Air Lease Corporation Q3 2017 Investor Presentation
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 effectively oversee our managed fleet 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. The Company has an effective registration statement (including a prospectus) with the SEC. Before you invest in any offering of the Company s securities, you should read the prospectus in that registration statement and other documents the Company has filed with the SEC for more complete information about the Company and any such offering. 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 www.sec.gov. Alternatively, the Company will arrange to send such information if you request it by contacting Air Lease Corporation, General Counsel and Secretary, 2000 Avenue of the Stars, Suite 1000N, Los Angeles, California 90067 (310) 553-0555. 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
Highlights for 3Q17 Ended the third quarter with 236 owned aircraft totaling $12.7 billion 1 in aggregate net book value Young aircraft (3.7 years 2 ) on long leases (6.8 years 2 ) with a stable lease yield 3 Minimum future contracted rentals for our current and future fleet are $23.3 billion 91% of our order book placed on long-term leases for aircraft delivering through 2019 Sold 7 aircraft during the quarter including 3 aircraft sold to Thunderbolt Aircraft Lease Limited, 1 aircraft sold to Blackbird Capital II, LLC and 3 aircraft sold to other third parties Increased our quarterly cash dividend by 33%, from $0.075 per share to $0.10 per share 4 AIRCRAFT FLEET 5 $12.7 billion 1 236 owned / 51 managed 3Q17 REVENUES $377 million +6.1% vs. 3Q16 3Q17 PRE-TAX PROFIT MARGIN 40.9% PRE-TAX ROE 6 17.1% 1 Aggregate fleet net book value as of September 30, 2017, 2 Weighted average based on net book value of ALC owned fleet, 3 Calculated as rental of flight equipment revenue, excluding overhaul revenue, divided by average net book value, 4 Dividend increased on November 8, 2017 and will be paid in January 2018, 5 As of September 30, 2017, 6 TTM ended September 30, 2017 3
Industry Update Industry Update Air Lease Update Portfolio Detail Capital Structure Summary Appendix
Airline productivity measures Growing, efficient and profitable utilization of fleets and capacity Traffic: +7.7% YTD 1 Load factors: ~82% YTD 1 Aircraft utilization at ten year high Parked fleet: ~3% 2 Stable aircraft demand environment Profits: $31 billion net profit forecasted for 2017 3 Sources: 1 IATA, YTD through September 2017, 2 Deutsche Bank Research October 2017 (Includes aircraft less than 20 years old), 3 IATA June 2017 5
Global Market Outlook More than 95% of ALC s customer base is outside of the United States 1 Historically, global airline traffic has doubled every 15 years Large airline fleet replacement cycle will benefit ALC s business strategy Forecasted Passenger Volume CAGR by Major Region 2017-2022 7.6% 5.9% 5.5% 6.1% 4.1% 2.1% 2.2% North America Europe Asia/Pacific Latin America Middle East Africa World Source: IATA October 2017 Economic Report 1 Based on each airline s principal place of business 6
Resilient, Growing Market Expected to Continue We believe growth in passenger traffic will result in demand for the broadly operated aircraft models in our fleet RPKs (trillions) 7.0 4 Recessions Gulf Crisis Asian Crisis 9/11 SARS Financial Crisis 6.0 2 Financial crises 5.0 4.0 2 Gulf wars 1 Oil shock 1 Near pandemic (SARS) 9/11 Attack 2x 3.0 2.0 2x Trend 1.0 0.0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1 IATA, 20-year Air Passenger Forecast, October 2017 Chart source: Boeing and ICAO scheduled traffic (September 2015) & IATA Jan 2017 Note: RPKs = Revenue Passenger Kilometers 7
Replacement Market Continues to Grow ALC s Target Replacement Market World s Aging Fleet (Aircraft between 10-25 years over the next decade) 20,000 Aircraft 18,000 16,000 14,000 12,000 10,000 8,000 8,307 9,045 9,738 10,510 11,378 12,221 12,958 13,555 14,220 15,327 16,471 6,000 4,000 2,000 0 Current1 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Less than 10 10-25 25+ More than 40% of the world s fleet is between 10-25 years of age Source: Ascend as of March 2017 and OEM literature 1 March 2017 8
Increasing Role of Leasing Est. $790 $790 billion billion of of capital capital required required for for new new aircraft aircraft delivering delivering over between the next 2017 5 and years 2021 Why Lease? Lessor Fleet Ownership Less Cash & Financing Required Fleet Flexibility Key Delivery Positions 0.5% 17 leased 1.7% 100 leased 14.7% 1,343 leased 24.7% 3,715 leased ~39% 9,771 leased Eliminate Residual Value Risk 1970 1980 1990 2000 2016 3,722 aircraft 6,037 aircraft 9,160 aircraft 15,032 aircraft 25,122 aircraft Source: Boeing; Data as of December 31, 2016 9
Air Lease Update Industry Update Air Lease Update Portfolio Detail Capital Structure Summary Appendix
Consistent Asset Growth ($ in billions) Solid Balance Sheet growth has supported consistent revenue growth $12.4 $14.0 $14.9 $9.2 $10.7 $7.3 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 Q3 2017 Q3 2017 Fleet Count: 155 193 213 240 237 236 11
Consistent Unencumbered Asset Growth ($ in billions) We have focused on financing the business on an unsecured basis We have grown our unencumbered assets 1 to $13.4 billion, providing a solid foundation for our investment grade credit ratings $10.6 $12.3 $13.4 $8.6 $6.5 $4.3 2012 2013 2014 2015 2016 Q3 2017 2012 2013 2014 2015 2016 Q2 2017 1 Comprised of unrestricted cash plus unencumbered flight equipment (calculated as flight equipment subject to operating leases less accumulated depreciation less net book value of aircraft pledged as collateral) plus deposits on flight equipment purchases plus certain other assets. 12
Consistent Revenue Growth ($ in millions) The expansion of our fleet has driven consistent revenue growth and cash generation Portfolio lease rates have remained consistent during this period $1,223 $1,419 $1,050 $859 $656 $355 $377 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 Q3 Q3 2016 2016 Q3 Q3 2017 2017 13
Adjusted Net Income Before Income Taxes 1 ($ in millions) Reinvesting our earnings has built shareholders equity and strengthened our high quality balance sheet $623 $439 $508 $339 $253 $157 $166 Adj. margin before income taxes (%): Adj. diluted EPS before income taxes ($): 2012 2013 2014 2015 2016 Q3 2016 Q3 2017 2012 2013 2014 2015 2016 Q3 2016 Q3 2017 38.5 39.4 41.8 41.7 44.1 44.3 44.2 2.40 3.16 4.03 4.64 5.67 1.43 1.50 1 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. 14
Adjusted Return on Equity Before Income Taxes 1 Strong adjusted ROE generated by the steady execution of our business strategy 16.6% 17.5% 19.5% 18.5% 13.9% 11.2% 2012 2013 2014 2015 2016 Q3 2017 TTM 2012 2013 2014 2015 2016 Q3 2017 LTM 1 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. See appendix for a reconciliation to its most directly comparable GAAP measure. 15
Portfolio Detail Industry Update Air Lease Update Portfolio Detail Capital Structure Summary Appendix
Portfolio Risk Management ALC seeks to hold an aircraft for the first 1/3 of its useful life ALC has a balanced asset mix Airframe manufacturers including Airbus and Boeing Engine manufacturers including General Electric, CFM, Pratt & Whitney, Rolls Royce, and International Aero Engines Twin-aisle and single-aisle aircraft ALC has a diversified global customer base with 90 airlines across 55 countries as of September 30, 2017 ALC closely monitors customer receivables to assure problems are proactively addressed Staggered and balanced lease maturities by year Flexibility in airframe purchase agreements 17
Aircraft Strategy Long term asset acquisition strategy focused on the most in demand, widely distributed, modern singleand twin-aisle commercial aircraft A320/321/321LR/NEO (A321LRNEO Launch Customer) 737-800 & 737 MAX7/8/9 A330-900NEO (Launch Customer) 787-9/10 (787-10 Launch Customer) A350-900/1000 18
ALC Invests in the Most Liquid Aircraft Types The broad installed operator base of our aircraft assets are the basis of our asset liquidity The lengthy manufacturer backlog increases the value of ALC s order book Backlog 2 # Total In Operators 1 Service 1 1 A320 Family 737 Family A350 Family 787 Family 343 482 42 70 6,972 7,127 780* 1,069* 8.8 years 8.9 years 9.0 years 4.9 years A330 Family 118 1,223 5.0 years Source: 1 Ascend as of May 2017. 2 Airbus and Boeing published data 2017 (calculated as backlog divided by production rate). A320 and A350 backlog calculated using average of current and planned production rates. *In service and on order. 19
Strength in Manufacturer Relationships ALC s management team has helped launch a number of aircraft types and associated engine designs ALC is able to drive cost advantages by negotiating with manufacturers for high quality products and competitive pricing 20
Geographic Diversity ALC executive management maintains long standing relationships with over 200 airlines worldwide Relationships span 70 countries with limited exposure to any one airline Globally diverse placements mitigate financial and concentration risk 21
Fleet Overview Fleet Metrics 1 236 owned aircraft and 51 managed aircraft $12.7 billion aggregate fleet net book value 3.7 years weighted average fleet age 2 6.8 years weighted average remaining lease term 2 $23.3 billion in contracted minimum rentals Diversified customer base with 90 airlines in 55 countries Latin America, 8% Middle East and Africa, 9% Pacific, Australia, New Zealand, 4% Asia (ex. China), 21% Region 3 U.S. and Canada, 5% Europe, 32% China, 22% Manufacturers 4 Aircraft Size 4 Embraer, <1% Twin-Aisle, 22% Airbus, 42% Boeing, 58% Single-Aisle, 78% 1 As of September 30, 2017, except otherwise noted 2 Weighted average based on net book value of ALC s owned fleet 3 Shown by net book value as of September 30, 2017, may not total to 100% due to rounding 4 Shown by number of aircraft as of September 30, 2017, may not total to 100% due to rounding 22
Order Book Provides Flexible Growth and a Strategic Advantage We believe the order book is a source of value and provides visibility into the future and the opportunity to double our fleet size in 5 years We believe our coveted delivery positions give us a competitive advantage with current and potential customers ALC can exercise flexibility with delivery position commitments and timing We typically place aircraft 18-36 months prior to delivery and currently are 91% placed through 2019 78 12 9 50 27 27 7 12 2 5 4 7 8 32 2 2 20 2 2 Scheduled Aircraft Deliveries 1 84 78 74 8 7 27 35 5 9 5 44 26 22 2017 2018 2019 2020 2021 Therafter 7 5 Boeing 787-9/10 Boeing 737 Family Airbus A350-900/1000 Airbus A330 Family Airbus A320 Family Total Commitments 45 130 24 27 146 1 As of September 30, 2017 23
Capital Structure Industry Update Air Lease Update Portfolio Detail Capital Structure Summary Appendix
Capital Structure & Financing Strategy Capitalization September 30, 2017 ($mm) % of capitalization Unrestricted cash $226 2% Total assets 14,902 116% Unsecured debt Senior notes 6,920 54% Revolving credit facility 1,436 11% Term financings 212 2% Convertible senior notes 200 2% Total unsecured debt 8,768 68% Secured debt Term financings 511 4% Export credit financing 47 0% Total secured debt 558 4% Less: debt discount (88) Total debt 9,237 72% Shareholder's equity 3,656 28% Total capitalization $12,893 100% Selected credit metrics Debt/Equity 2.53x Contracted Cash Flows/Debt 1 104% 1 Residual Fleet Value / Equity 2 2 0.84x Secured Debt/Total Assets 3.7% Fixed Rate Debt/Debt 78.1% Key Debt Portfolio Targets 80/20 Fixed to Floating debt ratio Balanced debt maturity profile Debt to Equity ratio of 2.5:1 90/10 Unsecured to Secured debt ratio 1 Calculated as: Contracted Minimum Lease Payments / Debt, as of September 30, 2017 2 Calculated as: (Net Flight Equipment Minimum Future Lease Rentals from Operating Leases) / Equity, as of September 30, 2017 25
ALC Credit Highlights BBB Stable BBB Stable A- Stable Strong Asset Base Fleet comprised of young, in demand, technologically advanced aircraft with an average age of 3.7 years Long weighted average remaining lease term of 6.8 years across the fleet Diversified customer base of 90 airlines in 55 countries Minimal lease expirations over the next few years $9.6 billion contracted minimum future rentals on our existing fleet $13.7 billion committed rentals on our order book, for a total of $23.3 billion committed cash flows Conservative Capital Structure Debt : Equity ratio of 2.53 : 1 Conservative debt maturity schedule 78.1% fixed rate debt Strong contracted cash flow coverage relative to debt outstanding at 104% 1 Low residual value risk relative to equity at 0.84x 2 Highly profitable with 44.2% adjusted margin before income taxes for Q3 2017 3 Data as of September 30, 2017, unless otherwise noted 1 Calculated as: Contracted Minimum Rental Payments / Debt, as of September 30, 2017 2 Calculated as: (Net Flight Equipment Undiscounted Minimum Rentall Payments) / Equity, as of September 30, 2017 3 Adjusted margin before income taxes is calculated as adjusted net income before income taxes divided by total revenues, excluding insurance recoveries. Adjusted margin before income taxes is a non-gaap financial measure. See appendix for reconciliation to its most directly comparable GAAP measure. 26
Summary Industry Update Air Lease Update Portfolio Detail Capital Structure Summary Appendix
Air Lease Investment Highlights Air Lease growth continues while maintaining a conservative capital structure and delivering strong returns to our shareholders Contracted Growth Strong ROE Conservative Capital 2 Structure We believe our order book is a source of value and provides visibility into the future and the opportunity to double the size of our fleet in 5 years We have substantial forward cash flow visibility through our lease placements We are 91% placed through 2019, and currently have $23.3 billion in committed rentals 1 We have minimal lease expiries through the next several years, further enhancing visibility We are focused on risk with no single customer greater than 10% of our revenue We expect further benefits from operating leverage as our fleet grows We expect to benefit through the refinancing of our remaining high yield debt with investment grade bonds We expect additional profits from the growth of our management business We have a strong balance sheet, with substantial liquidity of $2.5 billion Low Debt/Equity target of 2.5x Large unencumbered asset base of $13.4 billion 78.1% fixed rate debt Investment grade ratings from three agencies 1 Placements and committed rentals as of September 30, 2017 2 Values as of September 30, 2017 28
Appendix Industry Update Air Lease Update Portfolio Detail Capital Structure Summary Appendix
Appendix Non-GAAP Reconciliations (in thousands, except share and per share data) Q3 2017 Q3 2016 2016 2015 2014 2013 2012 Reconciliation of net income to adjusted net income before income taxes: Three Months Ended Year Ended December 31, Net income $ 99,188 $ 93,276 $ 374,925 $ 253,391 $ 255,998 $ 190,411 $ 131,919 Amortization of debt discounts and issuance costs 6,959 8,081 30,942 30,507 27,772 23,627 16,994 Stock-based compensation 5,358 4,602 16,941 17,022 16,048 21,614 31,688 Settlement - - - 72,000 - - - Insurance recovery on settlement - - (5,250) (4,500) - - - Provision for income taxes 54,931 51,297 205,313 139,562 138,778 103,031 72,054 Adjusted net income before income taxes $ 166,436 $ 157,256 $ 622,871 $ 507,982 $ 438,596 $ 338,683 $ 252,655 Assumed conversion of convertible senior notes 1,426 1,472 5,780 5,806 5,811 5,783 5,627 Adjusted net income before income taxes plus assumed conversions $ 167,862 $ 158,728 $ 628,651 $ 513,788 $ 444,407 $ 344,466 $ 258,282 Reconciliation of denominator of adjusted margin before income taxes: Total revenues $ 376,765 $ 355,101 $ 1,419,055 $ 1,222,840 $ 1,050,493 $ 858,675 $ 655,746 Insurance recovery on settlement $ - $ - $ (5,250) $ (4,500) $ - $ - $ - Total revenues, excluding insurance recovery on settlement $ 376,765 $ 355,101 $ 1,413,805 $ 1,218,340 $ 1,050,493 $ 858,675 $ 655,746 Adjusted margin before income taxes 1 44.2% 44.3% 44.1% 41.7% 41.8% 39.4% 38.5% Weighted-average diluted shares outstanding 111,709,545 110,788,913 110,798,727 110,628,865 110,192,771 108,963,550 107,656,463 Adjusted diluted earnings per share before income taxes $ 1.50 $ 1.43 $ 5.67 $ 4.64 $ 4.03 $ 3.16 $ 2.40 1 Adjusted margin before income taxes is adjusted net income before income taxes divided by total revenues, excluding insurance recoveries 30
Appendix Non-GAAP Reconciliations (in thousands, except share and per share data) Q3 2017 LTM 2016 2015 2014 2013 2012 Reconciliation of net income to adjusted net income before income taxes: Year Ended December 31, Net income $ 382,038 $ 374,925 $ 253,391 $ 255,998 $ 190,411 $ 131,919 Amortization of debt discounts and issuance costs 30,700 30,942 30,507 27,772 23,627 16,994 Stock-based compensation 19,034 16,941 17,022 16,048 21,614 31,688 Settlement - - 72,000 - - - Insurance recovery on settlement (950) (5,250) (4,500) - - - Provision for income taxes 211,231 205,313 139,562 138,778 103,031 72,054 Adjusted net income before income taxes $ 642,053 $ 622,871 $ 507,982 $ 438,596 $ 338,683 $ 252,655 Beginning shareholders' equity $ 3,288,289 $ 2,861,861 $ 2,772,062 $ 2,523,434 $ 2,332,621 $ 2,176,283 Ending shareholders' equity $ 3,655,583 $ 3,195,529 $ 3,019,912 $ 2,772,062 $ 2,523,434 $ 2,332,621 Average shareholders' equity $ 3,471,936 $ 3,201,050 $ 2,895,987 $ 2,647,748 $ 2,428,028 $ 2,254,452 Adjusted return on equity before income taxes 18.5% 19.5% 17.5% 16.6% 13.9% 11.2% 31
Appendix Cash Flow Coverage Calculations ($ in billions) September 30, 2017 Net Book Value of Aircraft A $ 12,673 Minimum Future Lease Rentals from Operating Leases B $ 9,601 Residual Exposure A - B $ 3,072 Shareholders Equity C $ 3,656 Residual Value Risk (A-B) / C 0.84x Total Debt D $ 9,237 Contracted Cash Flows / Debt B / D 104% 32