Good day and welcome to the AerCap Holdings NV Q1 2024 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’d like to turn the conference over to Joseph McGinely, Head of Investor Relations. Please go ahead, sir.

Thank you, operator, and hello, everyone. Welcome to our first quarter 2024 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 May 1, 2024. 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 for joining us for our first quarter 2024 earnings call. I am pleased to report that the AerCap platform has delivered another quarter of consistent earnings and profitability. During the first quarter, we generated $3.29 of adjusted earnings per share, up 40% over last year, and adjusted net income of $658 million. Importantly, we continued our consistent increases in book value per share, which was up 27% year-on-year to $87.47. As a result of this strong first quarter performance and the improving outlook, we are increasing our full year 2024 guidance to approximately $9.20 per share. As I mentioned on our last call, the focus of the entire AerCap management team is on maximizing value for you, our shareholders. Our focus is on earnings per share and book value per share growth not just for an individual quarter, but for the long-term. On the operational side, which underpins everything we do, the platform continues to work well, executing 152 transactions in the quarter. Demand for travel continues to rise, particularly in China, where new passenger records were set in the first quarter. Airlines in China flew almost 180 million people in Q1, including 14 million international trips, which is still 22% behind the 2019 international levels. The continued supply/demand imbalance creates significant pricing tensions, where we regularly have multiple bidders for available aircraft. On the used aircraft side, we signed lease agreements for A320ceos, Embraer E1s, 737 Freighters, and 777s. On the new side, demand remains robust. We are sold out entirely on 787s, A330neos, Embraer E2s, and Airbus A220s, with enviable slots on the 320neos and 737 MAX programs. Frankly, the most challenging issue we face is trying to predict with certainty the month or even quarter that these new aircraft will actually deliver from the manufacturers. Turning to the engine business, it continues to present opportunities reflected in healthy activity in the period, and I look forward to discussing this subject with you next week. Finally, on the helicopter side, we saw good demand in the first quarter for our Sikorsky 92s, where we signed up extensions and new agreements with a number of operators. In summary, this was another strong quarter for AerCap. Demand remains robust, past generation is strong, and earnings per share grew by over 40% year-on-year. The company and industry continue to benefit from a positive macro backdrop, and we are well-positioned to take advantage of this for the years to come. With that, I will hand it over to Pete before we have the Q&A session. Thank you.

Thanks, Gus. Good morning, everyone. Our GAAP net income for the first quarter was $604 million or $3.02 per share. The impact of purchase accounting adjustments was $86 million for the quarter. That includes lease premium amortization of $33 million, which reduced basic lease rents, maintenance rights amortization of $35 million, which reduced maintenance revenue, and maintenance rights and lease premium amortization of $17 million, which increased leasing expenses. During the first quarter, we recognized $23 million of net recoveries, which are included in net recoveries related to the Ukraine conflict. The tax effect of the purchase accounting adjustments and net recoveries related to the Ukraine conflict was $9 million. So, taking all of that into account, our adjusted net income for the first quarter was $658 million or $3.29 per share. I'll briefly go through the main drivers that affected our results for the first quarter. Basic lease rents were $1,586 million, an increase of $10 million from last quarter. As I mentioned, basic lease rents reflected $33 million of lease premium amortization, which reduces basic lease rents. Lease premium assets are amortized over the remaining term of the lease as a reduction to basic lease rents. Maintenance revenues for the first quarter were $179 million, and that reflects $35 million of maintenance rights assets that were amortized to maintenance revenue during the quarter. So in other words, maintenance revenue would have been $35 million higher, or $214 million without this amortization. Maintenance revenues were higher than normal during the quarter due to cash collections and the timing of maintenance events. Net gain on sale of assets was $160 million for the quarter. We sold 43 of our owned assets during the first quarter for total sales revenue of $920 million, which resulted in an unlevered gain on sale margin of 21% for the first quarter. As of March 31st, we had $459 million worth of assets held for sale. Other income was $93 million for the quarter, which consisted primarily of interest income and certain one-time items. Interest expense was $492 million, which included $3 million of mark-to-market losses on interest rate derivatives. Leasing expenses were $149 million for the quarter, including $17 million of maintenance rights and lease premium amortization expenses. Income tax expense for the first quarter was $94 million, which represented an effective tax rate of 14.3%. That included a discrete tax benefit of $8 million that we recognized in the quarter. Excluding this tax benefit, our effective tax rate was 15.5%. We continue to maintain a strong liquidity position. As of March 31st, our total sources of liquidity were approximately $19 billion, which resulted in next 12 months sources to uses coverage ratio of 1.7 times. That remains well above our target of 1.2 times coverage and represents excess cash coverage of around $8 billion. Our leverage ratio at the end of the quarter was 2.4 to 1, a decrease from 2.47 to 1 at the end of 2023. Our operating cash flow was approximately $1.4 billion for the first quarter, driven by continued strong cash collections. Our secured debt to total assets ratio was around 14% at the end of March, in line with prior quarters. Our average cost of debt was 3.9% for the first quarter, and during the first quarter, we purchased 4.3 million shares at an average price of $77.89 for a total of $336 million. Our book value per share as of March 31st was $87.47, an increase of 27% over the last 12 months. In February, we projected adjusted earnings per share of $7.50 to $8.50 for the full year 2024 before any gains on sale. Given the strong performance this quarter, including higher maintenance revenues, we're raising our guidance to the top end of that range. So, we now expect adjusted EPS before any gains on sale of approximately $8.50 for the full year 2024. We had around $0.70 of gains on sale in the first quarter, so when we add those gains that takes us to a new estimate of approximately $9.20 of EPS for the full year 2024, not including any gains on sale for the remainder of the year. So, overall, the strong performance that we had in 2023 has continued in the first quarter of 2024 and you can see that in our results. We continue to see a strong environment for leasing as well as for aircraft sales, which was reflected in the gain on sale margin this quarter. We also continue to generate a significant amount of excess capital during the quarter and ended with a leverage ratio of 2.4 to 1. With these strong results and a positive outlook going forward, we're now raising our guidance to the top end of our previous range. Now with that operator, we can now open up the call for Q&A.

Thank you. Since the company will hold the Capital Markets Day next week, we request that analysts limit their questions today to the quarter. We'll begin with Terry Ma from Barclays.

Hey, thank you. Good morning. Your net spread was down about 10 basis points quarter-over-quarter, but if I remember correctly, I think PBH should have been a 30 basis point impact. So, maybe just walk through the moving pieces to net spread this quarter and maybe just the outlook for the rest of the year.

Sure. You're correct. We mentioned last quarter that PBH would affect net spread, which decreased by 10 basis points compared to the previous quarter. This was slightly less than we anticipated because we had more PBH rents this quarter than we originally expected. However, this impact will lessen in the next quarter. It's important to note that while net spread is a metric we monitor, it is not the sole focus of our management efforts.

Got it. That's helpful. And then, you guys raised the guidance excluding gains on sale toward the high-end, but it just still feels pretty conservative to me just given what you did in Q1. I understand there are some one-time items. So, maybe can you just walk through what's contemplated in the guidance for the rest of the year and maybe just speak to where the areas of conservatism are.

Sure. Well, I'd say across the board, if you look back at the line items that I presented last quarter, I'd say we're pretty similar on most of them for the full year. We did have some higher maintenance revenue during the first quarter. That was due to higher cash collections as well as the timing of events. And as we've talked about many times, maintenance can move around. That can be lumpy quarter-to-quarter. So, maintenance came in a little stronger in the first quarter. We had a little bit higher other income in the first quarter as well. So, those were some of the drivers and a small tax benefit that I mentioned. So, those were some of the things that helped in the first quarter. I'd say as we look out for the rest of the year, and I mentioned this when we gave the guidance on the last earnings call, we do have some contingencies in there for defaults and things like that. And so, those are still in there and we've kept them in for the rest of the year. Hopefully, we'll do better than those, but at this point, we haven't changed any of that.

Great. Thank you.

Sure.

We'll go next to Jamie Baker with JP Morgan.

Good afternoon, everyone. I was hoping you could provide an example of current lease rates for deals expiring in late 2025 or early 2026, considering the economics reflected in today's results. We often get questions about the lag between signing deals and their effect on the income statement. A portion of today's results was secured 18 to 24 months ago. I'm looking for a straightforward example, such as the tenured 320s, where renewals are coming in now for leases that won’t take effect until late next year.

Well, Jamie, the good news is we're going to answer that in detail next week at the Investor Day. Peter Anderson, our Chief Commercial Officer, will provide examples of 320s and 787s, which are our main aircraft types and make up a significant majority of our fleet. He will demonstrate the rate of increase and when it will impact the revenue line.

That's very helpful. We will be there. I believe most of my investors are considering this, so you've given us something to look forward to. I have a quick follow-up regarding the 35 aircraft you sold during the quarter. Can you provide any insights on geographic distribution? In previous quarters, we've noticed a focus on North America. Is that still true? I understand it wasn't a large quantity of aircraft.

Well, it was widespread, but again, as we've mentioned in prior quarters, our exposure to China is coming down, and by dollar value, that would have been the biggest component of sales, which would have been China-based sales.

Okay, helpful. See you next week. Thank you.

Thank you.

We'll go next to Hillary Cacanando with Deutsche Bank.

Hi, thank you for taking my question. Could you buy back any shares so far in the second quarter? And in your guidance, are you assuming repurchases of $500 million authorized last quarter, and perhaps any other repurchases beyond that in your guidance? And also, I was wondering if you will consider paying a dividend as well, given that leverage to clients seems to be outpacing maybe the ability to buy back shares?

Thank you, Hillary. We have repurchased about 1.2 million shares in the second quarter so far, bringing the total for the year to approximately 5.5 million shares at around $435 million. Based on our guidance, we expect to utilize our full authorization for the year, leaving us with about $350 million remaining. Additionally, as we generate excess capital, we anticipate deploying a significant portion of that towards share repurchases throughout the year. The final amount will depend on our performance, the amount of excess capital we generate, and other opportunities. We will discuss our capital allocation strategy further next week.

Okay, got it. And then, there was an article in the journal this morning saying that Embraer is exploring plans to introduce an aircraft to rival Boeing 737 and A321 in the narrowbody market, according to sources. So, just wanted to get your thoughts on how likely you think that is, and if you think that would be good for the market to have another player come in, and ultimately, would that be good for the lessors?

I mean, Hillary, I think over the long-term, it may well be helpful. However, I doubt we'll see anything in material numbers before the end of the 2030s. It's just impossible to develop a new aircraft, particularly if you need a new engine technology. You would have to be well down the track already to have that delivering this side of 2030. So, that's not happening. It'll be mid-2030s at best, if they even do it. The financial resources required to do that are extraordinary to compete with the capability of Airbus and Boeing. I think it's a long shot, to be honest, and even if it does come off, I don't think it'll be relevant for the next 15 years.

Got it. Just one quick follow-up question. Then, where does China's Comac stand in terms of the people's perception of that and where you think that product is going?

You've seen the announcements of recent sales to the Chinese majors of Comac. However, it's important to recognize that the journey to become a global player in aerospace manufacturing is long. They currently have one airplane that is technologically behind the Neo and the MAX. To effectively compete with these aircraft, they would need to develop three or four planes in the same family, which are not even in the works yet. While there is hope for competition, I believe it will be well into the late 2030s, possibly even the mid-2030s, before they can operate an aircraft at a level that could rival Boeing and Airbus, and that might be optimistic.

Got it. Great. Thank you so much.

We'll go next to Helane Becker with TD Cowan.

Thanks very much, operator. Pete, I was just wondering about the assets held for sale increasing from 296 at the end of the year to 459. Can you just give some color on what those assets are, what families they're in, et cetera?

Sure. Well, it's mainly aircraft. It's primarily aircraft and some engines that are included in those assets held for sale. And those are assets that we would expect most of those sales to come through next quarter. Obviously, you never know exactly what the timing of that will be, but I would expect probably over the next two quarters that most of those would be completed.

My follow-up question is regarding the earnings as you consider it, and you may discuss this next week. We often receive two major questions. One is about capital allocation, which you mentioned you will cover next week, and the other is about how performance improves from here. You might have addressed that in Jamie's question, which you will also speak to next week. Another inquiry we frequently receive from investors is how the company plans to increase earnings from 320 in this first quarter to a stronger number in the first quarter of 25.

Well, Helane, we'll talk about both of those topics next week. Of course, I would always look to the history of this company, and you've seen the tremendous stability of our earnings over a very long period of time through various different issues. But we will talk about the outlook for the business extensively next week. So, once again, I'd encourage you all to be at the pier.

All right. Thanks, team. I appreciate the time.

Sure. Thanks, Helane.

We'll go next to Chris Stathoulopoulos with Susquehanna International Group.

Good morning. Thanks for taking my question. So, I think in your prepared remarks, you spoke about, I guess, managing the timetable for deliveries. And it's a question I've gotten recently, but I'm pretty sure you've addressed this on your last, if not the call before that. So, if you could just kind of walk us through how you're managing that risk around deliveries. And is there a risk that carriers could potentially cancel orders or defer them as they look to smooth out or derisk their order books? Thank you.

Thank you. The main concern with late deliveries is the uncertainty surrounding them. When a delivery is late but the date is reliable, airlines can plan accordingly. The difficulty arises when the expected delivery date keeps changing, especially close to the delivery time. For instance, if an airline is anticipating receiving an aircraft for the summer but it arrives in November instead, they are not interested in that timing because they rely on summer operations for revenue. They typically experience losses in the fourth and first quarters. This creates a significant challenge for our airline customers as they try to navigate the mismatch between when they want aircraft and when they actually receive them. We actively collaborate with both airlines and manufacturers to address these issues. Regarding your second question about whether airlines can cancel aircraft orders, yes, they can after meeting specific conditions over a certain period. However, we have protection in place with manufacturers that prevents us from being adversely affected if cancellations occur. Currently, we do not anticipate such situations as there is a global shortage of aircraft. We will elaborate on this topic next week, including our forecasts for aircraft supply and how the MRO situation is influencing demand.

Okay. Thank you. And then on the $160 million in gains on sale in 1Q, could you just walk us through what you’re seeing in the secondary market? If there are perhaps certain aircraft that are in vintage that are doing better, any color around the various pieces of the sales in the quarter would be helpful. Thank you.

Well, that's one area I'm going to tackle in quite a bit of detail next week to try to explain to you all how the different things that are happening in the market are impacting different aircraft values and engine values. So, again, I would encourage you to come along next week where we'll have a more extensive discussion around that and the factors that are driving aircraft values higher.

Okay, looking forward to it. Thank you.

At this time, there are no further questions. I will now turn the call back to Aengus Kelly for closing remarks.

Thank you, operator. And thank you everyone for joining us on the call. In closing, AerCap has produced another excellent quarter of earnings and cash flows. As I referenced, we're hosting our 2024 Capital Markets Day in New York next week on May 8th, and we hope to see as many of you as possible at the event, where you'll also get a chance to hear from a broad selection of the AerCap management team. So, thank you very much.

This concludes today's conference. Thank you for your participation. You may now disconnect.