Q4 2024 AerCap Holdings NV Earnings Call
Speaker Change: [music].
Please standby.
Operator: Please stand by. Good day and welcome to AerCap's fourth quarter 2024 financial results. Today's conference is being recorded and a transcript will be available following the call on the company's website.
Speaker Change: Good day, and welcome to Aercap fourth quarter 'twenty 'twenty four financial results. Today's conference is being recorded and a transcript will be available following the call on the Companys web site at this time I would like to turn the conference over to Joseph Mcginley head of Investor Relations. Please go ahead Sir.
Joseph Mcginley: At this time, I would like to turn the conference over to Joseph McGinley, Head of Investor Relations. Please go ahead. Thank you, Operator, and hello, everyone.
Joseph Mcginley: Thank you operator, and Hello, everyone.
Joseph Mcginley: Welcome to our fourth quarter 2024 conference call.
Joseph Mcginley: Welcome to our fourth quarter 2024 conference call.
Joseph Mcginley: With me today is our Chief Executive Officer Aengus Kelly and our Chief Financial Officer Pete Juhas. Before we begin today's call, I would like to remind you that some statements made during this conference call, which are not historical facts, may be forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements. AerCap undertakes no obligation, other than that imposed by law, to publicly update or revise any forward-looking statements to reflect future events, information, or circumstances that arise after this.
Joseph Mcginley: With me today is our Chief Executive Officer Angus Kelly.
Joseph Mcginley: <unk> Financial Officer, Pete you us.
Joseph Mcginley: Before we begin today's call I would like to remind you that some statements made during this conference call, which are not historical facts may be forward looking statements.
Joseph Mcginley: These statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements.
Joseph Mcginley: There are a couple of undertakes no obligation other than that imposed by law to publicly update or revise any forward looking statements to reflect future events information or circumstances that arise after this call.
Joseph Mcginley: Further information concerning issues that could materially affect performance can be found in aircrafts earnings release dated February 26 2025.
Joseph Mcginley: Further information concerning issues that could materially affect performance can be found in AerCap's earnings release dated February 26th, 2025. A copy of the earnings release and conference call presentation are available on our website at www.aercap.com. This call is open to the public and is being webcast simultaneously at aircap.com and will be archived for replay. We will shortly run through our earnings presentation and will allow time at the end for Q&A.
Joseph Mcginley: A copy of the earnings release and conference call presentation are available on our website at Aercap com.
Joseph Mcginley: This call is open to the public and is being webcast simultaneously at Aercap com and will be archived for replay.
Speaker Change: We will shortly run through our earnings presentation I'm a lot of time at the end for Q&A How's it.
Joseph Mcginley: As a reminder, I would ask that analysts limit themselves to one question and one follower.
Speaker Change: A reminder, I would ask that analysts limit themselves to one question and one follow up.
Aengus Kelly: I will now turn the call over to Aengus Kelly. Thank you for joining us for our fourth quarter 2024 earnings. We are pleased to report another strong year of earnings for AerCap, generating gap net income of $2.1 billion and earnings per share of $10.79. adjusted net income of $2.3 billion and adjusted EPS $12.00 in women's We expect to see a continuation of the trends that we saw last year in 2025. This includes the supportive supply-demand dynamic, continued accretive capital deployment opportunities, and robust demand for RF. leading to an adjusted 2025 EPS range of $8.50 to $9.50.
Angus Kelly: I'll now turn the call over to Angus Kelly.
Angus Kelly: Thank you for joining us for our fourth quarter 2024 earnings call.
Angus Kelly: We are pleased to report another strong year of earnings per aircraft generating GAAP net income of $2 1 billion and earnings per share of $10.79.
Angus Kelly: Adjusted net income of $2 3 billion and adjusted EPS.
Angus Kelly: $12.01.
We expect to see a continuation of the trends that'd be sold last year in 2025.
Angus Kelly: This includes the supportive supply demand dynamic.
Angus Kelly: <unk> accretive capital deployment opportunities and robust demand for our office lease.
Angus Kelly: Leading to an adjusted 2025 EPS range of $8 50 to $9 50 sets not including the contribution of gains on sale of assets, which historically have been material.
Aengus Kelly: not including the contribution of gains and sale of assets which historically have been material. As we have discussed in prior quarters, The positive environment for aircraft leasing continues, and we are seeing this reflected in the strong operational performance of the business. Last year, we generated $5.4 billion of operating which of course excludes $651 million of gains on sale. During the fourth quarter, we generated a gain on sale margin of 43% or 260% of the associated book equity. We executed 812 transactions across our various businesses, equivalent to more than two per day. This level of activity gives AerCap unrivaled insights into the global aviation market.
Angus Kelly: As we have discussed in prior quarters, the positive environment for aircraft leasing continues and we're seeing this reflected in strong operational performance of the business.
Angus Kelly: Last year, we generated $5 $4 billion of operating cash flow.
Angus Kelly: Which of course excludes $651 million of gains on sale.
Angus Kelly: During the fourth quarter, we generated a gain on sale margin of 43% or 260% of the associated book equity.
Angus Kelly: We executed 812 transactions across our various businesses equivalent to more than two per day.
Angus Kelly: This level of activity gives aercap unrivaled insights into the global aviation markets. This in turn allows for a better understanding of our customers' needs and how to support that growth.
Aengus Kelly: This, in turn, allows for a better understanding of our customers' needs and how to support their growth. Looking ahead, we have $45 billion of contracted future lease cash flows in place on our existing over 40% of which will be received in the next three years. This gives us tremendous visibility into our future cash allowing us to allocate capital effectively and thought. creating continued value for our shareholders.
Angus Kelly: Looking ahead, we are $45 billion of.
Angus Kelly: <unk> future lease cash flows in place on our existing fleet.
Angus Kelly: Over 40% of which will be received in the next three years.
Angus Kelly: This gives us tremendous visibility into our future cash flows.
Angus Kelly: Allowing us to allocate capital effectively and thoughtfully.
Angus Kelly: Continued value for our shareholders.
Angus Kelly: With this in mind, we are pleased to announce a new $1 billion share repurchase program.
Aengus Kelly: With this in mind, we are pleased to announce a new $1 billion share repurchase program. Our largest single authorization to date. This takes the total amount of buyback spent and authorized in the last two years alone to $5 billion. further underlining the significant value we see in AerCap stock today and our confidence in the outlook for 2025 and beyond.
Angus Kelly: Our largest single authorization today.
Angus Kelly: This takes the total amount of buybacks spent an authorized in the last two years alone to $5 billion.
Angus Kelly: Further underlining the significant body, we see in Aercap stopped today and our confidence in the outlook for 2025 and beyond.
Angus Kelly: Turning to the markets. It is clear that the industry continues to plan for a lower for longer supply environments.
Aengus Kelly: Turning to the market, it is clear that the industry continues to plan for a lower-for-longer supply environment. evidenced by continued increases in lease rates, lease extension demand, and strong gain on sale. 2024 was the third year in a row of increased extension activity. reflective of this ongoing demand for aircraft. This is also driving strong sales activity. resulting in a $260 million gain on sale in Q4. are highest in a single quarter, and also a record four-year gain on sale of $651 million.
Angus Kelly: Evidenced by continued increases in lease rates lease extension demand and strong gain on sale.
Angus Kelly: 2024.
Angus Kelly: What was the third year in a row of increased extension activity.
Angus Kelly: Reflective of this ongoing demand for aircraft.
Angus Kelly: This is also driving strong sales activity.
Angus Kelly: Resulting in a $260 million gain on sale in Q4.
Angus Kelly: Our highest single quarter and also a record full year gain on sale of $651 million.
The largest global aircraft leasing conference was hosted in Dublin last month.
Aengus Kelly: The largest global aircraft leasing conference was hosted in Dublin last month. The EU is attracting thousands of stakeholders to the event. And it was clear from the many conversations we had with airlines, aircraft traders, and financiers, that demand for aviation assets continues to grow. As you can see from the slide, we are selling a wide mix of assets. to a wide mix of buyers, each with a different focus on asset type, age, or counterpart. In the first category, airlines tend to focus on the older part of the curve. Typically, buying out aircraft at the end of a lease to secure certainty of capacity.
Angus Kelly: Thousands of stakeholders to do that and it was clear from the many conversations we had with airlines aircraft traders and financier is the demand for aviation assets continues to grow.
Angus Kelly: As you can see from the slide we are selling a wide mix of assets to a wide mix of buyers each with a different focus on asset type age or counterparty.
Angus Kelly: In the first category Airlines tend to focus on the older part of the curve.
Angus Kelly: Typically buying aircrafts at the end of the lease to secure certainty of capacity.
Angus Kelly: Given their knowledge of the aircraft and its maintenance condition. They are well placed to understand the value of the aircraft.
Aengus Kelly: Given their knowledge of the aircraft and its maintenance condition, they are well placed to understand the value of the aircraft. For us to generate strong gains in sale with this buyer base reflects well on two things. Firstly, it shows the critical benefit of having in-house engine and technical teams who control the life cycle spend and condition of the aircraft engines, translating into higher residual value. Secondly, it points to the premium our assets command in the markets over our carrying value.
Angus Kelly: For us to generate strong gains in Seo with this buyer base reflects well on two things.
Angus Kelly: Firstly.
Angus Kelly: It shows the critical benefits of having in house engine and technical teams, who control the lifecycle spend and condition of the aircraft engines translating into higher residual values.
Angus Kelly: Secondly, it points to the premium or assets come on in the markets over our carrying values.
Aengus Kelly: In light of the continued OEM delays, an engine reliability challenge This is a theme we expect to continue into 2025 and beyond.
Angus Kelly: In light of the continued OEM delays in engine reliability challenges.
Angus Kelly: This is a theme we expect to continue into 2025 and beyond.
Angus Kelly: Financial investors on the other hand.
Aengus Kelly: Financial investors, on the other hand... tend to buy young to mid-life aircraft and engines. ideally with long lease terms remaining, where predictability of income is highly valued.
Angus Kelly: Tend to buy young midlife aircraft and engines.
Angus Kelly: Ideally with long lease terms remaining.
Angus Kelly: Our our predictability of income is highly valuable.
Aengus Kelly: These buyers were more prevalent before COVID, but we see early signs of strength returning here again based on some of the recent conversations we are having in this The other category contains aircraft sold for part-out finance leases and sales to other leases. the combination of which run the full gamut of age and aircraft types. In summary, this shows that AerCap's gains on sale are not limited to a select few assets or credits, but broad-based across our aircraft, engines, and helicopter portfolios. Games on Sale has been a feature of our business for almost 20 years as a public company.
Angus Kelly: These buyers were more prevalent before COVID-19, but we see early signs of strength returning here again based on some of the leasing conversations we are having in this space.
Angus Kelly: The other category contains aircrafts sold for part out finance leases and sales to other leasing companies.
The combination of which run the full gamut of age and aircraft types.
Angus Kelly: In summary.
Angus Kelly: This shows that Aercap gains on sale are not limited to a select few assets all credits, but broad based.
Angus Kelly: Across our aircraft engines and helicopter portfolios.
Angus Kelly: Gains on sale have been a feature of our business for almost 20 years as a public company.
Aengus Kelly: and reflect the deep embedded value created by the AerCap platform every single day.
Angus Kelly: Reflect the deep embedded value created by the Aercap platform every single day.
Angus Kelly: Turning to capital allocation.
Aengus Kelly: Turning to capital allocation. We mentioned earlier that we have excellent visibility of future cash flow. which is key to our capital deployment strategy. We will continue to utilize these strong cash flows to return capital to you, our shareholders. while also leaning into today's very strong sales environment. In doing this, we will continue to sell our lower-priority assets for strong gains on sale and reinvest the proceeds into organic growth and share repurchase. resulting in a more efficient, more profitable company. Over the last two years alone, we have invested over $12 billion into new assets. returned over four billion dollars to shareholders and de-leveraged.
Angus Kelly: We mentioned earlier that we have excellent visibility of future cash flows.
Angus Kelly: Which is key to our capital deployment strategy.
Angus Kelly: We will continue to utilize the strong cash flows to return capital to you our shareholders.
Angus Kelly: While also leaning into today's very strong sales environment.
Angus Kelly: In doing this we will continue to sell our lower priority assets for strong gains on sale and reinvest the proceeds into organic growth and share repurchases, resulting in a more efficient more profitable company.
Angus Kelly: Over the last two years alone we have invested over $12 billion into new assets.
Angus Kelly: Turned over $4 billion to shareholders and de Levered.
Angus Kelly: This shareholder friendly approach to capital return.
Aengus Kelly: This shareholder-friendly approach to capital return. has not come at the cost of financial flexibility. Fact, quite the opposite. as our leverage ratio remains well below our stated targets of 2.7 times to 1. And our credit ratings stand at the highest ever level at BBB+.
Angus Kelly: Not come at the cost of financial flexibility.
Angus Kelly: In fact quite the opposite.
Angus Kelly: As our leverage ratio remains well below our stated target of two seven times to one.
Angus Kelly: And our credit ratings stand at the highest ever level of Triple B plus.
Angus Kelly: I am sure it's not unique to return significant capital to shareholders, but it is extremely rare that it can be achieved at this scale, while delevering the balance sheet and increasing your investment grade credit ratings.
Aengus Kelly: I am sure it's not unique to return significant capital to shareholders. But it is extremely rare that it can be achieved at this scale while de-levering the balance sheets and increasing your investment grade credit.
Angus Kelly: What should also stand out to investors is.
Aengus Kelly: What should also stand out to investors? is the stability and consistency of this approach over many years.
Angus Kelly: Is the stability and consistency of this approach over many years.
Aengus Kelly: On the left-hand side of the slide, you'll see our organic investment in the... This organic growth comes from tree sources. One direct aircraft purchases from the OEMs made in more favorable environments. 2, Opportunistic Sale Leaseback. with new and existing airline customers that need AerCap's help. and three, our recently announced engine deal.
On the left hand side of the slide you'll see our organic investments in the business is.
Angus Kelly: This organic growth comes from three sources.
One direct aircraft purchases from the Oems made in more favorable environments to opportunistic sale leasebacks.
Angus Kelly: With new and existing airline customers that needs Aercap has helped.
Angus Kelly: And three our recently announced engine deals.
Angus Kelly: On shareholder returns as we mentioned earlier today's record $1 billion share repurchase authorization.
Aengus Kelly: On shareholder returns, as we mentioned earlier, today's record $1 billion share repurchase authorization makes total announcements to $5 billion in the last two years. In that time, we have deployed $4 billion, and reduced the share count by 25%, with more to come from this latest authorization. These returns come from a position of strength built on industry-leading cash flows, knowledge, and profitability. making them both attractive and sustainable.
Angus Kelly: <unk> told to announcements to $5 billion in the last two years.
Angus Kelly: In that time, we have deployed $4 billion and reduce the share count by 25% with more to come from this latest authorization.
Angus Kelly: These returns come from a position of strength built on industry, leading cash flows knowledge and profitability.
Angus Kelly: Making them, both attractive and sustainable.
So as we look back on 2024. This was another great year for Aercap.
Aengus Kelly: So as we look back on 2024, this was another great year for AerCap. with broad-based demand for our air. We completed 150 asset purchases. executed just under 500 lease agreements and generated $5.4 billion of operating cash. In addition, we repurchased 16.8 million shares for $1.5 billion, reduced our leverage to 2.35 times, and were upgraded to BBB Plus by both S&P and Moody's.
Angus Kelly: With broad based demand for our aircraft. We completed 150 asset purchases executed just under 500 lease agreements and generated $5 4 billion of operating cash flow.
Angus Kelly: In addition, we repurchased $16 8 million shares for $1 5 billion.
Angus Kelly: We reduced our leverage to 2.35 times.
Angus Kelly: Upgraded to Triple B, plus by both S&P and Moody's.
Aengus Kelly: Looking forward to 2025, our confidence in the company's outlook remains strong and we look forward to demonstrating this to you in the quarters and years to come.
Angus Kelly: Looking forward to 2025, our confidence in the company's outlook remains strong and we look forward to demonstrating this to you in the quarters and years to come.
Aengus Kelly: With that, I'll hand the call over to Peace to review the financials and the outlook for 2025. Thank you.
Angus Kelly: With that I'll hand, the call over to Pete to review the financials and the outlook for 2025. Thank you.
Pete: Thanks, Gus good morning, everyone. Our GAAP net income for the fourth quarter with $671 million or $3 56 per share.
Pete Juhas: Thanks Gus.
Pete Juhas: Good morning everyone. Our gap net income for the fourth quarter was $671 million or $3.56 per share. The impact of purchased accounting adjustments was $112 million for the quarter, or $0.60. That includes lease premium amortization of $30 million, which reduced basic lease rents, maintenance rights amortization of $22 million, which reduced maintenance revenue, and maintenance rights amortization of $60 million, which increased leasing expenses. During the fourth quarter, we had $168 million of recoveries related to the Ukraine conflict, or $0.89 a share. This represents settlements with certain of the insurers on our C&P insurance policy. The overall tax effect of the purchase accounting adjustments and the net recoveries related to the Ukraine conflict was $8 million, or 4 cents a share.
Pete: The impact of purchase accounting adjustments was $112 million for the quarter or <unk> 60, a share that.
Pete: That includes lease premium amortization of $30 million, which reduced basic lease rents maintenance rights amortization, and $22 million, which reduced maintenance revenue and maintenance rates amortization of $60 million, which increase leasing expenses.
Pete: During the fourth quarter, we had $168 million of recoveries related to the Ukraine conflict or <unk> 89, a share.
Pete: This represents settlements with certain of the insurers on our CMP insurance policy.
Pete: The overall tax effect of the purchase accounting adjustments and the net recoveries related to the Ukraine conflict with $8 million or four cents a share.
Pete: So taking all of that into account our adjusted net income for the fourth quarter with $624 million or $3 31 per share.
Pete Juhas: So taking all of that into account, our adjusted net income for the fourth quarter was $624 million, or $3.31 per share.
Pete: I'll briefly go through the main drivers that affected our results for the fourth quarter.
Pete Juhas: I'll briefly go through the main drivers that affected our results for the fourth quarter. Basic lease rents were $1,619,000,000, an increase from $1,605,000,000 in the third quarter. Basic lease rents reflect a $30 million of lease premium amortization expense, which reduces basic lease. Lease premium assets are amortized over the remaining term of the lease as a reduction to basic lease. Our maintenance revenues for the fourth quarter were $106 million. That reflects $22 million in maintenance rights assets that were amortized in maintenance revenue during the quarter. In other words, maintenance revenue would have been $22 million higher, or $128 million, without this amortization.
Pete: Basic lease rents were $1.619 billion, an increase from $1 $605 million in the third quarter.
Pete: Basically rents reflected $30 million of lease premium amortization expense, which reduces basic lease rents. These premium assets are amortized over the remaining term of the lease as a reduction to basic lease rents.
Pete: Our maintenance revenues for the fourth quarter were $106 million that reflects $22 million the maintenance rights assets that were amortized to maintenance revenue during the quarter in other words maintenance revenue would've been $22 million higher or $128 million without this amortization.
Pete: Net gain on sale of assets was a record $260 million for the fourth quarter. We sold 40 of our owned assets during the quarter for total sales revenue of $869 million.
Pete Juhas: Net gain on sale of assets was a record $260 million for the fourth quarter. We sold 40 of our owned assets during the quarter for total sales revenue of $869 million. That resulted in an unlevered gain on sale margin of 43% for the quarter, which is equivalent to a multiple of 2.6 times book value. And that's one of the highest quarterly margins we've ever had.
Pete: That resulted in Unlevered gain on sale margin of 43% for the quarter, which is equivalent to a multiple of two six times book value and Thats one of the highest quarterly margins we've ever had.
Pete: As of December 31, we had $466 million worth of assets held for sale.
Pete Juhas: As of December 31st, we had $466 million worth of assets held for sale. Other income was $88 million for the quarter, which consisted primarily of interest. Interest expense was $505 million for the fourth. Leasing expenses were $214 million for the quarter, and that included $60 million of maintenance rights amortization. Income tax expense was $93 million, which represents an effective tax rate of 12.8% for the fourth quarter. For the full year, our effective tax rate was 14.3%, which includes around $40 million of valuation allowance releases and tax recoveries during the year.
Pete: Other income was $88 million for the quarter, which consisted primarily of interest income.
Pete: Interest expense was $505 million for the fourth quarter.
Pete: Leasing expenses were $214 million for the quarter and that includes $60 million of maintenance rates amortization expense.
Pete: Income tax expense was $93 million, which represents an effective tax rate of 12, 8% for the fourth quarter.
Pete: For the full year, our effective tax rate was 14, 3%, which includes around $40 million of valuation allowance releases and tax recoveries during the year.
Pete Juhas: I'd also note that 2024 was the first year we were subject to the global minimum tax under Pillar 2, which increased our tax rate by 1.9% from what it otherwise would have been.
Pete: I'd also note. The 2024 was the first year, we are subject to the global minimum tax under pillar, two which increased our tax rate by one 9% from what it otherwise would have been.
Pete: On the next slide you can see a walk of our full year earnings and EPS and as you can see it was a very strong year for aercap.
Pete Juhas: On the next slide, you can see a walk of our full year earnings in EPS. And as you can see, it was a very strong year for AerCap. We had approximately $2.1 billion of gap net income for the year, which included $195 million of net recoveries related to the Ukraine conflict. That resulted in $10.79 of GAAP EPS for the year. After adjusting for the insurance recoveries, as well as for purchase accounting items of $475 million, our adjusted net income was approximately $2.3 billion for the year. And that equates to adjusted EPS of $12.01 per share, which is a record for AerCap.
Pete: We had approximately $2 $1 billion of GAAP net income for the year, which included $195 million of net recoveries related to the Ukraine conflict.
Pete: That resulted in $10 79.
Pete: GAAP EPS for the year.
After adjusting for the insurance recoveries as well as for purchase accounting items of $475 million. Our adjusted net income was approximately $2 3 billion for the year and that equates to adjusted EPS of $12 <unk> per share, which is a record for aircraft.
Pete: As a result for the full year, our GAAP return on equity was 12% and our adjusted ROE was 14%.
Pete Juhas: As a result, for the full year, our gap return on equity was 12%, and our adjusted ROE was 14%.
Pete: Our operating cash flow was a record $5 4 billion for the year that doesn't include any proceeds from Russia and insurance settlements because those go through investing cash flow and it also doesn't include any gains on sale because there's also go through investing cash flow.
Pete Juhas: Our operating cash flow is a record $5.4 billion for the year. That doesn't include any proceeds from Russian insurance settlements because those go through investing cash flow, and it also doesn't include any gains in sale because those also go through investing.
Pete: We continue to maintain a strong liquidity position as of December 31, our total sources of liquidity or approximately $21 billion.
Pete Juhas: We continue to maintain a strong liquidity position. As of December 31st, our total sources of liquidity were approximately $21 billion. That compares to uses of around $11 billion, resulting in a next 12-month sources-to-uses coverage ratio of around two times. And that reflects excess cash coverage of around $10 billion.
Pete: That compares to uses of around $11 billion, resulting in the next 12 months sources to uses coverage ratio of around two times.
Pete: And that reflects excess cash coverage of around $10 billion.
Pete Juhas: Our leverage ratio at the end of the quarter was 2.35 to 1, which is slightly lower than last quarter. Our operating cash flow is approximately $1.3 billion for the fourth quarter. Our Secure Debts to Total Assets ratio was 12% at the end of December, which is the same as last quarter, and our average cost of debt was $4.1%.
Pete: Our leverage ratio at the end of the quarter was $2 35 to one which is slightly lower than last quarter.
Pete: Our operating cash flow was approximately $1 $3 billion for the fourth quarter.
Pete: Our secured debt to total assets ratio was 12% at the end of December which is the same as last quarter and our average cost of debt was four 1%.
Pete Juhas: During the fourth quarter, we bought back 3.1 million shares at an average price of $94.74 for a total of $297 million. We also paid our third quarterly dividend of $0.25 a share. Our book value per share was $94.57 as of December 31st, which is an increase of 13% over the last 12 months. And that, of course, doesn't include the $0.75 a share in dividends that we paid out during the year.
Pete: During the fourth quarter, we bought back $3 1 million shares at an average price of $94.74 for a total of $297 million.
Pete: We also paid our third quarterly dividend of <unk> 25, a share.
Pete: Our book value per share was <unk> $94 57.
Pete: As of December 31, which is an increase of 13% over the last 12 months and that of course doesn't include the 75 cents a share in dividends that we paid out during the year.
Pete: So that covers our 2024 performance now I will turn to our guidance for 2025.
Pete Juhas: So that covers our 2024.
Pete Juhas: Now, I'll turn to our guidance for 2025. For 2025, we're projecting adjusted EPS of $8.50 to $9.50, not including any gains on sale. On the next slide, you can see we've provided a walk of our EPS from 2024 actuals to what we expect for 2025 to call out some of the major items. In 2024, we had gains on sale of $651 million or $2.85 per share after tax. So excluding games on sale, our adjusted EPS for 2024 was $9.16. In 2024, we had a high level of other income, which was driven in part by high cash balances, as well as some one time So in 2025, we're expecting other income to be lower by about 35 cents a share.
Pete: 2025, we're projecting adjusted EPS of $8 50 to $9 50 not.
Pete: Not including any gains on sale.
Pete: On the next slide you can see we provided a walk of our EPS from 2024 actuals to what we expect for 2025 to call out some of the major items.
Pete: In 2024, we had gains on sale of $651 million were $2 85 per share after tax.
Pete: So excluding gains on sale, our adjusted EPS for 2024 was $9 16.
Pete: In 2024, we had a high level of other income, which was driven in part by high cash balances as well as some one time items. So in 2025 or expecting other income to be lower by about 35 cents a share.
Pete: As I mentioned, we recognized around $40 million of discreet tax benefits in 2024, which reduced our effective tax rate for the year without these benefits our effective tax rate would have been around 16%.
Pete Juhas: As I mentioned, we recognized around $40 million of discrete tax benefits in 2024, which reduced our effective tax rate for the year. Without these benefits, our effective tax rate would have been around 16%. We aren't projecting any tax benefits in 2025. So that's a headwind of around 20 cents a share in 2025 compared to 24. Those are the major items to call out. The last column includes everything else, including leasing, maintenance, share repurchases, et cetera. And we expect the net effect of all of these will be about 40 cents positive in 2025. So that takes us to the EPS range of 850 to 950 for 2025.
Pete: We arent projecting any tax benefits in 2025, so that's a headwind of around 20 cents a share in 2025 compared to 24.
Pete: Those are the major items to call out the loss column includes everything else, including leasing maintenance share repurchases etcetera, and we expect the net effect of all of these will be about 40 <unk> positive in 2025, so that takes us to the EPS range of $850 to $9 50 for 2025 again not incur.
Pete Juhas: Again, not including any gains on sale.
Pete: Any gains on sale.
Pete: On the next slide you can see a breakdown of our projected income statement for 2025, showing the major line items.
Pete Juhas: On the next slide, you can see a breakdown of our projected income statement for 2025 showing the major line items. For the full year 25, we expect to have lease revenue of around $6.6 billion, maintenance revenues of around $700 million, and other income of around $200 million, for total revenue of about $7.5 billion. We've assumed that we'll have cash CapEx of around $5.6 billion for the year and asset sales of around $2 billion. As you know, these figures can vary significantly. CapEx is largely dependent on OEM deliveries, and sales volume depends on the demand for assets and the time it takes to close those transactions.
Pete: For the full year of 25, we expect to have lease revenue of around $6 $6 billion maintenance.
Pete: Revenues of around $700 million and other income around $200 million for total revenue of about seven 5 billion.
Pete: We've assumed that we'll have cash capex of around $5 $6 billion for the year and asset sales of around $2 billion. As you know these figures can vary significantly capex is largely dependent on OEM deliveries and sales volume depends on the demand for assets.
Pete: The time it takes to close those transactions.
Pete Juhas: We're projecting depreciation and amortization of around $2.7 billion for the year and an interest expense of around $2.1 billion. We expect leasing expenses, SG&A, and other expenses to total around $1.3 billion. On tax, we've assumed an effective tax rate of 16.5%, which, as I mentioned, assumes no specific tax releases as we had in 2024. And that also reflects the impact of global minimum tax under Pillar 2, which results in a top-up tax for jurisdictions like Ireland, where the company is paying an effective tax rate of less than 15%. In 2025, we expect to recognize earnings around $100 million to $150 million from our equity investments.
Pete: We're projecting depreciation and amortization of around $2 7 billion for the year, and then interest expense of around $2 $1 billion.
Pete: We expect leasing expenses SG&A and other expenses to total around $1 3 billion for the year.
Pete: On tax we've assumed an effective tax rate of 16, 5%, which as I mentioned assumes no specific tax releases as we had in 2024 and that also reflects the impact of global minimum tax under pillar, two which results in a top up tax for jurisdictions like Ireland, where the company is paying an effective tax rate of that.
Pete: And 15%.
Pete: In 2025, we expect to recognize earnings around $100 million to $150 million from our equity investments and that's primarily our engine leasing joint venture SCS, but it also includes some other smaller equity investments.
Pete Juhas: And that's primarily our engine leasing joint venture SES, but it also includes some other smaller equity investments. Altogether, that gives us a projected gap in net income of around $1.3 billion for the year. After purchase accounting adjustments of around $300 million after tax, we expect to have adjusted net income of around $1.6 billion for the year. That gives us an adjusted EPS range of $8.50 to $9.50 for the year, again not including any gains on sale.
Pete: All together that gives us projected GAAP net income of around $1 3 billion for the year.
Pete: After purchase accounting adjustments around $300 million after tax we expect to have adjusted net income of around $1 6 billion for the year that gives us an adjusted EPS range of $8 50 to $9.50 for the year again, not including any gains on sale.
Pete: Overall aercap continued to perform very strongly during the fourth quarter.
Pete Juhas: Overall, AerCap continued to perform very strongly during the fourth quarter. As we look out into 2025, we continue to see a strong environment for leasing, which you can see from our utilization rate of 99%. It also continues to be a strong environment for aircraft sales, and you can see that reflected in the record level of gain on sale in the fourth quarter and for the full year 2024. We're continuing to generate strong cash flows that in turn result in greater profitability and more financial flexibility, and we're deploying capital towards attractive aircraft and engine opportunities. We also continue to return capital to shareholders.
Pete: As we look out into 2025, we continue to see a strong environment for leasing, which you can see from our utilization rate of 99%.
Pete: It also continues to be a strong environment for aircraft sales and you can see that reflected in the record level of gain on sale in the fourth quarter and for the full year 2024.
Pete: We're continuing to generate strong cash flows that in turn result in greater profitability and more financial flexibility and we are deploying capital towards attractive aircraft and engine opportunities.
Pete: We also continued to return capital to shareholders over the past two years, we bought back over $4 billion worth of stock, which is almost 30% of our market cap at the beginning of that period and today, we've announced a new share repurchase program of $1 billion, which is our largest program ever.
Pete Juhas: Over the past two years, we've bought back over $4 billion worth of stock, which is almost 30% of our market cap at the beginning of that period. And today, we've announced a new share repurchase program of $1 billion, which is our largest program ever. We've also announced today an 8% increase to our quarterly dividend, taking it to $0.27 a share.
Pete: As also announced today, an 8% increase to our quarterly dividend, taking it to <unk> 27 a share.
Pete Juhas: All of these actions reflect our strong confidence in the value of AerCap stock and in the company's outlook for the future.
Pete: All of these actions reflect our strong confidence in the value of Aercap stock and in the company's outlook for the future and with that operator, we can now open up the call for Q&A.
Operator: And with that, Operator, we can now open up the call for Q&A. Thank you.
Pete: Thank you.
Operator: If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow the signal to reach our equipment. Again, press star 1 to ask a question.
Speaker Change: Like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow the signal to reach our equipment again press star one to ask a question.
Hillary Cacanando: We will take our first question from Hillary Cacanando with Deutsche Bank. Hi, thanks for taking my questions. So you talked about different sets of aircraft buyers in the secondary market, which was very interesting. So I just wanted to get your view on what happens to the sales environment when the OEM start producing aircraft on time, which I understand is probably a couple of years from now. But is it your view that the sales environment, you know, will remain robust, but maybe the mix changes to maybe, you know, more financial buyers and part-out buyers buying the aircraft versus, you know, the airlines buying in the secondary market?
Speaker Change: We will take our first question from Hillary <unk> with Deutsche Bank.
Hillary: Hi, Thanks for taking my question. So can you talk about the things that the aircraft buyers.
Hillary: So I just wanted to get your view on what happens.
Speaker Change: Biomet when the OEM Patrick with the aircraft on time I ended up on a couple of years from now, but what you have.
Hillary: That's a thousand biomed.
Speaker Change: Robot, but may be that the mid <unk>.
Hillary: Global.
Hillary: Financial buyers.
Hillary: Okay.
Hillary: Yeah right.
Hillary:
Hillary Cacanando: You know, is that the right way to think about it? Or, you know, do you think the sales environment will get weaker if the supply gets back to normal?
Hillary: Is that the right way to think about it or do you think that that was environmental.
Hillary: Yeah.
Hillary: Well no.
Hillary: Thank you Hillary.
Aengus Kelly: Thank you, Hillary. Well, first of all, I do believe there'll be a shortage of aircraft for years to come, as I have said, on several calls and at our Capital Markets Day. So you're right that eventually, of course, the airframers will start producing more aircraft. I still think that's several years away before they get to their targets. But you know, if you if you go back to our Capital Markets Day, where we highlighted the challenges of the aircraft that are being produced today, that they do not spend as much time in service as their predecessors, because they are more fragile, they spend more time in the shop.
Speaker Change: First of all I do believe there'll be a shortage of aircraft for years to come as I have said on several calls and at our capital markets day. So you're right that eventually of course, the air Framers will start producing more aircraft I still think that's several years away before they get to their targets but.
Speaker Change: If you go back to our capital markets day, where we highlighted the challenges of the aircraft that are being produced today that they do not spend as much time in service as their predecessors, because they are more fragile they spend more time in the shop, Therefore, I expect to see continued.
Hillary Cacanando: Therefore, I expect to see continued strength out of necessity for used aircraft values well into the future. From our perspective, what you will see, though, is that our portfolio is 75% new tech at the moment, and I'm sure over the course of the next few years, that will get closer and closer to 95, 98. Is that okay? Yeah, great. Thank you. That's really helpful.
Speaker Change: Strength out of necessity for used aircraft values well into the future.
Speaker Change:
Speaker Change: From our perspective, what you will see though is that our portfolio is 75% new tech at the moment and I'm sure over the course of the next few years that will get closer and closer to $95 <unk>.
Speaker Change: Is that okay.
Speaker Change: Yeah no. Thank you that's really helpful. And then just a quick question on the subprime.
Hillary Cacanando: And then, and then just a quick question on the FedFed. It seems a little, you know, a bit elevated in the fourth quarter. I was wondering if you could talk about what drove that and, and if this could be like a new run rate going forward or not?
Speaker Change: A little bit elevated in the fourth quarter I was wondering if you could just talk about what drove that.
Speaker Change: Sure.
Speaker Change: Like when you buy make going forward.
Aengus Kelly: Sure, Hillary. So it was slightly higher in the fourth quarter, but it's been running, you know, it's maybe 20 million higher or so than other quarters this year. I think it's a reasonable run right now. I mean, as I've said in the past, leasing expenses moves around depending on the timing of events. So it's hard to read very much into any one quarter, but I think it will probably stay roughly around these levels in 2025. Okay, is it due to, like, aircraft, you know, um, transitioning costs or just some selling them or anything specific, um, that you think?
Speaker Change: Sure Hillary so it was slightly higher in the fourth quarter, but it's been running maybe $20 million higher so than other quarters. This year.
Speaker Change: I think its a reasonable run rate now I mean, as I've said in the past leasing expenses moves around depending on the timing of events. So it's hard to read very much into any one quarter, but I think it will probably stay roughly around these levels in 2025.
Speaker Change: Okay.
Speaker Change: Like aircraft.
Speaker Change: This is Bob.
Speaker Change: Okay.
Speaker Change: Okay.
Hillary Cacanando: It's just a combination of all of the things that go through, really, you know, so it's mainly yeah, it's the timing of all these events that happen. So that's why it will bounce around from quarter to quarter. But overall, yeah, I mean, you you can see, like, I think that I think like 150 a quarter is a reasonable run rate. Got it. Great. Thank you so much. Very helpful. Sure.
Speaker Change: It's just a combination of all of the things that go through really so it's mainly yes. Its the timing of all these events that happen. So that's why it will bounce around from quarter to quarter, but overall, yes. I mean, you can see like I think that I think like 150, a quarter is a reasonable run rate.
Speaker Change: Great. Thank you so much.
No.
Speaker Change: Sure.
The next question.
Jamie Baker: The next question is from Jamie Baker with J.P. Morgan. Hello everybody. So, Mark and I have a question on lease extensions. I think it was slide 5 in the deck. So, of the aircraft that are not being extended, how many are actually transitioning? So, you know, they're at an airline, they're not being parted out, they're not being extended, you know, basically kind of the old-fashioned model of, you know, dialing around, hey, you know, do you want a plane? And the reason we ask is that, you know, the net margin did take down slightly year on year.
Speaker Change: <unk> is from Jamie Baker with J P. Morgan.
Speaker Change: Hello, everybody, so mark and I have a question on lease extensions.
Speaker Change: Slide five in the deck.
Speaker Change: So of the aircraft that are not being extended.
Speaker Change: How many are actually transitioning so theyre, adding airlines, they're not being parted out there not being extended basically kind of the old fashion model of.
Speaker Change: Darling around Hey, do you want to do on a plane and the reason we ask is that the net margin did tick down slightly year on year, where we're curious if transitioning aircraft might've been a contributing factor.
Jamie Baker: We're curious if transitioning aircraft might have been a contributing factor.
Speaker Change: Well.
Aengus Kelly: Well, a couple of things. There are very few aircraft that transition and at the moment, I can think of maybe a handful throughout the year. There's a few more we try and pull them out because we can know we can get higher rates elsewhere. As it relates to net spread, though, Jamie, the key there is we do not manage the business to net spread. We manage it to EPS and ROE, and that ROE number was 14% after tax this year, which is industry leading by a country mile. Now, I mentioned why we don't manage to net spread.
Speaker Change: A couple of things there are very few aircraft that transition and at the moment.
Speaker Change: I can think of maybe a handful throughout the year. There's a few more we try and pull them out because we can know we can get higher rates elsewhere.
Speaker Change: As it relates to net net spread do Jamie the key there is we do not manage the business to net spread.
Speaker Change: We manage it to EPS and ROE.
Speaker Change: And that <unk> number was 14% after tax this year, which is industry, leading by a country mile.
Speaker Change: Now I mentioned, why we don't manage to net spread of course, if all the proceeds I taken if I never sold those older assets.
Aengus Kelly: Of course, if all the proceeds I'd taken, if I'd never sold those older assets, I'd have higher net spread. I'd have a higher risk business, and I'd have lower earnings per share. If I did sell those assets and just pay down debt, I'd have higher net spread and lower EPS. So every dollar this company generates, we allocate it in the way that drives ROE for the shareholders in EPS. The only line in the P&L that matters to me or the balance sheet anywhere else, I don't care about growth. I don't care about anything except making money for the shareholders at the bottom line.
Speaker Change: Have higher net spread I'd have a higher risk business and I'd have lower earnings per share.
Speaker Change: If I did sell those assets and just pay down debt I'd have higher net spread and lower EPS. So when we all every dollar this company generates we allocated in the way that drives our OE for the shareholders and EPS. The only line in the P&L that matters to me are the balance sheet anywhere.
Speaker Change: I don't care about growth I don't care about anything except making money for the shareholders at the bottom line and Thats, what the only line that really matters to us.
Jamie Baker: And that's what the only line that really matters. Understood. And thank you for that.
Speaker Change: Understood and thank you for that and then second on Russia.
Jamie Baker: And then second on Russia, you know, given what you've written down and what you've now received, where does that bring us in terms of the percentage of the recovery? Actually, let me put it more precisely. Sorry. You know, of the amount you've recovered, what percent is that of the original book value? Not, you know, necessarily what you wrote down, but the original book value that you estimate has now been recovered.
Speaker Change: Given what you've written down and what you have now received where where does that bring us in terms of the percentage of the recovery actually let me put it more precisely sorry.
Speaker Change: The amount you've recovered what percentage of that of the original book value not necessarily what you wrote down but the original book value that you estimate has now been recovered thanks in advance and I'll see you on the 12th guys. Thanks.
Aengus Kelly: Thanks in advance, and I'll see you on the 12th, guys. Thanks. Well, so the write down, Jamie, was about $2.7 billion pre-tax. That was net of some offsets that we had because we released maintenance. So call that $3.2 billion that we had of book value there. So we recovered $1.3 billion in 2023, roughly, and another $200 million in 2024. So that gives you an idea of where we stand relative to that initial book value. That's perfect. Thanks for doing the math for us. Appreciate it.
Speaker Change: Well so the write down Jamie was about $2 7 billion pretax.
Speaker Change: That was net of some offsets that we had because we released maintenance.
Speaker Change: So call that $3 2 billion.
Speaker Change: That we had a book value there. So we recovered $1 3 billion in 2023, roughly and another $200 million in 2024. So that gives you an idea of where we stand relative to that initial book value. That's that's perfect. Thanks. Thanks for doing the math for us I appreciate it take care.
Jamie Baker: Take care. Sure.
Speaker Change: Sure.
Speaker Change: The next question is from Stephen Trent with Citi.
Stephen Trent: The next question is from Stephen Trent with Citi. Uh, thank you and thank you for taking my question. Can you guys hear me? Sure Great, sorry, I was having some trouble with my phone. Thank you very much for taking my question.
Stephen Trent: Thank you and thank you for taking my question can you guys hear me.
Speaker Change: Sure.
Speaker Change: Great sorry, I was having some trouble with my phone cause that thank you very much for taking my question.
Speaker Change: Just some quick ones for me the first is.
Stephen Trent: Just some quick ones for me. The first is when we think about that, that very attractive triple B credit rating. Do you see any benefit from maybe pushing that rating higher in terms of thinking about net spreads? Well, Stephen, so as you know, we're BBB Plus with two of the rating agencies. We're in positive outlook with Fitch. We'd hope to see that converted to BBB Plus with Fitch as well, which would be helpful. And look, I think that, you know, this has been a good trajectory for us over the last few years, and in recognition of the resilience of the business and the strong performance and the outperformance in terms of cash flows and all of that.
Speaker Change: When we think about that that very attractive.
Speaker Change: Triple B credit rating.
Speaker Change: Do you see any benefit from maybe pushing that rating higher in terms of thinking about net spreads.
Speaker Change: Well Stephen So as you know were triple B plus with two of the rating agencies. We're on positive outlook with Fitch, we'd hoped to see that converted to triple B, plus with Fitch as well, which would be helpful.
Speaker Change: And look I think that.
Ben: This is Ben.
Ben: A good trajectory for us over the last few years and in recognition of the resilience of the business and the strong performance and the outperformance in terms of cash flows and all of that.
Aengus Kelly: So could it go higher? It could go higher. But we'll have to see where that goes. I think that, you know, our spreads at the moment, as you know, are at historically tight levels, right? They're around 80 basis points in a five year. So that's very good. How much benefit would we get from getting up to A minus? Hard to say. But look, certainly we'd welcome higher ratings. That would be a positive.
Ben: So could it go higher it could go higher but we'll have to see where that goes I think that net.
Ben: Our spreads at the moment as you know are at historically tight levels right. There around 80 basis points on a five years. So that's very good how much benefit would we get from getting up to a minus hard to say, but but look certainly we would welcome higher ratings that would be a positive.
Okay very helpful and just and then just my question for you and I know this doesn't exactly pertained to you guys.
Stephen Trent: Okay, very helpful.
Aengus Kelly: And just an industry question for you. And I know this doesn't exactly pertain to you guys. But looking at the uncertainty in the US today with respect to potential tariffs, are you seeing anything in the market that might suggest sort of US-based airlines are pulling back a little bit on sale leaseback transactions just given the having to potentially pay a tariff on whatever they purchase even if they I would just love your view on that, thank you. Thanks, Stephen. No, we haven't observed any change in behavior from any airline as yet in any in any part of the world.
Ben: Looking at the uncertainty in the U S today with respect to a potential tariffs.
Ben: Are you seeing anything in the market that might suggest sort of.
Ben: U S based airlines are.
Speaker Change: Pulling back a little bit on sale leaseback transactions, Jeff Kevin.
Ben:
Ben: Having to potentially pay a tariff on whatever they purchase even if they.
Ben: So I went back to a lesser.
Ben: Just love your view on that thank you.
Speaker Change: Thanks, Steven No we haven't observed any change in behavior.
Ben: From any airline as yet in any in any part of the world.
Stephen Trent: I think things are far too uncertain to commit to a course of action for anyone at this point in time. Thank you very much, Aengus.
Speaker Change: Things are far too uncertain to commit to a course of action.
Ben: For anyone at this point in time.
Angus Kelly: Makes sense. Thank you very much Angus.
Ben: Pleasure.
Ben: The next question is from Carey <unk> with Barclays.
Terry MA: The next question is from Terry Ma with Barclays. Hey, thank you. Good afternoon.
Carey: Hey, Thank you good afternoon.
Terry MA: So first, I just want to confirm the core EPS guide contemplates the use of the billion dollar buyback and nothing incremental above that. And then just more broadly, you're well below your leverage target with the potential to go even lower with additional Ukraine recoveries. Can you maybe just talk about how you think about moving back to a more optimal leverage level and overall time period?
Carey: Firstly I just wanted to confirm the core EPS guide contemplates the use of the $1 billion buyback and nothing incremental above that and then just more broadly you're well below your leverage target with the potential to go even lower with additional Ukraine recoveries.
Carey: Can you maybe just talk about how you think about moving back to a more optimal leverage level and over what time period.
Speaker Change: Sure. So thanks, Terry So on your first question, yes, what what that guide.
Pete Juhas: Sure. So thanks, Terry. So on your first question, yes, what what that guide is based on is the utilization of our remaining amount under the existing authorization, which is $164 million today, and the new program of a billion, nothing beyond that. And then, look, in terms of where we are, so our leverage ratio now is 2.35 to 1, which is relatively low, as you said, below target. As things go forward, as the year progresses, I mean, well, obviously, as you've seen, we've deployed lots of capital. We've deployed lots of capital, both in terms of returning capital to shareholders, and I referenced in my prepared remarks, over the last two years, we've bought back almost 30% of the market cap.
Speaker Change: Is based on is the utilization of our remaining amount under the existing authorization, which has $164 million today.
Speaker Change: And the new program of $1 billion nothing beyond that.
Speaker Change: And then look in terms of where we are so our leverage ratio now is $2 35 to one which is relatively low as he said below target.
Speaker Change: As things go forward as the year progresses, I mean, well, obviously as you've seen we've deployed lots of capital we've deployed lots of capital both in terms of returning capital to shareholders and that I referenced in my prepared remarks over the last two years, we've bought back almost 30% of the market cap.
Pete Juhas: It's hard to imagine any other company that has done that. But by the same token, we're also looking at opportunities to grow. And we've seen good, attractive opportunities to do that over the past year, which is where we've deployed capital. So we'll just have to wait and see how that happens. But, you know, we are deploying it in significant ways. It's just this business generates a huge amount of capital, a huge amount of cash flow, as you've seen.
Speaker Change: It's hard to find any other company that has done that.
Speaker Change: But by the same token we're also looking at opportunities to grow and we've seen good attractive opportunities to do that over the past year, which is where we've deployed capital. So we'll just have to wait and see how that happens, but we are deploying it in significant ways. It's just this business generates a huge amount of capital a huge amount of cash flow is <unk>.
Speaker Change: <unk> seen.
Speaker Change: Got it.
Pete Juhas: And then I may have missed it, but can you maybe just unpack the gain on sale margin of 43% this quarter a bit? And as we kind of look forward to this year, any color you can provide on how we should think about the margin as we kind of factor in the demand you're seeing from the different types of buyers you mentioned, and also just the mix of assets. Yeah, so the, well, we've seen a strong margin pretty much across the board, across all asset types that we've been selling aircraft and engines. So it hasn't really been driven by any one area in particular.
Speaker Change: And then I may I may have missed it but could you maybe just unpack the gain on sale margin of 43% this quarter a bit and as we kind of look forward to this year any color you can provide on how we should think about the margin as we kind of factor in the demand youre seeing from the different types of buyers you mentioned and also just the mix of assets you have earmarked for sale.
Speaker Change: Oh, yeah. So the the well we've seen a strong margin pretty much across the board across all asset types that we've been selling aircraft and engines.
Speaker Change: So it hasn't really been driven by any one area in particular.
Pete Juhas: As we look out, I don't think the mix is going to change significantly in 2025. Look, obviously, the gains on sale were very high this year, 43% in the fourth quarter, 27% for the full year. That's much higher than normal. I do think that, you know, we will probably be above the long term averages, but how far above it's hard to say.
Speaker Change: As we look out I don't think that mix is going to change significantly in 2025.
Speaker Change: Look obviously the gains on sale were very high this year at 43% in the fourth quarter or 27% for the full year that's.
Speaker Change: That's much higher than normal I do think that we will probably be above long term averages, but how far above its hard to say.
Speaker Change: The next question is from Moshe Orenbuch with TD Cowen.
Moshe Orenbuch: The next question is from Moshe Orenbuch with TD Cowan. Great, thanks. Pete, it feels like your guidance, you know, is pretty conservative. And, you know, obviously, conservative is better than not. And it's always been your, you know, kind of approach.
Great. Thanks.
Speaker Change: Pete It feels like your guidance is pretty conservative.
Speaker Change: Obviously.
Speaker Change: Conservative is better than not and it's always been your kind of approach.
Pete Juhas: But can you maybe just unpack the $6.6 billion that you've got for 2025 in lease rents, right? I mean, if you look at the fourth quarter, just, you know, kind of simply multiply that by four, you're at $6.5. And given the commentary, you know, from the last couple of questions and during the call about, you know, opportunities out there, whether it's for lease, you know, you know, lease renewals at at the same or higher levels, as well as, you know, kind of potential sale leasebacks and other things, can you just talk a little bit about what's inherent in that $6.6 billion?
Speaker Change: Can you maybe just unpack the $6 6 billion that you've got for 2025 and lease rents right. I mean, if you look at the fourth quarter, just kind of simply multiply that by four you are at six five.
And given the commentary from the last couple of questions and during the call about.
Speaker Change: Opportunities out there whether it's for lease.
Speaker Change: Lease renewals at at the same or higher levels.
Speaker Change: As well as kind of a potential sale leasebacks and other things can you just talk a little bit about what's inherent in that $6 6 billion.
Speaker Change: Mhm.
Pete Juhas: Sure, Moshe. So really, what we're expecting is kind of a steady progression of that, a gradual increase quarter by quarter of the basic lease rents. And that's really due to we are putting leases in place at higher rates now, given the good environment, but it takes a while for that to roll through the portfolio. And so I would expect this steady progression to continue throughout next year and beyond, really. Great.
Speaker Change: Sure Moshe so really what we're expecting is kind of a steady progression of that gradual increase quarter by quarter of the of the basic lease rents.
Speaker Change: And that's really due to we are putting leases in place at higher rates now given the good environment, but it takes a while for that to roll through their portfolio.
Speaker Change: And so I would expect the steady progression to continue throughout next year and beyond really.
Speaker Change: Great.
Aengus Kelly: And, you know, one of the things that I think Gus alluded to it that the, you know, planes are spending less time in service and, and that's kind of been a benefit for your engine leasing business. It's not something that you've talked about much and, you know, kind of looking at the You know, looking at the joint venture income, I mean, I think you've only got $100 million in 2025.
Speaker Change: One of the things that I think I guess alluded to that.
Speaker Change: Clients are spending.
Speaker Change: Less time.
Speaker Change: In service and Thats kind of been a benefit for your engine leasing business, it's not something that you've talked about much in kind of looking at the.
Speaker Change: Looking at the joint venture.
Speaker Change: Income I mean, I think you've only got $100 million in 2020, if I can just talk a little bit about the engine leasing business and your outlook for it in 'twenty five.
Pete Juhas: Just talk a little bit about the engine leasing business and your outlook for it in 2025. Sure, well, maybe I can comment on that line item, the guidance, and then Gus can talk about it generally. So, you know, if you look, Moshe, in 2024, the net income from equity method investments was $159 million, and our guidance was $100 to $150. So it is close to that, to that level of 2024. The one thing that's worth noting here is that as we've done some of these new engine deals, and SES has done these new engine deals, we've changed the terms of them, so that rather than receiving monthly maintenance from CFM, we are receiving full life engines at the end of that lease.
Angus Kelly: Sure maybe I'll I can comment on that line item the guidance and then Gus can talk about it generally so if you look Moshe in 2024.
Angus Kelly: The net income from equity method investments was $159 million and our guidance was 100 to 150. So it is close to that to that level of 2024.
Gus: The one thing that's worth noting here is that as we've done some of these new engine deals and SCS has done these new engine deals.
Gus: We've changed the terms of them, so that rather than receiving monthly maintenance from CFM. We are receiving full life engines at the end of that lease. So they are shopping the engines and returning them to us in full life condition, we think thats a better economic result, frankly.
Aengus Kelly: So they are shopping the engines and returning them to us in full life condition. We think that's a better economic result, frankly. But what it means is you're not recognizing that maintenance revenue during the course of the lease. You've got a better engine at the end of the lease, but it's lower monthly maintenance revenue, basically. And that's what explains that line item.
Gus: But what it means is youre not recognizing that maintenance revenue during the course of the lease you've got a better engine at the end of the lease.
Gus: But its lower monthly maintenance revenue basically and that's what's that's what that's what explains that line item.
Aengus Kelly: And as you rightly point out, I'm in the engine business. These are very desirable assets, and it is a unique position that we occupy in the industry. Thanks very much.
Gus: And as you rightly point out I mean, the engine business.
Gus: These are very desirable assets in it.
Gus: It has a unique position that we occupy in the industry.
Gus: Thanks very much.
Speaker Change: Sure the next.
Catherine O'brien: The next question is from Catherine O'Brien with Goldman Sachs. Hey, good morning, everyone. Thanks for the time. So I know we'll get, you know, these figures are going to change once we get your 20F later this morning, as you'll have renegotiated some of these already, you know, but as of the 2023-20F, I think you had 131 aircraft between 2025 and 2026 with leases expiring. That's about 13% of your year-end 2024 passenger fleet.
Speaker Change: The next question is from Catherine O'brien with Goldman Sachs.
Catherine O'brien: Hey, good morning, everyone.
Speaker Change: For the time.
Speaker Change: So I know, we'll get these figures are going to change once you get your 20-F later this morning, we have renegotiated some of these already.
Speaker Change: But as of the $2023 20-F, I think you had 131 aircraft between 2025 and 2026 as leases expiring.
Speaker Change: That's about 13% of your year end 'twenty 'twenty four passenger fleet can you just help us think through what percentage of these are COVID-19 era leases and what the upside to lease rates could be for these aircraft due to COVID-19 ones as they move to new leases at today's rates. Thanks.
Aengus Kelly: Can you just help us think through what percentage of these are COVID era leases, and what the upside to lease rates could be for these aircraft, you know, the COVID ones, as they move to, you know, new leases at today's rates? Thanks. With specific numbers of aircraft, if you just think generally about our fleet, the average lease term is six to seven years. So that's what you have capable of repricing in any given year. And so that's how I would think about it. You know, if you were to look at all the leases to reprice, that's that's the term.
The address that specific numbers of aircraft. If you just think generally about our fleet. The average lease term is six to seven years. So that's what you have.
The repricing in any given year.
Speaker Change: And so that's how I would think about it if you were to look at all of the leases to reprice thats the term it'll happen over a seven year period.
Aengus Kelly: It'll happen over a seven year period.
Aengus Kelly: And Katie, maybe it's helpful just to if you look at the covid era leases just generally, we expect those to run off. Pretty much about one sixth a year from now going out until, say, twenty thirty one, twenty thirty two. So it takes a while for that to come through, but it will be a tailwind for us going forward. Okay, great.
Speaker Change: And Katie maybe it's helpful. Just to if you look at the Covid era leases.
Speaker Change: Just generally we expect those to run off pretty much about one 6% a year from now going out until say 2031 2032. So it takes a while for that to come through but it will be a tailwind for us going forward.
Speaker Change: Okay, Great and then maybe just another one on the engines you announced another $2 billion in engine commitments today.
Aengus Kelly: And then maybe just another one on the engines. You know, you announced another $2 billion in engine commitments today. Can you walk us through what is driving the incremental investment in engines? You know, of course, the gap of supply and demand in that market is well documented. So is it that the economics are better in engines than aircraft? Or is it just like the backlog for aircraft is too long and today's pricing on buying new engines make more sense than aircraft from a return on capital standpoint? Just, you know, any thoughts on the comparison of the economics between engines and aircraft and why the incremental dollars are going to engines today would be very helpful.
Speaker Change: Can you walk us through what is driving the incremental investment in engine of course, the gap of supply and demand that markets are well documented. So is it that the economics are better on engines and aircraft or is it just like the backlog for aircraft is too long in today's pricing online linden's make more sense than aircraft from return on capital standpoint, just any.
Speaker Change: Thoughts on the comparison of the economics between engine and aircraft and why the incremental dollars are going to engines today it would be very helpful.
Speaker Change: Sure well I think you've got to look at our position in the engine business as a partner to the Oems providing part of the after sales product.
Aengus Kelly: Sure. Well, I think maybe you've got to look at our position in the engine business as a partner to the OEMs, providing part of the after sales product that the engine OEM gives to its customers. So, in many respects, the engine leasing businesses that we have, one is SES, one is in-house, is a logistics business where, you know, you are moving vast numbers of engines every week around the world at the instruction of the OEM. So, it's a different type of business to leasing, it's a different payment structure, and it is a position where we have unique infrastructure that's been built up over, candidly, 30 years since that business began to have the infrastructure around the world to rapidly move engines from, you know, if we get a call on Friday and we're told by the OEM, you need to take one engine back from New York, another one has to get to Tokyo, one more has to get to Saigon, take one back from Delhi.
Speaker Change: That the engine OEM gives to its customers so.
Speaker Change: In many respect the engine leasing business is that we have won is <unk> one is in house.
Speaker Change: Logistics based us where you are moving vast numbers of engines every week around the world at the instruction of the OEM. So it's a different type of business to leasing to different payment structure and it is a position where we have a unique infrastructure that's been built up over a candidly tired.
Speaker Change: For years since <unk>.
Speaker Change: That business began to have the infrastructure around the world to rapidly move engines from if we get a call on Friday and were told by the OEM you need to take one engine back from New York and other one has to get to Tokyo, one more has to get the Saigon take one back from Delhi, that's that what that business does so it's slightly different.
Aengus Kelly: That's what that business does. So, it's a slightly different type of business, but significantly different business from a straightforward financing business. And so, our ability there is unique and we add value to the OEMs after sales service. So, it's a very different type of business. And when you get the opportunity to grow that, that's where we want to grow.
Speaker Change: As such a type of business, while significantly different business from a straightforward financing business and so our ability there is unique and we add value to the Oems after sales service. So it's a very different type of business.
Speaker Change: And when you get the opportunity to grow that that's where we want to grow.
Anthony: Great and maybe Anthony.
Catherine O'brien: And maybe if I could sneak one more quick follow-up to an earlier question in, a modeling one. You know, Pete, am I right to assume that the 850 EPS does not include any buybacks? You know, just maybe this math is too simple, but dividing 1.6 billion in net income by 850 gets you to your 4Q share count.
Anthony: One more quick follow up to an earlier question in.
Anthony: Modeling one.
Anthony: Pete Am I right to assume that the <unk> 50, EPS does not include any buybacks just maybe this math is two simple, but dividing one 6 billion and net income by a 50 gets you to your <unk> share count.
Anthony: So any help there and then just on the repurchase authorization more generally.
Pete Juhas: So any help there? And then just on the repurchase authorization more generally, you know, it's your largest ever announced. Should we think of that as a comment on buyback pacing or what else drove the larger announcement? Thanks so much for all the time. Sure. Well, I would just think of it as kind of at the midpoint of that range, that's assuming that we're fully deploying that, the full authorization. So obviously, one way to think about the low end is we're not deploying it fully, or we just have more, you know, other contingencies in there, right?
Anthony: Your largest have right now should we think of that as a comment on buyback pacing or what else drove the electronics that thanks, so much for all the time.
Anthony: Sure well I would just think of it as kind of at the midpoint of that range, that's assuming that were fully deploying that.
Anthony: The full authorization.
Anthony: So obviously one way to think about the low end is we're not deploying it fully or we just have more other contingencies in there I'd say that it's really just a range built around that midpoint is probably the best way to think about it from a modeling standpoint.
Pete Juhas: So that's, it's really just a range built around that midpoint is probably the best way to think about it from a modeling standpoint. And then in terms of the pace of buybacks, as I kind of referenced before, look, this is we're only assuming that for now. But if we can outperform these projections, if we get more excess capital coming in, then then we'll have to figure out what to do with that. And certainly, return of capital to shareholders has been one of the key ways we've done that. So I think it's reasonable to assume that we would continue.
Anthony: And then in terms of the pace of buybacks as I kind of referenced before.
Anthony: This is we're only assuming that for now but if we can outperform these projections if we get more excess capital coming in then then we will have to figure out what to do with that and certainly return of capital to shareholders has been one of the key ways. We've done that so I think it's reasonable to assume that we would continue but obviously we'll look at.
Catherine O'brien: But obviously, we look at all opportunities that are available. Thanks so much.
Anthony: At all opportunities that are available.
Speaker Change: Thanks, so much.
Anthony: Sure.
Anthony: Okay.
Operator: There are no further questions at this time.
Speaker Change: There are no further questions at this time Mr. Kelly at this time I will turn the conference back to you for any additional or closing remarks.
Aengus Kelly: Mr. Kelly, at this time I will turn the conference back to you for any additional or closing remarks. Thank you, operator. And thank you, everyone, for joining us for our full year earnings call. And we look forward to talking to you in the coming months. Thanks very much.
Angus Kelly: Thank you operator, and thank you everyone for joining us and for our full year earnings call and we look forward to talking to you in the coming months, thanks very much.
Speaker Change: This concludes today's call. Thank you for your participation you may now disconnect.
Operator: This concludes today's call. Thank you for your participation.
Operator: You may now disconnect.
Speaker Change: [music].