Air Lease Corporation (AL) on Q1 2021 Results - Earnings Call Transcript
Operator: 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. Please be advised that today’s conference is being recorded. . 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. Mary Liz DePalma: 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. 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. Steve Házy: 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. Greg Willis : 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. Mary Liz DePalma: 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: And our first question comes from the line of Moshe Orenbuch from Credit Suisse. Moshe Orenbuch : 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? Greg Willis: 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. Moshe Orenbuch : Great. Greg Willis: 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. Moshe Orenbuch : 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? Greg Willis: I think that’s fair. Moshe Orenbuch : Okay. Thanks. Greg Willis: Obviously, anything can change, but that’s how we are thinking about it today. Moshe Orenbuch : Okay. Thank you. Operator: And our next question comes from the line of Catherine O'Brien from Goldman Sachs. Catherine O'Brien : 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. John Plueger: 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. Catherine O'Brien : Gotcha. So maybe more just the timing of acquisition of than any change. John Plueger: Yes. Catherine O'Brien : 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 John Plueger: 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. Catherine O'Brien : 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 agreement or is that all – that’s how it’s going to be stable over the life of these leases? Thanks. John Plueger: 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. Greg Willis: 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. Catherine O'Brien : Got it. So a lot of interesting things going on below the surface. Thanks so much for all the time again. Greg Willis: Thanks. Operator: And our next question comes from the line of Jamie Baker from JPMorgan. Jamie Baker : 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? John Plueger: 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. Jamie Baker : Good point. Greg Willis: 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. Jamie Baker : 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? Steve Házy: Greg? John Plueger: The only thing I could – go ahead, John. Steve Házy: Greg? Greg Willis: 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. Jamie Baker : Got it. Okay. Thank you very much, everybody. John Plueger: Thanks, Jamie. Operator: Our next question comes from the line of Helane Becker from Cowen. Helane Becker : 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? Greg Willis: 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. Helane Becker : 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? Greg Willis: 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. Steve Házy: 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. Helane Becker : Okay. Actually – thanks Steve. Actually, very helpful. So, thanks very much. Okay, well, thanks guys. Have a nice day. Steve Házy: Thanks, Helane. Operator: And our next question comes from the line of Ron Epstein from Bank of America. Ron Epstein : Hey, John. Good afternoon, guys. John Plueger: Hi Ron. Ron Epstein : 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? John Plueger: 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. Ron Epstein : 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? Steve Házy: 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. Ron Epstein : 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? John Plueger: 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. Ron Epstein : Great. Thank you. Operator: Next question we have on the line comes from the line of Vincent Caintic from Stephens. Vincent Caintic : 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. Steve Házy: Greg? Greg Willis: 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. Vincent Caintic : 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? John Plueger: Steve? Steve Házy: 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. John Plueger: 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. Vincent Caintic : 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? John Plueger: 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. Greg Willis: 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. Vincent Caintic : Great. Very helpful. Thanks so much. Operator: And our next question comes from the line of Ross Harvey from Davy. Ross Harvey : 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? John Plueger: Steve? Steve Házy: 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. Ross Harvey : 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? John Plueger: 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? Greg Willis: 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. Ross Harvey : 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? John Plueger: 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. Ross Harvey : Okay. Thank you. Operator: And last question we have in and it comes from the line of Koosh Patel from Deutsche Bank. Koosh Patel : 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? John Plueger: Steve? Steve Házy: 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. Koosh Patel : 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? John Plueger: 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. Koosh Patel : Okay. Thanks a lot for the time guys. Operator: And at this time, there are no more questions in queue and I’d like to turn it back over to Mary Liz DePalma. 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. Operator: This does conclude today’s conference. You may now disconnect.AL Ratings Summary
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Delta Air Lines Started at Citi, Shares are Expected to Outperform Near-Term
Citi analysts initiated a 30-day Positive Catalyst Watch on Delta Air Lines (NYSE:AL) due to their belief that the stock, which holds a Buy rating, has the potential to perform exceptionally well in the upcoming weeks.
The analysts’ optimism stems from the anticipation of Delta's forthcoming earnings report, which he sees as a positive trigger. They expect the guidance and results to address any previous concerns within the market that suggested a decline in demand. Considering the current robust recovery in travel demand, analysts predict that Delta's demand trends remained strong during the second quarter.
The analysts said that any fluctuations in advanced purchase patterns and last-minute bookings are more likely indicative of evolving demand trends rather than a weakening of demand itself. He highlighted Delta's reinstatement of its cash dividend as evidence supporting this point.
