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Air Lease Corp (AL) Q3 2021 Earnings Name Transcript

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Air Lease Corp (NYSE:AL)
Q3 2021 Earnings Name
Nov 6, 2021, 2:00 p.m. ET

Contents:

  • Ready Remarks
  • Questions and Solutions
  • Name Individuals

Ready Remarks:

Operator

Good day, and thanks for standing by. Welcome to the Air Lease Q3 2021 Earnings Convention Name. [Operator Instructions]

I’d now like handy the convention over to your speaker right this moment, Jason Arnold, AVP, Finance. Please go forward.

Jason ArnoldAssistant Vice President of Finance

Thanks, operator, and good afternoon, everybody, and welcome to Air Lease Company’s earnings name for the third quarter of 2021. That is Jason Arnold, and I am joined this afternoon by Steven Hazy, our Govt Chairman; John Plueger, our Chief Govt Officer and President; and Greg Willis, our Govt Vice President and Chief Monetary Officer. Earlier right this moment, we revealed our outcomes for the third quarter of 2021. A replica of our earnings launch is accessible on the Buyers part of our web site at www.airleasecorp.com. This convention name is being webcast and recorded right this moment, Thursday, November 4, 2021, and the webcast will probably be accessible for replay on our web site. [Operator Instructions]

Earlier than we start, please observe that sure statements on this convention name, together with sure solutions to your questions, are forward-looking statements throughout the which means of the Personal Securities Litigation Reform Act. This contains, with out limitation, statements relating to our future operations and efficiency, revenues, working bills, stock-based compensation expense and different earnings and expense gadgets. These statements and any projections as to the corporate’s future efficiency characterize administration’s estimates for future outcomes and converse solely as of right this moment, November 4, 2021. These estimates contain dangers and uncertainties that might trigger precise outcomes to vary materially from these expectations. Please seek advice from our filings with the Securities and Alternate Fee for a extra detailed description of threat elements which will have an effect on our outcomes. Air Lease Company assumes no obligation to replace any forward-looking statements or info in gentle of recent info or future occasions.

As well as, sure monetary measures we could also be utilizing through the name similar to adjusted internet earnings earlier than earnings taxes, adjusted diluted earnings per share earlier than earnings taxes and adjusted pre-tax return on fairness are non-GAAP measures. An outline of our causes for using these non-GAAP measures in addition to our definition of them and the reconciliation to corresponding GAAP measures might be discovered within the earnings launch and 10-Q we issued right this moment. This launch might be present in each the Buyers and Press part of our web site at www.airleasecorp.com. Unauthorized recording of this convention name is just not permitted.

I’d now like to show the decision over to our Chief Govt Officer and President, John Plueger.

John L. PluegerChief Govt Officer and President

Thanks, Jason. Good afternoon, everybody, and thanks for becoming a member of us. We’ll barely alter our format right this moment as a result of Steve has been negotiating too many offers and has misplaced most of his voice. So he is doing nice and is on our name with us right this moment, however I will mix our sections of ready remarks into one part in order that he can save his voice for the Q&A. We’re pleased to report that through the third quarter of 2021, ALC generated $525 million in complete income, up 6% relative to the third quarter of final 12 months. Furthermore, as a part of complete income, our third quarter rental income is a report excessive for us. We additionally recorded diluted EPS of $0.87, which is the best stage in 2021. The {industry} is clearly bettering and we — which we see in our outcomes, ahead plane demand and lease charges.

Through the quarter, we took supply of roughly $800 million in new plane, which was $200 million lower than we initially anticipated, however these plane did contribute favorably to our efficiency this quarter. You will need to observe that whereas fleet progress has been meaningfully constrained by OEM points, it’s nonetheless up 13% from this time final 12 months. Moreover, our blended common funding prices continued to say no. And in reality, we’re at an all-time low, helped by our favorable bond issuances this 12 months on the lowest charges we have ever achieved. Greg will touch upon that additional in his remarks. Regardless of the Delta variant impacting traits considerably, we stay inspired by site visitors restoration in North and South America, Europe, Russia and the Center East. We’re inspired by the easing of many worldwide journey restrictions similar to by the usA. for inbound site visitors from Europe, Canada and Mexico in addition to comparable actions in opening worldwide journey in Australia, New Zealand, Singapore and India. We imagine extra nations in Asia will quickly begin following these constructive steps.

Consequently, lots of our airline prospects are seeing enchancment in working efficiency as site visitors volumes strengthen, whereas others are nonetheless going through continued pandemic challenges. As we have indicated to you a lot instances previously, the restoration is unlikely to be a straight line upward to pre-pandemic ranges. It may have some bumps alongside the best way, however importantly, it’s clearly persevering with to move in a constructive route on a worldwide foundation. Now this constructive pattern is additional evidenced in our assortment fee, which improved within the third quarter to 94% as in comparison with 87% within the second quarter and 84% within the first quarter. Our lease utilization fee remained sturdy at 99.7%. Our internet deferrals stability edged up barely through the previous quarter to $118 million as of right this moment from $115 million as of early August, however 54% of deferrals granted thus far have been repaid, and we anticipate that reimbursement proportion to proceed to rise within the months forward primarily based on reimbursement schedule, with 77% of these to be repaid via 2022. Our working money circulate in the meantime stays very sturdy, up 30% year-to-date via the third quarter of ’21 as in comparison with the identical interval of 2020, benefiting from fleet progress and rising money collections.

On the income facet for this quarter, the mixed influence of money foundation income recognition and lease restructuring was meaningfully decrease as in comparison with the final couple of quarters. In reality, money foundation lessees really offered a constructive contribution of $5 million in incremental income this quarter as in comparison with a drag of $42 million within the prior quarter. A lot of the enchancment relative to the second quarter was pushed by important money funds made to us by Vietnam Airways, which, as you may recall, so as of magnitude represented roughly 2/3 of the full money accounting influence within the prior quarter. Now we have reached decision with Vietnam and will probably be monitoring their efficiency fastidiously, though it is too quickly to say whether or not or not they may stay on a money foundation subsequent quarter. Restructuring influence was additionally decrease this quarter, which Greg will touch upon shortly.

Whereas further buyer requests for mixture will rely on the continuing influence of the pandemic on a region-by-region and airline-by-airline foundation, we do need to observe that just like final quarter, requests for help stay meaningfully beneath these witnessed earlier this 12 months and in 2020. Transferring to plane gross sales exercise. As we beforehand telegraphed, we scaled again gross sales for the rest of this 12 months, largely due to supply delays leading to decrease plane investments than deliberate. Having stated that, we’ll doubtless have a couple of plane gross sales in This fall. However as our deliveries change into extra constant relative to contractual expectations, we look ahead to ramping our gross sales exercise again up. We’re inspired by what we’re seeing within the secondary marketplace for plane in our fleet that might be candidates on the market. So let’s spend a while now speaking about plane demand.

At the moment and looking out ahead, we see narrow-body demand at or above pre-pandemic ranges for a lot of plane sorts with lease charges on the rise. In reality, throughout Q3, we executed a report quarterly excessive of 64 plane placements from our order guide, together with a 31-aircraft transaction introduced with ITA in Italy, which is the one largest, single placement by variety of plane in our firm’s historical past. We positioned 15 A220s, two A320neos, 9 A321neos and 5 A330-900neos on long-term leases with ITA. We’re notably proud that Steve helped orchestrate this significant step ahead within the modernization of Italy’s state-owned flag service, and we now have excessive expectations for our partnership. We additionally introduced the position of 10 new Airbus A321neo plane and 5 new A320-200neo plane with Spirit Airways, the place we positioned the A321neos from our order guide and leveraged our capital companions and our managed enterprise to supply funding for the remaining 5 A320s in a extremely personalized fleet planning resolution for the airline.

In late July, we positioned 10 used A320-200s with Allegiant Airways as a part of our transaction with Alaska Airways. And talking of Alaska, we delivered the primary of 13 new Boeing 737-9 plane to the airline in September, a large placement designed to assist the airline pivot to an all-Boeing fleet. We additionally delivered one A321neo to SKY Airline in Chile, the primary of its sort to be delivered to that nation. And we delivered the primary new Boeing 737-9 within the nation of Kazakhstan to SCAT Airways. Our lease placements are clearly accelerating such that our accessible supply positions in 2024 have decreased by about 1/3 since our final earnings name, and we’re 96% positioned via 2023. As a complete, our order guide is now 67% positioned, with our present orders working via 2026. Rising gas costs are definitely taking part in into the demand equation in addition to gas effectivity more and more makes new plane selections much more enticing to airways, with gas effectivity enhancements of 20% to 30% versus prior generations.

We might prefer to level out that narrow-body demand is powerful throughout each Airbus and Boeing merchandise, however notably the Airbus A320, 21neo household, together with the LR and XLR variations of the A321neo. Importantly, the Boeing 737 MAX can also be recovering nicely within the market, with lease charges climbing steadily from the lows of 9 to 12 months in the past and up to date sturdy momentum on the -9 MAX. And the A220 has additionally accelerated, gaining good placement momentum. The underside line is that these lease charges are rising on all of those new plane sorts. Now that being stated, we even have seen an uptick in demand in lease charges on the brand new twin isles. For instance, the 31-aircraft transaction with ITA included 5 new twin-aisle A330neos, and we now have a number of but unannounced placements for 787s and A350s.

Our most important concern on the twin-aisle entrance is the continuing Boeing 787 supply freeze. We informed you final quarter that beneath our Boeing contracts, we had been scheduled to obtain 10 new 787s by the tip of the 12 months. At this juncture, we’re unsure that we can obtain any of our 787s by the tip of the 12 months. In some circumstances, these plane are or will probably be greater than 12 months late. And as such, we now have canceled three 787s. Additional, as we suggested final quarter, we had been seeing some minor supply delays on a couple of Airbus single aisles, which they attribute to COVID or provide chain constraints. As such, wanting forward of the fourth quarter, we now have trimmed our expectations for deliveries. Though we’re contractually scheduled to take supply of 25 plane within the fourth quarter of this 12 months, we solely count on to take 15 plane, representing roughly $1.2 billion of plane investments.

Past that, we’re intently watching provide chain constraints, particularly because the OEMs ramp up manufacturing charges. It’s no coincidence that each Boeing and Airbus elevated commentary on provide chain constraints in every of their third quarter earnings calls. So now on the easiest and highest stage, we’re at a degree the place greater than 60% of economic plane deliveries by Airbus and Boeing mixed this 12 months are being taken by lessors or financed by a sale-leaseback transaction, which is in comparison with the 40% to 45% share of the {industry} of the latest previous clearly demonstrates this shift to leasing for an airline {industry} that’s nonetheless reeling from staggering monetary losses and capital constraints. We see this persevering with for the following a number of years as airways look to get well their stability sheets and lessors stay a bastion of capital and plane very important to the restoration and very important to the OEMs.

For the reason that inception of ALC, we now have targeted our enterprise on essentially the most fuel-efficient, superior expertise, environmentally pleasant and highest demand plane on the planet. That enterprise mannequin has served us nicely and positions us for even better power throughout this important restoration part. In gentle of the general bettering atmosphere, together with acceleration in demand and order guide placements, strengthening lease charges and the continued enlargement of e-commerce pushing freighter demand and charges to new ranges, we’re reviewing our capital allocation plans going ahead. Now we have at all times been disciplined and rigorous on this course of to find out one of the best and highest return use of capital in our enterprise.

Traditionally, this has meant funding in new plane on long-term leases, and we don’t imagine that has modified. Regardless of the pandemic influence, ALC has loved industry-leading margins. We even have beforehand introduced our Board’s reauthorization of a modest inventory buyback program. We proceed to intensively consider all capital allocation options. With our continued profitable navigation via the pandemic storm and reflecting continued confidence in our outlook and our enterprise, our Board of Administrators has declared a fourth quarter dividend of $0.185 per share, up roughly 16% from the prior interval. This dividend represents our thirty sixth consecutive distribution since our first in February of 2013 and our ninth dividend improve over that point.

Wrapping up, Steve and my feedback, we need to reiterate a easy premise we have shared with you all through the pandemic, and that’s air journey demand is very sturdy. The pandemic briefly suppressed it and journey restrictions have constrained it. However on the finish of the day, folks need and have to take journeys, do enterprise and join with one another in individual. At any time when we see journey restrictions lifted globally, there may be a right away surge in passenger bookings. Whereas the tempo of the restoration has had its ups and downs, we’re assured within the long-term route remaining very constructive, and we’re equally assured in our enterprise mannequin, which was purposely designed to be extremely sturdy as nicely. Our deal with fleet substitute over progress, deal with new expertise younger plane, fleet diversification and low monetary leverage are key elements which have helped us climate the downturn efficiently and can serve us nicely sooner or later.

And with that, I am going to flip the decision over to Greg to supply extra element on our monetary outcomes. Greg?

Gregory B. WillisGovt Vice President and Chief Monetary Officer

Thanks, John, and good afternoon, everybody. I might prefer to broaden on the small print underlying our monetary outcomes for the third quarter, and I might like to supply some further shade on our latest financing exercise. As John talked about earlier in his remarks, we had a really sturdy quarter pushed by the continued progress of our fleet in addition to a rise in our money collections. Enhancements in our money collections had been noticed throughout our fleet, however notably on our lessees on money accounting and particularly Vietnam Airways. These funds allowed us to acknowledge an incremental $5 million in income this quarter above the common rental schedule due from our money foundation lessees. This quarter is a superb instance of what best-in-class relationships like those we now have with Vietnam, mixed with the power of a big unencumbered stability sheet it could actually deliver. I feel you will need to underscore that the big money funds we obtained this quarter characterize a constructive signal for the restoration of the {industry}, however I do need to make it clear that there is nonetheless extra work to be accomplished. And till we’re in a position to transition our remaining money foundation lessees, which characterize roughly 10% of our fleet, again to accrual, there’ll doubtless be a sure stage of volatility in our earnings within the coming quarters.

Turning to lease restructurings. Now we have continued to see enhancements on this entrance, and requests for lodging have continued to say no. At the moment, we now have reached agreements with roughly 64% of our lessees to supply some type of lodging. Through the third quarter, our lease restructurings decreased complete revenues by roughly $27 million to the bottom stage we now have seen this 12 months. Moreover, I needed to spotlight that our urge for food to grant further lodging continues to decrease because the restoration additional takes maintain. And it’s our view that authorities ought to proceed to assist their airways throughout this very tough time as a result of air journey is so essential to their native economies. Lastly, as one other signal of the restoration, I do need to spotlight that we noticed a 30% improve year-to-date in working money circulate as in comparison with the prior 12 months.

This was immediately impacted by enhancements in our money assortment fee. Transitioning to plane gross sales, buying and selling and different exercise. Final quarter, we had talked about that we didn’t plan on promoting any plane through the interval. This was pushed primarily by manufacturing-related points, leading to plane manufacturing delays. This was not reflective of the state of the trade-sale marketplace for plane, which has remained sturdy for the final a number of months through the restoration, particularly for the age profile and kind of plane in our fleet. When evaluating to the prior 12 months, you will need to observe that we acknowledged $25 million in plane gross sales, buying and selling and different actions through the third quarter of final 12 months. Assuming plane deliveries proceed to enhance, we’d count on to renew promoting plane within the trade-sale market within the fourth quarter.

Transferring to bills. Curiosity expense elevated year-over-year, primarily because of the rise in our common debt balances pushed by the expansion of our fleet, partially offset by a decline in our composite value of funds. Our composite fee decreased to 2.8% from 3.1% within the third quarter 2020. Depreciation continues to trace the expansion of our fleet, whereas SG&A rose as we return to a extra normalized stage of working bills and distinction to decrease ranges witnessed through the pandemic. Our EPS of $0.87 was down year-over-year however continued to develop all through 2021 regardless of not promoting any plane. I additionally need to spotlight that regardless of these challenges of the pandemic, we’re nonetheless producing sturdy margins and returns on fairness, which ought to enhance as our prospects come off money foundation because the world recovers farther from the pandemic.

Lastly, I need to contact on our financing actions, which proceed to stay a robust level as in comparison with lots of our friends. We stay firmly devoted to sustaining an investment-grade stability sheet, using unsecured debt as a main type of financing, and we now have roughly $26 billion in unencumbered property at quarter finish. We ended the interval with a debt-to-equity ratio of two.7 instances on a GAAP foundation, which internet of money on the stability sheet is roughly 2.4 instances. We raised $1.1 billion in debt capital through the third quarter, comprised of $600 million in senior unsecured notes maturing in 2024 at 0.8% and $500 million of senior unsecured notes maturing in 2028 at 2.1%. These issuances characterize at or close to low report funding charges for ALC, supporting additional enchancment in our composite value of funds.

In early October, we tapped the popular fairness market this time elevating $300 million of fastened fee perpetual most well-liked inventory at 4.8%. Our third issuance within the house and at our lowest fee in our historical past. Most popular fairness stays a sexy type of financing and general funding combine, providing favorable charges for long-term capital in assist of our fleet progress, funding diversification and favorable score company remedy. We additionally elevated the capability of our revolving credit score facility by $50 million, growing our complete dedication to $6.5 billion. We proceed to count on to take care of elevated ranges of liquidity [Technical Issues] broader aviation market recovers. As we glance ahead, we count on to learn from the bettering plane demand atmosphere, the numerous worth we now have embedded in our order guide, worth that we anticipate realizing for the resumption of our plane gross sales program in addition to advantages we foresee monetizing from the present rate of interest atmosphere as we refinance near-term maturities with right this moment’s historic low financing charges. All of those elements we see serving as a significant tailwind to assist broaden margins and returns on fairness.

And with that, I’ll flip the decision again over to Jason for the question-and-answer session of the decision.

Jason ArnoldAssistant Vice President of Finance

Thanks, Greg. This concludes administration’s commentary and remarks. [Operator Instructions]

Now I might like handy the decision over to the operator to open up the road for Q&A. Katherine?

Questions and Solutions:

Operator

[Operator Instructions] And audio system, we now have our first query from Catherine O’Brien of Goldman Sachs.

Catherine O’BrienGoldman Sachs — Analyst

Hello. Good afternoon, everybody. Thanks for the time. In order we take into consideration the influence of ongoing delays at each Boeing and Airbus, ought to we assume you get caught up in some unspecified time in the future, whereby you would see possibly like 2022 or 2023 capex considerably increased than the plans specified by the 2019 10-Ok, as an example? Or are you anticipating the supply catch-up to be extra gradual? Or are we simply sort of see capex proceed to get rolled ahead possibly with a much less lumpy annual influence? Thanks.

Steven F. Udvar-HazyGovt Chairman of the Board

Nicely, the large query is the 787 state of affairs. This 12 months, we took Bolivia two 787-9s within the second quarter, which we leased on long-term contracts with China Southern. However since then, we now have not taken any 787s, not as a result of we do not need to. It is that Boeing has been unable to ship us the plane with certificates of airworthiness. So if there’s a restoration within the 787 deliveries subsequent 12 months, we may very well be taking a look at as many as 12 to fifteen 787s in 2022, which represents someplace within the order of $2 billion of capex. So there may very well be a catch-up most likely, I’d guess, within the second and third quarters of subsequent 12 months. Now Airbus is just about on schedule. They recovered from their disaster state of affairs in 2018 and ’19. And we’re seeing the A321 line now buzzing a little bit higher. We nonetheless have some small delays anyplace from 4 to seven weeks. And on the wide-body entrance, on A350 and A330neos, they’re very, very near being on schedule. So the large query mark is the 787. Our MAX deliveries are actually working pretty easily, and we anticipate that can proceed into 2022. So the eight-seven is the place we see the lumps and the uncertainty.

Catherine O’BrienGoldman Sachs — Analyst

Bought it. Thanks a lot for all that element. [Speech overlap]

Steven F. Udvar-HazyGovt Chairman of the Board

You are very welcome.

Catherine O’BrienGoldman Sachs — Analyst

Respect, Steve. So this one might be for Greg. Simply two modeling ones. You famous you noticed an incremental $5.4 million in income from airways on money accounting. Does that imply we should always count on to see that the 50 — excuse me, $42 million influence in money accounting from final quarter, is that going to begin to present up doubtlessly at some low cost fee over the following couple of quarters? Like from right here on out, money accounting ought to solely be a constructive? After which on the lease restructuring influence, you famous that the year-over-year influence within the third quarter was $26.6 million. Is that corresponding to the cumulative $45 million determine you gave final quarter? Imply the influence of lease restructurings really declined from final quarter? And if that is proper, how did that occur? Had you granted some non permanent aid that’s beginning to roll off? I do know that was like a 3 for one. So let me know if you’d like me to repeat something. Thanks a lot.

Gregory B. WillisGovt Vice President and Chief Monetary Officer

Let me begin with the money foundation stuff first. I imply I feel as we have stated all alongside, we have supposed to gather plenty of the overdue balances from our prospects which have gone on money foundation. So that is our first quarter the place we have really collected greater than what was due and, actually, recapturing previous receivables. I am unable to — we went wanting saying, sure, that ought to proceed to be the impact subsequent quarter. However I feel proper now, we need to see or anticipating continued volatility till we’re a little bit additional alongside within the restoration, proper? As a result of there may very well be hiccups alongside the best way with completely different particular person airways, which may push it again into the unfavourable. However general, I feel you are seeing a really constructive pattern in the truth that we’re recapturing our receivables. In that manner, it is really contributing positively greater than what it had been previously. To your query on restructuring, sure, it was decrease this quarter as in comparison with what it was final quarter in Q2. You are simply seeing the results of fewer restructurings being placed on, and I feel that is one other constructive signal. So in the event you like further readability, simply let me know past that.

Catherine O’BrienGoldman Sachs — Analyst

Thanks a lot for the time.

Operator

And audio system, we now have our subsequent query from Helane Becker of Cowen.

Helane BeckerCowen — Analyst

Thanks very a lot, operator. Hello everybody. Simply two questions right here. As we take into consideration the supply schedule for this quarter, is it mid-quarter, front-loaded, December? How ought to we take into consideration that?

Gregory B. WillisGovt Vice President and Chief Monetary Officer

Nicely, the best way I feel plenty of it is pushed towards the second half proper now. And hopefully, we’re in a position to take as a lot of it into the quarter as attainable. So it units ourselves up rather well for Q1.

Helane BeckerCowen — Analyst

Okay. After which the opposite query I’ve most likely for you, Greg, is on funding. So that you guys — you talked about went via the entire laundry record of funding that you have accomplished, and you have accomplished a very nice job elevating capital. So — as you — and I am unable to imagine I am asking this query. As you concentrate on rising rates of interest and borrowing at increased charges doubtlessly going ahead, whether or not — even when it is above your report low charges, how ought to we take into consideration your urge for food for elevating capital, I do not know, 2023, as an example, or 2022 second half?

Gregory B. WillisGovt Vice President and Chief Monetary Officer

Nicely, I imply, to start with, I feel it is necessary to notice, I feel we profit from a rising fee atmosphere, proper? As a result of I feel given our investment-grade profile and the power of our stability sheet, I feel we’re going to have the ability to borrow considerably cheaper than what our airline prospects borrow it. So I feel it isn’t horrible that charges are rising. However from my seat, clearly, I might prefer to see it low financing value as attainable. I do assume that we profit from two maturities coming due in January and February of subsequent 12 months at $700 million at 3.5% after which $600 million at 3.75%. We’re borrowing considerably within these ranges right this moment. I feel we will stay in an opportunistic lender. With the report ranges of liquidity we now have on the stability sheet permits us to time our issuance to have the ability to actually make the most of these low-funding home windows after they current themselves. So I feel you may see us be acutely aware. And I additionally assume as we proceed to get well, I feel we will proceed — we’ll most likely take down the extent of liquidity that we now have on our stability sheet as nicely.

John L. PluegerChief Govt Officer and President

Helane, it is also actually necessary to grasp that we now have rate of interest escalators and adjustors in our leases in all of our ahead placements. And these are one-way adjustors up. In order rates of interest do improve, we now have a mechanism proper earlier than supply to regulate the ultimate lease fee in all our 4 deliveries, and that is been a really — that is one thing we have been doing however is especially related given your query.

Helane BeckerCowen — Analyst

Sure. That is a very good level as a result of I feel traders generally are likely to neglect that you simply try this. And so I feel that is very useful. Okay. Nicely, thanks. Thanks very a lot, guys.

John L. PluegerChief Govt Officer and President

Thanks.

Operator

And audio system, our subsequent query from Jamie Baker of JPMorgan.

Jamie BakerJPMorgan — Analyst

Hello. Good afternoon, gents. So on this week’s DAE name, you already know the subject of order books got here up. And maybe you noticed a couple of weeks in the past in Edinburgh, Donald was speaking about how he wished he had by no means ordered — he would by no means make speculative wide-body orders ever once more, solely narrow-body. So Mark and I’ve been questioning, over the previous, I do not know, 18 months, as you concentrate on the aggressive shifts which can be going down, have you ever rethought the order guide technique in any respect? How far out you are keen to commit, the structure of the guide, stuff like that? I kind of thought that may have been the route that John was heading in a few of his ready remarks.

Steven F. Udvar-HazyGovt Chairman of the Board

Nicely, we regularly fine-tune our ratio of single-aisle and wide-body orders. I imply that is an ongoing course of. And I feel going ahead, we’ll most likely have considerably increased ratio of single aisles to vast our bodies. We nonetheless have a reasonably good wide-body backlog on 787s, A330s and A350s. Now most of those have been positioned. We even have very, only a few unplaced wide-bodies there in our backlog. However I feel we will put extra emphasis going ahead on the most well-liked and fascinating single-aisle plane the place we’re additionally seeing the strongest enhancements in lease charges and lease fee elements, not less than for the following two or three years.

Jamie BakerJPMorgan — Analyst

Nicely, that is really — thanks, Steve. And that is really a very good segue into my second query as a result of given the traits that you simply recognized, given what we’re seeing all over the world, notably when it comes to shorter haul demand traits and the way shortly they’re ramping. If we glance out two to 3 years, how involved ought to we be a couple of potential narrow-body scarcity if Boeing and Airbus do not ramp up manufacturing quick sufficient?

Steven F. Udvar-HazyGovt Chairman of the Board

Nicely, demand already is bigger than provide, I imply, as we glance out over the following 24 months. We ourselves have extra requests coming in than we are able to deal with. So we have to be extra selective, extra disciplined, extra strategically oriented. However a lessor, having each wide-body and single-aisle functionality with main airways, is a large aggressive benefit. So I do not agree with Mr. Slattery on his remark that he needs he by no means ordered any wide-bodies. That is simply not — it is an oversimplification, and it demonstrates a lack of expertise of {the marketplace}.

John L. PluegerChief Govt Officer and President

Jamie, let me simply add to your query on how far out. Nicely, our present orders, that do exit via 2026. I discussed in our ready remarks that we’re wanting ahead at capital allocation. And so as a result of they’re — notably on the 320, 21neo, mainly, Airbus is out of positions via 2025. So ought to we determine to put any new orders, you possibly can count on — with both Boeing or Airbus, it’s best to count on us to have the ability to most likely exit a couple of extra years past 2026, so that might be regular for us. And let me simply remind everyone, we now have now positioned 67% of our complete order guide. So these are issues in consideration, however we — I do not assume — I do not ever see us dropping wide-body orders.

As Steve identified, we’re most likely going to emphasise single aisles extra. However in the long run, which is how we have at all times run this enterprise, vast our bodies will at all times have a job. And there is plenty of airline CEOs that really feel that when these worldwide markets open up, you are going to see simply precisely the extent of surge in demand that we’re seeing right this moment. You are seeing U.S. airways cancel flights all over due to this demand. They don’t seem to be being ready for it. That demand must be fueled by plane, together with wide-body plane.

Jamie BakerJPMorgan — Analyst

Steve and John, thanks very a lot for the colour.. Mark and I look ahead to see you quickly. Take care.

John L. PluegerChief Govt Officer and President

See you, guys.

Operator

And audio system, our subsequent query from Moshe Orenbuch of Credit score Suisse.

Moshe OrenbuchCredit score Suisse — Analyst

Nice. Thanks. I used to be simply hoping you would discuss a little bit bit, John, concerning the feedback that you simply made about rethinking capital allocation and what kinds of issues that might entail.

John L. PluegerChief Govt Officer and President

Positive. Nicely, as I stated in my ready remarks, traditionally, Air Lease Company has at all times decided that one of the best use of our capital — our shareholders’ capital is to spend money on new plane on long-term leases, with essentially the most fashionable expertise. And I additionally commented that we do not assume that, that is modified. However this 12 months, our Board additionally approved — did a modest share buyback authorization, and we take a look at that as nicely. So broadly, these two classes, additional plane investments, mixed with our potential inventory buyback and our approved inventory buyback program in addition to growing the dividends.

So these are the three broad classes that we focus in on taking a look at capital allocation. Having stated that, we proceed to observe the panorama very, very intently for any opportunistic capabilities to purchase new plane, probably even a merger right here or there, though traditionally, ALC has not discovered any compelling alternatives there. So all avenues stay open, and we proceed to deal with these intensely. So I’d say there’s actually nothing new on this regard than what we have already been doing.

Moshe OrenbuchCredit score Suisse — Analyst

Bought it. Okay. And possibly simply to sort of comply with up on that theme a little bit bit, you probably did point out additionally that you’d doubtlessly be beginning to promote plane within the fourth quarter. Might you discuss a little bit bit about how that — what you see as the results there? What forms of planes are you promoting? Is {that a} option to sort of speed up a number of the restructuring put up COVID? Are you able to simply discuss to that a little bit bit? Thanks.

John L. PluegerChief Govt Officer and President

Sure. Nicely, definitely, we now have a younger fleet. We’re often known as to having a younger fleet. However as these plane age, new plane are available, and so we usually look to promote plane which can be kind of within the — they begin being candidates on the market at kind of 5 years, six years, and so they nonetheless have a number of lease time period remaining. What’s good now about even in comparison with three or 4 years in the past is within the final a number of years, we have really been lengthening out most of our lease phrases additionally on the one aisles. One of many ways in which a lessee will get the bottom lease charges from us or nearly all lessors is to elongate out the lease time period. So to get that, we have been writing considerably longer leases out to 12 years on the one aisle. And that actually helps fairly a bit the attractiveness on the subject of promoting plane which can be 5, six, seven years of age, you bought much more lease time period remaining. So I feel throughout the board, we now have really turned down.

Now we have much more — as Steve commented, we now have extra lease demand than provide. I’d additionally say it has been our acutely aware alternative as we now have not been in a position to spend as a lot capital as we needed to due to the manufacturing points. We’re those which can be throttled again. However as we see this going ahead, Steve talked about Airbus is just about on time. We’re just about on time with the MAXs. We’re behind on the 787s for the manufacturing freeze ranges. I see us assuming a extra regular profile of gross sales going ahead whereby we could do a further administration platform like one other Thunderbolt. We could type some new relationships and new administration platforms. However just about throughout the board, together with some wide-body gross sales, that is how we’ll be seeking to normalize. We’ll mix essentially the most optimum gross sales to us as these plane age with a couple of vast our bodies. We’ll additionally search for new gross sales platform. So nothing notably new. I feel it is only a resumption of the gross sales program. And the philosophy that we have at all times had is simply that we have held off on objective for now resulting from our decrease capex.

Moshe OrenbuchCredit score Suisse — Analyst

Okay. Thanks very a lot.

John L. PluegerChief Govt Officer and President

Sure. Positive.

Steven F. Udvar-HazyGovt Chairman of the Board

And including to John’s feedback, I need to emphasize that we have considerably expanded our administration enterprise for third events of managing plane property. And within the coming years that can preserve going up. Now we have, I imagine, greater than 100 plane now that we handle to 3rd events. Now we have new plane and used plane that a few of these managed automobiles have acquired and can purchase on sale-leasebacks and thru different transactions that we now have structured. In order that’s going to be an incremental income and earnings to complement our core leasing enterprise, and we’ll generate money that we are able to then redeploy in both shopping for again our inventory, shopping for again extra airplanes and growing our dividend. So our administration enterprise is rising and is extraordinarily worthwhile.

Moshe OrenbuchCredit score Suisse — Analyst

Bought it. Thanks, Steve.

Operator

And audio system, we now have our subsequent query from Vincent Caintic of Stephens.

Vincent CainticStephens — Analyst

Okay. Thanks, good afternoon. Thanks for taking my questions. First query is definitely sort of extra of a follow-up. So actually good rental revenues, $520 million. And in order that’s up $6 million to $8 million quarter-over-quarter. I assume possibly simply making an attempt to bridge the delta. So you’ve got received, I assume, about $45 million of money accounting that has come again. I used to be questioning if that $45 million, is that sort of an accumulation of prior quantities that had been owed, so we should not be anticipating that $45 million going ahead? Or if the $520 million is the best quantity to be — after we’re fascinated by rental earnings progress going ahead?

John L. PluegerChief Govt Officer and President

Greg?

Gregory B. WillisGovt Vice President and Chief Monetary Officer

Sure. So the quantity contains about $5 million incremental above the common schedule. So that is the recapture of prior receivables, which I feel is a very constructive factor. After which wanting ahead, as I discussed earlier, it is a little bit powerful to say as to how a lot of that incremental will probably be there subsequent 12 months or if it goes again the opposite manner. Quite a lot of it depends upon how the restoration performs out. So clearly, because the restoration will get higher, we count on to see increasingly more constructive recapture, however we will have to take a seat right here and wait as a result of it is too quickly to say how it’ll form out subsequent quarter.

Vincent CainticStephens — Analyst

Okay. Very useful. Thanks. And so second query, simply sort of a broad query on the atmosphere for plane demand. And possibly making an attempt to place it sort of possibly in comparison with pre-pandemic ranges. I do know possibly demand is likely to be not as sturdy as pre-pandemic ranges. However given the extent of — it looks as if there’s not sufficient provide and that you simply had been getting extra demand relative to the quantity of provide you possibly can present for the following two years. Is that this atmosphere could also be comparatively stronger for leasing platforms similar to your self, simply sort of possibly making an attempt to place a body of reference round it.

John L. PluegerChief Govt Officer and President

Nicely, I feel we tried to cowl that Vincent in our remarks. I feel particularly what I stated was that for narrow-body plane, we’re at or, in some circumstances, above pre-pandemic stage for some plane sorts. And once more, I identified a specific power within the 320 and 21neo, however with that additionally restoration within the MAX and the A220. So I feel the underside line is, sure, we’re — we now have extra demand sitting right here right this moment on the one aisle and narrow-body facet than we now have provide. And other people — due to that, persons are all — airways need to place additional and additional out. And I assume it is a good factor. However not stunning, the provision and demand guidelines kick in.

And that is one of many the explanation why lease charges are going up. So definitely, over the following couple of years, we’re mainly out when it comes to the brand new plane facet. And if we are able to get some extra right here or there, tremendous. However so far as our order guide, within the subsequent 24 months, we’re positioned. We’re accomplished. And now we’re simply specializing in the out-years, primarily finish of ’23, ’24 — I am sorry, ’24, ’25. We’re even having some discussions about ’26. So I feel it reveals you the way far ahead the airways need to meet what they fervently imagine goes to be a really excessive demand interval.

Vincent CainticStephens — Analyst

Okay. Thanks. And so possibly simply to sum it up, would you say that from a requirement perspective and from a, I assume, like a lease fee perspective that we’d sort of be again to pre-pandemic ranges?

John L. PluegerChief Govt Officer and President

I do not assume the MAX is sort of but to the pre-pandemic stage, however it’s climbing properly, and I count on it to be again that manner very, very quickly. And I feel on the — definitely on the 320, 21neo, sure, I feel that is the case. I feel we’re most likely above pre-pandemic ranges in lease charges as we sit right here right this moment.

Vincent CainticStephens — Analyst

Nice. Very useful. Thanks a lot.

Operator

And our subsequent query from Hillary Cacanando of Deutsche Financial institution.

Hillary CacanandoDeutsche Financial institution — Analyst

Hello. Thanks for taking my questions. I needed to ask about Vietnam. While you stated you reached a decision with Vietnam Airways and — however you are not — you are still unsure if there’ll nonetheless be on a money foundation accounting subsequent quarter, does that imply lease restructuring is off the desk and that they’re going to doubtless to return to accrual? Should you may simply present a little bit extra shade there? Thanks.

John L. PluegerChief Govt Officer and President

Greg, do you need to cowl that?

Gregory B. WillisGovt Vice President and Chief Monetary Officer

I am going to take a primary step and be happy so as to add on, nicely, Steve and John. I imply, to me, we reached settlement, which is a superb factor. They have been paying. They have been honoring their settlement, however issues are nonetheless very powerful for them proper now. So we’re preserving a really shut eye to see how issues shake out. And till we now have extra info, we’re not — stated in another way, we’re not able to make the choice to drag them off a money foundation simply but. However we’ll have extra info for you on our subsequent name in February.

Hillary CacanandoDeutsche Financial institution — Analyst

Okay. So I assume it is cheap to nonetheless assume that they’re going to be on money foundation accounting for the following — not less than for the following quarter or two?

Steven F. Udvar-HazyGovt Chairman of the Board

That is possibly going a little bit too far assumptions. Look, we’re watching it week to week, and issues can flip very quickly when it comes to site visitors restoration, which is able to then generate enough earnings for them that they do not want authorities funding or authorities assist from Vietnam. And that time, we must be on a way more clear pathway going ahead. So I feel two quarters is likely to be a little bit bit too far out. I feel we should always normalize primarily based on all the pieces we see within the early months of 2022.

Hillary CacanandoDeutsche Financial institution — Analyst

Okay. Bought it. Bought it. After which simply as a follow-up, you probably did a sale-leaseback transaction with Spirit Airways through the quarter. I used to be simply questioning why we’ve not seen extra SLB transactions, possibly — notably possibly in Asia the place the airways, they’ll undoubtedly profit by getting some wanted liquidity via SLB transactions. Simply — is it simply not a aggressive market?

Steven F. Udvar-HazyGovt Chairman of the Board

Nicely, factual correction, we didn’t do a sale-leaseback of our personal plane with Spirit. The transaction we did with Spirit, and I used to be critically concerned in placing that deal collectively, is we lease them 10 model new A321neos from ALC’s order guide, and we organized one in all our companions in our managed enterprise to accumulate with their very own funding 5 A320neos, which I imagine two are imagined to ship between now and the tip of the 12 months. And so we acted as a supervisor, facilitator of these 5 plane, however we had no capital invested in these plane. We merely get charges for placing the transaction collectively after which charges on an ongoing foundation from the lease leases. However the plane that got here from our order guide had been all simply direct long-term leases from our pipeline.

John L. PluegerChief Govt Officer and President

And so far as Asia goes to your query, look, Asia stays the final broad geographic area to actually meaningfully get well. I cited reopenings now in Singapore, in India and in Australasia, down in Australia and New Zealand, however we nonetheless need to have a reopening of orders in Korea and Taiwan and Vietnam notably. And throughout the area, it is a single largest area on the planet. So till that occurs, I do not assume we will see a complete lot of sale-leaseback exercise there as they stunning a lot shut issues down. Till they begin opening up and have the sense of higher progress of their site visitors flows, I feel it is really fairly pure. We’ve not seen a complete lot of sale-leaseback transactions out of Asia.

Hillary CacanandoDeutsche Financial institution — Analyst

Okay. Bought it. That is very useful. Thanks a lot.

John L. PluegerChief Govt Officer and President

Positive.

Operator

And audio system, we now have our follow-up query from Catherine O’Brien of Goldman Sachs.

Catherine O’BrienGoldman Sachs — Analyst

Thanks a lot for the additional time. So I notice the airways are nonetheless coping with COVID and fleet plans are 25-year selections, even when possibly the choice to lease a person plane could have a shorter time pricing. However like, usually talking, once you see gas costs improve shortly, does that positively influence your inbound name quantity? It appeared like from the ready remarks, the reply might be sure. And possibly then on a associated matter, are you able to simply assist body how far more ESG is a part of fleet planning conversations right this moment versus two, three years in the past, whether it is, actually, an even bigger piece? Thanks a lot.

Steven F. Udvar-HazyGovt Chairman of the Board

Sure. Sure. The ESG state of affairs, notably in Europe and North America and the rise in oil costs and the speed of improve in jet gas value for the reason that starting of the 12 months, has actually refocused plenty of airways to speed up their fleet planning course of and to take a way more proactive take a look at modernizing their fleet faster than they had been planning on doing again, say, in 2019. So all of that sort of comes collectively in what we have been saying within the final 45 minutes is that demand is now up, manner up past our expectations. And so due to this fact, essentially the most fascinating, fuel-efficient, environmentally pleasant plane are those which can be going to realize the best returns. And Air Lease will probably be a beneficiary of that for a few years to come back.

Catherine O’BrienGoldman Sachs — Analyst

Bought it. And so you’re seeing airways actively maybe look to possibly refresh fleets at a quicker fee than they could have traditionally to satisfy…

Steven F. Udvar-HazyGovt Chairman of the Board

Sure. The substitute cycle has accelerated by the upper value of gas and likewise by the ESG points. For instance, in Europe, in the event you fly a 737-800 into Heathrow, the touchdown charges and fees are x, to fly a MAX 737, they’re considerably decrease. So airways have a value profit, not simply from gas consumption, but additionally from decrease touchdown charges and dealing with fees at airports. So once you put the 2 collectively, that is plenty of money financial savings and direct working prices.

John L. PluegerChief Govt Officer and President

Possibly a easy manner to take a look at it’s that if gas costs hadn’t gone — been going up, in the event that they remained low, already, sure, we had been seeing fleet replacements for ESG functions. However now you add on high of that escalating gas costs and any airways that may have been a little bit on the fence on this regard have simply accelerated, and that is simply offered a further accelerant.

Catherine O’BrienGoldman Sachs — Analyst

That is nice. Very fascinating. Glad I hopped again on. Thanks a lot.

Operator

And there aren’t any additional questions at the moment. I’ll now flip the decision over again to Jason Arnold, AVP, Finance, for closing feedback.

Jason ArnoldAssistant Vice President of Finance

Thanks, Katherine, and thanks, everybody, on your time taking part in our third quarter name right this moment. We look ahead to talking with you once more after we report fourth quarter outcomes. Operator, thanks, and please disconnect the road.

Operator

[Operator closing remarks]

Length: 53 minutes

Name members:

Jason ArnoldAssistant Vice President of Finance

John L. PluegerChief Govt Officer and President

Gregory B. WillisGovt Vice President and Chief Monetary Officer

Steven F. Udvar-HazyGovt Chairman of the Board

Catherine O’BrienGoldman Sachs — Analyst

Helane BeckerCowen — Analyst

Jamie BakerJPMorgan — Analyst

Moshe OrenbuchCredit score Suisse — Analyst

Vincent CainticStephens — Analyst

Hillary CacanandoDeutsche Financial institution — Analyst

Extra AL evaluation

All earnings name transcripts

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