AerCap secures more long-term lease extensions in Q3

AerCap has seen continued strong demand for lease extensions of current-generation aircraft as deliveries of new-technology aircraft are delayed by supply chain issues. Eighty percent of the 134 lease agreements signed in Q3 have been for extensions. According to CEO Aengus Kelly, this is “one of the highest extension rates we’ve ever seen. Remarkably, this was even higher on the widebody side, hitting over ninety percent. This reflects the ongoing shortage of aircraft.” Widebody leases are extended for three to up to eight years and sometimes even longer to double-digit years. “For similar reasons, we also continue to see strong demand for our assets in the sales channel, with many bidders competing for our portfolios. This was reflected in both healthy quarterly sales volumes of $682 million, as well as gains on sales, with unleveled margins of 24 percent,” said Kelly. AerCap sold 37 engines, twelve aircraft, and three helicopters during Q3, of which 45 were owned assets. This compares to the sale of thirty owned assets for $373 million in the same quarter last year. The net gain on the sales was $130 million as those sold assets traded well above their book value. “In essence, during the last quarter, we sold aircraft at almost 200 percent of their book equity value to expert aircraft buyers and repurchased our book equity at 80 percent of book value in the public equity market. These gains speak to the deep embedded value in our portfolio, and the strength of our book values.” More sales are in the pipeline for Q4, said Chief Financial Officer Pete Juhas: “We also had $421 million dollars worth of assets held for sale at the end of the quarter. Through the first nine months of this year, we sold over $2.1 billion dollars worth of assets, and for the full year, we expect sales to be between $2.5 billion and $3.0 billion dollars.” AerCap reported a net income in Q3 of $1.105 billion, up from $440 million last year. For the 9M period, this is $2.030 billion versus $-1.121 billion in 2022, when the lessor took a one-off charge on its fleet in Russia following the sanctions. In Q3, AerCap has been able to recover $646 million related to the Russian fleet that was on lease to Aeroflot and Rossiya when sanctions were imposed in February 2022.. Lease revenues and other income totaled $1.892 billion, up from $1.724 billion in Q3 last year. For 9M, this was $5.682 billion versus $5.185 billion. Concerns over OEM performances Aengus Kelly remains concerned about how aircraft and engine OEMs continue to lag behind their delivery targets since 2018. The latest powder metal contamination issue with the Pratt & Whitney Geared Turbofan will require engine removals on an average of 350 aircraft from 2024 through 2026. Aircraft on ground will reach a peak of 600-650 in the first half of the year. “Putting that peak of 650 aircraft into context, in the first nine months of the year Airbus delivered 488 commercial aircraft in total, which if that rate continues would be equal to 650 units. So, as a result of these Pratt & Whitney issues, the market will be light on a net basis of hundreds of aircraft, further tightening demand,” Kelly said. “The Pratt & Whitney team is working around the clock to address these issues and we are confident they will execute on this, but it will certainly take time. Other manufacturers are also working through their own unique challenges.” Even without the engine issues, airlines will be short of aircraft as Airbus and Boeing won’t be able to meet their production and delivery targets for various reasons. Kelly has been very outspoken about this before and repeated his criticism during the earnings call: “Everybody knows that the OEMs are not going to make the number of airplanes they're saying. That's just not going to happen. And every airline worth their salt in the world knows that, and they've known it for years. So what are they doing? They're saying, okay, I don't believe what these guys are telling me. I need to have the lift, I can't take the risk, I don't have it. So we've seen massive purchases of aircraft from us as we're the biggest seller of used aircraft in the world. We've seen massive numbers of extensions, that's what the airlines see, that's the reality and it ain't going to change for years to come, in my opinion.”” No imminent new orders At the end of September, AerCap had 1.486 owned and 173 managed passenger airliners in its portfolio, plus 67 owned and seven managed freighters. The lessor has 380 aircraft on order, including 179 Airbus A320neo family aircraft, 124 Boeing MAX, 28 Embraers, 22 Boeing 787s, fourteen Airbus A220s, and five ‘other’. The owned and managed engine fleet totals 1.011, that of helicopters 327. New deliveries total 40 this year, 98 in 2024, 110 in 2025, 128 in 2026, and 28 from 2027. AerCap is in no hurry to place a new order anytime soon and will wait until the timing is right. “As I said many times, there's always a bunch of clowns hanging around the tents in Farnborough and La Bourget waiting to order aircraft when everyone else is there. That's not the time to be ordering airplanes. The last time we ordered a significant number of airplanes was in March of 2020 when we ordered NEOs. That is when you buy.” AerCap announced that it has launched another share buyback program of $500 million. “So far this year, we’ve bought back over 14 percent of the stock and today we’ve announced a new $500 million dollar share repurchase program, bringing our total share repurchase programs for the year to $2.65 billion dollars,” said Juhas. The $2.65 billion is equivalent to 18.5 percent of AerCap’s market cap at the beginning of the year. With the buyback, AerCap will reduce the share of General Electric to 14 percent from 45 percent when GE sold GECAS to AerCap in 2021.

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