Q4 2022 Air Lease Corp Earnings Call
Good afternoon. My name is Regina and I will be your conference operator today at this time I would like to welcome everyone to the Air Lease Corporation Q4 earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a.
Question. During this time simply press star followed by the number one on your telephone keypad, if you'd like to withdraw your question Press Star One again I will now turn the call over to Mr. Jason Arnold head of Investor Relations. Mr. Arnold you may begin.
Thank you Regina and good afternoon, everyone and welcome to Air lease Corporation's fourth quarter and full year 2022 earnings calls.
This is Jason Arnold I'm joined this afternoon by Steve Hazy, our executive Chairman, John <unk>, Our Chief Executive Officer, and President and Greg Willis, Our executive Vice President and Chief Financial Officer.
Earlier today, we published our fourth quarter and full year 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 February 16th 2023, 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.
The impact of rising interest rates and inflation the impact of sanctions imposed on Russia and aircraft delivery delays, 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 our future performance represent managements estimates.
Estimates for future results and speak only as of today February 16th 2023. 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 our forward looking statements or information in light of new information or future events. In addition, we may discuss certain financial measures such as adjusted net income before taxes.
Adjusted diluted earnings per share before income taxes, and adjusted pre tax return on equity, which are non-GAAP measures a description of our reasons for utilizing these non-GAAP measures as well as our definition of them and the reconciliation to corresponding GAAP measures can be found in the earnings release of our 10-K that we issued today.
This 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 call is not permitted.
To turn the call over to our Chief Executive Officer, and President John <unk>.
Well, thank you, Jason and good afternoon, all and thank you for joining us today I'm.
I'm happy to report that we generated $602 million in total revenue during the fourth quarter a record level for ALC, while our fourth quarter diluted EPS was $1 21 per share.
Fourth quarter performance benefited primarily from the growth of our fleet and uptick in sales trading and other income along with a recovery of our $1 737, Max from Russia.
This was partially offset by higher interest expense and higher insurance and other operating expenses.
We purchased 16, new aircraft during the quarter, adding approximately $1 billion of flight equipment to our balance sheet and sold five aircraft our utilization rate remains robust at 99, 6% for full year 2022.
Which is a testament to the high demand and utility of the new commercial aircraft in our fleet.
As of today, 90% of our deliveries through 2024 are placed.
Airlines are locking in our remaining 2024 and 'twenty five deliveries at an accelerating pace and this scarcity has been a significant driver of the lease rate upside we've seen on many of these aircraft.
The pace of our wide body lease placements has also continued to accelerate in fact out of our entire order book ALC now has only three remaining passenger wide bodies Boeing 780 Sevens left to place in mid 2025.
New aircraft deliveries in the fourth quarter again somewhat lower than expected as a project ongoing delivery delays from both Boeing and Airbus, which you've heard us speak about over the past two years Boeing.
Boeing and Airbus have both just recently announced hiring campaigns for tens of thousands of new production employees, though clearly getting these new staff hired and trained will take time.
We remain skeptical that Airbus and Boeing will meet their aspirational production rate goals over the next two to three years in fact today Airbus announced a delay from 2025 to 2026 and reaching its single aisle production rate goal of 75 aircraft per month in yesterday.
Boeing advise at a conference of continuing parts and supply chain challenges hampering its production goals.
As for our outlook for 2023, clearly, it's going to remain fluid given the situation with the manufacturers.
As of today, we expect to receive approximately $45 billion of aircraft deliveries in 2023 with roughly $1 3 billion of deliveries expected during the first quarter.
We will update you further on this outlook as the year progresses.
Now turning to aircraft sales, we closed on five aircraft generating gains of approximately $28 million in the fourth quarter.
As we look forward to full year 2023 sales activity, we expect to sell between $1 billion to $2 billion of aircraft as the sales market is healthy even with higher interest rates.
The reason for the broad range is continued uncertainty around the timing of new aircraft deliveries.
After several years of constrained sales activity due to the Max grounding the pandemic Boeing 77 delivery cessation for well over a year, we're returning to a more robust level of sales activity as the normal course of business.
This allows us to harvest gains on sales as well as to manage our fleet age size and composition and finally to demonstrate the value of our fleet.
Looking forward over the foreseeable future, we believe air Lease's proven business model is particularly well suited to benefit from the post pandemic era due primarily to the five following fundamentals.
First passenger traffic growth and airline yields.
Airline traffic continues to expand at a brisk pace in nearly every market globally.
Our national traffic in particular has come back strongly in 2022 and this looks to continue in 2023 with China relaxing travel restrictions last month.
Furthermore, the airlines are enjoying a healthy yield environment, which appears to be holding up nicely in the face of macroeconomic challenges such as inflation energy cost and interest rates.
Fundamental air traffic growth and yield will continue to drive aircraft demand.
Second continued OEM delivery delays and inability to meet production rate targets is limiting the new aircraft supply to the marketplace.
This is leading more airlines to extend their leases and today's escalating lease rate environment to.
To support traffic growth and to serve as a hedge against new aircraft delivery delays.
Certification of new aircraft types has also been delays such as on the $737 seven and 10, Max the bowling Triple seven X and the Airbus <unk> hundred 21 XLR.
Third record orders such as we've just seen this week with air India on the heels of large orders from United Airlines, and others have exasperated the lack of new aircraft delivery positions well into the future, making alc's available delivery positions more valuable.
<unk> currently has delivered positions out through 2028.
Yes.
Fourth most airline balance sheets remained constrained in the financial recovery from the Covid pandemic, especially in view of the higher interest rate environment as such leasing remains a sought after mechanism to obtain aircraft.
<unk> with its strong balance sheet and Triple B investment grade ratings has a significant funding cost advantage over most of its airline customers and leasing competitors as well.
Fifth and finally, environmental sustainability grows more important with each passing day, adding further pressure on airlines to renew their fleets with the youngest most technologically advanced and environmentally friendly aircraft obtainable.
That is alc's business model delivering exactly those new aircraft from our order book, the largest combined Airbus and Boeing order book in the leasing industry.
A question. Many of you have been asking is is this increased aircraft demand environment with rising interest rates in this environment, our lease rates overall accelerating as fast as interest rates.
The short answer on an overall basis is not yet however, even in a high demand environment. It takes time for the market to catch up to a rapidly escalating interest rates and this has always been the case historically.
There is a lag and I remind you that we have a large existing fleet with a weighted average remaining lease term of seven one years. However, I will say that the overall increase in lease rates that we've been witnessing is on track with our expectations and looking forward, we feel good about market lease rates catching up with interest rates over time.
Yeah.
So with that let me now turn this call over to Steve Harvey, who will offer more commentary on alc's positioning and accomplishments Steve.
Thank you John and thanks, everyone.
First of all I'd like to congratulate our early on.
On achieving record quarterly revenues in fourth quarter of 2022.
As well as record annual revenues.
For the full year of 2022, we're.
We're looking to forward.
Further success and making more company records ahead.
On the heels of roughly 400 additional new aircraft.
Set to deliver to air lease over the next four or five years.
I'd also like to point out that our board has just declared a <unk> 20 per share common stock dividend distribution for the quarter.
Again, demonstrating the continued optimism and confidence that we have in our business looking forward.
As John mentioned, we're excited to see passenger traffic volumes continued to expand at a brisk pace globally.
The latest IATA traffic numbers released in early February illustrate robust total traffic up more than 60%.
Year over year during 2022 <unk>.
Significant strengths remains focused in the international markets, which are up as much as 153% year over year as volumes continue to recover from the pandemic.
Domestic traffic also rose nicely as well in spite of the numerous starts and stops in China's domestic market.
Resulted from Lockdowns and travel restrictions.
China represents roughly 7% of the global domestic traffic volumes. So it is a testament of strength.
That the rest of the domestic markets around the world, we're able to more than overcome that drags from China.
In fact, all of the remaining domestic markets expand that had strong double digit percentage rates and <unk>.
Some cases upper double digit and even one triple digit percentage year over year increase.
For example, with the Australian domestic market.
International strength. Meanwhile, was highly expansive with most experiencing triple digit percentage increases as compared to a year prior.
Asia Pacific again remains a point of significant strength.
Rising over 360% year over year in 2022.
Given persistent travel constraints still in place.
Many of the markets up until late last year.
Both domestic and international markets.
Now approaching parity with 2019 traffic levels.
Several markets are very likely to reach and exceed those levels. This year.
While 2019 traffic represents a useful measure for comparison, we do think it's very important to point out that this is not the end game measure of success.
We see traffic levels, achieving 2019 levels.
In proceeding meaningfully higher for many years to come.
Given the durable human desire and need to travel by air.
As would be expected with the strong fundamental industry backdrop.
We remain very active in placing our order book positions with airline customers all over the world.
We announced several very large placements during the fall <unk>.
Including 19 aircraft placement with Condor in Germany.
<unk> aircraft placement with lot in Poland.
<unk> five <unk> hundred 21, XLR variance with lepton and Chile.
And in the last few months, we also announced placement of three new 787 Dash nines.
With aerostar, the national carrier of Kazakhstan, which will deliver to the airline in 2025 and 26.
These aircraft will be critical.
In the international market opportunities for Air Astana.
Which will benefit meaningfully from the added range and efficiency provided by the 787 dash nine.
In January we announced a placement of six new Airbus <unk> hundred 20 aircraft with Croatia Airlines in Europe .
These <unk> are expected to deliver from our order book beginning in 2024.
Through 2025.
And represent a significant modernization shifts for that airline.
As it moves away from operating older <unk> hundred 19, <unk> hundred 20.
In this case to 820 gives the airline more capacity and efficiency both on existing routes and added range to expand future routes as well.
These placements I've just highlighted represent only a handful of our activity.
As many are not 4 million ounce in a press release at this time.
In terms of observations across all of our recent deal activity.
Say that in addition to providing our airline customers with the most advanced fuel efficient and ecologically friendly aircrafts to further their operations. While also continuing to see a bolstering of lease rates due to the strong market demand for commercial aircrafts.
During the fourth quarter of 2022, we delivered 16 aircraft to our customers with OEM delays, yet pushing some aircraft into the first quarter of this year.
Deliveries during the fourth quarter included.
Two more <unk> to 'twenty 300 deliveries to.
The flag carrier of Italy, following our two first deliveries of the 8% to 20 from our order book to that same carrier in the third quarter.
We delivered 521 aircrafts, primarily DLR long range variant to several airline customers, including air Astana in Sichuan Airlines.
While we delivered six new Boeing 787 dash eight and dash nine aircraft to Aeromexico, Alaska Airlines in L O T Polish airlines among others.
On the wide body side, we also had several deliveries.
Including two Airbus <unk> hundred 39, hundreds that will deliver to Virgin Atlantic Airways.
And one 787 dash nine to air premiere in Korea.
This 787 was actually the first we received from Boeing following nearly a year and a half long delivery hiatus.
One note I would like to make on this uptake of interest rates over the past year is that while alc's cost of funds rose as well the increase was relatively modest given that approximately 90% of our debt financing is at fixed rates of interest.
As a reminder, maintaining a minimum of 80% of our debt at a fixed rate of interest has been a key strategic tenant.
Air lease ever since our very start.
Many leasing companies still are more reliant upon floating rate bank loans or otherwise have fewer financing options.
We have seen a meaningful uptick in their cost of funds.
As a product of this increased cost of capital for many reasons, we expect a very low lease rate factors that some have been willing to offer airlines in the past we will now go by the wayside and is as it is no longer economically feasible for them to offer such low lease rates.
While the nature of our order book strategy has always been more insulated from the very aggressive lease rates inherent in sale leaseback transactions.
We do believe the outcome of reduced supply of cheap lease financing alternatives will.
We will shift more lease demand toward lessors like ourselves with investment grade ratings and strong access to attractive funding sources from many sources.
I'd like to close by saying that we believe we positioned air lease.
Very successfully to capitalize on the acceleration of air traffic demand witnessed at present.
Is fueling the strong airline need for new commercial aircraft.
Now I'd like to turn the call over to our CFO , Greg Willis to provide further commentary and color on our financial performance in 2022.
Thanks, very much Steve and good afternoon, everyone.
In the fourth quarter of 2020 to ALC generated record revenues of $602 million. This.
This was comprised of approximately $561 million of rental revenues and $40 million of aircraft sales trading and other revenues the.
The increase in total revenues was primarily driven by the growth of our fleet in a significant reduction in cash basis losses, and the impact of Covid era related lease restructurings.
Furthermore, we do not expect that these items to be a meaningful factor as we move forward into 2023.
Moving on to expenses the interest expense line rose, 16% year over year. This was due to an increase in our average debt balances as well as an uptick in our composite cost of funds from 279% in the prior year to three 7% this year.
I would like to Echo steves commentary surrounding the benefits of having 91% of our business of our indebtedness at a fixed rate, which continues to meaningfully offset the impact of higher interest rates on our financial results.
Depreciation continues to track the size of our fleet, while SG&A rose as business activities have increased over the course of the past year, along with an uptick in certain other operating expenses, including the increase in insurance premiums that we've highlighted in the past as well as aircraft transition related expenses.
Additionally, John mentioned that we did recognize an expense reversal of $31 million given the recovery of our 737 Max from Russia in October .
As discussed last quarter, we recorded the aircrafts on our balance sheet at fair value taking in to account the current maintenance condition of the aircrafts with a corresponding reversal of the write off line item on our income statement.
As mentioned last quarter. The return of this aircraft was highly idiosyncratic I will repeat that we do not anticipate the return of any other of our aircraft which are detained in Russia.
As a final comment on our 'twenty, two 2022 financials I would like to point out that the expansion of our adjusted pre tax return on equity, which excludes the impact of the Russia fleet write off as well as the Susquehanna and the subsequent recovery of our 737 Max aircraft.
Despite the trailing effects of the pandemic over the first half of the year and combined with a relatively modest sales program. Throughout 2022, we are pleased to see an improvement in this performance metric.
Moving on to financing with a largely fixed rate balance sheet and a strong investment and strong investment grade ratings, we remain conservatively positioned for movements in interest rates over the intermediate term.
As discussed in the past manufacturer Escalations in our interest rate escalators on four aircraft deliveries help offset some of the impact from rising interest rates.
As Steve highlighted.
Positive outcome of rising interest rates is the low cost financing alternatives that are less available to our airline customers, which should which should further bolster lease rates and lease demand.
As well as create a larger difference between us and our lower lower rated competitors.
We remain dedicated to maintaining an investment grade balance sheet utilizing unsecured debt as our primary form of financing maintaining a high ratio of fixed rate funding and utilizing a conservative amount of leverage with a target debt to equity ratio of two five times.
Our debt to equity ratio at the end of the fourth quarter was two eight times on a GAAP basis, which net of cash on the balance sheet is approximately $2 six nine times, our leverage remains modestly above our target following our Russia fleet right off earlier. This year, we expect to trend back towards our long term target as aircraft sales volumes increase this year and OEM delivery day.
La is continue.
During the past few months, we returned the debt capital markets with two separate five year issuances $700 million of senior unsecured notes at 525% that closed in December of 2022.
And $700 million of senior unsecured notes at five 3% that closed in January of this year.
We also closed a $400 million silver plus 140 unsecured term loan facility with a final maturity in 2027.
At the end of the year, we had a strong balance sheet supported by a significant liquidity position of $6 9 billion and a large unencumbered asset base of 27 billion.
To conclude we remain very optimistic of the future of our business and we believe our strategy has proven itself highly durable through the challenges the challenges of the last several years we.
We look forward to more meaningful resumption of our sales program during 2023, which should add to the margins and the return on equity for our business.
We also look forward to receiving roughly 400, new aircraft from our order book set to deliver over the next four to five years, providing a clear pathway of growth in the years to come.
The embedded value of our order book is only increase the availability of brand new aircraft slots from the Oems, which continues to dwindle.
Further provides us with an irreplaceable source a very attractive value.
Fleet growth and long term return potential.
And with that I'll turn the call back over to Jason for the question and answer session of the call.
Thank you Greg This concludes management's commentary in our remarks for the question and answer session. We ask each participant to limit their time to one question and one follow up Regina can you. Please open the line for the Q&A session.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad. Our first question will come from the line of Hillary <unk> with Deutsche Bank. Please go ahead.
Hi, Thanks for thanks for taking my question.
And before that there is a lag between the increase in interest rates and the increase in biscuit, what would you say that lagging it by six months nine months. If you can provide a little more color that'd be great. Thank you, Yeah, Hi, it's John I'll take that.
So it's really hard to put a timeline on it we live through this and many other prior periods, having now doing this for 36, some odd years, so I don't like to put a timeline on it.
And we will just have to see.
In particular right now I think we've been emphasizing the supply demand dynamics, which is really providing a blistering of lease rates. So.
I hesitate at this point in time to put a timeline on it historically.
It is really ranged but we're confident over time that we're going to get.
Lease rate escalation that will much more closely match, where the interest rates have gone.
Got it and then just another question I was just looking at your exposure.
Yes.
Thank you Michelle and it looks like.
Exposure to China is 11, 4%.
12, 8% last year I was just wondering is that kind of.
Like how does this strategy by perhaps in April .
Mike maybe.
Political risk associated with the regenerate itself.
Just happened.
Yes.
Steve Yes, Stan do you want to comment on that.
Yeah happy to comment on that look we're continuously evaluating our geographic exposure and our political risk exposure in different parts of the world and I think.
At this time, we are seeing tremendous growth opportunities.
In the Americas.
Both in North and South America.
Europe .
Southeast Asia, North Asia. So as you said, China has become a lower percentile overall fleet composition.
And that trend will be expected to continue.
Into 2024 and 2025.
As we have a very limited number of new aircraft going to China.
To give you. An example, this year, we only have two aircrafts going into mainland China to <unk> hundred 21 meals.
Out of about 70 to 80, new deliveries so we.
We expect that percentage to keep declining at a rate that will get us below 10% probably by the end of this year.
And you haven't seen any changes.
Since the reopening.
More interest from Chinese Airlines any notable changes since the reopening.
Well the re openings have been very sort of unpredictable, it's been kind of on and off.
And also.
The domestic business has already been.
Supplied by a lot of aircraft there was a lot of plants sitting on the ground.
For example, there's about 90 787, Max's, Oregon delivered to Chinese Airlines.
Not in current operation.
So.
I think the Chinese airlines have enough capacity.
To deal with their traffic requirements in the next nine to 12 months and then we'll see what happens beyond that.
Got it okay. Thank you. Thank you for your time.
Your next question comes from the line of Moshe Orenbuch with Credit Suisse. Please go ahead.
Great. Thanks.
Is there a is there a way to kind of size the benefit that you get from the stronger lease rates.
As the airlines are renewing or extending leases.
Is that because I think thats an important part we've always known that the new leases will have escalators to take care of the interest rates, but is there a way to size alone.
Greg you want to talk about that sure.
Sure I mean, we've been experiencing a lot of demand on the.
The new aircrafts in our portfolio as well as the extension that we have been entering into and again as we mentioned before in the past over 90% of our leases currently are being extended.
At rates that were very comfortable with.
In terms of overall metrics, we have a hard time, giving you.
Ranges as to why we think lease rates are going but they definitely have been.
Catching up.
Up to what we've seen happen in interest rates on our John or Steve do you want to add further color.
Well.
We don't have a formulaic metric.
Here is a Greg indicates I think one of the compounding effects. There is that we for example assume.
You know that we're going to place aircraft as they come across lease.
To a variety of different carriers and much to our pleasure.
<unk> current lessees.
Are stepping up to incur.
Increase those lease rates to.
To extend those leases now in some cases, there is an increase.
But in some cases leases struck in prior periods or in prior years had a fixed lease rate for the extension.
And so that dynamic is changing.
So it's really hard for us to give sort of a quantitative outlook.
Because the bottom line is everybody wants these airplanes now and that's good and just know that where we can increase those rates we are but some of the extensions are already at fixed rates. So that's why I say, it's just going to take a time that makes it very hard for us to give you a quantitative handle on that.
Okay.
Maybe as a follow up.
The comment.
That you had made about.
One 2 billion of aircraft sales based upon deliveries.
Is it just as simple as if you get if you are only at the $4 billion yields yields under the $2 billion.
It seems like there could be some pre funding to the extent of your capital base, particularly given the fact that aircraft prices are so strong.
We have those two yes, we have a pretty good pipeline already of aircraft sales going into this year, they take time to close.
So.
To some extent what you say is true it will depend on our assessment of how deliveries are looking for the remainder of the year and given the fact that <unk>.
<unk> aircrafts sold that are on lease to Chinese airplanes, let's take aircraft take a long time to transfer. So we will be making more decisions as we get into sort of the middle of the second quarter as to the timing expectations, how much more we want to keep going versus what Airbus and Boeing.
With what degree of confidence, we have Airbus and Boeing delivering for the rest of the year. So that's why we're saying it's on an ongoing basis and it's on an evaluation basis and Theres just a lot of different factors, including again, how long does it take to close. These sales do we really think we're going to get these airplanes, we just need a little more seasoning to.
To be able to give a little tighter range and Moshe just to add we're sitting on a significant amount of liquidity of $6 9 billion and we have very few remaining maturities to refi this year or roughly about $1 billion a quarter in the bond market. So.
That gives us a lot of flexibility as to the level of sales and in.
And how much we're going to raise in the bond market.
I will say, though we're watching the Oems very closely and their ability to meet our delivery commitments because theres been a lot of talk out there about.
And the challenges that they're facing in their ability to meet their commitments to us.
Got it thanks very much.
Your next question will come from the line of Helane Becker with Cowen. Please go ahead.
Hi, Thanks, very much operator, hi, everybody.
So my question is with respect to.
And your capital raising decisions for this year, how should we think about.
Yes.
Okay.
Thank you Pat.
What your intentions are.
Yes, I think we said we were going to raise it in $3 billion to $4 billion a lot of it is going to depend on how much we buy and how much we sell as we just went through with Moshe, but given the relatively light amount of refinancings that we need to do and the strong level of liquidity that we have we have a lot of flexibility again, we do tend to access markets when at opportune.
Time so.
When we think we had a good window to drive value to our shareholders, but.
I think we said in the K and we've said before we're probably $3 billion to $4 billion and really that's going to hinge on how much we actually get from the Oems.
And whether or not it comes in the bank market, whether that comes in the bond market whether it comes in.
I mean foreign issuances, we're primarily looking in the unsecured space.
Okay, and then I just have a point of clarification, Greg on the Russian fleet value, where it shows it's $771 5 million does that include the $31 million of recovery or does that exclude now it's net of it originally that right.
802, which included our exposure in the management vehicles as well, but when we took back the Max and we put it on our books at 31. That's the net number you are seeing both through the income statement.
Okay. That's very helpful. Thank you okay. Thank you.
Your next question comes from the line of Jamie Baker with Jpmorgan. Please go ahead.
Hey, good afternoon everybody.
Got it would admit I'm curious as to whose car accelerating we heard in the background.
Any event.
On the topic of lease extension requests John you called that out.
In the release and in your prepared remarks, what's the approximate duration that most existing customers are asking for im just wondering from the airline side how much longer your customers are pushing to hold onto two aircraft and also what you said about lease extension language at predetermined.
And the economics are you obligated to grant extensions to customers where that language exists. It wasn't clear to me if you could turn down an extension request and the example that you previously gave sure.
If I had to put an average our lease extensions are about three years on average they vary.
So I'm as short as one some as long as seven.
No.
So that varies number one number two if there is a pre fixed option.
<unk> option that the airline so long as they're not in default and so long as our current without it if they exercise that option in a predefined rate was given in that option, yes, we have to honor. It. However.
I will say that options are not.
Often exercised necessarily by themselves often times they are they come up in the context of further deals with ALC.
It's a tool that we have and so I would just say that oftentimes you can't look at an option on a single aircraft oftentimes, we're talking about new aircraft or expanding the fleet or doing other things and in that context in that context, we might <unk>, Eric and airline well you have an option here that.
Lease rate is.
Too low for us.
And so if you want to go on and add a few other aircraft here and there we need a little bit of a better deal I don't know, Steve do you have anything else to add on that.
Yes, I think I think Jamie.
See a relatively small percentage of our.
Leases have fixed rate extension options, okay, but as John mentioned, we generally develop cocktail that includes new airplanes, coupled with the extension of existing aircrafts and redesigned the lease rate profile on that aircraft.
Okay understood appreciate that clarity and second and this one might sort of be from left field, but this EU directive 2008, Ashwin I wanted to ask you see are you guys familiar with it. It's basically there was an article that Mark and I saw regarding Norwegians are not Norwegians fire fliers fail.
You're basically suggesting that lessors are responsible for any unpaid emission payment obligations.
Something we need to ponder the article piqued, our interest and it's not something on your radar.
Yeah no problem.
The short answer is not really on our radar because we have been advised that the country of Norway, specifically has no current laws to enforce that that EU.
The new guidance Okay.
Straightforward. Thank you gentlemen, appreciate it.
And by the way Dan acceleration you heard Jamie.
Does the lease rates accelerating higher levels.
Yeah.
Your next question will come from the line of Ron Epstein with Bank of America. Please go ahead.
Hey, good afternoon guys.
I'm just curious why didn't your rental of freight equipment number actually go up.
Down, but your fleets bigger within the number last year that made it bigger than this year's with a larger fleet.
If you could clear that up.
Ron There's a couple of things going on right. I mean, you have some of the holdover effects from the Covid era lease restructurings as well as the.
The effects of the Russia situation.
<unk> right, we had a fleet of approximately 20 airplanes that were that are still stuck in Russia that arent able to generate revenue right now, yes, it's actually 21 airplanes, we got one back in that one back we're getting we're still <unk>.
Preparing for you so that taken out 21 airplanes from year from an earnings is significant.
Yes.
We sold which don't generate rent revenue any longer but gave us a profit on the disposition.
Got it alright, so the restaurants are still on your fleet count, even though they're not they're just sitting there doing nothing.
They're not in the fleet count because what they have been written off but they were contributing last year and not contributing this year got it okay that makes sense and then not to beat a dead horse, but I'm just trying to.
Get a sense I mean.
Potentially how upside down or as you guys given the lease rate rise right I mean.
I thought that was something we didn't have to worry about that.
<unk> pretty.
Yes, the duration matched pieces in that.
Alright.
Where did I get that wrong.
Well, let me answer that Ron I don't think were upside down I think.
What we've heard some commentary well interest rates have doubled heavier lease rates levels will know lease rates have not quite shoveled, yet it's going to take some time, we're very happy with our funding and.
The maturities of those fundings, we don't have any huge towers, we are very happy with our funding aligned going into for all of our deliveries of 2023 with all the sources that we have going forward. So.
I actually would say I don't think we feel out of balance on anything.
Okay, great great. Okay, perfect and then one last one if I may your commentary around the.
The aspirational delivery targets.
East <unk>.
Far behind you.
Really are.
We listened to a lot of suppliers and suppliers of all over the place.
Airbus sort of they're behind Boeing's behind things are slipping.
We were yes.
Could you give us a sense on how you think about it if I was running an airline today and I would expect an airplane in 12 months I mean realistically what am I going to get it.
I'll give an answer that I'm going to turn it over to Steve also to answer look.
I think our assessment as well kind of what I hinted out in my in our remarks, we think we're facing a supply chain constraints for the next at least two possibly three years.
I know that the Oems don't like to I mean, it's a tough thing we want our airplanes too.
But theres just so many different factors in the supply chain is so vast.
And labor problems I mean, it's really been tough to get labor back in and you've seen the Boeing and Airbus firing a lot more it's just really hard Ron.
To predict of the supply chain and the other aspect is many of the smaller suppliers who are on fixed rate contracts couple of years ago and they are still on fixed rate contracts in terms of what they get per whatever widget or unit they have shipped.
Are now having to restart that production and a much higher cost environment and Thats provided financial strain. So and then Steve you might want to comment on the engine side of things.
Yes, I mean part of the supply chain problem is the engine situation with CFM leap engine, both on the 787 family and on the <unk> hundred <unk> hundred 21 satellites.
And then Pratt and Whitney.
On the GTS engine, just can't supply enough to either Airbus, Canada, with a $2 <unk> or two <unk>.
Airbus on the <unk> hundred 20, <unk> hundred 20 ones.
And to also answer your question last year, we had delays on some aircrafts that were like two to three months.
We had delays on for example, an <unk> hundred 21, Neil that was nine months.
So and we've had everything else in between.
I can't give you a mathematical average, but it certainly worst in three months.
And it's not getting any better.
Got it alright, great. Thank you very much.
Okay.
There are no further questions at this time, Mr. Arnold I turn the call back over to you.
Thanks, Regina and thank you everyone for your time participating in our fourth quarter call. Today, we look forward to speaking with you again, when we report our first quarter results.
Operator please.
Disconnect the line and thank you very much.
This concludes today's conference call you may now disconnect.
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