Air Lease Corporation Q3 2016 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; our inability to effectively deploy the net proceeds from our capital raising activities; 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, 2015 and the Company s Quarterly Report on Form 10-Q for the quarter ended September 30, 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. 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 Two investment grade credit ratings: S&P BBB and Kroll A- 3
Q3 2016 Highlights Placed 91% of our order book on long-term leases for aircraft delivering through 2018 and 82% through 2019 During the quarter, we purchased and took delivery of six aircraft from our new order pipeline, and sold seven aircraft Completed a senior unsecured notes offering in August 2016, issuing $750 million at 3.00%, maturing in 2023 followed by a senior unsecured notes offering in October 2016, issuing $500 million at 2.125%, maturing in 2020 In October 2016, Standard & Poor's Ratings Services raised its corporate credit and senior unsecured ratings on ALC to 'BBB' with a stable outlook AIRCRAFT FLEET 244 owned 33 managed REVENUES $355.1 million +13% vs. Q3 2015 ADJ. NET INCOME BEFORE INCOME TAXES $157.3 million +19% vs. Q3 2015 ADJ. DILUTED EPS BEFORE INCOME TAXES $1.43 +19% vs. Q3 2015 4
Industry Update Industry Update Air Lease Update Portfolio Detail Capital Structure Summary Appendix 5
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 WTC Attack SARS Financial Crisis 6.0 5.0 4.0 2 Financial crises 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 Source: Boeing and ICAO scheduled traffic (September 2015) & IATA Jan 2016 Note: RPKs = Revenue Passenger Kilometers 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 6.4% 4.3% 4.5% 4.9% 5.4% 4.9% 3.0% North America Europe Asia/Pacific Latin America Middle East Africa World Source: IATA October 2015 Economic Report 1 Based on each airline s principal place of business 7
Airline Productivity Measures at or Near Peaks Growing, efficient and profitable utilization of fleets and capacity Traffic: +6% 1 st half of 2016 Load factors: ~81% globally Aircraft Utilization near record levels Parked fleet: Steady at ~3% 1 Stable values & lease rates Profits: $35 billion in 2015, expected to be higher in 2016 Source: IATA June 2016, Boeing 2016 Current Market Outlook and Deutsche Bank Securities Inc Research July 2016 1. Aircraft less 20 years old 8
Balanced Aircraft Production As a historical average, deliveries per year have represented 7% of the installed fleet. Years with deliveries exceeding the historical average of 7% have been followed by cyclical declines As the installed base increases and OEMs maintain discipline, deliveries for 2016 through 2020 are expected to represent 7% of the in-service fleet each year, leading to a dampening of the aircraft cycle Annual deliveries 2000 1800 1600 1400 1200 1000 800 600 400 200 0 Deliveries as % of fleet Replacement Growth 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Source: Boeing analysis from ASCEND database, as of December 31, 2015 9
Increasing Role of Leasing ALC estimates an industry capital requirement of $732 billion for new aircraft delivering between 2016 and 2020 Why Lease? Lessor Fleet Ownership Less Cash & Financing Required Fleet Flexibility Key Delivery Positions 0.5% 17 leased 1.7% 100 leased 14.7% 1,343 leased 24.7% 3,715 leased ~40% 9,120 leased Eliminate Residual Value Risk 1970 1980 1990 2000 2015 3,722 aircraft 6,037 aircraft 9,160 aircraft 15,032 aircraft 23,151 aircraft Source: Boeing; Data as of December 31, 2015 10
Air Lease Update Industry Update Air Lease Update Portfolio Detail Capital Structure Summary Appendix 11
Consistent Asset Growth ($ in billions) Solid Balance Sheet growth has supported consistent revenue growth Assets have grown 2.7x since 2011 $9.2 $10.7 $12.4 $13.7 $7.3 $5.1 2011 2012 2013 2014 2015 Q3 2016 2011 2012 2013 2014 2015 Q3 2016 Fleet Count: 102 155 193 213 240 244 12
Consistent Unencumbered Asset Growth ($ in billions) We have focused on financing the business on an unsecured basis We have grown our unencumbered assets 1 to $12.1 billion, providing a solid foundation for our investment grade credit ratings $10.6 $12.1 $8.6 $6.5 $4.3 $2.3 2011 2012 2013 2014 2015 Q3 2016 2011 2012 2013 2014 2015 Q3 2016 1 Comprised of unrestricted cash plus unencumbered flight equipment plus deposits on flight equipment purchases plus certain other assets 13
Consistent Revenue Growth ($ in millions) The expansion of our fleet has driven consistent revenue growth and cash generation Portfolio lease rates have remained consistent during this period $1,050 $1,223 $859 $656 +13% $337 $313 $355 2011 2012 2013 2014 2015 Q3 2015 Q3 2016 2011 2012 2013 2014 2015 Q3 2015 Q3 2016 14
Consistent Adjusted Net Income Before Income Taxes Growth ($ in millions) Reinvesting our earnings has built shareholders equity and strengthened our high quality balance sheet $508 $439 $339 $253 +19% $132 $132 $157 Adj. margin before income taxes (%): Adj. diluted EPS before income taxes ($): 2011 2012 2013 2014 2015 Q3 2015 Q3 2016 2011 2012 2013 2014 2015 Q3 2015 Q3 2016 39.1 38.5 39.4 41.8 41.7 42.0 44.3 1.46 2.40 3.16 4.03 4.64 1.20 1.43 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
Consistent Adjusted Return on Equity Before Income Taxes 1 Growth Consistent adjusted ROE expansion generated by the steady execution of our business strategy 16.6% 17.5% 19.0% 13.9% 11.2% 7.7% 2011 2012 2013 2014 2015 Q3 2016 LTM 2011 2012 2013 2014 2015 Q3 2016 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 measures. 16
Portfolio Detail Industry Update Air Lease Update Portfolio Detail Capital Structure Summary Appendix 17
Portfolio Risk Management ALC seeks to hold an aircraft for the first 1/3 of its useful life in order to maximize residual values and minimize obsolescence risk ALC has a balanced asset mix Airframe manufacturers including Airbus, Boeing, and Embraer Engine manufacturers including General Electric, CFM, Pratt & Whitney, Rolls Royce, and International Aero Engines Twin-aisle, single-aisle, and regional aircraft ALC has a diversified global customer base with 88 airlines across 52 countries as of September 30, 2016 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 MAX8/9 A330-800/900NEO (Launch Customer) 787-9/10 (787-10 Launch Customer) A350-900/1000 777-300ER 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 777 Family 787 Family 333 482 37 66 63 6,391 6,636 780* 1,292 1,138* 8.4 years 8.7 years 6.5 years 4.9 years 2.2 years A330 Family 112 1,166 4.9 years Source: 1 Ascend as of February 2016. 2 Airbus and Boeing published data 2016 (calculated as backlog divided by production rate). *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 1 244 owned aircraft and 33 managed aircraft $11.9 billion aggregate fleet net book value 3.7 years weighted average fleet age 2 6.9 years weighted average remaining lease term 2 $8.9 billion in contracted minimum rentals 3 Diversified customer base with 88 airlines in 52 countries U.S. and Canada, 5% Latin America, 7% Middle East and Africa, 8% China, 23% Region 4 Pacific, Australia, New Zealand, 4% Europe, 28% China, 24% Manufacturers 5 Aircraft Size 5 Embraer, 7% ATR, 1% Twin-Aisle, 19% Boeing, 51% Airbus, 41% Single-Aisle, 81% 1 As of September 30, 2016, except otherwise noted 2 Weighted average based on net book value of ALC s owned fleet 3 As of December 31, 2015 4 Shown by net book value as of September 30, 2016, does not total to 100% due to rounding 5 Shown by number of aircraft as of September 30, 2016 23
Order Book Provides Flexible Growth and a Strategic Advantage We believe the order book is a source of value and provides visibility into the future and the opportunity to double in size in 5 years We believe our coveted delivery positions give us a competitive advantage with current and potential customers ALC can exercise flexibility with delivery position commitments and timing We typically place aircraft 18-36 months prior to delivery and currently are 91% placed through 2018 and 82% through 2019 Total Scheduled Aircraft Deliveries Commitments 75 6 Boeing 787-9/10 45 60 Boeing 777-300ER 4 1 2 2 7 1 4 2 11 2 34 7 11 4 5 15 17 2 8 5 5 27 26 2016 2017 2018 2019 2020 44 7 19 30 Boeing 737 Family Airbus A350-900 Airbus A330 Family Airbus A320 Family 129 24 25 142 1 Excludes 3 ATR 72-600s that ALC has agreed to sell 24
Capital Structure Industry Update Air Lease Update Portfolio Detail Capital Structure Summary Appendix 25
Capital Structure & Financing Strategy Capitalization September 30, 2016 ($mm) % of capitalization Unrestricted cash $227 2% Total assets 13,681 116% Unsecured debt Senior notes 6,506 55% Revolving credit facility 1,018 9% Term financings 215 2% Convertible senior notes 200 2% Total unsecured debt 7,939 67% Secured debt Term financings 654 6% Export credit financing 53 0% Total secured debt 707 6% Less: debt discount (92) Total debt 8,555 72% Shareholder's equity 3,288 28% Total capitalization $11,843 100% Selected credit metrics Debt/Equity 2.60x 1 Contracted Cash Flows/Debt 115% 2 Residual Fleet Value / Equity 65% Secured Debt/Total Assets 5.2% Fixed Rate Debt/Debt 80% Target a debt to equity ratio of 2.5:1 Target a 80/20 fixed to floating rate debt ratio Target a 90/10 unsecured to secured debt ratio Target to a balanced debt maturity profile 1 Calculated as: Contracted Minimum Lease Payments / Debt, as of December 31, 2015 2 Calculated as: (Net Flight Equipment Undiscounted Minimum Lease Payments) / Equity, as of December 31, 2015 26
ALC Credit Highlights BBB Stable A- Stable Fleet comprised of young, high demand, technologically advanced aircraft fleet with an average age of 3.7 years Long weighted average remaining lease term of 6.9 years across the fleet Diversified customer base of 88 airlines in 52 countries Minimal lease expirations over the next few years $8.9 billion contracted minimum future rentals on our existing fleet 1 $12.0 billion committed rentals on our order book, for a total of $20.9 billion committed cash flows 1 Debt : Equity ratio of 2.60 : 1 Conservative debt maturity schedule 80% fixed rate debt Highly profitable 44.3% adjusted margin before income taxes for Q3 2016 Strong contracted cash flow coverage relative to debt outstanding at 115% 2 Minimal residual fleet value exposure of 65% 3 Strong Asset Base Conservative Capital Structure Data as of September 30, 2016, unless otherwise noted 1 As of December 31, 2015 2 Calculated as: Contracted Minimum Lease Payments / Debt, as of December 31, 2015 3 Calculated as: (Net Flight Equipment Undiscounted Minimum Lease Payments) / Equity, as of December 31, 2015 27
Summary Industry Update Air Lease Update Portfolio Detail Capital Structure Summary Appendix 28
Air Lease Investment Highlights Air Lease continues to grow revenue and earnings while improving RoEs and maintaining a conservative capital structure Contracted Growth RoE Expansion 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 91% placed through 2018, and currently have $20.9 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 $2.4 billion Low Debt/Equity target of 2.5x Large unencumbered asset base $12.1 billion 80% fixed rate debt Rated BBB (stable) from S&P and A- (stable) from Kroll 1 Placements as of September 30, 2016; committed rentals as of December 31, 2015 2 Values as of September 30, 2016 29
Appendix Industry Update Air Lease Update Portfolio Detail Capital Structure Summary Appendix 30
Appendix Non-GAAP Reconciliations (in thousands, except share and per share data) Q3 2016 Q3 2015 2015 2014 2013 2012 2011 Reconciliation of net income to adjusted net income before income taxes: Three Months Ended Year Ended December 31, Net income $ 93,276 $ 77,042 $ 253,391 $ 255,998 $ 190,411 $ 131,919 $ 53,232 Amortization of debt discounts and issuance costs 8,081 7,419 30,507 27,772 23,627 16,994 9,481 Stock-based compensation 4,602 4,648 17,022 16,048 21,614 31,688 39,342 Settlement - - 72,000 - - - - Insurance recovery on settlement - - (4,500) - - - - Provision for income taxes 51,297 42,545 139,562 138,778 103,031 72,054 29,609 Adjusted net income before income taxes $ 157,256 $ 131,654 $ 507,982 $ 438,596 $ 338,683 $ 252,655 $ 131,664 Assumed conversion of convertible senior notes 1,472 1,463 5,806 5,811 5,783 5,627 560 Adjusted net income before income taxes plus assumed conversions $ 158,728 $ 133,117 $ 513,788 $ 444,407 $ 344,466 $ 258,282 $ 132,224 Total revenues $ 355,101 $ 313,126 $ 1,222,840 $ 1,050,493 $ 858,675 $ 655,746 $ 336,741 Weighted-average diluted shares outstanding 110,788,913 110,623,960 110,628,865 110,192,771 108,963,550 107,656,463 90,416,346 Adjusted net income margin before income taxes 44.3% 42.0% 41.7% 41.8% 39.4% 38.5% 39.1% Adjusted diluted earnings per share before income taxes $ 1.43 $ 1.20 $ 4.64 $ 4.03 $ 3.16 $ 2.40 $ 1.46 31
Appendix Non-GAAP Reconciliations (in thousands, except share and per share data) Q3 2016 LTM 2015 2014 2013 2012 2011 Reconciliation of net income to adjusted net income before income taxes: Year Ended December 31, Net income $ 358,836 $ 253,391 $ 255,998 $ 190,411 $ 131,919 $ 53,232 Amortization of debt discounts and issuance costs 30,355 30,507 27,772 23,627 16,994 9,481 Stock-based compensation 16,992 17,022 16,048 21,614 31,688 39,342 Settlement 72,000 - - - - Insurance recovery on settlement (9,750) (4,500) - - - - Provision for income taxes 196,702 139,562 138,778 103,031 72,054 29,609 Adjusted net income before income taxes $ 593,135 $ 507,982 $ 438,596 $ 338,683 $ 252,655 $ 131,664 Average shareholders' equity $ 3,113,868 $ 2,895,987 $ 2,647,748 $ 2,428,028 $ 2,254,452 $ 1,700,609 Adjusted net income before income taxes return on average equity 19.0% 17.5% 16.6% 13.9% 11.2% 7.7% 32
Appendix Cash Flow Coverage Calculations ($ in millions) December 31, 2015 Minimum Future Lease Rentals from Operating Leases Years ending December 31, 2016 $ 1,236 2017 1,190 2018 1,155 2019 1,092 2020 927 Thereafter 3,265 Total Future Minimum Rentals A $ 8,864 Total Debt B $ 7,712 Shareholders' Equity C $ 3,020 Net Book Value of Aircraft D $ 10,813 Debt / Equity B / C 2.55x NBV of Aircraft / Equity D / C 3.58x Min Payments / NBV of Aircraft A / D 82% Residual Fleet Value / Equity (D-A) / C 65% Contracted Cash Flows / Debt A / B 115% 33