Q4 2022 AerCap Holdings NV Earnings Call

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Operator: Good day and welcome to AerCap's Fourth Quarter 2022 Financial Results. Today’s conference is being recorded and a transcript will be available following the call on the company’s website.

Today's conference is being recorded and a transcript will be available following the call on the company's website.

Operator: At this time, I would like to turn the conference over to Joseph McGinley, Head of Investor Relations. Please go ahead, sir.

Joseph McGinley: Thank you, operator and hello, everyone. Welcome to our fourth quarter 2022 conference call. With me today is our Chief Executive Officer, Aengus Kelly; and our Chief Financial Officer, Pete Juhas. Before we begin today's call, I would like to remind you that some statements made during this conference call which are not historical facts may be forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements. 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.

Again todays call I would like to remind you that some statements made during this conference call, which are not historical facts may be forward looking statements forward looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements.

Joseph McGinley: 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.

Joseph McGinley: Further information concerning issues that could materially affect performance can be found in AerCap's earnings release dated March 2nd, 2023. A copy of our earnings release and conference call presentation are available on our website at aercap.com. This call is open to the public and is being webcast simultaneously at aercap.com and will be archived for replay. We will shortly run-through our earnings presentation and we'll allow time at the end for Q&A. As a reminder, I would ask that analysts limit themselves to one question and one follow up.

A copy of our earnings release and conference call presentation are available on our website at Aercap Dot Com <unk>.

This call is open to the public and is being webcast simultaneously at Aercap dot com and will be archived for replay.

We will shortly run through our earnings presentation, and we'll allow time at the end for Q&A as a reminder, I would ask that analysts limit themselves to one question and one follow up.

Joseph McGinley: I will now turn the call over to Aengus Kelly.

Aengus Kelly: Thank you for joining us for our full year 2022 earnings call. I am pleased to report another quarter of strong earnings for AerCap. We generated adjusted net income of $645 million and adjusted earnings per share of $2.66 in the fourth quarter. On a full year basis, the amounted to adjusted net income of $2.2 billion and adjusted earnings per share of $9.01 surpassing our previous estimate of $8 to $8.50 which we updated in November 2022.

I'm pleased to report another quarter of strong earnings for Aercap.

We generated adjusted net income of $645 million.

And adjusted earnings per share of $2 66 in the fourth quarter.

On a full year basis. This amounts to adjusted net income of $2 2 billion.

And adjusted earnings per share of $9.01.

Surpassing our previous estimate of eight to $8 50, which we updated in November 2022.

Aengus Kelly: This strong performance across all our business lines reflects how well our teams are working together to execute an extraordinary number of transactions. This level of transaction activity clearly demonstrates the success of the GECAS acquisition, the integration of the two companies and the recovery in aviation.

This level of transaction activity clearly demonstrates the success of the <unk> acquisition the integration of the two companies and the recovery in aviation.

Aengus Kelly: Cash generation also remains high, exceeding $5 billion of operating cash flow for the year, despite the impact of Russia, which helped us achieve a debt to equity ratio of 2.5 times at December 31, 2022. Given the strong earnings and cash flows, I am pleased to announce a new $500 million share repurchase program today.

Which helped us achieve a debt to equity ratio of two five times at December 31, 2022.

Given the strong earnings and cash flows I am pleased to announce a new $500 million share repurchase program today.

Aengus Kelly: Continuing the theme of prior quarters, the environment for aircraft leasing continues to strengthen, and will be further supported by the on-going reopening of China. AerCap’s level of activity in 2022 is unparalleled in the industry, completing 895 transactions over the course of the year.

Environment for aircraft leasing continues to strengthen and will be further supported by the ongoing reopening of China.

Aercap level of activity in 2022 is unparalleled in the industry.

Completing 895 transactions over the course of the year.

Aengus Kelly: In the fourth quarter alone, the AerCap team completed a record 299 transactions across 159 lease agreements, 43 purchases, and 97 sales. Without the flawless integration of the two companies, this level of transaction activity simply would not have been possible, nor would it be possible to take full advantage of the recovery in the aviation markets.

Across 159 lease agreements.

43 purchases and 97 sales.

Without the flawless integration of the two companies this level of transaction activity simply would not have been possible nor would it be possible to take full advantage of the recovery in the aviation markets.

Aengus Kelly: One area where the power of the platform was particularly pronounced was on the aircraft sales side, where we generated $229 million in gains or a 12% margin across aircraft engines and helicopters. We continue to see further evidence of the travel recovery as Europe, the Americas and Asia all now exceed 80% of 2019 levels, with China being the latest driver.

We continue to see further evidence of the travel recovery as Europe , the Americas and Asia, all now exceed 80% of 2019 levels with.

With China being the latest driver.

Aengus Kelly: In particular, the growth in domestic flight activity in China since the zero COVID policy was lifted has been significant, surpassing 12,000 flights per day recently, compared to a low of approximately 3000 flights per day at the end of November. Having spent the last two weeks seeing all our customers in China, it is clear from speaking to the leaders of these airlines, that they are also optimistic about the future.

Having spent the last two weeks seeing all our customers in China.

It is clear from speaking to the leaders of these airlines that they are also optimistic about the future.

Aengus Kelly: As we have said time and again, when the consumer is allowed to travel, they do so and in large numbers. What we are seeing around the world is that consumers continue to prioritize travel well after restrictions are lifted, and this will be no different in China. As a result, the Chinese airlines are all planning to ramp up capacity. We believe this will further exacerbate the supply demand imbalance for aircraft and engines pushing lease rates higher. I believe this will be particularly acute on the wide body side as the combination of severely restricted new aircraft production, continued traffic growth and the retirement and cargo conversion of many wide body aircraft that took place during COVID puts a premium on aircraft that are available today and AerCap is well positioned to address this opportunity.

What we're seeing around the world is that consumers continue to prioritize travel well after restrictions are lifted and this will be no different in China.

As a result, the Chinese airlines are all planning to ramp up capacity.

We believe this will further exacerbate the supply demand imbalance for aircraft and engines pushing lease rates higher.

I believe this will be particularly acute on the wide body side as the combination of severely restricted new aircraft production.

Continued traffic growth and the retirement and cargo conversion of many wide body aircrafts that.

That took place during COVID-19 puts a premium on aircraft that are available today.

And Aercap is well positioned to address this opportunity.

Aengus Kelly: We have spoken before about the shortages on the narrowbody side, where production cuts due to groundings, COVID and supply chain issues have had a significant impact. As you will see from the slide, this means there are approximately 1800 fewer narrowbody aircraft built today, compared to the production run rate in 2018. This is equivalent to approximately 11% of the 16,000 or so narrowbody aircraft in operation at that time.

As you will see from the slide. This means there are approximately 1800 fewer narrow body aircraft build today compare to the production run rate in 2018.

This is equivalent to approximately 11% of the 16000 or so narrow body aircrafts in operation at that time.

Aengus Kelly: On the wide body side, these reductions have been even more acute. Production rates for new technology aircraft such as the 787, the 330 NEO and the A350 are also well below expectations. Airbus was targeting five A330neos per month in 2019 and delivered less than three per month in 2022. They were targeting 10 A350s per month in 2019 and delivered only five per month in 2022.

Production rates for new technology aircraft, such as the 787, the <unk> Neo and the <unk> hundred 50 are also well below expectations.

Airbus, while targeting five <unk> hundred <unk> per month in 2019 and delivered less than three per month in 2022.

They were targeting 10% or $3 50 per month in 2019 and delivered only five per month in 2022.

Aengus Kelly: Boeing were targeting 14 787s per month in 2019, and delivered less than 3 a month in 2022 with more than 80% of these coming from storage. This has resulted in approximately 740 fewer wide body aircraft built since 2019, a 15% reduction relative to the 5000 or so wide body aircraft that were in service at the time. That's equivalent to almost two full years of normal production so how are we capitalizing on this opportunity?

With more than 80% of these coming from storage.

This has resulted in approximately 740 fewer wide body aircraft built since 2019 at.

A 15% reduction relative to the 5000 or so wide body aircraft that were in service at the time.

That's equivalent to almost two full years of normal production.

So how are we capitalizing on this opportunity.

Aengus Kelly: The best example I can give you is that since the start of 2022, AerCap has completed nearly 100 wide body transactions, which I suspect is possibly more than the rest of the aircraft leasing industry combined. We are seeing broad base demand, and we expect this to be sustained by continued traffic growth and low production rates for wide body aircraft. We believe that the issues affecting aircraft production are likely to persist for several years, resulting in strong demand and upward pressure on lease rates and values for the foreseeable future.

We are seeing broad based demand and we expect this to be sustained by continued traffic growth and low production rates for wide body aircraft.

We believe that the issues affecting aircraft production are likely to persist for several years, resulting in strong demand and upward pressure on lease rates and values for the foreseeable future.

Aengus Kelly: One further topic I'd like to address is the impact of interest rates and inflation on aircraft lease rates and our business more generally. On our prior call, we outlined the way new aircraft leases are adjusted for changes in interest rates and escalation, which provides protection to AerCap from interest rate volatility. This is the same exposure an airline would face if it were to purchase aircraft directly from the manufacturers and finance it with desks. So it's widely accepted that this should be reflected in lease rates. However, it's important to put these kinds of increases into context.

On our prior call we outlined the way new aircraft leases are adjusted for changes in interest rates and escalation.

Which provides protection to aercap from interest rate volatility.

This is the same exposure and airline with face if it were to purchase aircraft directly from the manufacturers and finance it with debt.

So it's widely accepted that this should be reflected in lease rates.

However, it is important to put these kinds of increases into context.

Aengus Kelly: As you can see on this slide, leasing costs make up approximately 5% of an airline's cost base on average. So changes here are much more palatable to pass through than fuel or labor costs may be. Of course, every airline looks to minimize whatever level of cost they can, but this should illustrate that even large percentage increases in interest expenses, and leasing costs are less material to our airline customers than many investors may realize. In summary.

So changes here are much more palatable to pass through than fuel or labor costs may be of course every airline looks to minimize whatever level of cost. They can but this should illustrate that even large percentage increases in interest expenses and leasing costs are less material to our airline customers than many investors may <unk>.

Aengus Kelly: In summary, this was another great quarter for aircraft with record earnings and cash flow throughout the business. The market environment continues to improve, and this is reflected in our financial results. The company has successfully navigated an extraordinary period over the three years. And now we are well positioned and on an upward trajectory for 2023 and beyond. Our confidence in the future is evidenced by today's announcement of our new share repurchase program.

The market environment continues to improve and this is reflected in our financial results.

The company has successfully navigated an extraordinary period over the past three years.

And now we are well positioned and on an upward trajectory for 2023 and beyond.

Our confidence in the future as evidenced by today's announcement of our new share repurchase program.

Aengus Kelly: With that, I will hand the call over to Pete for a detailed review of our financial performance and outlook for 2023.

Peter Juhas: Thanks, Gus. Good morning, everyone. We had a very strong performance for the fourth quarter. Our adjusted net income was $645 million, or $2.66 per share. The impact of purchase accounting adjustments was $215 million in the quarter. This included lease premium amortization of $47 million, which reduced our basic lease rents, $111 million of maintenance rights amortization that reduced our maintenance revenue, and $57 million of amortization, that was reflected in higher leasing expenses.

The impact of purchase accounting adjustments was $215 million in the quarter.

This included lease premium amortization of $47 million, which reduced our basic lease rents.

<unk> hundred $11 million of maintenance rights amortization that reduced our maintenance revenue and $57 million of amortization that was reflected in higher leasing expenses.

Peter Juhas: In the fourth quarter, we received $47 million of letter of credit proceeds related to our Russian leases, which was reflected in our net claims and recoveries related to the Ukraine conflict line item. And we had transaction and integration related expenses of $3 million in the quarter. Taking all of those into account, our GAAP net income for the fourth quarter is $495 million, or $2.04 per share.

And we had transaction and integration related expenses of $3 million in the quarter.

Taking all of those into account, our GAAP net income for the fourth quarter is $495 million, or $2.04 per share.

Peter Juhas: I'll talk briefly about the main drivers that affected our results for the fourth quarter. Basic lease rents for $1,494 million for the quarter, an increase of around $20 million from last quarter. As I mentioned, our basic lease rent reflected $47 million of lease premium amortization. Lease premium assets were amortized over the remaining term of the lease and reduced basically spreads.

Basic lease rents were $1 billion and $494 million for the quarter, an increase of around $20 million from last quarter.

As I mentioned are basically rents reflected $47 million of lease premium amortization lease.

These premium assets are amortized over the remaining term of the lease and reduced basic lease rents.

Peter Juhas: Maintenance revenues for the fourth quarter were $140 million and that reflects $111 million in maintenance rights assets that were amortized to maintenance revenue during the quarter. In other words, maintenance revenue would have been $111 million higher or $251 million without this amortization.

Peter Juhas: Net gain on sale of assets was $121 million for the quarter. During the fourth quarter, we completed a record 97 asset sales, including sales of 83 of our owned assets. The total volume of assets sold in the fourth quarter was around $965 million. So that represents a very strong gain-on-sale margin of 14% for the quarter.

Margin of 14% for the quarter.

Peter Juhas: Our other income was $74 million for the quarter, which included proceeds from unsecured claims related to Garuda airlines, as well as insurance proceeds related to one of our helicopters. Those two items were total of $36 million of other income in the quarter.

Aengus Kelly: As I mentioned earlier, net recoveries related to the Ukraine conflict were $47 million in the fourth quarter, which represents proceeds from letters of credit that we received during the quarter. As we've mentioned previously, we submitted claims for our letters of credit related to Russian leases during the first quarter of 2022. We received most of those proceeds shortly thereafter, but there were certain amounts that were disputed by the banks. We've now received virtually all of those amounts.

As we've mentioned previously we submitted claims for our letters of credit related to Russian lessees during the first quarter of 2022.

We received most of those proceeds shortly thereafter, but there were certain amounts that were distributed by the banks. We have now received virtually all of those amounts.

Peter Juhas: Leasing expenses were $261 million for the quarter, including $57 million of amortization expenses. Equity and net earnings of investments under the equity method was $38 million for the quarter. That primarily reflects continued strong earnings from Shannon Engine Support, which is our engine joint venture with Safran, and is our largest equity investment.

And net earnings of investments under the equity method was $38 million for the quarter that primarily reflects continued strong earnings from Shannon engine support.

Which is our engine leasing joint venture with Safran and is our largest equity investment.

Peter Juhas: SES has been generating strong performance this year, driven by the on-going engine supply and demand factors that Gus mentioned in his remarks. For the full year 2022, our adjusted net income was $2,185 million, and our adjusted EPS was $9.01. That's after purchase accounting adjustments for the full year of $629 million transaction and integration related expenses of $33 million, and net charges related to the Ukraine conflict of approximately $2.7 billion.

For the full year of 2022, our adjusted net income was $2 billion and $185 million and our adjusted EPS was $9 a month.

That's after purchase accounting adjustments for the full year of $629 million transaction and integration related expenses of $33 million and net charges related to the Ukraine conflict of approximately $2 7 billion.

Peter Juhas: Our full year EPS of $9.01 reflects a strong outperformance relative both to our original guidance of $6.50 [ph] to $7 as well as our revised guidance that we provided on the third quarter earnings call at $8 to $8.50. That outperformance has been driven by a number of factors. We've seen a positive impact on revenue from higher cash collections, as well as higher maintenance revenue.

That outperformance has been driven by a number of factors we've seen a positive impact on revenue from higher cash collections as well as higher maintenance revenue.

Peter Juhas: We've also seen strong performances from our engine leasing, and helicopter leasing businesses. And we've had higher income from our joint venture SES, which has performed well ahead of expectations. We sold just under $2.2 billion worth of assets in 2022 and that gain on sale of $229 million for a 12% gain on sale margin for the full year. We also received significant proceeds from unsecured claims and other items during the year, around $100 million in total. We also had $69 million of mark-to-market gains on our interest rate caps and swaps in 2022.

We sold just under $2 $2 billion worth of assets in 2022, and our gains on sale of $229 million for a 12% gain on sale margin for the full year.

We also received significant proceeds from unsecured claims and other items during the year of around $100 million in total.

We also had $69 million of mark to market gains on our interest rate caps and swaps in 2022.

Peter Juhas: We continue to maintain strong liquidity position. As of December 31, our total sources of liquidity were approximately $18 billion, which resulted in next 12 months sources uses coverage ratio of 1.4 times, which is above our target of 1.2 times coverage, and represents in excess cash coverage of around $5 billion.

<unk> cash coverage of around $5 billion.

Peter Juhas: Our total operating cash flow was approximately $1.6 billion to the quarter. That's a very strong number, which was driven by continued strong cash collections and operating performance, as well as sales proceeds from some aircraft that run finance leases that were sold in the quarter, along with the letter of credit proceeds related to our Russian leases.

Peter Juhas: As a result of the strong earnings and cash flow generation, we saw a significant decrease in our leverage ratio. And we ended the year with net debt to equity of two and a half times, which is well below our target ratio of 2.7 times. Our secured debt to total assets ratio was approximately 14% at the end of the year, which is in line with the third quarter, and our average cost of debt for the fourth quarter was 3.3%. Earlier this week, Moody's upgraded our senior unsecured ratings to Baa2, and we remain on positive outlook with Fitch. So that continues our positive ratings trajectory.

Our secured debt to total assets ratio was approximately 14% at the end of the year, which is in line with the third quarter and our average cost of debt for the fourth quarter was three 3%.

Earlier this week Moodys upgraded our senior unsecured ratings to <unk> and we remain on positive outlook with Fitch. So that continues our positive ratings trajectory.

Peter Juhas: Now I'll spend a few minutes talking about our financial outlook for 2023. As Gus mentioned, we're seeing a strong recovery in aircraft demand and significant supply constraints, both of which we expect to persist. So the environment for leasing continues to be positive. And we expect to see lease rates continue to climb higher during the course of 2023. Our EPS guidance for full year 2023 is $7 to $7.50 of adjusted EPS, excluding any gains on sale, as well as other items like recoveries of unsecured claims.

As Gus mentioned, we're seeing a strong recovery in aircraft demand and significant supply constraints, both of which we expect to persist through.

So the environment for leasing continues to be positive and we expect to see lease rates continue to climb higher during the course of 2023.

Our EPS guidance for full year 2023, $7 to $7 50 of adjusted EPS, excluding any gains on sale as well as other items like recoveries of unsecured claims.

Peter Juhas: When we look at our 2022 EPS of $9.01, you can see that was comprised of a number of items that we haven't included in the 2023 forecast. For example, we have an assumed any gains on sale, which were $0.83 after taxes in 2022. In 2022, we also had mark-to-market gains and interest rate caps and swaps as interest rates rose and the value of those derivatives increased. So that's a $0.41 impact.

For example, we haven't assumed any gains on sale, which were <unk> 83 after taxes in 2022.

In 2022, we also had mark to market gains on interest rate caps and swaps as interest rates rose and the value of those derivatives increased so that's a <unk> 41 impact.

Peter Juhas: Up until the invasion of Ukraine at the end of February last year, we were still receiving rent from our Russian airline customers. Obviously that's no longer the case. So the $0.14 reflects the removal of the sprint as well as the depreciation related to those assets which we wrote off in full in the first quarter of last year. We also had $0.39 of unsecured claims and other items in 2022 and we haven't forecasted anything for those items in 2023. We'll also have some higher costs associated with our cargo conversion program in 2023, as that ramps up this year, as well as higher insurance cost, so those are both reflected in the $0.41 impact shown here.

We also had 39 unsecured claims and other items for 2022, and we haven't forecasted anything for those items in 2023.

We will also have some higher costs associated with our cargo conversion program in 2023 as that ramps up this year as well as higher insurance costs. So those are both reflected in the <unk> 41 impact shown here.

Peter Juhas: And finally, we expect higher lease revenue and other items in 2023, which we project will increase our EPS in 2023 to $7 to $7 50, excluding any gain on sale or other income items.

Peter Juhas: If we take a look at our projected income statement for 2023, you can see that we expect to have total revenue of approximately $6.8 billion interest expense around $1.8 billion depreciation of approximately $2.5 billion and leasing expenses, SG&A and other expenses of around $1.2 billion. That gives us total pretax income of $1.3 billion.

Interest expense of around $1 8 billion.

Depreciation of approximately $2 $5 billion and leasing expenses SG&A and other expenses of around $1 2 billion.

That gives us total pre tax income of $1 3 billion.

Peter Juhas: The next line, tax expense and income from equity method investments includes our income from SES. We expect that our effective tax rate will be around 14% for 2023 and we expect to have around $100 million of income from our equity investments. So that gives us GAAP net income of approximately $1.2 billion. We expect to have purchase accounting impacts that is from lease premium amortization and maintenance right amortization of around $500 to $600 million for the year. So that results in adjusted net income of around $1.7 billion and adjusted EPS of $7 to $7.50, which as I've said, doesn't include any gains on sale.

We expect to have purchase accounting impacts that is from lease premium amortization and maintenance rates amortization of around $5 to $600 million for the year.

So that results in adjusted net income of around $1 $7 million and adjusted EPS of $7 to $7 50.

Which as I've said doesn't include any gains on sale.

Peter Juhas: We expect to have asset sales of $2.5 billion for the year, which is an increase over the $2.2 billion of sales that we had in 2022. And we expect to have cash CapEx of $6.8 billion for the year. Of course, the volume of sales would depend on the market for aircraft during the year. And the amount of CapEx will depend on the ability of the OEMs to deliver aircrafts. But for now, those are our best estimates.

We expect to have cash capex of $6 8 billion for the year.

Of course, the volume of sales will depend on the market for aircraft during the year and the amount of Capex will depend on the ability of the Oems to deliver aircrafts, but for now those are our best estimates.

Peter Juhas: So overall, this was another strong quarter for AerCap. After the invasion of Ukraine last February, and the write-off of our Russian assets, we've rebounded strongly which you can see in the level of our transactions activity, our financial performance well above guidance, and the fact that we've delevered to a level that's well below our target. We also see this confirmed by the ratings upgrade to Baa2 for Moody's that we received earlier this week. And we expect the trends that are driving these results to continue, which should be positive for our business in 2023 and beyond. 

After the invasion of Ukraine last February and the write off of our Russian assets, we've rebounded strongly which you can see the level of our transactions activity, our financial performance well above guidance and the fact that we have de levered to a level thats well below our target.

We also see this confirmed by the ratings upgrade to <unk> from Moody's that we received earlier this week.

And we expect the trends that are driving these results to continue which should be positive for our business in 2023 and beyond.

Peter Juhas: That gives us confidence to announce a new share repurchase program, and confidence about our outlook for 2023. And with that operator, we can open up the call for Q&A.

Operator: Thank you. The question-and-answer session will be conducted electronically. If you would like to ask a question, please signal by pressing star one on your telephone. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach  our equipment. Again, press star one to ask your questions. We will pause just a moment to allow everyone an opportunity to signal for questions.

Thank you.

The question and answer session will be conducted electronically.

If you would like to ask a question, please signal by pressing star one on your telephone.

If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach  our equipment. Again, press star one to ask your questions. We will pause for just a moment to allow everyone an opportunity to signal for questions.

press star one to ask your questions. We will pause for just a moment to allow everyone an opportunity to signal for questions.

to ask your questions. We will pause for just a moment to allow everyone an opportunity to signal for questions.

But just your links to allow everyone an opportunity to signal for questions.

Operator: We will take our first question from Jamie Baker from JPMorgan. Please go ahead.

Jamie Becker from Jpmorgan. Please go ahead.

Unidentified Analyst: Hello, this is James on for Jamie. Thanks, operator. First question. There was a recent article speculating that you guys were in discussion with a Russian airline to purchase planes at discounted price to the extent that you can comment on that, any clarity you could provide there but also is that even possible just given the sanctions in place? Okay.

First question there was a recent article.

Speculating that.

You guys were in discussion with a Russian airline to purchase.

Plans at discounted price to the extent that you can comment on that.

Any color you.

<unk> there, but also is that even possible just given the sanctions in place.

Aengus Kelly: Thanks, James. As you know, we are pursuing insurance claims against our own insurers and against the Russian airlines insurers and reinsurers. We have been approached by some Russian Airlines and their insurers about potential insurance settlements involving some of our aircraft lost in Russia. However, it is too early to know whether anything will come out of it and we have nothing further to say on it at this stage.

Are there anything will come out of it and we have nothing further to say on it at this stage.

Unidentified Analyst: Got it understand, just thought I would try the question there. Second question just on the cadence of the cargo business revenues to the year, it seems like the $0.41 impact for 2023. Just how should we think about that as the year goes on? Sure.

Try to try the question there a.

Second question just on the cadence of the cargo business revenues for the year.

It seems like the 41 cent impact for 2023, just how should we think about that as the year goes on.

Aengus Kelly: Sure, well, that's -- James, that's really an impact of a couple things. You've got cargo expenses, as those conversions happen throughout the year. I'd say they're pretty -- going to be pretty balanced throughout the year. And then we do have higher insurance expenses in there as well, as well. So it's both of those factors that are contributing to that.

An impact of a couple of things you've got cargo expenses as those conversions happen throughout the year, I'd say, they're pretty going to be pretty balanced throughout the year and then we do have higher insurance expenses in there as well and narrowed as well. So it's both of those factors that are contributing to that.

Unidentified Analyst: Got it. Okay. That's it for me. I appreciate the question.

Sure.

Operator: Thank you. We will take our next question from Helane Becker for TD Cohen. Please go ahead.

Helane Becker: Thanks very much, operator. It's Helane Becker. Hi, team. Thanks for the time. So, Pete, is it? Do you always not forecast sales for the year and then take them as they come? Or how should we think about the forecast for zero sales in 2023?

Hi team thanks for the time.

And Pete is it can you always not forecast sales for the year, and then take them as they come or how.

How should we think about the forecast for <unk> sales in 'twenty three.

Peter Juhas: Well, Helane, so we're expecting, we're projecting $2.5 billion of sales for the year. So that is in our forecast, what we haven't done, which is consistent with how we've done it previously. We haven't made any forecasts for what gains on sale would will be because those that's really going to depend on what assets we sell and what the market is like during the course of the year. But we are expecting to sell $2.5 billion last year in 2022. We sold $2.2 billion worth and we would expect to do a little more than that during the course of the year.

We're projecting $2 $5 billion of sales for the year.

That is in our forecast, while we haven't done which is consistent with how we've done. It previously we haven't made any forecast for what gains on sale will be because those that's really going to depend on what assets, we sell and what the market is like during the course of the year, but we are expecting to sell $2 5 billion.

Last year in 2022, we sold $2 $2 billion worth then and we would expect to do a little more than that during the course of the year.

Helane Becker: Okay, that's helpful. Yes, I meant gains, not sale. Sorry about that. And then my other follow up question is on CapEx, the $6.8 billion. So how are you thinking about two things; one, financing it and two, looking at to the right, given what you said about delivery delays, and what we're seeing about delivery delays and the slide that Aengus referred to earlier in his remarks, it looks like you may not get all the aircraft that you're contracted to get. So how should we actually think about what CapEx will look like and how it will be financed? Thanks.

So how are you thinking about two things one financing it and too.

Flipping it to the right given what you said about delivery delays and what were seeing about delivery delays in the slide that <unk>.

<unk> referred to earlier in his remarks, it looks like you may not get all the aircraft that.

Youre contracted to get so how should we actually think about what capex will look like and how it will be financed thanks.

Peter Juhas: Well, CapEx has been a moving feast delay in your rice over the course of the last few years. And I expect that to continue. These are our best estimates at the moment. But even yesterday, as you have seen Airbus made some announcements about the XLR delays again. So this is a dynamic situation, but it's our best estimate as of now.

These are our best estimates at the moment, but even yesterday as youll have seen Airbus made some announcements about the XLR delays again so.

This is a dynamic situation, but it's our best estimate as of now.

Helane Becker: Okay, thanks and financing them?

Peter Juhas: This will generate operating cash flow of $5 billion as we said, we expect in the coming year, and then in addition, there'll be $2.5 billion of sales. So relative to the size of the balance sheet, and the cash flow generating power of the business these are very manageable CapEx numbers, even if they were to all deliver which I did.

Helane Becker: Right, right. Got it. Okay. Thanks very much. Have a great day. Thank you. Thank you.

Operator: We will take our next question, from Moshe Orenbuch from Credit Suisse. Please go ahead.

Credit Suisse. Please go ahead.

Yes.

Great.

Moshe Orenbuch: Great. Pete or Gus actually, I'm hoping you could kind of talk a little bit about how, obviously, we'll see the benefit of the strong value market in air, in aircraft in the sales numbers and sell them in the fourth quarter and likely see them in 2023. Can you talk about how that's going to be manifested in lease rates? And whether you've assumed any of that in your 2023 guide?

Obviously, we will see the benefit of the strong value market and hair in aircrafts in the sales numbers southern in the fourth quarter and likely see them. In 2023 can you talk about how thats going to be manifested in lease rates.

Whether you've assumed any of that in your 2023 guide.

Aengus Kelly: Sure, Moshe. So overall, we're seeing lease rates going up. We've seen that for more than the past year. So that has that has been accelerating. And we've factored some of that in obviously, we're leasing well in advance. So if we're signing at least today, that's likely to be for 12 months’ time from now. Right. So you don't you don't see there's a lag in terms of that effect. But obviously, it does affect future years. So we've reflected that in. I mean, in terms of basic lease rents, I would I think the fourth quarter run rate is a pretty good starting point, if you're thinking of it that way. And you should see those growing somewhat each quarter as the fleet grows somewhat throughout the year. That's what I would expect.

For more than the past year.

So that has that has been accelerating and we've factored some of that and obviously, we are leasing well in advance.

So if we're signing at least today thats likely to be for 12 months time from now right. So you don't you don't see Theres a lag in terms of that effect, but obviously it does affect future years. So we've reflected that in I mean in terms of basic lease rents I would I think the fourth quarter run rate is a pretty good starting point, if you're thinking of it that way.

And you should see those growing somewhat each quarter as the fleet grows somewhat throughout the year, that's what I would expect.

Moshe Orenbuch: Great, thanks. And, I think we've had this discussion about your guidance in the past as being conservative as excluding some of the items that are in there. And in talking with investors this morning already, I think there's been some confusion I guess -- the fact that you kind of on the slide on page 13, kind of exclude the mark-to-market of interest rate caps and swaps, that doesn't mean that you expect that to be necessarily zero in 2023. Is that, and some of those other items that are that are on there, some -- they don't, they won't necessarily be zero in 2023, correct?

I think we've had this discussion about your guidance in the past as being conservative is excluding some of the items that are in there.

Talking with investors.

Morning already I think there has been.

Some.

Some confusion I guess.

The fact that you're kind of <unk>.

Slide on page 13 kind of exclude the mark to market of interest rate caps and swaps that doesn't mean that you expect that to be.

Necessarily zero in 2023 is that.

And some of those other items that are that are on there.

They don't they won't necessarily be zero in 2023 correct.

Aengus Kelly: Correct. And maybe I'll take a moment Moshe just to talk about those. So the mark-to-market of interest rate caps and swaps. During 2022 we had a benefit from that, because interest rates rose, and the value of those derivatives of those caps and swaps rose, so we had to mark that to market. So we're not projecting, we're not making an assumption about that in in 2023, that that's going to happen again, right, so. So that's, that's that item. Some of the other ones like the lower income as a result of the Ukraine conflict. So that reflects the rent that we got on our Russian aircraft during the first quarter less the depreciation on that, that's obviously gone, right. So I would not include anything for that. And then we've reflected the cargo conversion program. In terms of the other items, so the games on sale. So I think you could take a look at the, our projection of two and a half billion of sales and make a evaluation of whether you think that's high or low or accurate. And then historically, we've had gain on sale margins of 8% to 10%. Last year, it was 12%. I mean, obviously, that's market dependent, but that's what we've had. And then in terms of other items, in 2022, we had about 100 million of unsecured claims that came through. And those are not something that we project. So that's not in these numbers of the 7 to 750. But I'd say in a in a balance sheet of the size and business of the size, it's not unusual for us to have things come in, in that other income line item. So that's how I would think about it is. You've got 7 to 750 is, is what's really forecastable. But then there are other things that could come on top of that.

The value of those derivatives of those caps and swaps rose so we had to mark that to market.

So we're not projecting we're not making assumption about that in in 2023 that that's going to happen again right. So so that's that's that item.

Some of the other ones like the lower income as a result of the Ukraine conflict. So that reflects the rent that we got.

Our Russian aircraft during the first quarter less the depreciation on that that's obviously gone right. So I would not include anything for that and then we've reflected the cargo conversion program in terms of the other items, though the gains on sale. So I think you could take a look at the our projection of $2 5 billion of sales.

<unk>.

Evaluation of whether you think thats higher lower or accurate and then historically when you've had gain on sale margins of 8% to 10%.

Last year, it was 12% I mean, obviously that's market dependent but that's what we've had and then in terms of other items in 2022, we had about $100 million of unsecured claims that came through and those are not something that we project. So that's not in these numbers of the 7% to 750.

But.

I'd say in a in a balance sheet of this size in a business of this size, it's not unusual for us to have things come in in that other income line item.

So that's how I would think about it is you've got 7% to $750 is whats really forecastable, but then there are other things that could come on top of that.

Moshe Orenbuch: Thanks so much. Sure.

Operator: We will take our next question from Hillary Cacanando from Deutsche Bank. Please go ahead.

Hillary Cacanando: Thank you. Thank you for the time. I was wondering, could you buy back any stock year-to-date? And I know you've just announced it, but I'm wondering if you bought any? And do you have a full year of repurchase target.

Did you buy back any five year, Nicole and thank you.

But I'm wondering if you bought atmel and do you have that.

Hi, Jeff.

Aengus Kelly: We have not bought any back, we just announced it today. So we haven't bought any shares yet. In terms of full year, look, we're going to generate excess capital during the course of the year and what we've always done historically, is look, as we generate excess capital, we look at how to deploy that. And obviously, we've done a lot of share repurchases in the past. I don't want to speculate about how many we will do this year, but obviously, as we look at it, that's a natural way for us to deploy capital effectively.

In terms of full year look we're going to generate excess capital during the course of the year and what we've always done historically is look as we generate excess capital. When you look at how to deploy that and obviously, we've done a lot of share repurchases in the past I don't want to speculate about how many we will do this year, but but obviously. As we look at it that's a natural way for us to deploy capital effectively.

As we look at it that's a natural way for us to deploy capital effectively.

Hillary Cacanando: Got it. Thank you. And then just regarding your cargo conversion program, what is the timing of revenue coming on from that from that program?

Glenn.

Aengus Kelly: Well, you'll start to see the first cargo conversions done or on the 777 program anyway. During this year, we'll start to see some delivering. And then really, it's over the course of the next few years that those come in, and our percentage of revenues from cargo will go up as a result of that. But it's a multi-year program. Okay.

During this year, we'll start to see some delivering and then really it's over the course of the next few years that those command and and are a percentage of revenues from cargo will will go up as a result of that.

But it's a multiyear program.

Hillary Cacanando: Okay, got it. Great. Thank you so much for the color.

Sure.

Operator: We will take our next question from Vincent Caintic from Stephens. Please go ahead. Thank you for taking my questions.

Vincent Albert Caintic: Thank you for taking my questions. First question, going back to net spreads. Appreciate the comments about lease rate expansion and kind of building off of the fourth quarter results. And maybe if you could talk about the funding side, how we should think about funding costs. And how much of an offset that would be, particularly with the purchases of the 6.8 billion this year. Thank you. Okay.

Lease rate expansion and kind of building off of the fourth quarter result, maybe if you could talk about the funding side, how we should think about.

Funding costs.

How much of an answer that would be particularly with the purchases of the $6 8 billion. This year. Thank you.

Peter Juhas: Sure, Vincent. So in terms of net spread for the year, I think it's going to be pretty flat from where it was for the fourth quarter 7.6% or so. So I think that's a reasonable estimate. In terms of funding so we have about $6 billion to $7 billion worth of funding that we would expect to do that that obviously depends on the on getting all these deliveries 79 aircraft during the course of the year, as well as the level of sales that we that we ultimately end up doing. But based on the two and a half billion of sales, and based on that, just under 7 billion of CapEx, we would expect to do about 6 billion to 7 billion, which is that will be in unsecured bonds, it will be in some secure deals, unsecured bank deals as well. So it'll be a combination, but that probably means two to three trips to the market during the course of the year.

Depends on the on getting all of these deliveries 79 aircraft during the course of the year as.

As well as the level of sales that we that we ultimately end up doing but based on the $2 5 billion of sales and based on that just under $7 billion of Capex, We would expect to do about $6 billion to $7 billion, which is.

That would be an unsecured bonds that will be in some secured deals unsecured bank deals as well. So it will be a combination, but probably means two to three trips to the market during the course of the year.

Vincent Albert Caintic: Okay, great. That's very helpful. And second question. So glad to hear the strength in the valuations of aircraft as well as lease rates expanding? How do you balance between selling aircraft and realizing the gain since evaluations moving higher on aircraft versus keeping the aircraft and taking advantage of the lease rates, expanding sensors, such high demand there? Thank you.

The strength in the.

The valuations of aircraft as well as lease rates expanding.

How do you balance between selling aircraft and realizing the gain since valuations moving higher on aircrafts versus keeping the aircraft.

And taking advantage of the lease rates expanding sensors such high demand there. Thank you.

Aengus Kelly: Right, Vincent when we think about selling assets, it's the first objective is to improve the quality of the residual portfolio. Gain and sale and driving the price that we get for the assets come second to that. So what we do and we compose the sale, a portfolio of assets for sale, as we'll say, Okay, this is a particular portfolio of assets, where we feel for various reasons that the average aircraft in the portfolio post the sale would be a slightly better asset than it was before the sale of this portfolio of assets. That's the key driver that you're always trying to make sure that the portfolio is built for the long-term. And that's the primary driver of all our decision making. And that's underpinned the success of the company for many, many years. Holding on to assets and clipping near term coupons when you know there's an issue with the -- say in the bond world if you're clipping a coupon of 12% 13% a year in a very low rate environment.

It's the first objective is to improve the quality of the residual portfolio.

Gain on sale and driving the price that we get for the assets come second to that.

So what we do and recompose the sale of a portfolio of assets for sale as we all say okay.

This is a particular portfolio of assets, where we feel for various reasons that the average aircraft in the portfolio post the sale.

Will it be a slightly better assets.

Then it was before the sale of this portfolio of assets. That's the key driver that Youre always trying to make sure that the portfolio is built for the long term.

And that's the primary driver of all our decision, making and that's underpinned the success of the company for many many years holding on to assets and keeping near term coupons. When you know it is an issue.

With a say in the bond world, if you're flipping a coupon of 12, 13% a year and a very low rate environment.

Aengus Kelly: And the bond is trading at $0.80 on the dollar you know there's an issue somewhere there. And it's recognizing that I'm trying of course, to be ahead of the market, we do have an information advantage over the rest of the market. We do see things before anyone else in the world. We do see more data than anyone else to and it's employing all of that to try and make the best decision for the long-term shape of the portfolio. An example of that would be we were the only major lessor not to be buying end of line aircraft like 737s, A320s, A330s, 777s over the last 10 years. We didn't buy any, but all of the competitors were. And we knew that while there are going to be teething issues with the introduction of new technology, we could see before others that the trend for airlines was to move faster than many realized into the newer technology when they could. So that's one example of many Vincent. Production of new technology, we could see before others that the trend for airlines was to move faster than many realized into the newer technology when they caught so that's <unk>.

The best decision for the long term shape of the portfolio and example of that would be we were the only major lessor or not to be buying end of line aircraft like 730 Sevens <unk> hundred <unk> <unk> hundred <unk> Triple Sevens over the last 10 years, we didn't buy any but all of the competitors were and we knew that while there are going to be teething issues with the <unk>.

One example of many Vincent.

Vincent Albert Caintic: Okay, that's very helpful. Thanks very much. Yeah.

Operator: We will take our next question from Chris Stathoulopoulos from Susquehanna. Please go ahead.

Chris.

From Susquehanna. Please go ahead.

Christopher Nicholas Stathoulopoulos: Thank you for taking my question. So, Aengus, in your prepared remarks you spent, you spent a good deal of time talking about China, the reopening there? I think you spent time on the last call. But could you speak to what you're seeing in the Americas and other regions and how you would describe, I guess the pace of recovery there. And then also curious within that, if you're you mentioned that you have a lot of data that you're privy to, within those markets, if you're looking at the segments of travel and how leisure and business might be shaping up as well? Thanks. Yes.

So I think in your prepared remarks, you spent.

Spent a good deal of time talking about China, and the reopening there.

You can spend time on the last call, but could you speak to what youre seeing in the Americas and other regions and how you would describe I guess the pace of.

Recovery there.

And then also curious within that.

If you're you mentioned that you have a lot of data.

That you are privy to.

Within those markets, if youre looking at the segments of travel and how.

Leisure and business might be.

Shaping up as well thanks.

Aengus Kelly: Well, if I -- if you start, say, with the Americans, the market has been very strong there. The domestic market is extremely strong. We expect a very strong summer there with good yields. You can see that there was a tightness of supply of narrow body aircraft in the U.S. markets. And the North Atlantic market is booming. The North Atlantic is by far the biggest long haul market in the world. So that affects both the American and the European sides there. So I would show the American domestic market has been extremely strong. I would show the Western European market also has been extremely strong. I think Ryanair had their biggest week of sales ever. Ryanair being the biggest airline in Europe. And what you'll see around the world is a similar trend where, give or take with 80% of 2019 capacity they're generating after above 2019 revenue, and we see that type of trend being repeated. Now of course the input costs for the airlines through higher fuel and at some extent higher labor costs, they need that rise but the good news is that it's there. With regard to China, I spent two weeks myself in China. I'm just back. I got back on the weekend from spending two weeks there. I met all of the major airlines, be it the flight carriers, the three major low cost carriers all throughout China. And again, we're seeing the same pattern of recovery there, but the domestic market was extremely strong for the Spring Festival, or as we call it, the Chinese New Year. That occurred in January, the airlines were in profitability pretty much across the board for the first time, heavily focused on the domestic market and into Southeast Asia. So we'd expect that to -- that is the same that we saw in the Americas and in Europe. And then that expanded over time into the international market. And I think we'll see the same over the next 12 to 18 months in China. Okay.

You can see that there was a tightness of supply of narrow body aircraft.

In the U S markets and the North Atlantic market is booming the north Atlantic is by far the biggest long haul market in the world. So that affects both the American and the European sides. There. So I would I would show the American.

Domestic market has been extremely strong I would show the western European market also has been extremely strong I think ryanair had their biggest week of sales out of Orion are being the biggest airline in Europe , and what you'll see around the world the similar trend where give or take with 80% of 2019 capacity theyre generating after above 2019.

Revenue and we see that type of trend being repeated now of course, the input costs for the airlines through higher fuel and at some extent higher labor costs, they need that rise, but the good news is that it's there with regard to China I spent two weeks myself in China I'm just back I got back on that then we can from spending two weeks there I met.

All of the major airlines be it the.

The flag carriers.

Three majors and low cost carriers.

Through our China and again, we're seeing the same pattern of recovery there or the domestic market was extremely strong for the spring festival or as we call. It the Chinese new year and that occurred in January .

Airlines were in profitability pretty much across the board for the first time heavily focused on the domestic market and into southeast Asia. So we would expect that that that is the same that we saw in the Americas and in Europe .

And then that expanded over time into the international markets and I think we will see the same over the next 12 to 18 months in China.

Christopher Nicholas Stathoulopoulos: Okay, my second question. So there's, there's clearly you speak to it. And what we're seeing here the data, a lot of upward pressure on lease rates as a whole. But could you speak to the cargo side where perhaps we're not seeing as a constructive supply demand backdrop, if you will, with volumes consistently moving lower here and the return of belly capacity to the market as these long haul international flights, come back online. So curious what you're seeing on the on the cargo side. And if within that if there are any sort of aircraft types that are performing better or worse? Thank you.

Backdrop, if you will volumes.

Consistently moving lower here in the return of belly capacity to the market as these long haul international flights.

Come back online. So I'm curious what you are seeing on the on the cargo side.

And if within that if there are any sort of aircraft.

Aircraft types that are performing.

Better or worse. Thank you.

Aengus Kelly: It should be no surprise that Targa yields are down. They were stratospherically high during COVID. And it got to the situation where for some low value products, like a pair of sneakers, the cost of transporting them from Vietnam to the States or Europe, was getting close to the cost of the sneakers. So that was an unsustainable situation. So there's no surprise there that it's come down. A lot of demand was pulled forward, of course in COVID, when people were at home buying stuff online. That being said, however, what we do believe that the cargo market is a lot more stable now than it has been in the past. If you wind back 10, 12 years, the cargo business was dominated by the major carriers like the FedEx, UPS, DHL, and a few large Asian airlines that have big freighter fleet. And it was focused on moving food, flowers, fish, drill bits around the world. Now, of course, the e-commerce is supplanted thus and we have a much more stable demand and wider and broader demand for cargo. So I would say that demand is still pretty good relative to where it was before COVID. It's very good relative to where it was in COVID. Of course, it's down and that should be no surprise. As it's two specific aircraft types, you have the 737, 800 freighter is the workhorse of the narrow body side. The 767, they are just running out of feedstock. That is just an aging platform. So we're going to see that being retired and that will be replaced over time by a combination of the A330 converted freighter. But importantly, I would say the 777-300 ERS we seen very strong demand for that product. We had 20 slots, we've already leased 18 of them, which is a very, very strong uptake, because that aircraft has got so much volume, which is what you need for e-commerce where the weight is not as important as the volume, the space on the aircraft the volume of it. So, look, I don't think anyone should be in any surprise that freight rates came down, and the amount of tonnage being moved came down, that doesn't surprise us at all and something we fully expected. Okay. Thank you.

And.

It got the situation where for some low value products like a pair of sneakers the cost of transporting them from Vietnam to the states or Europe was getting close to the cost of sneakers.

So that was an unsustainable situation. So there's no surprise there that it has come down a lot of demand was pulled forward of course in cold weather when people were at home buying stuff online that being said however.

What to what we do believe fast the cargo market is a lot more stable now than it has been in the past if you wind back 10 12 years. The cargo business was dominated by the major carriers like Fedex ups DHL and a few large Asian airlines that had big freighter fleet.

And it was focused on moving food flowers fish drill bits around the world now of course, the e-commerce and supply to the us and we have a much more stable demand and wider and broader demand for cargo. So I would say that demand is still pretty good.

Relative to where it was before COVID-19, it's very good relative to where it was in coal but of course, it down and that should be no surprise as it's too specific aircraft types. The 737 800, Frasier as add their workhorse of the narrow body side. The 760 Sevens Theres just running out of feedstock.

It's just an aging platform. So we're going to see that being retired and that will be replaced over time by a combination of the.

The <unk> hundred 30 converted Frazier, but importantly, I would say the triple 700, 300 D. RF, we see very strong demand for that product we.

We had 20 slots, we've already leased 18 of them.

Which is a very very strong uptake because that aircraft has got so much volume, which is what you need for E Commerce, where the the wage is not as important at the volume at the space on the aircraft the volume.

So look I don't think anyone should be and any surprise that freight rates came down.

And the amount of tonnage being moved came down that doesn't surprise us at all is something we fully expected.

Christopher Nicholas Stathoulopoulos: Okay, thank you.

Operator: We will take our next question from Ron Epstein from Bank of America. Please go ahead.

Epstein from Bank of America. Please go ahead.

Ron Epstein: Hey, good morning, guys. Just a quick one, Gus. When you look at other leasing businesses, you know, cars, other equipment, as assets have become more scarce, it's caused them to retain more value, or given the tightness of the aircraft market are you guys contemplating at all changing your depreciation rates on aircraft, or are they just too long lived assets to consider doing that?

Just a quick one guys.

When you look at other leasing businesses.

Cars other equipment.

As assets have become more scarce, which caused them to retain more value given the tightness in the aircraft market.

Contemplating at all changing your depreciation rates off an aircraft or are they just too long lived assets to consider doing that.

Aengus Kelly: Yes, that's just an accounting policy Ron but we said and it's over a 25-year period and it served as well, to be honest, and I don't see us changing it. There's never been a concept of marking to market, the depreciation or the values. But Ron I would say.

I don't see us changing if theres never been a concept of marking to market the depreciation or the values.

Peter Juhas: But Ron, I would say, it’s Peter here. Certainly we should see with higher inflation that should have a positive impact on the residual values of our fleet. Because they are hard assets as you say. So I think longer-term obviously we'll have to see how persistent that is but we're strong believers obviously in our book values today but I think this even gives, should give people more confidence as time progresses.

Because they are hard assets as you say, so I think yes longer term, obviously, we'll have to see how persistent that is but we're strong believers obviously in our book values today, but I think thats, even gives shouldnt give people more confidence as time progresses, yes for sure.

Multiple: [Aengus Kelly] Yes, for sure Pete. [Ron Epstein] Got it. Got it and maybe a follow up, are you guys getting any kind of inflationary adjustments in the maintenance reserves that you get from your customers?

In the maintenance reserves that you get from your customers.

Aengus Kelly: Well, to the extent that you have maintenance reserve paying leases, what happens is they get adjusted each year in the contract with whatever the OEM increases the reserve rate by four for parts, etcetera LLPs. And then if you have an end of lease deal, if the engine has to come back overhaul, then the risk is with the customer. But for the most part Ron, that's passed on. There'll be instances, of course, where you have to take an airplane back prematurely. And if there's some inflation there, that wasn't covered, you'll have to deal with us. But that's nothing unusual. I wouldn't see it as having any material impact one way or the other. Okay, great. Thank you very much.

The OEM increases the.

The reserve rates by four four parts et cetera, Mlps and then if you have an end of lease deal FDA engine has to come back overhaul then the risk is with the customer.

But for the most part Ron that Sam that's passed on there'll be instances of course, where you have to take an airplane back prematurely and if there is some information there that lawson covered you'll have to deal with us, but that said nothing unusual I wouldn't see it as having any material impact one way or the other.

Ron Epstein: Okay, great. Thank you very much.

Thank you.

Operator: We will take our next question from Mark DeVries from Barclays. Please go ahead. Please go ahead. Yes. Thank you.

<unk> from Barclays. Please go ahead.

Mark C. DeVries: Yes, thank you. The new $500 million repurchase authorization looks relatively conservative to us. Even if you bought back all of that tomorrow, I think you'd still be at 2.6 times levered below your target. And as you mentioned, it's going to be very strong cash flows, where you'll generate additional excess capital, even if you realize the full 6.8 billion of CapEx for the year. So how are you guys thinking about alternative uses of excess capital generation outside of the repurchase authorization?

Where youll generate additional excess capital even if you realize the full $6 8 billion of Capex for the year. So how are you guys thinking about alternative uses of excess capital generation outside of the repurchase authorization.

Aengus Kelly: Well, Mark, I mean, we always look at all different alternatives out there, whether that's buying aircraft, whether that's M&A, although I think that's unlikely at the moment, but M&A or, or returning capital to shareholders. And as we think about as we thought about sizing, this now we thought, Well, we do have excess capital available, it makes sense to deploy it. And this is a good way of doing it. We'll continue to look at that over time. As you say, I expect we will generate a lot of excess capital will generate north of a billion during the course of this year. And, and we'll look to deploy that. I mean historically, if you go back write most of our share repurchase authorizations were in the range of $250 million to $400 million. So it's not as though we came out with big, splashy announcements. And then it took us two years to do that. We looked at it kind of ever on a quarter-by-quarter basis, and made those decisions. So I don't see any reason for us to change that strategy. And that's how we're thinking about it.

As we think about as we thought about sizing. This now we thought well, we do have excess capital available. It makes sense to deploy it and this is a good way of doing it we will continue to look at that over time as you say I expect we will generate a lot of excess capital will generate north of $1 billion. During the course of this year and and we will look to deploy that I mean, historically if you go back.

Right most of our share repurchase authorizations, where in the range of $250 million to $400 million. So it's not as though he came out with big Splashy announcements and then it took US two years to do that we looked at it kind of ever on a quarter by quarter basis.

And made those decisions. So I don't see any reason for us to change that strategy and that's how we're thinking about it.

Yeah.

Mark C. DeVries: Okay, fair enough. Thank you. Sure.

Operator: It appears we have no further questions at this time. I would now like to hand the call back over to today's speaker for any additional or closing remarks

I would now like to turn the call back over to today's speakers for any additional or closing remarks.

Aengus Kelly: Thank you very much, operator. And thank you all for joining us for the call and we look forward to talking to you in a few months’ time.

Operator: This concludes today's call. Thank you for your participation you may now disconnect. Yeah.