Good day and welcome to the AerCap Third Quarter 2020 Financial Results Call. 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 Mr. Joseph McGinley, Head, Investor Relations. Please go ahead, sir.

Thank you, operator, and hello, everyone. Welcome to our third quarter 2020 conference call. 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 call. Further information concerning issues that could materially affect performance can be found in AerCap’s earnings release dated November 10, 2020. A copy of the earnings release and conference call presentation are available on our website at aercap.com. This call is open to the public and is being webcast simultaneously at aercap.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. As a reminder, I would ask that analysts limit themselves to one question and one follow-up. I will now turn the call over to Aengus Kelly.

Thank you, Joe. Good morning, everyone. And thank you for joining us today for our third quarter earnings call. There are four key points that we would like to address on today's call. First, while there are still many challenges facing the aviation industry, we have seen a significant increase in air travel and in our cash flows from the lows of April. The positive developments announced yesterday regarding the near-term availability of a vaccine should provide a further boost to the industry. Second, throughout the pandemic, AerCap has taken numerous proactive steps to manage through this environment, including executing over $12 billion of liquidity initiatives, which resulted in the company ending the quarter with our strongest ever liquidity position. Third, COVID-19 is accelerating the pre-pandemic trend of airlines moving into new technology aircraft, of which AerCap is the world's largest owner. And fourth, we are confident that as the recovery continues, there will be ample opportunities for AerCap to deploy its capital. In March and April, there was widespread concern about whether air travel had permanently changed. Similar concerns prevailed immediately after 9/11 and during the depths of the financial crisis. In those cases, we heard the same extremely bearish predictions regarding the imminent demise of air travel. But after each of these events, air travel recovered, and it is recovering today. Over the summer, we saw rapid and significant increases in air travel all over the world in a relatively short period of time. In Europe, the number of flights increased from 2,000 a day in April to almost 19,000 a day by the end of August. In the U.S., traffic increased from a low of 87,000 passengers a day in April to almost 800,000 a day by early July. And last month, there were over 1 million passengers in a single day. And in China, they are now back to 100% of pre-pandemic domestic demand. All of these rebounds occurred in less than four months. So it is evident from these numbers that once they are allowed to fly, millions of people will quickly get back on board an airplane. As we look around the world today, we see the airline industry at various stages of recovery depending on the region. In the U.S. and Europe, we are currently between 35% and 45% of pre-pandemic flight levels. This is a significant recovery from the April lows, but there has been a pause in the recovery recently due to the resurgence of COVID-19 infections and the imposition of new quarantine periods. Yes, in China, in October, 600 million people traveled by air, road and rail during Golden Week. And in Latin America, passenger numbers continue to increase steadily. The one region of the world where we have not seen a material increase in passenger numbers is Southeast Asia due to the significant restrictions on international travel that are still in place in these countries. We have also seen a stabilization in the financial condition of many airlines. Buoyed by government support, significant funding in the capital markets and the ability to reduce costs, airlines have significantly extended their cash runway. Since the coronavirus outbreak, we have seen an extraordinary response from governments around the world to support their airlines. This includes almost $200 billion of direct assistance in the form of loans, payroll support, and other initiatives as well as billions more of indirect support provided by many countries. Governments around the world recognize that airlines are a critical part of the global infrastructure and country-specific economies. Airlines have also raised a record amount of funding from banks in the capital markets. The U.S. airlines alone have successfully raised over $40 billion since March. These factors, combined with the rise in passenger traffic, and the reduction of their expenses, will enable the vast majority of the world's airlines to navigate through this crisis. We at AerCap have experienced the improved conditions as well in the form of a significant increase in our cash collections, and a marked slowdown in rent deferral requests. So where do we go from here in terms of the airline industry’s recovery? In our view, the key metrics that we are using to gauge the industry's health is the point at which airlines are able to cover their cash operating costs. With today's low fuel prices, and the cost reduction programs that airlines around the world have implemented, we believe that airlines’ cash operating costs can be covered at around 60% of 2019 traffic levels. In contrast, AerCap does not need to see anything like the levels of airline profitability we witnessed in 2019 or otherwise over the last five years for our company to be successful. This is an important differentiator between leading lessors like AerCap and the airlines. In order to make progress towards the traffic levels at which the industry becomes profitable, there will be two key drivers. These are the standardization of pre-departure testing, as well as a successful vaccine. On both of these fronts, very significant progress is being made, particularly with regards to the vaccine. The very positive news yesterday from Pfizer on the 90% effectiveness of their vaccine in preventing COVID-19 infections will give travelers much greater confidence in booking flights, which will be a major positive for our airline customers. And on the testing side, there are various initiatives underway at airports around the world to support this goal that avoid placing pressure on existing national testing systems. Key among these is the European Union's recently introduced traffic light system, which all EU countries have signed up to. Once implemented, this will standardize measures across the continent, and will either remove or significantly reduce quarantine periods, thereby removing the uncertainty that is currently constraining passenger travel. Hong Kong and Singapore have also reached a preliminary agreement to establish an air travel bubble to reopen borders between the Asian financial hubs that will exempt travelers from current quarantine requirements. These systems may take several months to be fully implemented, just as it took time after 9/11 for governments to agree on new security protocols, but it is an important step and it will get done. The same is true in the U.S., where progress is being made on the implementation of rapid testing capabilities at airports such as San Francisco and Dallas. Another example of this from October was when Hawaii dropped its 14-day quarantine requirements, provided the passenger had a negative test within 72 hours of departure. Progress is also being made on both sides of the Atlantic to reopen the North Atlantic markets, which is the most important long-haul market in the world by far. Governments have spent far too much on their airlines now to make sure their most valuable routes reopen. We expect the measures taken to facilitate the reopening of these North Atlantic routes will likely serve as a template for other lucrative long-haul routes. As I said at the beginning, we believe that once consumers know for certain that they can fly, they will fly. Turning to AerCap. As I referenced earlier, our relentless focus on cash collection continues. We have collected significantly more cash month after month over the five months since April. This is evidenced by the improvements in our Q3 operating cash flow, which was up by more than 70% versus Q2. Of course, there are individual airlines that present challenges, but the vast majority of our customers continue to pay us every month. We have also seen a significant reduction in the number of new deferral requests. Our deferral balance itself increased by $56 million in the third quarter compared to a $288 million increase during the second quarter. Our placement activity also picked up in the quarter. And whilst we are not at the levels we saw in prior years, we continue to place our aircraft. Coming into this crisis, one of AerCap's advantages was that we have been significantly extending our average remaining lease term through the sales of older equipment and purchase of new technology aircraft on long-term leases. As a result, only 7% of our leases are scheduled to come off lease in the next two years. In addition, of the 933 aircraft in our fleet, only 42 are on lease to airlines involved in a Chapter 11-style process. This includes Norwegian airlines. We expect these airlines to emerge from Chapter 11 and to keep the vast majority of our aircraft on acceptable terms as they are predominantly new technology aircraft. This is evidenced by the fact that even now many of these aircraft continue to be operated by the airlines every week. It is worth noting that just because an aircraft is on lease to an airline in Chapter 11 or subject to a restructuring discussion, it does not mean that it won't be leased again. Any aircraft that we do take back would, of course, be leased to other airlines on long-term leases. These are long-lived assets that will generate cash well into the future. Please bear in mind that the AerCap platform has leased over 1,000 aircraft in the last five years. This is what we do. On the balance sheet side, we continue to actively manage our CapEx and debt maturities, leaving us with a record level of liquidity. As I noted previously, AerCap has already executed over $12 billion of liquidity initiatives in 2020. Our ratio of cash sources to cash uses for the next 12 months is currently 2.9 to 1, the highest level we have ever had. Turning to the asset side of the balance sheet. As we mentioned on the Q2 call, we felt it was important to take a detailed and conservative review of all of our aircraft in light of current events and changing outlooks. As you can see from the slide, our fleet consists of 62% new technology aircraft being the A320neo, Boeing 787, Airbus A350, and the Boeing MAX; 29% current technology narrow-bodies being the A320 and the Boeing 737; and 9% current technology wide-bodies being the Airbus A330 and the Boeing 777. Our new technology aircraft are the most in-demand models in the world and will form the backbone of the world fleet for the next 25 years. AerCap has more of these aircraft than any other airline or leasing company in the world. By comparison, only 12% of the global in-service passenger fleet was comprised of new technology aircraft at the beginning of the year. We expect to see solid demand for current technology narrow-bodies well into the future. One of the reasons for this is the late entry into service of the new technology narrow-body aircraft. Indeed, it can be said that the MAX is yet to enter service, and the ramp-up of A320neo production was much slower than anticipated due to its production problems. Based on the OEM's own production forecasts, new technology narrow-bodies will not make up the majority of the global narrow-body fleet until well into the next decade. In contrast, on the wide-body side, the Boeing 787 entered into service almost a decade ago in 2011. The Boeing 787 was followed in quick succession by the Airbus A350, the Airbus A330neo, the Boeing 777X, and the Boeing 747-8. This represented an unprecedented replacement wave of so many wide-body variants in such a short period of time. In response to this, beginning six years ago, AerCap implemented a deliberate portfolio strategy of reducing the number of current technology wide-body aircraft in our portfolio. We did this because we could see that over the course of the next decade, airlines would increasingly replace these types of aircraft with new technology versions that are more fuel-efficient and environmentally friendly. COVID-19 is accelerating this trend. When you see a trend where airlines begin to move out of a particular aircraft type, you need to get ahead of it and reduce your exposure to that asset type, especially the younger versions. We have been highlighting this to you for several years. In 2014, we had 33% of our fleet in current technology wide-body aircraft. Through our focused portfolio strategy, since then, we have reduced these aircraft types to only 9% of our portfolio today. Looking back on the last six years, where we sold almost 600 aircraft, generating consistent and significant gains on sale, we could see that our aircraft were prudently valued on our balance sheet and reflected our conservative approach to asset valuation and thoughtful approach to asset selection. This gave us significant headroom coming into the crisis. Given the impact of COVID-19 and airlines accelerating the move-out of current technology wide-body aircraft, we felt it would be prudent to update all of our assumptions. In Q3, we reviewed each aircraft line-by-line with a critical eye to ensuring that our assumptions were reflective not only of conditions today, but importantly, the conditions we believe are likely to prevail for the remaining useful life of each aircraft. As a result of this comprehensive review of our entire fleet, we have taken an impairment of $915 million that is focused primarily on current technology wide-bodies. Now switching to the future. You may have heard the saying about the aircraft leasing industry that when times are good, the airlines need our airplanes; and when times are tough, the airlines need our financing. I can tell you that over my 20-plus years in the industry, financing has been a much more profitable activity for leasing companies. Based on our experience of prior downturns, and the conversations I'm having with our airline partners around the world, I am confident there will be significant opportunities for AerCap to deploy capital attractively as the industry recovers. Importantly, we are in the fortunate position to have the financial wherewithal to do so. As airlines emerge from COVID-19, we expect that our main priorities will be to restore their balance sheets and to unwind themselves from government involvement. This means they will need to focus on repaying debt rather than directing capital towards new aircraft purchases. Prior to this year, there were still airlines whose strategy was to own their entire fleet. That strategy has proved itself to be redundant. We have already heard from a number of airlines that going forward, they plan to rely more on leasing. When you look back over AerCap's history of capital deployment, you will see that our strategy has been consistent for decades. It is simply the opportunity set that has changed each year. At different points in the cycle, we have been involved in large scale M&A, sale-leasebacks, share repurchases, and debt reduction in order to generate value for our shareholders. Take the sale-leaseback market as an example; during the financial crisis, we completed two of the largest sale-leasebacks ever done. However, as that market segment became more competitive, we found more attractive ways to deploy our capital. Over the next few years, as the industry recovers and airlines focus on repairing their balance sheets, we expect to see significant sale-leaseback opportunities, in particular, as the OEM production rates start to ramp up again. Given the broad impact of COVID-19 on sectors outside of aviation, I believe that the tourist capital that came into the leasing sector in recent years will exit and find other avenues elsewhere to be deployed. This may create opportunities for leading aircraft lessors like AerCap. Moving forward with a strong balance sheet, record levels of liquidity, and airlines that are motivated to lease aircraft, we believe that AerCap is well-positioned to come out stronger from this crisis. Pete will now take you through the financials.

Thanks, Gus. Good morning, everyone. In the third quarter, AerCap had a net loss of $850 million or $6.66 per share. This included a number of special non-cash items, including a write-off of $915 million related to flight equipment, a write-off of $58 million related to goodwill, and $128 million of mark-to-market movement on our Norwegian shares. We also recorded a $43 million loss on debt extinguishment related to the repayment of near-term debt maturities, which will be offset by lower interest expense in future quarters. Excluding these special items, our net income for the third quarter was $158 million, and our earnings per share was $1.24. Our total revenues for the third quarter were $1.27 billion compared to $1.194 billion last year. Basic lease rents were lower due to lease restructurings, aircraft transitions, and the impact of airline bankruptcies during the quarter. This includes the impact of cash accounting, which was around $100 million for the quarter. We have placed all of our lessees that are currently in bankruptcy proceedings and other restructurings or where we otherwise believe that the rent isn't probable of collection on cash accounting, which is where we only recognized payments that we received during the quarter as revenue. Our maintenance rents were $91 million in the third quarter, which was a little higher than last year due to lease terminations. In terms of aircraft sales, during the third quarter, we sold seven of our owned aircraft for a total of $63 million. The average age of the aircraft we sold was 19 years old. Our net gain on sales for the quarter was $7 million, which was lower than last year, primarily due to the lower volume of sales in the quarter. Our other income was $31 million for the third quarter, mainly due to higher interest income. Along with the recovery in passenger traffic, we saw a significant increase in our cash collections during the third quarter. Our operating cash flow for the quarter was $541 million, which was a 76% increase from the second quarter. As Gus mentioned, during the third quarter, we saw a slowing of new deferral activity. Our deferral balance was $485 million as of September 30th, which is around 10% of annual lease revenues compared to a balance of $429 million as of June 30th. So the increase in deferrals was only $56 million during the third quarter, and the vast majority of our airline customers continue to pay us every month. Our cash collection rate was around 80% for the third quarter; that is rent we collected during the quarter compared to what we normally would have collected under our leases. If we exclude rent deferrals from that number, the cash collection rate was around 90%. Each quarter, we review our aircraft for potential impairments. This involves forecasting on a plane-by-plane basis, the expected cash flows for the remaining useful life of each aircraft, and comparing those to our carrying value for that aircraft. In order to do this analysis, we updated our expected lease rents as well as our other cash flow assumptions for each aircraft. This involves not just an assessment of lease rents today, but looking at the entire future life of each aircraft and forecasting what the lease rents will be for future leases. The assumptions that we used reflected our current estimates of the impact of COVID-19 on aircraft demand both now and in the future. As a result of this review, we took an impairment charge of $915 million in the third quarter, which related predominantly to our Airbus A330 and Boeing 777 current technology wide-bodies. These aircraft types together now represent less than 10% of our total fleet. Our impairment of these aircraft is based on our view that the lease rents for these aircraft types will be lower in future years as we're seeing an increased number of airlines transitioning out of current technology wide-bodies and into new technology aircraft, such as Boeing 787s and Airbus A350s. Therefore, we decided it was appropriate to lower our assumptions for the future cash flows associated with our Airbus A330 and Boeing 777 aircraft. We've always taken a proactive approach to looking at our fleet values, and that's why we think it's prudent to take this action today. We had minimal impairments on our current technology narrow-body aircraft, which make up 29% of our fleet, and we had no impairments on our new technology aircraft, which make up 62% of our fleet, as we believe there will continue to be strong demand for these aircraft types in the future, and they'll continue to form the backbone of the global fleet. And having completed this comprehensive review of all of our aircraft, going forward, we don't expect to see further meaningful impairment of any aircraft types in our fleet. We continue to see the benefits of having strong global access to funding. Since the beginning of April, we've raised $6.5 billion of new funding, both unsecured and secured. We've seen strong demand from the capital markets and from banks and other funding sources. The average cost of the debt we've raised this year is around 3.9%, which is in line with our overall average cost of debt of 4%. And we've used a substantial portion of the proceeds of these offerings to retire close to $4 billion of debt maturing over the next couple of years. Working with the OEMs, we’ve reduced our CapEx for 2020 and 2021 by almost $6 billion, which is a 65% reduction from where we started the year. We currently expect to have around $300 million of CapEx for the fourth quarter and around $1.8 billion in 2021. Overall, we rescheduled deliveries of over 90 aircraft from 2020 and 2021 into later years, generally 2 to 3 years later than the original delivery date. On our second quarter earnings call, we announced that we had canceled orders for 15 Boeing 737 MAX aircraft. In addition to these, we canceled orders for nine more MAX aircraft during the third quarter. We currently have 71 MAXs remaining on order. As a result of the liquidity actions we've taken and the improvement in our cash flows, we ended the third quarter with a record liquidity position. Our total sources of liquidity were $11.2 billion, which gives us a next 12-month sources to uses ratio of 2.9 times, the highest it's ever been. Our excess cash coverage is also a record $7.4 billion. We continue to maintain a very strong balance sheet; our leverage ratio is currently 2.67 to 1, which remains below our target ratio of 2.7 to 1. Our secured debt percentage continues to remain low at 24% of total assets. And we have $26 billion worth of unencumbered flight equipment, which can be used for additional financing in the future. Going forward, we'll continue to maintain a very strong liquidity position. We believe that's the prudent thing to do in the current environment. We'll continue to run at a higher liquidity level of at least 1.5 times sources to uses coverage until things normalize. Our strong liquidity position and prudent liquidity management have been recognized by the rating agencies. During the third quarter, both Moody's and Fitch reaffirmed our investment-grade ratings. And in their commentary, they highlighted our strong liquidity and the actions we've taken to enhance it, as well as the strength of our operating platforms. So since the start of the pandemic, all three rating agencies have affirmed our investment-grade ratings. This, of course, continues to be a very challenging time for the aviation industry. But with our strong balance sheet, our record liquidity, and our unmatched operating platform, as well as the actions we've taken this quarter, we remain well-positioned to continue to weather this storm and to take advantage of the opportunities that will arise as the recovery continues. And with that, operator, you can open up the call for Q&A.

We will now take our first question from Helane Becker of Cowen.

Just a couple of questions. I know that you look at the values of the aircraft. Can you just talk me through how you came to those numbers for the majority of aircraft that you wrote down? Is it just the discounted cash flows that came along?

Certainly, Helane. During our impairment test, we assess the long-term cash flows connected to each aircraft. We analyze the current lease rents, future lease rents we anticipate for those aircraft, maintenance rents, and all related cash flows. This evaluation is then compared to the book value. If there is a shortfall in our expectations, we reduce it to the discounted value. What we've observed with the A330s and 777s is that airlines are increasingly moving away from these types of aircraft, which we believe will affect their lease rents going forward.

Okay. And then I don't know about the Norwegian investment. I think you have somebody from the company on the Board, and it looks like they're going to have some trouble getting through the winter. And I was just kind of wondering how you're thinking about that and if you're considering kicking your aircraft back there?

Let me talk about the aircraft first. And we have already leased two of the airplanes we have with Norwegian, two 787s. They're under lease contract with a new carrier. And the remaining 787s we are marketing at the moment as well, as these are new technology wide-bodies, the most in demand; we will get those leased again.

We will now move on to our next question from Jamie Baker of JPMorgan.

Gus, could you hazard a guess when you think the leasing industry crosses that 50% threshold of the global fleet? And also I agree with you that we're going to see greater use of leases as airlines try to variabilize their cost structures, recognizing that's not an actual English word, but you get the point. I suspect that CFOs are also going to gravitate towards shorter duration. Do you agree with that? And how does that change your business if duration declines by several years?

Regarding your first question, Jamie, the pace at which operating leasing will reach 50% has increased. I am confident that as airlines recover from this crisis, their primary focus will be reducing their debt, especially those that have received government assistance. Government involvement can limit their strategic capabilities and hinder their own interests. We saw a similar situation during the financial crisis with banks. I don’t see airlines investing billions of dollars into the industry. Instead, we are observing a faster shift towards new technology aircraft, especially wide-body planes, which will lead to greater leasing activity. How quickly they'll reach 50%? I would estimate that we will see it within the next three years, or 36 months, because airlines recognize the substantial benefits that leasing provides for fleet management strategies. Globally, airlines that primarily own their fleets have expressed an intention to increase their use of leasing.

And on lease duration?

On the lease duration, that will be a negotiated one, Jamie. Of course, it will depend on the bargaining position of both counterparties. The lessors will push, no doubt for the longest term and lessees will want the shortest term. I think that will just be a question of the varying leverage of the two parties.

That's great. For my second question, which is a follow-up to Helane's, you decided to leave aircraft at Norwegian. Going forward, how are you handling stress at this point? Are you considering pulling out aircraft earlier? Has your strategy changed with the increase in flights, especially among some airlines in the Eastern part of the world? Essentially, are you feeling more confident now based on what you're observing in the market?

Jamie, our approach remains the same. During April, May, and June, it was quite challenging to find homes for airplanes. Therefore, if you could store them, maintain them under an operating certificate, and manage the associated storage and maintenance costs, it was more beneficial to leave the aircraft there, especially if the airline was still operational. We have already signed two 787s from Norwegian to a new customer, and we are also marketing the remaining ones.

We will now move on to our next question from Ross Harvey of Davy.

My question is on impairment charge. I'm just wondering, can you give us a sense as much as you can of the scale of future lease reductions or remaining useful life change that drove the impairment in this quarter and whether they were applied to all the 777s and 330s? And maybe Pete as well, you alluded to this, but more broadly, I wanted to clarify, did the review suggest to you that there may be impairments over the next, say, six to 12 months on the current tech narrow-bodies or new tech wide-bodies? Or was there kind of a very sufficient margin of safety there?

Sure. Thanks, Ross. We conducted a thorough review of our entire fleet, evaluating each aircraft individually. This analysis was not limited to just the A330s and 777s but included all planes. We assessed cash flows for every aircraft, considering the current environment and lease rates today, as well as future impacts from the COVID-19 pandemic on those lease rates. As a result, we anticipate lower lease rents now, but for almost all aircraft types, a recovery is expected in the future. However, we foresee a permanent reduction in lease rents for the A330s and 777s, which is reflected in our analysis. Other factors, such as useful lives, aircraft downtime, and maintenance costs, also played a role in this assessment. Regarding the second part of your question about our fleet, the A330s and 777s account for 9% of our total fleet. Current technology narrow-bodies represent 29% of our fleet, and we expect strong demand for these aircraft moving forward. Additionally, these narrow-bodies will not be replaced by new technology aircraft until well into the next decade. New tech aircraft, comprising 62% of our fleet, are the most sought after and are expected to be the core of the global fleet for the next 25 years. Consequently, as stated in my prepared remarks, we do not anticipate any significant impairments in any segment of our fleet in the near future.

Great. And one quick follow-up, if I may. The expected 12 months operating cash flow now is $2.2 billion kind of average is about $550 million a quarter, which is kind of broadly in line with what Q3 was. I'm just wondering, does that include or not any material leasing in the receivables balance? And if so, have you baked in any additional deferrals? And that's it for me.

We've considered our expectations regarding deferrals. In the last quarter, I mentioned that I anticipated the deferral balance would grow to around $700 million to $800 million over time. However, looking at the current situation, I believe it will peak at a lower amount than that. We have included these expectations in our projected $2.2 billion of operating cash flow for the next 12 months. This figure represents our estimate for cash flow over the next year. As you may have noticed, we saw a significant improvement in cash flow last quarter, which increased by 76%. We expect to see a gradual rise in cash flow over the next year as well.

We will now move on to our next question from Koosh Patel of Deutsche Bank.

You've mentioned that over the last few years, there has been significant capital investment from what you call tourist capital, and now you're observing that some of this is retracting, which may create potential opportunities in the market for acquisitions. How do you anticipate this will unfold? Do you foresee this manifesting as large-scale mergers and acquisitions, or do you think it will be more about acquiring asset portfolios or individual opportunities that may arise?

It's reasonable to conclude that those who entered the sector seeking yield over the past five to six years, believing it operated like a spread business without needing a robust operational platform, have realized that assumption is incorrect. A global platform is essential for running this business. We've already seen many decide against building a comprehensive operating platform, and frankly, it's too late for that. Consequently, I expect that these participants will refrain from deploying additional capital into the sector, resulting in less new investment compared to the last five years. On the flip side, I anticipate an increased demand for aircraft leasing products. This is how I see the situation evolving.

Great. And then you mentioned that there are 42 aircraft on lease to airlines involved in Chapter 11-like processes in your portfolio. I just wanted to see, could you clarify how many of those aircraft are new technology wide-bodies? And I guess, what can you tell us about what you're seeing in the marketing environment for those aircraft right now?

Most of those aircraft are new technology wide-body airplanes. And as I said, they include our Norwegian one. What we are seeing is that even though the airlines are in Chapter 11 or an equivalent thereof, they continue to operate the airplanes, which means they have an obligation to pay us as well for the operation of those assets. We would expect, as I said in my prepared comments, that those airlines will continue to lease the majority of those aircraft on acceptable terms.

We will now move on to our next question from Catherine O'Brien of Goldman Sachs.

Maybe just a quick one on the sale-leaseback opportunity. Do you feel that we've reached a point where it's okay for you to start moving forward with some of these transactions? You have a good sense of what airlines are capitalized well enough to continue making payments, or is the rise in cases making you take a little bit of a further pause? Just wondering like what would lead to us seeing some transaction announcements from you guys?

There have been a very limited number of sale-leasebacks executed over the course of the last few months; some of them have been in the public arena. And of course, we look at those. Now what I do expect, however, is that as production and delivery ramps up from the OEMs, the demand for sale-leasebacks will become much more urgent. And I believe the leverage dynamic will be more in our favor. Right now, we have all-time lows of deliveries from Boeing and Airbus. Boeing isn't delivering anything really except a handful of wide-bodies a month. And Airbus' own production is significantly down. So Catherine, I think that as we go into the New Year and the OEMs start to deliver more aircraft, there will be a more pressing demand for the sale-leaseback product.

That makes a lot of sense. I have two quick follow-ups, potentially for Pete. First, is the reason you expect deferral to peak lower than your previous expectation due to better repayment rates? And just one more on Norwegian: should we anticipate any further financial headwinds as you phase out the remaining aircraft? Or is everything already accounted for in cash terms, so the impact is consistent with how Norwegians are typically recorded?

Yes. Sure. Regarding the first question, it’s primarily because we have observed a decrease in deferral activity. There has been a slowdown, and as indicated in the second quarter, the increase was only $59 million, which is significantly less than what we experienced in the previous quarter. Given this trend, I believe that the peak is likely to be below the $700 million to $800 million range I mentioned in the second quarter. As for Norwegian, we hold shares and perpetual securities from Norwegian on our balance sheet, along with an offsetting provision. Therefore, we do not anticipate any negative net impact from Norwegian going forward.

We will now move on to our next question from Ron Epstein of Bank of America.

Just a couple of small things. During the quarter, last quarter, you guys mentioned 15% of your revenue, where you had a number of lessors on cash accounting. How did that compare to this quarter?

It was about the same, Ron, again, 15%. Not really many additions to what we had from last quarter.

Okay. Great. Great. And then maybe another question on the product front. Does the narrow-body shift towards the A320 family away from the 737 family given Airbus' market share pickup? Does that play pretty well for you given your fleet and what you're planning for the future?

Well, it does, Ron, because we saw it a long time before anyone else, and that's why we're the biggest lessor in the world of A320neos. And we could see that coming, like we also saw on the current technology wide-bodies. Because we are the biggest in the world, we get more information than anyone. We see trends before anyone else sees them, and we could see that, that was happening on the A320neo, the A321neo, and we could see it on the 777 family and the 330 family.

Now in your view, do you think Boeing has to do something to counter the A320neo XLR?

The way it works in the aircraft market is that the Boeing 737 MAX 10 can do a lot of the missions that the A321 XLR does. Not everybody wants to fly a narrow-body from Dublin to Miami. It's a long way to go in a narrow-body tube. So, we could say to themselves, you know what, we're just going to concede that niche end of the market. And yes, we have an airplane that's less capable. But by reducing the cost of the aircraft, we can make it a very competitive airplane, which is exactly what Airbus did with the A320 for many years against the 737NG when the NG had superior operating performance, but the Airbus airplane was good enough that with a slight price reduction below the competitor airplane, it was a competitive aircraft.

And then if I may, just one last question. On a typical 777-300ER middle-aged, how much do you think the residual value has been impacted because of what's going on in the market on top of the pandemic?

Well, look, Ron, it's hard to say specific numbers, but we saw it six years ago, again, because we see more data than anybody else in the world. We see more of what airlines are doing. And that's why we acted so much on it over the course of the last six years, reducing the fleet from a third of the fleet to 9%, and that wasn't done by balance sheet growth. In fact, the value of our assets stayed constant or shrank slightly. So what I would say to you is that it's very much case-by-case, but we have our own view of it, and we have acted accordingly with our own airplanes.

We will next question from Moshe Orenbuch with Credit Suisse.

Gus, both you and Pete mentioned feeling comfortable with the level of charges regarding the portfolio's value. Can you discuss the conversations you had with the rating agencies about this? Additionally, at what point do you feel it's appropriate to take a more aggressive approach rather than a defensive one?

Sure. So yes, we've discussed those with the rating agencies and previewed them with them. I mean, from the rating agencies perspective, their main focus in this regard has been on where our leverage ratio is, if we take an impairment. And so as you see, we've done this comprehensive review on the fleet, I don't see anything else out there. And having done that, we're at 2.67 to 1. So that's below our target ratio of 2.7 to 1. It's in line with or below, where all the rating agencies want us to be in terms of our leverage ratio. So I think from that standpoint, I think that should be fine. I don't expect any negative reaction as a result of that. Gus, do you want to comment on offenses?

And as we said, look, the company is in the strongest liquidity position it has ever been in. We do believe that there'll be ample opportunity as we get to the other side of this crisis. And the focus of airlines, as I mentioned in my prepared comments, will be to delever the balance sheet and, in particular, unwind themselves from government debt. Also, I believe there will be fewer competitors for us. I think the tourist capital that came into the sector, as I said, that believed it was a spread business, they are leaving the sector. So I do think that there will be ample opportunity. And if you look at our track record, over the course of the last 10 years, we've engaged in the largest sale-leasebacks ever done, the largest M&A ever done, the largest ordering, the largest buybacks ever done. And so we're always looking at the alternatives that are there to maximize the value of the business for our shareholders.

Pete, I have a quick follow-up regarding the cash flow question. Since you now anticipate that the deferral balance will peak at a lower level, are there other factors to consider? In other words, your 12-month forecast seems to be essentially an annualized version of the Q3 cash flow. What other influences should we account for? Could it possibly exceed the $2.2 billion estimate?

It could be better. As we look ahead, we are projecting a gradual recovery in air travel. The winter season is typically slower for airlines, so we will need to monitor the situation over the next few quarters. However, we are noticing some positive trends in pre-departure testing protocols and better coordination among governments regarding quarantine periods. Additionally, the progress of vaccine development will play a crucial role. All these factors are important variables to consider. We haven't been overly optimistic about assuming a rapid recovery in cash flows.

It appears there are no further questions at this time. I'd like to hand the conference back to Mr. Aengus Kelly, CEO of AerCap.

Thank you all for joining us today. To sum up, the four key points I hope you will take away are: one, we are witnessing a significant increase in air travel and in our cash flows from the lows of April; two, AerCap has a strong balance sheet and the strongest liquidity position we've ever had; three, COVID-19 is accelerating the pre-pandemic trend of airlines moving into new technology aircraft, and AerCap has the most new technology aircraft in the world; four, we are confident that as the recovery continues, there will be ample attractive opportunities for AerCap to deploy our capital. Thank you all for your time. We look forward to talking to you in three months' time.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.