Good afternoon, my name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Air Lease Q1 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. I will now turn the call over to Mr. Jason Arnold, Head of Investor Relations. Mr. Arnold, you may begin your conference.

Thanks, Audra, and good afternoon, everyone, and welcome to Air Lease's first quarter 2025 earnings call. This is Jason Arnold. I'm joined today by John Plueger, our Chief Executive Officer and President; and Greg Willis, our Executive Vice President and Chief Financial Officer. Earlier today, we published our first quarter 2025 results. A copy of our earnings release is available on the investor's section of our website at www.airleasecorp.com. This conference call is being webcast and recorded today, Monday, May 5, 2025, and the webcast will be available for replay on our website. At this time, all participants to this call are in listen-only mode. Before we begin, please note that certain statements in this conference call, including certain answers to your questions, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. This includes, without limitation, statements regarding the state of the airline industry, the impact of aircraft and engine delivery delays and manufacturing flaws, our aircraft sales pipeline, and our future operations and performance. These statements and any projections as to our future performance represent management's current estimates and speak only as of today's date. These estimates involve risks and uncertainties that could cause actual results to differ materially from expectations. Please refer to our filings with the Securities and Exchange Commission for a more detailed description of risk factors that may affect our results. Air Lease assumes no obligation to update any forward-looking statements or any information in light of new information or future events. In addition, we may discuss certain financial measures such as adjusted net income before income taxes, adjusted diluted earnings per share before income taxes, and adjusted pre-tax return on equity, which are non-GAAP measures. A description of our reasons for utilizing these non-GAAP measures as well as our definition of them and the reconciliation to corresponding GAAP measures, can be found in the earnings release in 10-Q we issued today. This release can be found in both the investors and press section of our website at www.airleasecorp.com. Similar to last quarter, given ongoing litigation, we won't be able to take any questions about our Russia fleet insurance claims. Lastly, as a reminder, unauthorized recording of this conference call is not permitted. I'll now turn the call over to our Chief Executive Officer and President, John Plueger. John?

Well, thanks, Jason. Good afternoon, everyone, and thank you for joining our call today. During the first quarter, Air Lease generated revenues of $738 million and $3.26 in diluted earnings per share. Results benefited from the continued expansion of our fleet, strong gain-on-sale revenue, and Russia fleet insurance settlements. We were very pleased to receive insurance proceeds of $329 million during the first quarter, and we have received an additional $227 million just last week. Relative to last year's first quarter, results were partially offset by higher interest expense as compared to the prior year, along with recognizing expenses related to Steve Hodge's retirement. Overall, total revenue, fleet net book value, and book value per common share reached all-time record levels in our company's history during the first quarter. Greg will provide more detail and color on our financial results in his remarks. We purchased 14 new aircraft from our order book during Q1, adding roughly $800 million in flight equipment to our balance sheet, and sold 16 aircraft for $521 million in sales proceeds. The weighted average age of our fleet rose slightly quarter over quarter to 4.7 years, while weighted average lease term remained unchanged at 7.2 years. Fleet utilization remains at 100%. Our outlook for deliveries this year remains consistent with what we told you last quarter, at $3 billion to $3.5 billion of new aircraft delivered from our order book, and we are expecting around $800 million of deliveries for the second quarter. I do want to note that we've recently received additional delay notifications from Airbus, primarily impacting our 2027 and 2028 A320 and A321neo deliveries by about a year, which you can see reflected in our expected deliveries table in our 10-Q. Our sales pipeline remains solid at $741 million, all contracted at healthy…

Thank you very much, John, and good afternoon, everyone. During the first quarter, Air Lease generated total revenues of $738 million, which was comprised of approximately $645 million of rental revenue and $93 million of aircraft sales, trading, and other activities. Rental revenue rose 5% relative to the same quarter last year, and lease yields remained essentially flat relative to that period, though rose modestly relative to the fourth quarter. Rental revenues benefited from the growth of our fleet, offset by approximately $13 million less in end-of-lease revenue as compared to the prior year. We continue to anticipate lower levels of end-of-lease revenue due to higher extension rates, though as an offset, we should continue to benefit from these assets as we negotiate higher lease rates on extensions, which ultimately support higher values when it comes time to sell the aircraft. We continue to expect the portfolio yield observed in our financial statements to continue to trend higher over the course of this year, as well as trend steadily higher over the next three or four years. Sales proceeds for the quarter totaled $521 million from the sale of 16 aircraft. These sales generated $61 million in gains, representing roughly a 13% gain on sale margin. We continue to expect to see healthy margins towards the upper end of our historical range of 8% to 10% based on the current sales pipeline. Strong gains continue to reflect the significant value embedded in our fleet, which we carry on the balance sheet at depreciated cost. Outside of gains on sale, the remainder of the sales, trading, and other line items consisted primarily of managed fee revenue and income earned from sales-type leases during the quarter. Moving on to expenses, interest expense rose by approximately $28 million year-over-year, driven by a 23-basis…

Thanks, Greg. This concludes our prepared commentary and remarks. For the question-and-answer session, we ask each participant to limit their time to one question and one follow-up. Audra, please open the line for the Q&A session.

[Operator Instructions] We'll go first to Catherine O'Brien at Goldman Sachs.

So, John, I know you gave a detailed account of the latest encouraging conversations you've had with lessees around the globe post-tariffs. But are there any real-time examples of lease extensions or order book placements you could share that bolster your confidence that the airlines are continuing with business as usual on their longer-term fleet planning, post some of the tariff noise? Just on extension rates, or anything encouraging on where lease rates are on extensions or new lease placements? Thanks.

Sure. Well, I can give the example. Last week, for example, we signed an extension term sheet with a major airline in Asia on two A330-300s and one A321, with those A330-300 lease rates being, I would say, a full 50% or so above what they were previously. Now, previously, I have to note that those leases were extended during COVID. So, 50% sounds like a lot, but I want to tell you that it's reflecting effectively of a lower rate that was enacted during COVID. So that's just a recent example from last week, and we have others. We have currently some additional wide-body extensions that we anticipate closing this coming quarter, which we'll tell you about. And those have also a similarly nice step up from where they were before, or as a percentage of -- or above the current appraised lease rate estimates for each of those aircraft types.

That’s great. And I know you said you can't take any questions on the ongoing litigation of your Russia insurance claims, but you've made several references to any potential future settlements in the press release. You've got 82% already recovered. I guess we assume that's not the final number. Is the intention to pursue the full remainder of the claims? Thanks for that.

All I can tell you is that we have a process that's ongoing, and we are in litigation, so I really can't comment any further. However, a total additional capital that we would be looking for allocation is dependent upon totally what we have available, and that the insurance recoveries have been significant, and we, therefore, want to remain -- we wait and see how much more, if any, we'll be getting during the course of the next several months or year, whatever -- however long it takes.

We'll move to our next question from Hillary Cacanando at Deutsche Bank.

Thanks for taking my question. In terms of capital allocation, would you be able to just talk about, like, your priority, whether it -- would it be buyback or M&A or increased dividends or, et cetera, and what are you watching or considering to make that decision? And would that decision come in the third quarter or fourth quarter? Thank you.

Well, I would say we are still considering all of the above. I said in my remarks, we're including organic and inorganic growth as well as share repurchase. So, it's hard to indicate where we would fall on those. We have a number of things that we're looking at. It just requires a bit more patience, and we are awaiting some more insurance developments as they may happen. So, I can't really tip the hat today as to which way we would be looking to, but suffice to say that everything is under consideration today.

Got it. Thank you. And then just regarding tariffs, as you mentioned, you said airlines are the ones that have to pay the tariffs, as they take delivery and cross the border. But do you expect airlines to reach out to you and kind of ask you to work with them to kind of ease the burden and kind of provide some sort of solution with tariffs? Do you expect to work with them? Thanks.

Let me reemphasize what I said in my prepared remarks, that as of today, we have no aircraft delivery scheduled to any country that's announced a reciprocal tariff on Boeing aircraft. Should that come in the future, airlines could ask for anything, and we will talk with those airlines, but clearly, it's their contractual responsibility. In terms of Airbus deliveries, for example, this year, we have three airplanes going to a U.S. airline, but those airplanes are all being built in Mobile, Alabama, so they're not being imported; they're domestic purchased aircraft. So, so far, the answer is no, nobody has come to us. I don't anticipate it, especially I don't expect it after my travels in Asia and Europe, because I think demand is very, very strong. So, look, we'll have to see as the time comes, but that's why I also cautioned about too much speculation looking forward. This is a very unfolding situation, but I do think it's going to be resolved.

Thank you very much.

We'll go next to Moshe Orenbuch at TD Cowen.

Thanks, John. You talked a little bit about the potential for share repurchase, and you also, in your prepared remarks, alluded to organic growth opportunities. I was hoping you could maybe drill down on some of that possibility. I mean, it felt like in the past you kind of shied away from a lot of that just because you had to keep the capital there in case the order book delivered in line with expectations. Now you'll be a little bit more flexible, I would assume, in terms of pursuing other sorts of things. And if you could kind of just talk about that a little bit.

Yeah, we are very flexible. Thanks, Moshe, on considering other things. There's just a wide variety of possibilities. And you've cited organic growth. That is a possibility, but I won't say it's a probability necessarily. We buy airplanes when the time is right. There are some used aircraft fleets or segments of fleets which may, in fact, become available. We would be compelled to look at that as another example, not just order book additions. So, I would just say that we are very carefully considering all these categories of forward capital allocation. We're very happy to have that flexibility. I don't know, Greg, do you have any other color you'd like to add?

I would just add that on the order book side, it's a little bit more challenging, as John indicated, just given how full the Boeing and Airbus backlogs are. And I think you look to see us have a lot of discipline around ordering new aircraft. And we order when the pricing is right. And when the order books are full with airline orders, it's hard to extract the most amount of value. So, of the options, that one's harder to get to, but we have to look at everything.

Let me add one more comment, Moshe. Of course, China's position on taking Boeing aircraft. And you know that Boeing is reacting accordingly. So, for example, I'll just give you a hypothetical. There could be some of the Chinese aircraft that were built or nearly completion being built. And if we were to be approached or have a discussion with the Boeing company and or other airlines who may want those aircraft, given the right deal, that's an example of an opportunity that we might explore for organic growth.

And maybe just as a follow-up, I know it's early since this is only the first quarter since you announced kind of the expectations of yield improvement over a multi-year period. But can you maybe, you or Greg, put in context, how you feel about Q1 relative to that and how we should think about the progression and calendar '25?

Yeah, Q1 was tracking our models nicely, and things are, the new placements and the extensions are all going according to plan. So, we're trending very nicely towards our internal targets that allowed us to make those longer-term projections.

Thanks, so much.

Our next question comes from Jamie Baker at JPMorgan.

Hey, this is James on for Jamie. First question, just a simple two-part credit question, I guess. Is the leverage target reaffirmed at 2.5 or is that going to come lower now that you've met it? And then just on the revolver upsize, was that procedural or was it opportunistic? Is there anything to reading to that there?

Sure, I'll take it. The revolver, we tend to amend and extend every single year. We've been growing it every single year, and we've had a lot of bank demand, and that's why we increased the size to 8.2. It provides us a ton of liquidity. So, we feel very good about that. And then, James, can you remind me your first question?

Yeah, just in the leverage target.

Yeah, no, our leverage targets been 2.5 since we incepted the company, and there's been no change to that target.

And then my second question on the last earnings call, you mentioned the opportunity for a new managed structure vehicle. I'm just wondering if there's anything in the macro that would impact timing of that structure being set up or, just anything, any color you share there?

All I can say is that the managed vehicles take a long time to put together. We look at a lot of options, and it's something that we've been wanting to do for a while is to increase our managed fleet, especially at some of the older vehicles mature.

And next, we'll move to Stephen Trent at Citi.

Good afternoon, gentleman. Thanks for taking my question. The first kind of a follow-up on Moshe's question. Could you help me understand on the net margin expectations you'd sort of previously telegraphed that they should be kind of flattish year on year. I know in 1Q, they actually improved a little bit, but any high-level view on how your thinking has changed there, or maybe not changed, excluding the receipts from the insurance and what have you? Thank you.

Stephen, there's no change to our expectations for profitability this year.

And just as a follow-up, I was trying to understand your pre-tax margin went up year on year, but if I'm reading this directly, your pre-tax return on common equity went down a little bit. And I was just wondering if that's timing related with the Russia claims that came in, or if there was something else happening. Thank you.

Yeah, I think it's important to look at the adjusted numbers, but I think what's driving the differential between margin and ROE is the fact that ROE is a trailing 12-month figure and that gets skewed by the timing of aircraft sales.

And that concludes the question-and-answer session. At this time, I'll turn it back over to Mr. Arnold for any closing remarks.

Thanks, everyone, for joining our first quarter call. We look forward to speaking with you again next quarter. Audra, thanks very much for your assistance.

You're welcome. And this concludes today's conference call. Thank you for your participation. You may now disconnect.