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Text: Earlier today, we published our results for the first quarter of 2021.
This includes, without limitation, statements regarding our future operations and performance, revenues, operating expenses, stock-based compensation expense and other income and expense items.
These statements and any projections as to the company's future performance represent management's estimates for future results and speak only as of today, May 6, 2021.
In addition, certain financial measures we may be using during the call such as adjusted net income before income taxes, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on equity are non-GAAP measures.
This release can be found in both the Investors and Press section of our website at www.
Unauthorized recording of this conference call is not permitted.
More than a year has passed since the state -- start of the COVID-19 pandemic, and we are beginning to see recovery in sight.
We're optimistic that as vaccine rates rise, travel restrictions are eased and as countries work independently and collectively to develop initiatives to enable free movement, we will see a further resurgence of air travel.
With that said, most of our airline customers are still grappling with the strain and limitations resulting from the ongoing pandemic.
Today in our comments, I hope it will be clear how we are growing and further differentiating our platform, while also supporting our airlines and how we see that benefiting us as we move forward.
For the first quarter of 2021, we are reporting $475 million in total revenues and diluted earnings per share of $0.70 a share, down 7% and 40%, respectively, compared to the prior year's prepandemic first quarter.
Our results this quarter were impacted by approximately $86 million of rental revenues we did not recognize in the quarter due to cash versus accrual basis revenue recognition and lease restructurings.
Greg will walk you through more specifics in his remarks.
We took delivery of approximately $600 million in new aircraft in the quarter, which is $200 million more than we originally anticipated.
87% of these deliveries by dollar value occurred in the last seven business days of March, providing minimal rental contribution for the quarter, but providing long-term rental contributions thereafter.
Our cash collections and lease utilization rate remained solid in the first quarter at 84% and 99.6%, respectively, albeit both slightly lower than what we saw in Q4.
To date, we have agreed to accommodations with approximately 63% of our lessees, with deferrals totaling approximately $243 million.
Importantly, however, our total deferrals, net of those that have already been repaid continues to improve.
As of today, our net deferrals stand at $131 million as compared to $144 million as of our last call in February, and almost half of all the deferrals we have granted to date have been repaid.
Our net deferrals represent less than 2% of our available liquidity at the end of the first quarter.
Furthermore, our overall cash flow from operations actually increased slightly this quarter compared to last year's prepandemic first quarter.
The pace of request for rent deferrals and lease restructuring from our airline lessees has slowed meaningfully.
We remain fully committed to helping our airline customers get through this pandemic, and our customer relationships are growing even stronger because of our help and commitment.
So in spite of short-term headwinds impacting our first quarter results, we remain long-term partners to the airlines, and our business is positioned to benefit.
In many cases, airlines have differentiated ALC from peers by choosing to continue operating Air Lease aircraft while, at the same time, rejecting leases of other lessors and returning their aircraft.
Other airline customers have chosen to defer their own orders and instead opt to lease aircraft from ALC, which remain -- will remain core to the airline's long-term fleet strategy for years to come.
As such, our lease placements remain strong at 95% of our order book placed on long-term leases for aircraft delivery through 2022 and 80% through 2023.
So looking ahead, we technically have OEM-contracted commitments to take delivery of 64 aircraft in the remainder of 2021.
But given continued OEM and pandemic delays, we currently expect to deliver approximately 44 aircraft, and that number could change.
We expect a range of approximately $3 billion to $4.3 billion in aircraft investments for the full year 2021.
As of today, we are anticipating approximately $1.2 billion of these deliveries to occur in the second quarter.
We continue to evaluate supplemental aircraft investment opportunities outside of our order book that are profitable and makes sense for ALC over the long term.
We're pleased that 787 deliveries have resumed.
And in the first quarter, we delivered one 787 to Air Premia in South Korea.
And more recently, we delivered two 787s to China Southern in April.
As you saw from our quarterly fact sheet release, we also delivered four 737-8MAX aircraft this quarter.
As it relates to the recent grounding notice issued regarding the electrical power system on the 737 MAX aircraft, we did have six aircraft delivered to our customers, subject to this order.
Boeing is working with the FAA to conclude the process required for operators to return the aircraft to service.
The actual work involved to accomplish the mandated service bolt-ons is expected to take just a few days per aircraft.
Until this process with the FAA is concluded, we may experience further delivery delays of the 787.
Despite these recent developments, we do have several customers who have expressed a desire to reactivate taking delivery of several MAX aircraft that we previously canceled with Boeing pursuant to our cancellation rights.
We're working with Boeing and those airline customers to reactivate those specific deliveries under favorable pricing and delivery terms.
As to aircraft sales in our management business, we do anticipate a resumption of our aircraft sales program targeting the second half of the year.
However, we anticipate our overall sales in 2021 will not reach prepandemic level.
As always, we are taking a disciplined approach to sales, analyzing the aircraft portfolio sales environment and the contemplated gains on those sales as against keeping these good earning assets for a bit longer as they approach six to eight years of age.
And as we advised last quarter, we are growing our aircraft management business nicely.
In fact, in just a 100-day period, we sourced in the secondary market over $600 million of aircraft suited specifically for Blackbird Capital II, of which two delivered in the first quarter and the remaining aircraft will deliver over future quarters.
Furthermore, we have entered into another management platform agreement with one of the previous investors in Thunderbolt to acquire aircraft and have sourced seven new aircraft for that investor through airline sale-leaseback transactions for forward deliveries.
This is an additional attractive and growing management platform that dovetails exactly what we told you last quarter in mirroring or coupling sale-leaseback transactions with direct placements from ALC's order book.
Most recent example of this was the placement of four new A320neos with Volaris in Mexico, two from ALC's order book and two from sale-leasebacks, a transaction we announced on April 26.
And finally, as we look around the world, we are mindful of our social and environmental responsibilities, and we are taking active steps on these fronts.
The scope and magnitude simply defy description.
As such, I'm proud to announce that ALC is donating $100,000 to the relief efforts in India.
We are expanding such initiatives.
In fact, our ESG committee has several projects and efforts under consideration that we believe will further aid our planet and the human condition.
Over the last decade, Air Lease has focused on growing our company organically to now over $25 billion in assets, and our fleet and order book are comprised of the aircraft we personally selected.
There's been a lot of attention in recent weeks to size and scale and to interplay that with our ability to deal and negotiate with the manufacturers and airlines.
There is not one right answer for what is the right size for an aircraft lessor.
But what has been validated during the pandemic is that ALC has the asset strategy that aligns to the industry needs and desires.
And that our existing fleet size and order book, together with our deep knowledge of the assets and fleet planning expertise and the relationships that we've built over multiple decades, makes us a valued partner to our customers and the OEMs. And this gives us tremendous confidence in our future.
Looking at the airline landscape.
As you can take away from the daily headlines at recent public reporting from us and many other companies, the current operating environment is very dynamic.
While deferrals and restructuring agreements are not ideal in any environment, we are pleased to say that it is clear from our conversations that airlines want to keep our aircraft as the backbone of their fleets.
And as such, we are working together to come to commercial arrangements on how to proceed.
Not every leasing company is in the same advantageous position as ALC in this regard, and it is an important differentiator in this type of environment.
We remain very focused in the coming months and years as the outlook for the return of air travel driving airline decisions today.
Even though many countries are still trying to gain control of the pandemic, we are moving in the right direction in comparison to where we were a year ago.
For us here in North America, there's no better example than what we're seeing on the heels of increased vaccination rates.
In the United States last year, at this time, TSA was seeing below 200,000 passengers a day.
And as of this last Sunday, the TSA had over 1.6 million passengers pass through their security checkpoints.
And this is with very limited international and business travel.
We believe that this will be further propelled if vaccinated Americans can travel to the EU this summer, as was mentioned by the President of the European Commission a few days ago.
Outside of this broader announcement, while certain parts of Europe are still under vast restrictions, we are beginning to see individual countries change course selectively and carefully, announcing dates for reopening subject to negative test results prior to entry, in some cases, vaccination and other criteria.
For example, Greece recently announced that it is reopening its doors to COVID-free tourists from more than 30 countries as they take the so-called baby steps back to normalcy.
We recently heard from our friends at United, Delta and American that they will be introducing flights to capture the pent-up demand for travel to many of these destinations that are opening up.
We've seen similar announcements from countries like Iceland, allowing tours from certain countries and Croatia, allowing vaccinated travelers that are incoming.
Outside of Europe, places like Israel and selected countries in Asia have also announced that they will allow limited groups to start arriving at the end of May and early June, subject to certain requirements.
Countries are also working bilaterally to find ways to allow the flow of air travel despite of the pandemic.
For example, in mid-April, Australia and New Zealand opened a quarantine-free travel corridor.
And you're hearing similar agreements being discussed by other countries.
For instance, the United Kingdom and Israel have mentioned a possible green travel corridor, while similar talks are now in process between the U.S. and the United Kingdom.
In addition, countries are exploring ways to digitize and simplify proof of COVID-19 vaccination or negative test results or both, sometimes referred to as a vaccine passport.
This scheme would allow travelers to satisfy entry requirements more easily.
We believe that these initiatives and others will be vital to restoring intercontinental leisure travel and gradually business travel as the year progresses.
Importantly, as the world emerges from the pandemic and people can travel more freely, many millions will have the means to do so.
It was recently reported that consumers around the world had accumulated an extra $5.4 trillion of savings since the pandemic has begun, and we've heard executives across a broad spectrum of industry discussing pent-up demand that they believe exists.
Since our last call alone, we have delivered a number of aircraft customers around the world who are modernizing their fleets and rightsizing their fleet composition in anticipation that air travel will recover over the coming several quarters.
For example, John mentioned the two 787-9 aircraft that we recently delivered to China Southern and Air Premia in Korea took another 787-9s.
In addition, we delivered the first of what will be five new 737 aircraft to Belavia, the national carrier of Belarus.
These aircraft will replace the airlines aging Boeing 737-300 and 737-500 aircraft.
We also delivered our third 737-8 to Cayman Airways in the Caribbean, the national flag carrier of Cayman Islands, which is retiring its last 737-300 aircraft and replacing it with our new 737-8 model, and the first of which, 10 737-8 aircraft that we just delivered to Blue Air in Romania.
Blue Air is a ULCC carrier in Eastern Europe, which is also accelerating the retirement of their classic fleet of 737-300s and 500s in favor of more environmentally friendly and economic narrow-body aircraft.
On the Airbus side of the equation, we delivered one new A321neo LR aircraft to Air Astana, the flag carrier of the Republic of Kazakhstan.
This is the airline's fifth new A321LR on lease from ALC.
In addition, we delivered one new A321neo LR also to Air Arabia, which is now operating six A321-200neo LRs on lease from ALC.
These illustrate examples to show a broad range of customers taking delivery of our aircraft and how they are utilizing these aircraft to adjust and modernize their fleets.
Looking forward, we're also starting to see an uptick in lease rentals on certain desirable aircraft types, particularly the A321neo, of which ALC is the largest order book of any aircraft lessor.
The A321neo and its longer-range variants, the A321LR and soon to enter service, the XLR, are taking place of smaller twin-aisle aircraft on transatlantic and intercontinental medium-haul routes, in addition to expanding basic route networks of many LCC and ULCC operators.
We have also placed our first 15 Airbus A220-300 aircraft from our 50 aircraft per motor of that type.
Our A220 deliveries will commence in the second quarter of 2022.
While wide-body aircraft remains somewhat challenged, let me emphasize what I said at the beginning of my remarks.
Specifically, that our young, fuel-efficient aircraft have a definitive advantage and that a number of airlines have kept our wide-body aircraft as the backbone of their wide-body fleet at the expense of other lessors.
Recent examples include Aeromexico, Malaysian Airlines and Virgin Atlantic.
Our forward placements and deliveries of wide-bodies are proceeding on track with airlines such as Delta and a number of international carriers.
In fact, ALC only has one unplaced A330neo from our order book and a very small number of A350s and 787s, which are now in process for future placement.
On the used aircraft side, our young fleet of 777-300ERs and A330-200s and 300s remain well placed with our customers, with only a modest number of lease expirations in the next 12 to 24 months, all of which are manageable.
We've also successfully extended the leases on a number of our 777-300 aircraft in the last six months.
Finally, let me add one additional comment to John on the 737 MAX program.
The recertification of the MAX by China and Russia is still pending.
China, in particular, is a very large marketplace for the 737 family and the MAX.
Russia is also an important customer in this regard.
Recovery of the Boeing 737 program will not be complete until these countries certify and can obtain clearances to operate the 737 MAX in their country and for overflights.
ALC has several 737s on future delivery where our lessees require Russian and/or Chinese certification.
ALC remains fully committed to the 737 program, but I do feel compelled to point out that these remaining obstacles, including the very frustrating current grounding, need to be overcome by Boeing with haste.
The progress of U.S.A. and European summer traffic growth will also play a role in the pace of new 737 absorption by airlines for the remainder of 2021.
The U.S.A. looks well positioned for domestic summer travel recovery, while the extent of Europe aircraft and traffic recovery over the summer remains less certain.
But in the next coming weeks, we will have more visibility on that.
I know it's been a long year and that the longevity of this pandemic has exceeded all expectations.
However, I'd like to point out that I firmly believe that like other downturns in our industry, which has been experienced, recovery will recur and, in fact, is occurring in phases by domestic and international travel, by country and by region.
We at Air Lease Corporation have not underestimated the impact of the pandemic, and you are seeing that in how we are managing our business and dealing with our trusted airline customers.
But at the same time, we're also not losing sight of what lies ahead and how we best position our business for the months and years to come.
Let me expand a bit on the details underlying our financial results for the first quarter.
I'd like to remind everyone that for comparison purposes, the first quarter of 2020 was relatively unaffected by the COVID-19 pandemic.
As you would expect, the following COVID-related factors have continued to impact our performance in the first quarter of 2021.
As John mentioned, revenues were impacted by $86 million from the lease restructuring agreements and cash basis accounting, of which $49 million came in from lessees on a cash basis, where the lease receivables exceeded the lease security package and collection was not reasonably assured.
This compares to $25 million in the third quarter and $21 million in the fourth quarter of last year.
In total, our cash basis lessees represented 15.3% of our fleet by net book value as of March 31, as compared to 7.8% as of December 31.
The increase in rental revenue not recognized for the first quarter was primarily driven by a few customers with whom we are working forward -- working toward reaching a resolution.
Although we will not be going into details on these specific customers, it is important to note that one of our larger customers in this group has committed that they will repay our receivable balance.
I want to reiterate the fact that we are receiving cash payments from all of our cash basis lessees and that a majority of them are in some form of restructuring, and have expressed that they desire to keep our aircraft.
We remain hopeful that the remaining lessees will emerge from their restructurings in the not-too-distant future and that we can return to recognizing revenue on an accrual basis.
It remains very difficult to predict the cash collections from these customers.
And notably, the first quarter was more challenging than we expected.
However, we continue to believe that this recovery will be closely tied to improving passenger traffic and rising ticket sales.
The remaining $37 million is from lease restructuring agreements, the majority of which went into effect in 2020.
Our lease restructurings are focused on situations where we believe the merits of the restructurings, including lease extensions and other considerations, outweigh these associated adjustments being made.
Our total deferrals, net of repayments to date, is approximately $131 million, of which is down 9% from $144 million as of our last call in February.
Since our last call, repayment activity has continued, with total repayments of $112 million or 46% of the gross deferrals granted and is reflected in our operating cash flow.
I also want to reiterate that we believe our accommodations remain manageable and relative to our liquidity position.
A final note regarding aircraft sales was that we sold new aircraft in the first quarter of this year as compared to three aircraft that we sold in the prior year as part of our Thunderbolt III transaction.
As John indicated, we anticipate that the resumption of our sales program is at a reduced scale during the second half of the year.
Interest expense increased year-over-year, primarily due to the rise in our average debt balances, driven by the growth of our fleet and an increase in our liquidity position, partially offset by a decline in our composite cost of funds.
Our composite rate decreased to 3% from 3.2% in the first quarter of 2020.
Depreciation continues to track the growth of our fleet, while SG&A remained relatively low compared to last year, down 5%, representing 5.7% of total revenues.
The primary driver here is the continued low operating and transactional-related expenses, which continue to remain constrained in the current environment.
While this quarter's results continue to be impacted by the pandemic, we do see light at the end of the tunnel.
Despite the current stresses in the marketplace, we continue to generate positive margins and returns on equity, which should improve as our customers come off cash basis as the world continues to recover from the pandemic.
Turning to capital allocation.
We have maintained our dividend policy and our Board has extended our share buyback authorization of $100 million through the end of December 2021.
Although we have not repurchased any shares to date, we continue to look at the best opportunities to generate long-term results for our shareholders by evaluating all of our capital deployment options.
Lastly, I want to touch on financing, which continues to provide us a significant edge over our competition.
We are dedicated to maintaining an investment-grade balance sheet.
Utilizing unsecured debt is our primary form of financing and have $23.7 billion in unencumbered assets at quarter end.
And we ended the year with a debt-to-equity ratio of 2.5 times.
In addition to the senior unsecured note issuances we completed in January at a record low of 0.7%, we returned to the preferred market in February for our second raise in the space, issuing $300 million of perpetual preferred stock at a rate of 4.65%.
Preferred equity is attractive as a component of our overall funding mix, offering favorable rates for long-term capital in support of our fleet growth, funding diversification and favorable rating agency treatment.
Finally, as just announced last week, we extended the final maturity of our bank revolver to 2025 and upsized the facility by an additional $200 million, bringing our total revolving unsecured line of credit to $6.4 billion.
We continue to anticipate maintaining elevated levels of liquidity until the broader aviation market recovers, and we are well positioned from an opportunistic aircraft investments as opportunities arise.
As mentioned, ALC continues to have a robust liquidity position with $7.5 billion of available liquidity at the end of the first quarter and continue to access the investment-grade markets.
As we have always commented, our investment-grade credit ratings are sacrosanct to us.
And you have seen our commitment to the investment-grade rating via how conservatively we run our business.
With that in mind, we are pleased to report that in early April, S&P reaffirmed our BBB rating and changed our outlook to stable from negative.
As I shared in the past, our balance sheet was originally designed to support $6 billion in aircraft investments annually, and we are well above what we anticipate taking in 2021, leaving us plenty of dry powder to explore further opportunities.
Before I conclude, I would like to note that we expect to file a new shelf registration statement in the upcoming days to renew our expiring shelf.
To be clear, this upcoming filing is being made to renew our existing shelf that expires under SEC rules next week.
Consistent with previous filings, the new shelf will primarily allow us to continue to make opportunistic bond issuances.
This concludes management's remarks.

user
qtrly earnings per share $0.70.
took delivery of 10 aircraft from our orderbook, representing approximately $602 million in aircraft investments in q1.
do not anticipate that aircraft sales activity will return to pre-pandemic levels during 2021.

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