SUMISHO AIR LEASE CORP Q1 FY2024 earnings call

• First quarter results were influenced by fleet growth and higher sales activity, but offset by lower end-of-lease revenue and higher operating expenses.
• Purchased 14 new aircraft from the order book, adding ~$900 million in flight equipment, and sold 5 aircraft with ~$240 million in sales proceeds.
• New aircraft deliveries were slightly below expectations, while sales were approximately in line.
• Fleet had a weighted average age of 4.7 years, weighted average lease term remaining at seven years, and 100% utilization rate.
• Passenger traffic volume expanded strongly, up close to 14% year-over-year.
• Order book was 100% placed in forward orders to 2025, with 63% of the entire order book placed.
• Lease rates on extensions were expected to remain strong due to high demand and limited new aircraft supply.
• Supply chain constraints on new commercial aircraft continued to affect deliveries, with Boeing and Airbus facing production challenges.
• Emphasized long-term focus for shareholders, order book model minimizing asset risk, and no impairment charges since inception.

In the first quarter of 2024, Air Lease Corporation (ALC) generated revenues of $663 million. Rental revenues accounted for approximately $614 million, which is about 92.6% of the total revenues, and aircraft sales, trading, and other activities contributed $49 million, making up around 7.4% of the total. The company purchased 14 new aircraft, adding approximately $900 million to its balance sheet, and sold 5 aircraft, totaling approximately $240 million in sales proceeds. New aircraft deliveries were modestly below expectations, while sales were roughly in line. The weighted fleet average age was 4.7 years, the weighted average lease term remaining was seven years, and the fleet utilization rate was exceptionally strong at 100%.

• Anticipated full year 2024 deliveries to be in the range of $4.5 billion to $5.5 billion, with the mid-range at approximately $5.1 billion currently due to ongoing delays.
• Expected second quarter new aircraft deliveries to be around $1.5 billion.
• Aircraft sales pipeline was robust at ~$1.4 billion, including ~$670 million in flight equipment held for sale and ~$700 million of aircraft subject to letters of intent, with expected ~$500 million in aircraft sales to close in the second quarter of 2024.
• Expected lease yields and net margins to remain around current levels for the remainder of 2024 and likely increase thereafter.

• Aircraft and engine delivery delays and manufacturing defects could impact deliveries and financial expectations.
• Uncertainty in the state of the airline industry could affect business performance.
• Interest rate environment, including yield curve inversion, poses risks to financing costs.
• Supply chain constraints on new commercial aircraft continue to create challenges for deliveries.

Q: Have you given any thought to increasing the size of the order book?

A: Steven Hazy responded that ALC has an over $21 billion order book with over 300 aircraft. Orders placed during the pandemic were at favorable terms, and currently, there's no need for large-scale orders but may explore opportunities if economics are right.

Q: Were you surprised that China Southern or China Eastern ordered COMAC aircraft?

A: John Plueger and Steven Hazy stated it was expected as Chinese-built aircraft would be ordered by major Chinese airlines.

Q: Air Lease was included in the S&P 600 small cap index, any other indices in focus?

A: Gregory Willis said they like to be included in more indices but currently have no immediate plans beyond the S&P 600.

Q: How do recent lease rates compare to those signed two years ago?

A: Gregory Willis mentioned recent lease rates for two new generation Airbus aircraft were 14%-15% higher than those signed in late 2022 for identical types.

Q: Status of insurance proceeds for aircraft trapped in Eastern Europe?

A: Steven Hazy explained primary insurance is carried by airlines, with secondary insurance by ALC, and there are ongoing negotiations and legal actions.

Q: Is there room for another airplane company?

A: Steven Hazy and John Plueger noted any new manufacturer would face same supply chain issues, certification takes years, and new engines are needed, so not immediate