Q1 2025 AerCap Holdings NV Earnings Call
Please standby we're about to begin.
Speaker Change: Good day, everyone and welcome to the Aercap Q1, 2025 financial results today's conference is being recorded and a transcript will be available following the call on the company's website at this time I would like to turn the conference over to Joseph Mcginley head of Investor.
Joseph Mcginley: Relations. Please go ahead Sir.
Joseph Mcginley: Thank you operator, and Hello, everyone welcome to our first quarter 2025 conference call.
Angus Kelly: With me today is our Chief Executive Officer, Angus, Kelly, and our Chief Financial Officer, Pete U S.
Angus Kelly: 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.
Angus Kelly: 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.
Angus Kelly: Aercap undertakes no obligation other than that imposed by law to publicly update or revise any forward looking statements to reflect future events information or circumstances that arise after this call.
Angus Kelly: Further information concerning issues that could materially affect performance can be found in the aircrafts earnings release dated April 30th 2025.
Angus Kelly: A copy of the earnings release and conference call presentation are available on our website at Aercap dotcom.
Angus Kelly: This call is open to the public and is being webcast simultaneously at Aercap dotcom.
Angus Kelly: Archived for replay.
Angus Kelly: We will shortly run through our earnings presentation on what a lot of time at the end for Q&A.
Angus Kelly: As a reminder, I would ask that analysts limit themselves to one question and one follow up.
Angus Kelly: I'll now turn the call over to Angus Kelly.
Angus Kelly: Thank you for joining us for our first quarter 2025 earnings call.
Angus Kelly: We are pleased to report another strong quarter of earnings for Aercap.
Angus Kelly: Generating GAAP net income of $643 million and earnings per share of $3.48.
Angus Kelly: Adjusted net income of $679 million.
Angus Kelly: And adjusted earnings per share of $3 68.
Angus Kelly: Given these strong results we have increased our 2025 full year EPS guidance and announced a new 500 million dollar share repurchase program.
Angus Kelly: Our airline customers around the world remain focused locking in capacity.
Angus Kelly: <unk> the ongoing uncertainty regarding tariffs and trade.
Angus Kelly: This is evidenced by our 99% utilization rates.
Angus Kelly: 84% extension rates in the period.
Angus Kelly: Today I'd like to share a number of operational highlights with you from the first quarter.
Angus Kelly: That gives you a better sense to the level of activity taking place each day as aercap.
Angus Kelly: On the passenger side.
Angus Kelly: We continue to see strong bids for our assets with a couple of notable deals on the 780 Sevens in particular.
Angus Kelly: There we are seeing strong demand both for remarketing aircraft and the broadening of the user base more generally.
Angus Kelly: And I'll give you a couple of examples.
Angus Kelly: In Q1, we manage the successful transition of three midlife 780 sevens between two customers in Europe.
Angus Kelly: We're on time and on budget.
Angus Kelly: And we were able to increase the rents and improve the credits.
Angus Kelly: Highlighting the demand for these aircraft.
Angus Kelly: We also executed a 787 sale leaseback at attractive pricing with a new customer where the airline was keen to partner with Aercap specifically.
Angus Kelly: Airlines know that when they are parking with aercap.
Angus Kelly: That added oversight and trust and that brings them validation in the marketplace.
Angus Kelly: On the narrow body side. We also agreed the extension of 26 midlife aircraft with a north American customer.
Angus Kelly: Keen to lock in that capacity for further six years.
Angus Kelly: This is a live example of the contrast between the monthly Gyrations you may see in any given airlines schedule capacity or indeed their stock price.
Angus Kelly: With a long term mindset that airlines fleet managers are required to adopt.
Angus Kelly: On the engine side, you'll know if there'd be order 268, new leap engines in 2024 as part of the deal with our joint venture SCS, where we take one third of these engines and SCS take two thirds.
Angus Kelly: We're making good progress on this front with over 120 of these engines already delivered 60 more expected this year and 50 plus next year.
Angus Kelly: This highlights the difference between ordering aircraft from the Oems today.
Angus Kelly: Which would be likely to deliver in 2030 and beyond versus ordering engines.
Angus Kelly: Engines have a much lower lead time, making them an attractive avenue to deploy capital, particularly when you have the infrastructure of Aercap.
Angus Kelly: So I think it's worth spending some time talking about how we continue to expand our operational capacity on the engine side.
Angus Kelly: In line with our growing fleet.
Angus Kelly: We now operate from 27 parked or MRO around the world located close to our key customers.
Angus Kelly: This is in line with our expansion in leap leasing, but also supports other engine types like the Gen X G 90 and.
Angus Kelly: And CFM 56 engines.
Angus Kelly: And is focused on lease returns and portfolio optimization.
Angus Kelly: These centers carry out a range of light MRO tasks like periscope inspections top case module swaps QVC installations and preservation services.
Angus Kelly: This really adds to the industrial capability, our customers have come to expect from Aercap and provides a significant amount of information and trends costs and outcomes, which can be used across our various business lines.
Angus Kelly: Turning to milestone we continue to see opportunities in the helicopter business.
Angus Kelly: As an example in Q1, we agreed to purchase and leaseback of five new Leonardo HW 189 helicopters with a new customer Ecuador energy, a leading supplier of energy to Europe, and the largest oil and gas operator on the Norwegian Continental shelf.
Angus Kelly: This deal involving a long term lease of new technology equipment to a new customer and it is a good example of the industry changing towards a direct model I E leasing to the end user.
Angus Kelly: This structure replicate similar deals we completed with far energy another listed Norwegian oil company for to AWS 189 Super medium helicopters around the same time.
Angus Kelly: So in summary, the Aercap platform is strong and continues to perform well finding new and complementary ways to support our customers across all our business lines, we expect demand to remain robust for the foreseeable future with that I'll now hand, the call over to Pete to review the financials and the outlook for 2025.
Pete: Thanks, Scott Good morning, everyone. Our GAAP net income for the first quarter was $643 million or $3 48 per share.
Pete: The impact of purchase accounting adjustments was $43 million for the quarter or <unk> 23, a share than a tax effect of these was $6 million or four cents a share.
Pete: As a result, our adjusted net income for the first quarter was $679 million or $3.68 per share.
Pete: There were three main drivers that affected our results for the first quarter.
Pete: First our net maintenance contribution which is maintenance revenue less leasing expenses was $82 million. This quarter on an adjusted basis that is higher than the $30 million to $40 million net contribution that we see on average mainly due to lower leasing expenses this quarter, but as I've mentioned many times in the past.
Pete: These numbers tend to move around a lot from quarter to quarter based on maintenance activity levels.
Pete: Second net gain on sale of assets was $177 million for the first quarter.
Pete: We sold 35 of our owned assets for total sales revenue of $683 million.
Pete: That resulted in the Unlevered gain on sale margin of 35%, which is equivalent to a multiple of two three times book value.
Pete: As of March 31, we had $525 million worth of assets held for sale.
Pete: Third our other income was $105 million, which is higher than normal during the quarter. We received shares related to an airline bankruptcy claim and also received some insurance proceeds related to a total loss on an aircraft. The combined impact of both of those on other income was around $30 million.
Pete: Our liquidity position continues to be very strong as of March 31, our total sources of liquidity were approximately $20 billion that includes slightly over $1 billion worth of cash and $11 billion of revolvers another committed facilities.
Pete: Our sources to uses coverage ratio was one eight times, which amounts to excess cash coverage of around $9 billion or.
Pete: Our leverage ratio at the end of the quarter was $2 41, which is similar to last quarter.
Pete: Our operating cash flow was approximately $1 $3 billion.
Pete: During the quarter, we were upgraded to triple B plus by Fitch in March. So we are now rated triple B plus across the board with all three rating agencies. We also completed a 1 billion and $5 of financing during the quarter.
Pete: We bought back $5 7 million shares during the first quarter for a total of $558 million. In addition to this we bought $4 7 million shares in April for $445 million, taking advantage of the recent market volatility.
Pete: So that takes us to just over $1 billion of share repurchases. So far this year with a $300 million of capacity remaining from our previous authorization plus the $500 million authorization that we announced today that gives us $800 million of available capacity.
Angus Kelly: As Gus mentioned, we're raising our full year 2025, adjusted EPS guidance to a new range of $9 30 to $10 30.
Angus Kelly: That includes approximately 80 cents of gains on sale that we had in the first quarter, but it does not include any gains on sale for the remainder of the year.
Angus Kelly: We've had a strong start to the year in terms of net maintenance contribution and other income. However, we are seeing some delays in our triple seven freighter conversion program. We've incorporated all of this into our updated guidance.
Angus Kelly: Taking all of that into account, we expect to be in the top half of that range for the full year, but as you know there is considerable uncertainty in the overall macroeconomic and market environment.
Angus Kelly: In closing Aercap continued to perform very strongly during the first quarter, we continue to be in a position of strength with a strong balance sheet low leverage and strong liquidity. We've taken advantage of the recent market volatility to buyback over $1 billion worth of stock. So far this year and as Gus mentioned today, we announced a new.
Speaker Change: New $500 million share repurchase program to be deployed during the remainder of this year and with that operator, let's go to Q&A.
Speaker Change: Thank you if you would if you're dialed in via the telephone I would like to ask a question. Please signal by pressing star one on your telephone keypad again that is the Starkey followed by the digit one if you are joining us using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Speaker Change: Again press Star one to ask a question, we'll pause for just a moment.
Speaker Change: We will take your first question from Terry MA from Barclays. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Thank you good morning, Gus So you noted the engine and helicopter opportunity in your prepared remarks.
Speaker Change: But last year, you also kind of highlighted a number of bilateral transactions executed with customers I'm. Just curious if you kind of expect more of those opportunities that come to the market just given the tariff uncertainty and how that kind of ranks relative to helicopters and engines.
Speaker Change: Yes, Thanks Terry.
Speaker Change: I would expect given the scale of the company and the reach we have around the world.
Speaker Change: On an aircraft helicopters ranges that we should see a one or two more bilateral negotiations.
Speaker Change: Yes, you're right I mean the.
Speaker Change: The engine situation has created by Dave I suppose quasi industrial infrastructure, we have in our experience in supporting the engine Oems. The you saw also a sale leaseback on the 787 that we did that was on a bilateral basis for an airline. So you know I do think that the current suite.
Speaker Change: <unk> may throw up additional opportunities and we keep working hard for them.
Speaker Change: Got it that's helpful. And then maybe just on the buyback you guys kind of leaned into it we authorized another them out, but you didn't actually try to increase our EPS guidance for the for the year ex gain on sale is that just completely offset by the freighter conversion delay.
Speaker Change: As you kind of called out in any way to kind of quantify that thank you.
Speaker Change: Sure Terry So I can go through that so basically we increased the full year guidance by 80, which was the amount of gains on sale in the first quarter. We did have a strong quarter that was driven primarily by two things one was the higher net maintenance contribution the other was higher other income and the higher maintenance.
Speaker Change: <unk> was a result of lower leasing expenses in the quarter, mainly lower transition costs lower top of expenses lower lessor contributions all of those things some of that is due to timing.
Speaker Change: But we're generally seeing lower transition costs because of the high number of airline extensions that we're having in other income we had a couple of one time items recoveries from airline bankruptcy from years ago and insurance proceeds on a total loss aircrafts. So those were the things that made the first quarter higher than expected.
Speaker Change: You know as we look out for the full year I do think that we're gonna be in the top half of that range.
Speaker Change: Yeah. The freighters, we will see some of those moving out of this year, but ultimately I think these other positives are more than more than offset that factor, but we didn't narrow the range really because there is more uncertainty out there, but as it stands today you know, we're pretty comfortable we'd be in the top half.
Speaker Change: Got it thank you.
Speaker Change: Sure.
Speaker Change: We'll hear next from Moshe Orenbuch from TD Cowen.
Speaker Change: Okay.
Speaker Change: Great.
Speaker Change: Just maybe to come back to the two areas that you cited.
Speaker Change: And Jensen helicopters.
Speaker Change: Can you kind of tell us how much given how much excess capital you've got how much do you think you can deploy in those businesses kind of over the next year or two.
Speaker Change: Well first of all I mean, we're we don't mind, where we deploy the capital.
Speaker Change: Critical element as is this going to be accretive to our shareholders. We have never been here to grow for the sake of growth.
Speaker Change: But if attractive opportunities come up I mean, we have ample amounts of capital certainly with the headroom that we have we could easily deploy just in this year alone an additional about 4 billion basically we desire desired that's only in this year. So if were to look at a multi year capacity to absorb additional assets you're into double digit billions.
Speaker Change: So that isn't in any way going to limit us our limiting factor as it comes to growth is profitability. We are here to make money.
Speaker Change: Scott says on a risk adjusted basis, and so drive that Oro. That's the key that's why we're here and so transactions that will enhance the ROE on a risk adjusted basis for the business. There is no limit to what we can do in terms of size.
Speaker Change: Got you got you okay.
Speaker Change: Sure.
Speaker Change: Pete.
Speaker Change: Alluded to the answer to that ship after reaching expenditures kind of in the last answer that talking about the.
Speaker Change: Fact that some of it was a result of kind of more renewals as opposed to kind of switching airlines I was hoping you could kind of just flesh that out a little bit like what.
Speaker Change: Are there any other things that.
Speaker Change: That had caused these particular renewals to be low at low leasing cost because it seems like that process.
Speaker Change: Having a high level of renewables is likely to continue certainly through this year and maybe even into next so.
Speaker Change: Could you just talk about that and what that might mean for leasing expenses as we go through 2020.
Speaker Change: Sure Moshe so as a general matter when you're extending within existing the existing let's see then the transition costs are going to be lower because you don't have to I mean, you don't have to do anything to move it right. The aircraft's stays where it is.
Speaker Change: And so generally speaking that's going to lower leasing expenses. So that was part of it this quarter and then the rest of it I'd really say it was was due to timing.
Speaker Change: We did see I mean, just kind of lower activity on the maintenance side as well and that's one of the reasons. Why you also saw like maintenance rights amortization. For example was much lower this quarter lower than normal. So I think it reverts back to kind of regular levels I mean, as a general matter I would say if you think of net maintenance.
Speaker Change: Contribution I'd say $30 million to $40 million a quarter is probably a good good guide.
Speaker Change: Got you thanks very much.
Jamie Baker: We'll move next to Jamie Baker from Jpmorgan.
Jamie Baker: Oh, Hey.
Speaker Change: Good afternoon. This is actually the first aercap call I've ever done from Europe.
Jamie Baker: Totally get the timing of it love it.
Angus Kelly: So Gus on tariff look it's a zero sum game.
Speaker Change: Somebody ends up paying and it might not be aercap and mark.
Angus Kelly: Mark and I get that you know maybe it's the airlines maybe.
Speaker Change: OEM is ultimately accept lower margins, but.
Angus Kelly: At the end of the day higher costs.
Angus Kelly: It means that growth so maybe it does drive the business to meet life or less expensive aircraft at the margin I mean.
Angus Kelly: It would seem that suggested by some appraisers any thoughts on that.
Angus Kelly: Well I think youre right.
Jamie Baker: What you say, Jamie that ultimately someone has to bear at additional cost on the system now who that will be in the allocation of that between the ultimate consumer the.
Speaker Change: The Oems the airlines ourselves, we will have to wait and see and certainly from <unk> perspective, as it relates to our current contracts with the Oems we have fixed caps of escalation in place. So on these contracts that won't affect us now that being said, though.
Speaker Change: What do we know at the moment, while we know there are tariffs on aircraft going into the United States. We know there are tariffs on aircraft going into China, and so there are no they're not having a significant impact as yet but its very early in the game.
Speaker Change: Ultimately if the Europeans retaliation and match the U S tariffs and then run a more global basis, we will see as you say used aircraft values increase we will see in China I would imagine that the pressure of all they can use is to take the <unk>.
Speaker Change: Age limitation of leased aircraft over half the fleet in China at least they have an age limitation of 20 years.
Speaker Change: If you were to remove that limitation in China and certain other countries in emerging markets in Asia. What you would find Dan is that demand for new aircraft would be dampened because that is a lot of aircraft that would not leave the market and would stay in service.
Jamie Baker: However, all that being said, Jamie I think my my hope, but I think everyone's hoping the industry is that we have had a tariff free industry between Europe and the U S and several other countries into the 1979 agreement.
Speaker Change: And if we could bring more countries into that such as China, and India that would be an even bigger win for U S industry.
Jamie Baker: And we all hope that can be achieved.
Jamie Baker: Yeah, well I guess I guess that.
It's sort of my follow up guidance, because you know may be the end game in that aircraft are simply too important to the global economy to be subject to tariffs.
Jamie Baker: You know with any examples where the.
Jamie Baker: The headlines scream tariff, but the reality is that aircraft and park third carved out.
Jamie Baker: Yeah.
Jamie Baker: I'm just wondering if there's any precedent for such an outcome. That's all thanks take care.
Jamie Baker: Sure well I think look there are discussions ongoing we understand.
Jamie Baker: In China between the airlines and their regulators and hopefully.
Jamie Baker: This will lead to aviation aerospace being exempted, but I think Jamie what would be a tremendous achievement for <unk>.
Jamie Baker: The administration.
Speaker Change: If they could significantly enhance the 1979 agreement so that that doesn't just incorporate 34 odd countries, mainly North America, and Europe, but also bringing heavyweights, such as China, and India, where there are small tariffs in China at the mall at 5% on it before they were always small tires.
Speaker Change: For the recent ones of 5% and a narrow body, 1% on a wide body I think that'd be a tremendous win for the administration because the U S has a massive trade surplus in aerospace and with the rest of the world at Hy Tech engineering and manufacturing great paying jobs.
Speaker Change: I think to expand the potential for that would be a tremendous achievement by the administration if it could be done to bring in those other countries into that zero tariff agreement.
Speaker Change: That's great. Thanks, so much for your thoughts.
Speaker Change: As a reminder, ladies and gentlemen, it is the Starkey followed by the <unk> Wonder if you have a question or comment.
Hillary: We'll hear next from Hillary <unk> from Deutsche Bank.
Hillary: Hi, Thank you for life.
Speaker Change: No I think.
Hillary: In the last couple of weeks.
Hillary: All lines in the U S and are pulling that idle cutting capacity.
Hillary: So I think when you might get.
Hillary: Yes.
Hillary: Domestic but Paul I know you said that.
Hillary: And.
Hillary: But I was wondering if you could kind of talk about what are some of the metrics.
Hillary: That would get you more concerned about the long term.
Hillary: So.
Speaker Change: You got a Hilary youre right I mean, the carriers in the two first of all its a global market. The U S is only 22% of it give or take.
Hillary: They've got to put that in context.
Hillary: Other parts of the World There has been a significant tailwind against falling yields and that is weakness in the fuel price and weakness in the dollar.
Hillary: They rarely go in the same direction, we generally see crude in dollar go in the opposite direction. So that has been a tailwind that has in CLA you said non U S. Dollar denominated economies, which is the vast majority of the world.
Hillary: And slowdowns in yields, but turning to your point in the U S. Yes, we do see weakness in the economy cabin in the U S and Youre seeing airlines adjust capacity, but that's adjusting capacity for a three month or six month nine month period. When we are looking at fleet decisions with airlines, we're looking at 20 <unk>.
Hillary: 15 year decisions 20 year decisions and as I just referenced in my prepared comments earlier in the quarter. We extended 26 midlife aircraft in the U S. And these aircraft are over 15 years of age. So theyre looking at long term extension six years, because they need to know they have the capacity for the <unk>.
Hillary: Longer term you can't turn on a dime when it comes to planning your air aircraft lease Airlines are often buffeted by short term gyrations in the global economy, but longer term they have to know what seats, they need and bill to us so because of that we're not seeing any any reduction in.
Hillary: Demand at the moment.
Speaker Change: Great. Thank you that's very helpful.
Hillary: You know one of the questions I've been getting from investors.
Hillary: What in your portfolio right now I think it's about 75% impact at the moment and I guess over the course of the next yes, I would assume it's a quick question.
Hillary: Peg will get bigger so.
Hillary: I think that any questions.
Hillary: You've been doing so.
Hillary: Gain on sale number has been great because you've been able to sell that.
Hillary: All the portfolio because of the a barbell strategy.
Hillary: And I think that first of all you know what.
Hillary: I think when you increase the number of new clients in your portfolio. Thank you.
Hillary: With the <unk>, you know does that strategy.
Hillary: Like how do you think about that.
Hillary: Thank you for polyethylene Salt Lake.
Hillary: Well.
Speaker Change: That's the thing about the bar, but you're always looking way into the future when we get to the end of this decade, when we'll be out of the older Tech. We'll have 780 sevens that are 18 years old will have meals that it'll be 15 years old. So they will then be our midlife aircraft. We just.
Speaker Change: I've always said you don't want to be is at the end of this decade with 15 year old Triple 700, 800, EUR 730 Sevens <unk> hundred 23 therapies.
Speaker Change: Want them gone and you want them to have had the foresight to position the business for future demand way into the future you can be talking short term in this industry just like indeed, we referenced about the airlines, we can never get caught up in the short term gyrations of yes. There is an amazing bid tomorrow for at <unk>.
Speaker Change: <unk> year old late <unk> 'twenty.
Speaker Change: And start buying those in our 10 year old <unk> hundred 20, excuse me you start buying them because demand will fall off for one of that age. So I think when we looked in several years' time, a significant portion of our portfolio will be in that 15 year range, but it'll be the newer generation of the technology.
Speaker Change: And Thats the way before that's been how we've shown that barbell approach are the sunset Sunrise approach as to how the portfolio has been developed since 2012.
Speaker Change: That's very clear.
Speaker Change: Not that goodbye by value or not.
Speaker Change: Hello aircraft, because it's harder and harder.
Speaker Change: Like 10 years old at some point I feel like.
Speaker Change: No no no.
Speaker Change: It's got to be far more nuanced and thoughtful in that.
Speaker Change: Perfect.
Speaker Change: Thanks, so much very helpful.
Speaker Change: We'll move next to Catherine O'brien from Goldman Sachs.
Catherine O'brien: Good morning, everyone. Thanks for the time.
Catherine O'brien: You already touched on what Youre seeing from the airlines in the prepared remarks, and just now with Hillary and it sounds like airlines, even in North America.
Catherine O'brien: Business as usual on looking to secure capacity from your fleet and order book.
Catherine O'brien: But we've had quite a few U S Airlines talk about retiring more aircraft and plan a couple of months ago totally understand they're a fraction of the global industry.
Catherine O'brien: Based on this quarter's gain doesn't seem like it so far but are you seeing any impact to demand for your own fleet from buyers can.
Catherine O'brien: Can you just remind us who the complexion of the buyers of your aircraft sold has been of late.
Catherine O'brien: Sure I think look I mean, as I said, it's very important to realize the U S is 20% to 23% of the global market that's it.
Catherine O'brien: It's important but it's not the driving force.
Catherine O'brien: And so while we will youll say rightly that some U S carriers are going to retire some aircraft I think it's important what aircraft are they retiring or they see our jays I know in one the airlines, it's Hershey ones I don't care.
Catherine O'brien: It could be very all 757 theyre not relevant these are 25 year plus aircraft, we are not seeing.
Catherine O'brien: Current not seeing.
Catherine O'brien: 18, 19 year old aircraft being retired and quite quite the opposite you just I just announced there that we extend to 26 aircraft in the U S market and they were close to that 18 19 year old so.
Catherine O'brien: People can say these things are retiring aircraft true, but you know it could be aircraft that were on the way out any way inevitably so I wouldn't read too much into that.
Catherine O'brien: And Katy in terms of the split of our sales this past quarter. So it was about a quarter or two airlines about a third to other lessors and about a third to investors and then the remaining 5% or so is to part out end of life sales.
Catherine O'brien: Great. Thank you so much.
Speaker Change: Got it I thought your long term take on what would happen if tariffs.
Speaker Change: On aviation stayed in place on CNBC is very interesting just in terms of airlines need to adjust orders to avoid tariffs over the longer term.
Speaker Change: In the shorter term.
Speaker Change: How does this impact with Solaris my understanding is it sounds like youre not on the hook for any tariff airlines are typically the importers of record even in an operating lease situation, but over the next couple of years, if the airlines in the U S need more Boeing lift shorter term or vice versa for European airline could the lessors step in and help with that now.
Speaker Change: To discount the disruption cost that would mean for the impacted airlines, but just thinking through some of the puts and takes.
Speaker Change: Sure well there are three sources of aircraft in the world for an airline.
Speaker Change: Theres Boeing Airbus and.
Speaker Change: And the leasing market slash the used aircraft market. So.
Speaker Change: If we do have as I said on the CNBC interview tit for Tat and the Europeans raised higher if the Chinese raised higher.
Speaker Change: U S continues with the tariffs, we will ultimately see absent Boeing and GE and Honeywell moving production offshore to Europe and to China, We're going to see a retrenchment of Boeing sales to focus on the U S and we're gonna see Airbus then take most of the rest of the world.
Speaker Change: <unk>.
Speaker Change: But.
Speaker Change: So that if that that's one outcome, but then the other scenarios that if you eliminate and.
Speaker Change: In my discussions with the governmental officials at what I have said is if you do put entire fs, okay, suboptimal, but make sure that you don't tariffs the used aircraft market so that the consumer say.
Speaker Change: Be it in the U S or in Europe or in China for that matter does not get punished.
Speaker Change: The bill for their consumers minimized. If you were to tariff for example used Airbus and new Airbus in the U S.
Speaker Change: That means that there's a small our supply of aircraft available to U S carriers, which will mean less seats now if you let used aircraft in youre, not youre, not helping or hurting Airbus in any way shape or form Airbus have a manufacturer those aircraft they're gone.
Speaker Change: The same is true on the other side in this worst case scenario the Europeans should allow.
Speaker Change: European carriers to access used Boeing airplanes, because they are not in any way, helping or hurting Boeing by taking used aircraft, but if they don't take the used aircraft, they're hurting their own consumers more the Joe public in the street is going to pay more for tickets if governments were.
Speaker Change: Strict.
Speaker Change: The supply of aircraft to adjust new from one manufacturer. So I would hope that that is the way to play out which I guess, if we go to there's a lot of negatives in that whole scenario, but of course, we hope that never happens, but at least there should be good demand for our our muscle.
Speaker Change: That's very clear.
Speaker Change: As a final reminder, ladies and gentlemen that is the starkey followed by the digit one.
Speaker Change: Well move next to Christine Whacked firm Morgan Stanley.
Speaker Change: Yeah. Good afternoon, everyone afternoon for you guys.
Speaker Change: So maybe two questions I mean gas on this tariff discussion look.
Speaker Change: It seems like the rhetoric around it is more negative, but the way I see it is that historically Boeing was kind of the tip of the trade spear for the U S and if these countries want to actually look at the deficit maybe buying more aircraft would be.
Speaker Change: Easy way to do that I mean aerospace defense is a as a net exporting our industry for the U S. So I was wondering in that context.
Speaker Change: If countries want to buy more aircraft and what's your role in that and you know because ultimately it's got to be the country is importing it what did they increase lease from you because its still manufactured in the U S would that solve some of that trade deficit issue would you be able to step in or do you anticipate higher demand for sale.
Speaker Change: Leasebacks, if that were to materialize.
Speaker Change: Well I think it's more the former rather than the latter because Boeing doesn't have many slots decided <unk> therapy. So I think the leasing industry uncertainty aercap would want to step in and assist them in any way because the administration achieve its targets and work with Boeing to make sure that to the extent.
Speaker Change: No aircraft off our skyline would help resolve trade issues, we would definitely step in to make that happen one way or the other and I would imagine the.
Speaker Change: The other leasing companies will be similarly supportive.
Speaker Change: Because of course, the airlines can order aircraft for post 2030 delivery, that's a long way off though.
Speaker Change: I think the U S and want to see something quicker than that and that's where the lessors could be very helpful.
Speaker Change: Great. Thank you for the color there and on your commentary on the Shannon engine support business really caught my attention.
Speaker Change: First discuss exactly what is it you're doing what are you responsible for versus Safran and your twenty-seven MRO partners. This engine module approach, especially on the CFM 56.
Speaker Change: Has been pretty attractive for some players with pretty fat margins can you discuss the economics of this JV and how large this could be for you.
Speaker Change: Sure well I mean, the way. It works is we are just part of the after sales service that's provided by the OEM. So if an airline.
Speaker Change: Align signs up for sake of CFM product.
Speaker Change: It would be our obligation when the engine comes off wing to have the spare engine onside on time on spec for the airline that has the off engine to go to the shop for repair so we'd have to get it there we'd have to take it back off the airlines will have to make sure whatever maintenance is done is done quickly is done to specification that it's ready to go.
Speaker Change: [noise] out again to the next customer so it's part of providing the after sales service.
Speaker Change: To the OEM customer and that involves I think last year, we did over 1200 engine movements I believe.
Speaker Change: Which is quite a lot like that's three three plus every single calendar day that we're moving engines around the world to support the after sales program and that's why you need such a big Global network and you have to have engine station and different pools around the world in order to facilitate that you have to have very significant in house logistics expertise can you imagine moving at 20 million.
Speaker Change: As of 1200 times in a given year four times, a day three or four times a day that takes a tremendous amount of infrastructure knowledge and systems to do that so that's the primary thing we do as it relates to you.
Speaker Change: You talk about engine repairs modular Paris look I think any well run business, we'll be doing that anyway.
Speaker Change: Great. Thank you.
Stephen Trent: Moving next to Stephen Trent from Citi.
Stephen Trent: Yes, good afternoon, everybody and thanks for taking my question actually is a follow up to <unk>.
Stephen Trent: My counterpart from Morgan Stanley about the.
Stephen Trent: Shannon engine JV.
Stephen Trent: Did you guys also think about.
Stephen Trent: Capex kind of going forward.
Stephen Trent: Should we expect.
Stephen Trent: A shift in the blend of.
Stephen Trent: Purchases of helicopters and engines.
Stephen Trent: Relative to plain purchases or do you think we'd see.
Stephen Trent: Sort of a similar mix too.
Stephen Trent: What it's been in.
Stephen Trent: In recent quarters. Thank you.
Stephen Trent: Helicopters will always be on a dollar basis, a very small proportion of what's going on.
Stephen Trent: But I think aircraft will far dominate any capex program going forward, we have had a surge in engine Capex, that's driven by the fact that the 737, Max and the <unk> hundred 20, neo are hitting higher levels of production, thereby requiring higher level of sparing I don't think that that isn't it.
Stephen Trent: Run rate I would say for a level of engine capex.
Stephen Trent: That we've had but we will always have a level of engine Capex you can generally think about spare engines as somewhere around if there are say.
Stephen Trent: 4000, Max aircraft in the World. That's 8000 engines, they will generally be a spares requirement for 15% to us.
Stephen Trent: That's 1200 leap one b's if theres 8000, Neo say two to one that's 2004 hundred would be needed in the world. A total of 3600 that would build up over the course of the next five years six years a portion of those will be held by the airlines will be by far the biggest proportion of that globally.
Stephen Trent: You see we already are.
Stephen Trent: Even if we didn't buy any more we'd still be the biggest player for the next 10 years.
Speaker Change: Super helpful and guys I appreciate it and just a quick follow up I think I thought I heard you guys mentioned basically I believe an 84% renewal rate on aircraft leases.
Speaker Change: And could you refresh my memory first if I heard it correctly.
Speaker Change: He will give a high level view on.
Speaker Change: How that's evolved over the last couple of quarters as it sort of gone up or is it about the same thank you.
Well historically going back over a long time, it would've been 50% odd but over the last few years, it's trended around 90 odd percent now this quarter. It was a little bit lower than 90, but still extraordinarily high by historical standards and that's because as I called out we moved certain aircraft during the quarter we decide.
Speaker Change: Not to extend we moved them.
Speaker Change: 780 sevens from one customer to another and because of that we were able to increase the crowd us and increase the lease rentals also so you don't always extend because you know you need to make sure you get paid he certainly as we referenced at the start of this call extending reduces leasing expense. So that's an incentive for us to extend.
Speaker Change: There has to be a trade off there, where we still got a fair rental and on some 780 Sevens, we decided to pull them out and go elsewhere and that was the right thing to do but yes.
Speaker Change: If I look at the extension trends.
Speaker Change: 60% in 'twenty 165, and 22 75 in 'twenty, three and AC in 'twenty, four and it got up as high as 90 in some of the recent quarters, but so that's the situation.
Speaker Change: Evidence of demand.
Speaker Change: Very helpful. Thanks, very much.
Speaker Change: Youre welcome.
Speaker Change: Well hear next from Ron Epstein from Bank of America.
Ron Epstein: Hey, good morning, guys.
Hey, guys you spoke a little bit to this.
Speaker Change: C N N wide body demand I mean, when we look at it the fleet if we it seems like its aging.
Speaker Change: Are we moving up to a period, where we really could see a surge in demand for wide bodies.
Speaker Change: What we've been seeing very strong demand for wide bodies for quite some time, Ryan we were the first to see it and we were calling it out several years ago.
Speaker Change: Because we're the biggest owner of wide bodies in the world and we could see that demand is coming and it's unabated as I just referenced we pulled 300 787 dash nines out of a customer recently move them to another customer a better credit and materially higher lease rentals.
Speaker Change: We see we if there was more wide bodies in the world, which there arent.
Speaker Change: You could ship them Tomorrow morning, there's very strong demand for 770, <unk> <unk> hundred 58 hundreds.
Speaker Change: Got it got it and what's your expectation for Triple seven dash nine axis, when they start coming out.
Speaker Change: I think it'll be you know it'll it'll it'll be it's a very large aircraft I believe it'll be a very capable aircraft very fuel efficient aircraft and once it's in service you know you would imagine that as it's the largest aircraft out there.
Speaker Change: That that part of the market it should dominate.
Speaker Change: Got it got it got it and then kind of back to your commentary on the WTO agreement.
Speaker Change: It is the industry actively lobbying right now I mean, you know the automotive industry has got really loud and vocal in their lobby pretty hard.
Speaker Change: You see that at all in the aerospace industry and is as broadly anybody lobbying on the hill to try to move things in a direction that would get us back to at least where we were and maybe even a better place.
Speaker Change: I believe so around I believe so I mean this is.
Speaker Change: In large scale manufacturing this is where the U S leads the world by a country mile. This is an industry. The U S should protect and try and grow and I as I said in my comments earlier around the world.
Speaker Change: Will it be an amazing win for the administration to accomplish is to bring more countries into that zero for zero tariff agreement and that would really be quite the way and I would say for U S. Aerospace for U S manufacturing in the U S worker.
Speaker Change: Yeah, No I agree completely I, just wonder if anybody is actually pursuing that right now.
Speaker Change: <unk>.
Speaker Change: And then I believe they are.
Speaker Change: And then and then maybe one more question.
Speaker Change: And maybe just a broad question big question.
Speaker Change: Ultimately it does the 737 need to be replaced.
Speaker Change: Yeah, I've had some no concern for some investors.
Speaker Change: No it doesn't.
Speaker Change: No.
Speaker Change: No. It does not there's no I mean, what's the point.
The Max eight is a good area, but I need to get the Max 10, the Max seven into service. So that it's a more it's a better competitor for the 320 family.
Speaker Change: But I mean I just think if you were to go to any buyer of the boardroom overlay airline or lessor today, if you're Boeing or Airbus and say I've got a new airplane for you I'd say it makes sure that door doesn't hit you on the way out you've got to get to your existing aircraft you are building more reliable more durable in service.
Speaker Change: That's all I care about the ones you've built do not have the same reliability and durability as your previous generation. Please don't come in here and tell me you're going to have another swing.
Speaker Change: I want the stuff you've built to work better.
Speaker Change: What I want.
Got it got it all right cool thank you very much.
Rob: Thanks, Rob.
Rob: And at this time there are no callers in the queue. So I'd like to turn the conference back over to Angus Kelly for any additional or closing comments.
Rob: Thank you operator, and thanks to everyone for joining us for our first quarter earnings call. We look forward to speaking to you in three months time.
Rob: That does conclude today's teleconference. We thank you all for your participation you may now disconnect.
Rob: [music].
Rob: Right.
Rob: [music].