airbus are also supply constrained as <unk> hundred 30 near production is unlikely to go above three a month for several years to come due to supplier constraints and a significant number of wide body aircraft are being retired during the pandemic.
So all of this means that supply is limited on the wide body side.
Contrast wide body demand is starting to come back led by the 787, just two weeks ago, We had three airlines looking for $3 787 Dash eights.
Importantly, because Asia has been closed international travel for the last year. The European majors have put a lot of the widebody fleet that normally flies to Asia on the North Atlantic.
This will reverse later this year with Asia, reopens and should provide a boost to widebody traffic.
Since the closing of the <unk> acquisition, we have been in negotiations with Boeing regarding a legacy <unk> order for up to 68 737, Max aircraft over which <unk> had a cancellation rights that aercap could exercise.
In light of the favorable macro supply demand dynamics that I just discussed the recovery in demand that we see in particular for the 737 Max family.
And the attractive terms that we were able to agree with Boeing I am pleased to report that we will not exercise our cancellation rights and we look forward to taking delivery of these aircraft in the years ahead.
This is a clear indication of our confidence in the future and gives us a leading position in new technology narrow body aircraft.
Turning back to Aercap the business units are all performing well with a variety of catalysts across the group.
On the engine side are 100% owned engine leasing business is comprised of engines from all manufacturers with a concentration of general electric and <unk> engines.
These are the most liquid engine types of power the world's most popular and in demand aircraft.
The environment in this business is strong with elevated narrow body activity in particular in the wide body engine market is also improving steadily.
To put this in context for the week ending Friday May 13, the global GE and CFM engine fleet was operating at 80% of 2019 levels, Despite China being effectively grounded last week.
This business provides both long term and short term engine leasing products. The long term product provides permanent power to the airlines and can be for terms of up to 12 years similar to aircraft leases.
Short term leases are used to get airlines through shop visit peaks are acute events, which helps to keep the aircraft operating and generating revenue.
With more aircraft coming out of storage, we expect to see an increase in shop visits in preparation for reentry into service Aercap engines is well placed to serve its customers.
In cargo demand environment also remained strong as the boom in ecommerce continues to have a positive impact.
Whilst this is helpful for overall demand.
It has also helped to expand the types of customers that are willing to enter into longer term lease agreements. For example, we are now seeing retail businesses such as <unk>, the owner of Zara seeking their own cargo aircraft to vertically integrate their operations to reach the consumer directly.
This has been a driver of demand for Aercap cargo, bringing both additional diversification and improving yields.
The cargo business should also be helped by the elimination of pleasure capacity from the market in Europe . In July 2022, following similar moves from the U S and China at the end of 2021.
This is where passenger aircraft were given an exemption to fly exclusive freight operations in the passenger deck to mitigate the lack of belly capacity during COVID-19.
It should give another shot in the arm to specialized freighter aircraft in Europe .
Finally placement of the Triple 700, 300 freighters and the 737 Frazier programs remain ahead of schedule and the team is now reviewing other opportunities to enhance the portfolio.
Evidence of the demand for our cargo business is that we launched the triple seven conversion program with 15 firm commitments and 15 options for a total of up to 30 Triple seven freighters.
Already have 16, triple sevens under contract or LOI, equating to $1 5 billion and rental commitments.
And this is even before the first aircraft delivered from the conversion program.
Then in our helicopter business leasing activity remains elevated.
Way that hasnt been seen for many years.
To give an example.
We leased six times more helicopters in the first four months of this year than we did in the same period last year.
These terms are improving with supply becoming more scarce as the Oems have effectively discontinued the production of large or heavy helicopters for civilian use.
Given the increase in commodity prices cash.
Cash collections and Utilizations also continued to improve.
So to wrap up.
I just want to emphasize that over the last two years Aercap has had to deal with extraordinary events.
It is a phenomenal achievement and a credit to the hard work of the Aercap team and the resilience of the Aircard business model and balance sheet.
We have emerged in the position of strength that we find ourselves in today.
The events in Russia, although undoubtedly a setback are manageable as a result of the way we've consistently run our business the strength of the recovery in the rest of the world and the power of the combined company.
We've always prided ourselves on being careful stewards of your capital.
As the recovery progresses, and our leverage continues to fall, we will once again be well positioned to return capital to shareholders I will now hand, the call over to Pete for a review of the financials and our outlook for 2022.
Thanks, Scott Good morning, everyone for the first quarter, our adjusted net income was $540 million or $2 23 per share.
Prior to the Russian invasion of Ukraine, and the imposition of sanctions Aercap had 135 owned aircraft and 14 owned engines on lease to Russian Airlines.
A net carrying value of these assets on our balance sheet was approximately $3 1 billion as of December 31 2021.
We have detained 22 of our owned aircraft and three of our owned engines outside of Russia. The other aircrafts and engines remain in Russia.
We are completely written off all of our flight equipment assets that remain in Russia and have also written off any other assets and liabilities related to those aircraft and engines.
Include for example, maintenance rights assets leased premium assets security deposits and maintenance reserves.
We have also reviewed for impairment all of the assets that we've removed from Russia and Ukraine.
In contrast to our aircraft remaining in Russia. Most of these were older aircraft that were on their last lease.
As a result, our net charges related to the Ukraine conflict, where approximately $2 7 billion or approximately $2 4 billion. After tax you can see more detail on the breakdown of these charges in the appendix to the earnings slides.
Excluding the charges related to the Ukraine conflict, our net income for the first quarter was $387 million or $1 60 per share.
This included $158 million of purchase accounting adjustments, which includes these premium amortization and maintenance rights amortization.
Excluding this amount and a small amount of transaction and integration related expenses in the quarter. Our first quarter net income was $540 million or $2 23 after tax.
I'll spend a few minutes going through the main drivers that affected our results for the first quarter.
Basic lease rents were $1.554 billion for the quarter. These were favorably impacted by cash collections in the quarter that were stronger than we expected.
We continue to see positive momentum with our customers from the global recovery in air travel.
During the quarter, our cash collections rate exceeded 100% because in addition to the regular rent and maintenance payments for the quarter. We also received repayments of deferral balances.
Our combined accounts receivable and deferral of notes receivable decreased during the first quarter by $63 million or 8% from $768 million as of December $31 million to $705 million as of March 31.
That was a continuation of a trend that we've seen over the past several quarters of these balances coming down our.
Our basic lease rents were reduced by $57 million of lease premium amortization during the first quarter as I mentioned on last quarter's earnings call police premium asset is amortized over the remaining term of the lease and reduces basic lease rents.
Maintenance revenues for the quarter were $186 million. This was somewhat higher than we would normally see due to lease terminations during the quarter, but it was also reduced by $51 million of maintenance rights assets that were amortized to revenue during the quarter.
Interest expense for the quarter was $381 million. This included $36 million of Mark to market gains on interest rate derivatives during the quarter.
Leasing expenses were $208 million during the quarter, including $50 million of maintenance rights amortization expenses. So when you add the $57 million of lease premium amortization that $51 million of maintenance rights amortization and the $50 million of maintenance rights amortization running through releasing expenses you've got the total of 100 <unk>.
$58 million of purchase accounting adjustments that I mentioned in the walk on the previous slide.
$108 million of disaffected revenue during the quarter and $50 million affected leasing expenses.
SG&A for the first quarter was $97 million, which is in line with the $150 million in annual target expense savings that we had for the <unk> transaction.
We continue to maintain a strong liquidity position as of March 31, our total sources of liquidity were approximately $17 billion, which resulted in the next 12 months sources to uses coverage ratio of two one times.
It's well above our current target of one five times and gives us excess cash coverage of approximately $9 billion.
We ended 2021 with a leverage ratio of 266% to one on the fourth quarter earnings call I mentioned that our leverage ratio would likely go up as a result of the impairment of aircrafts remaining in Russia and estimate that it could go up to around three to one debt to equity we ask.
We ended the first quarter at two nine times debt to equity so a little better than I expected and of course, that's still below the level of three one that we had originally forecasted when we announced the <unk> acquisition last March as.
As I mentioned earlier, our cash collections during the quarter were strong and our operating cash flow was $1 $3 billion, our secured debt to total assets ratio was approximately 15% the same as last quarter and our average cost of debt for the first quarter was 3%.
Now I'd like to take a few minutes to go through our financial outlook for 2022.
For the full year of 2020 to you we expect to generate adjusted earnings per share of $6 50 to $7.
We believe it makes sense to look at EPS on an adjusted basis, because we believe it better reflects the economics of the business as the impact of purchase accounting distorts. The income statement following the <unk> acquisition.
Adjusted GAAP income reflects the add back of non cash maintenance rights and these premium amortization as well as transaction related expenses as many of you will recall, we also reported adjusted earnings after the IFC transaction in 2014 for the same reasons.
The combined total of these maintenance rights and lease premium assets is approximately $3 9 billion. The vast majority of which will amortize over the next seven years for this year, we expect it to be around $700 million of amortization in total.
It's important to note that this affects both revenues and expenses.
In 2022, we expect to generate total revenues of approximately $6 $9 billion we.
Our interest expense for the year to be approximately $1 6 billion.
Which reflects an average cost of debt of around 3%.
Depreciation should be approximately $2 5 billion for the year.
We expect our other expenses to be approximately $1 billion.
That results in pretax income of $1 $8 billion on an adjusted basis.
We've assumed an effective tax rate of around 13% and we expect to have approximately $50 million of earnings from our equity method investments, primarily our investment in our engine leasing joint venture SCS.
That gives us net income of approximately $1 6 billion on an adjusted basis, our EPS of $6 50 to $7 for the full year.
These projections exclude the net charges relating to the Ukraine conflict that we recognized in the first quarter, but they include the impact of loss revenues from our aircraft and engines that were on lease to Russian airlines that was around $33 million a month of lease rents.
Since we've completely written those assets off were no longer depreciating them. So there is some offset from an expense standpoint, but overall on a net basis the impact of the Russian assets is around $200 million for the remainder of this year.
These projections also reflect the tail of COVID-19 on our business.
While we've seen a strong recovery in terms of passenger demand and cash collections. Nonetheless, we will continue to see an impact from lower revenues associated with leases that were restructured during COVID-19 either as a result of airline bankruptcies or out of court restructurings over time of course that impact will diminish as those leases roll off these.
Projections also reflect the benefits of the <unk> transaction, which really come through in three major ways.
First we purchased the <unk> business at a significant discount to book value.
Secondly, the <unk> business overall was less affected by Covid and the legacy aircraft business basically due to the composition of the portfolio <unk> had the freighter business and engine leasing business that were less affected by COVID-19 as well as a higher proportion of narrow body aircraft, which were less impacted by airline restructurings.
And third we put in place $24 billion of financing for the <unk> acquisition and an average cost of debt of two 6%, which was well below our average cost on a standalone basis or three 8%.
We also see the benefits of $150 million of annual SG&A savings from the <unk> transaction.
Overall these results are well above what aercap would've done on a standalone basis for the year.
Finally, I should note that these projections do not include any assumed recoveries from insurance claims as we mentioned we have submitted an insurance claim for $3 5 billion related to our assets remaining in Russia.
As I mentioned earlier, we ended 2021 at a debt to equity ratio of 266 to one.
As a result of the write off of our assets in connection with the Ukraine conflict, our debt to equity ratio increased to two nine times at the end of the first quarter, we expect to return to our long term target ratio of two seven times by the end of this year.
In addition, going forward based on our contracted Capex and assuming sales of approximately $2 billion a year, we would expect to delever to two five times by the end of 2023 and two three times by the end of 2024 before taking into account any additional capital deployment or return of capital to <unk>.
Shareholders.
So that shows the ability of this business day lever and generate excess capital. We saw this as well on the islands. The acquisition again. These do not assume any insurance recoveries during this period, which would lead to additional delevering.
So bringing this all together, we expect to start generating excess capital by the end of this year and will be well positioned to start returning capital to shareholders.
Now in 2024, we expect to generate approximately $2 billion of excess capital of course, if we exceed our projections for either earnings or aircraft sales or if we received insurance recoveries. During this time the amount of excess capital could be materially greater.
So with that operator, we can open up the call for Q&A.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Once again, everyone if you'd like to ask a question. Please signal by pressing star one on your telephone keypad will pause for a quick moment.
Alright, and our first question will come from Ross Harvey with Davy. Please go ahead.
Hi, Thanks for taking my questions I've got two if that's okay. Firstly.
Can you give us.
Better idea of what's Aercap generated on a standalone basis.
Just how you think about the accretion from the GE testing into this year.
Sure Ross this is Pete so back in March of last year. There was obviously a lot of uncertainty generally, but we estimated at the time that aercap would probably generate somewhere in the low fours in terms of EPS for 2022.
And that's of course before any impact of Russia, which probably would have brought it down to the low threes. So you can see based on these projections and even on a GAAP basis. Michelle are they accretive we know that the gap is unduly punitive once you do an acquisition of this type so on an adjusted basis, it's even more accretive.
I think I would also point out that well.
When we look at 2022 and the numbers here the projections we've given.
We are still facing headwinds, obviously, you've got Russia in there. We've also reflected the cost of reactivating the fleet, which comes through in higher leasing expenses. That's obviously, mainly on the aircraft, but you also see that in the helicopters were getting up in the air. So those are things that we've built in here for 2022, and we think are reasonable.
That's helpful. Thanks, Pete and secondly, you had $3 million of gain on sale in Q1, just wondering how do you look at that.
Moving forward through the quarters.
Sure. So the gain on sale was definitely lower in the first quarter.
And the main driver of that is there were sales of around $800 million worth of legacy <unk> aircrafts that were pending when the acquisition closed in November and these were aircraft that <unk> contracted to sell but the sales hadn't closed yet when we did the acquisition and since then they have started to close the.
Gain on those sales was over 10%.
But in purchase accounting, we had to mark those assets at the sale price, which is the price that the buyer is paying us. So we won't be booking any gains on those assets because they just come onto our books at the higher value for the first quarter. Those would have been around $20 million higher for instance, we had $20 million more gains if we didn't.
Have that purchase accounting effect.
And I should say all of those sales will be done by the end of the year. So that has an impact on the gain on sale margin that we're that we're using.
Basically we haven't assumed.
Much in terms of gains on sale in this forecast, but we would expect on the other assets that werent contracted before the acquisition, we would expect to have healthy gains as we have in the past.
Great. Thanks Pete.
Sure.
And our next question will come from Jamie Baker with JP Morgan. Please go ahead.
Hey, good afternoon. So the slide on the aircraft shortage is a new one in your deck I believe in it obviously highlight some of the same data that mark and I had been harping on and a big part of Mark's presentation in Dublin last week, essentially the looming shortage. It sounds like you agree that this is no longer just.
A narrow body phenomenon, but theres, a twin deficit as well.
Assuming the Oems can't close the gap, sorry about that logically implies higher lease rates, but I'm curious on how many requests you are receiving from airlines to extend current leases and when a lease is extended is it usually cut at prevailing terms or better terms again I'm just thinking about how this short.
He is going to manifest in terms of lease rates.
Sure. Thanks.
Thanks, Jamie.
What youre seeing here is.
On the wide body side it hasn't been as in focus because people have been so focused on the recovery in the narrow body market has obviously led our way out of coal, but but now we are beginning to see us in the wide body side.
<unk> in the narrow body side, it's being led by the best asset in the class, which is the Boeing 787, and we are seeing a significant uptick relative to where we were on that aircraft type now we're seeing it first because we had the biggest in the world out there and we see a lot of activity. The airlines are just starting to realize is that there is.
<unk> squeeze on wide body capacity.
Following we all know what the issues are in the 787, but Airbus also have their supply limitations as well. So what will happen is our wide bodies come up to 780, <unk> hundred 30, <unk>, we're certainly endeavoring to push rentals up as they come up for reset be that an extension or off a new order.
I appreciate that and second I was.
I guess a bit encouraged to see that Aeroflot had purchased cemetery thirties.
That had had their leases terminated it seems to imply that airlines in Russia.
Looking beyond the current sanction dynamic I'm just wondering how you would describe your conversations with former customers their argue even having those conversations just wondering how you'd characterize them is anybody even beginning to look beyond the current environment in Russia. Thanks, guys.
Certainly well of course, we maintain dialogue with our existing customers that I think you've seen we've been able to gas at 20, plus aircraft out of Russia, and we continue to work with them wherever there is an opportunity to mitigate our risk there.
Okay.
Okay I appreciate it thank you very much.
Alright, and next we will hear from Helane Becker with Cowen. Please go ahead.
Thanks, very much operator, hi, everybody and thanks very much for the time.
A question for you on the tax rate.
51% in the first quarter of last year down to 12% this quarter.
Should we think about that going forward.
Yeah.
So I would think about it as roughly 13% to 14%.
For the full year.
This quarter is a little different just because you had the large loss, which impacts it but I'd say kind of on an adjusted basis, 30% to 14% is a good number to use.
Okay and then the other question I had was I just listen to.
I don't know if it's for your guys, but I just listened to your presentation that United did talking about.
And the demand, they're seeing in southeast Asia, which I think you just mentioned as well strong demand.
More wide body aircraft, especially.
Because theyre triple seven Sir.
And returning.
Questions.
I think you mentioned the 780 sevens are the ones youre seeing the most demand for but.
What is is there an opportunity for you to get additional aircraft to place with customers.
And on the lease rates are they tracking interest rates.
Yeah look the second part of your question for any of the new wide body placements were doing they are tracking interest rates.
And indeed for those assets that were placed prior to now Alain there is an interest rate tracker in them so as to whatever the agreed rent whilst and it adjust upwards any movement in interest rates with regard to obtaining new aircraft. We obviously have a very significant order book and as I mentioned in the call in my prepared comments given the demand we are seeing.
For the Max and.
The resurgence in demand for the Max I'll also the strengthening of the lease rental and the Max where I'd say now the Max eight is on a par with the 320 neo in terms of its lease rentals.
We were very happy to do.
To be able to reach terms with Boeing on that aircraft on the 787 model of course, we.
We do have a large order book, there and we will be working out with Boeing where the exact positions are for those delivery dates over the coming months as the airplane reenter service.
Okay. That's really helpful. Thank you very much.
Yes.
Okay.
Alright, Okay and our next question will come from Vincent <unk> with Stephens. Please go ahead.
Hey, Thanks for taking my questions both of them on the EPS guidance, so $657 adjusted EPS good number.
Yes.
First question when comparing to the first quarter adjusted EPS of $2 23. If you are at a run rate that that would imply over $8 in EPS. So I'm just wondering if there was anything in the first quarter's adjusted EPS that maybe we shouldnt be thinking of as run rate for the rest of 2022 or Alternatively, if there may be some one.
Time expenses or something over the course of 2022, which would have rolled off in 2023 I think you spoke about for example, the cost of reactivating. The fleet. So there might be some high leasing expenses just for 2022 that might be.
Run off so maybe India any color there. Thank you.
Sure Vincent So look I mean, the main the main thing that won't be that we got in the first quarter that we won't be getting in subsequent quarters is the revenue from the Russian leases right because those have been terminated and so our leasing has been terminated so that during the first quarter, we were receiving that that rent revenue.
But that comes out of this forecast for the subsequent quarters. So that's the main thing if you look at <unk> versus the rest of the year.
You are right that we will have some higher leasing expenses come through just as we're getting aircraft.
Getting aircraft removed reactivated et cetera. So that is a driver during the next couple of quarters that we'll see.
And then in terms of one time items for the first quarter I guess, the only one that I would note is we did have a onetime mark to market gain on interest rate caps, which was 36 million pre tax. So that is a onetime item now obviously could get those during the rest of the year, but but I wouldn't I wouldn't count on it.
Okay. Thank you appreciate it yeah, when I did the math with Russia, that's about 70 cents for the rest of the year. So.
So I appreciate that but.
Maybe go into one other assumption what.
Level of aircrafts, yes, I think you've got about $2 billion, but what level of gain on sale of aircraft that are you assuming with the EPS guidance. Thank you.
It's just a very small amount of gains that we've assumed vincent because really mainly because of that.
For two things one.
The <unk> thing that I mentioned.
<unk> question, but also as I think you know just historically, we haven't we haven't assumed significant gains on sale of our forecast.
That's really just I think down to some conservatism on our part.
Due to any market things that we're seeing so that's why we haven't baked in very much for that.
Okay understood.
Thank you.
Sure.
Alright next we will hear from Moshe Orenbuch with credit Suisse. Please go ahead.
Great. Thanks.
Maybe following up on that question about aircraft sales, you mentioned kind of going from two nine to $2 seven.
And leverage.
In the nine months.
Given I guess, where the stock is perhaps where it will be.
After the call. The question is is there a way to accelerate that.
B position more quickly to be at your.
Kind of targeted leverage or better than your targeted leverage.
Particularly in an environment, where deliveries can you talk about that perhaps.
Well certainly there are things.
That can move that of course the business performance. We may we may do better.
We make some more assets and indeed, we put a portfolio of assets.
The market for sale, just two weeks ago in anticipation of the large air Finance conference.
Out here in Dublin last week, where there was a positive tone.
We are active in that regard also you could well have a delay in capex too. So they are the factors I would say it is the business performance, let me do a bit better.
Have a portion of the portfolio in the markets.
I think having said all of that though it is worth reiterating the extraordinary challenges that the business has had to face over the last two plus years and to be in a position where it.
After all of that.
At the end of this year that we expect to be at two 7%. One is a testament to the resilience of the.
Aercap business model and the strength of the cash flows we generate and that is very similar to what we saw eight years ago post the <unk> acquisition, where we did delever much faster.
Great.
Agreed and certainly it's a testament.
Just kind of on a more mundane level of $158 million of charges roughly two thirds coming out of revenue in the third out of expenses could you just remind us.
I know that some of them are difficult to determine the scheduling, but we were to think about it like you mentioned how much we were likely to see for 2022 any sense as to can you give us a sense as to what's the likely step down in 2023.
Yeah.
2023, Moshe I think it's probably going to be roughly a similar number maybe $6 million to $700 million I would expect something along those lines. As you know these tend to be lumpy right because they are based on.
Maintenance events basically in shop visits and that type of thing. So it's hard to it's hard to predict them precisely, but I think thats a pretty good estimate for 2003.
Okay. Thanks very much.
Sure.
Alright, and next we will hear from Catherine O'brien with Goldman Sachs. Please go ahead.
Everyone. Thanks, so much for the time.
I think maybe first one for guy so I still have some aircraft availability.
For next year, 92% placed through 2023 is that the normal level you would look to hold back for close in demand that perhaps comes with relatively more attractive lease rates or is there some movement given airlines ability to cancel for aircraft delivering over 12 months late.
Last quarter, you mentioned you already had several airlines interested in and Youre, Russia thoughts for 2022, but so maybe there's just some there's something like LOI. There are conversations going on for for those Russian aircraft and I know a little bit of a question, but thanks for any color.
No problem, Katherine Youre right and all the 2022 aircraft with outlook in pretty short order.
2023, there's a few airplanes, there narrow body assets that that.
We will move.
They came out of the Russian situation, but those aircraft, we will get moved in the very near future.
And what about the non Russia aircrafts like is this obviously theres quite a bit of demand given we're talking about aircraft shortages across both narrow body and wide body I guess is some of this.
Is that kind of like the normal level, you would keep open for a year or maybe some of those by design just because you think that the shortage. The shortage excuse me is going to hit more of a crescendo next year, we'd just love to hear more of that as well, but I would say.
We took a decision not to lease any 780 sevens off the order book for some time I think thats proven to be the right decision.
I think we are certainly now starting to offer those 780 sevens that we had delivered in the next couple of years.
At higher rates than certainly would've been achievable a year ago on.
On the narrow body side of course, we have a few area you'll always have a few airplanes and you certainly want to have some airplanes always available.
Within that 24 months availability for the airlines to make sure that you can satisfy some other nearer term requirements. They have as well. So tactically you will always want to have a few airplanes available in a 24 month window I would say it was more kind of strategic over the last few years on the 787 market as we were confident that that will come back and we.
We're seeing that now.
That's great.
And then maybe just one for Pete Thanks, so much for laying out all the details on the 2020 outlook I guess a role for the next couple of years, obviously macro aircraft fly demand et cetera are all going to influence the outlook, but if we just assume the recovery in air travel continues at a steady pace or maybe we get some step function recoveries is as more restrictions drop in Asia.
Can you just help us think about the Covid impact you are baking into this year's outlook that that will roll off going forward and then pardon if I missed this but are you assuming any share buybacks in that $6, Kevin thanks for the time.
No we haven't assumed any share buybacks there.
For this year, I mean, and I think you could see in our in our slides that we're assuming that we are we project that we'll get back to our target leverage ratio by the end of the year as Scott said it could happen sooner, but that's what we're projecting at the moment. So we didn't build in any any buybacks into these numbers look I think that as you look out beyond 2022.
For sure there are things that are impacting this year that we would expect to diminish over time right and part of that is.
Is that kind of nearer term loans in terms of the leasing advances and other costs of getting aircraft back in the air that type of thing aircraft that you have on the ground that arent, earning revenue right those type of.
Things so those for sure should be positive, but I think the longer one is you've got some leases as I mentioned that were restructured during COVID-19 and those will roll off over time and then they will go back to normal so that that part of it is going to be more of a multi year. One so you should see it stepping up over time.
But all of the things that you talked about in terms of the recovery rate the greater demand the supply shortage all of those things should feel fold into higher numbers for us.
That's great very helpful. Thank you.
Sure.
And our next question will come from Andrew Lobban Berg with HSBC. Please go ahead.
Oh, hi that.
Can I ask about the impact of inflation and to what extent.
Ken pressure up.
Capex as we go forward or to what extent do you have protection mechanisms.
That cap.
Price increases to the aircraft orders.
And then the second question would surround.
Yes.
The Russian Airlines and Hadley seem to make a big thing.
<unk> between state address Nasdaq's private Russian Airlines.
Imagining that that will be a different of treatment as we go forward.
Yeah, and the thing in that or do you just think that all of the Russian assets are written off and we move on.
Sure I think on the inflation aspect.
There are a couple of components to US there is your purchase prices with Boeing and Airbus and with the engine manufacturers.
Aercap has.
We call it escalation caps, which is a proxy for inflation.
They've been well negotiated over many years, so we're happy with those they protect our purchase price against inflation.
And how inflation feeds into higher interest rates, we are protected there on the lease term on the lease contracts that we've negotiated in the past that they have an interest rate adjustment to them.
But historically.
Higher interest rates and inflation have led historically, if we go back over the last 40 odd years in this business.
Aircraft have been hedges against inflation I would have to see if it is inflation is long lasting or NAS.
How it plays out if it follows historical patterns.
On relation to the Russian aircraft and we never believed there was any difference between whether it was a private or not I didn't make any difference.
And I don't expect it will make any difference.
And just on that so three quarters of our exposure of our Russian assets were on lease to private airlines in a quarter or two to Aeroflot and rossiya, but the reality is all of these aircraft are gone whether they were to private or state owned so I don't think it makes any difference.
Fair enough. Thank you.
Sorry.
The aircraft that you've recovered are you able to say where they came from.
Or is that too sensitive.
I'm not going to comment on that actually if you don't mind.
No fair enough I thought you might not.
Okay.
Alright, and our next question will come from Hillary <unk> with Deutsche Bank. Please go ahead.
Hi, Thanks for taking my questions.
Question on your revenue guide.
Are you assuming any growth in that number.
So as it is.
Just wanted to find out if youre.
Including on the asset sale gains in that number.
And what you are including that.
Okay.
Sure Hillary so I mean, as I said, there's a very low amount of gains that we've baked into this entire forecast so that would be true on the revenue side.
I mean, it's really just lease rents and maintenance revenues that we expect.
Obviously, it would have been higher given.
With the Russian rents if those were in there, but we took out nine months of that so.
At $33 million, a month give or take so that's a pretty significant impact on that.
<unk>.
Okay.
Hmm.
No no.
Further we all grew.
Well with that.
First quarter.
I guess the run rate is like the first quarter Nicole.
Related to Russia.
Well go next.
Yes, I think thats, probably reasonable I mean, obviously, it's going to it's going to.
Go down in the second quarter, because you don't have Russia in there and for the first quarter you added.
Yes, okay.
And then could you and then in terms of what you think policy I know you filed a claim for three 5 billion.
Do you have any other army. Thank policies that you could file a claim on that maybe perhaps you can monetize.
Yes during the quarter. We also made a claim against the Russian insurers the way the insurance policies work is that there is a claim against the Russian insurance companies and there is also then a claim against the western insurance companies to reinsure that risk so and both of those claims are underway and we will pursue both of them vigorously.
Great. Thank you very much.
You're very welcome.
We have no additional questions in the queue I'll turn the call back to Angus Kelly for any closing remarks.
Thank you and thank you all for joining us for the call and look forward to talking to you in a couple of months' time.
This concludes today's call. We thank you again for your participation and you may now disconnect.
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