Q2 2023 Air Lease Corporation Earnings Call

Okay.

Good afternoon. My name is Caitlin I will be your conference operator today at this time I would like to welcome everyone to the Air Lease Corporation Q2 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'd like to ask a question. During this time simply press star followed by the number one.

One on your telephone keypad, if you would like to withdraw your question press the star and one I will now turn the call over to Mr. Jason Arnold head of Investor Relations. Mr. Arnold You May begin your conference.

Thanks, Kevin and good afternoon, everyone and welcome to Air lease Corporation's second quarter 2023 earnings call. This is Jason Arnold I'm joined this afternoon by Steve <unk>, Our executive Chairman, John <unk>, Our Chief Executive Officer, and President and Greg Willis, Our executive Vice President and Chief Financial Officer earlier today, we published our.

Quarter 2023 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 August three 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.

Including 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 management's estimates for future results.

And speak only as of today August three 2023.

Estimates involve risks and uncertainties that could cause actual results to differ materially from expectations.

Please refer to our filings and the Securities Exchange Commission for a more detailed description of risk factors that may affect our results Air lease Corporation assumes no obligation to update any forward looking statements or information in light of new information or future events. In addition, we may discuss certain financial measures such as adjusted net income before income.

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, and our 10-K 10-Q.

<unk> that we issued today.

Release can be found in both the investors and the press section of our website at Www Dot Air lease Corp. Dot Com as a reminder, unauthorized recording of this conference call is not permitted.

Like to turn the call over to our Chief Executive Officer, and President John <unk>.

Well, thanks, Jason Good afternoon, everyone and thank you for joining us today.

I'm happy to report that for the second quarter 2023, ALC achieved quarterly revenues of $673 million up 21% from last year's second quarter.

We also achieved $1 10 earnings per share up 16% from last year's second quarter.

Strong fleet growth and a meaningful increase in aircraft sales were the primary drivers of the upside in our results. We purchased 19, new aircraft from our order book during the second quarter, adding approximately $1 $5 billion of flight equipment to our balance sheet and sold eight aircraft totaling approximately $600 million.

The carrying value of our fleet utilization rate remains very strong at 99, 9%.

As of today, we are 100% placed through 2024, and we placed 58% of our total order book.

Airline customer demand remains very strong.

Despite some recent commentary from a few U S low cost carriers about potential domestic demand softening overall global strength in air travel demand and traffic volumes high airline yields and load factors concern over current and future Airbus and Boeing delivery delays.

And focus on environmental sustainability are all driving airline demand for new aircraft.

The growth in premium traffic remained surprisingly strong as was pointed out by the air France KLM group last week as well as the IAG group as does our researches in first class travel volumes witnessed by some of the world's largest airlines.

Record global temperatures will likely add further environmental pressure to replace older aircraft.

So as a result of these factors and higher interest rates ALC sees continued strengthening of lease rates and more lease extensions. The Oems are enjoying record orders through the end of the decade.

Alc's order book of aircraft extends out through 2029 inclusive of OEM delay expectations positioning us to capture the strong demand environment for our unemployed positions we.

We are being prudent and patient in our order book placements as lease rates continue their upward momentum.

We also see strong demand in the secondary market for our aircraft as a result, we have resumed a more normal course of aircraft sales after minimizing sales due to manufacture delays in pandemic recovery.

In fact in addition to enjoying solid aircraft sales in the second quarter, we have a robust $1 7 billion pipeline of aircraft sales yet to close not all of those aircraft sales my close by the end of the year, but the pace is good.

We expect that we should achieve attractive gain on sale margins throughout the remainder of the year and beyond.

We expect approximately 1% to $2 billion of aircraft sales for full year 2023, and we do expect aircraft sales volumes to vary from quarter to quarter.

On the delivery front, we guided new aircraft deliveries to be approximately $1 3 billion for the second quarter, but we actually achieved one 5 billion.

Due to ongoing OEM delivery timing variability quarter to quarter.

While we are pleased to have these deliveries come through modestly higher for the second quarter, we remain conservative on deliveries for the full year to be in the $4 billion to $5 billion range.

This past Friday, we received a further incremental delay notice from Boeing on our Max deliveries and we are watching Airbus deliveries carefully in the face of Archie after the announcement last week on manufacturing defects uncertain of its geared turbofan engines.

Though both Airbus and Pratt and Whitney state that they do not expect this development to impact production. This year, we remain watchful given the strong pressure to support engine spares and replacements in the field versus the production line at Airbus.

And the larger picture, we continue to see multifaceted development and supply chain health impacting the entire manufacturing process, which are likely to persist for several years ahead.

Let me expand a bit on the issues with the higher pressure turbine desk metallurgy for certain Pratt <unk> Whitney geared turbofan 1100 engines.

Which are the engine of the power of the $3 20, and 21 Neo family of aircraft.

As described by Pratt this impacts over 1200 engines manufactured in 2021 and prior and will require inspections over the near term and will potentially require parts replacements in case of the identification of defects.

I'll remind you that all of our leases are triple net and therefore, our airline customers are responsible for all maintenance. These issues will be covered under manufacturer's warranty. So we at air lease would not be directly impacted in any case also.

Preliminary indications are that only eight engines out of our fleet are impacted across for airline customers.

We had held top level meetings. This week with Pratt Whitney and RPX Corp, and are confident in their full commitment and dedication to support our global customers.

But this does have broader implications for the airline industry. We fully expect the increased aircraft on the ground time for airlines is affected engines are inspected and would also expect MRO shops to be even more saturated when they are already hit.

More saturated than they already are and undertaking these inspections.

For ALC. We believe this will also lead to further aircraft demand opportunities over the near and medium term and we are dedicated to helping our customers through this providing as many additional aircraft and further lease extensions as we can possibly manage.

Despite these.

Developments and ongoing delivery delays, which have become the norm, we expect our fleet to grow at a healthy pace.

Additionally, a more limited supply of aircraft does benefit the value of aircraft delivering from our order book as well as those already in our owned and managed fleets.

As for expectations for third quarter deliveries as of today, we anticipate $7 million to $800 million for the third quarter we'll.

We will update you again for the fourth quarter expectations on deliveries during our third quarter earnings call in early November .

I'd like to wrap up my remarks with a few key takeaways for you on the broader operating environment and our market positioning first of all the factors I have highlighted support escalating lease rates and aircraft values lease rate upside takes time to manifest into our fleet and performance given some.

<unk> as we've already previously indicated in the past while strong aircraft prices should bolster our gains on sale of <unk> prospectively.

Second OEM delays are still here and will likely be a factor for the industry for years to come.

However, as this has now been a multiyear process. Our overall new aircraft delivery capital expenditures are normalizing in that aircraft, which were not delivered in one year are delivering in the next with the same repetition in subsequent years.

So with over $23 billion and our forward order back order book and an existing fleet of almost 26 billion. We have a long runway of growth ahead.

Third we've always said that our forward order book is one of our most valuable assets and I might go as far as saying it is an invaluable asset in the current environment.

Airlines have limited access to the newest technology and lowest emissions aircrafts over the next four to five years other than from ourselves and a handful of lessors with forward order books.

In addition to having access to aircraft are bulk orders were strategically placed during less frothy markets with substantial volume discounts bolstering our asset yields as well as our sales gains down the road.

Lastly, our young fleet and focus on new aircraft purchases continues to offer airlines. The most direct means of reducing their emissions today, not by 2030 or 2050, but right now.

Combined we remain very positive in our outlook for our business given these perspectives.

So now I'd like to turn the call over to Steve Harvey, who will offer more commentary on the airline industry and our business Steve. Thank you very much John or.

Our balance sheet is quickly approaching the $30 billion mark in assets.

All achieved organically.

Without M&A activity.

And this for me is an extraordinary achievement.

Considering that we only started air lease in the spring of 2010.

My sincere thanks to the air lease team for all of their support in achieving this rapid degree of growth.

And our very acute businesses out there that can say that they went from zero to $30 billion.

In such a short amount of time.

And with our $23 billion of forward order book.

Clearly have a lot more growth ahead of us in the next three to five years.

Airline traffic volumes have continued to expand meaningfully.

As we entered the high season summer travel months in the northern Hemisphere.

The latest IATA traffic figures released for July .

Continued to show strong traffic trends with total volumes rising 39% year over year.

International passenger volumes remain exceptionally strong.

With an increase of 41% year over year.

The number of individual markets.

We are still experiencing exceptional growth.

Led by Asia Pacific at 150%.

Oh, sorry, 157% growth.

All the other major markets followed by IATA are up strongly.

Rising anywhere from 20% to 40% plus year over year.

It's noteworthy that domestic volumes were also quite strong rising 36% as compared to the prior year period.

Clearly China domestic volumes rebounding, we're highly supported through this statistic.

But several other domestic markets experienced high single or double digit growth rates.

U S domestic volumes rose a solid 7% year over year in spite of already being one of the strongest market globally.

We covered rapidly after the pandemic.

Many markets are now seeing traffic volumes.

Exceeding the levels seen prior to the pandemic.

We think.

That entities that are still anchoring their views to 2019 traffic volumes are.

Our overlooking the big picture drivers of the industry.

Which in time should support continued traffic growth.

Foreign excess of these levels.

This is already happening in a number of markets.

Ample traffic between North and Central America is already 45% above pre pandemic levels.

While traffic in Latin America Africa, and the Middle East are also demonstrating strong airline passenger traffic performance.

We had air lease like to look forward instead of being stopped looking at in the past.

Load factors. Meanwhile, remain an exceptionally strong point for the industry.

As a whole at approximately 82% and are at a multiyear high in many markets and continued to rise.

While it's clearly positive for airline yields rising load factors also illustrate the significant industry demand for additional capacity.

Keep in mind, the fact that these load factors.

On existing in place commercial aircraft fleets, a very significant number of which are over 20 years of age and in need of replacement.

So demand for additional aircraft, resulting from high load factors and yields at present.

Also supports accelerating replacement of older aircraft.

The drive for modernized fleets are further bolstered by the continued push for improving fuel consumption and reducing global aircraft emissions.

These demand trends are also being very clearly communicated to.

US from our airline customers.

See strong appeal from both new narrow body aircraft as well as new technology wide bodies.

The <unk> hundred 30, Neo the <unk> hundred 50 family and the 787 family that comprise our order book.

We are very active in our campaigns with airlines for placements in 2025 and beyond.

And as John highlighted Airlines can't get these aircraft from the Oems as they are currently sold out through 2028 2029 in most cases.

And we had air lease are one of the few less source wood available attractive delivery slots ahead of this timeframe leaning us in a significant position of strength.

Air Lease's deliveries for the second quarter exceeded our expectations.

In spite of delays likely persisting ahead.

We delivered 19, new aircraft, including both wide body and narrow body aircraft.

This included $3 820, <unk> 300 aircrafts during the quarter to airlines located and based in southeastern Europe .

Where these aircrafts are set to deliver exceptional customer experience.

And fuel burn savings for those operators.

We also delivered a number of 80 320 Neo family aircraft in this past quarter.

Including two <unk> hundred 20, <unk> and seven <unk> hundred 21 deals with the <unk> hundred 20 ones, primarily being the LR long range variant of that aircraft type.

Most of these aircraft were delivered to carriers in Asia, along with a couple of European and Western Aegean Airlines.

We delivered two Boeing 787, Nash side this past quarter once the aeromexico and another 787 dash nine to one of our airline customers in Central Asia.

We also had strong widebody deliveries during the second quarter, including two <unk> hundred 30 Dash 900, Niels <unk>.

Both of which went to ITE Airways, the flag carrier of Italy.

We also delivered 250 family aircraft in the quarter.

Including a dash 900 to world to fly, which is based in Spain and is owned by the IV Aerostar Group. In addition, we delivered a brand new <unk>.

51000 aircrafts to Virgin Atlantic Airways.

Lastly, we delivered $1 787 dash nine to air premiere in South Korea, this past quarter as well.

Our airline customers are very pleased to have these aircraft joined their fleet immediately delivering increased capacity.

We didnt fuel consumption and emissions range and passenger comfort as compared to prior generation aircraft types.

We regularly asked the question of which countries or regions.

Have the strongest growth or appeal at the present time.

As is clear from the detailed list of deliveries I just covered.

Our customers span the entire globe.

And at the end of the second quarter, we had 118 airline customers in 63 different countries.

And we have very close relationships with over 200 airlines throughout the world. So there is plenty of opportunities for us to work with a number of existing customers.

Our customers that we know well.

Growth markets clearly are always appealing.

So within balance is from a risk standpoint, we don't want to have too much exposure to any single airline country or region.

Outside of geopolitical events that arise from time to time I would say that overall many of the factors that make our country or region attracted to operate tend to be long term in nature.

Such factors include economic trends population growth penetration of air travel among the countries or regions population Gov.

Government economic support for their airline industries and other factors.

Other than minor adjustments.

We expect regional weighing of our fleet to remain at approximately the same range with our Asia exposure right around 40% of our fleet.

Europe in the mid 30% range and between five and 10% for each of the Middle East Latin and South America, and the United States.

At the margin we will remain opportunistic in looking at these markets.

While still keeping an eye out for interesting developments elsewhere.

To close I want to reiterate the optimism about our business that John highlighted.

We see the current operating environment is very attractive.

And our young fleet and Irreplaceable order book.

The most technologically advanced commercial aircrafts available places air lease and a very strong position for years to come.

Particularly given the likelihood of industry delivery delays, which will continue to persist for some time ahead.

Now I will turn the call over to our CFO , Greg Willis Com.

Comment further on Alc's financial performance.

Thank you, Steve and good afternoon, everyone. During the second quarter of 2023 air lease generated record revenues of $673 million.

This was comprised of approximately $612 million of rental revenues and $61 million from aircraft sales trading and other activities.

The increase in total revenues was primarily driven by the growth of our fleet along with an increased sales activity.

As John mentioned, we sold roughly $600 million of aircraft during the second quarter, which resulted in $45 million gains in the sale of eight aircraft.

It should be noted that this quarter, our sales were more heavily weighted towards wide body aircraft as.

As we look to the margin embedded in our sales pipeline, we expect to generate margins at the top end of our historical range of 8% to 10%.

Finally, as a reminder, our fleet was organically built and as a result, we do not have the purchase accounting adjustments nor have we taken any write offs that would impact our gain on sale margin or sales margin will vary from quarter to quarter, but the underlying read through into the value of our fleet is unmistakable.

Moving on to expenses as you would expect interest expense has increased due to the growth of our average debt balances driven by the growth of our fleet.

As well as an uptick in our composite cost of funds from three 7% to $3 four 9% at quarter end.

Despite higher prevailing interest rates, we continue to benefit from 91% of our debt being at fixed rates and the interest rate inflation protections that we have in our coordination everyones.

Depreciation expense continues to track the size of our fleet, while SG&A rose as visits at our business activity has increased over the course of the past year, along with an uptick in certain other operating expenses, including the increase in insurance premiums as we highlighted in the past in addition to aircraft transition related expenses.

I also note that our cash.

Cash flow from operations year to date rose, 28% relative to the prior period benefiting from our continued strong cash collections from our airline customers.

Moving on to the financing side of the equation are largely fixed rate balance sheet and strong investment grade ratings continue to position us favorably for an interest rate movements over the intermediate term, we remain dedicated to maintaining investment grade balance sheet utilizing unsecured debt is our currently 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 second quarter was 276 times on a GAAP basis, which net of cash on the balance sheet is approximately two seven times declining relative to the prior quarter given our aircraft sales.

Our leverage remains modestly above our target for our Russia fleet write off last year, we continue to expect leverage to trend back towards our long term target at our aircraft sales volumes continue through this year and given the continued delivery delays that John highlighted earlier on the call are.

Our balance sheet remains very strong supported by our significant liquidity position of $7 6 billion and our unencumbered asset base of 28 billion. During the past quarter. We were active in executing a number of financing transactions, including a $650 million unsecured bank term loan and a number of other cost efficient bank market transactions that add.

<unk> $900 million.

We plan to remain opportunistic on advancing fund front, leveraging our large liquidity base, which provides us with the flexibility to opportunistically capitalize on the financing markets to raise attractively priced debt capital.

In conclusion, our fleet growth continues at a very healthy clip and we are encouraged by what we're seeing in the aircraft sales market as John covered it's been several years since we've had a more meaningful aircraft sales volumes. So we are pleased to have gains again contributing to our revenue stream, which is supportive to our margins and return on equity.

With that I will turn the call back over to Jason for the question and answer section of the call. Thanks, Greg. This concludes management's commentary remarks for the question and answer session. We ask that each participant limit their time to one question and one follow up operator can you. Please open the lines for the Q&A session.

At this time I would like to remind everyone in order to ask a question press. The Star then the number one on your telephone keypad.

First question comes from the line of Jamie Baker with Jpmorgan. Your line is open.

Hey, good afternoon.

So.

Mark and I, we keep hearing about how people are flying differently and corporate is still a long haul leisure is the future.

You said at Air France, Klm's comments on premium.

Doubt at all that this is highly encouraging for air lease, but as you talk to network planners at your customers do.

Do you think it drives any shifts in the kit that you purchase as you eventually replenish your pipeline.

Yes, I mean, Jamie if you look at our fleet order book.

There's a lot of the aircraft and that order book that can accommodate the premium segment of the market.

For example, all of our <unk> hundred 21 <unk>.

We'll have the capability to offer premiums seating lie flat seats and the latest IFC equipment.

<unk> 780, Sevens, and <unk> hundred 50, and <unk> hundred <unk>.

98% of that fleet will have.

Three classes some cases, even four classes.

Catering to the upscale travelers so we are.

Actually pleasantly surprised.

The premium travel has recovered better.

Including business travel.

Then what we had forecast towards the tail end of the pandemic Jimmy Let me just add think about the airplane is a shell how you build the inside of the show is what counts senior point towards premium versus an Oi class.

And so with our aircraft on order, which are the most popular in demand aircraft globally. We do have the luxury given the lead times with Boeing and Airbus to be able to expect these aircraft to different carriers demands and so we are marching to changing tunes and demands.

From our carriers and you are right a lot of them are focusing more on the premium segment of the market.

And we have the luxury ability of being able to accommodate.

All of that as to whether how long and first how many years there may be an adjustment towards premium class, it's hard to say, but certainly the low cost carriers the carriers such as spirit in the U S in southwest and others are going to stick to their model.

We've also seen.

Kind of a global upsurge, a long haul for premium economy.

Because many airlines as you know have densify their economy cabin.

By reducing the seat pitch in many cases, adding additional rows.

Adding more seats across the width of the fuselage.

So a lot of travelers on these long slides are looking at premium economy.

As something that is sort of in between business class and economy.

When particularly in the leisure segment with families children wives and accompany family members.

We're seeing that segment of the market actually doing quite well.

And the yields on those more than compensate for the less dense seating configurations.

Yes, we refer to premium economy of constellation class internally.

On the GTS appreciate John's detailed commentary do you think this situation, though is bad enough or could get bad enough that your investors need to begin fretting about residual values.

Im sure Pratt's going to make the airlines hole.

But does it nonetheless weigh on values, that's another way to ask the question.

No.

We don't think so at all Jamie one of the reasons I gave a very specific remark that the initial cut as we have done with Pratt Whitney across our fleet.

As a matter of fact, only eight engines are affected across for airlines.

Based upon a quick review.

Over and above that there is as you know continued improvement in these engines and modification programs. So as the engines go and go through their overhaul process. They get these modifications performed and are all brought up to speed. Let me give you an analogy several years ago you might remember the V 2500 engine, it's still very popular and flying today across.

The Airbus Fleet Airbus single aisle fleet well. The first version of that engine was called the <unk> one power plant, but the final and good better version of that engine, which took several years to develop let's call. The eight five so there's really nothing much different here. It's unfortunate that these these findings are coming out.

But the answer is no on an overall go forward basis, the Pratt <unk> Whitney geared turbofan engine also enjoys an excellent fuel burn and in fact, a slight edge over its competitors also Jamie just see.

Because we have done so many <unk> hundred 20, and <unk> hundred 21 deals in the last six seven years.

We're not really seeing any.

Lease rate differential of any magnitude I'd say, 1%, one way or the other between the leap powered airplanes in the GTS our airplanes.

And.

They are neck and neck in terms of lease rates.

Got it thanks for the commentary gentlemen take care. Thanks.

Thanks, Jamie.

And your next question comes from the line of Helen Becker with TD Cowen Your line is open.

Oh, Hi, this is Tom Fitzgerald on for Helane Becker. Thanks, so much for the time and the questions. Just two quick ones for me Im just curious within that industrial bucket of your lessees I just noticed the China like down.

<unk> as a percentage of NPV.

And I'm, just wondering if theres a theres a floor level that you're managing to are kind of a place where.

Asia ex China going up maybe to the mid <unk> and China going down.

The mid single digits, just curious on that and then just a follow up just wondering on.

On the lease on the sales pipeline if you have any.

From where you sit right now if you have any comments on if it's more equally weighted in the back half or you think more.

More activity in the third quarter versus the fourth quarter. Thanks, very much again.

Yes, let me, let me tackle China first I think the best way to view, our China exposure is to go back four or five years, when our balance sheet was smaller we benefited gray.

Greatly from the robust development in China, we placed a lot of aircraft.

But China made its initial orders we were a big part of that.

Over the next four to five years those aircraft, we're delivering and there was less activity and then we had the pandemic arise when the pandemic arose and of course, the Max is not flying in China.

There are virtually very few to any rfps issued by China.

But from the very beginning it was our desire at one point I think our China exposure was 21% we realized that was too high.

So before Russia invaded the Ukraine before the pandemic started we already started a program.

Exercise of moderating more our China growth and so now with the size of our balance sheet compared with.

With the lack of activity in the last couple of years into China, we've naturally progressed to about seven 8%.

As to your sales question.

I think.

I made the comment that we do see sales.

Sales variability quarter to quarter and this really has to do more with how long it takes to close <unk>.

You mentioned, China earlier, we do have some sales of aircraft that are on lease to China. Those typically just take longer those airlines take longer to respond so.

The variability there will be variability I really can't say at this juncture, whether the third quarter will be.

Lighter or heavier in regards to sales, but we are confident in the $1 billion to $2 billion figure for the year and overall aircraft sales.

Okay.

And your next question comes from the line of Catherine O'brien with Goldman Sachs. Your line is open.

Hey, this is Jack on for Katy.

I was hoping to dig in on the sales activity a bit more in the quarter.

I know this quarter sales margin came closer to the lower end of the historical range of 8% to 10%.

I was wondering if anything unique here outside of the majority of the sales being wide body and going forward.

For the future quarters is it possible to see above the 8% to 10% given the lack of.

The lack of aircraft supply.

Thanks, I think Youre right I think I mentioned this Greg I mentioned in my prepared remarks that we have a very strong <unk>.

Pipeline of aircraft mix, and we think thats good.

Ultimately, Brazil, a margin towards the higher end of our historical range closer to that 10% number.

With regards to our gain percentage this quarter. It has to do with just the variability of what aircraft came in and closed and again I mentioned, we had majority of which were widebody aircraft. This quarter, but I think all in all of these are all very strong numbers demonstrating the value of our of our fleet and its also a cross section of our affiliate we sold too.

Okay.

Got it that makes a ton of sense and just for a follow up.

Last quarter, you guys talked about having to revise your contractual commitments with one of the Oems.

Probably through the end of the decade and today noted some further delays from Boeing I was wondering when you would plan to complete the process of revising the delivery plan and.

If.

Pointing to keep climbing and delayed versus planned delivery would.

Would you be subject to any form of compensation. Thanks again for the time.

Yes, we in all of our contracts, we have very very extensive economic adjustments built into those contracts fleet deliveries.

The delays that we've experienced in the last two years and the ones that continue.

I actually go beyond what we expected if you go back four or five years ago, when we negotiated those contracts so.

The only thing I can tell you is that we're working with the Oems everyday to fine tune.

Both the delivery delays at determining the exact deliveries will recede.

And also addressing the economic part of this.

And we're looking out for the shareholders of air lease we're trying to maximize.

The delay compensation that we do receive and reduce the acquisition cost for these aircraft because of the delayed deliveries.

Got it thanks for that.

And your next question comes from the line of Steve Trent with Citigroup. Your line is open.

Sure.

Good afternoon, and thanks very much for taking my question.

I was intrigued.

So here you mentioned sort of the strong organic growth you've seen as you build your fleet up to the.

The large level it is now.

As you move forward.

For myeloma perspective.

Is there any.

Possibility in your mind that you could look for other avenues of growth good M&A at some point down the line and it makes sense for you.

Yes, Thanks listen we're always looking at all avenues, we primarily focus ourselves and define good asset investing opportunities as opposed to buying other companies. However, we do evaluate every time something comes across our radar screen and ongoing M&A valuation is always a part of our ongoing.

Strategic view in our analysis, so far to date, we've enjoyed great organic growth and we expect that to continue.

But we are always opportunistic, especially of pockets of aircraft became available.

And Thats, where we are very strong.

She is continuing that way, but it's a very attractive M&A opportunity came aboard we would take a serious look at it.

Just to add to that John I mean, I think if you look back at the time I think given our strategy of buying in bulk driving volume discounts from the Oems, we find that thats been the most attractive way for us to acquire aircraft and we look when we look back at the time, all the portfolios and companies that have come up for sale at the price that they clear that have resulted in what would have been dilutive transaction.

To us I mean, I guess to John's point, we continue to look at all opportunities as we see them.

But it's been a very high hurdle given the way that we have historically acquired aircraft to find accretive transactions for us.

Okay, I really appreciate that and just for the follow up just very quickly I. Appreciate the color you gave to the gentleman earlier on on the Chinese market.

And sort of the recent couple of years.

Has there been any change as well and in the body language in terms of doing business there.

Being an American company and what have you or.

Do you feel that.

Your existing relationships are alright still.

Pushing them at the right direction. Thank you.

Yes, we're very confident in our existing relationships going forward, obviously, there's been a lot of political tension between China and United States, We're watchful and mindful that we don't know any given day, what our administration might do with the Chinese administration might do but I think our relationships.

Actually pierce through all of that and we do enjoy stronger relationships as we go forward and we will probably write some more business in China.

But again, let me reemphasize that.

Our reduction as part of our overall risk management of our reduction from a high of slightly north of 20% down to 7% began years ago.

So it's nothing drastic no dramatic its just prudent fleet planning so we.

We hope and expect to continue to enjoy good relationships with all of our Chinese Airlines now and in the future.

Okay.

Okay, Let me leave it there and thanks for the time.

You bet. Thank you.

There are no further questions at this time, Mr. Arnold I will turn the call back over to you.

Thanks, everyone for your time participating in our second quarter call today, and we look forward to speaking to you again, when we report third quarter results in November Kayla. Thank you and please disconnect your lines.

This concludes today's conference call you may now disconnect.

Thank you.

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