Air Lease (AL) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q4 2024, Air Lease Corporation generated revenues of $713 million, with diluted earnings per share at$0.83, benefiting from fleet expansion but offset by lower end-of-lease revenue compared to the prior year [9][48] - Full-year 2024 revenue and ending fleet net book value reached record levels in the company's history [9] - Interest expense rose by approximately $38 million year over year, driven by a 37 basis point increase in the composite cost of funds to 4.14$1.3 billion in flight equipment, and sold 14 aircraft for approximately $540 million [10][50] - Fleet utilization remained robust at 100$2 billion in 2025 [13][26] - Air Lease Corporation aims to return to a target debt-to-equity ratio of 2.5 to 1 by the end of 2025, considering various capital allocation avenues post-target achievement [26][68] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about achieving mid-teen adjusted pre-tax ROEs within two to three years, contingent on lease and interest rate developments [64][108] - The company expects a steady upward trajectory in fleet lease yields over the next several years, driven by higher lease rates on extensions and the roll-off of lower-yielding leases from the pandemic [23][59] Other Important Information - The company reported a solid sales pipeline of $1.1 billion, with expectations of approximately$1.5 billion in overall sales for 2025 [25] - Air Lease Corporation donated $500,000 to LA City and County Fire Departments in response to recent fires in Los Angeles [30] Q&A Session Summary Question: What gets the company back to mid-teen adjusted pre-tax ROEs? - Management believes achieving mid-teen ROEs is possible within two to three years, considering various positive and negative factors [64][66] Question: What capital allocation options are being considered? - Once the debt-to-equity target is reached, the board will consider multiple scenarios, including potential stock buybacks [68][69] Question: Will net spread margin increase with planned funding needs? - For 2025, the expectation is to maintain similar levels to 2024, depending on interest rate developments [72] Question: Are lease renewals improving in the current environment? - Lease rates for extensions are expected to be higher than initial terms, indicating a strengthening environment [96] Question: What is the outlook for aircraft supply normalization? - Management does not foresee normalization of aircraft supply for several years, citing ongoing production challenges [119] Question: How long will it take for the industry to recover from supply shortages? - The timeframe for recovery has been extended, with significant constraints noted in engine availability and production capacity [126] Question: Will older aircraft leases last longer due to supply constraints? - Yes, airlines are keeping older equipment in service longer, which may extend lease durations [130] Question: Is there a need for a third aircraft supplier? - There is potential for a third supplier, but it would require a partner with financial resources and a viable engine solution [134]