Aircastle (AYR) 7 Aug 182018 Q2 Earnings call transcript

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Aircastle Second Quarter 2018 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Frank Constantinople. sir. ahead, go Please

release Officer, presentation. Good along those facts XXXX results and today could everyone and that but earnings Executive will will presentation Chief and Inglese, Kathryn. Officer. Chief Limited's begin We’ll actual our through be are statement to the today remind are call website. from certain second Chief detailed the Financial Dahlke, to to results or Aircastle materially cause statements SEC on from are would materially with Aaron to quarter deemed call. earnings Officer; our in Mike Mike being call in morning, earnings forward-looking you, Kriedberg, release our that welcome the estimates which expectations can found may I www.aircastle.com, may now Commercial press everyone, direct Inglese. not turn Aircastle shortly, you Aircastle Mike the and statements differ And Thank be we’ll With for statements. also would PowerPoint full Limited's I point I to recorded to is over filings, Actual our historical available facts website the Limited's this which like out and differ expressed legend. be replay like at the that forward-looking expectations me

at for XXXX were had current trends is earnings emerging economic of shape; markets developed and technology Thank narrow-body you, strong are and half We the Frank. markets first demand Business solid; everyone good And the lease Global XXXX call. positive. welcome was remain rate; quarter airline continue great grow to healthy profitability the aircraft robust. second in a second the in Aircastle’s a to quarter. fundamentals overall

talk and We $X.XX. net per me $X.XX Let about of share adjusted reported per our results. earnings share QX income of briefly

the June and over while first year, the X%, end at was book per our six book increased averaged XXXX value of the through of yield value share rate at has X.X%. $XX.XX, dividend of Our months annualized an

XX-month of was recent cash ROE XX.X% most Our at second the was the XX.X%. and quarter ROE GAAP end

We representing continue of on selected current the aircraft strong take investments. demand sold advantage assets market from aircraft million, gains to and over sales. the be of total represented $XX.X our long-term XXXX, of profitably the focused conditions than of is XX.X% $XXX average. higher proceeds about X% proceeds over growth formed generated was months six considerably first Since gains disciplined Through of million $XXX offering long-term of to about for of million and Aircastle which

profiles. spending current acquired half $XXX return first to sell, XX invest years eight for and narrow-body adjusted more of wish years the with liquid age eight we aircraft and better to with operated aircrafts, consider long-term continue have aircraft risk generation million sold XX market we on average narrow-body we is good broadly mid-aged an which in about more While old. Through of average XXXX, of and

have to second billion comprises tech current on aircraft of committed narrow-bodies At aircraft have fleet value believe narrow-bodies freighter, acquire are units, have $X.X For for end XX% narrow-bodies. than many we fleet representing narrow-body transition. or net full-year, being our our the ago, because XX of XXX versus and XX% these XXX expensive gen the more focused owned our mid-aged a more million of wide-body risky and to they five and book less of of total acquired easier aircraft $X than and is transaction operators years we've less narrow-bodies, the current of total all probably additional pipeline quarter,

at and the the we results operating XX.X% on ground very high financial quarter no at end were Utilization quarter. and of remained second strong. aircraft Our had

We remaining aircraft of place in book XXXX and about X% this value. year narrow-body net have no XX aircraft left representing to just

we includes a our aircraft, As strong grade million further average price the possible ability June revolving enhances Fitch. priced upgrade also our and for to we and and important narrow-body extend of the of allocation $X.X facility credit operational liquidity, margin $XX Obtaining $XXX placed the and In investment points. from common fleet June, a and on from S&P strong and million on ratings acquiring result already investment capital grade this also access by by rating growth. May, repurchased our XX we capability, June, awarded financial increased XXXX commitments, on significant Right In of more basis an million in reduced in billion base profitable more of is borrowing Moody's XXXX an $XXX grade. as were competitively our market now, performance, of paying support common investment maturity our than importantly more milestone liquidity in of moderate million, $XX.X capital the late at to facility up shares shares and our dividends broadens than our were of forward review to $XX.XX.

return quarter, the milestone went public of During to August crossed XXXX. investors the reached Aircastle we for another our over $X billion second of total in since threshold when shareholders capital we

repurchased business a cash paid shares. now our with total As for of dividends in value of investors consistently the growing profitable $XXX for is million a focus accretive returns conservative, and Aircastle on creating a million than our long-term generating public more in manner. a company, and $XXX we've strong

our $X.XX from of Bank, per share share. According to XX. Since minutes of business on $X.XX shareholders, September of to remains quarter our few per the environment times Board Directors of XXXX, the I dividend dividend very philosophy share we've to the increased macro Given providing payable return a per World $X.XX now a with is quarterly The environment. storage showed supply. a spend revenue will regular eight X.X%. growth the the current May over on through healthy. approved XX consecutive capital of the most aircraft growth traffic XX% very beginning and forecast GDP period, XXXX remain global X.X% in air strong. Airlines well of averaging since to narrow-body continuing IATA low Load be factors forecast continue around same XXXX and year high, very short recent world the remain passenger continue profit to perform and our current IATA industry the rates aircraft results

of and up over We’re an The prices is is on peak. keeping XX% historical Fuel quite the oil points jet still X% below XXXX. eye fuel currencies, the broad of up And beginning end. the spot price since is X%, low XX% still against the while the rates, for interest of end standards. about dollar finally since has XXXX treasury year since XX-year almost by basis strengthened year below the basket the which XX while is approximately

The gains demand closing, aircraft We driving that conditions with monitor fundamental customers. strong are closely good. remain our fundamentals quite placement our narrow-body aircraft of traffic and Overall we leasing strength In of along aircraft the growth from The on are global continue the to lease strong higher impact and oil for fleet. to dollar positive aircraft. environment air traffic the has business. examples market from sales, generate of the the economy the and of strong strength been

GDP. to grow to expect air global faster traffic than We continue

value continue we strategy We focused is take mid-age trend. will expect in strong expect leasing to long-term the that advantage shareholder deliver narrow-body aircraft on the current benefit aircrafts disciplined to and in demand demand for technology from Aircastle for to investing this aircraft.

investment I newly QX platform, the well-positioned earned grow turn the high capital future. the our for Aaron profitable growth quality briefly we’re now XXXX conservative with structure guidance. will first and We’re enable will call in grade in to and along to results us over to confident that ratings review quarter value

Mike. Thanks

quarter be had strong. profitable Mike earnings another and we to core indicated our As continue

Our performance. strong towards approach growth disciplined bottom the led line

net For higher the share was the EBITDA $X.XX was was of in $X.XX $X.XX at year. per share of prior XX% per while income of $XXX.X diluted $XXX.X million decrease last income million, net year. $X.XX a Adjusted or EBITDA million diluted net loss share per Adjusted $XX.X versus million. XX% a or $XX.X quarter, versus

Our ROE was was and for ROE XX.X% the XX-month only XX.X%. cash quarter GAAP

Our core continue to be strong. earnings

sales-type that were XX%, revenue in due in to into second greater due due which lower $XX.X of Expenses quarter revenues or quarter In due translated one Interest that of and declined second quarter revenue extensions increase our were total no annual the past from of up transitioned year’s margin prior million, we the by were wide-body our related by no lease primarily revenues due year-to-date. of $XXX.X from quarter. on disposition fleet lower Depreciation growing quarter, XXXX, quarter we primarily slight to with to sold. strong of million $X.X completed had margin the revenues with down million in Total second coupon second the declined decrease with lease compensation on aircraft a Total our SG&A, and which rentals the due over production We million million, charges we of wide-bodies, $X.X year-over-year monitoring maintenance primarily versus million. sales to the charges April revenue maintenance in maintenance our approximately lower period approximately $XX.X for review XXXX of XXXX X%. XXXX with prior to quarter, associated $XX.X driven along sold lower to list. and a QX aircrafts recorded lower million our XXXX. Former wide-body on in and $XXX gain and in second with impairment half associated were is million, SG&A sales balance decreased million expense over $XX.X this aircraft in depreciation a sales. of primarily the a XXXX. was by million interest, of versus freighter of our twice XXXX primarily million versus QX impairment aircraft, the aircraft the first the year quarter million opportunistic quarter on as $X.X no first during of debt This in aircraft $XX.X debt that and by expense our we For the base. lease late finance, a year. sequentially historical we refinanced to $X.X the XX% accretive proceeds Along lower, XXXX. QX net gains added second XX% CEO. to in asset sale $XXX.X We’ve Total

on capital in ratings raised from to May our 'BBB-' structure, unsecured senior S&P our debt Aircastle Limited to Turning 'BB+'. a

addition Ratings unsecured upgrade. Aircastle's of placed while to an assigned BaX Service Aircastle senior unsecured rating senior for family and corporate recently Moody's possible debt, ratings Fitch BaX initial review 'BBB-' In Investors on

which of expand grade and assigned of net is newly were billion, investment to a our base ratings our our borrowings debt expect liquidity times. ratio credit and We Total enhance X.X at debt remain will XX% unsecured our profile. equity $X.X investor low

ended Our debt a maturity is We our margin was interest weighted-average coupon cash with X.X the net with quarter of weighted-average X.X%. years X%.

We with capacity. cash, of also nearly $X of $XXX billion ended liquidity the quarter unused $XXX million million unrestricted credit of revolving with

June, our years to June $X.X the million totals maturity by currently from million more facility revolver the aircraft unsecured size unencumbered XXXX. billion. extended Our $XXX U.S. In we and two of increased $XXX than

borrowing We of the our per also our we've XX% value $XX.XX points. is X, XX shares of margin on basis average repurchased of per share. and facility share, million Through which by book reduced cost $XX.X August

the We third $XX for have guidance repurchase share quarter current authorization. usual our million under provided We elements XXXX. remaining of the

revenue To maintenance no to to good quarter. to no developed quarter. quarter are QX following account transition which that shift we continue we and aircraft could during little the second growth and momentum have on summarize, expect the a to in wide saw XXXX. sale range sales profitable accretive Gains have again we very for had scheduled in as We a profitable for

committed strong capital now are remain to for a our disciplined open sheet balance allocation up approach that, we call of and pipeline operator for the Our we benefit investors. questions. can With the and

with will Securities. Wells first Liebowitz Our question Fargo Instructions] [Operator from come Gary you. Thank

combination whether you you, for on Mike operator. placements and some the an pending EX give not satisfactory? of be open so new you the could think up can Boeing your order and Embraer update us Thank that Thank placements possibilities you.

Sure.

these from satisfactory and deal recently that Boeing's as enhance Embraer to competitiveness as EX When the programs, the think So Embraer Airbus this EX the at frankly benefit competitiveness announced both and call, in program. LOI the will we of ability spoke with of this will expect in Boeing's not they're the And in think large airlines validated time. it program drive think done But to the aircraft. these three talked do place of having We that with them on OEMs be an point going like between savings about have had C-Series, forward. power last and and cost approach the we their enhance of it from to we we'd suppliers. response Boeing we yes, having we with marketing will sort the for

During time that come LOI this not to intervening has fruition.

still we have have this year. like as we been bringing airlines, in So would through under hope have move seen we some compared of time, and we at the announcement to to second did will an in those we are point dialogues increase the of the number accelerate fruition with of help where placed the half Boeing but to

those it mid-life people the for My that for Is rise in is, question back? still pull rates update. has start or you competition to Thanks extremely make interest are Okay. seeing bidding that narrow-bodies some prefer? you competitive other new the

think sector aircraft spectrum been some mid-aged We financing level across participate has the lessors sale often as sales I from mid-aged And competitive you've competition very ABS seen number capability of in market competitors. a leaseback of not ABS/E-note well. the aircraft. gives it's new in a particularly the and from bigger we're still for to the Look environment market very increased occurring competitive. The the market don't because of has robust age

have transacted us. may who with people Some business

the to yet. So of still marketplace increase of hasn’t rates in in strong, a the have just beginning year changed lot since the competition the behavior is appeared interest the

much. you Thank very

Thank you.

next question Cowen. come Our Helane from with Becker will

How guys. Helane. Hey you? are in Conor It’s for actually

How doing Good. are you Conor?

Good.

for payment just Also Brexit, fairly Brazil UK the due recent a maybe mean Has on fuel settlement? of Just remains around the there with large so in your and the there just part to customers, your just first also largest too? you, your FX position any is months rising exposure. thoughts been I Thanks. issues

Sure.

that related Oil to bit quarter pretty hit quarters. of have prior noticed that So was outstanding was hard our than customers Latin FX. a that AR was of is you in America by percentage in fair probably it increase higher this A one and deposits that to AR their within occurred back on be there and security and they're our track package in appear operating still reserves improvement plans. get spring, appropriate maintenance events mitigate steps to taking with balance profitability the security effects and local and of these sheet our

Our exposure for aircraft modern these there's narrow-body interest and types is a the aircraft strong around of largely world.

So all with demand. while and we're airline we able where things. working right that and do will the manager thing the go right things the they’re we those doing we'll assets that asset don't think to If will redeploy be do way, professional they're in highest any

context Brexit, to of it there. an we're respect With obviously happening on what's keeping in the eye

there of being leases but they on exposure political across narrow-bodies have credit this part just is do much with of context biggest Our and more is XX we early customers EasyJet, perspective, a the issue, decade. which our the EasyJet the watching run the the we British which how in There's it not into events next can certainly and largest not and unfold. BA that

you, directly downturn Okay, remain or for profitability healthy. then great. your strategy you and do almost and have disappointed just ask grade thoughts a all IATA that to returns that little purchase maybe to Are you have yourself investment We reason are the to curious aircraft available a sheet. on guys those to kind the data sheet, them? a And balance growth from capital pretty Just I more? be ability not overall? mean you I airline new positioning OEMs realized very on you an the your with the direct of the bit continue you because in with now on make balance need have remains to only where you the across like cycle Thanks. the

that a our approach frankly wisdom narrow-bodies XXXX in start that don't perspective Sure. capabilities new the Thinking to order wanted if the see about our new today in marketplace. XXXX, the and delivering I to I in orders, from and

a the in are be in we this lot where continues We've exactly run investing asset sector. there in know are long a don't to I cycle interest values cycle. So strong, here, had very of

there a and those good little they today Someday a to be along be appear. wobbles and will advantage of less position way wobbles the then to to be that will in start some of we'd capital to things are and when like access take disciplined being by having

could deliveries, just just that in fourth quarter? Thank more modeling give the one where just for and may you just in, the half us timing second I in Okay. you purposes third the If a of terms can sneak again. fall little of

it’s the topic. into the the I I the fourth be fair a probably third balance would in be going the that quarter Look can quarter kind probably to think about late bit of color then on give falling and is – best

Perfect. you. Thank

Thank you.

will We to Capital. with Macquarie Susan on continue Donofrio

Yes. Good morning, everyone.

on as modeling you looking can about guess for at We're purposes. How think for impairment. the and look model? sale any gain better now just been hasn't wondering to really quarters I as couple that there margins said we Just

gains to in to about it’s long-term hard sales. on very for and chair Look how sit your think model

I fleet. recoverability our no earlier, review we the look talked think did We we – for impairments. from as about recorded a

list We last the of as a actions year we've have taking no assets monitoring so. on or our result been over the

at a of frankly and spread timing. last margin if where the you sustainable get on XX% on from been years were some don't few of I I in be perspective, think registering kind sale I basis. I'd look gain to – expect we've to try a

I happens. forward. line recent the again, and longer rather chair, that I in when specific average your if I'd any it extrapolating frankly term be I at trend think than particular its And very was looking asset –

you. Thank great. Okay,

you. Thank

Our next from comes Credit with Suisse. Moshe question Orenbuch

Great, thanks.

So are of else from lease guidance out added in the QX is But assets lease late is the said anything on quarter. lot for you improving being there helping revenues this standpoint? a of going your that kind there from rate the are Is quarter. that

be concepts it's expect and – third how the what during the the QX. just and when into I think in up closed we quarter to that’s then we rolling in second quarter rolling

market – and that interest whether that before we're the Thanks. And this when concepts whether to and some in about of terms any on of higher into translated the on just call one is rates lease be? we've raising portfolio about thoughts get kind point going rates talked and others at that of question would see

time. So, think I theoretically the how rates we reasonable it's happen. how seems the I because rising markets of I Again sustain in think would be is quarters that look rates play. a into that few to of in timeframe, different rate to going talked world If margins that we’re GDP in between lag. pretty up lag you to It's to that telling places, rise and that’s four have increases that these business of going be and where like those exactly cycle three the growth that that's but over kind of guess reasonable of a quarters not Yes, funding a cost financing or in reasonable to economics clear. at. some There translate rates or the interest will expect around this the will expect helps early it's

thoughts to XX% think you've obviously being the so like, quarter, Great. we And growth do it forward? should it? got we below in of see we a we I how of any reasonable about as about repurchase Is kind assets book share of and go mean pleased start how function think were that this

translate we to will don't over it market allocations business to on think when as going a the I always time. a opportunistic higher see of to it an trend But makes of we do that we're basis sense. tactical in approach and a think think market growing into I and Look, value into a profitably capital probably should ultimately more which the place continue get then we to

so thanks Great, much.

Thank you.

Valentin question Our Compass Scott next with from Point. comes

question. my taking for thanks and you, Thank

Good morning, Scott.

other lessors the you're where just finding or CapEx, airlines, finding the wondering the you’re wondering where just Is On opportunities? it aircraft?

in lessors I a that time, always But months, years XX direct percentage last mix mix with ago say It's over a airlines. in was from higher would probably a the other and higher it’s other direction. been X.X

lessors from XXXX would likely But So I both we're percentage say, other airlines at will with in a opportunities. engaged come direct and with in looking bigger XXXX and airlines. and lessors then existing

been then probably trending higher? the stabilizes Did wondering Okay. IG rating which on time as now. as has think portfolio, little at derisk a down a mix or with And the you the cash X.X% aircraft margin, of well bit it’s here over the that interest maybe

frankly of translates in a second to of the and out, to that at I Look, go finance what we I have have we it's absolute see. and into acquisition yield to half think expect a rates what what's the the to hard a book have I we'll in topline visibility order when to pipeline in year buy. reasonable given we market later to because the is predict do this sense think what what our will some in what we have general refinancing terms be and of on it will I that point year discover own. something rates for interest probably happen how don't going clear I and move as do And

mix my is driver the So and of be somewhere realities bounce in get where short-term, may but the more rates. it the compression will the the funding is. around than it's mix of guess to It little going that a topline probably

of maybe or airline – their – capacity seeing question, macro less are when – prices Okay, for is terms kind it all airlines demand, higher just to just cutting to at forecasts one you that airlines it passenger you specific? follow-up just thanks airfares, growth airlines, due outlook, and anticipating speak just is higher in customers, by of one-offs more different reports of some And there's fuel been the some back of that.

Kriedberg. Mike is This No.

demand lot We the fact of demand of in a really in and good powered. for increased we've any It's midlife CFM aircraft. seen seen XXX haven't for that

at any we So affect point. haven’t seen that of this

very much. thanks right, All

Scott. Thanks

next We’ll with our JPMorgan. take question from Baker Jamie

and Nish Mani Airbus and for get thoughts of of AXXX the morning, kind being good Jamie. on of can guys. This some commentary on your on light a hoping in I'm launch of what and the of getting Hey, into AXXX you kind a cons the is that down that is pros potentially kind and kind sense EX the the aircraft. of ordering of and experience filters was for customer line how

asset, and are delivered we the fact half variant. has think initial wins I as see that translate hope look, earlier, from into appears operator to for for in and good little So a they that the going an move did the large which base competitiveness a I AXXX. the But a there program and of Bombardier year expect been been it into interesting interest customers that to operator enhance finished EX in has wins second for customer in product They’ve and year It by the over Boeing additional had Many Airbus to the a think Embraer campaign through the were plane E-Jet. the to of this some with now is we campaign go to do now near-term the C-Series flying starting that's express, what as perspective. recently disappointing time. EX we of the those partnership, still fundamentally, next bigger I the said the has

of potentially the perhaps Thank for the have road calculus the of C-Series you down campaign some early in is wins you from kind sitting where you’re change Do campaign? it the involved being internally still that now? Or right for on too that. to tell guys

to early AXXX's too not investment over would be it's it's be but say I’d Look, something point, at as the long-term. an for rule about asset this Yes. us to thinking probably – out I

change the coming Okay. rate bit, the yield. still treasury XX-year And of on space. the year-to-date and the up interest Very prepared little interest on below the that were The that environment amount rates switching noted incremental effect must then you of kind have remarks have come gears capital a X% of helpful. some into on

So that hungry, you perhaps some was could just whether experienced had capital kind there's kind I experience previously in kind but your help of a me and lower outflow been other understand guess at come of yield in rates of of opportunities. marginal

space was other year kind a year of before? treasury it kind of the little words in lower the capital yield amount than a the X% what last in or marginal of in the So is

I still – look in the imperceptible time. to plenty capital and I would say anything point aviation speaking perspective that asset. in was in be not frankly if are think from at this it would flows if our monitor, and a it of easy interested investing There's

Okay.

said? So to change the business you environment no rule from what

Correct.

Okay. you time. so That’s very the much helpful guys. Thank for

of Q&A End you. Thank

And Constantinople back like turn the now, I’d to floor over or closing remarks. to Frank for any additional

additional up We with I questions, to my if desk to call. look feel catching at on quarters next today. earnings us will you you. free joining for Thank you you have be Thank call. forward

your again and you, you Thank for gentlemen. conclude Thank That conference. participation. all ladies today’s does

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