Q2 2024 AerCap Holdings NV Earnings Call

Unknown Executive: Thank you, operator, and hello everyone. Welcome to our second quarter 2024 conference call. With me today is our Chief Executive Officer, Aengus Kelly, and our Chief Financial Officer, Pete Juhas. AerCap undertakes no obligation, other than that imposed by law, to publicly update or revise any forward-looking statements to reflect future events, information, or circumstances that arise after this. Further information concerning issues that could materially affect performance can be found in AerCap's earnings release dated August 1st, 2024.

Thank you operator, and Hello, everyone welcome to our second quarter 2024 conference call.

Speaker Change: With me today is our Chief Executive Officer, Angus, Kelly, and our Chief Financial Officer, Pete you. Thus.

Unknown Executive: A copy of the earnings release and conference call presentation is available on our website at aercap.com. We will shortly run through our earnings presentation and will allow time at the end for Q&A. As a reminder, I would ask that analysts limit themselves to one question and one follow-up. I will now turn the call over to Aengus Kelly.

Aengus Kelly: Thank you for joining us for our second quarter 2024 earnings call. Generating adjusted net income of $592 million and adjusted earnings per share of $3.01. As a result, I am pleased to increase our earnings guidance for the year from $9.20 to approximately $10.25, not including gains on sale in the second half of the year.

Aengus Kelly: This is the third transaction in the last seven months that we have closed on a bilateral basis with the customer. This is, of course, in addition to the transaction for 150 CFM LEAP engines with SES that we announced on our capital markets day. Year-to-date, we have spent $3.2 billion on flight equipment and returned over $720 million to our shareholders in the form of stock repurchases and dividends. Importantly, this was all done without levering up our balance.

Aengus Kelly: As I mentioned, demand for aviation assets continues to be robust, as reflected in our consistently high levels of activity. Over the last three months, AerCap executed 246 transactions across aircraft, engines, and helicopters, comprising 162 lease agreements. The rate of aircraft extensions, which we discussed at a recent Capital Markets Day, continues to be elevated at over 80% in Q2, leading to unlevered margins of over 20% in the quarter, which is approximately 1.7 times book. And I expect this will continue to be the case for some time.

Aengus Kelly: Of note, at the end of Q2, the U.S. is now our largest market at 14.6% of revenue, as well as strong demand from buyers for our Chinese products. One particularly notable deal that we signed just this week. This is the third example in the last seven months where we've been able to execute a bilateral transaction to acquire aircraft with a customer that results in a win-win outcome for our customer and for AerCap.

Speaker Change: Once with Airbus and Spirit Airlines in the U S.

Speaker Change: We have agreed to purchase 36, eight 320 Neo family aircraft.

Speaker Change: This transaction results in Aercap, assuming 36 aircraft from spirits order book and the related pre delivery payments.

Speaker Change: This is the third example in the last seven months, whether you've been able to execute a bilateral transaction to acquire aircraft with a customer that results in a win win outcome for our customer and for Aercap.

Speaker Change: These aircraft are set to deliver in 2027 and 2020 as.

Speaker Change: Which match well with the profile of our existing order book.

Speaker Change: And as far sooner than we would otherwise have been able to negotiate directly with Airbus.

Speaker Change: And it gives us an opportunity to support our long term customer simultaneously.

Aengus Kelly: This deal takes our total number of aircraft added this year to over 50. Similar to our approach to share repurchases and dividends, our approach to organic growth is also measured and disciplined and ensures that we generate strong, long-term returns for our shareholders with an appropriate level of risk. AerCap's cash flows are the strongest in the industry, not just on an absolute basis but on a relative basis also, than any of the other large leasing companies, where AerCap was upgraded to BAA1 by Moody's. These are the highest ratings of any aircraft that soars in the world on a stand-alone base. I look forward to showing the evidence of this strategy in the quarters and years to come.

Peter L. Juhas: Thanks, Gus. Good morning, everyone.

Peter L. Juhas: Our gap net income for the second quarter was $448 million, or $2.28 per share. The impact of purchase accounting adjustments was $169 million for the quarter, or $0.86 per share. That included lease premium amortization of $32 million, which reduced basic lease rents, maintenance rights amortization of $99 million, which reduced maintenance revenue, and maintenance rights amortization of $37 million, which increased leasing expenses. So taking all of that into account, our adjusted net income for the second quarter was $592 million, or $3.01 per share. Basic lease rents were $1,568,000,000.

Peter L. Juhas: Maintenance revenues for the second quarter were $180 million. That reflects $99 million in maintenance rights assets that were amortized to maintenance revenue during the quarter. So, in other words, maintenance revenue would have been $99 million higher or $279 million without this amortization.

Peter L. Juhas: Maintenance revenues were higher than normal this quarter, primarily due to higher amounts of end-of-lease payments that we received during the quarter, and that's due to the timing of lease maturity. As of June 30th, we had $105 million worth of assets held for sale. Interest income has been higher this year. We're seeing higher interest income on our cash balances due to the higher interest rate environment. Interest expense was $478 million for the quarter, which included $5 million of mark-to-market losses on interest rate derivatives. Leasing expenses were $173 million for the quarter, including $37 million in maintenance rights amortization expenses. And finally, income tax expense for the second quarter was $76 million, which represented an effective tax rate of 15.5%.

Peter L. Juhas: We continue to maintain strong liquidity. Our leverage ratio at the end of the quarter was 2.4 to 1, basically the same as last quarter. Our operating cash flow was approximately $1.4 billion for the second quarter, which was driven by continued strong cash collection. Our secured debt-to-total-assets ratio was 12% at the end of June. That's down from 14% last quarter due to the reduction in the size of some of our secured facilities. Our average cost of debt was 3.8% for the second quarter, which is down slightly from the first quarter, primarily due to the refinancing of some term loans at lower margins.

Speaker Change: Its target with excess cash coverage of around $8 billion.

Speaker Change: Our leverage ratio at the end of the quarter was $2 four to one basically the same as last quarter. Our operating cash flow was approximately $1 4 billion for the second quarter, which was driven by continued strong cash collections.

Speaker Change: Our secured debt to total assets ratio was 12% at the end of June that's down from 14% last quarter due to the reduction in the size of some of our secured facilities.

Speaker Change: Our average cost of debt was three 8% for the second quarter, which is down slightly from the first quarter, primarily due to the refinancing of some term loans at lower margins.

Peter L. Juhas: During the second quarter, we repurchased 3.9 million shares at an average price of $88.66 for a total of $345 million. We also paid our first quarterly dividend of $0.25 a share in the second quarter. In February, we projected adjusted earnings per share of $7.50 to $8.50 for the full year 2024, not including any gains on sale. So overall, AerCap continued to perform very well during the second quarter. We continue to see a strong environment for leasing as well as for asset sales, which is reflected in both the volume of sales and the gain on sale margin this quarter.

Speaker Change: During the second quarter, we repurchased three 9 million shares at an average price of $88 66 for.

Peter L. Juhas: We're deploying capital towards attractive opportunities across all of our businesses, particularly in aircraft and engine leasing, and we continue to buy back stock and pay our first quarterly dividend. We continue to generate strong cash flows that, in turn, result in greater profitability and greater financial flexibility. This quarter, we were upgraded by Moody's to BAA1 and by S&P to BBB+, and we were put on a Positive Outlook by Fitch, and that continues the positive rating trajectory that we've now had for several years. With these strong results and with a positive outlook going forward, we're now raising our guidance for full year 2024. With that operator, we can now open up the call for Q&A.

Operator: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star 1 to ask a question. We'll pause for just a moment. We'll go first to Jamie Baker with J.P. Morgan.

Jamie Nathaniel Baker: Okay, fair enough. And then second, you know, Mark and I are, you know, we all keep hearing about how tight the global aircraft supply is, and we don't disagree. But at the same time, you have these massive guides down from several US airlines; you've got some Western airlines, both discounted and full service, that are guiding down the Singapore results yesterday were soft. I mean, we're trying to reconcile airline results with aircraft supply. And quite honestly, we're having a hard time. How do you reconcile those two realities? Thanks in advance. Unknown Speaker That's a very fair point.

Aengus Kelly: And that's a very fair point to make, Jamie. How, on the one hand, can you say that there's a tremendous shortage of aircraft when a number of carriers are saying there's excess capacity in a very large market like the United States? What they also have, which is very hard to explain to the analysts, is the complexity of trying to keep extending a fleet that you want to get out of. It's very inefficient within the airline.

Speaker Change: To keep extending a fleet that you want to get out of its very inefficient within the airline. So if you're an airline on your short the the meals or the Max's are the 780 Sevens you will have trained pilots you will have bought spare parts you will have geared up your operation for the entry of those aircraft when they don't.

Aengus Kelly: So if you're an airline now and you're short the NEOs or the MAXs or the 787s, your pilots don't sit at home, but effectively, they do because you wouldn't have hired them. So you've got lower hours being worked overall on average than you otherwise would have. So there are these hidden costs in the airline that they have, and they're having to keep prolonging the life of assets they prefer not to have that are older, that are more complex from a maintenance standpoint, that are more complex from a cabin configuration standpoint, leading to inefficiencies in the airline sector. So when we say shortage of aircraft, we're looking, we're saying, particularly new aircraft, because if the airlines could accelerate their transformation.

Speaker Change: <unk> com.

Speaker Change: Your pilots don't sit at home, but effectively they do because you wouldn't have hired them. So you have lower hours being worked overall on average than otherwise you would have so there are these hidden costs in the airlines that they have and they're having to keep prolonging the life of assets. They prefer not to have that are older that are more complex maintenance standpoint that are more complex.

Speaker Change: Better on costs, there's no question about that but on a global basis, that's what we see.

Speaker Change: Well go next to Terry MA with Barclays.

Unknown Speaker: All right, thank you. Good afternoon.

Terry MA: Hi, Thank you good afternoon.

Terry MA: So you mentioned you've done kind of three bilateral transactions similar to the one with spirit are you seeing more of those opportunities come to the market and maybe just talk about what's driving that aside from timing differences compared to an OEM order or a particular aircraft type or are there any other advantages like returns of pricing you're getting.

Aengus Kelly: Well, you know, obviously, we talked to the OEMs about orders. And as you know, we have not been able to reach terms with the OEMs over the last few years, which is that I've always said fine by me. I don't care if we never buy another airplane again; I care about deploying your capital.

Speaker Change: Well, obviously be talk to the Oems on orders and as you know we have not been able to reach terms with the Oems over the last few years, which is that I've always said fine by me I don't care, if we never buy another airplane again I care about deploying your capital.

Peter L. Juhas: Got it. And then a question for Pete about the net spread. I know you guys don't manage to do that, but it's outperformed a bit in the last two quarters. So how should we think about that for the rest of the year, taking into account any remaining power by the hour, cash collections, and bond refinancing? And on bonds, you have a few lower-cost bonds coming due later this year, which I'm sure you contemplated in your interest expense guidance at the beginning of the year. But credit spreads have also come in by about 40 basis points. So maybe we should just put all that together. How should we think about the net spread? Thank you. Sure, sure.

Peter L. Juhas: Sure, sure. Well, you're right about that. Obviously, we factored in all of our plans for raising debt later this year into our net spread guidance. So basically, as I've mentioned before, the main driver of that recently has been those power by the hour leases coming off and reverting to regular lease arrangements. So that's basically all happened now.

Peter L. Juhas: So we're not going to see any further impact of that from this quarter onwards. So I would say, I think for the balance of this year, we should be around where we were for the second quarter, because, as you said, there are countervailing effects. On the one hand, you've got higher rents coming in. On the other hand, you have some higher interest expenses as well. But I think we'll be around where we are today.

Speaker Change: Expenses, well, but I think we'll be around where we are today.

Speaker Change: We'll go next to Moshe Orenbuch with TD Cowen.

Terry MA: Yes.

Unknown Speaker: Great, thanks. Maybe kind of following up on a similar line of questioning, you know, given all the things that you do see, do you think that the balance sheet is going to be sort of, you know, larger or kind of stable, you know, over the next few quarters? Like, how do you see that evolving? I mean, are there other opportunities, things that might come up, you know, kind of on a spot basis or anything like that?

Moshe Orenbuch: Great. Thanks.

Moshe Orenbuch: Maybe kind of following up with similar line of questioning.

Moshe Orenbuch: Given all of the things that you do see.

Speaker Change: Do you think the balance sheet is going to be sort of larger or kind of stable you know over the next over the next few quarters like how do you. How do you see that evolving I mean are there other opportunities things that might come out.

Moshe Orenbuch: On a on a spot basis or anything like that.

Speaker Change: Sure well first welcome back Moshe it's good to have you on the call again, so in terms of the balance sheet, we would expect it to grow somewhat.

Peter L. Juhas: Thanks and congratulations on the recent upgrades. But it's also true that your leverage ratio has actually improved over the course of the first half of the year. Can you talk about your thoughts as to how you might manage that in the current environment? Obviously, you've started the dividend. But how do you think about share repurchase and other forms of capital deployment over the next several quarters?

Peter L. Juhas: Sure. So as you mentioned, this quarter we're at 2.4 to 1 net debt to equity, so that is below our target level, and it's about where we were last quarter as well. So it's been obviously very positive to get to that point.

Peter L. Juhas: I think during the remainder of the year, we'll still run below our target, but I think it will be somewhat closer to that. It really depends on how much we do deploy, obviously. Some of it depends on CapEx. Because we have more CapEx coming in the second half of the year, you create less excess capital. Similarly, we've done a lot of sales in the first half. So we've done 1.7 billion in sales so far this year.

Peter L. Juhas: I think we'll probably do 2.5 for the full year, give or take. So that's been front-end loaded. But I think that it will trend up somewhat, our leverage ratio, but I don't think we'll get to 2.7.

Speaker Change: Yeah.

Moshe Orenbuch: Great. Thanks.

Moshe Orenbuch: Sure.

Stephen Trent: We'll go next to Stephen Trent with Citi.

Moshe Orenbuch: We'll go next to Stephen Trent with Citi.

Stephen Trent: I guess, good afternoon, everybody, and thank you very much for taking my question.

Stephen Trent: Hi, Yes, good afternoon, everybody and thank you very much for taking my question actually.

Aengus Kelly: Actually, the first sort of a follow-up on Moshe's question, you know, the credit rating side looks really good. You know, longer term, do you guys have any sort of bogeyman in mind? You know, roughly speaking, where you'd hope to be with Moody's and S&P?

Speaker Change: First sort of a follow up on moshe's question.

Moshe Orenbuch: No.

Speaker Change: The credit rating side looks looks really good.

Speaker Change: Longer term do you guys have any sort of bogey in mind.

please: Please speaking.

Speaker Change: We would hope to be with Moody's and S&P.

Aengus Kelly: Look, I think we're very happy with BBB plus BAA1, which is the highest rated less independent lessor there is in the world. We certainly want to push Fitch over the line as well; they're on Outlook Positive. I think this provides us with extremely competitive funding. If I look at our five-year unsecured spread today, it's around 95 or 96 basis points, which is about 20 basis points north of someone like JP Morgan or Wells Fargo. So that's why it's extremely competitive.

Speaker Change: Look I think I think we're very happy with Triple B, plus b double a one which is the highest rated.

Aengus Kelly: We're always very conscious of the balance between return on equity for our shareholders and making sure that we have access to very flexible debt and significant pools of debt. But at some point, of course, if we went much lower, then that would significantly dilute the returns to our shareholders. And we're very conscious of that, how we deploy the capital for our shareholders. And today you saw, again, organic growth. We've returned $3.4 billion, though, to our shareholders in 2023 and 2024. We have a remaining $600 million left in our current share buyback authorization. And so it's a balance between all those things. But I think I'm very happy with where my rating is today.

Aengus Kelly: Oh, okay, Aengus, very helpful. Just one other quick question. I appreciate you guys mentioned the US being the biggest market, and you've done some drawdown in China. Could you refresh my memory, geographically speaking, if there's any areas of the world where you're seeing, you know, really good momentum at the moment? Thank you.

Aengus Kelly: But I think at the moment there's pretty robust demand from airlines, and they certainly want to keep what they have. That's true across the world. And you saw that in the extension levels, 80%. So on a global basis, we're extending the vast majority of the assets, a very good indicator of Starworth. In terms of placement and growth, we're certainly seeing strength out of the Middle East, and we will continue to. I think we're going to see strength out of Asia.

Speaker Change: Pretty robust demand from the airlines certainly want to keep what they have that's true across the world and you saw that in the extension levels, 80%. So on a go forward basis, we're extending the vast majority of the assets are very good indicators Darwin.

Speaker Change: In terms of placement and growth, we're certainly seeing strength out of the middle East.

Speaker Change: And we will continue.

Speaker Change: I think we're going to see strength out of Asia Pacific because the Asia Pacific recovery out of Covid has been slower than the Americas or the European market. The two other major markets and I think that's where we will see a recovery. If we look at global traffic in June we exceeded <unk>.

Stephen Trent: Okay, I really appreciate it. Thank you.

Hillary Cacanando: Welcome next to Hillary Cacanando with Deutsche Bank.

Hillary Cacanando: Hi, thank you for taking my questions. Just regarding your transactions with Spirit, obviously, you know, you're taking delivery before 2030. And, you know, they're from Spirit's order book. But I was just wondering how long the wait would be at this point if you were to place an order directly with Aerobots for narrow bodies and, and you know, what the wait time was for the wide bodies. I would imagine it's, you know, past 2030. But I just wanted to see what they were really like at this point.

Speaker Change: Ours is at try 230 to 2033 and beyond.

Speaker Change: So the from our perspective, that's a very long way out there the.

Speaker Change: The 27 28 timeframe, what we feel is a is a much more attractive timeframe.

Speaker Change: And you would think that most of the light bodies as well in <unk>.

Boeing: Boeing as well in terms of infill that until 2030.

Speaker Change: It's more.

Speaker Change: On the wide bodies, you might get one or two and before 2030, but it won't be many hillary like you know so.

Speaker Change: If you went for an order I wouldn't imagine.

Speaker Change: And that there'll be much available on the 787 nine to be fair before 2030.

Speaker Change: And it's a function of the ramp up to how they get home.

Speaker Change: Not much would be the short answer.

Speaker Change: Got it and then just a follow up question.

Aengus Kelly: Well, look, Hillary, I mean, we've been, as you can see, we kept buying shares throughout the year. We've deployed 700 million for when a lot of the year was above book, and we have 600 million in our authorization.

Aengus Kelly: So when we're selling assets at very big premiums to book equity, you can see this quarter was another quarter where we sold at 170% of book. But again, look, what we always look at is what's the best use of our capital. Is it debt pay down? Is it buybacks? Is it M&A? Is it buying aircraft for organic growth or engines, for that matter? And we've done a lot of the latter in the last few months between the big engine transaction and then the aircraft transaction. So we always just try and pick what will generate the best long-term risk-adjusted return for our shareholders. I got it.

Hillary Cacanando: Got it. Thank you. And I'm looking forward to seeing you at our conference in September.

Christine Lewack: We'll go next to Christine Lewack with Morgan Stanley.

Unknown Speaker: I mean, it's big, but there is not unlimited potential for growth in that business. Because if you think about it, there are about 22, 23,000 large commercial aircraft in the world. I'm excluding turboprops and small aircraft. There you've got about, say, 46,000 engines in service; the spareing ratio, depending on the engine type, is, you know, 12 to 15%. So that's your spares portfolio. If you say there's 46,000 in service, you know, take 13, 14%. That's 5,000 engines and change, maybe five and a half thousand engines. That's the sparing size.

Unknown Speaker: As the world's fleet of aircraft grows, you know, then you will have the spares requirement grow by 12 to 15%. So that's how it works. So there's not an unlimited supply, it's different to aircraft because I said, it's only spares.

Speaker Change: When it comes to the economics of the engine business model slightly different to the the aircraft business model because in engine really holds its value.

Unknown Speaker: When it comes to the economics of the engine business model, slightly different to the aircraft business model, because an engine really holds its value over the long term as it's overhauled, and the market value of the engine doesn't tend to depreciate a tremendous amount if you've got the right engine. So and the engines, it's fair to say, because of the slower depreciation of the asset, your value in the engine business is created over time.

Speaker Change: Over the long term message overhauled and the market value of the engine doesn't tend to depreciate a tremendous amount if you've got the right engine. So.

Speaker Change: And the engines, it's fair to say because of the slower depreciation of the asset value in the engine business has created over time, whereas on the aircraft side you make a lot of your money on the first lease to be fair and then at the backend you're managing engines. So I would say that there's a timing difference in how the two businesses work.

Unknown Speaker: Whereas on the aircraft side, you make a lot of your money on the first lease, to be fair, and then at the back end, you're managing engines. So I would say that there's a timing difference between how the two businesses work.

Speaker Change: Okay.

Speaker Change: Great that's very helpful and as a follow up I mean, we're starting to see other business models.

Speaker Change: Capitalized or try to monetize this engine shortage with you know in engine leasing company doing more MRO type work.

Unknown Speaker: I don't think we're going to get into overhauling engines forever, but things like engine swapping, we do that all the time. We've been doing that for 20 years, and that's nothing new.

Unknown Speaker: And you do it to manage your cost base. I'm sure if you looked at our EBITDA margin as a company, it would be huge. I would say when it comes to the module swaps, of course, you're doing all those things. For example, our biggest department internally is maintenance.

Speaker Change: Work that needs to be done on the engine.

Speaker Change: We'll go through that.

Speaker Change: And then when the engine is in the shop will be on site to make sure that the work that we want done is being done and there is not excess work being done on the on the engine so and we'd have experts in every engine type.

Speaker Change: Many wouldn't have they'd have generalists, you really have to know inside out high pressure low pressure turbines of every engine type in your portfolio in order to manage.

Speaker Change: Your shop visit cost, but so yes, I would say that the we do all of those things plus EBITDA margin.

Unknown Speaker: I'm like, it's around 90% 90%.

Speaker Change: It's around 90%, 90%, okay, it's a bit unfair to look at an EBITDA margin for a financing business because interest is obviously, a big component, but yes, it would be around 90%.

Speaker Change: Sorry, if I could do a follow up on that 90%. If you were just to capture your engine exchange business is that also at 90% EBITDA margin I just wanted to make exchange just part of everyday and we started to see engine exchange. It's just part and parcel of what we do every single day in the business.

Unknown Speaker: It's reflected there. There's nothing new about that. To be fair, everybody does it. I mean, we sell engines to a lot of people who do exchange them. Great. Well, thank you very much, and great to hear from you guys.

Speaker Change: It's reflected there.

Anthony Burney: We'll take our next question from Anthony Burney with Susquehanna Financial Group.

Anthony Burney: Good afternoon, this is Anthony Owen on behalf of Chris. Thanks for taking our questions. The adjustments for maintenance rights were a little elevated this quarter relative to recent historicals. I know you mentioned that was due to the timing of loose returns. Should we just treat this as a one-time bump? Or do you expect elevated maintenance revenue going forward?

Peter L. Juhas: Well, there are two elements of that that I would mention here. So we had higher maintenance revenue this quarter. And I do think that, you know, we also had that in the first quarter of the year. And really, that has been due to more events happening. You know, these are the return of some aircraft from their existing leases and then going on new leases.

Peter L. Juhas: So some of those were pretty chunky during the quarter. And so if I look at it overall, I'd say that probably boosted our first half earnings by, you know, call it 80 million or so, maybe, maybe 100 million relative, and some of that is really timing. So I think that it's been higher in the first half of the year. Some of that was just brought on by the weather, you know; it just happened to be lumpy there.

Peter L. Juhas: The normal run rate, which we would normally think of like maintenance revenues, less leasing expenses on an adjusted basis of around 30 million to 40 million a quarter. So it's certainly been high in the last couple of quarters. But again, that's just timing. And then, in terms of maintenance rights amortization, that has also been high this quarter. And again, that's really driven by events. When the events happen, that amortization is high. So you generally see those things happening in tandem.

Speaker Change: <unk>, that's just timing and then in terms of the maintenance rights amortization that has also been high this quarter and again, that's really driven by events when the events happen that amortization is high. So you generally see those things happening in tandem.

Anthony Burney: Got it. That's very helpful. Thank you.

Speaker Change: Got it that's very helpful. Thank you.

Speaker Change: One more on the just the leasing expenses were down almost 20% year.

Unknown Speaker: One more on the just the leasing expenses were down almost 20% year-over-year, and 1Q is down a solid 10% year-over-year as well. Are you doing anything differently to control costs on that line? And should we expect kind of year-over-year declines in the second half? Well, we are, you know, that is.

Speaker Change: And <unk> got a solid 10% year over year as well are you doing anything differently to control cost on that line and should we expect kind of year over year declines in the second half as well.

Unknown Speaker: Well, we are, you know, that is one of the areas that we've highlighted before, in terms of when we are able to use some of our existing spare engines to avoid engine swaps, right? So you put an end to it, or you put an engine in, swap it in, and avoid engine overhauls and other costs. That's the way to drive down those leasing expenses. And I'd say that, from a strategic standpoint, is one of the things that is a key benefit of having the engine leasing business, because obviously, we've got a much bigger pool of engines that you can utilize for that purpose.

Speaker Change: Well, we are that is one of the areas that we've highlighted before in terms of when we are able to use some of our existing spare engines to avoid engine swamps rates. So you put it in or put an engine in swap it in and avoid engine overhauls and other costs, that's the way to drive down those leasing expense.

Speaker Change: And I'd say that is one of the things that.

Unknown Executive: We'll take our next question from Mariana Perez Mora with Bank of America.

Unknown Speaker: Good morning, everyone. So I'm going to tap again on the U.S. airlines' weakness and them trying to actually retire at this unprofitable capacity, but also recovery to global traffic. Can you give us some color around like how these rates look today versus a year ago for like the different assets, like engines and particularly the current generation aircraft, where you have like an average of, like, 15 years old. However, what type of rates are you seeing there versus a year ago?

Unknown Speaker: You're certainly continuing to see increases there, and we laid a lot of that out in the charts on our Capital Markets Day, where you could see the material increases that we've seen over the last few years across the board. And that continues to be the case. The real driver of that for those 15 to 20 year old assets is, in my mind, why are airlines willing to pay so much? Because they have, it's cheaper, that way, as I've said before, till the end of the decade because it will take time for the ramp-up to occur on the new technology aspect.

Unknown Speaker: And if we were to see this, I'd say slow down on how strong the demand is, and it's mostly about replacement going forward. How do you manage what you sell versus what you actually extend the lease on for these older aircraft, particularly older engines?

Unknown Speaker: Do we, is it an asset that we would like to be out of? And then, you know, we'd be more inclined to sell the asset. But I think you can see through our behavior over the last, must be now nearly 18 years, 20 years as a public company, that the average age of the assets we sell has always been on an average basis around the 15 year mark, which is what we sell. So because, you know, we do feel that at some point, even though the values are very strong as we get to the end of the decade, those values are likely to decline.

Unknown Speaker: And again, that's why we've shown you our strategy in several Investor Day presentations, the sunset strategy of how the portfolio is created. You know, we often say to you that people should never look at the average age of a portfolio of a leasing company. It's utterly meaningless.

Unknown Speaker: The key is to look at the average age of the components of the business. If you have a young fleet of 777s or 737s, you will lose money because those planes will not be flying in 2035 or 2038. And if you bought them in 2015, that's what you need to happen. And at AerCap, you can see we've had tremendous discipline in that regard over the last 12 years, never ordering those types of aircraft.

Unknown Executive: Thank you. And last one from me.

Aengus Kelly: If you were to see more opportunities like the one with Spirit Airlines, where you can actually get orders of new aircraft in the near term, I imagine as you have, how do you manage your strong balance sheet and how much are you willing to leverage, like actually taking the opportunity of this environment if it were to happen? Well, I think, look, we have plenty of capacity on our balance sheet to take advantage of any opportunity that comes our way. I'm not concerned about that.

Speaker Change: His work to happen well I think look we have plenty of capacity on our balance sheet to take advantage of any opportunities that comes in I'm not concerned about fast it's just having the discipline to pick the right opportunities. We're looking at many different asset acquisition opportunities on a daily basis, but we hit very few of them are the ones. We've managed to do are ones, where we've worked on a bilateral.

Aengus Kelly: It's just having the discipline to pick the right opportunities. We look at many different asset acquisition opportunities on a daily basis, but we hit very few of them. The ones we've managed to do are ones where we've worked on a bilateral basis with a partner, a customer who's been a partner for a long time, and try to do something that works for them and for AerCap.

Speaker Change: Basis with a partner.

Speaker Change: Customer who has been a partner for a long time and try to do something that works for for them on for Aercap.

Speaker Change: This concludes the question answer session I would like to hand, the call back over to Angus Kelly for any final remarks.

Aengus Kelly: Well, look, thank you all for joining us today on the call. We look forward to giving an update in three months' time. Thank you.

Angus Kelly: Well. Thank you all for joining us today on the call and we look forward to giving an update in three months time.

Angus Kelly: <unk>.

Operator: This does conclude today's conference call. You may now disconnect.

Speaker Change: This does conclude today's conference call you may now disconnect.

Angus Kelly: [music].