Q2 2024 Air Lease Corp Earnings Call
Audra: Good afternoon, my name is Audra and 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.
Operator: At this time, I would like to welcome everyone to the Air Lease Corporation Q2 earnings conference call.
Speaker Change: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again.
Speaker Change: I will now turn the call over to Mr. Jason Arnold, Head of Investor Relations. Mr. Arnold, you may begin your conference.
Jason Arnold: Thanks, Otter, and good afternoon, everyone, and welcome to Air Lease Corporation's second quarter 2024 earnings call. This is Jason Arnold, and I'm joined today by Steve Haase, our Executive Chairman, John Plueger, our Chief Executive Officer and President, and Greg Willis, our Executive Vice President and Chief Financial Officer.
Jason Arnold: Thanks, Otter, and good afternoon, everyone, and welcome to Air Lease Corporation's second quarter 2024 earnings call. This is Jason Arnold, and I'm joined today by Steve Haase, our Executive Chairman, John Plueger, our Chief Executive Officer and President, and Greg Willis, our Executive Vice President and Chief Financial Officer.
Jason Arnold: Earlier today we published our second quarter 2024 results. A copy of our lease is available on the investors section of our website at www.airleascorp.com
Speaker Change: This conference call is being webcast and recorded today, Thursday, August 1st, 2024 and the webcast will be available for replay on our website. At this time, all participants to this call are in listen-only mode.
Speaker Change: 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.
Speaker Change: This includes, without limitation, statements regarding the state of the airline industry, the impact of aircraft and engine delivery delays and manufacturing flaws, our aircraft sales pipeline, and our future operations and performance.
Speaker Change: These statements and any projections as to our future performance represent management's current estimates and speak only as of today's date. These estimates involve risks and uncertainties that could cause actual results to differ materially from expectations.
Speaker Change: Please refer to our filings with the SEC for a more detailed description of risk factors that may affect our results.
Jason Arnold: 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 in the 10-Q that we issued today.
Speaker Change: Air Lease Corporation assumes no obligation to update any forward-looking statements.
Speaker Change: or information in light of new information or future events.
Speaker Change: In addition, we may discuss certain financial measures such as adjusted net income before income taxes, adjusted diluted earnings per share before income taxes.
Speaker Change: 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 in 10-Q that we issued today.
Jason Arnold: This release can be found in both the investors and press section of our website at AirLeaseCorp.com. As a reminder, unauthorized recording of this conference call is not permitted. I'll now turn the call over to our Chief Executive Officer and President, John Plueger. John? Well, thanks, Jason.
Speaker Change: This release can be found in both the investors and press section of our website at AirLeaseCorp.com.
Speaker Change: As a reminder, an authorized recording of this conference call is not permitted. I'll now turn the call over to our Chief Executive Officer and President, John Plueger. John ? Well, thanks, Jason. Good afternoon, everyone, and thank you for joining us on our call today.
John Plueger: Well, thanks, Jason. Good afternoon, everyone.
John Plueger: And thank you for joining us on our call today. During the second quarter, ALC generated revenues of $667 million and $0.81 in diluted earnings per share. Results this quarter were impacted by further OEM delivery delays, lower end of lease revenues compared to prior years as airlines continue extending the majority of their leases, and a reduction in aircraft sales gains due to the timing of individual aircraft sales closings in various packages. And new aircraft deliveries that reflect lease deals concluded on average two years ago when aircraft demand was not as strong and interest rates were lower. We purchased 13 new aircraft from our order book in the second quarter, adding $940 million in flight equipment to our balance sheet.
John Plueger: And we sold 11 aircraft for approximately $530 million in sales proceeds. Deliveries came in $600 million below our expectations, which I'll comment on more in a moment, while sales are approximately in line. Weighted average fleet age remains young at 4.7 years, while weighted average lease term remaining was 6.9 years at quarter end. The utilization rate on our fleet remains exceptionally strong at 100%.
Speaker Change: During the second quarter, ALC generated revenues of $667 million and $0.81 in diluted earnings per share.
Speaker Change: Results this quarter were impacted by further OEM delivery delays.
Speaker Change: Lower end of lease revenues compared to prior years as airlines continue extending the majority
Speaker Change: A reduction in aircraft sales gains due to the timing of individual aircraft sales closings in various packages.
Speaker Change: And new aircraft deliveries that reflect lease deals concluded on average two years ago when aircraft demand was not as strong and interest rates were lower.
Speaker Change: We purchased 13 new aircraft from our order book in the second quarter, adding $940 million in flight equipment to our balance sheet, and we sold 11 aircraft for approximately $530 million in sales proceeds.
Speaker Change: Deliveries came in $600 million below our expectations, which I'll comment more in a moment, while sales are approximately in line.
Speaker Change: Weighted average fleet age remains young at 4.7 years, while weighted average lease term remaining was 6.9 years at quarter end.
Speaker Change: The utilization rate on our fleet remains exceptionally strong at 100%.
John Plueger: Currently, we are 100% placed on our forward order book through 2025 and 96% placed through 2026, with 64% of our entire order book on order. Our $20 billion order book remains a key source of strength, given Boeing and Airbus have very few delivery positions available until the 2030s, while the vast majority of our positions are set to deliver through 2028. As such, demand for our delivery slots continues to rise, supporting lease rates on our new aircraft placements, delivering well inside of the timeline a buyer today could receive a new aircraft from the OEM. We continue to see strong lease rates on new aircraft placements relative to those witnessed prior to the global pandemic.
Speaker Change: Currently, we are 100% placed on our forward order book through 2025 and 96% placed through 2026.
Speaker Change: with 64% of our entire order book placed.
Speaker Change: Our $20 billion order book remains a key source of strength, given Boeing and Airbus have very few delivery positions available until the 2030s, while the vast majority of our positions are set to deliver through 2028.
Speaker Change: As such, demand for our delivery slots continues to rise, supporting lease rates on our new aircraft placements, delivering well inside of the timeline a buyer today could receive a new aircraft from the OEMs.
Speaker Change: We continue to see strong lease rates on new lease placements relative to those witnessed prior to the global pandemic.
John Plueger: As you are all likely now well aware, more delays have been announced by the OEMs, an outcome which we've highlighted as probable for some time now. Our estimate last quarter included several widebodies that have now subsequently been delivered. On the wide-body side for Boeing, slow 787 production ramp-up is also persisting as a product of supply chain constraints. Supply chain challenges, of course, are also impacting Airbus, resulting in them recently pulling back delivery expectations for 2024 and further pushing out some of their production ramp-up aspirations as well. Airbus cited issues with receiving engines from both Pratt & Whitney and CFM, among other key components, as a source of delays.
Speaker Change: As you are all likely now well aware, more delays have been announced by the OEMs. An outcome which we've highlighted is probable for some time now.
Speaker Change: We told you last quarter we were expecting about $1.5 billion in new aircraft deliveries in Q2. Our actual total was $940 million.
Speaker Change: Our estimate last quarter included several widebodies that have now subsequently delivered.
Speaker Change: Boeing MAX delays are ongoing with the slowdown of production to improve process and quality control and FAA constraints on production rights.
Speaker Change: On the wide-body side for Boeing, SLO 77 production ramp-up is also persisting as a product of supply chain constraints.
Speaker Change: Supply chain challenges, of course, are also impacting Airbus, resulting in them recently pulling back delivery expectations for 2024 and further pushing out some of their production ramp-up aspirations as well.
Speaker Change: Airbus cited issues with receiving engines from both Pratt & Whitney and CFM, among other key components, as a source of delays.
John Plueger: While some have wanted to point fingers at one party or another for being a primary source of delivery delays, the fact of the matter is that the majority of the aerospace industry is experiencing ongoing supply chain challenges. However, there are several variables, the biggest of which is a potential labor strike at the Boeing company, which could result in changes to our third quarter delivery expectations. Based on current delay notifications from the OEMs and our internal projections, we anticipate deliveries to be about $5 billion total for the year, which is at the midpoint of our range.
Speaker Change: While some have wanted to point fingers at one party or another for being a primary source of deliberate delays, the fact of the matter is that the majority of the aerospace industry is experiencing ongoing supply chain challenges.
Speaker Change: We expect these challenges to persist to a greater or lesser degree for the next three to four years, and we're not holding our breaths for a major breakthrough or a shortening of this time frame, given the complicated moving parts faced by the industry.
Speaker Change: Accordingly, demand for commercial aircraft remains high.
Speaker Change: Given these added OEM delivery delays and production rate goals have not been achieved, airlines continue to scramble for lift wherever they can find it, with the narrowbody segment, of course, still the hottest, though increasingly widebody demand is accelerating as well.
Speaker Change: So we continue to believe that supply chain dynamic points towards aircraft shortages for quite some time ahead.
Speaker Change: Despite the recent delivery delays impacting our second quarter, we are maintaining our view that aircraft deliveries for us will fall in the $4.5 to $5.5 billion range for the full year 2024. And we're expecting aircraft deliveries for the third quarter to be approximately $2 billion.
Speaker Change: However, there are several variables, the biggest of which is a potential labor strike at the Boeing company, which could result in changes to our third quarter delivery expectations.
Speaker Change: Based on current delay notifications from the OEMs and our internal projections, we anticipate deliveries to be about $5 billion total for the year, which is at the midpoint of our range.
John Plueger: It's important to note that even at the lower end of our expected range, our deliveries will offer meaningful growth to our $27 billion owned fleet. As a plus, the commercial aircraft market shortage is offering us the benefit of robust secondary market demand for our aircraft, and sales volume for the second quarter came in line with what we told you to expect at around $500 million. Our sales pipeline remains robust at $1.5 billion, including roughly $600 million of flight equipment held for sale and $900 million of aircraft subject to letters of intent with a great variety of buyers.
Speaker Change: It's important to note that even at the lower end of our expected range, our deliveries will offer meaningful growth to our $27 billion owned fleet.
Speaker Change: As a plus, the commercial aircraft market shortage is offering us the benefit of robust secondary market demand for our aircraft, and sales volume for the second quarter came in line with what we told you to expect at around $500 million.
Speaker Change: Our sales pipeline remains robust at $1.5 billion, including roughly $600 million of flight equipment held for sale and $900 million of aircraft subject to letters of intent with a great variety of buyers.
John Plueger: Given the time required to close sales transactions, some of these aircraft are expected to close in the first half of 2025, though based on sales completed thus far in 2024, we continue to expect to close $1.5 billion in total sales for this year. As for the third quarter, we believe around $350 million in sales should close, though we continue to highlight the fact that sales timing can be impacted by factors outside of our control.
Speaker Change: Given the time required to close sales transactions, some of these aircraft are expected to close in the first half of 2025, though based on sales completed thus far in 2024, we continue to expect to close $1.5 billion in total sales for this year.
Speaker Change: Let me remind you that we use aircraft sales to optimize our fleet in terms of aircraft age, type, yield, customer concentration, and geographic concentration.
Speaker Change: So risk balancing and optimization is always part of the calculus and therefore there is a mix in our sales package of levels of gains on individual aircraft.
Speaker Change: As for the third quarter, we believe around $350 million in sales should close, though we continue to highlight the fact that sales timing can be impacted by factors outside of our control.
John Plueger: Overall gains on aircraft sales packages remain healthy and continue to enhance the returns generated by our business. Additionally, lease extensions remain elevated and continue to benefit our business more broadly at present, particularly given reduced time off the lease along with the attractive lease rates we are currently realizing on extensions that we believe create meaningful long-term value. Clearly, the timing and magnitude of these cuts are outside of our control, but our business is a significant beneficiary of the normalization of the shape of the yield curve following the longest period of curve inversion on record, even longer than witnessed in the late 1970s.
Speaker Change: Overall gains on aircraft sales packages remain healthy and continue to enhance the returns generated by our business.
Speaker Change: Keep in mind that there will be occasional fluctuations on the gains as we saw this quarter due to timing of closings of individual aircraft sales in various packages.
Speaker Change: I do want to add a brief comment on lease extension activity in our fleet.
Speaker Change: Lease extensions remain elevated and continue to benefit our business more broadly at present, particularly given reduced time off lease along with the attractive lease rates we are currently realizing on extensions that we believe create meaningful long-term value.
Speaker Change: That said, we only have a handful of lease expirations for the remainder of 2024, which is reducing end of lease revenue this quarter and likely for the rest of the year, particularly as compared to the prior year.
Speaker Change: But let me be clear, we prefer lease extensions with the current operator at healthy rates as there are no reconfiguration or transition costs or downtime associated with configuration changes for a new operator.
Speaker Change: As we look forward, funding costs for our business appear likely to benefit from anticipated Fed rate cuts.
Speaker Change: Clearly, the timing and magnitude of these cuts are outside of our control, but our business is a significant beneficiary of the normalization of the shape of the yield curve, following the longest period of the curve inversion on record, even longer than witnessed in the late 1970s.
John Plueger: Adding in the continued strong demand environment for commercial aircraft and industry supply chain dynamics that are not likely to resolve for some time, this overall backdrop should support strength for new aircraft lease rates and values, benefiting aircraft gains on sales and bolstering lease rates on lease placements for our forward order book. Finally, I'd like to remind everyone that we are 100% placed on our wide body passenger order. The only widebodies we have remaining are our launch order for seven new A350 freighters, with deliveries now looking to commence in 2027.
Speaker Change: Adding in the continued strong demand environment for commercial aircraft and industry supply chain dynamics that are not likely to resolve over some time, this overall backdrop should support strength for new aircraft lease rates and values, benefiting aircraft gains on sales and bolstering lease rates on lease placements for our forward order book.
Speaker Change: Finally, I'd like to remind everyone that we are 100% placed on our wide-body passenger order book.
Speaker Change: The only wide bodies we have remaining are our launch order for seven new A350 freighters, with delivery is now looking to commence in 2027.
John Plueger: The air freight and cargo markets have strengthened meaningfully over the past six months as attacks in the Middle East on commercial cargo ships have continued, and the capacity for ships transiting the Panama Canal remains significantly reduced due to low water levels feeding the canal. We believe these factors will continue, and as such, we are getting robust inquiries from a variety of airlines on our A350 freighter position.
Speaker Change: The air freight and cargo markets have strengthened meaningfully over the past six months, as attacks in the Middle East on commercial cargo ships have continued, and the capacity for ships transiting the Panama Canal remains significantly reduced due to low water levels feeding the canal.
Speaker Change: We believe these factors will continue, and as such, we are getting robust inquiries from a variety of airlines on our A350 freighter positions.
Speaker Change: So similar to last quarter, I'd like to close by saying that we manage Air Lease Corporation with a mindset of long-term benefit of shareholders.
Speaker Change: The factors I've outlined in my remarks give us confidence in our financial performance in the years ahead. So now I'd like to turn the call over to Steve Haase, who will offer you some additional commentary. Steve?
Steve Haase: Thank you very much, John. We've just returned from the Farborough International Air Show last week in the United Kingdom. All the airlines that John, myself, and our entire marketing team met with continue to ask for and request more new aircraft. New order activity continued and pushed out the sold out status of many different aircraft types, which has six plus years for several of the higher demand aircraft types is already at a historically exceptional level.
Steve Hossie: Thank you very much, John . We've just returned from the Farborough International Air Show last week in the United Kingdom.
Steve Hossie: where we met with a large number of our existing airline customers.
Steve Hossie: as well as new potential customers.
Steve Hossie: All the airlines that John , myself, and our entire marketing team met with continue to ask and request more new aircraft.
Steve Hossie: New order activity continued and pushed out the sold out status of many different aircraft types.
Steve Hossie: which has six plus years for several of the higher demand aircraft types is already at historically exceptional levels.
Steve Haase: These circumstances are expected to further bolster lease rates and the values of new aircraft that are the focal point of Air Lease's strategy, rising 9% year-over-year based on the latest IATA report that came out yesterday. However, would all major markets continue to rise at a double digit or high single digit percent rate?
Steve Hossie: These circumstances are expected to further bolster lease rates and the values of new aircraft that are the focal point of Air Lease's strategy.
Steve Hossie: Airline traffic volumes remain robust globally.
Speaker Change: Rising 9% year-over-year based on the latest IATA report that came out yesterday.
Steve Hossie: Total international volume was up a strong 12% with all major markets continuing to rise at double-digit or high single-digit percent rates.
Steve Haase: Asia Pacific traffic remains the strongest market this year, expanding at 23% versus last year. We continue to expect Asia-Pacific growth to remain one of the strongest globally, as travel momentum continues to build, with a very diversified exposure throughout the region instead of relying more heavily on China and just a few percentage points behind Europe, as our largest geographic concentration. International traffic in Latin America, Africa, and Europe also remains among the strongest markets for the period.
Steve Hossie: Asia Pacific traffic remains the strongest market this year, expanding at 23% versus last year.
Speaker Change: We continue to expect Asia-Pacific growth to remain one of the strongest globally.
Speaker Change: As travel momentum continues to build.
Steve Hossie: Asia is Air Lease's second largest marketplace at 37% of our fleet.
Steve Hossie: with a very diversified exposure throughout the region instead of relying more heavily on China and just a few percentage points behind Europe as our largest geographic concentration.
Steve Hossie: International traffic in Latin America, Africa, and Europe also remain among the strongest markets for the period.
Steve Haase: Domestic Traffic, Passenger load factors also continue to expand, with many markets achieving new record levels, and we expect overall low factors to continue to climb from the mid 80% range. Rising load factors typically benefit airline yields and profitability, but they do eventually begin to challenge airline operations. As the aircraft become more completely full, further bolstering the need for new aircraft, such as those from our forward order book. However, with delivery delays persisting, there's not much good news from the OEM.
Steve Hossie: Domestic Traffic
Steve Hossie: Also rose at a still healthy 4% year-over-year, with Brazil, China, India, and the U.S. leading strength in IATA's domestic market segments.
Steve Hossie: Passenger load factors also continue to expand.
Steve Hossie: with many markets achieving new record levels.
Steve Hossie: and we expect overall load factors to continue to climb from the mid 80% range.
Steve Hossie: which also constrains commercial aircraft supply, likely pushing beyond record levels on a global basis.
Steve Hossie: Rising load factors typically benefit airline yields and profitability.
Steve Hossie: So, do eventually begin to challenge airline operations.
Steve Hossie: As aircraft become more completely full, further bolstering the need for new aircraft, such as those from our forward order book.
Steve Hossie: With delivery delays persisting, there's not much good news from the OEMs.
Steve Hossie: We are pleased, however, to report that Airbus A321XLR finally received its EASA-type certification in mid-July, with the FAA to follow very soon.
Steve Haase: It is possible that this is an important step for the entry into service for this aircraft type, which is the extended range version that this aircraft can serve with its range and payload capabilities is extremely significant and can add to network flexibility, particularly on the transatlantic routes between North America and Europe, but also from North to South America and in a number of other international markets as well. We believe new city pairs will likely siphon some traffic away from larger hubs.
Steve Hossie: It is possible that this is an important step for the entry into service for this aircraft type.
Air Lease: As most of you know, Air Lease is a launch customer of the A321XLR.
Steve Hossie: which is the extended range version.
Steve Hossie: And we look forward to huge potential for this aircraft type in the coming years.
Steve Hossie: A number of potential new city pairs
Steve Hossie: that this aircraft can serve with its range and payload capability.
Steve Hossie: is extremely significant and can add to network flexibility, particularly on the transatlantic routes between North America and Europe , but also from North to South America and in a number of other international markets as well.
Steve Hossie: We believe new city payers will likely siphon some traffic away from larger hubs.
Steve Hossie: but will also stimulate new demand as well.
Steve Haase: For example, travelers are very likely to think differently about taking a flight from the south of France, say Bordeaux or Nice, to various U.S. East Coast cities if they no longer have to take a long trip by train or car from the airports to the larger hubs or make connections, which can be very frustrating. Airline profitability on these routes should also benefit given reduced fuel burn and a more easily manageable amount of capacity, which Airbus sites at 30% below prior generation alternatives. For example, this is the 757-200.
Steve Hossie: For example, travelers are very likely to think differently about taking a flight from south of France, say Bordeaux or Nice.
Steve Hossie: to various U.S. East Coast cities if they no longer have to take a long trip by train or car from the airports to the larger hubs or make connections, which can be very frustrating.
Steve Hossie: With a 4700 nautical mile range, the possibilities are very exciting for the A321XLR and is likely to invigorate travel demand in many markets.
Steve Hossie: Airline profitability on these routes should also benefit given reduced fuel burn and more easily manageable amount of capacity.
Steve Hossie: and Network Flexibility for these aircraft.
Speaker Change: Lower fuel burn, of course, also equates to reduced emissions, which Airbus cites at 30% below prior generation alternatives, for example, the 757-200.
John Plueger: Our customers are very eagerly looking forward to receiving these new aircraft and putting them to work. We expect to receive our first A321XLR in the late second quarter of 2025, and we're one of the largest orders as compared to those major airlines, and we're by far the largest XLR customer among the lessor community. Returning to ALC's second quarter results.
Speaker Change: Our customers are very eagerly looking forward to receiving these new aircraft and putting them to work.
Steve Hossie: We expect to receive our first A321XLR in the late second quarter of 2025.
Steve Hossie: Assuming all else remains equal on Airbus's production capabilities.
Steve Hossie: As a reminder,
Steve Hossie: Air Lease is one of Airbus' top A321XLR customers.
Steve Hossie: with 49 aircraft on order.
Steve Hossie: We're one of the largest orders as compared to those major airlines and we're by far the largest XLR customer
Steve Hossie: among the lessor community.
Steve Hossie: Returning to ALC second quarter results.
John Plueger: We delivered two more A220 aircraft to ITA Airways, the national carrier of Italy, and one to LATAM Airlines, which is the largest airline in Latin America, based in Santiago, Chile, and Walter Pulley. We also delivered a 737-9 to Corndon Dutch Airlines, based in Amsterdam, replacing a 737-800. On the quality side, we delivered one new A330-900neo. We also delivered one A350-900 to Air France. Another one of our key European airline customers. We are continuing to pursue avenues of recovery for our aircraft that were retained in Russia.
Steve Hossie: We deliver two more A220 aircraft to ITA Airways, the national carrier of Italy.
Steve Hossie: As you know, ITA's growth and expansion has been further strengthened by the recent EU approval of a major investment in the airline by Lufthansa.
Steve Hossie: We also delivered 5 A321-200NEOs in the quarter, including 2 to Transavia Airlines based in Amsterdam, Netherlands.
Steve Hossie: One to ITA as part of a nine aircraft deal with the airline.
Steve Hossie: One to a Danish operator, Sunclass Airlines.
Steve Hossie: and one to LATAM Airlines, which is the largest airline in Latin America, based in Santiago, Chile.
Steve Hossie: We also delivered two 737-8 MAX aircraft during the quarter, including one to Malaysia Airlines as part of our 25 aircraft, 737-800 placement with the airline, and one to Bali Airlines.
Steve Hossie: Making it the 12th 737-8 we have on lease to the national carrier Poland.
Steve Hossie: We also delivered a 737-9 to Corndon Dutch Airlines based in Amsterdam, replacing a 737-800.
Steve Hossie: On the Wall Street side, we delivered one new A330-900neo
Steve Hossie: is
Steve Hossie: and six A350-1000s we have with that airline.
Speaker Change: This specific HV-3900, which I just mentioned, was delivered to us and Virgin in June and was featured and displayed very successfully at the Farnborough Air Show.
Steve Hossie: We also delivered one A350-900 to Air France.
Steve Hossie: Another one of our key European airline customers.
Speaker Change: Lastly, we delivered one new Boeing 787-9 to Aeromexico, the national flag carrier, further enhancing the airline's international capacity expansion, particularly across the North Atlantic.
Speaker Change: We are continuing to pursue avenues of recovery for our aircraft that were retained in Russia. As you recall, we have multiple lawsuits pending against our insurers, including a case in California, which is set for trial in the spring of 2025.
John Plueger: As you recall, we have multiple lawsuits pending against our insurers, including a case in California, which is set for trial in the spring of 2025. Given the lawsuits, we won't be able to speak further on the topic other than to say that we still feel very strongly about the validity of the claim. Aircraft supply demand remains strongly in our favor, potentially benefiting lease rates and also Gains on Sale of Aircraft for Many Years to Come. Additionally, I will now turn the call over to our CFO, Greg Willis, for his more detailed comments on our second quarter financial results.
Speaker Change: Given the lawsuits, we won't be able to speak further on the topic other than to say that we still feel very strongly about the validity of the claims.
Steve Hossie: and we are pursuing our insurers vigorously.
Steve Hossie: In closing, I'd just like to add that we see very strong support and tailwinds building long-term momentum for our business.
Steve Hossie: Aircraft supply demand remains strongly in our favor.
Steve Hossie: and given the production constraints and challenges.
Steve Hossie: That's unlikely to shift direction for multiple years ahead.
Steve Hossie: and potentially benefiting lease rates and also gains on sale of aircraft for many years to come.
Steve Hossie: Additionally,
Steve Hossie: The financing environment now appears set for improvement after a long extended period of abnormally high yield curve inversions.
Steve Hossie: We feel good about these trends and remain overall positive in our outlook for the future.
Greg Willis: I will now turn the call over to our CFO , Greg Willis, for his more detailed comments on our second quarter financial results.
Greg Willis: Thank you, Steve, and good afternoon, everyone. During the second quarter, Air Lease generated total revenues of $667 million, which was comprised of approximately $610 million of rental revenues and $57 million from aircraft sales, trading, and other activities.
Greg Willis: Total revenues declined by approximately 1% as compared to the prior year. This was driven by a few items, including the sale of older, higher-yielding aircraft, the addition of new aircraft at lower initial lease yields, Lower End of Lease Revenue, and OEM Delay. The yield accretes as a function of depreciation. We continue to believe that this will generate a substantial amount of shareholder value for years to come.
Speaker Change: Total revenues declined by approximately 1% as compared to the prior year. This was driven by a few items, including the sale of older, higher-yielding aircraft, the addition of new aircraft at lower initial lease yields, lower end-of-lease revenue, and OEM delays.
Steve Hossie: As a reminder, when we purchase new aircraft, they come on our books at the lowest yield point in the aircraft's earning cycle. And over time, with our fixed rate leases, yield accretes up as a function of depreciation.
Steve Hossie: Strategically, we remain focused on minimizing residual value risk while maximizing returns via the purchase of the highest in demand, most fuel efficient new aircraft. We continue to believe that this will generate a substantial amount of shareholder value for years to come.
Steve Hossie: During the quarter, we recognized $2 million in end-of-lease revenue as compared to $15 million in the prior period.
Greg Willis: This was driven by fewer lease expirations during the quarter and us continuing to experience a very robust market for lease extensions given the strong aircraft demand environment. These lease extensions are supportive of our overall portfolio yield and add to our contracted cash flows, further enhancing the value of these acquisitions. However, excluding the effects of end-to-lease income, our portfolio yield remains flat as compared to what we recorded in the first quarter of 2024.
Steve Hossie: This was driven by fewer lease expirations during the quarter and us continuing to experience a very robust market for lease extensions, given the strong aircraft demand environment.
Steve Hossie: These lease extensions are supportive of our overall portfolio yield and add to our contracted cash flows, further enhancing the value of these aircrafts.
Steve Hossie: Excluding the effects of end-to-lease income, our portfolio yield remains flat as compared to what we recorded in the first quarter of 2024.
Greg Willis: OEM delays also slowed our revenue growth during the quarter due to 600 million aircraft that were penciled for the second quarter, which ultimately slipped to the first few weeks of the third quarter. Sales proceeds for the second quarter were approximately $530 million from the sale of 11 aircraft. These sales generated $40 million in gains, representing a roughly 8% gain on sale margin.
Steve Hossie: OEM delays also slowed our revenue growth during the quarter due to 600 million of aircraft that were penciled for the second quarter, which ultimately slipped to the first few weeks of the third quarter.
Steve Hossie: Sales proceeds for the second quarter, approximately $530 million from the sale of 11 aircraft. These sales generated $40 million in gains, representing a roughly 8% gain on sale margin.
Greg Willis: As we have said in the past, gain on sale margins will vary from quarter to quarter based on the mix of aircraft sold and market conditions. However, looking at our aircraft sales pipeline of $1.5 billion, we expect to see healthy margins towards the upper end of our historical 8-10% range. Our funding costs declined slightly quarter to quarter as we completed attractive fixed-rate financings in June. We continue to significantly benefit from our largely fixed-rate capital structure, which has helped us to moderate the impacts of the interest rate environment witnessed over the last couple of years, with now over 88% of our financing at fixed interest rates at quarter end.
Steve Hossie: As we have said in the past, gain on sale margins will vary from quarter to quarter based on the mix of aircraft sold and market conditions. However, looking at our aircraft sales pipeline of $1.5 billion, we expect to see healthy margins towards the upper end of our historical 8-10% range.
Steve Hossie: I would like to remind everyone that in addition to enhancing returns for our business, attractive gains also highlight the embedded value of our $27 billion fleet.
Speaker Change: Moving on to expenses, interest expense rose by roughly 18 million year-over-year, driven by a 50 basis point increase in our composite cost of funds to 3.99.
Speaker Change: This was a primary contributor to the uptick in operating expenses relative to last year.
Speaker Change: Our funding costs did decline slightly quarter to quarter as we completed attractive fixed rate financings in June . We continue to significantly benefit from our largely fixed rate capital structure.
Speaker Change: Which has helped us to moderate the impacts of the interest rate environment witnessed over the last couple of years, with now over 88% of our financing at fixed interest rates at quarter end.
Greg Willis: Depreciation expense continues to track the growth of our fleet. SG&A, meanwhile, declined slightly relative to the prior year's quarter and was flat relative to that period as a percentage of revenue, while down as a percentage of revenue as compared to the first quarter. Moving on to our financing activities for the quarter, in June, we completed a successful Dual Tron Senior Unsecured Notes offering, totaling $1.2 billion. This transaction was several times oversubscribed and was comprised of a $600 million notes offering at a fixed rate of 5.3%, maturing in 2026, and another $600 million in notes at a fixed rate of 5.2%, maturing in 2031.
Speaker Change: Depreciation expense continues to track the growth of our fleet. SG&A, meanwhile, declined slightly relative to the prior year's quarter and was flat relative to that period as a percentage of revenue, while down as a percentage of revenue as compared to the first quarter.
Speaker Change: Moving on to our financing activities for the quarter. In June we completed a successful dual tranche senior unsecured notes offering totaling 1.2 billion.
Speaker Change: This transaction was several times oversubscribed and was comprised of a $600 million notes offering at a fixed rate of 5.3%, maturing in 2026, and another $600 million in notes at a fixed rate of 5.2%, maturing in 2031.
Speaker Change: This offering further bolstered our strong liquidity position of $8.2 billion as of quarter end. In addition, let me remind you that our $29 billion in unencumbered assets and our $30 billion of contracted rentals remain a key source of strength for our business.
Speaker Change: Our debt-to-equity ratio at the end of the second quarter was 2.69 on a gap basis, which net of cash on the balance sheet is approximately 2.63 times.
Greg Willis: Both roughly fly as compared to the prior quarter. We will continue to utilize proceeds from aircraft sales to pay down our debt with the goal of reaching our long-term debt-to-equity target over the medium term. To conclude, we remain confident in the demand for aircraft, in our fleet and order book, given the shortage of aircraft supply in a market driven by the persisting OEM production challenges, as well as the long-term secular trends that are driving passenger traffic, both of which we believe will ultimately benefit our business. With that, I'll turn the call back over to Jason for the question and answer portion of the call.
Speaker Change: Both roughly flat as compared to the prior quarter.
Speaker Change: We will continue to utilize proceeds from aircraft sales to pay down our debt with the goal of reaching our long-term debt-to-equity target over the medium term.
Speaker Change: To conclude, we remain confident in the demand for aircraft.
Speaker Change: In our fleet and order book, given the shortage of aircraft supply in a market driven by the persisting OEM production challenges, as well as the long-term secular trends that are driving passenger traffic, both of which we believe will ultimately benefit our business.
Speaker Change: With that, I'll turn the call back over to Jason for the question and answer portion of the call. Thanks, Greg. This concludes our prepared commentary and remarks. For the Q&A session, we ask that each participant limit their time to one question and one follow-up. Audra, please open the line for the Q&A session.
Jason Arnold: Thanks, Greg. This concludes our prepared commentary and remarks. For the Q&A session, we ask that each participant limit their time to one question and one follow-up. Audra, please open the line for the Q&A session.
Operator: Thank you. At this time, I would like to remind everyone in order to ask a question, press star, then number one on your telethon keypad. We'll take our first question from Hillary Cacanando.
Audra: Thank you. At this time I would like to remind everyone in order to ask a question press star then the number one on your telephone keypad.
Speaker Change: We'll take our first question from Hillary Cacanando with Deutsche Bank.
Hillary Cacanando: Hi, thanks for taking my questions. I'm just trying to understand gain on sale, I guess you, I guess it was 8% this quarter, which was at the lower end of your historical range. Was it because maybe you sold, I just wanted to understand why, I guess it was because of the product mix, was it because you sold maybe younger aircraft with higher book value, or was it the pipe that, yeah, there's just more questions. Yeah, this is John.
Hilary Cancanano: Hi, thanks for taking my questions. I'm just trying to understand, for Gaines, Gaines, Gaines on Sale, I guess you, I guess it was 8% this quarter, which was at the lower end of your historical range. Was it because
Speaker Change: Maybe you sold, I just wanted to understand why, I guess it was because of the product mix, was it because you sold maybe younger aircraft with higher book value, or?
Speaker Change: or was it the type that, yeah, so just more questions. Thanks Hillary. Yeah, this is John . As I said in my prepared remarks,
John Plueger: As I said in my prepared remark, the timing of individual sales and packages varies. The packages themselves, as a package, are nice, healthy gains in the double-digit area. But we do use aircraft sales to moderate and look at our risk portfolio geographically by customer, yield by aircraft type, and age. So we do have individual aircraft within these packages. Some are at different levels of gain, higher and lower. Okay. I've got it.
John Plueger: The timing of individual sales and packages vary. The packages themselves, as a package, are nice healthy gains in the double-digit area.
Speaker Change: But we do use aircraft sales to moderate and look at our risk portfolio geographically by customer, yield, by aircraft type, and age.
John Plueger: We do have individual aircraft within these packages, some are at different levels of gain, higher and lower. And so really you're just looking at simply the timing of closings as they happen this quarter.
John Plueger: That's helpful. And then the other question is, you know, one of your competitors said that they actually showed, you know, in their presentation a couple of months ago that, you know, next, next year, they expect maybe, I think it was like 85% of, you know, leases coming on their books to be, you know, executed during 2023 and beyond. And then in 2025, you know, that number goes up to 2095%. So I was wondering if there were any other questions or concerns that you might have.
Speaker Change: Okay, got it. That's helpful. And then the other question is, you know, one of your competitors have said that
Speaker Change: They have actually showed, you know, in their presentation a couple of months ago that, you know, next next year they expect maybe, I think it was like 85% of, you know, leases coming on their books to be, you know, to have been executed during 2023 and beyond and then in 2025, you know, that number goes up to 20, 95 percent.
Speaker Change: So I was wondering, I was wondering if
Speaker Change: because you've, in the past, also talked about a lag in interest, in revenue, about a two-year lag. So could we think about it the same way for your revenue as well, with the leases coming online next year, maybe around the same percentage, like 85 or so, and then maybe higher the following year?
John Plueger: I don't think we can give you specific percentages right now, but we do, I mean, as you would expect, we typically sign our leases 18 to 24 months in advance of the actual delivery date. So, as we move further and further away from the COVID era lows and the low interest rate environment period, you should expect to see higher lease rates on our delivered aircraft continuing to help support our overall portfolio yields.
Speaker Change: I don't think we can give you specific percentages right now, but as you would expect, we typically
Speaker Change: 18 to 24 months in advance of the actual delivery date. So as we move further and further away from the COVID era lows and the low interest rate environment period, you should expect to see
John Plueger: higher lease rates on our delivered aircraft, continuing to help support our overall portfolio yields. Continue with lease extensions at higher rates. Absolutely. Overall, as airlines come to the end of their lease periods, and they're all extending, as I said in my prepared remarks.
John Plueger: Continued with lease extensions at higher rates overall as airlines come to the end of their lease periods, and they're all extending, as I said in my prepared remarks.
John Plueger: Thank you very much.
Speaker Change: Okay, great. Helpful. This is very helpful and I'm looking forward to seeing you guys in September at our conference. Absolutely. We will. Look forward to it.
Unknown Attendee: Absolutely. We will. Look forward to it.
Terry MA: We'll move next to Terry Ma at Barclays.
John Plueger: We'll move next to Terry Ma at Barclays.
Terry MA: Thanks, good afternoon. So last quarter, you kind of got it to a slight profit margin for the rest of the year. Looked like it was Unknown Speaker, Unknown Speaker, Unknown Speaker,
Terry MA: Hi, thanks, good afternoon. So, last quarter you kind of got it to a slight profit margin for the rest of the year, looked like it was
Terry MA: kind of modestly down this quarter, I guess, are you do you still feel pretty good about that guide? And then, as we kind of look forward to 2025, maybe can you just help outline the major drivers that maybe help you kind of get back to a normalized profit margin?
Unknown Executive: Right. I think going forward, that guide still holds around these same sort of levels. This quarter was a little lower due to the fact that we had lower end of lease revenue coming through, but that was due to the timing of extensions and the like. I think looking forward to 25, it's a little unclear because of what happens with the rate environment, as Steve mentioned. As rates come down, I think that should help the business as well, and also the taking on of higher initial lease yields on some of those order book planes.
Speaker Change: Right, I think going forward that guide still holds around these same sort of levels. This quarter was a little lower due to the fact that we had lower end-of-lease revenue coming through, but that was due to the timing of extensions and the like.
John Plueger: I think looking forward to 2025, it's a little unclear because of what happens with, as Steve mentioned, with the rate environment. As rates come down, I think that should help the business as well. And also the taking on of higher initial lease yields on some of those order book planes as they come through.
Steve Hossie: And also remember that we had a large number of aircraft that should have delivered before June 30.
Speaker Change: that slid into July and August . So that's really an OEM issue.
Unknown Executive: It means we lost revenue on those aircraft that we expected to receive back in April and May.
Speaker Change: It means we lost revenue on those aircraft that we expected to receive.
John Plueger: back in April and May.
Unknown Executive: Got it. Okay, that's helpful. And then maybe just on the funding you guys issued in the unsecured market this past quarter, termed out a portion of the revolver, I guess, are you comfortable with rates and spreads today to maybe tap that market again? Or will you just carry some excess on your revolver going forward, just trying to figure out the right funding mix in the near future.
Speaker Change: Got it. Okay, that's helpful. And then maybe just on the funding you guys issued in the unsecured market this past quarter, termed out a portion of the revolver. I guess, are you comfortable with rates and spreads today to maybe tap that market again? Or will you just carry some excess on your revolver going forward, just trying to figure out the right funding mix in the near term? Unknown Speaker
Unknown Executive: So we maintain a high level of liquidity; we have 8.2 billion, so we tend to be very opportunistic as we look to the market. Spreads have been very low, very attractive right now, and today, with the recent drop in base rates, it sets up a very nice environment, but again, we're going to be very selective about the market windows that we tap into. There is, of course, a benefit to terming out our unsecured revolver because those floating rates are probably in the area of 6.7, 6.75% all in, and then you compare that to fixed rate funding costs in the high 4s, low 5s. I think that also creates a lot of value. Okay, great.
Speaker Change: Listen, we maintain a high level of liquidity, we have 8.2 billion, so we tend to be very opportunistic as we look to the market. Spreads have been very low, very, very attractive right now, and today with the recent drop in base rates.
Unknown Attendee: Okay, great, thank you.
Speaker Change: It sets up a very nice environment, but again, we're going to be very selective as the market
Speaker Change: There is, of course, a benefit of terming out our unsecured revolver, because those floating rates are probably in the area of 6.7, 6.75% all in.
Speaker Change: And then you compare that to fixed rate funding costs in the high 4s, low 5s, I think that also creates a lot of value as well.
Speaker Change: Okay, great. Thank you.
Jamie Baker: We'll take our next question from Jamie Baker at J.P. Morgan.
Speaker Change: We'll take our next question from Jamie Baker at J.P. Morgan.
Jamie Baker: Oh, hey, Steve and John, let me start with a question that I asked AirCap this morning. So, you know, Mark and I are just trying to reconcile the global aircraft shortage with the growing phenomenon of airlines citing overcapacity. You know, on the one hand, we've got this really positive narrative on tight supply, and, you know, Steve just spoke about his experience at Farnborough. But then you've got just about every US airline citing over capacity. And we've seen discouraging prints from several European airlines.
Jamie Baker: Oh, hey, Steve and John , let me start with a question that I asked AirCap this morning. So, you know, Mark and I are just trying to reconcile the global aircraft shortage.
Speaker Change: with The Growing Phenomenon of Airlines.
Jamie Baker: citing overcapacity. You know, on one hand, we've got this, you know, really positive narrative on tight supply. And, you know, Steve just spoke to his experience at Farnborough. But then you've got just about every U.S. airline citing overcapacity. We've seen discouraging prints from several European airlines.
John Plueger: Right, Jamie. Let me start with two overall comments. Yes, of course, the industry responds to the strong traffic demand and continues to add capacity in the marketplace. No doubt about that. And the second comment I would make is just remember that historically, as airlines start to experience any financial squeeze, that has historically always favored leasing. Hmm.
Speaker Change: Yes, of course the industry responded to strong traffic demand and continues to by adding capacity in the marketplace, no doubt about that.
Speaker Change: But overriding all of that is still a grave concern about getting aircraft for the future and their deliveries sliding out, being able to replace older aircraft. So by far, the overriding demand, despite some of these commentaries, is that there is a need for aircraft and we are still getting all these requests.
Jamie Baker: And the second comment I would make is just remember that historically, as airlines start to experience any financial squeeze, historically that has always favored leasing.
John Plueger: Yeah, fair, fair points, fair points, John. So and then, as a follow-up, you know, we saw AirCap step into Spirit's order book today. And you know, obviously, Spirit being a, you know, somewhat weak credit at the moment. Should we think about this strategy possibly being an avenue for air leases, incremental growth, or, you know, as places are placing new orders, still your preferred avenue? Thanks in advance.
Speaker Change: Yeah, fair, fair points, fair points, John . So and then as a follow up, you know, we saw AirCap step into Spirit's order book today. And you know, obviously, Spirit being a, you know, somewhat weak credit at the moment.
Steve Haase: Yeah, well, Jamie, we already have a long, long relationship with Spirit. So we currently have eight new A321NEOs delivering to Spirit in the next six to nine months. So very soon, we'll have 10, 8, 321.
Jamie Baker: Steve.
Steve Hossie: It even goes back to ILFC days when we replaced our MD-80 fleet with A319s and A321C aircraft.
Steve Hossie: So we currently have eight new A321NEOs delivering to Spirit.
Speaker Change: in the next six to nine months.
Speaker Change: We recently delivered two new A321neos from our order book.
Steve Haase: We previously delivered to them five A320 NEOs, and all of those aircraft have been sold to third parties over the last 24 months. So, we looked at that transaction. Due to our existing relationship with Spirit and the other backlogged aircraft we have coming from Airbus, being the largest A321neo lessor, we felt that that was more of a transaction for air capped than for air lease.
Steve Hossie: We previously delivered to them five A320 NEOs.
Speaker Change: and all of those aircraft we have sold to third parties over the last 24 months. So we looked at that transaction and we felt that the overall package
Jamie Baker: Due to our existing relationship with Spirit and the other backlogged aircraft we have coming from Airbus,
Jamie Baker: Okay, I appreciate the colors, Steve. Take care.
Speaker Change: We'll move next to Mochi Ornbuch at T.D. Cowan.
Unknown Attendee: Great, thanks. Maybe to kind of piggyback on Jamie's question, are, you know, are there, putting, you know, one particular airline aside, are there any other kind of strategies that you're thinking about in this current environment of low deliveries, you know, where you could either increase, you know, airline aircraft purchases, or, in fact, kind of reduce your capital, given that, you know, it's been a somewhat lower growth environment?
Mochi Ornbuck: Great, thanks. Maybe to kind of piggyback on Jamie's question, are, you know, are there, putting, you know, one particular airline aside, are there any other kind of strategies that you're thinking about in this current environment of low deliveries?
Speaker Change: where you could either increase aircraft purchases or in fact kind of reduce your capital given that it's been a somewhat lower growth environment.
Steve Haase: Yes. Well, the answer is yes.
Steve Haase: I mean, although the prior question was around Spirit Airlines, there are a number of competitive campaigns around the world that we're looking at, both with Airbus and Boeing, whereby we could incrementally add aircraft pursuant to the OEM's strategies and competitive environment in those campaigns. And that's not really anything new for us. We continue to take advantage of that, just as we did in previous years, but we do see a potential future there, as well as alignment with our managed business, using that as a platform to add additional aircraft as well. I do think there's going to be a lot.
Speaker Change: Yes. Well, the answer is yes. I mean, although you, you know, the prior question was around Spirit Airlines, there are a number of competitive campaigns.
Steve Haase: I do think there's going to be a big opportunity, though. The airlines have definitely overordered, and a lot of them don't have quite the access to capital as we do here as an investment credit public company. So I think there's going to be a search for financing on behalf of the airlines, and there'll be a lot of airlines that'll need help, and I think that's one avenue that we could look at in the future.
Speaker Change: I do think there's going to be a large opportunity, though. The airlines have definitely overordered.
Speaker Change: For example, if an airline ordered 20 aircraft, and they might wind up buying 15 of them,
Steve Haase: They will probably approach us and say, Air Lease, can you take five of those 20? (Inaudible) That's attractive. But we don't want to overpay for aircraft. We don't want to pay a premium above what we can buy those same aircraft for from Boeing and Airbus.
Speaker Change: and either do a state leaseback transaction or even divert some of those aircraft to another airline. So we're always opportunistic. We're always looking for transactions.
Unknown Attendee: Great. And maybe just as a follow-up, you know, the total lease revenue obviously has been affected by a number of things, slow deliveries, late deliveries, and, you know, the lack of end-of-lease revenue, but the lack of end-of-lease revenue is probably going to be with you for the balance of the year. So as you kind of look forward to the next couple of quarters, I mean, have you sold planes that were renegotiated during COVID with lower yields?
Speaker Change: Great. Maybe just as a follow-up, you know, the total lease revenue obviously had been affected by a number of things, slow deliveries, late deliveries.
Speaker Change: and the lack of end-of-lease revenue, but the lack of end-of-lease revenue is probably gonna be with you for the balance of the year.
Unknown Attendee: I mean, is that something that's gone on? And as I think about the $2 billion number that you talked about, you know, I don't recall, you know, quarters of late where you've had $2 billion in delivery. So, you know, Steve, you had mentioned that the 600 million that fell in, that some of that had already been received. I mean, is it, how confident are you in that? In, you know, at the level of delivery?
Speaker Change: I think, Steve, you had mentioned that $600 million that fell in, that some of that had already been received. I mean, is it, you know, how confident are you in that, you know, in the level of deliveries for Q3?
John Plueger: Well, let me just say, as I said in my prepared remarks, there is a huge vacancy out there, and that is the potential Boeing strike. So while we put a $2 billion estimate on it, you know, frankly, it, But there are so many factors that it's really hard to put a pen on it.
Steve Hossie: Well, let me just say, I'm just going to say, as I said in my prepared remarks,
Speaker Change: There is a huge vacancy out there, Moshe, and that is a potential Boeing strike.
Speaker Change: So, while we put a $2 billion dollar estimate
Speaker Change: You know frankly it you know that that's a huge contingency and so yes We had 600 million 600 million shortfall and deliveries compared to what we told you all last quarter as a result of these ongoing delays
Speaker Change: But there's so many factors that it's really hard to put a pen on it. And I think the first part of your question is, yes, we have sold some aircraft that we renegotiated or restructured during the pandemic.
John Plueger: And I think the first part of your question is, yes, we have sold some aircraft that we renegotiated or restructured during the pandemic. So I think overall, it's a very difficult challenge for us. Our whole business model is taking delivery of brand new aircraft and putting them out on lease. And when these are contingent events, it's really hard to put a pin on CAPEX expectations. So, just by way of summary, we did say we still expected about $5 billion for the whole year.
Speaker Change: So overall, it's a very difficult challenge for us,
Speaker Change: Our whole business model is taking delivery of brand new aircraft and putting them out on lease.
John Plueger: That's in the mid-range of our $4.5 to $5.5. And we, based upon our best judgment, are looking at about $2 billion. But that's going to be dependent somewhat on whether Boeing continues its deliveries and whether they go on strike. And part of that $2 billion was the spillover.
Speaker Change: And we, based upon our best judgment, are looking at about $2 billion, but that's going to be dependent somewhat about whether Boeing continues its deliveries and whether they go on strike.
Speaker Change: And part of that $2 billion was the spillover from the first quarter.
John Plueger: And it didn't. That's a $150 million airplane. Then we had a 787-10, the largest 787. Again, we're supposed to deliver it in May. And we just delivered it on Monday this week. So right there, there are two aircraft. They're about $310 million. It should have been delivered in the prior quarter.
Speaker Change: So right there, there's two aircraft that are about $310 million. It should have been delivered in the prior quarter.
Speaker Change: Thanks very much. Sure.
Stephen Trent: And next, we'll move to Stephen Trent at Citi.
Speaker Change: And next we'll move to Stephen Trent at Citi.
Stephen Trent: Yes, good afternoon. Can you hear me, by the way?
Steven Trent: Yes, good afternoon. Can you hear me by the way? Yes.
Unknown Executive: Yes, yes. Oh, great. Thank you. I'm sorry. I'm having some trouble with my phone. Um, thank you for taking my question, gentlemen. Um, two for you.
Stephen Trent: I appreciate the geographic color. And you mentioned Southeast Asia and what you have as a growth area. What do you happen to refresh my memory as to, you know, what percentage of your book is in China these days? Under 5%.
Unknown Executive: And just as my follow-up question, what do we think about air leases, aircraft sales, you know, any high-level color regarding what proportion of your equipment you're selling to airlines versus maybe making sales to other aircraft listeners? Thank you.
Speaker Change: Perfect.
Steven Trent: And just as my follow-up question, when we think about air leases, aircraft sales, you know, any high-level color,
Speaker Change: regarding what proportion of your equipment you're selling to airlines versus maybe making sales to other aircraft listers. Thank you.
Unknown Executive: Yeah, most of our aircraft sales are to other aircraft plus ours at the current moment. Very few of them have been to the airline. You typically see end-of-life aircraft being sold back to the airline at the very last part of their life to take advantage of the maintenance reserves that are there. But given that we have a very young fleet, we're selling airplanes that are about eight years old, most of them are being sold to other less profitable destinations.
Speaker Change: Yeah, most of our aircraft sales are to other aircraft lessors at the current moment. Very few of them have been to the airlines.
Speaker Change: You typically see end-of-life aircraft being sold back to the airlines at the very last part of their life to take advantage of the maintenance reserves that are there. But given that we have a very young fleet, we're selling airplanes that are about eight years old, most of them are being sold to other lessors.
Stephen Trent: Okay, I appreciate it. Thanks very much.
Speaker Change: Okay, appreciate it. Thanks very much.
Operator: And there are no further questions at this time. Mr. Arnold, I'll turn the call back over to you.
Mr. Arnold: And there are no further questions at this time. Mr. Arnold, I'll turn the call back over to you. Thank you, everyone, for participating in our second quarter call. We look forward to speaking with you again next quarter. Audra, thanks for your assistance, and please disconnect us.
Jason Arnold: Thank you everyone for participating in our second quarter call. We look forward to speaking with you again next quarter. Audra, thanks for your assistance, and please disconnect us.
Operator: You're welcome. This does conclude today's conference call. Thank you for your participation. You may now disconnect.
Audra: You're welcome. This does conclude today's conference call. Thank you for your participation. You may now disconnect.
Operator: Please wait, the conference will