Sentiment Analysis of the earnings transcript to help figure out if there are any bullish or bearish sentiments that could be gathered from it. We're doing ML and AI based analysis on the earnings call to get some more insights.
Please consider a small donation if you think this website provides you with relevant information
| Statement |
|---|
| We have returned this amount of capital despite the impact of COVID in 2020, the conflict in Ukraine in 2022, and the completion of a $31 billion M&A deal in between, demonstrating the tremendous cash generating power and resilience of AerCap |
| I am pleased to report another year of record earnings for AerCap |
| Adjusted net income came in at $2.4 billion and adjusted EPS at $10.73, and we generated a record operating cash flow of $5.3 billion |
| The MAX 8 is the 180 competitor from Boeing - that airplane is an excellent aircraft, and many operators will say it’s as good, if not better than the competing Airbus A320 aircraft |
| But as it pertains to aircraft leasing, it gives us a unique advantage over all of our competitors because they cannot offer the vital products that we can in conjunction with our aircraft |
| We continue to see tremendous value in the stock today and this latest authorization underscores our confidence in the outlook for 2024 and beyond |
| The manufacturers of those parts way back up the supply chain, who do the castings, are not going to increase that significantly anytime this decade, as far as I understand, so I think we will see the engine issues persist through the decade, and bear in mind that AerCap is the largest marginal supplier of spare engines to the world, which gives us of course an enviable position when it comes to engine leasing |
| In the meantime if you sell those assets, the residual business is actually better than it as before with a lower risk profile |
| On the trading side, we continue to see a healthy bid for aircraft from investors and other lessors and expect to see robust demand for aviation assets continuing throughout the year |
| This is one of the main reasons why I expect this favorable supply-demand dynamic to persist for many years to come |
| They have to pay the going rate, of course, but I think particularly on wide bodies, nearly everything extends in the last quarter, and on the narrows it’s very strong as well |
| We believe we can continue to produce strong results and outperform and will continue to vigorously pursue insurance settlements with the Russian insurers, as well as our own insurance claims |
| As the leading provider of all these assets in the market, AerCap is in a strong position to capitalize on these trends, increasing returns across the portfolio and driving growth in earnings |
| The combination of these favorable conditions is most evident today on our gain on sale line, which is the most immediate way to take advantage of this heightened demand |
| We are of course also increasing lease rates which support the continued strength in our operating cash flows and margins |
| Overall, we’re coming off a record year for AerCap in terms of revenues, earnings, EPS, operating cash flow, and return of capital to shareholders |
| Our total operating cash flow was around $1.4 billion for the fourth quarter, driven by continued strong cash collections, and as I mentioned earlier, it was $5.3 billion for the full year |
| We continue to maintain a strong liquidity position |
| Basic lease rents were $1,576,000,000 - that reflects continued strong cash collections, and we also continued to benefit from power-by-the-hour rents from our lessees that are in PBH arrangements in their leases |
| AerCap had a record performance for the fourth quarter |
| AerCap’s platform is clearly the best in the business |
| To wrap up, AerCap’s book value per share ended the year above $83, growing by 25% last year, and as Pete will reference shortly, we remain confident in our ability to grow it even further in the year ahead |
| While gains on sale represent the strength of our portfolio, a trend we see continuing is our consistently strong cash flows, which form the bedrock of our earnings and capital deployment |
| This is leading to consistent returns for AerCap shareholder and an upward trajectory in our credit rating, where are on positive outlook with both S&P and Moody’s |
| In fact, the reality is that by selling our less desirable asset and recycling that capital into a stronger company at a discount, we are actually improving AerCap’s risk profile, assets and returns at the same time |
| We have demonstrated for more than 10 years in a row that the market value of our assets is much higher than our book values would imply, as we generated over $1.9 billion of gains on sale in that period |
| Given the continued strength of the business and consistent cash generation, I am also pleased to announce another $500 million share repurchase program, taking total authorizations in the last 12 months to over $3 billion |
| Really, that’s a function of how the business has performed - it’s both the resilience that we showed through COVID, through Russia, through all of those things, the improved credit profile of the business coming out of the GECAS acquisition, but also the fact that if you look at any operating metric, whether it’s operating cash flow, net spread, whether it’s FFO to debt, any of those things that are meaningful for the rating agencies, we’re outperforming the competition by a big stretch |
| These strong cash flows allowed us to buy back over $2.6 billion of stock or 18% of the company between March and December 2023, while at the same time we de-levered AerCap’s balance sheet in doing so |
| You can see this confidence in the future of our business demonstrated by the new $500 million share repurchase authorization that we announced today |
| Statement |
|---|
| In an ordinary environment, this would be expected to cause some minor delays to the earliest equipment; however, as a result of the already stressed MRO network, the shortage of parts and labor, and further compounded by the recent Pratt & Whitney powdered metal issue, this is stretching engine turnaround times to over one year in some cases |
| These issues persist today and will continue to do so into the future |
| I’m having some terrible phone problems, so I apologize if I drop |
| I missed part of the call because of these issues |
| As we have consistently said for some time, demand continues to outstrip supply for aircraft, for engines and for helicopters |
| Finally, the third major factor impacting supply today came as a result of the reduction in shop visit activity in 2020 and 2021 - this is for both aircraft and engines |
| I mean, fundamentally if we’re selling older assets that may have higher yields, we are--you know, you lose that revenue, right, so that can affect the net spread |
| Once we move out of the PBH period, we only recognize the straight-line fixed rent, so as a result, we’ll record lower revenues from these leases in 2024 even though we’re receiving more cash, and the effect of those revenues is around $0.70 a share after tax |
| Naturally, this had a significant impact on the MRO network, which reacted by cutting capacity and headcount to stay in business |
| Similarly, our net spread less depreciation also went down because we accelerated depreciation on some older aircraft during the quarter, where we eliminated the return condition on the leases, so while that leads to a higher depreciation expense, it also leads to higher maintenance revenue, which is also not part of net spread |
| Where Boeing falls down, though, is that the MAX 10 has not yet been certified and it’s not as capable an airplane even when it is |
| The first dates back to the grounding of the 737 MAX in March 2019, which resulted in significant cuts to Boeing’s narrow body production rates, followed by COVID in 2020 where production rates across the board were cut by Boeing and Airbus |
| In 2024, we expect to have a higher effective tax rate, which I’ll talk about in a moment, so that’s a headwind of around $0.57 a share in 2024 compared to 2023 |
| On the net spread, the net spread decreased in the fourth quarter because we brought forward some interest cost through the early refinancing of some bond maturities |
| It does not win as much on the A320 product |
| The engine MRO, though, here’s the big issue - there’s a finite supply of parts to build and repair engines |
| As a follow-up, as we think about the secondary market here for 2024, I think you said in response to an earlier question, there’s been a slight fall in interest rates |
| Moving forward to 2023, it is clear from the chart on the left that production rates are still yet to fully recover and remain approximately 20% below 2018 levels, so whilst there is plenty of discussion about when the OEMs will return to their pre-COVID output rates, many seem to overlook the 2,700 new technology aircraft that simply have not been built in the last five years |
| We expect this dynamic to persist for many years |
| I mean, there are a bunch of things that move around here, and I think as we look out at the 7.2, we do have some significant questions about that, so that’s our estimate today but it could clearly move around a lot, given the OEM issues |
Please consider a small donation if you think this website provides you with relevant information