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 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 www.sec.gov. 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
Executive Summary ALC is one of the premier aircraft lessors in the marketplace One of the world s largest customers for new commercial jet aircraft Globally diversified customer base Positive long term industry fundamentals for growth and replacement of aging aircraft Strong funding profile and credit metrics Highest rated standalone aircraft lessor 3
Highlights for 2Q17 Ended the second quarter with $12.7 billion 1 in aircraft after adding 14 aircraft with a cost of $637 million Young aircraft (3.6 years 2 ) on long leases (6.9 years 2 ) with a stable lease yield 3 Minimum future contracted rentals for our current and future fleet are $23.9 billion 90% of our order book placed on long-term leases for aircraft delivering through 2019 Expanded management business from 31 to 48 aircraft with the sale of 17 aircraft into Thunderbolt and Blackbird Capital I Also announced launch of Blackbird Capital II in August 2017 Entered into agreements with Boeing and Airbus to purchase 28 additional aircraft Issued a total of $600 million senior unsecured notes at 2.625% in June 2017 AIRCRAFT FLEET 4 $12.7 billion 1 240 owned / 48 managed 2Q17 PRE-TAX PROFIT MARGIN 40.9% 2Q17 REVENUES $381 million +8.8% vs. 2Q16 PRE-TAX ROE 5 17.3% 1 Aggregate fleet net book value 2 Weighted average age 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 As of June 30, 2017 5 TTM ended June 30, 2017 4
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: +7.9% 1 st half of 2017 Load factors: ~81% globally Aircraft utilization at ten year high Parked fleet: ~3% 1 Stable aircraft demand environment Profits: $36 billion in 2016 Source: IATA June 2017, Boeing 2017 and Deutsche Bank Securities Inc. Research July 2017 1. Aircraft less than 20 years old 6
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 and is projected to grow 5% annually over the next 5 years Large airline fleet replacement cycle will benefit ALC s business strategy Forecasted Passenger Volume CAGR by Major Region 2015-2020 7.9% 3.5% 4.1% 6.4% 4.2% 5.7% 4.9% North America Europe Asia/Pacific Latin America Middle East Africa World Source: IATA October 2016 Economic Report 1 Based on each airline s principal place of business 7
Resilient, Growing Market Expected to Continue Airline passenger traffic is the ultimate underlying demand for our aircraft As long as passenger traffic is healthy, we believe there will be 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 2 Gulf wars 1 Oil shock 1 Near pandemic (SARS) 2x 4.0 9/11 Attack 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 Source: Boeing and ICAO scheduled traffic (September 2015) & IATA Jan 2017 Note: RPKs = Revenue Passenger Kilometers 8
Replacement Market Continues to Grow More than 40% of the world s fleet is between 10-25 years of age ALC s target replacement market is aircraft over 10 years of age 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 Current 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Less than 10 10-25 25+ Source: Ascend as of March 2017 and OEM literature 9
Increasing Role of Leasing ALC estimates an industry capital requirement of $790 billion for new aircraft delivering between 2017 and 2021 Why Lease? Lessor Fleet Ownership Less Cash & Financing Required Fleet Flexibility Key Delivery Positions 0.5% 17 leased 1.7% 100 leased 14.7% 1,343 leased 24.7% 3,715 leased ~39% 9,771 leased Eliminate Residual Value Risk 1970 1980 1990 2000 2016 3,722 aircraft 6,037 aircraft 9,160 aircraft 15,032 aircraft 25,122 aircraft Source: Boeing; Data as of December 31, 2016 10
Air Lease Update Industry Update Air Lease Update Portfolio Detail Capital Structure Summary Appendix
Consistent Asset Growth ($ in billions) Solid Balance Sheet growth has supported consistent revenue growth $12.4 $14.0 $14.9 $9.2 $10.7 $7.3 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 Q1 2017 Q2 2017 Fleet Count: 155 193 213 240 237 240 12
Consistent Unencumbered Asset Growth ($ in billions) We have focused on financing the business on an unsecured basis We have grown our unencumbered assets 1 to $13.3 billion, providing a solid foundation for our investment grade credit ratings $10.6 $12.3 $13.3 $8.6 $6.5 $4.3 2012 2013 2014 2015 2016 Q2 2017 2012 2013 2014 2015 2016 Q2 2017 1 Comprised of unrestricted cash plus unencumbered flight equipment (calculated as flight equipment subject to operating leases less accumulated depreciation less net book value of aircraft pledged as collateral) plus deposits on flight equipment purchases plus certain other assets. 13
Consistent Revenue Growth ($ 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 $350 $381 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 Q2 Q2 2016 2016 Q2 Q2 2017 2017 14
Adjusted Net Income Before Income Taxes ($ in millions) Reinvesting our earnings has built shareholders equity and strengthened our high quality balance sheet $623 $439 $508 $339 $253 $152 $167 Adj. margin before income taxes (%): Adj. diluted EPS before income taxes ($): 2012 2013 2014 2015 2016 Q2 2016 Q2 2017 2012 2013 2014 2015 2016 Q2 2016 Q2 2017 38.5 39.4 41.8 41.7 44.1 43.7 43.9 2.40 3.16 4.03 4.64 5.67 1.39 1.51 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. 15
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% 18.7% 13.9% 11.2% 2012 2013 2014 2015 2016 Q2 2017 LTM 2012 2013 2014 2015 2016 Q2 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. 16
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 88 airlines across 54 countries as of June 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 18
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 19
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. 20
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 21
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 22
Fleet Overview Fleet Metrics 1 240 owned aircraft and 48 managed aircraft $12.7 billion aggregate fleet net book value 3.6 years weighted average fleet age 2 6.9 years weighted average remaining lease term 2 $23.9 billion in contracted minimum rentals Diversified customer base with 88 airlines in 54 countries Latin America, 8% Middle East and Africa, 8% Asia (ex. China), 21% U.S. and Canada, 5% Region 3 Pacific, Australia, New Zealand, 4% Europe, 33% China, 21% Manufacturers 4 Aircraft Size 4 Embraer, <1% Twin-Aisle, 22% Airbus, 42% Boeing, 58% Single-Aisle, 78% 1 As of June 30, 2017, except otherwise noted 2 Weighted average based on net book value of ALC s owned fleet 3 Shown by net book value as of June 30, 2017, may not total to 100% due to rounding 4 Shown by number of aircraft as of June 30, 2017, may not total to 100% due to rounding 23
Order Book Provides Flexible Growth and a Strategic Advantage We believe the order book is a source of value and provides visibility into the future and the opportunity to double in size in 5 years We believe our coveted delivery positions give us a competitive advantage with current and potential customers ALC can exercise flexibility with delivery position commitments and timing We typically place aircraft 18-36 months prior to delivery and currently are 90% placed through 2019 Scheduled Aircraft Deliveries 1 Total Commitments 3 2 2 5 12 7 12 4 7 17 47 77 12 9 26 28 2 7 5 5 32 26 75 7 35 9 5 22 78 8 27 5 44 84 Boeing 787-9/10 Boeing 737 Family Airbus A350-900/1000 Airbus A330 Family Airbus A320 Family 46 130 24 27 146 2017 2018 2019 2020 2021 Therafter 1 As of June 30, 2017 24
Capital Structure Industry Update Air Lease Update Portfolio Detail Capital Structure Summary Appendix
Capital Structure & Financing Strategy Capitalization June 30, 2017 ($mm) % of capitalization Unrestricted cash $240 2% Total assets 14,861 116% Unsecured debt Senior notes 6,920 54% Revolving credit facility 1,477 11% Term financings 214 2% Convertible senior notes 200 2% Total unsecured debt 8,811 69% Secured debt Term financings 539 4% Export credit financing 48 0% Total secured debt 588 5% Less: debt discount (95) Total debt 9,303 72% Shareholder's equity 3,558 28% Total capitalization $12,862 100% Selected credit metrics Debt/Equity 2.61x Contracted Cash Flows/Debt 1 105% 1 Residual Fleet Value / Equity 2 0.83x 2 Secured Debt/Total Assets 4.0% Fixed Rate Debt/Debt 77.5% 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 June 30, 2017 2 Calculated as: (Net Flight Equipment Undiscounted Contracted Minimum Lease Payments) / Equity, as of June 30, 2017 26
ALC Credit Highlights BBB Stable BBB Stable A- Stable Fleet comprised of young, high demand, technologically advanced aircraft with an average age of 3.6 years Long weighted average remaining lease term of 6.9 years across the fleet Diversified customer base of 88 airlines in 54 countries Minimal lease expirations over the next few years $9.8 billion contracted minimum future rentals on our existing fleet $14.1 billion committed rentals on our order book, for a total of $23.9 billion committed cash flows Debt : Equity ratio of 2.6 : 1 Conservative debt maturity schedule 77.5% fixed rate debt Strong contracted cash flow coverage relative to debt outstanding at 105% 1 Low residual value risk relative to equity at 0.83x 2 Strong Asset Base Conservative Capital Structure Highly profitable 43.9% adjusted margin before income taxes for Q2 2017 3 Data as of June 30, 2017, unless otherwise noted 1 Calculated as: Contracted Minimum Lease Payments / Debt, as of June 30, 2017 2 Calculated as: (Net Flight Equipment Undiscounted Minimum Lease Payments) / Equity, as of June 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. 27
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 in size in 5 years We have substantial forward cash flow visibility through our lease placements We are 90% placed through 2019, and currently have $23.9 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 $13.3 billion 77.5% fixed rate debt Investment grade ratings from three agencies 1 Placements and committed rentals as of June 30, 2017 2 Values as of June 30, 2017 29
Appendix Industry Update Air Lease Update Portfolio Detail Capital Structure Summary Appendix
Appendix Non-GAAP Reconciliations (in thousands, except share and per share data) Q2 2017 Q2 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 $ 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 - - - 72,000 - - - Insurance recovery on settlement (950) (2,000) (5,250) (4,500) - - - Provision for income taxes 54,944 50,468 205,313 139,562 138,778 103,031 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 111,564,483 110,839,180 110,798,727 110,628,865 110,192,771 108,963,550 107,656,463 Adjusted margin before income taxes 1 43.9% 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 $ 2.40 1 Adjusted margin before income taxes is adjusted net income before income taxes divided by total revenues, excluding insurance recoveries 31
Appendix Non-GAAP Reconciliations (in thousands, except share and per share data) Q2 2017 LTM 2016 2015 2014 2013 2012 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 - - 72,000 - - - Insurance recovery on settlement (950) (5,250) (4,500) - - - Provision for income taxes 207,597 205,313 139,562 138,778 103,031 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% 32
Appendix Cash Flow Coverage Calculations ($ in billions) JUNE 30, 2017 Net Book Value of Aircraft A $ 12,743 Minimum Future Lease Rentals from Operating Leases B $ 9,807 Residual Exposure A - B $ 2,936 Shareholders Equity C $ 3,558 Residual Value Risk (A-B) / C 0.83x Total Debt D $ 9,303 Contracted Cash Flows / Debt B / D 105% 33