Ladies and gentlemen, thank you for standing by, and welcome to the Air Lease Q1 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded.

[Operator Instructions]. I would now like to hand the conference over to your speaker today, Mary Liz DePalma, Head of Investor Relations. Thank you. Please go ahead..

Hello, everyone, and welcome to Air Lease Corporation's earnings call for the first quarter of 2021. This is Mary Liz DePalma, and I am joined this afternoon by Steve Házy, our Executive Chairman; John Plueger, our CEO and President; and Greg Willis, EVP and Chief Financial Officer.

Earlier today, we published our results for the first quarter of 2021. A copy of our earnings release is available on the Investors section of our website at www.airleasecorp.com. This conference call is being webcast and recorded today, Thursday, May 6, 2021, and the webcast will be available for replay on our website.

At this time, all participants in this 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 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 the Company's future performance represent management's estimates for future results and speak only as of today, May 6, 2021. 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, certain financial measures we may be using during the call such as adjusted net income before income taxes, adjusted diluted earnings per share before income taxes and adjusted pretax return on equity 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 10-Q we issued today. This release can be found in both the Investors and Press section of our website at www.airleasecorp.com.

Unauthorized recording of this conference call is not permitted. I would now like to turn the call over to our CEO and President, John Plueger..

Thanks, Mary Liz. Good afternoon, everyone, and thank you for joining us. More than a year has passed since the start of the COVID-19 pandemic and we are beginning to see recovery in sight.

We are optimistic that as vaccine rates rise, travel restrictions are eased and as countries work independently and collectively to develop initiatives to enable free movement, we will see a further resurgence of air travel.

With that said, most of our airline customers are still grappling with the strain and limitations resulting from the ongoing pandemic. Today in our comments, I hope it will be clear how we are growing and further differentiating our platform, while also supporting our airlines and how we see that benefiting us as we move forward.

For the first quarter of 2021, we are reporting $475 million in total revenues and diluted EPS of $0,70 a share, down 7% and 40% respectively, compared to the prior year’s pre-pandemic first quarter.

Our results this quarter were impacted by approximately $86 million of rental revenues we did not recognized in the quarter due to cash versus accrual basis revenue recognition and lease restructurings. Greg will walk you through more specifics in his remarks.

We took delivery of approximately $600 million in new aircrafts in the quarter which is $200 million more than we originally anticipated. 87% of these deliveries by dollar value occurred in the last seven business days of March providing minimal rental contribution for the quarter, but providing a long-term rental contribution thereafter.

Our cash collections and lease utilization rate remains solid in the first quarter at 84% and 99.6% respectively, albeit both slightly lower than what we saw in Q4. To-date, we have agreed to accommodations with approximately 63% of our lessees with deferrals totaling approximately $243 million.

Importantly however, our total deferrals net of those that have already been repaid continues to improve. As of today, our net deferrals stand at $131 million, as compared to a $144 million as of our last call in February and almost half of all the deferrals we have granted to-date have been repaid.

Our net deferrals represent less than 2% of our available liquidity at the end of the first quarter. Furthermore, our overall cash flow from operations actually increased slightly this quarter, compared to last year’s pre-pandemic first quarter.

The pace of requests for rent deferrals and lease restructuring from our airline lessees has slowed meaningfully. We remain fully committed to helping our airline customers get through this pandemic and our customer relationships are growing even stronger because of our help and commitment.

So in spite of short-term headwinds impacting our first quarter results, we remain long-term partners to the airlines and our business is positioned to benefit.

In many cases, airlines have differentiated ALC from peers by choosing to continue operating Air Lease aircraft, while at the same time rejecting leases of other lessors and returning their aircraft.

Other airline customers have chosen to defer their own orders and instead opt to lease aircraft from ALC, which will remain core to the airline long-term fleet strategy for years to come.

Accordingly, we see accelerated demand for the aircraft in our fleet and order book as you’ve hopefully seen in our recent press releases driven by airlines focus to operate younger aircraft, a shift towards leasing which now accounts for about half of the marketplace, and a focus on sustainability initiatives which gears demand towards the new environmentally friendly aircrafts contained in our order book.

As such, our lease placements remain strong at 95% of our order book placed on long-term leases for aircraft delivering through 2022 and 80% through 2023. So looking ahead, we technically have OEM contracted commitments to take delivery of 64 aircrafts in the remainder of 2021.

But given continued OEM and pandemic delays, we currently expect to deliver approximately 44 aircraft and that number could change. We expect a range of approximately $3 billion to $4.3 billion in aircraft investments for the full year 2021. As of today, we are anticipating approximately $1.2 billion of these deliveries to occur in the second quarter.

We continue to evaluate supplemental aircraft investments opportunities outside of our order book that are profitable and makes sense for ALC over the long-term. We are pleased that 787 deliveries have resumed and in the first quarter, we delivered one 787 to Air Premia South Korea and more recently, we delivered two 787s to China Southern in April.

As you saw from our quarterly fact sheet release, we also delivered four 737-8 MAX aircrafts this quarter. As it relates to the recent grounding notice issued regarding the electrical power system on the 737 MAX aircraft, we did have 6 aircrafts delivered to our customers subject to this order.

Boeing is working with EFA to conclude the process required for operators to return the aircraft to service. The actual work involved to accomplish the mandated service volumes is expected to take just a few days per aircraft. Until this process with EFA is concluded, we may experience further delivery delays of the 787.

Despite these recent developments, we do have several customers who have expressed a desire to reactivate taking delivery of several MAX aircrafts that we previously canceled with Boeing pursuant to our cancellation rates.

We are working with Boeing and those airline customers to reactivate those specific deliveries under favorable pricing and delivery terms. As to aircraft sales and our management business, we do anticipate a resumption in our aircraft sales program targeting the second half of the year.

However, we anticipate our overall sales in 2021 will not reach pre-pandemic level. As always, we are taking a disciplined approach to sales analyzing the aircraft portfolio sales environment and the contemplated gains on those sales as against keeping these good earning assets for a bit longer, as they approach 6 to 8 years of age.

And as we advised last quarter, we are growing our aircraft management business nicely. In fact, in just a 100-day period, we sourced in the secondary market over $600 million of aircrafts suited specifically for Blackbird Capital II, of which two delivered in the first quarter and the remaining aircraft will deliver over future quarters.

Furthermore, we have entered into another management platform agreement with one of the previous investors in Thunderbolt to acquire aircraft and have sourced seven new aircrafts for that investor through airline sale leaseback transactions for forward deliveries.

This is an additional attractive and growing management platform that dovetails exactly what we told you last quarter in mirroring or coupling sale leaseback transactions with direct placements from ALC’s order book.

Most recent example of this was the placement of four new A320neos with Volaris in Mexico, two from ALC’s order book and two from sale leasebacks, a transaction we announced on April 26. And finally, as we look around the world, we are mindful of our social and environmental responsibilities and we are taking active steps on these fronts.

For example, while many countries and regions are still suffering, who on this call has not felt heartbroken at the human suffering and deaths happening in India at this time due to the COVID-19 virus. The scope and magnitude simply defy description. As such, I am proud to announce that ALC is donating $100,000 to the relief efforts in India.

We are expanding such initiatives, in fact, our ESG committee has several projects and efforts under consideration that we believe will further aid our planet and the human condition. And with that, let me turn the call over to Steve for additional commentary.

Steve?.

John, thank you very much. Over the last decade, Air Lease has focused on growing our company organically to now over $25 billion in excess and our fleet and order book are comprised of the aircrafts we personally selected.

There has been a lot of attention in recent weeks to size and scale and the interplay that with our ability to deal and negotiate with the manufacturers and airlines, there is not one right answer for what is the right size of an aircraft lessor.

But what has been validated during the pandemic is that ALC has the asset strategy that aligns for the industry needs and desires.

And that our existing fleet size and order book, together with our deep knowledge of the assets and fleet planning expertise, and the relationships that we’ve built over multiple decades makes us a valued partner to our customers and the OEMs and this gives us tremendous confidence in our future.

Looking at the airline landscape, as you can take away from the daily headline of recently public reporting from us and many other companies, the current operating environment is very dynamic.

While the hurdles and restructuring agreements are not ideal in any environment, we are pleased to say that it is clear from our conversations that airlines want to keep our aircrafts as the backbone of their fleets and as such, we are working together to come to commercial arrangements on how to proceed.

Not every leasing company is in that same advantageous position as ALC in this regard and it is an important differentiator in this type of an environment. We remain very focused in the coming months and years as the outlook for the return of air travel driving airline decisions today.

Even though many countries are still trying to gain control of the pandemic, we are moving in the right direction in comparison to where we were a year ago. For us here in North America, there is no better example that what we are seeing on the heels of increased vaccination rates.

In the United States last year, at this time, TSA was seeing below 200,000 passengers a day and as of this last Sunday, the TSA had over 1.6 million passengers pass through their security checkpoints. And this is with very limited international and business travel.

We believe that this will be further propelled as vaccinated Americans can travel to the EU this summer as was mentioned by the President of the European Commission a few days ago.

Outside of this broader announcement, while certain parts of Europe are still under vast restrictions, we are beginning to see individual countries change course selectively and carefully announcing dates for reopening subject to negative test results prior to entry, in some cases vaccination, and other criteria.

For example, Greece recently announced that it is reopening its doors to COVID-free tourists from more than 30 countries as they take the so-called baby steps back to normalcy.

We recently heard from our friends at United, Delta and American that they will be introducing flights to capture the pent-up demand for travel to many of these destinations that are opening up.

We’ve seen similar announcements from countries like Iceland, allowing tourists from certain countries and Croatia allowing vaccinated travelers that are incoming.

Outside of Europe, places like Israel, and selected countries in Asia have also announced that they will allow limited groups to start arriving at the end of May and early June subject to certain requirements. Countries are also working bilaterally to find ways to allow the flow of air travel despite of the pandemic.

For example, in mid-April, Australia and New Zealand opened a quarantine-free travel corridor and you are hearing similar news that’s been discussed by other countries. For instance, the United Kingdom and Israel have mentioned a possible green travel corridor, while similar talks are now in process between the U.S. and the United Kingdom.

In addition, countries are exploring ways to digitize and simplify proof of COVID-19 vaccination or negative test results or both, sometimes referred to as a vaccine passport. This scheme would allow travelers to satisfy entry requirements more easily.

We believe that these initiatives and others will be vital to restoring intercontinental leisure travel and gradually business travel as the year progresses. Importantly, as the world emerges from the pandemic, and people can travel more freely, many millions will have the means to do so.

It was recently reported that consumers around the world have accumulated an extra $5.4 trillion of savings since the pandemic has begun and we heard executives across a broad spectrum of industries discussing pent-up demand that they believe exists.

Since our last call alone, we have delivered a number of aircrafts to customers around the world who are modernizing their fleet and rightsizing their fleet composition in anticipation that air travel will recover over the coming several quarters.

For example, John mentioned the two 787-9 aircraft that we recently delivered to China Southern and Air Premia in Korea took another 787-9. In addition, we delivered a first set of only five new 737 aircraft to Belavia, the national carrier of Belarus. These aircrafts replace the airlines ageing Boeing 737-300 and 737-500 aircrafts.

We also delivered our third 737-8 to Cayman Airways and the Caribbean the national flight carrier of Cayman Islands, which is retiring its last 737-300 aircraft and replacing it with our new 737-8 model. And the first of which ten 737-8 aircrafts that we just delivered to Blue Air in Romania.

Blue Air is a ULCC carrier in Eastern Europe which is also accelerating the retirement of their classic fleet of 737-300s and 500s in favor of more environmentally-friendly and economic narrow body aircraft. On the Airbus side of the equation, we delivered one new A321neo LR aircraft to Air Astana, the flight carrier of the Republic of Kazakhstan.

This is the airline’s fifth new A321 LR they leased from ALC. In addition, we delivered one new A321-200neo LR also to Air Arabia which is now operating six A321-200 LRs on lease from ALC.

These illustrate example to show a broad range of customers taking delivery of our aircrafts and how they are utilizing these aircrafts to adjust and modernize their fleets.

Looking forward, we are also starting to see an uptick in lease rentals on certain desirable aircraft types, particularly the A321neo, of which AL3 is the largest order book of any aircraft lessor.

The A321neo and its longer range variant to A321 LR and – took the service the XLR are taking place of smaller – aircraft on Transatlantic and Intercontinental medium all routes in addition to expanding basic route networks of many LCC and ULCC operators.

We have also placed our first 15 Airbus A220-300 aircrafts from our 50 aircraft firm order of that size. Our A220 deliveries will come in, in the second quarter of 2022. While wide body aircrafts remains somewhat challenged, let me emphasize what I said at the beginning of my remarks.

Specifically, there are young fuel-efficient aircrafts have a definitive advantage and there are number of airlines that kept our wide body aircrafts as a backbone of their wide body fleet at the expense of other lessors. Recent example includes Aero Mexico, Malaysia Airlines, and Virgin Atlantic.

Our forward placements and deliveries of wide bodies are proceeding on track with airlines such as Delta and a number of international carriers. In fact, ALC only has one unplaced A330neo from our order book and a very small number of A350s and 787s, which are now in process for future placement.

On the used aircraft side, our young fleet of 777-300 ARs and A330-200s and 300s remain well placed with our customers with only a modest number of lease expirations in the next 12 to 24 months, all of which are manageable. We’ve also successfully tendered the leases on a number of our 777-300ER aircrafts in the last six months.

Finally, let me add one additional comment to John on the 737 MAX program. The recertification of the MAX by China and Russia is still pending. China in particular is a very large marketplace for the 737 family and the MAX. Russia is also an important customer in this regard.

Recovery of the Boeing 738 program will not be complete until these countries certify and can obtain clearances to operate the 737 MAX in their country and for over price. ALC has several 737s on future delivery where our lessees require Russian and/or Chinese certification.

ALC remains fully committed to the 737 program, but I do feel compelled to point out that these remaining obstacles including the very frustrating current grounding need to be overcome by Boeing with pace.

The progress of USA and European summer traffic growth will also play a role in the pace of new 737 absorption by airlines for the remainder of 2021.

The USA looks well-positioned for domestic summer travel recovery while the extent of the Europe aircraft and traffic recovery some remains less certain, but in the next coming weeks, we will have more visibility on that. I know it’s been a long year and there is a longevity of this pandemic has exceeded all expectations.

However, I would like to point out that I firmly believe that like other downturns in our industry, which has been experienced, recovery will occur and impact is occurring in phases like domestic and international travel, by country and by region.

We at Air Lease Corporation have not underestimated the impacts of the pandemic and you are seeing that in how we are managing our business and dealing with our trusted airline customers. But at the same time, we are also not losing sight of what lies ahead and how we best position our business for the months and years to come.

And with that, I will turn the call over to Greg Willis, our Chief Financial Officer to provide you more detail on our financial results. .

Thank you, Steve, and good afternoon everyone. Let me expand a bit on the details underlying our financial results for the first quarter. I’d like to remind everyone that for comparison purposes, the first quarter of 2020 was relatively unaffected by the COVID-19 pandemic.

As you would expect, the following COVID-related factors that continued to impact our performance, in the first quarter of 2021.

As John mentioned, revenues were impacted by $86 million from the lease restructuring agreements and cash basis accounting, of which, $49 million came from lessees on a cash basis where the lease receivables exceeded the lease security package and collection was not reasonably assured.

This compares to $25 million in the third quarter and $21 million in the fourth quarter of last year. In total, our cash basis lessees represented 15.3% of our fleet by net book value as of March 31, as compared to 7.8% as of December 31.

The increase in rental revenue not recognized for the first quarter was primarily driven by a few customers with whom we are working forward – working towards reaching a resolution.

Although we’ll not be going into details on these specific customers, it is important to note that one of our larger customers in the script has committed that they will repay our receivable balance.

I want to reiterate the fact that we are receiving cash payments from all of our cash basis lessees and the majority of them are in some form of restructuring and have expressed that they desire to keep our aircrafts.

We remain hopeful that the remaining lessees will emerge from their restructuring and not hit us future and that we can return to recognizing revenue on an accrual basis. It remains very difficult to predict the cash collections from these customers and notably, the first quarter is more challenging than we expected.

However, we continue to believe that this recovery will be closely tied to improving passenger traffic and rising ticket sales. The remaining $37 million is from lease restructuring agreements, the majority of which went into effect in 2020.

Our lease restructurings are serviced on situations where we believe the merit of the restructuring including lease extensions and other consideration, outweigh these associated adjustments being made. Our total referrals net of repayments to-date is approximately $131 million, of which is down 9% from $144 million as of our last call on February.

Since our last call, repayment activity has continued with total repayments of $112 million or 46% as the gross deferrals granted and it is reflected in our operating cash flow. I also want to reiterate, that we believe our accommodations remain manageable and relative to our liquidity position.

A final note regarding aircraft sales with that we sold no aircraft in the first quarter of this year, as compared to three aircrafts that we sold in the prior year as part of our Thunderbolt III transaction. As John indicated, we anticipate that the resumption of our sales program had a reduced scale during the second half of the year.

Turning to expenses, interest expense increased year-over-year, primarily due to the rise in our average debt balances, driven by the growth of our fleet and an increase in our liquidity position partially offset by a decline in our composite cost of funds. Our composite rate decreased to 3% from 3.2% in the first quarter of 2020.

Depreciation continues to track the growth of fleet while SG&A remained relatively low compared to last year, down 5% representing 5.7% of total revenues. The primary driver here is the continued low operating and transactional related expenses which continue to remain constrained in the current environment.

While this quarter’s results continue to be impacted by the pandemic, we do see light at the end of the tunnel. Despite the current stresses in the marketplace, we continue to generate margins and returns on equity, which should improve as our customers come off cash basis as the world continues to recover from the pandemic.

Turning to capital allocation, we have maintained our dividend policy and our Board has extended our share buyback authorization of $100 million through the end of December 2021.

Although we have not repurchased any shares to-date, we continue to look at the best opportunity to generate long-term results for our shareholders by evaluating all of our capital deployment options. Lastly, I want to touch on financing which continues to provide us a significant edge of our competition.

We are dedicated to maintaining an investment-grade balance sheet, utilizing unsecured debt as our primary form of financing, and have $23.7 billion in unencumbered assets at quarter end. And we ended the year with a debt to equity ratio of 2.5 times.

In addition, through the senior unsecured note issuances, we completed in January, at a record low of 0.7%, we returned to the preferred market in February for a second raise in this space issuing $300 million of perpetual preferred stock at a rate of 4.65%.

Preferred equity is attractive as a component of our overall funding mix, offering favorable rates for long-term capital in support of our fleet growth, funding diversification and favorable rating agency treatment.

Finally, as just announced last week, we extended the final maturity of our Bank of Alberta 2025 and outsized the facility by an additional $200 million bringing our total revolving unsecured line of credit to $6.4 billion.

We continue to anticipate maintaining elevated levels of liquidity until the broader aviation market recovers and we are well positioned from an opportunistic aircraft investments as opportunity arise.

As mentioned, ALC continues to have a robust liquidity position with $7.5 billion of available liquidity at the end of the first quarter and continue to access the investment-grade markets. As we have always commented, our investment-grade credit ratings are – to us.

And you are seeing our commitment to the investment-grade ratings how conservatively we run our business. With that in mind, we are pleased to report that in early April, S&P reaffirmed our BBB rating and changed our outlook to stable from negative.

As I shared in the past, our balance sheet was originally designed as $4 billion to $6 billion in aircraft investments annually and we are well above what we anticipate taking in 2021 leaving us plenty of dry powder to explore further opportunities.

Before I conclude, I would like to note that we expect to file a new shelf registration statement in the upcoming days to renew our expiring shelf to declare this upcoming filing is being made to renew our existing shelf that expires under SEC rules next week.

Consistent with previous filings, the new shelf will primarily allow us to continue to make opportunistic bond issuances. And with that, I will turn the call back over to Mary Liz for the question and answer session. .

Thank you, Greg. This concludes management's remarks. For the question-and-answer session, we ask each participant to limit their time to one question and one follow-up. I would now like to turn the call over to the operator to open up the line for the Q&A..

[Operator Instructions] And our first question comes from the line of Moshe Orenbuch from Credit Suisse. .

Great. Thanks and I was just hoping, Greg, that you could just talk a little bit about whether any of the FX, those changes from the lease restructurings kind of carry into future quarters – was this – you mentioned the leases themselves were restructured in 2020.

So, and maybe just kind of give us a little primer on the accounting and how that works and what will that mean for your second quarter and future?.

Yes, Sure. The lease restructurings are basically lease extensions at a lower rate that shows up in our yield and I would expect that number to continue on in the future. The cash basis we anticipate trying to recover as much that as possible and we don’t see that continuing. .

Great..

Obviously, that number should get smaller as time goes by but we definitely intend on recovering as much of that cash basis number as possible. .

Got it. So, as we think about the progression in the second quarter, those lease restructurings are likely to continue but not increase and then, you would expect to have some degree, perhaps it’s not full in progress, kind of eating into those deferred balances.

Is that the way to think about it?.

I think that’s fair. .

Okay. Thanks. .

Obviously, anything can change, but that’s how we are thinking about it today. .

Okay. Thank you. .

And our next question comes from the line of Catherine O'Brien from Goldman Sachs. .

Hey. Good afternoon, everyone. And thanks so much for the time. So, a question just on the incremental opportunities out there. Last quarter, you noted that the economics were fairly improving, but this quarter, doesn’t make any incremental acquisitions at least on the AL balance sheet or in the secondary market more broadly.

Is that a reflection – is this a reflection of a change in the market dynamics? Or any change in your view on the financial recovery of the global airline industry or something else at play? Thanks. .

No, I wouldn’t read too much – this is John, thanks Kate, I wouldn’t read too much into – not buying additional aircraft for one quarter. That’s just far too narrow the time focus. We look at this broadly year-to-year in every year, we’ve additional incremental aircraft and it’s not in every single quarter we’ve done so.

So, I wouldn’t make too broad of assumptions about a change in the marketplace, et cetera. We aircraft just very selective on what we buy and add to our balance sheet. .

Gotcha. So maybe more just the timing of acquisition of than any change. .

Yes. .

Okay. Got it.

And then, just on your – on the high number of aircrafts that you have signed up to get delivered out in your 2022 and 2023 order books, could you give us a feel for like what the conversations with the airlines are like? Are the vast majority of the conversations there are like, being on your door, can we take the aircraft, are there still, I mean, that are a little bit nervous about, thinking where at this point or would just want some color on what the tone of the conversations are? Thanks.

Thanks. It’s a good question. I would say that, if you look at our lease placements for the remainder of 2021, 2022 and through the first half of 2023. It covers a very broad spectrum, there is in fact kaleidoscope of airlines, it includes some global network carriers, intercontinental carriers that are among the top and airlines of the world.

It includes smaller regional oriented airlines that want single-aisle aircrafts. It includes Transatlantic carriers, it includes Pacific Asian carriers. We have done a number of transactions recently in Latin America. We’ve done a number of deals in the U.S.

So, it really covers a wide spectrum of airlines that are basically replacing aircrafts that they deem less economic or uneconomic as they look forward.

And I think the vast majority of these placements are actually upgrading the quality of the airline suites, both from an operational and liability point of view, environmental, suitability point of view and also a lower cost of operating these aircrafts in terms of fuel burn, and maintenance costs and customer appeal.

So, the widely diversified customer base that we have and the fact that we are focused on the most desirable new aircraft has given us this wide flock of airline customers on a global scale, rather than sort of packing and focusing in only one region of the world.

And this is really going to carry us very nicely in the coming years, because it’s going to boost our rental revenues, mostly with very stable airlines that have shown a real strength in the recovery cycle out of this pandemic. .

Understood. If I can maybe just squeeze one quick one in on the – follow-up commercial on the restructuring impacts. Is any of that temporary based on the shorter term [Indiscernible] agreement or is that all – that’s how it’s going to be stable over the life of these leases? Thanks. .

Well, it’s kind of regains – our restructurings take a lot of different forms. We do have restructurings, for example with several carriers that say, okay, for the remainder of 2021, you can offset your – you can lower your lease payments x amount of dollars or x amount of percent. But you extend the lease terms thereafter.

So, the restructurings are very individually-driven. They don’t always necessarily go out for years and years. I’ve just given you one example of a couple of cases where we said okay for the rest of this tough year, you can cut your payments to us. But we want it at the normal rates at the back end.

So, it’s hard to characterize but generally speaking, as Greg indicated, when we restructure – it’s usually because we are taking something less today to get something more tomorrow in the form of lease agreements. But I would pause by saying that forever all of them are lowered rents for the next 3, 4, 5, 6,7 years.

Often times, there is a limited period of time which we are giving breathing room effectively to our airline customers and then those – in some cases, those – the rental rates snap back after a certain period of time. .

And just to add to John’s comments we’ve had several instances recently where we made some small adjustments in lease rates for a temporary period to our airline customer, but one of the conditions was that they would also take new incremental aircrafts from us that we’ll deliver in the future.

And so, we traded off a little bit of yields on our current portfolio with that airline, but then, augmented that with new aircrafts at attractive yields that we’ll be delivering in the next 18 months.

So, we try to create an equilibrium where it’s a win-win situation for the airline and also provides Air Lease with long-term cash flows on additional incremental aircrafts. .

Got it. So a lot of interesting things going on below the surface. Thanks so much for all the time again. .

Thanks. .

And our next question comes from the line of Jamie Baker from JPMorgan. .

Hey, good afternoon everybody. So, it looks like lease rates for sort of commoditized sale leasebacks are already back down below the 0.6 monthly lease rate level.

So, considering this if there is lot of capital going after sale leasebacks, should we assume that for Air Lease, Alaska type transactions are mostly I think in the past, the vast majority of your business from here will simply be placing the order book?.

Well, the Alaska transaction was placing from our order book. We placed 13 new 737-9 on 12 year leases with Alaska and as part that they only bought A320s that they inherited from the Virgin America merger and we leased back only on a short-term lease, only on a short-term lease until they get delivery of the new aircrafts.

So, I would not classify that as a classic SLB. .

Good point. .

Jamie, I would also add that, as we look forward here, I made a big point in my prepared remarks about our management business. There are investors out there that are willing to take lower or significantly lower returns that we might be able to take.

But we actually harvested an advantage from that, because we are able to get management fees – good management fees for the period of that time that overall enhanced and provide a bit of a gravy to our overall earnings and revenues.

And so, that’s one of the reasons why we’re coupling a lot of these initiatives with our management business, because there are investors out there. At the same time, I would stop sort of saying and forever more ALC itself is out of sale leaseback business.

For example, Steve just gave you the prior question an example where we place additional aircrafts as a result of a lease restructuring. Well, the same can be said as you see from many of our examples for sale leasebacks going forward.

So therein lies a blend in the odd that our own order book is very, very attractively priced and provides good economics and maybe we would blend that with some forward lease transactions that although those leaseback transactions themselves might be on the lower end as you are talking about the blended deal with our own lease placements is well above the line.

So, a long way of saying that combined with our own business, supplementing with the management business that we get seized on that sort of thing and there is a lot of investors that are happy to take smaller returns, we feel like we’ve maximized our position. .

Okay. That answer is very helpful. I appreciate it, both of you. And second, I am going to embarrass myself here, so, part of my tax ignorance. But have you seen anything in the language of the Biden proposal that might have any impact on Air Lease? I know the proposed changes to 10/31 exchange is that’s not leasing that real estate.

But conceptually, when I was reading about it, it sort of sounded the little bit similar to what lessors do with the depreciation – anything that has jumped out from any of the recent proposals from Washington?.

Greg?.

The only thing I could – go ahead, John. .

Greg?.

Yes, that’s fine. I was just going to say there is so many proposals out there and it’s really tough to figure out which of those is going to make its way through. Obviously, we are monitoring it pretty closely and I wish we do provide on it. But, obviously, we are watching rate and anything that will have a potential impact on our business. .

Got it. Okay. Thank you very much, everybody. .

Thanks, Jamie. .

Our next question comes from the line of Helane Becker from Cowen. .

Thanks very much, operator. Hi, everybody. And thank you very much for your time this afternoon. So, my first question is a point of clarification for Greg I think.

Is this quarter’s cash accounting representative of the new runrate or should we still be thinking of lower numbers going forward?.

It’s a great question. Right now, it’s a little too soon to say where it’s going to be next quarter in terms of cash accounting. Obviously, we are working really hard to collect so much cash from our customers and working on restructuring agreements with those in that category. But right now, it’s really too soon to say.

That the broader comment I can layer on is, as the world gets better, I would expect naturally that that number to come down. .

Right. Right. I would think that too. And then, as you think about – this is probably a follow-up for you too.

As we think about adjusted pre-tax margins, when things – when one of your customers back in good standing, so let’s say, one year from now maybe or 1.5 years from now, would pre-tax margin stay at or above pre-pandemic levels?.

I think a lot of that depends on the volumes of scale of what we are doing to, right.

As we look at – the reason we rely on pre-tax margin, pre-tax ROE is because it factors in all the important components of the business, the buys, the sell, the lease, the management fees, the SG&A loads, clearly, we are going to be pushing as hard as possible to get it back to where it was.

So, lot of it depends on where interest rates are, our sales volumes and alike. Short of giving you guidance is to where we are going to be, I probably can just leave it there. .

The one other comment I have Helane, is that, most of the aircrafts that are delivering in the next 36 months that we already pre-placed, were negotiated, the lease rate and the economics of those leases were negotiated prior to the pandemic.

So, it’s fully important for Wall Street to understand that these new deliveries that are taking place are not at distressed levels, they were negotiated under figure arms length structures prior to the pandemic. A lot of them were negotiated in 2018 and 2019.

So, once these aircraft deliver and they are now on delivery as John and Greg mentioned earlier, they will make very, very positive contributions to our bottom-line and our revenues. .

Okay. Actually – thanks Steve. Actually, very helpful. So, thanks very much. Okay, well, thanks guys. Have a nice day. .

Thanks, Helane. .

And our next question comes from the line of Ron Epstein from Bank of America. .

Hey, John. Good afternoon, guys. .

Hi Ron. .

How should we think about the third of the customers that – you haven’t agreed upon within an accommodation yet? I mean, kind of where do we go from here? And kind of following up on Steve’s answers he just gave, so, none of the leases that were agreed upon pre-pandemic have been revisited by any other customers?.

So, let me hit that first. Let me hit your first question first, Ron. You may not have caught it, but in my remarks, I said that the rate of deferrals and lease restructuring requests has reduced meaningfully and that has been the case.

So, in terms of where do we go from here, I like, in a report, is what I have reported that the pace is really of those requests has decreased. I am sure, we will have some more. But clearly, we have moved into a totally different space than where we were six, eight months ago, nine months ago in a major way.

So, I just think suffice it to say that those have dropped significantly. And we are focusing, as Greg mentioned that on getting repaid. And as to the forward placement side, as Steve indicated, we really had pretty good, pretty good consistency in customers living up to their pre-COVID lease rate agreements.

I am just pausing my – switching my own memory here and just thinking as much as I can on the spot about where we might have made an adjustment here or there and maybe there is one or two examples, but I just can’t think of them off the top of my head.

So, largely, I would say, staffs were seeing every single case, but I think it’s pretty close to it. Those lease rates has been preserved. .

Got it. Got it.

And then, have you guys had, in any of the restructuring is there really the short-term help you offer some customers how to do anything on a utilization basis?.

Very limited. We don’t like hour by hour. We are not an Uber type operator. And generally, where we’ve done a modest – and PD8s hour by the hour. We absolutely require a minimum level of utilization or a floor. So, we are not going to expose ourselves to a pure hour by the hour type structure where there is no guarantee of any flying.

So, even if the airline flies less than the minimum number of hours required at the lease they have to pay the number of hours that creeps that minimum floor. I mean, that’s what the company’s profit. .

Got it. Got it. Got it. Got it. That makes sense. And then, if I may just one final one. You mentioned that you are seeing some lease rate strength on A321 aircraft, everybody is saying that’s going to flow through the XLRs and then you start getting it delivered.

Do you think enough of those? I mean, are you going to do more of that airplane type or something that fits that segment in the market?.

Well, look, we are launch customer on the 321 LR neo. We were the launch customer on the XLR neo. And so, that by our order I think you can suffice it to say that that’s a really core part of our order book.

And so, as the industry continues to recover and as we look forward, as Greg mentioned in his remarks, it’s part of our capital allocation decision. And we will continue to order aircraft as facts and circumstances and time and capital allocation discipline dictate.

But certainly, that type is proven to be a very, very good aircraft investment for us and I think it’s – you could just see it throughout the fleets of the world and the popularity of how the 321 neo in particular has really risen over the last couple of years. And even accelerating now with the LR and the XLR. .

Great. Thank you. .

Next question we have on the line comes from the line of Vincent Caintic from Stephens. .

Okay. Thanks. Good afternoon. Thanks for taking my question. So, first question is a follow-up on the restructuring discussion.

So, when we think about the deferrals you have now and the cash accounting, how to think about that in the – in terms of restructurings? Is that sort of like an avenue where we should be expecting maybe longer lease terms or maybe a little bit of a discount to lease rates as you work through the cash accounting and maybe some of the remaining deferrals or is there other sort of maybe if you can discuss how the deferrals on the cash accounting are reaching to resolution with sort of plans are? Thank you.

.

Greg?.

Yes. I would expect that – as time goes on and we’ll collect more of that deferred balance, right? As we had a great track record in doing so. I would expect some of that cash accounting number to get moved into the deferral bucket and to be repaid over time and to your point with extended lease terms.

So, I think that’s how I feel working out and clearly, I think we’ve made a lot of comments on the call about how we see things improving and the world is getting better. So, as that happens, I would expect that to work itself out. .

Okay. Great. And then the follow-up is on the – certainly a lot of activity and lease placements going forward and it’s encouraging to actually hear reactivating some of the 737 placements as well.

As you are having the discussions with the airlines and signings, are the lease rates and the lease structure terms, so for, coming back to pre-pandemic levels, maybe any color you can give on things that you are signing going forward?.

Steve?.

Yes. I mean, that’s a very broad question and let me put it this way, vis-à-vis the 737 situation, because of the delayed deliveries of the aircraft in some cases, 1.5 years delay, we have actively and proactively worked with Boeing to restructure the economics of our purchase agreements on the 737s.

So, to the extent that there may have been some erosion in lease rates unplaced 737, because there has been a reset in the market lease rates on 737 MAXs, we have adjusted our acquisition cost accordingly. So, that combined with what Greg touched upon earlier is that our average cost of financing is dropped.

For example, from 3.2% to 3% on a portfolio basis means we are paying less for the aircraft than we would have paid for pre-pandemic and we are borrowing the debt capital to finance those aircrafts at a lower rate than pre-pandemic.

So, hopefully, to our astute management and experience, we can kind of neutralize the – whatever erosion we’ve had on lease rates was lowering the acquisition cost which then reduces our depreciation expense for many, many years to come combined with a reduction in our debt expense.

So that’s been the goal of our marketing team to find solutions where we can capitalize on the lower acquisition cost and still offer the airlines an attractive lease proposition. .

And let me just add, don’t forget about the growth of our management business. Those just give us the very nice fees. They are still not huge, but these are really nice supplemental earnings that if you will supports the margin build back and the – some of the compression we’ve had, we’ve seen over the past year, year or so in this pandemic.

So, just the management business, there is nothing but to add that..

Great. Thank you. And actually, maybe a question on the management business. Can you talk about how the investor appetite has been maybe for new sponsors and so forth, it seems like, interest rates have been low for a while. It seems like it might still be low for a while and gain from sales of other different asset classes have been really strong.

So, just kind of wondering, your discussions with your investors who might be interested in that, what sort of – what are they looking for? Is there more investment opportunity for this management?.

Yes, look, I think we’ve got a pretty good appetite from investors. As I indicated, we are kicking into gear our sales platform and I am optimistic that you will see in the second half hopefully starting in the third quarter, some evidence of that moving forward.

There are a lot of investors that want to that want us to manage and source aircraft for them and we just announced or we just told you, we just added a new platform. So, I think the investors are there. They continue to be, I think bifurcated as to type.

We sell a few that are looking at end of life aircrafts that we don’t really have any of that to discuss about or with.

We have the other side, which they’ll take lower lease rates, but they want better credits and we have the intermediates who say, no, we’ll take a balance, we’ll take some mid-life aircraft we think there is good value there as airliners are still looking for really low priced attractive equipment, so financially bail themselves out.

So I would say, we have a spectrum there. But it remains to be seen how the – that field unfolds, but I feel pretty good overall looking at that landscape for the rest of the year. .

Yes. John, just to add to that, I think the demand in that space is pretty high and that’s being fueled by the recurring of the bank market. It seems like there is a lot of bank capital chasing a lot of these guys to put financing to, the supplier finds. I think that market is wide open and I think that works really well for us.

We are doing more managed vehicles and I think it works really well for us to sell aircrafts here. So I think that’s a very positive dynamic for us. .

Great. Very helpful. Thanks so much. .

And our next question comes from the line of Ross Harvey from Davy. .

Hi all. Thanks for taking my question.

In terms of the forward order book, can you comment specifically on the aircrafts that you had already placed pre-COVID? I am wondering how do you renegotiated the rates on any of those just to ensure the kind of delivery are whether airlines were mainly you moved the delivery to the right, but you might have thought a positive effect on the lease rates.

I am just getting to understand has there been any changes on those?.

Steve?.

We had very little delays instigated by the airlines on the forward deliveries. And as I mentioned in my earlier response to another question, we have absolutely limited the amount of changes to the pre-COVID contracts for future deliveries.

So we have resisted that and we are working with our airline customers to make sure that these transactions stay solid and they are what they are. .

Okay. Great. And maybe a more general one if I can. So, I mean, we obviously seem to be sort of the watched the pandemic and overall, you’ve clearly traded fairly well through it for some of that difficulties already, on concessions and sales and what not.

I am just wondering how does you kind of strategize for the post-pandemic days? Is there any aspects of the business that you might look to adjust in terms of in the aircraft sourcing or the size of the management platforms? How you obtain some of the – strike lease agreements, just anything that has come off as something that you might look change in the future based on the experience of this pandemic?.

We really just jumped into answer that right off.

Look, I – the industry has been going through a very difficult time, but frankly I mean, not to pat ourselves on the back, but it’s been the very platform that we’ve devised and developed since we started this company that’s led us through this and if anything, I would say, it underscores exactly that we’ve done much more right than we’ve done wrong.

And so, we don’t foresee any major changes to our playbook as to our – how we finance ourselves. We’ve just – we just enjoyed some of the cheapest financing we’ve ever gotten as the company and had a negative outlook removed by S&P.

So, from the selection of the aircraft types that we have we mentioned we are large customers for the 321 LR and XLR and other aircraft types.

I mean, it’s by this very engineering that we think we’ll be able to weather pretty through, so, why change it?.

Yes. I mean, I just want to echo what John – the clear demonstration of our asset quality as compared to our peers is that we had no impairments or write-downs of our aircrafts since this company started in 2010, 11 years ago. So, you can compare that to our peers and you get a vastly different result.

So, I think management has navigated through this crisis, because the foundations for our success were laid long before the pandemic started. So, relative to other lessors, I think we had to make fewer adjustments to our game plan. .

Yes. And just going to the start if I may, as you mentioned the peers, I am just wondering, one of your peers mentioned that they were looking to get possibly, 60% to 70% of the cash and currency effects, in reverse that they might recover in medium term.

Just wondering is that’s a good starting point when we think about you or given what you are seeing, going forward do you expect to reclaim maybe more than that?.

I think at this time at this – we are just announcing our first quarter. I think that’s a bit premature. I mean, I’d like to give even a more optimistic number, but we are conservative by nature and I just think we need to see that unfold. .

Okay. Thank you..

And last question we have in and it comes from the line of Koosh Patel from Deutsche Bank. .

Hey, good afternoon guys. You mentioned you are going to get – lease rates rebounding from the Airbus Q321neo aircraft.

How did those rates compare for the late kind of the demand for the aircraft compared to what you were seeing pre-pandemic and is there any read through to extrapolate the trend to other aircraft types as well? Is the foundation of actually A321 model?.

Steve?.

I think we just pointed to the A321neo as an example for other aircraft types that have gained popularity for two reasons. One, it was – it’s an airplane that fits into the airline demand picture very well in terms of size performance, operating cost. But we don’t want to say that the A321 is, at this and level everything else is at a different level.

I just – I think we just used A320 is an example of how an asset type has performed quite well through the pandemic. But we have other aircraft types, A350s, 737-800s, or A320 and A321 feels which generally are younger than many of the other lessors. They actually performed well and continuing to perform very well.

But as I said, we use the A321neo as sort of an example of an asset that has performed very well, but that’s because it mean the other assets that we have that have performed well. Our focus on the smaller and medium-sized wide bodies has been a real positive. We have a strong presence in the A350 market, in the 787-9, 787-10 marketplace.

We don’t have any more 777s on the order. So, I think, even our wide body fleet is very well positioned and well placed with a diversified group of customers. And as I said earlier, we are doing everything we can to preserve the commercial terms that we had bargained for with our airline customers. .

Yes. Okay. That makes sense.

And then, I guess, what are the factors that would lead you to go back to the OEMs and add to the order book? And I guess, to add to that, what is – if you were to going to do that, what’s kind of the timing of delivery slots that might look most attractive to you right now?.

Well, I think we’ve said several times, this is a matter of capital allocation and that’s something we look at every single quarter quite a bit. Look, it’s a balance between how much we’ve already got placed of order book, what we had in the order book is already placed.

How we see the recovery trends and there is still some uncertainty in that regard. We are keeping an eye on certain customers that would be natural recipients of forward order book to make sure they get it okay. So, it’s a little premature to say, we are going to buy aircraft next quarter or the other. In many ways, there is no difference pre-pandemic.

We buy aircraft at the time in the pricing, in the place that we think is right. And so, I think it’s also safe to say that these conversations are part of our normal monthly, weekly dialogue with the manufacturers and all I can tell you is, as we’ve always done when the time is right, we’ll do so.

But I think it’s fair to say, we’ve also been a very conservative company and our ratings reflect that. So, we’ll just be, probably a bit more cautious looking forward to make sure that the pandemic recovery is on the track that that we think it is.

But we are not adverse to ordering aircraft at any particular time if we think the pricing and the terms are right. .

Okay. Thanks a lot for the time guys. .

And at this time, there are no more questions in queue and I’d like to turn it back over to Mary Liz DePalma. .

Okay, thank you everyone. That concludes our conference today and we look forward to speaking with you again after the conclusion of the second quarter. Operator, thank you so much and you can now disconnect the line..

This does conclude today’s conference. You may now disconnect..