Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- AerCap Holdings NV (AER, Financial) reported strong earnings with an adjusted net income of $592 million and adjusted earnings per share of $3.1.
- The company increased its earnings guidance for the year from $9.20 to approximately $10.25, not including gains on sale in the second half of the year.
- AerCap Holdings NV (AER) closed a significant 36 aircraft transaction with Spirit Airlines, adding to a total of over 50 neo and MAX aircraft purchase commitments.
- The company returned over $720 million to shareholders through stock repurchases and dividends, maintaining a strong balance sheet without increasing leverage.
- AerCap Holdings NV (AER) executed 246 transactions across aircraft engines and helicopters, showcasing robust demand for aviation assets and strong operational activity.
Negative Points
- The company's GAAP net income for the second quarter was $448 million, which is lower than the adjusted net income.
- There were significant purchase accounting adjustments, including lease premium amortization and maintenance rights amortization, which impacted the financial results.
- AerCap Holdings NV (AER) recorded asset impairments of $28 million related to returns of older aircraft.
- Interest expense for the quarter was $478 million, including $5 million of mark-to-market losses on interest rate derivatives.
- The company faces challenges with the tight global aircraft supply and the complexity of managing older fleets, which can lead to inefficiencies and higher costs for airlines.
Q & A Highlights
Q: Hi, good afternoon, gentlemen. So I'm guessing you called out the Spirit deal for 36 airplanes. The backstop on another I think said 52. I mean luck spirits and weaker credit. I'm not asking you to derive a customer, but we have to wonder what additional steps you've taken, you know, to protect against a deferral or potential insolvencies. So how does this deal different from a more plain vanilla transaction? And if it's not, I guess you just believe you can handle the remarketing effort if it come to that?
A: Look, I think, Jamie, here, this is a win-win for ourselves and for spirited provides them as you allude to some much-needed liquidity. It provides us with the extremely attractive, the most attractive aircraft in the world, the three 21 neo in a time slot that would be impossible to get us in 2027, 2028 of what we believe are attractive terms for our shareholders. So that's the genesis really behind that, Jamie, and that we move an airplane every 24 hours, somewhere in the world.
Q: And then second, also, Mark and I are we all keep hearing about how tight global aircraft supply is and we don't disagree. But at the same time, you have these massive guides down from several US airlines. You've got some western airlines, both discount and full-service that are guiding down the Singapore results yesterday were soft. I mean, we're trying to reconcile airline results with aircraft supply and well, quite honestly, we're having a hard time. How do you reconcile those two realities. Thanks in advance.
A: That's a very fair point to make, Jamie, how on one hand, can you say that there's tremendous shortage of aircraft when a number of the carriers are saying there's excess capacity in a very large market like the United States. One of the huge challenges the airlines have at the moment and Allegion called it out yesterday, Allegion is a much smaller airline, but they had a EUR30 million cost just associated with not having the MAX aircraft, what they also have, which is very hard to explain to the analysts is the complexity of trying to keep extending a fleet that you want to get out of it very inefficient within the airline. So if you're an airline now and you're short the the neos and MAXes are the seven eight sevens. You will have train pilots. You will have bought spare parts. You will have geared up your operation for the entry of those aircraft when they don't come, your pilots don't sit at home, but effectively they do because you wouldn't have hired them. So you have lower hours being worked overall on average than otherwise you would have. So there are these hidden costs in the airline that they have and are having to keep prolonging the life of assets. They prefer not to have that are older that are more complex from a maintenance standpoint that are more complex from a cabin configuration standpoint, leading to inefficiencies in the airline sector. So when we say, shortage of aircraft, we're looking we're saying particularly new aircraft because if the airlines could accelerate their transformation into a single type of assets. So the only operating one asset that would give the maximum operational leverage and efficiency when they're operating multiple fleets, particularly older ones, that's harder to do. So the next thing then is well, okay, that's fine to us about how can you're seeing such a strong bid for older aircraft. We're seeing strong bid for older aircraft driven by engines, candidly, Jamie, it's really driven by the engine. If you will the 20 year old airplane and you're an airline and you're saying to yourself, how am I going to put this thing through the shop and spend 20 million on the overhaul and give us a full performance restoration LLPs. Am I going to do that, that makes no sense to do that. But I do know the problems with Boeing and Airbus are going to last for you to through the end of the decade. Is there a way I can avoid that massive spend by buying half life engines are aircraft that have half-life engines off them and thereby avoid the shop business with the engine OEMs. So these are the things that there's this hidden inefficiency in the airlines due to the lack of the delivery of the new aircraft. And that's a cost. It's very hard for them to explain and get across the week and see us upfront when we're dealing with the airlines day in day out of the cost of that complexity. So that's what you're seeing is a big drag on their cost line because it's also fair for people to point out to the airlines. Well, your yields are still extremely high. And so but that is a hidden and I'm not questioning that airlines in some cases could do better on costs there's no question about that. But on a global basis, that's what we see.
Q: I think you so you mentioned you've done kind of three bilateral transactions. Similar to the one with Spirit, are you seeing more of those opportunities come to the market? And maybe just talk about what's driving that aside from timing differences compared to an OEM order or a particular aircraft type. Are there any other advantages like returns or pricing you're getting?
A: Well, look, obviously, we talk to the OEMs on orders and as you know, we have not been able to reach terms with the OEM.s over the last few years, which is that I've always said fine by me. I don't care. If we never buy another airplane, again, I care about deploying your capital, our capital to shareholders at the best risk reward return for the long term in the business IPO certainly if we got an option an opportunity with the OEMs where it makes sense for a regular order, we do that. And in an instance, like the Spirit deal and earlier on with the gold transaction, it was a situation where we were able to provide assistance to a long-time customer and we were able to get what we felt were attractive assets well-priced. And so we're getting assets we felt in the timeframe or not and economic terms that made a lot of sense for our shareholders.
Q: Great, thanks. And maybe kind of following up a similar line of questioning, I think given all the things that you do see and do you think that the balance sheet's going to be sort of larger or kind of stable over the next over the next few quarters? Like how do you how do you see that evolving? I mean, are there other opportunities, things that might come up kind of on a spot basis or anything like that?
A: Sure. Well, first, welcome back motion. It's good to have you on the call and on. So in terms of the balance sheet, we would expect it to grow somewhat during the second half of the year, and that's primarily due to CapEx of we had about 3 billion of CapEx during the first half of the year. We're expecting a little over 4 billion during the remainder. Now we don't know if all of that will come through. But as Gus mentioned, we've also done some incremental deals as well. So that's really going to be the driver of the balance sheet increasing and for the
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
