Earnings Call
Gatx Corp (GATX)
Earnings Call Transcript - GATX Q4 2023
Operator, Operator
Hello, and welcome to the GATX 2023 Fourth Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I will now turn the conference over to Shari Hellerman, Head of Investor Relations. Please go ahead.
Shari Hellerman, Head of Investor Relations
Thank you, Sarah. Good morning, and thank you for joining GATX's fourth quarter and 2023 year-end earnings conference call. I'm joined today by Bob Lyons, President and Chief Executive Officer; Tom Ellman, Executive Vice President and Chief Financial Officer, and Paul Titterton, Executive Vice President and President of Rail North America. As a reminder, some of the information you'll hear during our discussion today will consist of forward-looking statements. Actual results or trends could differ materially from those statements or forecasts. For more information, please refer to the risk factors included in our earnings release and those discussed in GATX's Form 10-K for 2022 and in our other filings for the SEC. GATX assumes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. I'll provide a quick overview of our 2023 fourth quarter and full year results, and then I'll turn it over to Bob for additional commentary on 2023, as well as our outlook for 2024. Earlier today, GATX reported 2023 fourth quarter net income of $66 million or $1.81 per diluted share. This compares to 2022 fourth quarter net income of $48.4 million or $1.36 per diluted share. The 2023 fourth quarter results include a net positive impact from tax adjustments and other items of $0.07 per diluted share. The 2022 fourth quarter results include a net negative impact from tax adjustments and other items of $0.18 per diluted share. For the full year 2023, GATX reported net income of $259.2 million or $7.12 per diluted share. This compares to net income of $155.9 million or $4.35 per diluted share in 2022. The 2023 full year results include a net positive impact from tax adjustments and other items of $0.05 per diluted share. The 2022 full year results include a net negative impact from tax adjustments and other items of $1.72 per diluted share. These items are detailed in the supplemental information section of our earnings release. In 2023, total investment volume was over $1.6 billion as we increased investment in Rail North America, Rail International, and our wholly-owned engine portfolio. In the coming year, leases for approximately 19,400 tank and freight cars and approximately 1,900 boxcars in North America are scheduled to be renewed. These renewal levels are similar to those we've had in recent years. Lastly, as noted in the release, we expect 2024 earnings to be in the range of $7.30 to $7.70 per diluted share. With that, I will now turn the call over to Bob.
Robert Lyons, President and CEO
Thank you, Shari, and thank you all for joining the call today. For those of you that follow us closely, we are generally very brief in our opening remarks. But given that we're at year end, we thought it would be helpful to spend a little bit more time. So I appreciate you bearing with me as we go through some of the details. I'm going to provide some brief comments on 2023 performance versus the outlook we had coming into the year, and then I'll add some additional color to the 2024 guidance that was included in today's press release. But before diving in, first, I want to thank our employees for their focus and their effort this past year. In particular, our employees who work in our maintenance network and who work in our shops, both in North America and Europe. Once again, they did an outstanding job in the face of very high demand for shop services. And I'm very pleased that our safety record in the shops in 2023 was excellent. Our shop management and the employees continue to strive for efficiency while focusing on safety, and that's what matters most. So a thank you to all of our employees on the shop floor who really make this company tick. Looking more broadly at our business segment performances, I'm pleased with the contribution across the board, whether it was Rail North America, Rail Europe, India, our engine leasing activities, or Trifleet, everyone performed at a very high level this past year. And I fully anticipate continuing this momentum through 2024. Our broad goals at GATX remain unchanged and they're very straightforward, operate safely, grow our global businesses in a disciplined manner, be a good corporate citizen, be good stewards of our shareholders' capital, and generate an attractive risk-adjusted return for our shareholders. And on that note, I'm pleased that, in 2023, our total shareholder return was 15.2%, and very important to us, the 10-year return, because we think very long-term, the 10-year return was 11.4%. So looking back on 2023, we came into the year expecting EPS in the range of $6.50 to $6.90 per diluted share. As reported today, we exceeded that guidance, and it really boils down to a few factors. First, Rail North America's segment profit came in below our original expectations, primarily due to increased demand and net maintenance expense in our shops. I'll go into more detail on that in a moment. But by every commercial metric, such as the LPI, utilization, renewal success rate, and investment levels, we had a great year at Rail North America. Rail International performed in line with our positive expectations coming into the year. And the biggest source of variance versus our expectations on the positive side were results at portfolio management, which incorporate all of our engine leasing activity. The recovery in global air travel occurred much faster than original expectations, and our results reflected that. Looking specifically at Rail North America in 2023, first, the lease rate environment for existing railcars was very favorable. Customers remain focused on holding on to the cars that they had in their existing fleets, and our commercial team did an outstanding job of working closely with our customers to meet their needs. Lease revenues came in well ahead of expectations. Importantly, we were also able to establish lease terms in excess of 60 months on renewals, meaning that we have locked in those committed, attractive, high-quality cash flows for years to come. While revenues came in ahead of our original expectations, not by a large enough margin to offset the impact of increased maintenance expense and higher interest expense. The interest expense component was actually largely driven by a positive long-term factor, that being our investment volume was well ahead of plan. We identified more attractive investment opportunities than expected. We executed on those, and I view this as continuing to build our foundation for the future. On the maintenance side, demand for shop capacity and services was north of what we planned. A key driver to that was we experienced a higher volume of cars due for regulatory service. It is always really difficult to estimate exactly when those cars are going to come into the shop because the customer oftentimes controls that decision. And frankly, we undershot and underbudgeted for that in 2023. Additionally, and this is a net positive as reflected by our lease revenue performance this past year, we ran the fleet at extremely high utilization. So many cars that were returned by customer A, for example, went through our shop and onto customer B very quickly. Now, we incur a shopping event and cost when that occurs, but net-net, it's a positive, as the car is back out on a long-term lease, earning revenue, instead of sitting idle for an extended period. In summary, versus our expectations coming into the year, Rail North America had higher lease revenue, which was offset by higher maintenance and interest. We always get questions on remarketing income, too, so I'll just add that remarketing income came in generally in line with our expectations entering the year. Demand for our railcars in the secondary market was very robust, and we used the opportunity to continue optimizing the fleet. Looking at Rail International, segment profit was up nicely in '23 versus '22 and right in line with our expectations. We saw very strong demand for existing assets in Europe and India, but we were also able to invest close to $400 million across these markets, a record level. We continue to grow our European and Indian fleets, and our teams there are operating at a very high level. As I mentioned, the largest source of outperformance in '23 versus original expectations was within our engine leasing activities. Global air travel recovered in 2023 at a pace far quicker than anyone planned. As a result, we had higher engine utilization at our joint venture, RRPF, at higher than planned lease rates, and fewer customer issues and bad debt expenses. Importantly, we're also seeing the income benefit from our direct investment in engines. And we made another direct investment in 2023 for $260 million. These factors led to a sharp increase in segment profit within Portfolio Management. The last comment I'll make on 2023 is that we had a record year for investment volume, exceeding $1.6 billion, with every business segment contributing. Even in a rising interest rate environment, we were able to identify very attractive investment opportunities. And I'd encourage everyone to keep in mind, we are acquiring 20, 30, and 40-year assets. And I'm confident that these investments will provide our investors with a growing global platform, with very attractive risk-adjusted returns. So I'm very pleased with '23, but I'm even more excited about where this positions us for 2024 and beyond. So let's get into 2024. At Rail North America, we anticipate demand for the existing fleet will be solid, with utilization remaining in the 99% range. We see renewal success continuing at the high levels experienced in 2023. And we anticipate the LPI will be in the range of plus 30% in 2024, again with very attractive terms attached. Coupled with new additions to the fleet, we expect lease revenue to increase $80 million to $90 million in '24 versus '23. Interest expense will continue to increase, reflecting the compounding effect of rising interest rates over the past 18 months and our growing asset base. So we see interest rates increasing $40 million to $50 million at Rail North America in 2024. Net maintenance expense, we anticipate a very modest increase in 2024. We will see some uptick in regulatory compliance work, but also a benefit from overall shop operating efficiencies. So therefore, we see net maintenance coming in flat to plus $10 million in the year ahead. As for remarketing income, we again expect a very robust demand for our assets, and in fact, we've seen steady inquiries from potential buyers and a lot of interest in the packages that we've already taken out to market. Following a very busy calendar for asset sales in the past few years, in 2024, we currently expect to market slightly fewer cars, resulting in remarketing income being $10 million to $20 million less than '23's level. This would place remarketing income in the $90 million to $100 million range for 2024, a very solid year. I'll also add a bit of a disclaimer that this is another element of our forecast that's really hard to pinpoint. The level of sales activity is always tough to gauge coming into a year, but as I said, from where we sit today, this is the best estimate, and as we always do, we'll try to keep you updated as the year progresses. The net result of all these factors after incorporating some minor line items is that we see segment profit at Rail North America being up between $10 million and $20 million in 2024. At Rail International, we expect segment profit up $10 million to $15 million in 2024 with the main drivers being continued growth in our European lease fleet and in India. In fact, in Europe, we will surpass 30,000 railcars in our fleet this year. And we expect to see rising lease rates on many of those car types. While the economic outlook in Europe is muted with low-single digit GDP forecasts, demand for rail services continues to be solid. In India, we have the benefit of GDP growth that's forecast to be in the high single digits, one of the strongest outlooks in the world. India is going to continue to build out its infrastructure, including roads, homes, hospitals, schools, government buildings, and so on. And to do so, there will be a growing need for cement, steel, and other materials that move by rail. You couple that with the focus by the Indian Railway to continue building out dedicated freight rail capacity, and we should see strong fleet growth at GATX India. In fact, in 2024, our GATX Rail India's fleet will likely go over the 10,000 railcar mark. Quite an achievement given that we were the first railcar leasing company in India. And 10 years ago, we had a fleet of just a few hundred cars, and all the credit goes to our outstanding team in India. For our Engine Leasing investments within Portfolio Management, we expect to see strong demand as global air travel continues to recover to pre-pandemic levels and beyond. We're expecting segment profit to be up $5 million to $15 million in 2024, a very nice performance, especially given the sharp increase we saw just this past year in '23 over the prior year. Looking at SG&A, like most companies, we're experiencing rising labor costs. You pair that with a slight increase in headcount, which I'll point out as primarily to support our international growth, and we're forecasting SG&A to be up between $10 million and $15 million in the year ahead. We're entering the year on the heels of a record investment volume of $1.6 billion in 2023, and based on committed investments and opportunities we anticipate seeing during the year, we expect to be close to the same range in 2024. That bodes very well for 2024 and the years beyond. All of the factors just discussed form the basis of our current estimate of $7.30 to $7.70 per diluted share. Before a closing comment, I'd like to mention the dividend. We routinely get asked about dividends on the January call. GATX has paid dividends continuously now for over 100 years, and we understand the importance of the dividend to our shareholders. We have a regularly scheduled GATX Board meeting this Friday. So please look for an announcement on the dividend on that day. Lastly, GATX celebrated a couple of major milestones this past year, most notably our 125th anniversary and the 25th anniversary of our partnership with Rolls-Royce. GATX is a very different company, a far stronger company than we were 125 years ago, 25 years ago, or even five years ago. We continue to expand our global footprint in rail, and we're the leading global lessor of rail assets. Contributions from Europe and India in rail add diversity and stability to our cash flow and our earnings. Likewise, our investments in aircraft engines have proven to be great additions to the GATX portfolio. While the COVID era was a challenge, it proved once again that air travel is remarkably resilient. Aircraft engines are high-quality, service-based assets that are a great store of value. And with our partner, Rolls-Royce, we enjoy a very unique and valuable position in the engine leasing market. So our growing international Rail businesses along with our growing aircraft engine investments are outstanding complements to the leading rail leasing franchise we have and will continue to grow in North America. So thank you all for enduring my somewhat lengthy comments on 2023 and the outlook for 2024. And with that, we will go to questions.
Operator, Operator
Thank you. Your first question comes from the line of Justin Long with Stephens. Your line is open.
Justin Long, Analyst
Thanks, and good morning.
Robert Lyons, President and CEO
Good morning.
Justin Long, Analyst
Maybe to start, I was wondering if you could share the absolute lease rate trend sequentially that you saw in the fourth quarter. And when we think about the LPI guidance to be in that 30% range. What does that assume for how lease rates will trend over the course of the year on a sequential basis?
Paul Titterton, Executive Vice President and President of Rail North America
Sure. I'll take that. This is Paul Titterton. Thanks for the question. And what I would say broadly to start is, lease rate performance in North America has been quite strong for quite some time right now. We are seeing an absolute sense, a relatively flat environment versus the prior quarter, but as indicated by the LPI base, relative to expiring rates, we are expecting continued positive performance. And so overall, we would say, in an absolute sense, the leasing market for most car types in North America remains quite strong.
Justin Long, Analyst
Got it. Thanks. And maybe one on the RRPF contribution in the fourth quarter. There was a pretty significant step-up sequentially. I was wondering if you could break out that fourth quarter contribution between remarketing and just the core operating results. And maybe you could talk about those two buckets progressing in 2024 in terms of what you're baking into the guidance there.
Tom Ellman, CFO
Yeah. Hi, Justin. This is Tom. So what I would tell you is that for the fourth quarter, it was about 60% operating income, about 40% remarketing. As you know, having followed us for a long time, it's really difficult to predict exactly how that remarketing piece will move over the course of any given year. But something in the range that we saw for the full year, which was about 55% operating income and 45% remarketing, wouldn't be unreasonable.
Justin Bergner, Analyst
Okay. Understood. I'll leave it there. Thanks for the time, and congrats on the results.
Robert Lyons, President and CEO
Thank you.
Operator, Operator
Your next question comes from the line of Matt Elkott with TD Cowen. Your line is open.
Matt Elkott, Analyst
Good morning. Thank you. I was wondering, if you can talk about the additions to the fleet in 2024. Do you see the best opportunities in the secondary market or in the new car market?
Paul Titterton, Executive Vice President and President of Rail North America
So, this is Paul, I'll take that again. And what I would say right now is, overall, we've seen higher quality investment opportunities in a variety of areas within Rail North America. There certainly have been opportunities in secondary markets and syndications that we've taken advantage of, but I will also say, in the primary market, in our originations of new car leases, we're also seeing pretty attractive opportunities. So really from an investment standpoint in North America, there are quality opportunities both in primary originations and secondary markets and syndications.
Matt Elkott, Analyst
Got it. Good to know. And then one question on India. You guys basically started this market for privately held freight car lessors in India. Can you give us an update on the competitive landscape right now? Are you still the biggest operator there? Do you see interest from potential new entrants as the growth prospects prove to be strong and sustainable?
Robert Lyons, President and CEO
Sure, Matt. It's Bob. We are the largest private owner of railcars in India. There are some competitors that come and go, but they lack substantial fleet size or a significant presence in the market. However, I want to clarify that it's not just an open field for us, as our customers do have other options. One of these alternatives is bank financing or owning the assets themselves. These alternatives come from large, capable entities, so they can also make purchases, similar to the situation in North America. But in terms of leasing, we remain the largest and are generally recognized as the leader, especially by the Indian Railway, which views us as the most advanced in the market.
Matt Elkott, Analyst
Okay. So it's more about how successful the business model you introduced in the market becomes compared to other methods of acquiring assets. That's good to know. Can you clarify, you mentioned that you expect your Indian fleet to have over 10,000 cars by the end of 2024?
Robert Lyons, President and CEO
Yes. If we meet our investment targets for this year, that would be the expectation.
Matt Elkott, Analyst
What about the overall fleet globally in Europe and in the U.S., do you expect that to grow as well at the end of '24?
Robert Lyons, President and CEO
In India, we certainly expect growth because it remains a rapidly expanding market, and indeed, the Indian Railway has significant orders to enhance its fleet for certain types of cars. The main challenge in India isn't the growth itself; it's about securing the wagons and continuing to diversify into various car types and customers. Based on current prospects, the growth potential is evident. The European market, on the other hand, is more similar to North America in terms of its maturity, so we do not expect, nor are we relying on, any substantial growth in the overall fleet in Europe.
Matt Elkott, Analyst
Got it. Thank you very much, Bob. Thanks, everyone.
Operator, Operator
Your next question comes from the line of Allison Poliniak with Wells Fargo. Your line is open.
Allison Poliniak, Analyst
Hi. Good morning.
Robert Lyons, President and CEO
Good morning.
Allison Poliniak, Analyst
Starting with the bigger picture, utilization in Rail North America is really high. The rails are improving service and are focused on capturing growth. I would like to get your perspective on a couple of points. First, do you think the equipment market is investing enough right now, considering the current level of utilization and the potential for change? Second, how is GATX managing this potential dynamic? I appreciate any insights you have. Thank you.
Paul Titterton, Executive Vice President and President of Rail North America
Sure. So it's a good question, Allison. This is Paul. I'll take that. So what I would say right now is investment continues at a kind of slightly above replacement pace in North America overall. So with core carloads, as we measure them, maybe low-single-digit percentage year-over-year. That's an investment pace that should be adequate to keep pace with demand in the context of somewhat improving service. And I will say, indeed, we hear from our customers that service is improving and the metrics of dwell time and velocity that are reported would bear that out. So with modest growth, modest service improvements, and a modest level of investment, that speaks to a pretty balanced market. One of the nice things about the market that we see right now, frankly, is unlike past tight railcar markets, we haven't seen that enormous build wave. If we look back at the ethanol boom or the crude boom, we saw build years where the industry would produce upwards of 80,000 cars, and then there would be a huge hangover after that excess production. This tight market, we're seeing industry-wide production in North America top out in the 40s. And so that speaks to, I think, a much more balanced, much more disciplined market, which should be good for all participants.
Allison Poliniak, Analyst
Thank you for that information. Regarding other revenue in North America, particularly Rail North America, Bob, you mentioned the timeframe for getting those cars back on lease. Should we anticipate that this will be higher again in 2024? How should we approach this? I apologize if I missed any earlier comments on this.
Robert Lyons, President and CEO
Are you speaking specifically to the other revenue line item?
Allison Poliniak, Analyst
Yeah. The other revenue, sorry. Yeah.
Robert Lyons, President and CEO
Yeah. We're not anticipating any significant growth, any abnormal growth in that line item in 2024. It should grow right along in line with lease revenue.
Tom Ellman, CFO
Yeah. And Allison, just to put some perspective on that, really what you need to do is look at that in conjunction with the maintenance line. So really, I'd guide you to Bob's comments on net maintenance being somewhere between flat and up $10 million.
Robert Lyons, President and CEO
Yeah. The biggest component of other revenue is essentially repairs billed back to the customer.
Allison Poliniak, Analyst
Got it. Thank you.
Operator, Operator
Your next question comes from the line of Bascome Majors with Susquehanna. Your line is open.
Bascome Majors, Analyst
Thanks for taking my questions. Going back to your thoughts on the North American secondary market and a very high level of P&L from that historically, but a little down from where you were last week. Can you talk a little bit, maybe qualitatively, about the depth of the market, the buyers, and just anecdotally how that feels today versus how it's felt over the last couple of years? And then maybe a little more precisely, just any thoughts on how that profit assumption correlates to your plan to sell fewer railcars or is it really just the gains on individual units coming down a little bit from where they were in the last few quarters? Thank you.
Paul Titterton, Executive Vice President and President of Rail North America
Sure. This is Paul. I'll respond to that. The secondary market has been strong and continues to show strength. We are seeing a significant number of buyers and a lot of depth in the market. Whenever packages are available, whether they are ours or from elsewhere, the interest has remained high, and we expect this trend to continue. Regarding the second part of your question, our focus is on making sound portfolio decisions. We are prioritizing the economics of the transactions over accounting gains. Our goal is to optimize the portfolio based on credit, assets, market conditions, and terms. We are utilizing sales in the secondary market to balance and diversify our portfolio across all these aspects.
Robert Lyons, President and CEO
Yeah, Bascome. I'd add, we did come into this year, I think, into 2023, feeling within a rising interest rate environment that the secondary market condition was probably more uncertain. But it remained really strong throughout the entire year, continues to be strong. And I think it speaks to the quality of the underlying asset. Railcars have proven over time to be great stores of value and very good assets to hold long-term. So even with interest rates up, where we thought, well, maybe the buyer universe would shrink a little bit, still there, still great depth, still a lot of activity.
Bascome Majors, Analyst
I appreciate the responses on both points. You mentioned that you expected to invest a similar amount of capital this year as you did last year, which was around $1.6 billion to $1.7 billion, a significant figure. Can you elaborate more on the opportunities you see? I recall that approximately 60% of that amount was directed towards North America, while 20% to 25% went internationally, with the remainder allocated to other segments of your business. Does your outlook for investments this year differ significantly from what we've observed over the past 12 to 18 months?
Robert Lyons, President and CEO
It's not much different compared to last year. In GATX Engine Leasing, which falls under Portfolio Management, we invested around $267 million for 10 engines this past year, and we expect to be in that same range again. Given our outlook for Rail North America and internationally, those markets should remain similar to last year. Rail North America was over $970 million; while it may not be exactly that amount, it will be close. For GATX Rail Europe and India, we had a combined investment of about $400 million, and we're anticipating a similar amount this year.
Tom Ellman, CFO
Yeah. And Bascome, I'll just remind you of Bob's comments on some of the challenges of getting the assets, particularly in India. That's one of the things that causes us to have a little uncertainty on exactly how much we can do.
Bascome Majors, Analyst
Lastly on that, do you see any more assets where you could start to build a platform and maybe invest in assets related to what you've done before, but aren't markets you're currently in, or do we expect it to look a lot more like it has looked per your earlier comments?
Robert Lyons, President and CEO
Our commitment to focusing on long-lasting, widely utilized assets that include a service aspect requiring deep asset knowledge will remain unchanged. We evaluate nearly every M&A opportunity related to leasing, but we adhere to four specific criteria because they align with GATX's strategy and deliver the best returns for our shareholders. A notable addition to our portfolio was Trifleet, one of the largest tank container lessors globally. This asset aligns perfectly with our criteria and provides a scalable platform, which we are continually integrating into our overall operations. However, we reject far more opportunities than we pursue, and this disciplined approach will continue. With an investment volume of $1.6 billion last year and a similar outlook for 2024, there are plenty of prospects in our current markets.
Bascome Majors, Analyst
Thank you for the time.
Robert Lyons, President and CEO
Yeah.
Operator, Operator
Your next question comes from the line of Justin Bergner with Gabelli Funds. Your line is open.
Justin Bergner, Analyst
Good morning, Bob, Tom, Paul, and Shari.
Robert Lyons, President and CEO
Good morning.
Tom Ellman, CFO
Good morning.
Paul Titterton, Executive Vice President and President of Rail North America
Good morning.
Justin Bergner, Analyst
First question relates to the secondary market. On the one hand, you're indicating the secondary market is strong and pricing is strong. On the other hand, you're seeing a lot of opportunities to put money to work. So can you sort of reconcile those two aspects of the market?
Paul Titterton, Executive Vice President and President of Rail North America
Yeah. I mean, really for us, it comes down to portfolio management. As I said earlier, we're using the secondary market to optimize our portfolio. And at the same time, the fact that we're able to generate attractive, both economic and book gains in the secondary market doesn't change the fact that there is also high-quality investment available to us on the buy side. And so really for us, every decision we make, whether it's to sell into the secondary market or to originate in the primary market or buy in the secondary market, we're making that on the basis of deploying and harvesting our shareholders' capital in the optimal way possible. And so in the current market right now, on the sell side, we are certainly seeing lots of attractive opportunities where the market is valuing certain parts of our portfolio on the buy side higher than we value it on the hold side. At the same time, we're seeing tremendous opportunity to put capital to work where there are attractive returns available. So that's really the mindset we have. We're constantly looking at ways to optimally deploy and harvest our shareholder capital on the buy side and the sell side.
Robert Lyons, President and CEO
Hey, Justin. And also, I would remind you that we have the most diversified fleet in the industry. And something we've talked about before is the car types we're selling or not the car types we're buying.
Justin Bergner, Analyst
Okay. I understand. Are you purchasing a diverse range of car types and offering a more focused selection, or are both aspects designed for specific markets?
Robert Lyons, President and CEO
I would say they are both very tailored to specific needs. Also, when we sell, it's typically in very small lots; we usually sell 50 or 100 cars, not 1,000 or 2,000. This approach is very targeted and specific. With our fleet size and diversity, we can be selective about our sales. On the buying side, we are not obligated to purchase anything, which is a strong position to be in. We don't need to acquire anyone's customer base or platform. We're focused on acquiring very targeted asset types and last year, we identified some of those opportunities. We anticipate seeing more this year. I'll let Paul share any additional thoughts he may have.
Paul Titterton, Executive Vice President and President of Rail North America
Yeah. And I will just say, too, I mean, that's really the advantage of having such a liquid secondary market and so many participants within the North American secondary market is you're going to have different participants that have different appetites for different assets. A great example is assets trending towards end-of-life where there may be smaller lessors that specialize in those assets where we may decide we're going to be in harvest mode there and some of those buyers may offer us very attractive pricing. We will then reinvest the proceeds in modern, either new or nearly new assets that fit our long-term portfolio approach. And that's just one example of the many ways we think about buying and selling.
Justin Bergner, Analyst
Great. Thank you. Just if I could get one more in. Do you expect the maintenance level in 2024 to be above normalized levels, assuming it was also above normalized levels in 2023?
Robert Lyons, President and CEO
What we expect for Rail North American net maintenance expense in 2024 is either flat to up $10 million is what we have already baked into our guidance for the year, which is a little bit of an elevated level of regulatory compliance. That should pare back in years ahead. But this year, 2024, and likely '25, we're kind of in this range of regulatory activity.
Justin Bergner, Analyst
Great. Thank you for taking my questions.
Operator, Operator
Your next question comes from the line of Brendan McCarthy with Sidoti. Your line is open.
Brendan McCarthy, Analyst
Good morning, everybody, and thanks for taking my questions.
Robert Lyons, President and CEO
Good morning.
Tom Ellman, CFO
Good morning.
Paul Titterton, Executive Vice President and President of Rail North America
Good morning.
Brendan McCarthy, Analyst
Just wondering, first off, if you can touch on the lower income tax expense and what drove that in the fourth quarter of '23.
Tom Ellman, CFO
Yeah. So one of the things that can be a little challenging is to take out the normalizing items from the effective tax rate. So if you look at where we were in 2022, we were just below 26% if you look at the normalized tax rate, including share of affiliates. We expected to be around the same level in 2023, and indeed we were almost identical. So '22, '23, and our expectations for '23 were all almost exactly the same. We talked about some of the other normalizing events in the past, but in this quarter, there were two items which are worth your attention and can help you explain that difference. During the year, there were a number of states that enacted statutory tax reductions, which hit the impact of reducing our deferred taxes by about $3 million. Also, on an annual basis, we evaluate the realizability of our state net operating losses and the associated valuation losses. This year's analysis resulted in a tax benefit of $2.3 million. So that $5.3 million tax benefit you have to work in, and that'll explain the vast majority of your fourth quarter difference.
Robert Lyons, President and CEO
The estimate for 2024 includes an effective tax rate on a normalized basis that is similar to 2023.
Tom Ellman, CFO
Yeah. So we expect it to be another year in that 26% range.
Brendan McCarthy, Analyst
Great. That's helpful. Thank you. And then secondly, I know you mentioned the higher debt level kind of being a function of the investment volume. Just kind of wondering if you could touch on the weighted average rate on your debt and what are your assumptions for the interest rate environment heading into 2024 in general?
Tom Ellman, CFO
Yeah. So in general, what I would tell you is, the environment that we're seeing right now is our general expectation for what we see going forward. Over time, just like we do on the asset side, we really look to take advantage of the cycle. And we had many, many years of strong debt markets. And over the past decade, we took our average debt rate from over 6% to under 4%. And we'll look to continue to take advantage where we can going forward. But for specifically 2024, I would expect our guidance anticipates similar levels to today.
Brendan McCarthy, Analyst
Got it. Okay. And then kind of switching gears to the Portfolio Management segment. What percentage through the post-COVID global recovery in international air travel would you say we're at, at this point, I guess, as of the end of 2023?
Tom Ellman, CFO
So it's let Bob add additional color if he'd like, but my short answer is that we're recovered.
Robert Lyons, President and CEO
Yeah. Domestic is actually a little bit above where we were pre-pandemic and international was just below.
Brendan McCarthy, Analyst
Okay.
Robert Lyons, President and CEO
And I would also add, in the depths of the pandemic, on a best-case scenario, you would say that recovery would be in 2025, late 2024. So the air travel has recovered well ahead of that plan.
Brendan McCarthy, Analyst
Okay. You mentioned that the profit from the Portfolio Management segment could increase by $5 million to $15 million. What are the assumptions regarding the wholly owned GEL portfolio? I believe there are 29 engines in the portfolio as of the end of 2023. What are your expectations for acquisition activity moving forward?
Robert Lyons, President and CEO
Similar to what we did this past year, in 2023, we acquired 10 engines for $267 million. We have forecast a similar investment level and a similar number of engines for 2024.
Brendan McCarthy, Analyst
Got it. Okay. And then one more for me, just looking at the investment volume in Rail North America, I think there were a little over 1,600 cars added, which is a nice uptick from the past two quarters. Just wondering if you can comment on that. And what can we think about looking forward to demand in 2024?
Paul Titterton, Executive Vice President and President of Rail North America
So the investments that we've made in the quarter and for the year include both secondary market acquisitions as well as, of course, our ongoing supply agreement purchases from our multi-year supply agreement. And what I would say is, we are continuing to see additional investment in 2024 in both of those areas.
Brendan McCarthy, Analyst
Okay. That's all from me. Thank you.
Robert Lyons, President and CEO
Thank you.
Operator, Operator
There are no further questions at this time. I will turn the call back to Shari Hellerman.
Shari Hellerman, Head of Investor Relations
I'd like to thank everyone for their participation on the call this morning. Please contact me with any follow-up questions. Thank you.
Operator, Operator
This concludes today's conference call. We thank you for joining. You may now disconnect your lines.