Airline Economics Growth Frontiers NY 2017

Size: px

Start display at page:

Download "Airline Economics Growth Frontiers NY 2017"

Winfred Hancock
5 years ago
Views:

1 Airline Economics Growth Frontiers NY 2017 October 19, 2017

2 Forward Looking Statements & Non-GAAP Measures Statements in this presentation that are not historical facts are hereby identified as forward-looking statements, including any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance that are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as anticipate, believes, can, could, may, predicts, potential, should, will, estimate, plans, projects, continuing, ongoing, expects, intends and similar words or phrases. Accordingly, these statements are only predictions and involve estimates, known and unknown risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. We wish to caution you that our actual results could differ materially from those anticipated in such forward-looking statements as a result of several factors, including the following: our inability to make acquisitions of, or lease, aircraft on favorable terms; our inability to sell aircraft on favorable terms; our inability to obtain additional financing on favorable terms, if required, to complete the acquisition of sufficient aircraft as currently contemplated or to fund the operations and growth of our business; our inability to obtain refinancing prior to the time our debt matures; impaired financial condition and liquidity of our lessees; deterioration of economic conditions in the commercial aviation industry generally; increased maintenance, operating or other expenses or changes in the timing thereof; changes in the regulatory environment; and potential natural disasters and terrorist attacks and the amount of our insurance coverage, if any, relating thereto. We also refer you to the documents the Company files from time to time with the Securities and Exchange Commission ( SEC ), specifically the Company s Annual Report on Form 10-K for the year ended December 31, 2016, which contains and identifies important factors that could cause the actual results for the Company on a consolidated basis to differ materially from expectations and any subsequent documents the Company files with the SEC. All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations, and, therefore, you are cautioned not to place undue reliance on such statements. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. If any such risks or uncertainties develop, our business, results of operation and financial condition could be adversely affected. You may obtain copies of the Company s most recent Annual Report on Form 10-K and the other documents it files with the SEC for free by visiting EDGAR on the SEC website at In addition to financial results prepared in accordance with U.S. generally accepted accounting principles, or GAAP, this presentation contains certain non- GAAP financial measures. Management believes that in addition to using GAAP results in evaluating our business, it can also be useful to measure results using certain non-gaap financial measures. Investors and potential investors are encouraged to review the reconciliation of non-gaap financial measures with their most direct comparable GAAP financial results set forth in the Appendix section. 2

3 Macroeconomic backdrop remains positive Indicators are largely positive and create a stable operating environment for airlines and lessors IMF raised forecast for global growth in 2017 and 2018 earlier this month Airline profits have slightly compressed but overall remain strong from a historical standpoint F 2018F 2019F Overall Impact Global GDP (1) 3.2% 3.6% 3.7% 3.8% Emerging Market GDP (1) 4.3% 4.6% 4.9% 5.0% 10yr UST (2) 2.5% 2.4% 2.9% 3.2% Global Inflation (1) 2.8% 3.1% 3.3% 3.3% Oil (2) $57 $53 $56 $60 S&P 500 Earnings Growth (2,3) 6.7% 21.4% 10.9% 10.1% Airline Op. Profit Margin (4) 8.8% 7.5% - - Passenger Traffic Growth (4) 7.4% 7.4% - - Sources: 1 IMF as of October 2017, 2 Bloomberg as of 10/13/17, represents earnings growth before extraordinary items. Data for other years represents estimated earnings growth. 4 IATA Fact Sheet June

Airline productivity measures Growing, efficient and profitable utilization

2017 1 Load factors: ~82% globally YTD Aug.

aircraft demand environment Profits: $31 billion net profit forecasted for

4 Airline productivity measures Growing, efficient and profitable utilization of fleets and capacity Traffic: +7.9% YTD through Aug Load factors: ~82% globally YTD Aug Aircraft utilization at ten year high Parked fleet: ~3% 2 Stable aircraft demand environment Profits: $31 billion net profit forecasted for Sources: 1 IATA August 2017, 2 Deutsche Bank Research July 2017 (Includes aircraft less than 20 years old), 3 IATA June

5 Resilient, growing market expected to continue Airline passenger traffic is the ultimate underlying demand for our aircraft Industry experienced 7.9% RPK growth in the first eight months of 2017 RPKs (trillions) Recessions Gulf Crisis Asian Crisis 9/11 SARS Financial Crisis Financial crises Gulf wars 1 Oil shock 1 Near pandemic (SARS) 2x 4.0 9/11 Attack x Trend Note: RPKs = Revenue Passenger Kilometers Source: Boeing and ICAO scheduled traffic (September 2015) & IATA

Aircraft production cyclicality diminishing Deliveries have recently accounted for approximately 6% to 7% of the installed fleet Historically, years with deliveries well exceeding these levels have

6 Aircraft production cyclicality diminishing Deliveries have recently accounted for approximately 6% to 7% of the installed fleet Historically, years with deliveries well exceeding these levels have been followed by cyclical declines Despite production rate increases, deliveries for 2017 through 2020 are expected to represent the historical comfort zone of 6.5% to 7.5% of the in-service fleet each year, providing a continued dampening effect to production cyclicality Annual deliveries Deliveries as % of fleet Source: Boeing October

7 Increasing role of leasing $790 billion of capital required for new aircraft delivering over the next 5 years Why airlines lease? Lessor fleet ownership Less Cash & Financing Required Fleet Flexibility Key Delivery Positions 0.5% 17 leased 1.7% 100 leased 14.7% 1,343 leased 24.7% 3,715 leased ~39% 9,771 leased Eliminate Residual Value Risk ,722 aircraft 6,037 aircraft 9,160 aircraft 15,032 aircraft 25,122 aircraft Source: Boeing December 31,

Taking a closer look at lessor market share World fleet of Airbus and Boeing aircraft < 8 years of age by aircraft value 1 2015 GECAS, 4.

7% CIT, 1.4% Airlines, 54.8% Other Lessors, 19.6% AerCap, 3.4% Avolon, 3.3% BBAM, 3.2% GECAS, 3.0% ALC, 3.0% ICBC, 2.6% SMBC, 2.5% BOCA, 2.

om, 1.1% Takeaways Top ten lessors continue to control ~60% of the leasing market for passenger aircraft below 8 y.o. Increased competition

8 Taking a closer look at lessor market share World fleet of Airbus and Boeing aircraft < 8 years of age by aircraft value GECAS, 4.3% 2017 Airlines, 58.7% Other Lessors, 17.0% AerCap, 4.1% BBAM, 2.9% BOCA, 2.2% SMBC, 2.1% ALC, 2.1% AWAS, 1.9% ICBC, 1.8% Avolon, 1.7% CIT, 1.4% Airlines, 54.8% Other Lessors, 19.6% AerCap, 3.4% Avolon, 3.3% BBAM, 3.2% GECAS, 3.0% ALC, 3.0% ICBC, 2.6% SMBC, 2.5% BOCA, 2.3% JSA, 1.1% BoCom, 1.1% Takeaways Top ten lessors continue to control ~60% of the leasing market for passenger aircraft below 8 y.o. Increased competition in the sale and leaseback market has not materially impacted market share of the top ten lessors Industry will need capital inflows to fund new aircraft deliveries over next five years Source: 1 Ascend, Includes passenger aircraft below 8 years of age manufactured by Boeing or Airbus 8

9 Consistency of Air Lease s business ALC s yields and portfolio metrics have remained consistent Macro volatility has had minimal impact on ALC s fleet metrics Our rental revenues have averaged 11.6% of average net book value since % 14.0 Annualized Lease Yield 1 12% 10% 8% 6% 4% 2% % 0.0 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Weighted Average Portfolio Metrics (years) Annualized Lease Yield Avg. Age Avg. Remaining Lease Term 1 Calculated as rental of flight equipment, excluding overhaul revenue and amortization of prepaid lease costs, divided by quarterly average net book value 9

Net Income Before Income Taxes 2 Adj. Return on Equity Before Income Taxes 3 $253 $339 $439 $508 $623 $152 $167 11.2% 13.9% 16.6% 17.5% 19.5% 18.7% Adj. margin before income taxes (%): Adj.

10 Track record of strong and consistent performance Assets Revenues $14.0 $14.9 Encumbered Assets $7.3 $4.3 $9.2 $6.5 $10.7 $8.6 $12.4 $10.6 $12.3 $13.3 Unencumbered assets 1 $656 $859 $1,050 $1,223 $1,419 $350 $ Q17 Fleet Count: Q16 2Q17 Adj. Net Income Before Income Taxes 2 Adj. Return on Equity Before Income Taxes 3 $253 $339 $439 $508 $623 $152 $ % 13.9% 16.6% 17.5% 19.5% 18.7% Adj. margin before income taxes (%): Adj. diluted EPS before income taxes ($): Q16 2Q Q17 LTM 1 Comprised of unrestricted cash plus unencumbered flight equipment (calculated as flight equipment subject to operating leases less accumulated depreciation less net book value of aircraft pledged as collateral) plus deposits on flight equipment purchases plus certain other assets. 2 Adjusted Net Income Before Income Taxes, Adjusted Margin Before Income Taxes, and Adjusted Diluted Earnings Per Share Before Income Taxes are non- GAAP financial measures. See appendix for reconciliations to their most directly comparable GAAP measures. 3 Adjusted Return on Equity Before Income Taxes is calculated as the trailing twelve month Adjusted Net Income Before Income Taxes divided by average shareholders equity. Adjusted Net Income Before Income Taxes is a non-gaap financial measure. 10

Uptick in demand for narrow body aircraft ALC view ALC is experiencing increased demand for narrow body aircraft

While OEM delays have been disruptive to the industry, they provide lessors unique opportunities to assist and

737-800 with Blue Air (1) A321neo with Novair (8) 737 MAX 9 with Primera Air Nordic (1) 737-800 with Royal Air

11 Uptick in demand for narrow body aircraft ALC view ALC is experiencing increased demand for narrow body aircraft Driven by elevated passenger traffic trends and OEM delays, and continues despite recent airline bankruptcies While OEM delays have been disruptive to the industry, they provide lessors unique opportunities to assist and guide customers Example of 2017 Placements 1 (8) A321neo LR with Aer Lingus (6) 737 MAX 8 with Blue Air (6) with Blue Air (1) A321neo with Novair (8) 737 MAX 9 with Primera Air Nordic (1) with Royal Air Maroc (2) 737 MAX 8 with MIAT Mongolian (1) with Travel Service 1 The above are examples of announced 2017 ALC placements 11

The right new generation wide body aircraft ALC s

of future twin aisle growth ALC view Replacement

medium haul routes Service routes over 3,000nm

bodies, these aircraft have a broad installed

point-to-point long-haul travel Example of 2017

China Southern (2) 787-9 with Air Canada (1) 787-9

(1) A350-900 with Sichuan (1) 787-9 with Air New

12 The right new generation wide body aircraft ALC s small to medium wide body aircraft represent the core of future twin aisle growth ALC view Replacement demand Airport slot congestion High density short to medium haul routes Service routes over 3,000nm Connect growing city pairs Unlike the largest wide bodies, these aircraft have a broad installed operator base and are fueling the growth in point-to-point long-haul travel Example of 2017 Placements 1 (2) with Aeromexico (5) with China Southern (2) with Air Canada (1) with LOT Polish (2) A neo with Air Mauritius (1) A with Sichuan (1) with Air New Zealand 1 The above are examples of announced 2017 ALC placements (4) A neo with TAP Portugal 12

13 Airbus / C Series If it concludes considerations for aircraft lessors Relieves a degree of uncertainty as to overall C Series program C Series aircraft the fundamental issues remain the same: Price: Can Airbus/Bombardier reduce cost by adding production in Mobile, Alabama or by other means? Global customer base: Needs strengthening - Airbus could influence positively Entry into service: Operator initial experience and feedback CS500 - a future project under Airbus? seat market segment: too many OEMs in relation to overall market size Does Boeing rethink Embraer? Boeing/U.S. Department of Commerce reaction and/or objections 13

Air Lease at a glance $15 billion Total assets Aircraft 236 owned 1 51 managed 1 373 on order ($28.

7% Adjusted pre-tax return on equity 2 Highest rated standalone aircraft lessor S&P: BBB / Fitch: BBB / Kroll: A- Note: Information as of June 30, 2017 unless noted otherwise,

14 Air Lease at a glance $15 billion Total assets Aircraft 236 owned 1 51 managed on order ($28.5bn) 90% Percentage of orderbook placed through 2019 $24 billion Contracted and committed fleet rentals 18.7% Adjusted pre-tax return on equity 2 Highest rated standalone aircraft lessor S&P: BBB / Fitch: BBB / Kroll: A- Note: Information as of June 30, 2017 unless noted otherwise, 1 As of activity report released on October 9, TTM as of June 30, 2017; Adjusted Return on Equity Before Income Taxes is calculated as the trailing twelve month Adjusted Net Income Before Income Taxes divided by average shareholders equity. Adjusted Net Income Before Income Taxes is a non-gaap financial measure. 14

15 Questions?

16 Appendix Non-GAAP Reconciliations (in thousands, except share and per share data) Q Q Reconciliation of net income to adjusted net income before income taxes: Three Months Ended Year Ended December 31, Net income $ 100,925 $ 91,803 $ 374,925 $ 253,391 $ 255,998 $ 190,411 $ 131,919 Amortization of debt discounts and issuance costs 6,437 7,388 30,942 30,507 27,772 23,627 16,994 Stock-based compensation 5,304 4,501 16,941 17,022 16,048 21,614 31,688 Settlement , Insurance recovery on settlement (950) (2,000) (5,250) (4,500) Provision for income taxes 54,944 50, , , , ,031 72,054 Adjusted net income before income taxes $ 166,660 $ 152,160 $ 622,871 $ 507,982 $ 438,596 $ 338,683 $ 252,655 Assumed conversion of convertible senior notes 1,431 1,455 5,780 5,806 5,811 5,783 5,627 Adjusted net income before income taxes plus assumed conversions $ 168,091 $ 153,615 $ 628,651 $ 513,788 $ 444,407 $ 344,466 $ 258,282 Total revenues $ 380,957 $ 350,139 $ 1,419,055 $ 1,222,840 $ 1,050,493 $ 858,675 $ 655,746 Weighted-average diluted shares outstanding 111,564, ,839, ,798, ,628, ,192, ,963, ,656,463 Adjusted margin before income taxes % 43.7% 44.1% 41.7% 41.8% 39.4% 38.5% Adjusted diluted earnings per share before income taxes $ 1.51 $ 1.39 $ 5.67 $ 4.64 $ 4.03 $ 3.16 $ Adjusted margin before income taxes is adjusted net income before income taxes divided by total revenues, excluding insurance recoveries 16

17 Appendix Non-GAAP Reconciliations (in thousands, except share and per share data) Q LTM Reconciliation of net income to adjusted net income before income taxes: Year Ended December 31, Net income $ 376,126 $ 374,925 $ 253,391 $ 255,998 $ 190,411 $ 131,919 Amortization of debt discounts and issuance costs 31,822 30,942 30,507 27,772 23,627 16,994 Stock-based compensation 18,278 16,941 17,022 16,048 21,614 31,688 Settlement , Insurance recovery on settlement (950) (5,250) (4,500) Provision for income taxes 207, , , , ,031 72,054 Adjusted net income before income taxes $ 632,873 $ 622,871 $ 507,982 $ 438,596 $ 338,683 $ 252,655 Average shareholders' equity $ 3,376,867 $ 3,201,050 $ 2,895,987 $ 2,647,748 $ 2,428,028 $ 2,254,452 Adjusted return on equity before income taxes 18.7% 19.5% 17.5% 16.6% 13.9% 11.2% 17

Air Lease Corporation. Q Investor Presentation

Air Lease Corporation. Q Investor Presentation Air Lease Corporation Q2 2017 Investor Presentation Forward Looking Statements & Non-GAAP Measures Statements in this presentation that are not historical facts are hereby identified as forward-looking