AerCap Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
April 30, 2025

There are 12 speakers on the call.

Operator

Day, everyone, and welcome to the AerCap's Q1 twenty twenty five Financial Results. Today's conference is being recorded and a transcript will be available following the call on the company's website. At this time, I would like to turn the conference over to Joseph McGinley, Head of Investor Relations. Please go ahead, sir.

Speaker 1

Thank you, operator, and hello, everyone. Welcome to our first quarter twenty twenty five conference call. With me today is our Chief Executive Officer, Angus Kelly and our Chief Financial Officer, Pete Uhas. 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.

Speaker 1

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 04/30/2025. A copy of the earnings release and conference call presentation are available on our website at aircap.com. This call is open to the public and is being webcast simultaneously at aircap.com and will be archived for replay. We will shortly run through our earnings presentation and will allow time at the end for Q and A.

Speaker 1

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 Angus Kelly.

Speaker 2

Thank you for joining us for our first quarter twenty twenty five earnings call. We are pleased to report another strong quarter of earnings for AerCap, generating GAAP net income of $643,000,000 and earnings per share of $3.48, adjusted net income of $679,000,000 and adjusted earnings per share of $3.68 Given these strong results, we have increased our twenty twenty five full year EPS guidance and announced a new $500,000,000 share repurchase program. Our airline customers around the world remain focused on locking in capacity despite the ongoing uncertainty regarding tariffs and trade. This is evidenced by our 99% utilization rate and 84% extension rate in the period. Today, I'd like to share a number of operational highlights with you from the first quarter that gives you a better sense to the level of activity taking place each day at AerCap.

Speaker 2

On the passenger side, we continue to see strong bids for our assets with a couple of notable deals on the 787s in particular. There, we are seeing strong demand both for remarketing aircraft and the broadening of the user base more generally. And I'll give you a couple of examples. In q one, we managed the successful transition of three midlife 787s between two customers in Europe. They were on time and on budget, and we were able to increase the rents and improve the credits, highlighting the demand for these aircraft.

Speaker 2

We also executed a $7.87 sale leaseback at attractive pricing with a new customer, where the airline was keen to partner with AerCap specifically. Airlines know that when they are partnering with AerCap, they have that added oversight and trust, and that brings them validation in the marketplace. On the narrow body side, we also agreed the extension of 26 midlife aircraft with a North American customer, keen to lock in that capacity for a further six years. This is a live example of the contrast between the monthly gyrations you may see in any given airline schedule capacity or indeed their stock price with the long term mindset that airline fleet managers are required to adopt. On the engine side, you'll note that we ordered 268 new LEAP engines in 2024 as part of a deal with our joint venture, SES, where we take one third of these engines and SES take two thirds.

Speaker 2

We are making good progress on this front with over 120 of these engines already delivered, 60 more expected this year and 50 plus next year. This highlights the difference between ordering aircraft from the OEMs today, which would be likely to deliver in 2030 and beyond versus ordering engines. Engines have a much lower lead time, making them an attractive avenue to deploy capital, particularly when you have the infrastructure of AerCap. So I think it's worth spending some time talking about how we continue to expand our operational capacity on the engine side in line with our growing fleet. We now operate from 27 parked or MROs around the world located close to our key customers.

Speaker 2

This is in line with our expansion in LEAP leasing, but also supports other engine types like the Gen X, GE 90, and CFM 56 engines and is focused on lease returns and portfolio optimization. These centers carry out a range of light MRO tasks like borescope inspections, top case module swaps, QEC installations, and preservation services. This really adds to the industrial capability our customers have come to expect from AerCap and provides a significant amount of information on trends, costs and outcomes, which can be used across our various business lines. Turning to milestone, we continue to see opportunities in the helicopter business. As an example, in q one, we agreed the purchase and leaseback of five new Leonardo AW one eight nine helicopters with a new customer, Equinor Energy, a leading supplier of energy to Europe and the largest oil and gas operator on the Norwegian continental shelf.

Speaker 2

This deal involving a long term lease of new technology equipment to a new customer and is a good example of the industry changing toward a direct model, I. E, leasing to the end user. This structure replicates similar deals we completed with Var Energi, another listed Norwegian oil company for two AW one eight nine super medium helicopters around the same time. So in summary, the AerCap platform is strong and continues to perform well, finding new and complementary way to support our customers across all our business lines. We expect demand to remain robust for the foreseeable future.

Speaker 2

With that, I'll now hand the call over to Pete to review the financials and the outlook for 2025. Thanks, Gus. Good morning, everyone. Our GAAP net income for

Speaker 3

the first quarter was $643,000,000 or $3.48 per share. The impact of purchase accounting adjustments was $43,000,000 for the quarter or $0.23 a share. The net tax effect of these was $6,000,000 or $04 a share. As a result, our adjusted net income for the first quarter was $679,000,000 or $3.68 per share. There were three main drivers that affected our results for the first quarter.

Speaker 3

First, our net maintenance contribution, which is maintenance revenue less leasing expenses, was $82,000,000 this quarter on an adjusted basis. That's higher than the 30,000,000 to $40,000,000 net contribution that we see on average, mainly due to lower leasing expenses this quarter. But as I've mentioned many times in the past, these numbers tend to move around a lot from quarter to quarter based on maintenance activity levels. Second, net gain on sale of assets was $177,000,000 for the first quarter. We sold 35 of our owned assets for total sales revenue of $683,000,000 That resulted in an unlevered gain on sale margin of 35%, which is equivalent to a multiple of 2.3 times book value.

Speaker 3

As of March 31, we had five twenty five million dollars worth of assets held for sale. Third, our other income was $105,000,000 which is higher than normal. During the quarter, we received shares related to an airline bankruptcy claim and also received some insurance proceeds related to a total loss on an aircraft. The combined impact of both of those on other income was around $30,000,000 Our liquidity position continues to be very strong. As of March 31, our total sources of liquidity were approximately $20,000,000,000 That includes slightly over $1,000,000,000 worth of cash and 11,000,000,000 of revolvers and other committed facilities.

Speaker 3

Our sources to uses coverage ratio was 1.8 times, which amounts to excess cash coverage of around $9,000,000,000 Our leverage ratio at the end of the quarter was 2.4 to one, which is similar to last quarter. Our operating cash flow was approximately $1,300,000,000 During the quarter, we were upgraded to BBB plus by Fitch in March. So we are now rated BBB plus across the board with all three rating agencies. We also completed $1,000,000,000 of financing during the quarter. We bought back 5,700,000.0 shares during the first quarter for a total of $558,000,000 In addition to this, we bought 4,700,000.0 shares in April for $445,000,000 taking advantage of the recent market volatility.

Speaker 3

So that takes us to just over a billion dollars of share repurchases so far this year. With the $300,000,000 of capacity remaining from our previous authorization plus the $500,000,000 authorization that we announced today, that gives us $800,000,000 of available capacity. As Gus mentioned, we're raising our full year 2025 adjusted EPS guidance to a new range of $9.3 to $10.3 That includes approximately 80¢ of gains on sale that we had in the first quarter, but it does not include any gains on sale for the remainder of the year. We've had a strong start to the year in terms of net maintenance contribution and other income. However, we are seeing some delays in our seven seventy seven freighter conversion program.

Speaker 3

We've incorporated all of this into our updated guidance. Taking all of that into account, we expect to be in the top half of that range for the full year. But as you know, there is considerable uncertainty in the overall macroeconomic and market environment. In closing, AerCap continued to perform very strongly during the first quarter. We continue to be in a position of strength with a strong balance sheet, low leverage and strong liquidity.

Speaker 3

We've taken advantage of the recent market volatility to buy back over $1,000,000,000 worth of stock so far this year. And as Gus mentioned, today, we've announced a new 500,000,000 share repurchase program to be deployed during the remainder of this year. And with that, operator, let's go to Q and A.

Operator

Thank We'll take your first question from Terry Ma from Barclays. Please go ahead.

Speaker 4

Hey, thank you. Good morning. Gus, so you noted the engine and helicopter opportunity in your prepared remarks. The last year, you also kinda highlighted a number of bilateral transactions you executed with customers. I'm just curious if you kind of expect more of those opportunities to come to the market just given the tariff uncertainty and how that kinda ranks relative to helicopters and engines?

Speaker 2

Yep. Thanks, Terry. I would expect given the scale of the company and the reach we have around the world, be it on aircraft, helicopters, ranges, that we should see one or two more bilateral negotiations. Yes. You're right.

Speaker 2

I mean, the the engine situation is, created by the, I suppose, quasi industrial infrastructure we have and our experience in supporting, the engine OEMs. The you saw also a sale leaseback on a July that we did that was on a bilateral basis for an airline. So, you know, I do think that the current situation may throw up additional opportunities, and we keep working hard for them.

Speaker 4

Got it. That's helpful. And then maybe just on the buyback, you guys, kinda leaned into it. We authorized another amount, but you you didn't actually kind of increase your EPS guidance for the for the year ex gain on sale. Is that just completely offset by the freight of conversion delays you kinda called out?

Speaker 4

And any way to kinda quantify that? Thank you.

Speaker 3

Sure, Terry. So I can go through that. So, basically, we increased the full year guidance by 80¢, which was the amount of gains on sale in the first quarter. We did have a strong quarter that was driven primarily by two things. One was the higher net maintenance contribution.

Speaker 3

The other was higher other income. And the higher maintenance was a result of lower leasing expenses in the quarter, mainly lower transition costs, lower top up expenses, lower lessor contributions, all of those things. Some of that's due to timing, but we're generally seeing lower transition costs because of the high number of airline extensions that we're having. In other income, we had a couple of onetime items, recoveries from airline bankruptcy from a few years ago, and insurance proceeds on a total loss aircraft. So those were the things that made the first quarter higher than expected.

Speaker 3

You know, as we look out for the full year, I do think that we're gonna be in the top half of that range. Yeah. The freighters, you know, we'll see some of those moving out of this year. But, ultimately, I think these other positives are more than more than offset that factor. But we didn't narrow the range, really, because there is more uncertainty out there.

Speaker 3

But as it stands today, you know, we're pretty comfortable we'd be in the top half.

Speaker 2

Got it. Thank you.

Speaker 3

Sure.

Operator

We'll hear next from Moshe Orenbuch from TD Cowen.

Speaker 5

Great. Gus, maybe to come back to the two areas, that you cited, you know, the engines and helicopters, can you kinda tell us how much given how much excess capital you've got, how much do you think you can deploy in those businesses kind of over the next year or two?

Speaker 2

Well well, first of all, I mean, we're we don't mind where we deploy the capital. The critical element is, is this going to be accretive to our shareholders? We've never been here to grow for the sake of growth. But if attractive opportunities come up, I mean, we have ample amounts of capital. And, certainly, with the headroom that we have, we could easily deploy just in this year alone an additional, what, 4,000,000,000 piece if we we desire desired.

Speaker 2

Mhmm. And that's only in this year. So if we're to look at a multiyear capacity to absorb additional assets, you're into double digit billions. So that isn't in any way going to limit us. Our limiting factor as it comes to growth is profitability.

Speaker 2

We are here to make money. That's it. On a risk adjusted basis. And so drive that ROE. That's the key.

Speaker 2

That's why we're here. And so transactions that will enhance the ROE on a risk adjusted basis for the business, There's no limit to what we can do, I feel, in terms of size.

Speaker 5

Gotcha. Gotcha. Okay. Pete, you you you alluded to the answer to this about the lease expenses kind of in the last answer set talking about the the, you know, the fact that'll that some of it was a result of, you know, kind of more renewals as opposed to kind of switching airlines. I'm hoping you could kind of just flesh that out a little bit.

Speaker 5

Like, what you know, are there any other things that, you know, that that have caused these particular renewals to be low low leasing cost? Because it seems like that process of, you know, having a high level of renewals is likely to continue certainly through this year and maybe even into next. So can you just talk about that and what that might mean for, you know, leasing expenses as we go through '25?

Speaker 3

Sure, Moshe. So as a general matter, you know, when you're extending with an existing the existing lessee, then the transition costs are gonna be lower because you don't have to I mean, you don't have to do anything to move it. Right? The aircraft stays where it is. And so, generally speaking, that's gonna lower leasing expenses.

Speaker 3

So that was part of it this quarter. And then, you know, the rest of it, I'd really say, was was due to timing. You know, we did see, I mean, just kind of lower activity on the maintenance side as well. And that's one of the reasons why you also saw, like, maintenance rights amortization, for example, was much lower this quarter, lower than normal. So I think it reverts back to kind of regular levels.

Speaker 3

I mean, as a general matter, I would say, you know, if you think of net maintenance contribution, I'd say 30 to $40,000,000 a quarter is probably a good, good guide.

Speaker 5

Gotcha. Thanks very much.

Operator

We'll move next to Jamie Baker from JPMorgan.

Speaker 6

Oh, hey, and good afternoon. This is actually the first AerCap call I've ever done from Europe, and I I totally get the timing now. I love it. So, Gus, on on tariffs, look, it's a zero sum game. K?

Speaker 6

Some somebody ends up paying, and it it might not be AerCap. And, you know, Mark and I get that. You know, maybe it's the airlines. Maybe, you know, the OEMs ultimately accept lower margins. But, you know, at the end of the day, higher costs, you know, it means less growth.

Speaker 6

So maybe it does drive the business to midlife or less expensive aircraft at the margin. I mean, it's I've seen that suggested by some appraisers. Any thoughts on that?

Speaker 2

Well, I think you're right, in what you say, Jamie, that ultimately, someone has to bear an additional cost on the system. Now who that will be and the allocation of that between the ultimate consumer, the OEMs, the airlines, ourselves, we'll have to wait and see. Certainly, AirCap's perspective as it relates to our current contracts with the OEMs, we have fixed caps of escalation in place. So on these contracts, it won't affect us. Now that being said, though, what do we know at the moment?

Speaker 2

Well, we know there are tariffs on aircraft going into The United States. We know there are tariffs on aircraft going into China. So they're known. They're not having a significant impact as yet, but it's very early in the in the game. Ultimately, if the Europeans retaliate and match The US tariffs and then run a more global basis, we will see, as you say, used aircraft values increase.

Speaker 2

We will see in China, I would imagine that the the pressure valve they can use is to take the age limitation of leased aircraft. Over half the fleet in China is leased. They have an age limitation of twenty years. If you were to remove that limitation in China and certain other countries in emerging markets and Asia, what you would find then is that demand for new aircraft would be dampened because that is a lot of aircraft that would not leave the market and would stay in service. However, all that being said, Jamie, I think my my hope and I think everyone's hope in the industry is that we have had a tariff free industry between Europe and The US and several other countries under the 1979 agreement.

Speaker 2

And if we could bring more countries into that, such as China and India, that'd be an even bigger win, for US industry. And we all hope something like that can be achieved.

Speaker 6

Yeah. Well and I guess I guess that, you know, sort of my follow-up guts because, you know, maybe the end game is that aircraft are simply too important to the global economy to be subject to tariffs. Do do you know of any examples where, you know, the headlines scream, you know, tariffs, but the reality is that aircraft and parts are carved out? I'm I'm just, you know, I'm I'm just wondering if there's any precedent for such an outcome. That's all.

Speaker 6

Thanks in advance. Take care.

Speaker 2

Certainly. Well, I think, look, there are discussions ongoing, we understand, in in China between the airlines and the regulators. And, hopefully, this will lead to aviation aerospace being exempted. But I think, Jamie, what would be a tremendous achievement for, the administration is if they could significantly enhance the 1979 agreement so that it that doesn't just incorporate 34 odd countries, mainly North America and Europe, but also bring in heavyweight such as China and India, where there are small tariffs in China at the moment, 5% on it. Before, there were always small tariffs before the the recent ones of 5% in a narrow body, 1% in a wide body.

Speaker 2

I think that'll be a tremendous win for the administration because The US has a massive trade surplus in aerospace, with the rest of the world. It's high-tech engineering and manufacturing, great paying jobs. And I think to expand the potential for that would be a tremendous achievement by the administration if it could be done to bring in those other countries into that zero tariff agreement.

Speaker 6

That's great, guys. Thanks so much for your thoughts.

Operator

As a reminder, ladies and gentlemen, it is the star key followed by the digit one if you have a question or a comment. We'll hear next from Hillary Cacanando from Deutsche Bank.

Speaker 7

Hi. Thank you so much. You know, I think we've you know, in the last couple of weeks, we've seen airlines in The US, you know, pulling their guidance, cutting capacity, you know, given the uncertainty in the market and the softness that they're seeing in domestic bookings. I know you said that, you know, demand remains strong, but I was wondering if you could kind of talk about, you know, what are some of the metrics or indicators, you know, that would get you, you know, kind of more concerned about demand trends going forward.

Speaker 5

So, you know, you you got

Speaker 2

a Hillary, you're right. I mean, the the carriers in it's first of all, it's a global market. The US is only 22% of it, give or take. So you gotta put that in context. And other parts of the world, there has been a significant tailwind against falling yields, and that is weakness in

Speaker 1

the fuel price and weakness in

Speaker 2

the dollar. They rarely go in the same direction. We generally see crude and dollar go in the opposite direction. So that has been a tailwind that has insulated non US dollar denominated economies, which is the vast majority of the world from, slowdowns in yields. But turning to your point in The US, yes, we do see weakness in the economy cabin in The US, and you're seeing airlines adjust capacity.

Speaker 2

But that's adjusting capacity for a three month or six month, nine month period. When we are looking at fleet decisions with airlines, we're looking at 20 you know, fifteen year decisions, twenty year decisions. And as I just referenced in my prepared comments earlier in in the quarter, we extended 26 midlife aircraft in The US, and these aircraft are over 15 years of age. So they're looking at long term extension, six years, because they need to know they have the capacity for the longer term. You can't turn on a dime when it comes to planning your air aircraft fleet.

Speaker 2

Airlines are often buffeted by short term gyrations in the global economy, but longer term, they have to know what seats they need and build to that. So because of that, we're not seeing any any reduction in demand at the moment.

Speaker 7

Got it. Great. Thank you. That's that's really helpful. And then, you know, one of the questions I've been getting from investors is, just regarding your portfolio.

Speaker 7

You know, right now, I think it's about, like, 75% new tech at the moment. And I guess over the course of the next few years, I I would assume, you know, the proportion of the new tech will get bigger. So, you know, I've been getting questions from investors. You know, you've been doing so like, your gain on sale number has been great because you've been able to sell this older portfolio because of your barbell barbell strategy fleet strategy. And I I think the question is, you know, what happens when you increase the the number of new tech in your portfolio?

Speaker 7

Does you stop with the bar you know, does that strategy go away? Like, how do you think about the, yeah, I guess, your portfolio going forward?

Speaker 2

Well, Henry, it that's the thing about the bar, but you're always looking way into the future. When we get to the end of this decade when we'll be out of the older tech, we'll have seven eighty sevens that are 18 years old. We'll have Niels that will be 15 years old. So they will then be our midlife aircraft. We just you know, we I've always said you don't want to be is at the end of this decade with 15 year old triple seven three hundred EOs, seven three sevens, a three twenties, or three thirties.

Speaker 2

You want them gone, and you want them to have had the the foresight to position the the business for future demand way into the future. You can't be looking short term in this industry just like indeed we referenced about the airlines. We can never get caught up on the short term gyrations of, yes. There's an amazing bid tomorrow for a a 15 year old a 03/20, and and start buying those in or or 10 year old a 03/20, excuse me, and start buying them in because demand will fall off for one of that age. So I think when we look in the several years' time, a significant portion of our portfolio will be in that fifteen year range, but it'll be the newer generation of the technology.

Speaker 2

And that's the way we've that's been how we've shown that barbell approach or the sunset sunrise approach to how the portfolio has been developed since, 2012.

Speaker 7

That's very clear. Okay. So it's not it's not that so by barbell, you're you're not meaning, like, you're gonna sell an aircraft because it turns, you know, it turns, like, you know, 10 years old or something. I I see what you mean. It's the new you're looking at the new tech.

Speaker 7

No. No. No. You got it. Okay.

Speaker 7

So that's a

Speaker 2

good question. More nuanced and thoughtful than that.

Speaker 7

Yep. Perfect. Perfect, Nupira. Thank you so much. Very helpful.

Operator

We'll move next to Catherine O'Brien from Goldman Sachs.

Speaker 8

Good morning, everyone. Thanks for the time. You know, you already touched on what you're seeing from the airlines in the prepared remarks and and just now with Hillary, and it sounds like airlines, even in North America, are still business as usual on on looking to secure capacity from your fleet and order book. But we've had quite a few US airlines talk about retiring more aircraft than planned a couple months ago. Totally understand they're a fraction of the of the global industry.

Speaker 8

You know, based on this quarter's gain, doesn't seem like it so far, but are you seeing any impacted demand for your own fleet from buyers? Can you just remind us who the complexion of the buyers of your aircraft sold has been of late? Thanks.

Speaker 2

Sure. Think look. I mean, as I said, it's very important to realize The US is twenty two, twenty three percent of the global market. That's it. It's important, but it's not the driving force.

Speaker 2

And so while while we will you'll say rightly that some US carriers are going to retire some aircraft. I think it's important to what aircraft are they retiring. Are they CRJs? I know in one airline, it's 30 e ones. I don't care.

Speaker 2

It could be very old seven five sevens. They're not relevant. These are twenty five year plus aircraft. We are not seeing, current we're not seeing, you know, 18, 19 year old aircraft being retired in quite quite the opposite. You just I just announced there that we extended 26 aircraft in The US market, and they were close to that 18, 19 year old.

Speaker 2

So, you know, people can say these things, retiring aircraft, true, but, you know, it could be aircraft that were on the way out anyway inevitably. So I wouldn't read too much into that.

Speaker 3

And, Katie, in terms of the split of, sales this past quarter, so it's about a quarter to airlines, about a third to other lessors, and about a third to investors, and then the remaining 5% or so was to part out end of life sales.

Speaker 8

Great. Thank you so much. Gus, I thought your long term take on on what would happen if tariffs on aviation stayed in place on CNBC is very interesting just in in terms of airlines needing to adjust orders to avoid tariffs over the longer term. In the shorter term, how does this impact lessors? My understanding is sounds like you're not on the hook for any tariffs if airlines are typically the importers of record even in an operating lease situation.

Speaker 8

But, you know, over the next couple of years, if the airlines in The US need more Boeing lift shorter term or vice versa for a European airline, could the lessors step in and help with that? Not to discount the disruption and added cost that would mean for the impacted airlines, but just thinking through some of the puts and takes.

Speaker 2

Sure. Well, there are three sources of aircraft in the world for an airline. There's Boeing, Airbus, and the leasing market slash the used aircraft market. So if we do have, as I said on the CNBC interview tit for tat and the Europeans raise tariffs, the Chinese raise tariffs, The US continues with the tariffs. We will ultimately see, absent Boeing and GE and Honeywell moving production offshore to Europe and to China, we're going to see a retrenchment of Boeing sales to focus on The US, and we're gonna see Airbus then take most of the rest of the world.

Speaker 2

But so that if if that that's one outcome. But then the other, scenario is that with if if you eliminate and in my discussions with governmental officials, what I've said is if you do put in tariffs, okay, suboptimal, but make sure that you don't tariff the used aircraft market so that the consumer, say, be it in The US or in Europe or in China for that matter, does not get punished. That the the the bill for the consumer is minimized. If you were to tariff, for example, used Airbus and new Airbus in The US, that means that there's a smaller supply of aircraft available to US carriers, which will mean less seats. Now if you let used aircraft in, you're not you're not helping or hurting Airbus in any way, shape, or form.

Speaker 2

Airbus have manufactured those aircraft. They're gone. The same is true on the other side. In this worst case scenario, the Europeans should allow European carriers to access used Boeing airplanes because they're not in any way helping or hurting Boeing by taking used aircraft. But if they don't take the used aircraft, they're hurting their own consumers more.

Speaker 2

The Joe Public in the street is gonna pay more for tickets if governments restrict the supply of aircraft to just new from one manufacturer. So I would hope that that is the way it would play out, which I guess if we go to there's a lot of negatives in that that whole scenario. Of course, we hope that never happens, but at least there should be good demand for for our our metal.

Speaker 8

That's very clear.

Operator

As a final reminder, ladies and gentlemen, that is the star key followed by the digit one. We'll move next to Christine Lewett from Morgan Stanley.

Speaker 9

Hey. Good good afternoon, everyone. Afternoon for you guys. So maybe two two questions. I mean, Gus, on this tariff, discussion, look, it seems like the rhetoric around it is more negative.

Speaker 9

But the way I see it is that, historically, Boeing was kind of the tip of the trade spear for The US. And if these countries want to actually look at the deficit, maybe buying more aircraft, would be an easy way to do that. I mean, aerospace defense is a is a net exporting, industry for The US. So I was wondering in that context, if countries want to buy more aircraft, what's your role in that? And, you know, because, ultimately, it's gotta be the country who's importing it.

Speaker 9

Would they increase lease, from you because it's still manufactured in The US? Would that, solve some of that trade deficit issue? Would you be able to step in, or do you anticipate higher demand for sale leasebacks if that, were to materialize?

Speaker 2

Well, I think it's more the former rather than the latter because Boeing doesn't have many slots decided 2030. So I think the leasing industry and certainly AerCap would want to step in and assist, in any way we could the administration achieve its targets and work with Boeing to make sure that to the extent, you know, air aircraft off our skyline would help resolve trade issues, we would definitely step in to make that happen one way or the other. And I would imagine, the other leasing companies will be similarly supportive because, of course, airlines can order aircraft for post 2030 delivery. That's a long way off, though. Yeah.

Speaker 2

I think The US would wanna see something quicker than that, and that's where the lessors could be very helpful.

Speaker 9

Great. Thank you for the color there. And on your commentary on the Shannon engine support business, really caught my my attention. Can you first discuss exactly what is it you're doing? What are you responsible for versus Safran and your 27 MRO partners?

Speaker 9

This engine module approach, especially in the CFM 56, has been pretty attractive for some players with pretty fat margins. Can you discuss the economics of this JV and how large this could be for you?

Speaker 2

Sure. Well, I mean, the way it works is we are just part of the aftersales service that's provided by the OEM. So if an airline signs up for, say, a CFM product, it'll be our obligation when the engine comes off wing to have the spare engine on-site, on time, on spec for the airline that has the off engine to go to the shop for repair. So we'd have to get it there. We'd have to take it back off the airline.

Speaker 2

We'd have to make sure whatever maintenance is done is done quickly, is done to specification, that it's ready to go out again to the next customer. So it's part of providing the after sales service to, the OEM customer, and that involves I think last year, we did over 1,200 engine movements, I believe, which is quite a lot. Like, that's three three plus every single calendar day that we're moving engines around the world to support the aftersales program. And that's why you need such a big global network, and you have to have engines stationed in different pools around the world in order to facilitate that. You have to have very significant in house logistics expertise.

Speaker 2

Can you imagine moving a 20,000,000 asset 1,200 times in a given year four times a day three, four times a day? That's a takes a tremendous amount of infrastructure, knowledge, and systems to do that. So that's the primary thing we do as it relates to your talk about engine repairs, module repairs. Look. I think any well run business will be doing that anyway.

Speaker 9

Great. Thank you.

Operator

Moving next to Steven Trent from Citi.

Speaker 10

Yes. Good afternoon, everybody, and thanks for taking my question. Actually, as a follow-up to my counterpart from Morgan Stanley about the Shannon engine JV. When you guys also think about your CapEx kind of going forward, should we expect a shift in the blend of purchases of helicopters and engines relative to plane purchases? Or do you think we'd see sort of a similar mix to what has been in recent quarters?

Speaker 10

Thank you.

Speaker 2

I I mean, helicopters will always be on a dollar basis a very small proportion of what's going on. But I think, you know, aircraft will far dominate, any CapEx program going forward. We have had a surge in engine CapEx. That's driven by the fact that the seven three seven MAX and the a three twenty NEO are hitting higher levels of production, thereby requiring higher level of sparing. I don't think we'll that that isn't a run rate, I would say, for a level of engine CapEx, that we have had, but we will all have a level of engine CapEx.

Speaker 2

You can generally think about spare engines as somewhere around if there are, say, 4,000 MAX aircraft in the world, that's 8,000 engines. There'll generally be a spares requirement for 15% of that. So that's 1,200 LEAP one b's. If there's 8,000 NEOs, say, two to one, that's 2,400 would be needed in the world, a total of 3,600 that would build up over the course of the next five, six years. A portion of those will be held by the airlines.

Speaker 2

We'll be by far the biggest proportion of that globally. Obviously, we already are. Even if we didn't buy any more, we'd still be the biggest player for the next ten years.

Speaker 10

Super helpful, Angus. Appreciate it. And just a quick follow-up. I think I caught I heard you guys mention basically, I believe, an 84% renewal rate on aircraft leases. Could you refresh my memory, know, first, if I heard it correctly?

Speaker 10

Could you give a give a high level view on how that's evolved over the last couple of quarters as it sort of gone up, or is it about the same? Thank you.

Speaker 2

Historically, going back over a long time, it would have been 50% odd. But over the last few years, it's trended around 90 odd percent. Now this this quarter, it was a little bit lower than 90, but still extraordinarily high by historical standards. And that's because, as I called out, we moved certain aircraft during the quarter. We decided not to extend.

Speaker 2

We moved seven eight sevens from one customer to another. And because of that, we were able to increase the credit and increase the lease rentals also. So you don't always extend because, you know, you need to make sure you get paid. You certainly, as we referenced at the start of this call, extending reduces leasing expense. So that's an incentive for us to extend, but there has to be a a trade off there where we still get a fair rental.

Speaker 2

And on some seven eight sevens, we decided to, to pull them out and go elsewhere, and that was the right thing to do. But, yeah, you know, if I look at the extension trends, you know, it was 60% in '21, '60 '5 in '22, '70 '5 in '23, and 80 in '24, and it got up at as high as 90 in some of the recent quarters. But so that's the situation. Evidence of demand.

Speaker 10

Oh, very helpful. Thanks very much.

Speaker 2

You're welcome.

Operator

We'll hear next from Ron Epstein from Bank of America.

Speaker 11

Hey. Good good morning, guys. Hey, Gus. You spoke a little bit to this. What are you seeing in wide body demand?

Speaker 11

I mean, you know, when we look out at the fleet, the fleet seems like it's aging. You know, are we, you know, moving up to a period where we really could see a surge in demand for wide bodies?

Speaker 2

We've been seeing very strong demand for wide bodies for quite some time, Ron. We were the first to see it, and we were calling it out several years ago because we're the biggest owner of wide bodies in the world. And, we could see that demand is coming, and it's unabated. As I just referenced, we pulled three seven eight seven dash nines out of a customer recently, moved them to another customer, better credit, and and materially higher lease rentals. And, we we we we if there was more wide bodies in the world, which there aren't, you you you you could shift them tomorrow morning.

Speaker 2

There's very strong demand for seven eighty seven dash nine to a three fifty nine hundreds.

Speaker 11

Got it. Got it. And what's your expectation for triple seven, you know, dash nine, the the x's when they start coming out?

Speaker 2

I think it'll be you know, it it it it'll it'll it'll be it's a very large aircraft. I believe it'll be a very capable aircraft, very fuel efficient aircraft. And, once it's in service, you know, you would imagine that as it's the largest aircraft out there, that that that that that part of the market, it should dominate.

Speaker 11

Got it. Got it. Got it. And then kinda back to your your commentary on, you know, the the WTO agreement. Is is the industry actively lobbying right now?

Speaker 11

I mean, you know, the automotive industry got really loud and vocal and, you know, lobbied pretty hard. Do do you see that at all in the aerospace industry? I mean, is is is broadly anybody, you know, lobbying on the hill to try to move things in a direction that would get us back to, you know, at least where we were and maybe even a better place?

Speaker 2

I I believe so, Ron. I believe so. I mean, this is in large scale manufacturing, this is where The US leads the world by a country mile. This is an industry The US should protect and try and grow. And I I I said in my comments earlier around that it would be an amazing win for the administration to accomplish is to bring more countries into that zero for zero tariff agreement, and that would really, be quite the win, I would say, for US aerospace, for US manufacturing, and The US Worker.

Speaker 11

Yeah. No. I I agree completely. I just wonder if anybody's actually pursuing that right now.

Speaker 1

And then I believe they are.

Speaker 11

And then and then maybe one more question. Maybe there's a broad question, big question. Ultimately, does the seven three seven need to be replaced? Yeah. I've had some debates with some with some investors saying that no no, it doesn't.

Speaker 2

No. No. It does not. There's no I I mean, what's the point? The MAX eight's a good airplane.

Speaker 2

You need to get the MAX 10, the MAX seven into service so that it's a more it's a better competitor for the three twenty family. But, I mean, I just think if you were to go to any buyer of the boardroom of a landline or a lessor today, if you're Boeing or Airbus and say, I've got a new airplane for you, I'd say make sure the door doesn't hit you on the way out. You've got to get the existing aircraft you are building more reliable, more durable in service. That's all I care about. The ones you've built do not have the same reliability and durability as your previous generation.

Speaker 2

Please don't come in here and tell me you're gonna have another swing. I want the stuff you've built to work better. That's what I want.

Speaker 11

Got it. Got it. Alright. Cool. Thank you very much.

Speaker 2

Thanks, Rob.

Operator

And at this time, there are no callers in the queue. I'd like to turn the conference back over to Angus Kelly for any additional or closing comments.

Speaker 2

Thank you, operator, and thanks to everyone for joining us for our first quarter earnings call. We look forward to speaking to you in three months' time.

Operator

That does conclude today's teleconference. We thank you all for your participation. You may now disconnect.

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Earnings Conference Call
AerCap Q1 2025
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