Earnings Call Transcript - AL Q1 2023

Operator, Operator

Good afternoon. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the Air Lease Corporation Fourth Quarter Earnings Conference Call. I will now turn the call over to Mr. Jason Arnold, Head of Investor Relations. Mr. Arnold, you may begin.

Jason Arnold, Head of Investor Relations

Thanks, Regina and good afternoon, everyone. Welcome to Air Lease Corporation's first quarter 2023 earnings call. This is Jason Arnold. I'm joined this afternoon by Steve Hazy, our Executive Chairman; John Plueger, our Chief Executive Officer and President; and Greg Willis, our Executive Vice President and Chief Financial Officer. Earlier today, we published our first quarter 2023 results. A copy of our earnings release is available on the investor section of our website at www.airleasecorp.com. This conference call is being webcast and recorded today, Monday, May 1, 2023, and the webcast will be available for replay on our website. At this time, all participants to the call are in listen-only mode. Before we begin, please note that certain statements in this conference call, including certain answers to your questions, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. This includes, without limitation, statements regarding the state of the airline industry, including the impact of rising interest rates and inflation, the impact of sanctions imposed on Russia and aircraft delivery delays, our future operations and performance, revenues, operating expenses, stock-based compensation expense, and other income and expense items. These statements and any projections as to our future performance represent management's estimates for future results and speak only as of today, May 1, 2023. These estimates involve risks and uncertainties that could cause actual results to differ materially from expectations. Please refer to our filings with the Securities and Exchange Commission for a more detailed description of risk factors that may affect our results. Air Lease Corporation assumes no obligation to update any forward-looking statements or information in light of new information or future events. In addition, we may discuss certain financial measures such as adjusted net income before income taxes, adjusted diluted earnings per share before income taxes, and adjusted pretax return on equity which are non-GAAP measures. A description of our reasons for utilizing these non-GAAP measures as well as our definition of them and the reconciliation to corresponding GAAP measures can be found in the earnings release and the 10-Q we issued today. This release can be found in both the Investors and the Press section of our website at airleasecorp.com. As a reminder, unauthorized recording of this conference call is not permitted. I'd like to turn the call over to our Chief Executive Officer and President, John Plueger now. John?

John Plueger, CEO and President

Thank you, Jason. Good afternoon and thank you all for joining us today. I'm pleased to report that we generated $636 million in total revenue during the first quarter and diluted EPS of $1.06 per share. First quarter revenue was another record for ALC, primarily driven by the strong growth of our fleet this quarter. This increase was partially offset by elevated operating expenses which Greg will cover in more detail in a moment. We purchased 22 new aircraft during the quarter, adding approximately $1.4 billion of flight equipment to our balance sheet and sold two aircraft. Our utilization rate remains strong at 99.9%, reflecting the continued high demand for the new commercial aircraft in our fleet. As of today, 93% of our deliveries through 2024 are placed and we placed 57% of our total order book. As we've commented in recent quarters, airline customer demand is strong and seems only to continue to accelerate as traffic volumes rise. We have only a handful of deliveries scheduled for 2024 yet to place and 2025 slots are also being snapped up at a rapid pace as well. Boeing and Airbus are largely sold out on narrow-body aircraft until 2028 and beyond. And widebodies are also increasingly in short supply, offering upward impetus to lease rates. Now on the topic of lease rates, we continue to see strength in new placements, lease extensions and placements of used aircraft, reflecting the high demand and constrained supply environment that we're witnessing at present. For Air Lease, with our young fleet, we have only 20 lease maturities in 2023, relative to our fleet of 437 aircraft. So this is not something that will be meaningfully impactful to our financial statements this year. But we do think it is a noteworthy trend that illustrates market strength and we are happy with extending leases at attractive rates. While new aircraft deliveries were somewhat higher than we guided for the first quarter, we remain cautious in our bigger picture outlook on OEM delivery timelines. In recent weeks, we have received additional notices of delay from both Airbus and Boeing for 2023 and 2024 deliveries. We fully expect delays to persist for several years as indeed one OEM has advised us to expect delays compared to originally contracted delivery dates through 2028, as our delivery schedules are being revised according to their actual ability to achieve production rate increases. As an A321 XLR launch customer, for example, we're seeing the timeline for that program get pushed further out to the right by 14 to 16 months. While clearly frustrating for ourselves and our customers to have delayed deliveries, from a scarcity aspect, this does serve to benefit the value of our existing fleet and the deliveries we are receiving. Our delivery outlook for 2023, therefore, remains fluid as a product of these circumstances. So in turn, we continue to expect a range of $4 billion to $5 billion of aircraft to be acquired this year. I would like to note that at either end of the range, that still does offer us meaningful fleet growth on our existing fleet of $26 billion of commercial aircraft, just not at the contracted deliveries as scheduled or as we ordered. As it stands right now, we expect approximately $1.3 billion of aircraft deliveries for the second quarter of this year. We will update you further on our delivery outlook as the year progresses. Turning to aircraft sales. While we completed sales of only two aircraft this quarter, we expect to see the pace of aircraft sales increase throughout the remainder of the year with the largest volumes during the second half of the year. Our pipeline for sales remains robust and we continue to expect to sell between $1 billion to $2 billion of aircraft in the remainder of this year. We remain excited to return to more steady sales activity given our sales program has been effectively on pause even prior to the pandemic as a product of the MAX grounding. As a reminder, we target ownership of our new commercial aircraft over the first one-third of their economic lives. So we would expect a certain component of our fleet to become candidates for sale in any given year. Lastly, I'd like to comment briefly on the bigger picture operating environment. The week before last, I completed a week-long trip in Europe, visiting a diverse group of airlines, including Virgin Atlantic, TUI UK, Lufthansa, Swiss, TAP, Portugal and Norwegian, most of whom are current lessees of ours. Most of these airlines advise the same key themes that we largely see globally: first, passenger traffic remains strong and growing with a healthy yield environment despite inflationary pressures with no pullback yet in sight; second, labor shortages, including pilots, aircraft availability and infrastructure constraints continue to frustrate their efforts to grow and serve the passenger demand they see looming for the upcoming busy summer season; third, that shorter on-wing engine life of most of the new technology engines continues to frustrate their aircraft operations and deployment with record numbers of power plants requiring shop visits earlier than originally promised by the engine OEMs. This has led to a global shortage of spare engines, increasing lead times and repair times for engine shop visits, and rapid cost escalation for all engine overhauls and repairs. To address these problems, engine OEMs on single-aisle aircraft are diverting greater quantities of new production engines to support existing aircraft in the field. With production capabilities largely maxed out by the engine OEMs, this leads to fewer engines delivered to meet airframe OEM current and future production rate goals which may impact Airbus more as they maintain higher production rates than Boeing. With more engines in the shop and more aircraft rounded awaiting engine replacements, this further adds to the need at a number of airlines to have additional aircraft coverage in their fleets, illustrating yet another aspect underpinning the aircraft demand picture that bodes well for ALC. And the fourth and final point raised by many of the airlines is a continued focus on sustainability, operating the most fuel-efficient aircraft with a stepped-up focus on sustainable aviation fuel, SAF, as we now call it. In fact, just this past week in Europe, the European Commission welcomed a new political agreement reached called the Renew Fuel EU Aviation proposal. The new rules are aimed to help decarbonize the aviation sector by requiring fuel suppliers to blend SAF with kerosene in increasing amounts from 2025. These factors are all very positive for us at Air Lease, a key benefit of having our lessor industry-leading $24 billion order book of Boeing and Airbus aircraft in that we have delivery slots that the airlines need to take advantage of for these broader industry trends as well as having our youngest aircraft existing in our fleet with a weighted average of only 4.5 years. Airlines need these aircraft and they can't get them anytime soon from the manufacturers. We are among a handful of lessors who have order books and ours is the largest focusing only on Boeing and Airbus commercial aircraft. This is a tremendous strategic advantage for ALC as we continue to place new aircraft in the current environment. And in many cases, we have multiple airline customers vying for the same delivery slot or the same used aircraft which only further supports momentum for lease rates over time. I would remind you that it does take time for these impacts to be seen in our financial statements with our current existing owned fleet of 437 aircraft and the new aircraft deliveries we are taking in 2023 largely reflect deals struck in 2021. So in the big picture, we remain confident and bullish on our future outlook. Now, I'd like to turn the call over to Steve Hazy, who will offer more commentary on the performance of the airline industry and success in our business.

Steve Hazy, Executive Chairman

Thank you very much, John. First, I'd like to congratulate our ALC team on achieving another quarter of record revenues in Q1 of 2023, benefiting from our continued strong fleet growth, with nearly 400 more aircraft to deliver over the next five years, more growth and achievements are on the horizon for Air Lease Corporation. As John highlighted a moment ago, we remain very pleased by the continued strong increases of global air passenger traffic volumes. The latest IATA traffic numbers released in early April are up a sizable 55% year-over-year. As would be expected, given the lag in international market recovery, we've seen the largest improvements in traffic volumes in these international markets which rose 90% relative to the prior year. Domestic traffic meanwhile, continues to improve in all the major markets followed by IATA and most are either within single-digit percentage range of pre-pandemic levels or in some cases, are exceeding those levels. In addition, domestic China traffic has improved meaningfully following the on-again, off-again travel restrictions in place in that country in 2021 and 2022. And air traffic is up 38% in China relative to the same month last year. The resumption of China travel is a significant regional positive, not only due to the country's own domestic scale but traffic and commerce for the Asia region as a whole. Total Asia Pacific international traffic continues to expand dramatically, rising close to 380% year-over-year. I'd like to add that while the comparisons to pre-pandemic 2019 traffic made sense previously, we think these are now beginning to feel somewhat less relevant given that 2019 is now four years in the past, we should not be anchoring our industry views to the past but instead looking to the significant industry growth potential we foresee in the future. I'd like to add a few additional comments about our outlook for commercial aircraft demand. We remain extremely active placing our order book positions and are pleased by what we are hearing in our dialogue with our airline customers. In addition to what we're seeing with respect to lease rate momentum, both on new narrow-body and wide-body aircraft, commercial aircraft demand is very high now and only seems likely to accelerate as traffic expansion continues at a strong clip and airline profitability across the board rises. While volumes have been obviously positive drivers, airfares generally have also picked up pace over the last six to seven months and are now outpacing inflation. Load factors meanwhile, are very strong across the globe already. And it may come as no surprise that many of the U.S. domestic market load factors, for example, were at 20-year plus high levels last summer and continue to be very robust. We believe these levels could potentially be exceeded this summer which only adds to further pressure on airlines to expand capacity. Just as it appears an industry prognosticators, who were calling for pandemic traffic recovery in the 2025, '26 time frame will be proven wrong, we think they could also miss out on the order of magnitude on the upside as well. When combined with the higher probability of delivery delays extending further out versus improving, this is only setting up for further upward momentum in lease rates and aircraft values, particularly those of the most desirable jet aircraft types that make up the ALC fleet. As John mentioned, deliveries in the first quarter were modestly better than we expected, albeit still well below the OEM's contractual obligations to us. We delivered 22 new aircraft to our customers comprised of both narrow-body and wide-body aircraft. This past quarter, our deliveries included six A321neos, primarily A321 LRs, long-range aircraft with three going to Vistara Airlines in India, along with several other customers. As a reminder, Air Lease's fleet and order book is highly focused on the A321neo variant and particularly given its combination of capacity, range, and operating efficiency which drives the high appeal to airline customers. And as you know, we are the official large customer for both the extended range LR and the upcoming XLR variant of the particular type. We also delivered 13 new Boeing 737-8 and -9 aircraft to customers such as Alaska, Aeromexico, and several others. On the widebody side, we delivered two A330-900s to Virgin Atlantic, along with an A350-900 to Starlux in Asia. We hope to receive our first new 787 this year in the coming weeks. Each of these aircraft are among the most fuel-efficient, new technology aircraft available with outstanding capacity, performance, and range characteristics relative to all prior generations of commercial aircraft. I would also like to highlight the fact that Air Lease maintains a conservative approach with respect to risk management. And I emphasize risk management. We continue to focus on managing fleet risk by airline, country, and region. And in fact, our average customer exposure is just roughly 1% of our total fleet. We also maintain a firm stance and requiring airline customers to provide significant security deposits to pay maintenance reserves which further insulate us from downside risk. Unlike banks that build reserves for losses out of their own pockets getting into low profitability, we require these cash deposits and reserves to be paid upfront by our airline customers. We do not put all our eggs in one basket by only serving one particular customer or airline market segment. In fact, our customers include flag carriers, full-service airlines, LCCs, and ULCCs across particularly all points on the globe that are favorable for us to operate in. Ultimately, maintaining a fleet and order book of the newest technology in fuel-efficient aircraft available also affords us one of the best risk mitigants. And that is new technology aircraft that are always in demand and we can move them quickly from one challenged airline to another into various different markets as well as the airlines and markets where conditions are more favorable. We believe this is a tremendous competitive advantage as compared to practically all other asset businesses. In closing, I wish to convey our strong sense of optimism as we are invested in new commercial aircraft, acquired at deeply discounted prices in our existing fleet and our industry-leading Boeing and Airbus order book which, along with extensive customer and supplier relationships and broad access to diverse funding, places us in a position of significant strength. The fundamental demand backdrop is robust and the limited supply and elevated demand seen for new commercial aircraft is highly weighted in our favor. And we do expect the market to remain this way for multiple years ahead. In turn, we remain very excited about the future opportunities ahead for Air Lease. Now, I'll turn over the call to CFO, Greg Willis, to comment further on our recent financial performance.

Greg Willis, CFO

Thanks very much, Steve, and good afternoon, everyone. In the first quarter of 2023, Air Lease generated record revenues of $636 million, which includes about $618 million from rental revenues and $18 million from aircraft sales, trading, and other activities. The growth in total revenues was mainly driven by the expansion of our fleet, although it was somewhat offset by reduced security deposits and maintenance reserve income compared to last year. You may recall that last year, we recognized $60 million in security deposits and maintenance reserve income related to the sanctions imposed on our Russian fleet. This quarter, we recognized $35 million in end-of-lease revenue associated with the transition of 11 aircraft. At the end of our leases, we retain the maintenance reserves that protect us from costs related to aircraft transitions. I would also like to mention that all 11 of these aircraft have now been leased to new customers. Regarding expenses, interest expense rose by 26% compared to the same period in 2022, largely due to an increase in our average debt balances corresponding with fleet growth and a rise in our composite cost of funds from 3.7% at the end of last year to 3.42% by quarter-end. Despite higher interest rates compared to previous years, we benefit from 88% of our debt being at fixed rates. Depreciation continues to align with our fleet growth, while SG&A expenses have increased as our business activities have ramped up over the past year. Other operating expenses have also risen, including higher insurance premiums and costs related to aircraft transitions. Additionally, we incurred about $6 million in expenses this quarter linked to airline bankruptcies, which were offset by the end-of-lease income previously mentioned. On the cash flow front, it’s important to note that our customers have largely returned to a normal rental schedule and made significant progress in repaying deferred balances. This has resulted in a 37% increase in our operating cash flow for the quarter, which is encouraging. On the financing side, our largely fixed-rate balance sheet and robust investment-grade ratings position us advantageously for interest rate changes in the medium term. We are committed to maintaining an investment-grade balance sheet, utilizing unsecured debt as our primary financing method, sustaining a high level of fixed-rate funding, and employing a conservative leverage ratio with a target debt-to-equity ratio of 2.5x. Our debt-to-equity ratio at the end of the first quarter stood at 2.88x on a GAAP basis, which is approximately 2.78x net of cash on the balance sheet. Our leverage remains slightly above our target following the write-off of our Russian fleet last year, but we anticipate returning to our long-term target as aircraft sales volumes increase this year, especially considering the expected continued delivery delays. During the past quarter, we returned to the debt capital markets with a $700 million senior unsecured note issuance at 5.3%. We also completed our first Sukuk issuance in March, raising $600 million in trust certificates at 5.85% due in 2028, enhancing our funding diversity and opening a new capital market for us. At the end of the first quarter, our balance sheet remained strong, supported by significant liquidity of $6.5 billion and a large unencumbered asset base of $28 billion. In conclusion, as John and Steve mentioned, we are very optimistic about our business. Even at the lowest end of our 2023 delivery expectations, these aircraft will contribute to strong revenue growth for years ahead, and our order book is a vital component of our future success, providing a clear growth pipeline. We are also enthusiastic about the ramp-up of our sales program, which we expect will meaningfully improve our margins and ROE in the future. Now, I'll turn the call back over to Jason for the question-and-answer session.

Jason Arnold, Head of Investor Relations

Thanks, Greg. This concludes management's commentary and remarks. For the Q&A session we ask each participant to limit their time to one question and one follow-up. Regina, can you please open the line for the Q&A session?

Operator, Operator

Your first question comes from the line of Catherine O'Brien with Goldman Sachs.

Catherine O'Brien, Analyst

So as you kind of alluded to in the prepared remarks, it's going to take some time for today's strong lease rates to make more marked impact on your financials as those aircraft deliver over the coming years, your current fleet gets remarketed, can you just give us a sense of how much upside there is to the deals you're striking today versus your current portfolio yields?

John Plueger, CEO and President

Thanks, Catie. I think overall, these sorts of specific details about how much is affecting, etc., are not items that we disclosed. However, we've told you about our strong lease rate environment and the factors that mean that it will take a little bit of time for that to cross through. I would invite Greg to make any other comments.

Greg Willis, CFO

Yes, John, historically, there has been a delay between increasing interest rates and rising lease rates. We are currently placing airplanes for 2024 and 2025. Therefore, it will take some time for those airplanes to be integrated into our fleet. However, we are delivering airplanes almost every single day, which contributes to driving our lease yield upwards. It may take a little while since we have nearly $28 billion in total assets, but we are very optimistic about the strength of our order book and its potential impact on our financial results in the future.

Steve Hazy, Executive Chairman

Yes. This is Steve. I just want to add to that, that the highest increases in lease rate factors are on the aircraft types that we have in our backlog, such as the A321neo, the A321neo LR, the 737 MAX, 787s, and A350. So the very types of aircraft that we have in our portfolio are the ones that are experiencing the highest demand from the airlines and the best progress in terms of future lease rates.

Catherine O'Brien, Analyst

Got it. So a lot of good news to come. Maybe if I could just sneak one more in on the sales. I think you noted last quarter; you have a good pipeline of sales but had cautioned that timing was a bit uncertain quarter-to-quarter just given time to close. And you just mentioned that we should probably expect more volume in the two halves than the first half. But can you just speak to a little bit like where you're seeing the most demand for your aircraft come from? The other operating lessors, financial institutions, airlines looking to buy off lease? That would be really helpful.

John Plueger, CEO and President

Sure. There hasn't been much change in our sales. Most of our sales are to smaller aircraft lessors, with some occasional sales to airlines that operate the aircraft themselves. Overall, there hasn't been a significant shift. It's actually surprising to us, especially me, that despite the interest rates, the demand remains strong across the board. We're pleased to see this and are happy to fulfill it.

Operator, Operator

Your next question comes from the line of Helane Becker with TD Cowen.

Helane Becker, Analyst

I have one question. In the past, you mentioned ordering only half of the anticipated demand. Could you share your thoughts on this approach moving forward, especially considering the delivery delays that push aircraft deliveries further out? Additionally, how do you plan to address lease rate factors in the event of an economic recession?

John Plueger, CEO and President

Steve, do you want to take that one?

Steve Hazy, Executive Chairman

Happy to do it. First of all, the leases that we do, Helane, are, as you know, are long-term leases. And generally, they're anywhere from 8 to 14 years in length. So during the period of these leases, the global economy and regional economies can go through multiple cycles. And once the aircraft delivered, the lease rates are fixed. So whether we're in a recession or whether oil prices are $50 a barrel or $120 a barrel, the lease rates are what they are. And there's no sort of rehashing of lease rates during the course of the lease term. So we don't really think that a mild to medium recession will have a great impact for the very reason you mentioned that we've only ordered about half of the aircraft we can place. So as we sit here today, if we had an order book of 750 or 800 aircraft, we could easily place all of them. But our order book now is a little under 400 aircraft which means we can be more picky, we can be more selective on which airlines we lease to and also maximize lease rate revenue inflows for the next 10 or 12 years.

John Plueger, CEO and President

Let me just add one other comment, Helane. Just please remember that all the aircraft we have on order that Steve indicated are on order through 2028. That's 5 years from now. So we have a long runway with a lot of good delivery positions to offer the marketplace. And we're also cognizant of the fact that this industry has always been cyclical, so 2028 is a fair piece away and we will see how the industry is looking over the next couple of years. But I think I'm kind of reading between the lines of your question, we feel no gun to our head whatsoever to order additional aircraft today.

Steve Hazy, Executive Chairman

In fact, Helane, if there is a recession on the horizon, that could actually create opportunities for us between now and 2028, '29, to pick up some aircraft from a distressed airline or perhaps an entity that ordered some airplanes that wants to scale back their orders for whatever their own reasons are. So we do not feel pressure today to order more planes in '29, '30, '31 because having been in this business a long time, I'm certain that there'll be opportunities for us to have selective acquisition opportunities of new aircraft in the next 5 years over and above our order book.

Helane Becker, Analyst

Okay, that's very helpful. And then just one follow-up. Do you think the engine issues you mentioned would affect the valuations of those new technology aircraft?

John Plueger, CEO and President

No, the demand remains very strong. These are the aircraft currently available in the industry, and there are no alternatives. The only other option is for engine manufacturers to upgrade and slightly modify these engines to achieve the necessary on-wing reliability. So that's the situation. We have no concerns about this because it's all we have, and that's all the airlines can order and that's all that anyone can provide.

Steve Hazy, Executive Chairman

And remember that the airlines are responsible for the operating cost elements, including fuel, maintenance, crewing, insurance, etc. And we have commitments now from all of the engine manufacturers, GE, CFM, Pratt & Whitney, Rolls-Royce to make specific improvements to all of their engines on these new technology aircraft. And those improvements will be incorporated both on the new deliveries and also on existing aircraft where engines will go into the shop. So over a multiyear period, all of these engines will be upgraded to the latest standard.

Operator, Operator

Your next question comes from the line of Hillary Cacanando with Deutsche Bank.

Hillary Cacanando, Analyst

We've heard that some Russian airlines have contacted AerCap about buying planes at a discount or for possible insurance settlements. Have any Russian airlines reached out to you? Additionally, would you be permitted to receive funds from the EU and the U.S.? Would the EU and U.S. consider this in the future?

John Plueger, CEO and President

Thank you. This is John. I'll take that. We're not offering any commentary on that at this time. We continue to work closely on all matters related to Russia and our insurance recovery and any other possibilities. But beyond that, we're not commenting.

Hillary Cacanando, Analyst

Okay. Got you. And then you talked about the strong demand in the sales environment. Historically, your sales margins have been about 7.5% to 8%. I guess in the current environment, would you say that your sales margin could actually now be higher than that?

Greg Willis, CFO

Yes, I think historically, it's been between 8% and 10%. But with the sales that we've been seeing lately have been significantly higher. That again is due to the quality of the leases as well as the supply-demand imbalance for the airplanes themselves. So I think it's a very favorable environment right now. And a lot of lessors are looking to pick up additional products from us.

Hillary Cacanando, Analyst

So even higher than 10%, you would say?

Greg Willis, CFO

Yes.

Operator, Operator

Your next question comes from the line of Jamie Baker with JPMorgan.

Unidentified Analyst, Analyst

This is James on for Jamie and Mark. I guess following up with Helane's question, I want to ask on the risk management side. With the rising lease rate environment, are you guys being more aggressive in holding back more now to kind of keep more spot inventory? And how does that dynamic play out? Has that changed at all just given the macro backdrop?

John Plueger, CEO and President

Steve, do you want to take that?

Steve Hazy, Executive Chairman

Yes. I mean, generally, we lease aircraft anywhere from 24 months out to as short as maybe 18 months. Some of our placements, where we have multiple aircraft going to the same airline, the lead time can be as much as 36 months. So what we're focused on now is to complete the placement of our 2024 deliveries in the next 3 to 5 months, but we are being more cautious on committing aircraft in 2025 until we see: a, what the interest rate trends are for the next 18 to 24 months. And if we continue to see lease rates rising, yes, we will hold back a certain percentage of our forward orders in the next 2 years to make them available for opportunistic placements. But keep in mind that on new aircraft, we generally have to nail down the specification and configuration anywhere from 12 to 15 months before delivery. So we can't just sit on these airplanes until the last minute but we do have the ability to hold back on placing some of the longer lead time aircraft to capture the best possible lease economics.

Unidentified Analyst, Analyst

Got it. For the new aircraft but how about the rollover aircraft that are not being extended?

Steve Hazy, Executive Chairman

Well, right now, about 90% plus of our leases that have their normal contractual lease expirations are being extended by airlines. So we have very little coming off lease. And where they do come off, we have plenty of lead time to find the best possible follow-on transition less.

Unidentified Analyst, Analyst

Understood. Shifting to delays, how much of the issue is related to the engine versus the aircraft? From your previous comments, it seems like it's more about the aircraft. How quickly is the engine situation being resolved?

Steve Hazy, Executive Chairman

Well, the dilemma we have is that both Boeing and Airbus are increasing production rates on both their single and wide-body aircraft. But at the same time, the existing fleet that's out there and flying is requiring more spare engines because the longevity of these new technology engines has not been what we all expected. So the engine manufacturers are sort of caught between having to deliver more engines to Boeing and Airbus and yet they have their airline customers screaming at them to give them more spare support. So I would say of the delays as much as maybe 70%, 75% is engine related and the rest are either self-induced problems at the manufacturers not having enough staffing, not having enough resources, not having enough infrastructure suppliers that cannot keep pace with these increased delivery targets which may impact Airbus more as they maintain higher production rates than Boeing. With more engines in the shop and more aircraft rounded awaiting engine replacements, this further adds to the need at a number of airlines to have additional aircraft coverage in their fleets, illustrating yet another aspect underpinning the aircraft demand picture that bodes well for ALC.

John Plueger, CEO and President

Yes. Let me add as an overall comment that I have to say, from the highest view possible, the bottom line is the airframe OEMs oversold compared to what they can deliver. And they knew full well going into selling all these aircraft what kinds of reduction rate increases would be required. Yet at the same time, they booked those sales and they put a production rate program in the face of known, well-known supplier challenges. So the bottom line is we don't accept supply chain as a delivery excuse. We expect to be compensated for our late deliveries and we're working through our airframe OEMs just to get that and to continue to get that.

Operator, Operator

There are no further questions at this time. Mr. Arnold, I turn the call back over to you.

Jason Arnold, Head of Investor Relations

Okay. Thank you, everyone, for your time participating in our first quarter call today. We look forward to speaking with you again when we report next quarter's results. Regina, thank you very much and please disconnect the line.

Operator, Operator

This concludes today's conference call. You may now disconnect.